As filed with the Securities and Exchange Commission on May 16, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACTION PERFORMANCE COMPANIES, INC.
(Exact Name of Registrant as Specified in its Charter)
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ARIZONA 5092 86-0704792
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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2401 West First Street
Tempe, Arizona 85281
(602) 894-0100
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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FRED W. WAGENHALS Copies to:
Chairman of the Board, President, Robert S. Kant, Esq.
and Chief Executive Officer Jere M. Friedman, Esq.
2401 West First Street O'Connor, Cavanagh, Anderson,
Tempe, Arizona 85281 Killingsworth & Beshears, P.A.
(602) 894-0100 One East Camelback Road
(Name, address, including zip code, and telephone number, Phoenix, Arizona 85012
including area code, of agent for service) (602) 263-2606
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Approximate date of Commencement of Proposed Sale to the Public: As soon
as practical after the Registration Statement becomes effective.
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, please 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. |_|
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Amount of
Title of Shares Amount to be Aggregate Registration
to be Registered Registered(1) Offering Price(2) Fee
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Common Stock(3).................. 1,000,000 Shares $ 16,565,250 $ 5,743.53
Common Stock(4).................. 300,000 Shares 4,996,875 1,723.06
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Total.................... 1,300,000 Shares $ 21,653,125 $ 7,466.59
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(1) All share amounts have been adjusted to reflect a two-for-one stock split to
be effected as a stock dividend payable on May 28, 1996 to holders of record
of the Registrant's Common Stock on May 13, 1996.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c).
(3) Such shares are issuable upon conversion of the Registrant's Class A
Preferred Stock issued in March 1995.
(4) Such shares are being registered for resale from time to time by certain
Selling Shareholders.
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Pursuant to Rule 429, this Registration Statement relates to the following
securities (as adjusted to reflect the two-for-one stock split to be effected as
a stock dividend payable on May 28, 1996) included in the Registrant's
Registration Statement on Form S-3 and amendments thereto (No. 33-79942) as
filed with the Commission on June 8, 1994 and declared effective on September
20, 1994: (a) 27,800 outstanding shares of Common Stock that are being
registered for resale from time to time by certain Selling Shareholders; (b)
49,998 shares of Common Stock issued upon conversion of the Registrant's 10%
Convertible Subordinated Debentures that are being registered for resale from
time to time by certain Selling Shareholders; and (c) 63,550 shares of Common
Stock issuable upon exercise of outstanding Bridge Warrants that are being
registered for resale by certain Selling Shareholders.
The 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(a) 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(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 16, 1996
PROSPECTUS
1,441,348 Shares of Common Stock
ACTION PERFORMANCE COMPANIES, INC.
This Prospectus relates to the following shares of common stock, par value
$.01 per share (the "Common Stock") of Action Performance Companies, Inc. (the
"Company") that may be sold by certain selling shareholders of the Company (the
"Selling Shareholders"): (i) 377,998 outstanding shares of Common Stock that may
be sold from time to time; and (ii) 63,550 shares of Common Stock that may be
sold from time to time upon exercise of certain non-redeemable warrants (the
"Bridge Warrants") that were issued in April 1993 in connection with conversion
of certain of the Company's Series A Convertible Notes, each of which entitles
the holder to purchase one share of Common Stock at a price of $3.30 per share
until April 27, 1998. This Prospectus also relates to 1,000,000 shares of Common
Stock issuable upon conversion of the Company's Class A Preferred Stock issued
in March 1995. To the extent required by applicable law or Securities and
Exchange Commission regulations, this Prospectus shall be delivered to
purchasers upon resale of such Common Stock by the Selling Shareholders. The
Company will not receive any cash consideration upon conversion of its Class A
Preferred Stock and none of the proceeds of sales by such Selling Shareholders
will be received by the Company.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ACTN." On May 6, 1996, the last sale price of the Common Stock as
reported on Nasdaq was $15.69 per share (as adjusted to reflect a two-for-one
stock split to be effected as a stock dividend payable on May 28, 1996).
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," WHICH BEGINS ON PAGE 5 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
New York Regional Office, Seven World Trade Center, New York, New York 10048,
and Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may be obtained from the Public Reference Section of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
following documents previously filed with the Commission pursuant to the
Exchange Act: (i) the Company's Annual Report on Form 10-KSB for the year ended
September 30, 1995, as filed by the Company on December 22, 1995 and as amended
on Form 10-KSB/A as filed by the Company on January 24, 1996; (ii) the Company's
Quarterly Reports on Form 10-QSB for the quarter ended December 31, 1995 as
filed by the Company on February 5, 1996 and for the quarter ended March 31,
1996 as filed by the Company on May 2, 1996; and (iii) the description of the
Company's Common Stock contained in the Registration Statement on Form 8-A/A as
filed with the Commission on June 14, 1995. All reports and other documents
subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein prior to the date
hereof shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The information relating to the Company contained in this Prospectus
summarizes, is based upon, or refers to, information and financial statements
contained in one or more of the documents incorporated by reference herein;
accordingly, such information contained herein is qualified in its entirety by
reference to such documents and should be read in conjunction therewith.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents referred to above that have been incorporated by
reference herein (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus incorporates). Requests should be directed to Action Performance
Companies, Inc., 2401 West First Street, Tempe, Arizona 85281, (telephone (602)
894-0100), Attention: Secretary.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information and financial statements, including the notes thereto,
incorporated by reference in this Prospectus. Unless otherwise indicated, all
information in this Prospectus (i) reflects a two-for-one stock split to be
effected as a stock dividend payable on May 28, 1996 to holders of record of the
Company's Common Stock on May 13, 1996, and (ii) assumes no conversion of the
Class A Preferred Stock or exercise of the Bridge Warrants or any other
presently outstanding or authorized options.
The Company
The Company designs and markets collectible and consumer products that
are intended to capitalize on the increasing interest in motorsports. The
Company currently designs and markets die-cast and pewter collectibles, which
are miniature replicas of motorsports vehicles and other items, and designs and
markets consumer items, which include drink bottles, key chains, and air
fresheners. The Company also develops product promotional programs that feature
its die-cast collectibles or other products as premium awards intended to
increase brand awareness of third parties' products. The Company markets its
motorsports collectibles and consumer products pursuant to license arrangements
with popular race drivers, car owners, car sponsors, and automobile
manufacturers. The Company's motorsports collectibles and consumer products are
manufactured by third parties, generally utilizing the Company's designs, tools,
and dies.
The Company's collectibles include high-quality, limited edition, scale
replicas of actual racing vehicles, transporters, pit wagons, and other
motorsport related items featuring discriminating attention to detail. The
Company strives to enhance the demand for and to increase the value of its
collectible products by offering limited numbers of each item. The Company sells
its motorsports collectibles and consumer products to retail dealers through a
wholesale distributor network and to members of its collectors' club, which
distributes magazines, catalogs, newsletters, and other sales materials
promoting the Company's products to club members. During 1995, the Company
strengthened its relationships with its wholesale distributor network and
significantly increased its emphasis on direct sales via its collectors' club,
advertisements in motorsports publications, and television advertising.
Historically, the Company has designed and marketed die-cast
collectibles that primarily feature drivers and vehicles that participate in the
National Association for Stock Car Auto Racing's ("Nascar") Winston Cup series.
In 1995, the Company began expanding its lines of die-cast collectibles to
include other types of motorsports vehicles, including drag racing and Nascar's
new "Super Truck" series. The Company focuses on developing long-term
relationships with and engages in aggressive efforts to license the most popular
stock car, drag racing, "Super Truck," dirt car, sprint car, and Indy car
drivers as well as car owners, car sponsors, car manufacturers, and others in
the motorsports industry. The Company has license agreements with many of the
most popular Nascar drivers, including seven-time Winston Cup champion Dale
Earnhardt and 1995 Winston Cup champion Jeff Gordon. During fiscal 1995, the
Company and an operating division of R.J. Reynolds Tobacco Company ("R.J.
Reynolds") entered into a non-exclusive license agreement that gives the Company
the right to include the "Winston Cup," "Winston Racing," and "Winston NHRA Drag
Racing" logos on the packaging for all of the Company's die-cast collectibles of
racing vehicles that participate in those programs. The Company believes that
its license agreements with notable Nascar and other motorsports personalities
and its affiliation with Winston Cup racing and other popular sponsors
significantly enhance the collectible value and marketability of its products.
The Company continually seeks to develop exciting and progressive new
products. During 1995, the Company introduced its line of 1:43-scale
hand-sculpted, high-quality pewter replicas. Recently, the Company also expanded
its line of die-cast and pewter collectibles to include replicas of the most
popular Chevrolet Corvettes produced during each of the years from 1953 to 1993
and replicas of the cars driven by each of the Winston Cup series champions
during the past 25 years.
The Company was incorporated in Arizona in 1992. As used herein, the
term "Company" refers to Action Performance Companies, Inc. and its subsidiaries
and operating divisions. See "Business - Development of the Company." The
Company's principal executive offices are located at 2401 West First Street,
Tempe, Arizona 85281, and its telephone number is (602) 894-0100.
3
<PAGE>
The Offering
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Securities Offered by the Company................... 1,000,000 shares of Common Stock.
Securities Offered by the Selling Shareholders...... 441,348 shares of Common Stock.
Common Stock Currently Outstanding.................. 11,488,472 shares.
Use of Proceeds..................................... Working capital.
Risk Factors........................................ Investors should carefully consider the factors
discussed under "Risk Factors."
Nasdaq National Market symbol....................... ACTN
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Summary Consolidated Financial Data
(in thousands, except share amounts)
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Years Ended Six Months Ended
September 30, March 31,
----------------------- --------------------------
1994 1995 1995 1996
---- ---- ---- ----
(unaudited) (unaudited)
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Operating Data:
Net sales............................... $16,869 $26,131 $7,775 $17,772
Income before (provision for)
benefit from income taxes............ 409 4,154 244 3,363
Net income ............................. 633 2,770 156 2,018
Net income per share and
common share equivalent(1)........... $ 0.08 $ 0.25 $ 0.02 $ 0.16
Weighted average number of common
shares and common share
equivalents outstanding(1)........... 9,639,946 11,570,046 8,872,422 12,948,412
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Balance Sheet Data: September 30, March 31, March 31, 1996
1995 1996 As Adjusted(2)
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(unaudited) (unaudited) (unaudited)
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Working Capital............................. $11,922 $13,179 $13,179
Total assets................................ 23,351 25,875 25,875
Capital lease obligation.................... 288 425 425
Shareholders' equity........................ 18,890 21,775 21,935
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(1) Adjusted to reflect the two-for-one stock split to be effected as a stock
dividend on May 28, 1996.
(2) Adjusted to reflect conversion of the Class A Preferred Stock and the
exercise of the Bridge Warrants.
4
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RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be carefully considered in evaluating the Company and its
business before purchasing any of the securities offered hereby.
Certain Factors That Could Adversely Affect Operating Results
The Company's operating results are affected by a wide variety of
factors that could adversely impact its net sales and operating results. These
factors, many of which are beyond the control of the Company, include the
Company's ability to identify trends in the motorsports collectibles and
consumer markets and to introduce products which take advantage of those trends;
its ability to identify popular motorsports personalities and to enter into and
maintain mutually satisfactory licensing arrangements with them; its ability to
design and arrange for timely production and delivery of its products; market
acceptance of the Company's products; the level and timing of orders placed by
customers; seasonality; the popularity and life cycles of and customer
satisfaction with products designed and marketed by the Company; the timing of
expenditures in anticipation of orders; the cyclical nature of the markets
served by the Company; and competition and competitive pressures on prices.
The Company's ability to increase its sales and marketing efforts to
stimulate customer demand and its ability to monitor third-party manufacturing
arrangements in order to maintain satisfactory delivery schedules are important
factors in its long-term prospects. A slowdown in demand for the Company's
products as a result of changing consumer tastes and spending patterns, economic
conditions, or other broad-based factors could adversely affect the Company's
operating results.
Any legislation to limit or prohibit advertisements of tobacco and
alcohol products at sporting events, including racing events, could ultimately
reduce the popularity of motorsports as a result of the significant amount of
advertising and promotional support of racing events, drivers, and car owners
currently provided by tobacco and alcohol companies. Any resulting reduction in
the current popularity of motorsports could have an adverse effect on the
Company.
Dependence on License Arrangements
The Company markets its collectible products pursuant to licensing
arrangements with race car drivers, race car owners, race car sponsors, and
automobile manufacturers. These licensing arrangements generally are limited in
scope and duration and generally authorize the sale of specified licensed
products for a short period of time. The success of licensing arrangements
depends on many factors, including the reasonableness of license fees in
relationship to revenue generated by sales of licensed products, the continued
popularity of licensees, and the absence of their sickness, incapacity, or
death. The termination, cancellation, or inability to renew any of its existing
licensing arrangements, or its inability to develop and enter into new licensing
arrangements, would have a material adverse effect on the Company. See "Business
- - Licenses."
Possible Need For Additional Capital
The Company believes that its existing capital resources and cash flow
from operations will be sufficient to satisfy the Company's capital requirements
during the next 12-month period. The Company, however, may be required to seek
additional equity or debt financing to provide guarantees under license
agreements, to obtain international letters of credit in connection with
purchase orders from its offshore manufacturer of die-cast collectibles, or to
provide funds to take advantage of business opportunities. The timing and amount
of any such capital requirements cannot be predicted at this time. There can be
no assurance that any such financing will be available on acceptable terms. If
such financing is not available on satisfactory terms, the Company may be unable
to expand its business at the rate desired and its operating results may be
adversely affected. Debt financing increases expenses and must be repaid
regardless of operating results. Equity financing could result in additional
dilution to existing shareholders.
5
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Competition
The motorsports collectible and consumer products markets are extremely
competitive. The Company competes with major domestic and international
companies, some of which have greater market recognition and substantially
greater financial, technical, marketing, distribution, and other resources than
the Company possesses. There are no significant barriers to entry to the
collectible and consumer products industries. Emerging companies also may
increase their participation in these motorsports markets. The ability of the
Company to compete successfully depends on a number of factors both within and
outside its control, including the quality, features, pricing, and diversity of
its products; the quality of its customer services; its ability to recognize
industry trends and anticipate shifts in consumer demands; its success in
designing and marketing new products; the availability of adequate sources of
manufacturing capacity and the ability of its third-party manufacturers to meet
delivery schedules; its efficiency in filling customer orders; the continued
popularity of the motorsports personalities with whom the Company has licensing
arrangements; its ability to renew existing licensing arrangements and enter
into new licensing arrangements; its ability to develop and maintain effective
marketing programs that enable it to sell its products to motorsports
enthusiasts; product introductions by the Company's competitors; the number,
nature, and success of its competitors in a given market; and general market and
economic conditions. The Company's promotional programs must compete for
advertising dollars against other specialty advertising programs and media such
as television, radio, newspapers, magazines, and billboards. The Company
currently competes principally on the basis of the current popularity of
motorsports; the appeal of its products; and the cost and design and delivery
schedules of its products. There can be no assurance that the Company will
continue to be able to compete successfully in the future. See "Business-
Competition."
Rapid Market Changes
The markets for the Company's products are subject to rapidly changing
customer tastes, a high level of seasonality and competition, and a constant
need to create and market new products. Demand for motorsports collectible and
consumer products is influenced by the popularity of certain themes, cultural
and demographic trends, marketing and advertising expenditures, and general
economic conditions. Because these factors can change rapidly, customer demand
also can shift quickly. New motorsports collectible and consumer products
frequently can be successfully marketed for only a limited time. The Company may
not always be able to respond to changes in customer taste and demand because of
the amount of time and financial resources that may be required to bring new
products to market. The inability to respond quickly to market changes would
have an adverse impact on the Company's operations. See "Business - Products and
Marketing."
Fluctuations in Sales
The second and third calendar quarters of each year generally are
characterized by higher sales of motorsports products because of the
introduction of new race car models for the racing season beginning in February.
Sales of motorsports products are lowest in the fourth calendar quarter,
corresponding with the end of the racing season. Seasonal fluctuations in
quarterly sales may require the Company to take temporary measures, including
increased personnel, borrowings and other operational changes, and result in
unfavorable quarterly earnings comparisons.
Dependence on Third Parties for Manufacturing
The Company depends upon third parties to manufacture its die-cast and
pewter collectibles and motorsports consumer products. Although the Company owns
most of the tools, dies, and molds utilized in the manufacturing processes, the
Company has limited control over the manufacturing processes themselves. As a
result, any difficulties encountered by the third-party manufacturers that
result in product defects, production delays, cost overruns, or the inability to
fulfill orders on a timely basis could have a material adverse effect on the
Company.
The Company does not have long-term contracts with its third-party
manufacturers. Although the Company believes it would be able to secure other
third-party manufacturers that could produce products for the Company as a
6
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result of its ownership of the molds and tools used in the manufacturing
process, the Company's operations would be adversely affected if it lost its
relationship with any of its current suppliers (including particularly its
China-based manufacturer of die-cast collectibles, which produced products
constituting approximately 89% of the Company's sales in its last fiscal year)
or if its current suppliers' operations or sea or air transportation with its
China-based die-cast collectible manufacturer were disrupted or terminated even
for a relatively short period of time. The Company does not maintain an
inventory of sufficient size to provide protection for any significant period
against an interruption of supply, particularly if it were required to utilize
an alternative source of supply.
International Trade, Exchange, and Financing
The Company obtains its die-cast collectibles under a manufacturing
arrangement with a third-party manufacturer in the People's Republic of China
("China"). The Company's reliance on the third-party manufacturer to provide
personnel and facilities in China, and the Company's maintenance of equipment
and inventories abroad, expose it to certain economic and political risks,
including the business and financial condition of the third-party manufacturer,
political and economic conditions abroad, and the possibility of expropriation,
supply disruption, currency controls, and exchange fluctuations as well as
changes in tax laws, tariffs, and freight rates. Protectionist trade legislation
in either the United States or foreign countries, such as a change in the
current tariff structures, export compliance laws, or other trade policies,
could adversely affect the Company's ability to purchase its products from
foreign suppliers or the price at which the Company can obtain those products.
The Company has not experienced any significant interruptions in obtaining its
die-cast collectibles from the third-party manufacturer to date. The Company
believes that production of its die-cast collectibles overseas enables the
Company to obtain these items on a cost basis that will enable the Company to
market its collectibles profitably.
All of the Company's purchases from its foreign manufacturer are
denominated in U.S. dollars. As a result, the foreign manufacturer bears any
risks associated with exchange rate fluctuations subsequent to the date the
Company places its orders with the manufacturer. Purchases of die-cast
collectibles from the foreign manufacturer generally require the Company to
provide an international letter of credit in an amount equal to the purchase
order. The inability to fund any letter of credit required by a supplier would
have an adverse impact on the Company's operations.
Dependence on New Products
The Company's operating results depend to a significant extent on its
ability to continue to develop and introduce new products on a timely basis
which compete effectively on the basis of price and which address customer
requirements. The success of new product introductions depends on various
factors, including proper new product selection, successful sales and marketing
efforts, timely production and delivery of new products, and consumer acceptance
of new products. There can be no assurance that any new products will receive or
maintain substantial market acceptance. If the Company were unable to design,
develop and introduce competitive products on a timely basis, its future
operating results would be adversely affected. See "Business - Products."
Management of Growth
Since 1993, the Company's business operations have undergone significant
changes and growth, including significant investments in tooling, emphasis on
and expansion of its collectible product lines, acquisition of its motorsports
consumer products line, disposition of certain other product lines, and
consolidation of its operations to one facility in Arizona. The Company's
ability to manage effectively any significant future growth, however, will
require it to further enhance its operational, financial, and management
systems; to expand its facilities and equipment; to receive products from
third-party manufacturers on a timely basis; and to successfully hire, train,
and motivate additional employees. The failure of the Company to manage its
growth on an effective basis could have a material adverse effect on the
Company's operations. The Company may be required to increase staffing and other
expenses as well as make expenditures on capital equipment and manufacturing
sources in order to meet the anticipated demand of its customers. Sales of the
Company's collectible products are subject to short-lived consumer demand, and
customers for the Company's promotional items generally do not commit to firm
orders for more than a short time in
7
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advance. The Company's profitability would be adversely affected if the Company
increases its expenditures in anticipation of future orders which do not
materialize. Certain customers also may increase orders for the Company's
products on short notice, which would place an excessive short-term burden on
the Company's resources.
Dependence on Key Personnel
The Company's development and operations to date have been, and its
proposed operations will be, substantially dependent upon the efforts and
abilities of its senior management, including Fred W. Wagenhals, the Company's
Chairman of the Board, President, and Chief Executive Officer. The loss of
services of one or more of its key employees, particularly Mr. Wagenhals, could
have a material adverse affect on the Company. The Company currently is
negotiating an employment agreement with Mr. Wagenhals. The Company maintains
key person insurance on the life of Mr. Wagenhals in the amount of $3,000,000.
The Company does not maintain such insurance on any of its other officers. See
"Management."
Control by Management
The directors and officers of the Company currently own 23.6% of the
Company's outstanding Common Stock. In addition, as voting trustee under a
voting trust agreement with the beneficial owner of shares of the Company's
Class A Preferred Stock, Fred W. Wagenhals has the right to cast an additional
1,000,000 votes on any matter to be voted upon by the Company's shareholders. As
a result, the directors and officers of the Company, including Mr. Wagenhals,
possess voting power with respect to approximately 32.3% of the total number of
votes entitled to be cast at any meeting of the Company's shareholders. See
"Principal and Selling Shareholders."
Possible Volatility of Stock Price
The market price of the Company's Common Stock has fluctuated
significantly since its initial public offering in April 1993. See "Price Range
of Common Stock." The trading price of the Company's Common Stock in the future
could be subject to wide fluctuation in response to quarterly variations in
operating results of the Company, actual or anticipated announcements of new
products by the Company or its competitors, changes in analysts' estimates of
the Company's financial performance, general conditions in the markets in which
the Company competes, worldwide economic and financial conditions, and other
events or factors. The stock market also has experienced extreme price and
volume fluctuations which have particularly affected the market prices for many
small companies and which often have been unrelated to the operating performance
of such companies. These broad market fluctuations and other factors may
adversely affect the market price of the Company's Common Stock.
Litigation
The Company is one of approximately 30 defendants in a lawsuit in which
the State of Arizona seeks recovery of certain clean-up costs under federal and
state environmental laws. The Company also is a defendant in a lawsuit alleging
breach of contractual duties and appropriation of certain business opportunities
of a dissolved corporation. The Company is actively defending these lawsuits. In
the event a decision adverse to the Company is rendered in either of these
lawsuits, the resolution of such matter could have a material adverse effect on
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business - Litigation."
Rights to Acquire Shares; Potential Issuance of Additional Shares
As of March 31, 1996, options to acquire a total of 1,024,100 shares
were outstanding under the Company's 1993 Stock Option Plan (the "1993 Plan") at
a weighted average exercise price of $3.29 per share. See "Management - 1993
Stock Option Plan." In addition, Bridge Warrants to acquire 63,550 shares of
Common Stock at an exercise price of $3.30 currently are outstanding. During the
terms of such options and warrants, the holders thereof will have the
opportunity to profit from an increase in the market price of Common Stock with
resulting dilution in the interest of holders of Common Stock. The existence of
such stock options and warrants may adversely affect the terms on which
8
<PAGE>
the Company can obtain additional financing, and the holders of such options and
warrants can be expected to exercise such options and warrants at a time when
the Company, in all likelihood, would be able to obtain additional capital by
offering shares of its Common Stock on terms more favorable to the Company than
those provided by the exercise of such options and warrants. See "Description of
Securities."
Shares Eligible for Future Sale; Potential Depressive Effect on Stock Price
Of the 11,488,472 shares of Common Stock currently outstanding,
approximately 8,545,218 shares are eligible for resale in the public market
without restriction unless held by an "affiliate" of the Company, as that term
is defined under the Securities Act of 1933, as amended (the "Securities Act").
The remaining 2,943,254 shares of Common Stock currently outstanding are
"restricted securities," as that term is defined in Rule 144, and may be sold
only in compliance with Rule 144, pursuant to registration under the Securities
Act or pursuant to an exemption therefrom. An aggregate of 377,798 shares of
such "restricted securities" and an additional 63,550 shares issuable upon
exercise of the Bridge Warrants are being registered for resale pursuant to the
Registration Statement of which this Prospectus forms a part. An additional
1,000,000 shares being registered hereby for issuance upon conversion of the
Company's Class A Preferred Stock will be eligible for resale in the public
market without restriction. Affiliates will be subject to certain of the resale
limitations of Rule 144 as promulgated under the Securities Act. Generally,
under Rule 144, each person who beneficially owns restricted securities with
respect to which at least two years have elapsed since the later of the date the
shares were acquired from the Company or an affiliate of the Company may, every
three months, sell in ordinary brokerage transactions or to market makers an
amount of shares equal to the greater of 1% of the Company's then-outstanding
Common Stock or the average weekly trading volume for the four weeks prior to
the proposed sale of such shares. An aggregate of 2,564,000 shares held by an
officer and director currently are available for sale under Rule 144. Sales of
substantial amounts of Common Stock by shareholders of the Company under Rule
144, or even the potential for such sales, are likely to have a depressive
effect on the market price of the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities. See
"Description of Securities - Shares Eligible for Future Sale."
Lack of Dividends
The Company has never paid any cash dividends on its Common Stock and
does not currently anticipate that it will pay dividends in the foreseeable
future. Instead, the Company intends to apply any earnings to the expansion and
development of its business. See "Dividend Policy."
Change in Control Provisions
The Company's Amended and Restated Articles of Incorporation (the
"Restated Articles"), Amended and Restated Bylaws (the "Restated Bylaws"), and
Arizona law contain provisions that may have the effect of making more difficult
or delaying attempts by others to obtain control of the Company, even when those
attempts may be in the best interests of shareholders. See "Description of
Securities - Arizona Corporate Takeover Act and Certain Charter Provisions." The
Restated Articles also authorizes the Board of Directors, without shareholder
approval, to issue one or more series of Preferred Stock, which could have
voting, liquidation, dividend, conversion, or other rights that adversely affect
or dilute the voting power of the holders of Common Stock. See "Description of
Securities."
9
<PAGE>
USE OF PROCEEDS
The Company intends to use the proceeds from the exercise of the Bridge
Warrants, a maximum of approximately $160,000, net of the expenses of this
offering, if all of the Bridge Warrants are exercised, for working capital. The
Company will not receive any cash consideration upon the conversion of its Class
A Preferred Stock and will not receive any of the proceeds of sales of shares of
Common Stock by the Selling Shareholders.
DIVIDENDS
The Company has never paid dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The future payment of
dividends, if any, on the Common Stock is within the discretion of the Board of
Directors and will depend on the Company's earnings, capital requirements,
financial condition, and other relevant factors.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 and as adjusted assuming conversion of the Class A Preferred
Stock and the exercise of the Bridge Warrants.
<TABLE>
<CAPTION>
March 31, March 31,
1996 1996
Actual As Adjusted(1)
---------- --------------
(unaudited)
<S> <C> <C>
Capital Lease Obligation.................................. $424,543 $424,543
Shareholders' Equity
Preferred stock, no par value, 5,000,000 shares authorized;
500 shares of Class A Preferred Stock, stated value $.01 per
share, issued and outstanding at March 31, 1996; no shares
outstanding as adjusted................................. 5 0
Common stock, $.01 par value, 25,000,000 shares authorized;
11,488,472 shares outstanding at March 31, 1996;
12,552,022 shares at March 31, 1996, as adjusted........ 114,885(2) 125,521
Additional paid in capital................................ 17,717,150(2) 17,866,235
Retained earnings......................................... 3,943,435 3,943,435
----------- ------------
Total Shareholders' Equity................................ $21,775,475 $21,935,190
=========== ===========
</TABLE>
- ----------------
(1) Excludes (i) 1,024,100 shares of Common Stock reserved for issuance upon
exercise of stock options outstanding as of March 31, 1996, and (ii) 9,400
shares reserved for issuance upon the exercise of stock options that may be
granted in the future under the Company's 1993 Stock Option Plan. See
"Management - 1993 Stock Option Plan."
(2) Adjusted to reflect the two-for-one stock split to be effected as a stock
dividend on May 28, 1996.
10
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "ACTN" since April 27, 1993. The following table sets forth the
quarterly high and low closing sale prices of the Company's Common Stock on the
Nasdaq National Market for the calendar periods indicated, as adjusted to
reflect the two-for-one stock split to be effected as a stock dividend on May
28, 1996:
High Low
---- ---
1993:
Second Quarter............................. $3.50 $2.50
Third Quarter.............................. 3.25 2.25
Fourth Quarter............................. 2.78 1.50
1994:
First Quarter.............................. $2.31 $1.63
Second Quarter............................. 2.25 1.81
Third Quarter.............................. 2.25 1.84
Fourth Quarter............................. 2.97 2.19
1995:
First Quarter.............................. $3.63 $2.44
Second Quarter............................. 4.56 3.25
Third Quarter.............................. 9.19 4.25
Fourth Quarter............................. 9.63 6.25
1996:
First Quarter.............................. $11.31 $6.44
Second Quarter (through May 6, 1996)....... 16.94 10.81
As of May 6, 1996, there were 104 holders of record and approximately
1,400 beneficial owners of the Company's Common Stock. On May 6, 1996, the
closing sales price of the Common Stock on the Nasdaq National Market was $15.69
(as adjusted to reflect the two-for-one stock split to be effected on May 28,
1996).
From April 27, 1993 through November 28, 1994, the Company's Common
Stock and warrants to purchase shares of Common Stock at a price of $3.75 per
share (the "1993 Warrants") were also traded on the Pacific Stock Exchange.
During fiscal 1994, the Company determined that the primary trading market for
its Common Stock and 1993 Warrants had developed on the Nasdaq National Market
and that there was not sufficient trading volume to warrant the expenses
involved with continued listing on both the Nasdaq National Market and the
Pacific Stock Exchange. The Company also found that the multiple listing
resulted in an unnecessarily burdensome duplication of filing documents at a
time when the Company was taking significant measures to curtail expenses. On
November 28, 1994, the Securities and Exchange Commission approved the Company's
application for withdrawal from listing and registration of its Common Stock and
1993 Warrants on the Pacific Stock Exchange, effective as of the opening of
business on November 29, 1994.
On May 31, 1995, the Company redeemed 1993 Warrants to purchase an
aggregate of 3,229,462 shares of Common Stock pursuant to the terms of such
warrants. Certain holders of the 1993 Warrants exercised warrants to purchase an
aggregate of 163,670 shares of Common Stock prior to the redemption.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical financial data presented below as of and for the
two years ended September 31, 1995 are derived from the Company's consolidated
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The selected historical financial data as of and
for the six months ended March 31, 1995 and 1996 are derived from the Company's
unaudited financial statements as incorporated by reference herein. The
historical financial data for the six months ended March 31, 1995 and 1996, in
the opinion of management, include all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation for such periods. The
historical results of operations for the six months ended March 31, 1995 and
1996 are not necessarily indicative of results to be expected for the year.
These selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and the notes thereto, as
incorporated by reference herein.
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
September 30, March 31,
----------------- ----------------
Consolidated Statements of Income: 1994 1995 1995 1996
---- ---- ---- ----
(unaudited)
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Sales:
Collectible sales, net.................... $12,802 $23,443 $ 5,742 $17,047
Consumer product sales, net(1)............ 143 1,190 561 725
Promotional sales, net(2)................. 3,339 1,498 1,472 -
M-Car sales, net(3)....................... 585 - - -
------- --------- -------- ---------
Net sales................................. 16,869 26,131 7,775 17,772
Cost and expenses:
Cost of sales............................. 10,488 15,882 5,028 10,584
Selling, general and administrative....... 5,808 6,119 2,707 3,966
------ ------ ------ ------
16,296 22,001 7,735 14,550
------ ------ ------ ------
Operating income............................ 573 4,130 40 3,222
Interest expense, net....................... (215) (184) (138) (47)
Other income, net........................... 51 208 342 188
------ ------ ----- -----
Income before benefit from (provision for)
income taxes.............................. 409 4,154 244 3,363
Benefit from (provision for) income taxes... 224 (1,384) (88) (1,345)
------ ----- ----- ------
Net income.................................. $ 633 $ 2,770 $ 156 $2,018
======= ======= ====== ======
Earnings per common share and
common share equivalent(4)................ $ 0.08 $ 0.25 $ 0.02 $ 0.16
======== ======== ======== ========
Weighted average number of common shares and
common share equivalents outstanding(4)... 9,639,946 11,570,046 8,872,422 12,948,412
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: September 30, 1995 March 31, 1996
------------------ --------------
(unaudited)
(in thousands)
<S> <C> <C>
Working capital............................. $11,922 $13,179
Total assets................................ 23,351 25,875
Capital lease obligation.................... 288 425
Shareholders' equity........................ 18,890 21,775
</TABLE>
- ----------------
(1) Includes the results of operations acquired from Fan Fueler, Inc.
beginning as of the effective date of the acquisition on August 12,
1994. See "Business - Development of the Company."
(2) The Company sold the assets and liabilities related to its mini vehicle
operations and discontinued its mini vehicle operations in March 1995.
See "Business - Development of the Company."
(3) The Company sold the assets and liabilities related to its M-CarTM
operations and discontinued its M-CarTM operations in September 1994.
See "Business - Development of the Company."
(4) Adjusted to reflect the two-for-one stock split to be effected as a
stock dividend on May 28, 1996.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company (i) designs and markets die-cast and pewter collectibles,
which are miniature replicas of motorsports vehicles and other items, and (ii)
designs and markets motorsports consumer products, which include drink bottles,
key chains, and air fresheners. The Company's motorsports collectibles and
consumer products are manufactured by third parties, generally utilizing the
Company's designs, tools, and dies.
The Company was incorporated in Arizona in May 1992 and began marketing
die-cast collectibles in July 1992. In August 1994, the Company acquired certain
assets and liabilities of Fan Fueler, Inc. and began marketing product lines of
licensed motorsports consumer products. During fiscal 1994, the Company also
conducted the business of staging turn-key M-CarTM Grand Prix Races for
charitable and other organizations, in which participating sponsors purchased
specialized gas-powered, one-third scale racing vehicles from the Company. In
September 1994, the Company sold the assets and liabilities related to its
M-CarTM operations and discontinued its M-CarTM Grand Prix Race operations.
During fiscal 1994 and the first two quarters of fiscal 1995, the Company
designed and marketed pedal, electric, and gas-powered mini vehicles, primarily
as specialty promotional items. The Company sold the assets related to its mini
vehicle operations in March 1995.
Results of Operations of the Company for the Six-Month Periods Ended March 31,
1995 and March 31, 1996
The Company had net income of $2,018,000, or $0.16 per share, for the
six-month period ended March 31, 1996, compared with net income of $156,000, or
$0.02 per share, for the six-month period ended March 31, 1995. The Company
attributes the improvement in net income primarily to (i) the successful
introduction of several new and exclusive licensing programs for die-cast and
pewter collectible product lines in fiscal 1996, which resulted in increased
sales and enabled the Company to capture additional market share in the growing
market for motorsports collectibles; and (ii) the successful transition to the
Company's new overseas manufacturer of die-cast collectibles during fiscal 1995,
which enabled the Company to meet the increased demand for its products.
During the six months ended March 31, 1995 and 1996, net sales were
$7,774,000 and $17,772,000, respectively. The $9,998,000, or 129%, increase in
net sales resulted from an increase of $11,305,000 in collectible sales, a
decrease of $1,472,000 in promotional sales, and an increase of $165,000 in
motorsports consumer products sales.
The increase in collectible sales is primarily the result of the
Company's successful transition to its new overseas manufacturer of die-cast
collectibles in March 1995. The supply of the Company's die-cast collectibles
was significantly delayed during the first six months of fiscal 1995 as a result
of this transition. The Company continues to realize sales increases from
recently introduced product lines, which include pewter replica vehicles and
NHRA drag racing die-cast replicas. The decrease in promotional sales is
attributable to the sale of the Company's mini vehicle operations in the second
quarter of fiscal 1995.
During the six months ended March 31, 1995 and 1996, cost of sales
increased from $5,028,000 to $10,584,000, representing 65% and 60%,
respectively, of net sales. The decrease in cost of sales as a percentage of
sales resulted from the effect of higher sales volume on fixed cost components
of cost of sales, primarily depreciation charges related to the Company's
tooling equipment.
During the six months ended March 31, 1995 and 1996, selling, general
and administrative expenses increased from $2,707,000 to $3,967,000,
representing 35% and 22%, respectively, of net sales. The increase in
13
<PAGE>
such expenses resulted from increased expenditures in sales and marketing,
particularly sales commissions and advertising.
Interest expense decreased from $138,000 to $47,000 during the six
months ended March 31, 1995 and 1996, respectively. The decrease in interest
expense resulted from the conversion of the Company's 10% Convertible
Subordinated Debentures (the "Debentures") into shares of the Company's Common
Stock prior to May 31, 1995.
Results of Operations of the Company for the Years Ended September 30, 1994 and
1995
The Company had net income of $2,770,000, or $0.25 per share, for the
year ended September 30, 1995, compared with net income of $633,000, or $.08 per
share, for the year ended September 30, 1994. The Company attributes the
improvement in net income during fiscal 1995 primarily to (i) increased sales as
a result of the successful introduction of several new and exclusive licensing
programs and die-cast and pewter collectible product lines in fiscal 1995; (ii)
the completion of the transition to the Company's new overseas manufacturer,
which began shipping sufficient quantities of high-quality die-cast collectibles
during the third quarter of fiscal 1995 to meet the increased demand for the
Company's products; and (iii) an aggressive program designed to restructure
management, reduce overhead and operating costs, and increase revenue that was
implemented beginning in fiscal 1994.
During the years ending September 30, 1994 and 1995, sales were
$16,869,000 and $26,131,000, respectively. The $9,262,000, or 55%, increase in
sales resulted from an increase of $10,641,000 in collectible sales, an increase
of $1,047,000 in motorsports consumer products sales, a decrease of $1,841,000
in promotional sales, and a decrease of $585,000 in M-CarTM sales.
The increase in collectible sales resulted from an increase in the
number of members in the Company's collector club from approximately 22,000 to
approximately 40,000 members at September 30, 1994 and 1995, respectively,
increased demand from the Company's wholesale distributors, and the
implementation of several new die-cast collectible sales programs. In fiscal
1995, the Company introduced a new collectible line of miniature replica
vehicles that are constructed of pewter. Sales of pewter miniature replica
vehicles totalled approximately $1,050,000 in fiscal 1995. The decrease in
promotional sales is attributable to the sale of the Company's mini vehicle
operations in the second quarter of fiscal 1995 and discontinuance of a large
promotional program in fiscal 1995 that contributed approximately $2,699,000 of
sales in fiscal 1994. The decrease in M-Car sales resulted from the September
1994 sale of the assets related to the Company's business of conducting M-Car
Grand Prix Races. The Company's motorsports consumer product line, acquired in
August 1994, contributed sales of approximately $1,190,000 during fiscal 1995.
During the years ended September 30, 1994 and 1995, cost of sales
increased from $10,488,000 to $15,882,000, representing 62% and 61%,
respectively, of net sales. The decrease in cost of sales as a percentage of
sales resulted from sales price increases combined with decreases in the unit
costs of certain die-cast collectibles resulting from the transition to the
Company's new third-party manufacturer and increased purchase volume. The
increased sales prices were consistent with the Company's marketing strategy,
implemented in fiscal 1994, to position the die-cast collectible line as a
limited production collectible.
During the years ended September 30, 1994 and 1995, selling, general and
administrative expenses increased from $5,808,000 to $6,119,000, representing
34% and 23%, respectively, of net sales. The increase in such expenses resulted
from increased expenditures in sales and marketing, particularly sales
commissions and advertising, consistent with the Company's strategy to increase
collector club membership and distributer sales. These increases were
substantially offset by reductions in staff, officer, and administrative
salaries as a result of the management changes and reductions commenced in the
second quarter of fiscal 1994. Additionally, the Company experienced a reduction
in operating costs, beginning in the third quarter of fiscal 1994, associated
with the consolidation of the Company's operations from Florida, Georgia, and
two locations in Arizona to a single facility in Tempe, Arizona.
14
<PAGE>
Interest expense decreased from $215,000 to $184,000, respectively,
during the years ended September 30, 1994 and 1995. The decrease in interest
expense resulted primarily from the conversion of the Debentures into shares of
the Company's Common Stock prior to May 31, 1995.
Seasonality
Sales of collectibles and motorsports consumer products are lowest in
the fourth calendar quarter, corresponding with the end of the racing season.
Liquidity and Capital Resources
The Company's working capital position increased to $13,179,000 at March
31, 1996 from $11,922,000 at September 30, 1995. This increase is primarily
attributable to results from operations and proceeds of approximately $868,000
from the exercise of certain stock options and warrants.
The Company used net cash of approximately $1,892,000 from operations
during the six months ended March 31, 1996, primarily due to increases in
accounts receivable attributable to large-volume sales of die-cast collectibles
to several racing personalties for initial stocking of trackside souvenir
trailers, reductions of income taxes payable, investment in inventory for the
1996 racing season, and royalty advances paid on new and existing multi-year
license agreements.
Capital expenditures for the year ended September 30, 1995 totalled
approximately $3,024,000, of which approximately $2,400,000 was utilized for the
Company's continued investment in tooling. Capital expenditures for the
six-month period ended March 31, 1996 totalled approximately $2,378,000, of
which approximately $1,687,000 was utilized for the Company's continued
investment in tooling.
During the quarter ended March 31, 1995, the Company completed the sale
of 500 shares of Class A Preferred Stock at a purchase price of $2.0 million to
an affiliate of its principal manufacturer of die-cast collectibles. The sale
was effected primarily as a long-term strategic transaction intended to align
the interests of the manufacturer with those of the Company. The shares of Class
A Preferred Stock do not receive dividends unless dividends are paid on shares
of the Company's Common Stock. The shares are convertible into an aggregate of
1,000,000 shares of Common Stock commencing in May 1996. The Company will have
the right to redeem the Class A Preferred Stock after the date on which the
Class A Preferred Stock has become convertible into Common Stock and other
conditions have been satisfied. In order to avoid any conflict of interest
arising from the holder's status as the Company's principal manufacturer, the
shares are subject to a voting trust under which Fred W. Wagenhals, the
Company's Chairman of the Board, President, and Chief Executive Officer, serves
as voting trustee. Of the $2.0 million in proceeds, the Company utilized
approximately $1.0 million to purchase tooling used in the manufacture of its
die-cast collectibles and approximately $1.0 million for working capital.
On May 31, 1995, the Company redeemed 1993 Warrants to purchase an
aggregate of 3,229,462 shares of Common Stock for an aggregate payment of
$403,683, pursuant to the terms of such warrants. Certain holders of 1993
Warrants exercised warrants to purchase an aggregate of 163,670 shares of Common
Stock prior to the redemption, with total proceeds to the Company of
approximately $613,000.
During fiscal 1995, the Company issued an aggregate of 857,216 shares of
Common Stock upon exercise of warrants with exercise prices ranging from $1.25
to $3.75 per share, resulting in total proceeds to the Company of approximately
$2,308,000. During fiscal 1995, the Company also issued 541,000 shares of Common
Stock upon exercise of employee stock options, with total proceeds to the
Company of approximately $1,280,000. The Company recorded a decrease in deferred
tax liability of approximately $716,000 and a corresponding increase in
additional paid-in capital as a result of the exercise of certain employee stock
options.
15
<PAGE>
On April 18, 1995, the Company announced that, pursuant to the terms of
the Debentures, it would redeem all of the then-outstanding $1,775,000 of
principal amount of Debentures that remained outstanding on May 31, 1995. The
holders of all outstanding Debentures converted such Debentures into an
aggregate of 1,014,272 shares of the Company's Common Stock, at a conversion
price of $1.75 per share, prior to the redemption date.
Effective March 31, 1995, the Company sold certain of its assets related
to its mini vehicle product line to Motorsports Promotions, Inc. ("MPI"), an
unrelated company. The assets sold consisted primarily of accounts receivable,
inventory, tooling, and equipment. The purchase agreement provided for total
consideration of $1,324,712, consisting of $237,567 in cash, assumed liabilities
of $52,891, and a promissory note for $1,034,254, subject to certain
adjustments. Effective November 1995, the Company and MPI agreed to adjust the
total consideration to $1,051,646. The Company recorded a non-operating gain of
approximately $290,000 on this transaction in the second quarter of fiscal 1995.
As a result of the purchase price adjustment described above, the Company
reduced the gain such that no gain or loss was recorded on this transaction for
fiscal 1995.
In December 1994, Fred W. Wagenhals advanced $300,000 to the Company in
order to enable the Company to make certain advance royalty payments related to
license agreements entered into by the Company for die-cast products to be
marketed by the Company beginning in the second quarter of fiscal 1995. The
Company issued a promissory note to Mr. Wagenhals for the advance, bearing
interest, at 9% per annum, providing for monthly payment of accrued interest,
and calling for the payment of the principal no later than March 31, 1995. The
Company repaid the note in full on February 9, 1995.
In March 1995, the Company signed an international letter of credit
agreement with a foreign bank. The international letter of credit agreement
provides the Company's supplier of die-cast collectible products with security
for the Company's purchase orders, up to a limit of $3.5 million. The agreement
also provides for an import cash line of credit of $1.0 million, which allows
the Company to finance its imports for up to 90 days from the date of shipment.
As of March 31, 1996, there were no amounts outstanding on the import cash line
of credit. Total purchase commitments of approximately $3.5 million at March 31,
1996 are secured by the assets of the Company, a restricted deposit of $500,000
that the Company is required to maintain with the bank, and the assignment of
any proceeds that may be paid on the $3.0 million key person life insurance
policy on Fred W. Wagenhals, the Company's Chairman of the Board, President, and
Chief Executive Officer.
The Company is one of approximately 30 defendants in a lawsuit in which
the State of Arizona is seeking recovery of certain clean-up costs under federal
and state environmental laws. See "Business - Litigation." The Company is
vigorously defending this lawsuit on various bases, including that neither the
Company nor any of its predecessors has produced or arranged for the
transportation of hazardous substances as alleged by the state. The imposition
of damages in the case against the Company could have a material adverse effect
on the Company's earnings and liquidity.
In December 1995, a lawsuit was instituted against the Company, the
Company's Chief Executive Officer, and others alleging that the Company, the
Company's Chief Executive Officer, and others breached contractual and other
duties and appropriated certain business opportunities of a dissolved Arizona
corporation. The Company believes the complaint is without merit and is
vigorously defending the lawsuit. See "Business - Litigation."
The Company's current cash resources, letter of credit facility, and
expected cash flow from operations are expected to be sufficient to fund the
Company's capital needs during the next 12 months at its current level of
operations. However, the Company may be required to obtain additional capital to
fund its planned growth during such 12-month period or thereafter, particularly
to provide guarantees under licensing arrangements or to obtain international
letters of credit in connection with purchase orders from its off-shore
manufacturer of die-cast collectibles. Potential sources of any such capital may
include the proceeds from the exercise of outstanding options, bank financing,
strategic alliances, and additional offerings of the Company's equity or debt
securities. There can be no assurance that such capital will be available from
these or other potential sources, and the lack of such capital could have a
material adverse affect on the Company's business.
16
<PAGE>
BUSINESS
Overview
The Company designs and markets collectible and consumer products that
are intended to capitalize on the increasing interest in motorsports. The
Company currently markets die-cast and pewter collectibles, which are miniature
replicas of motorsports vehicles and other items, and designs and markets
consumer items, which include drink bottles, key chains, and air fresheners. The
Company also develops product promotional programs that feature its die-cast
collectibles or other products as premium awards intended to increase brand
awareness of third parties' products. The Company markets its motorsports
collectibles and consumer items pursuant to license arrangements with popular
race drivers, car owners, car sponsors, and automobile manufacturers. The
Company's motorsports collectibles and consumer products are manufactured by
third parties utilizing the Company's designs, tools and dies.
The popularity of motorsports with consumers has resulted in significant
growth in the motorsports industry. The Company designs its products and
promotional programs primarily to capitalize on the growing interest in
motorsports. According to The Wall Street Journal, approximately 5.3 million
fans attended the 31 races of the Nascar Winston Cup series in 1995. Forbes
magazine has reported that another 14 million fans watched the Winston Cup races
on television. The Wall Street Journal reported that sales of Nascar-licensed
goods have grown ninefold during the 1990s to more than $500 million per year
and are expected to reach $1.0 billion by 1998. According to Nascar, 25% of the
Fortune 100 companies utilize motorsports sponsorship or advertising as part of
their marketing strategies.
Historically, the Company has designed and marketed die-cast
collectibles that primarily feature Nascar drivers and vehicles. In 1995, the
Company began expanding its lines of die-cast collectibles to include other
types of motorsports vehicles, including drag racing and Nascar's new "Super
Truck" series. The Company focuses on developing long-term relationships with
and engages in aggressive efforts to license the most popular drivers in each
top racing category as well as their car owners, car sponsors, car
manufacturers, and others in the motorsports industry. The Company has license
agreements with many of the most popular Nascar race drivers, including
seven-time Winston Cup champion Dale Earnhardt and 1995 Winston Cup champion
Jeff Gordon. In 1995, the Company and an operating division of R.J. Reynolds
Tobacco Company entered into a non-exclusive license agreement that gives the
Company the right to include the "Winston Cup," "Winston Racing," and "Winston
NHRA Drag Racing" logos on the packaging for all of the Company's die-cast
collectibles of racing vehicles that participate in those programs. The Company
believes that its license agreements with notable Nascar and other motorsports
personalities and its affiliation with Winston Cup racing and other popular
sponsors significantly enhance the collectible value and marketability of its
products.
The Company continually seeks to develop exciting and progressive new
products. During 1995, the Company introduced its line of 1:43-scale
hand-sculpted, high quality pewter replicas. Recently, the Company also expanded
its line of die-cast and pewter collectibles by adding highly popular
collections, including replicas of the most popular Chevrolet Corvettes produced
during each of the years from 1953 to 1993 and replicas of the cars driven by
each of the Winston Cup Series champions during the past 25 years.
Development of the Company
The Company was incorporated in Arizona in May 1992 to acquire the
operating assets of Action Products, Inc. ("API"). API, which had been founded
in 1986 by Fred W. Wagenhals (the Company's Chairman of the Board, President,
and Chief Executive Officer), engaged in the manufacture and sale of pedal,
electric, and gas-powered mini vehicles. In November 1991, API's principal
creditor declared API in default and installed a receiver to manage API's
operations. The creditor took possession of all operating assets of API in May
1992 in partial
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<PAGE>
satisfaction of API's debt and thereafter sold such assets to the Company. The
Company began the manufacture and marketing of mini vehicles in May 1992.
In May 1992, the Company acquired 100% of the common stock of Race Z,
Inc. ("RZI"). Fred W. Wagenhals founded and was the sole shareholder of RZI at
the time of the acquisition. Following the acquisition, the Company continued
RZI's business of staging M-CarTM Grand Prix Races for charitable organizations.
In May 1992, the Company also acquired the operating assets and assumed
the liabilities of Mini Wheels West ("MWW"). MWW engaged in the business of the
resale of die-cast collectibles that it purchased from Action Performance Sales,
Inc. ("APS"). In July 1992, the Company began marketing a line of die-cast
miniature replicas of actual racing vehicles and other racing accessories and
collector cards formerly sold by the die-cast collectibles division ("APS
Division") of APS. The APS Division ceased operations in June 1992. Fred W.
Wagenhals founded and was the sole shareholder of APS. There was no relationship
between the Company and the APS Division at any time except for the common
ownership by Mr. Wagenhals and the cessation of the operations of the APS
Division and the assumption of its operations by the Company in July 1992.
The Company acquired 100% of the common stock of Racing Collectables,
Inc. ("RCI") and Racing Collectables Club of America, Inc. ("RCCA") in July
1993. RCI engaged in the wholesale marketing of die-cast products and RCCA
operated a die-cast collectors' club for motorsport enthusiasts. The terms of
the acquisition (including the valuation of the stock of RCI and RCCA) were
determined by negotiations between representatives of RCI and RCCA on the one
hand and the Company on the other hand. RCI and RCCA were unaffiliated
competitors of the Company prior to their acquisition by the Company.
In August 1994, the Company acquired certain assets and liabilities of
Fan Fueler, Inc. and began marketing product lines of licensed motorsports
consumer items that include drink bottles, key chains, and air fresheners. The
terms of the acquisition, including the valuation of the assets and liabilities
of Fan Fueler, Inc. acquired by the Company, were determined by negotiations
between representatives of Fan Fueler, Inc. and representatives of the Company.
No affiliation existed between Fan Fueler, Inc. and the Company at the time of
the acquisition.
In September 1994, the Company sold to M-Car, Incorporated the assets
and liabilities related to its business of contracting with or licensing
selected sponsors to stage events known as M-CarTM Grand Prix Races. From
January 1994 until the date of the sale, Robert Scott Tremonti, the shareholder
of M-Car, Incorporated, conducted sales and marketing services related to the
Company's M-Car operations on a contractual basis with the Company. The
contractual arrangement with Mr. Tremonti was terminated concurrently with the
sale of the Company's M-CarTM operations. The Company conducted 17 M-CarTM Grand
Prix Races during the year ended September 30, 1994.
Effective March 31, 1995, the Company sold certain of its assets related
to its mini vehicle product line to Motorsports Promotions, Inc. No affiliation
existed between Motorsports Promotions, Inc. and the Company at the time of the
sale.
Products
Die-Cast Miniature Replica Vehicles
The Company markets collectible miniature replicas of
motorsports-related vehicles that are constructed using die-cast bodies and
chassis with free wheeling deluxe wheels and tires. The Company markets its
die-cast racing collectibles pursuant to more than 300 active licenses with
stock car and other drivers, car owners, and car sponsors as well as under
license agreements with Ford Motor Company and several divisions of General
Motors Corp. The die-cast collectibles offered by the Company relate to stock
car, drag racing, "Super Truck," Indy car, dirt car, and sprint car racing. The
Company's die-cast collectibles consist of (i) 1:64th and 1:24th scale replicas
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of actual racing vehicles; (ii) 1:96th and 1:64th scale racing vehicle
transporters; (iii) a 1:16th scale pit wagon; and (iv) 1:24th scale dually
trucks with trailers. The Company offers its die-cast collectibles primarily
through retail dealers, through its collectors' club, and as promotional and
specialty advertising items. See "Business - Sales and Marketing."
Historically, the Company has designed and marketed die-cast
collectibles that primarily feature drivers and vehicles from the Nascar Winston
Cup series. During fiscal 1995, the Company began development of several new
lines of die-cast collectibles that feature replicas of vehicles from other
popular motorsports. The Company successfully introduced its line of Winston
NHRA Top Fuel Dragster replicas, with sales of approximately $500,000 and $1.7
million, respectively, in fiscal 1995 and the first six months of fiscal 1996.
The Company also successfully introduced a line of die-cast collectible replicas
from the popular new Nascar "Super Truck" series. In addition, in 1995 the
Company entered into a license agreement that gives it the non-exclusive right
to include the "Winston Cup," "Winston Racing," and "Winston NHRA Drag Racing"
logos on the packaging for all of its die-cast collectibles of racing vehicles
that participate in those programs. See "Business - Licenses."
The Company invested approximately $2.4 million and $1.7 million,
respectively, in tooling for its proprietary line of die-cast collectibles in
fiscal 1995 and the first six months of fiscal 1996, which increased its total
investment in die-cast tooling to approximately $5.5 million and $7.2 million at
September 30, 1995 and March 31, 1996, respectively. The Company believes the
breadth and quality of the tooling program provides the Company with a
competitive advantage in the motorsports collectible market. In addition, the
Company has taken various steps, and continually evaluates additional measures,
designed to enhance the collectible value and appeal of its products. These
measures include (i) designing die-cast collectibles that include features that
are not offered by the Company's competition; (ii) limiting the quantities of a
particular item that it produces and sells; (iii) specifying on the packaging
material of each die-cast collectible the quantity of that limited-edition item
actually produced; (iv) offering certain items only through the Company's
collectors' club; and (v) designing and developing new packaging concepts to
improve the display of each collectible item.
Pewter Replica Vehicles
During 1995, the Company introduced a line of limited edition,
hand-crafted 1:43rd scale solid pewter replicas of race cars for sale through
its collectors' club. The Company's pewter replicas feature crisply detailed
wheels, chassis, and body elements, including the driver's name, car number, and
sponsors' logos and decals. The Company stamps a serial number on each of its
limited-edition pewter collectibles in order to enhance its value and packages
each pewter replica vehicle in a display case that includes literature featuring
the driver's photograph and details of the driver's racing accomplishments. The
Company sold approximately $1.1 million and $321,000 of pewter replicas of cars
driven by 10 of the most popular Nascar Winston Cup drivers in fiscal 1995 and
the first six months of fiscal 1996, respectively. Recently, the Company
announced that it will produce a complete set of 1:64th scale pewter replicas of
the cars driven by each of the Winston Cup Series champion drivers during the
past 25 years.
Motorsports Consumer Products
The Company markets various licensed motorsports consumer products,
including a 32-ounce "Fan Fueler" motorsports drink bottle in the shape of the
fuel cans used to refill race cars during pit stops, a "Fan Freshener"
automobile air freshener, and pewter key chains in the shape of race cars and
fuel cans. Each of the motorsports consumer products features the name and car
number of a popular race car driver. The Company intends to acquire licenses
with additional drivers and to develop new items for its motorsports consumer
products. The Company designs its motorsports consumer products primarily for
high-volume distribution through retail outlets. See "Business - Sales and
Marketing."
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Sales and Marketing
The Company markets its die-cast and pewter collectibles (i) to
approximately 5,000 retail dealers through a wholesale distributor network; (ii)
directly to motorsports enthusiasts through its collectors' club; and (iii) as
promotional or specialty advertising items. The Company strives to enhance the
demand for and to increase the value of its collectible products by offering
limited numbers of each item. The Company markets its motorsports consumer
products primarily for mass distribution through major discount and department
stores, retail automotive product outlets, and convenience stores.
Wholesale Distribution of Die-Cast Collectibles
The Company markets its collectibles on a wholesale basis through
approximately 50 distributors operating in the continental United States. The
distributors solicit orders for the Company's products from approximately 5,000
retail dealers throughout the United States. The retail dealers include hobby
shops, stores specializing in collectible items (such as trading cards), and
souvenir vendors that attend various racing events. Employees of the Company
attend several trade shows each year in an effort to attract new retail dealers
to its network.
The Company advertises its die-cast collectibles in newspapers and
magazines covering motorsports and the collectibles markets. These
advertisements encourage consumers to contact the nearest retail dealer to
purchase the Company's die-cast collectibles. The Company also takes measures to
increase consumer awareness of its products through radio and television
advertising, including promotion of its collectibles on "home shopping"
television programs and personal appearances on popular television programs of
interest to motorsports enthusiasts.
Collectors' Club
The Company markets its die-cast and pewter collectibles through its
Racing Collectables Club of America, a motorsports collectible club that offers
the Company's motorsports collectibles exclusively to members. The Company
strives to increase collector interest in its products and enhance its products'
value as collectibles by (i) offering certain items exclusively through its
collectors' club, and not through any other distribution network; (ii) producing
a limited number of each collectible; and (iii) limiting the number of a
particular item which each member may purchase. The Company advertises its
collectors' club in publications that focus on motorsports or the collectibles
industry and through limited radio and television advertisements. These efforts
have enabled the Company to increase membership in its collectors' club from
approximately 15,000 members in August 1993 to approximately 40,000 and 52,000
members as of September 30, 1995 and March 31, 1996, respectively.
Members of the Company's collectors' club pay a lifetime membership fee
that entitles them to receive membership premiums, a bi-monthly magazine,
catalogs, and other special sales materials highlighting the Company's
collectibles and other products. The Company employs customer service
representatives and an automated call distribution telephone system to take
membership applications, take customer orders for collectibles, and handle other
customer inquiries. In October 1995, the Company completed the installation of a
$1.0 million telephone and computer system that combines telemarketing
functions, computerized order processing, and automated warehouse operations in
order to enable the Company to more effectively and efficiently answer and
process telephone orders to its collectors' club. The Company installed its new
telephone and computer system in order to accommodate the significant growth in
club membership and the increasing volume of telephone orders that it has
experienced as well as to provide the infrastructure that may be required to
handle an increased volume of calls resulting from its accelerated advertising
efforts, its association with Winston Cup Racing, and other new collectible
product programs.
Promotional and Specialty Advertising Sales
The Company offers promotional programs in which customers' names,
logos, or messages are decalled, imprinted or otherwise prominently displayed to
a target audience, thereby generating product and name recognition. The Company
from time to time develops promotional programs with major oil companies and
other consumer
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<PAGE>
products companies. Promotional programs typically involve the use by these
companies of die-cast collectibles or other consumer products as a low-cost or
free premium award specifically designed to increase brand awareness. Such
programs include a free die-cast collectible with the purchase of a primary
product or a mail-in coupon offer for a consumer to receive a die-cast
collectible after purchasing a company's consumer products. Die-cast
collectibles sold as promotional items are not sold through the Company's
wholesale distribution network or through its collectors' club. The Company
plans to pursue future promotional programs and currently is in discussions with
major stock car drivers and sponsors in its effort to develop such programs.
During fiscal 1994, the Company derived approximately 16% of its net
sales from promotional programs with Texaco Refining and Marketing, Inc. No
customer accounted for more than 10% of the Company's sales in fiscal 1995.
Although the Company may develop significant promotional programs with
individual customers in the future, the Company currently does not anticipate
that sales to any one customer will exceed 10% of the Company's net sales in
subsequent periods.
Motorsports Consumer Product Sales
The Company employs an in-house sales force and independent
representatives to market its motorsports consumer products on a wholesale basis
to automotive sections in major discount and department stores such as Walmart
and K-Mart, to automotive retail stores, and to convenience stores. The Company
also utilizes its die-cast collectible distribution network to market its
motorsports consumer products on a wholesale basis to motorsports specialty
shops and to souvenir vendors that attend various motor racing events. The
Company currently is developing new motorsports consumer products for
high-volume sales programs.
Manufacturing and Production
Die-cast Collectibles
Beginning in 1993, the Company implemented a strategic program to
develop a proprietary line of die-cast collectibles in order to eliminate its
dependence on a competing manufacturer and supplier of die-cast products. The
Company introduced its proprietary line of products in November 1993. From that
time until December 1994, the Company obtained its die-cast collectibles under
an exclusive manufacturing arrangement with a third-party manufacturer in the
People's Republic of China. In December 1994, the Company entered into an
exclusive manufacturing agreement with another third-party manufacturer in
China. The term of the agreement currently extends through December 31, 1996 and
automatically renews for successive one-year terms unless terminated by either
party by giving written notice to the other party at least 90 days prior to the
end of the then-current term. The Company owns a significant portion of the
tooling that the third-party manufacturer uses to produce die-cast collectibles
for the Company and has partial control over the production of its die-cast
collectibles under the manufacturing agreement. Since April 1993, the Company
has invested approximately $7.2 million for tooling used to produce its die-cast
collectibles. The Company intends to make additional investments in tooling in
order to support the growth of its business.
During the quarter ended March 31, 1995, the Company completed the sale
of 500 shares of Class A Preferred Stock to an affiliate of its principal
manufacturer of die-cast collectibles, for a purchase price of $2.0 million. The
sale was effected primarily as a long-term strategic transaction intended to
align the interests of the manufacturer with those of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources." The Company believes that its
overseas manufacturer of die-cast collectibles is dedicated to high quality and
productivity as well as support for new product development.
The Company designs each die-cast collectible that it markets. The
Company's design artists take numerous photographs of the actual racing cars,
trucks, and other vehicles to be produced as die-cast replicas. Working from
these photographs, the Company's artists and engineers use computer software to
create detailed scale renderings of the vehicles. After approval of the
rendering by the vehicle owner or racing team sponsor, the Company supplies
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computerized renderings to its manufacturer in China. The manufacturer produces
a sample or model, which the Company then inspects for quality and detail. After
final approval, the manufacturer produces the die-cast replicas, packages them,
and ships the finished products to the Company or, in certain instances,
directly to the Company's customers.
Pewter Collectibles
The Company arranges for the manufacture of its pewter collectibles on a
purchase order basis with third-party manufacturers located in the United
States. The production of these pewter collectibles does not require the Company
to make an investment in tooling, as tooling costs are included as a portion of
the cost of each unit produced.
Motorsports Consumer Products
The Company owns the tooling and dies used to manufacture its
motorsports consumer products. The Company currently arranges for the
manufacture of its motorsports consumer products on a purchase order basis with
third-party manufacturers located in the United States. As the Company develops
new motorsports consumer products, the Company intends to build or purchase the
new tooling that will be required to permit the third-party manufacturers to
produce those items.
Backlog
The Company accepts orders from members of its collectors' club in
advance of the arrival of certain collectible products from the manufacturers.
The Company had outstanding orders for approximately $787,000 and $5.7 million
of such products as of September 30, 1995 and March 31, 1996, respectively.
Trademarks and Patent Rights
The Company's business does not depend on trademark or patent
protection.
Licenses
The Company focuses on developing solid relationships with and engages
in aggressive efforts to license the most popular drivers and car owners in each
top racing category, their sponsors, and others in the motorsports industry. The
Company currently has licenses with more than 300 race car drivers, car owners,
and car sponsors as well as with Ford Motor Company, several divisions of
General Motors Corp., and PACCAR, Inc. (the manufacturer of Kenworth and
Peterbilt trucks). The Company believes that its license agreements with top
Nascar drivers, such as Dale Earnhardt, Jeff Gordon, Rusty Wallace, Mark Martin,
Bill Elliot, Bobby Labonte, Sterling Marlin, and Geoff Bodine, significantly
enhance the collectible value and marketability of its products.
The licenses with race car drivers generally provide for a term of one
year and permit the Company to use the driver's name, photograph or likeness,
and autograph; the licenses with race car owners generally provide for a term of
one year and permit the Company to use the car number and colors; the licenses
with manufacturers provide for terms of two or more years and permit the Company
to reproduce the cars or trucks themselves; and the license agreements with
various sponsors generally provide for a three-year term and permit the Company
to reproduce the sponsors' decals and logos as they appear on the cars or
trucks. Depending upon the particular agreement, the individual licenses either
renew automatically, may be renewed or extended upon written request by the
Company, or expire at the end of the specified term. The agreements with the
drivers, car owners, car and truck manufacturers, and car sponsors provide for
payments by the Company to the licensors of either (i) a fixed dollar amount,
which may include a substantial advance to the licensor; (ii) a fixed amount per
item sold by the Company pursuant to the license; (iii) a percentage of the net
sales for a program or a percentage of the Company's wholesale price per item
sold by the Company pursuant to the license; or (iv) a combination of the above.
License agreements
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with certain sponsors do not require payments by the Company to the licensors
because of the advertising value provided to the licensor as a result of having
its decals and logos displayed on the Company's products.
During fiscal 1995, the Company and an operating division of R.J.
Reynolds entered into a license agreement that gives the Company the
non-exclusive right to include the "Winston Cup," "Winston Racing," and "Winston
NHRA Drag Racing" logos on the packaging for all of the Company's die-cast
collectibles of racing vehicles that participate in those programs and certain
of the Company's motorsports consumer products. The agreement with R.J. Reynolds
requires the Company to pay a fixed royalty amount per item sold by the Company
pursuant to the license. The license agreement with R.J. Reynolds expires on
December 31, 1997, subject to renewal for a two-year period at the option of
R.J. Reynolds. The Company believes that its affiliation with Winston Cup racing
and other Winston racing programs enhances the collectible value of its products
and will enable the Company to create significant marketing opportunities in
conjunction with R.J. Reynolds.
During fiscal 1995 and the first six months of fiscal 1996, the Company
incurred royalty expenses associated with its various licensing agreements of
approximately $3.4 million and $1.5 million respectively. The Company constantly
strives to renew existing agreements or to negotiate and enter into new license
agreements with existing or new drivers, car owners, and car sponsors and to
develop new product programs pursuant to its license agreements, in its effort
to market lines of die-cast and other collectibles that its customers will find
appealing.
Competition
The motorsports collectible and consumer product industry is extremely
competitive. The Company competes with major domestic and international
companies, some of which have greater market recognition and substantially
greater financial, technical, marketing, distribution, and other resources than
the Company possesses. The Company believes that Racing Champions, Inc.,
Revell-Monogram, Inc., and The ERTL Company, Inc. constitute its principal
competitors in the die-cast collectible industry. There are no significant
barriers to entry to the collectible and consumer products industries. Emerging
companies also may increase their participation in these markets. The Company's
promotional products must compete for advertising dollars against other
specialty advertising programs and media, such as television, radio, newspapers,
magazines, and billboards.
The Company competes principally on the basis of the current popularity
of motorsports and the cost, design, and delivery schedules of its products.
There is no assurance that the Company will continue to be able to compete
successfully in the future.
Seasonality
Sales of die-cast motorsports collectibles and motorsports consumer
products are lowest in the fourth calendar quarter, corresponding with the end
of the racing season.
Nature of the Company's Markets
The markets for the Company's products are subject to rapidly changing
customer tastes, a high level of competition, and a constant need to create and
market new products. Demand for motorsports products is influenced by the
popularity of certain themes, cultural and demographic trends in society,
marketing and advertising expenditures, and general economic conditions. Because
these factors can change rapidly, customer demand also can shift quickly. New
motorsports products frequently can be successfully marketed for only a limited
time. The Company may not always be able to respond to changes in customer
demand because of the amount of time and financial resources that may be needed
to bring new products to market. The inability to respond quickly to market
changes would have an adverse impact on the Company. See "Business - Products,"
"Business - Sales and Marketing," "Business - Competition," and "Business -
Seasonality."
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Sources and Availability of Raw Materials
The Company currently obtains all of its die-cast and pewter
collectibles and motorsports consumer items pursuant to manufacturing
arrangements as discussed elsewhere in this Prospectus. The Company believes
that all of the raw materials and other supplies that are necessary for the
manufacture and packaging of its products are readily available from multiple
sources.
Environmental Matters
The Company is one of approximately 30 defendants in a lawsuit in which
the State of Arizona seeks recovery of certain clean-up costs under federal and
state environmental laws. See "Business - Litigation." The imposition of damages
on the Company could have a material effect on the Company.
Insurance
The Company maintains a $2.0 million product liability insurance policy
to cover the sale of its die-cast and other products. The Company maintains an
additional $3.0 million in commercial umbrella liability coverage. The Company
also maintains a $6.0 million insurance policy to cover its molds and dies
located at its third-party manufacturer in China and a $12.0 million insurance
policy to cover lost revenue in the event of certain interruptions of business
with its overseas manufacturer of die-cast collectibles. The Company believes
its insurance coverage is adequate.
Litigation
On May 17, 1993, the State of Arizona (the "State") instituted a lawsuit
against the Company and 29 other defendants in the United States District Court
for the District of Arizona. The State seeks recovery of certain clean-up costs
under federal and state environmental laws. Specifically, the State seeks
recovery of expenses that it has incurred to date for an environmental
investigation and clean-up of property formerly used as a site for recycling
hazardous wastes. The State alleges that the property has been contaminated with
hazardous substances. In addition, the State seeks a declaratory judgment that
the Company and the other defendants are jointly and severally liable for all
future costs incurred by the State for investigative and remedial activities,
and seeks a mandatory permanent injunction requiring the Company to undertake
appropriate assessment and remedial action at the property. The State has not
specified the amounts it seeks to collect from the Company. The State alleges
that F.W. Leisure Industries, Inc. and/or F.W. & Associates, Inc. were
predecessors of the Company that produced and arranged for the transportation of
hazardous substances to the property involved in the lawsuit. The Company is
defending this lawsuit on various bases including that F.W. Leisure Industries,
Inc. and/or F.W. & Associates, Inc. were not predecessors of the Company and
that neither the Company nor any predecessor of the Company has ever produced or
transported hazardous substances as alleged by the State. The State has settled
a portion of its claims with respect to a large number of the other defendants
to the lawsuit. The Company is not a party to that settlement. On February 1,
1995, a number of the defendants that agreed to the settlement with the State
were granted leave to file, and subsequently did file a cross-claim against the
Company seeking indemnity from the Company based on the same predecessor
liability theory asserted by the State. The parties have conducted discovery
limited to the issue of any defendant's status as a responsible party and
regarding the Company's status as a successor corporation. The parties have
filed cross-motions for summary judgment, which may resolve part or all of the
Company's involvement in the lawsuit. The court has set a hearing date of
September 30, 1996 for these motions. In the event that a decision adverse to
the Company is rendered, and in the event that the Company has no insurance
coverage with respect to these claims, the resolution of such matter could have
a material adverse effect on the Company.
A lawsuit, purportedly on behalf of Action Products, Inc., a dissolved
Arizona corporation, has been instituted against the Company, Fred W. Wagenhals,
and others in the United States District Court for the District of Arizona (Case
No. CIV 95-2926 PHX RCB). The complaint alleges that the Company, Mr. Wagenhals,
and others breached contractual and other duties to API and appropriated certain
business opportunities of API. The
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complaint requests damages, including punitive and treble damages, in an
unspecified amount. The Company believes the complaint is without merit for
various reasons including the execution of a general release, dated September 1,
1992, by API in favor of the Company, Mr. Wagenhals, and others. The Company and
Mr. Wagenhals are vigorously defending the lawsuit.
Employees
At March 31, 1996, the Company employed approximately 81 persons, all of
whom were employed full-time. Of the 81 persons employed by the Company, 6 were
engaged in product development, 33 in sales and marketing, 3 in licensing
activities, 13 in warehouse functions, and 26 in administrative functions,
including the Company's executive officers. The Company has experienced no work
stoppages and is not a party to a collective bargaining agreement. The Company
believes that it maintains good relations with its employees.
PROPERTIES
The Company leases a facility in Tempe, Arizona, containing
approximately 32,000 square feet. The Company uses approximately 14,000 square
feet of the facility for offices and 18,000 square feet for warehouse space and
packaging operations. The term of the lease expires in December 2003. Fred W.
Wagenhals, Chairman of the Board, President, and Chief Executive Officer of the
Company, currently owns a one-third interest in F.W. Investments, a partnership
which owns this facility. The Company believes that the lease payments for this
facility are comparable to an amount it would pay to an unaffiliated party for
comparable space.
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MANAGEMENT
The following table sets forth certain information regarding the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Fred W. Wagenhals 54 Chairman of the Board, President, and Chief
Executive Officer
Tod J. Wagenhals 32 Executive Vice President, Secretary,
and Director
Christopher S. Besing 35 Vice President, Chief Financial Officer,
Treasurer, and Director
Russell W. Leicht, Jr. 33 Vice President of Product Development
and Manufacturing, and Director
Jack M. Lloyd 46 Director
Robert H. Manschot 53 Director
</TABLE>
Fred W. Wagenhals has been Chairman of the Board, President, and Chief
Executive Officer of the Company since November 1993 and served as Chairman of
the Board and Chief Executive Officer from May 1992 until September 1993 and as
President from July 1993 until September 1993. Mr. Wagenhals co-founded Racing
Champions, Inc. in April 1989 and served as a director of that company until
April 1993. From October 1990 until May 1992, Mr. Wagenhals served as Chairman
of the Board and Chief Executive Officer of Race Z, Inc. and Action Performance
Sales, Inc., which were engaged in sales of promotional products and collectible
items related to the racing industry. Mr. Wagenhals served as President of
Action Products, Inc. ("API") from its inception in September 1986 until his
resignation in October 1990 and as a director from September 1986 until his
resignation in December 1992. API's principal creditor declared API in default
and installed a receiver to manage API's operations in November 1991. The
creditor took possession of all operating assets of API in May 1992 in partial
satisfaction of API's debt and thereafter sold such assets to the Company.
Tod J. Wagenhals has been a Vice President and Secretary of the Company
since November 1993 and a director of the Company since December 1993. Mr.
Wagenhals served in various marketing capacities with the Company from May 1992
until September 1993 and with APS from October 1991 until May 1992. Mr.
Wagenhals was National Accounts Manager of API from January 1989 to October
1991. Mr. Wagenhals is the son of Fred W. Wagenhals.
Christopher S. Besing has been a Vice President and the Chief Financial
Officer of the Company since January 1994, a director of the Company since May
1995, and has served as Treasurer of the Company since February 1996. Prior to
joining the Company, Mr. Besing held several financial positions with Orbital
Sciences Corporation ("OSC") from September 1986 to December 1993, most recently
as Director of Accounting and Controller of OSC's Launch Systems Group in
Chandler, Arizona. Prior to joining OSC, he was employed by Arthur Andersen and
Co. from January 1985 to August 1986. Mr. Besing is a Certified Public
Accountant.
Russell W. Leicht, Jr. has been Vice President of Product Development
and Manufacturing and a director of the Company since May 1995. From November
1993 to May 1995, Mr. Leicht served as General Manager of the Company's
collectors' club offering certain of the Company's die-cast collectible
products. Mr. Leicht also served as a director of the Company during November
and December 1993. From January 1993 to September 1993, Mr. Leicht was a
consultant to the Company engaged in licensing and product development
activities. Prior to joining the Company, Mr. Leicht served as President of New
Asheville Speedway in Asheville, North Carolina, from 1981 to December 1992.
26
<PAGE>
Jack M. Lloyd has been a director of the Company since July 1995. Mr.
Lloyd has served as the President and Chief Executive Officer of DenAmerica
Corp., a publicly held corporation which is the largest franchisee of Denny's
restaurants in the United States, since March 1996. Mr. Lloyd served as the
Chairman of the Board and Chief Executive Officer of Denwest Restaurant Corp.
("Denwest"), the second largest franchisee of Denny's restaurants in the United
States, from 1987 until its merger with DenAmerica Corp. in March 1996. Mr.
Lloyd also served as President of Denwest from 1987 until November 1994. Mr.
Lloyd engaged in commercial and residential real estate development and property
management as president of First Federal Investment Corporation during the early
and mid-1980s. Mr. Lloyd also held senior management positions in accounting,
financing and budgeting in Texas Utilities.
Robert H. Manschot has been a director of the Company since July 1995.
Mr. Manschot currently serves as President and Chief Executive Officer of the
United Kingdom division of Seceurop Group and engages in business consulting
services and venture capital activities. Mr. Manschot served as President and
Chief Executive Officer of Rural/Metro Corporation ("Rural/Metro"), a publicly
held provider of ambulance and fire protection services, from October 1988 until
March 1995. Mr. Manschot joined Rural/Metro in October 1987 as Executive Vice
President, Chief Operating Officer and a member of its Board of Directors. Mr.
Manschot was with the Hay Group, an international consulting firm, from 1978
until October 1987, serving as Vice President and a partner from 1984, where he
led strategic consulting practices in Brussels, Asia, and the western United
States. Prior to joining the Hay Group, Mr. Manschot spent 10 years with several
leading international hotel chains in senior operating positions in Europe, the
Middle East, Africa, and the United States.
Executive Compensation
The following table sets forth certain information concerning the
compensation for the fiscal years ended September 30, 1993, 1994, and 1995
earned by the Company's Chief Executive Officer and by the Company's other
executive officer whose cash salary and bonus exceeded $100,000 during the last
fiscal year (the "Named Officers"). No other officer of the Company received
compensation of $100,000 or more during fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
--------------
Awards
--------------
Annual Compensation Securities All Other
----------------------- Underlying Compensation
Name and Principal Position Year Salary($)(1) Bonus($) Options(#)(2) ($)(3)
- --------------------------- ----- ------------ -------- -------------- -------
<S> <C> <C> <C> <C> <C>
Fred W. Wagenhals 1995 $164,423 $23,000 50,000 $3,173
Chairman of the Board, President, 1994 150,000 -- 40,000 --
and Chief Executive Officer 1993 79,473 -- 200,000 --
Harvey J. Turner(4) 1995 $110,384 $15,000 -- $2,508
Executive Vice President, Chief 1994 57,692 -- 260,000 --
Operating Officer, and Director
</TABLE>
- ----------
(1) Messrs. Wagenhals and Turner also received certain perquisites, the
value of which did not exceed 10% of their salary and bonus during
fiscal 1995.
(2) The exercise price of all stock options granted were equal to the fair
market value of the Company's Common Stock on the date of grant.
(3) Amounts shown for fiscal 1995 represent matching contributions made by
the Company to the Company's 401(k) Plan.
27
<PAGE>
(4) Mr. Turner joined the Company as an officer in November 1993 and became
a director of the Company in December 1993. Mr. Turner resigned as an
officer and director of the Company on April 30, 1995.
The following table provides information on stock options granted to the
Company's Named Officers during the fiscal year ended September 30, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options Exercise
Options Granted in Price
Name Granted (#)(1) Fiscal Year ($/Sh) Expiration Date
- ---- -------------- ----------- ------ ---------------
<S> <C> <C> <C> <C>
Fred W. Wagenhals 50,000 12.5% $5.25 August 4, 2001
Chairman of the Board, President,
and Chief Executive Officer
Harvey J. Turner(2) -- -- -- --
Executive Vice President, Chief
Operating Officer, and Director
</TABLE>
- ----------------
(1) The options were granted at the fair value of the shares on the date of
grant, became immediately exercisable, and have a six-year term.
(2) Mr. Turner joined the Company as an officer in November 1993 and became
a director of the Company in December 1993. Mr. Turner resigned as an
officer and director of the Company on April 30, 1995.
The following table provides information on options exercised in the
last fiscal year by the Company's Named Officers and the value of each such
officer's unexercised options at September 30, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the Money Options
Options at Fiscal Year-End (#) at Fiscal Year-End ($)(1)
Shares Acquired Value ----------------------------- --------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fred W. Wagenhals -0- -0- 290,000 -0- $1,852,500 -0-
Chairman of the Board,
President, and Chief
Executive Officer
Harvey J. Turner(2) 260,000 $1,206,537 -- -- -- --
Executive Vice President,
Chief Operating Officer,
and Director
</TABLE>
- ----------------
(1) Calculated based upon the closing price as reported on the Nasdaq
National Market on September 29, 1995 of $8.50 per share.
(2) Mr. Turner joined the Company as an officer in November 1993 and became
a director of the Company in December 1993. Mr. Turner resigned as an
officer and director of the Company on April 30, 1995. Mr.
Turner exercised options to purchase 260,000 shares of the Company's
Common Stock subsequent to his resignation as an officer and director of
the Company.
28
<PAGE>
401(k) Profit Sharing Plan
In October 1994, the Company established a defined contribution plan
(the "401(k) Plan") that qualifies as a cash or deferred profit sharing plan
under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). Under the 401(k) Plan, participating
employees may defer from 1% to 15% of their pre-tax compensation, subject to the
maximum allowed under the Internal Revenue Code. The Company will contribute
$.50 for each dollar contributed by the employee, up to a maximum contribution
of 2% of the employee's defined compensation. In addition, the 401(k) Plan
provides that the Company may make an employer profit sharing contribution in
such amounts as may be determined by the Board of Directors. The Company does
not have a long-term incentive plan or a defined benefit or actuarial plan and
has never issued any stock appreciation rights.
1993 Stock Option Plan
The Company's 1993 Stock Option Plan, as amended (the "1993 Plan")
provides for the granting of options to acquire Common Stock of the Company
("Options"), the direct granting of Common Stock ("Stock Awards"), the granting
of stock appreciation rights ("SARs"), and the granting of other cash awards
("Cash Awards") (Stock Awards, SARs, and Cash Awards are collectively referred
to herein as "Awards"). The 1993 Plan is intended to comply with Rule 16b-3 as
promulgated under the Exchange Act with respect to persons subject to Section 16
of the Exchange Act. The Company believes that the 1993 Plan is important in
attracting and retaining executives and other key employees and constitutes a
significant part of the compensation program for key personnel, providing them
with an opportunity to acquire a proprietary interest in the Company and giving
them an additional incentive to use their best efforts for the long-term success
of the Company. The 1993 Plan will remain in effect until September 24, 2001.
A maximum of 2,000,000 shares of Common Stock of the Company may be
issued under the 1993 Plan. As of March 31, 1996, an aggregate of 966,500 shares
of the Company's Common Stock has been issued upon exercise of Options granted
pursuant to the 1993 Plan, and there were outstanding Options to acquire an
additional 1,024,100 shares of the Company's Common Stock. If any Option or SAR
terminates or expires without having been exercised in full, stock not issued
under such Option or SAR will again be available for the purposes of the 1993
Plan. If any change is made in the stock subject to the 1993 Plan, or subject to
any Option or SAR granted under the 1993 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination of
shares, exchange of shares, change in corporate structure, or otherwise), the
1993 Plan provides that appropriate adjustments will be made as to the maximum
number of shares subject to the 1993 Plan and the number of shares and exercise
price per share of stock subject to outstanding Options.
Options and Awards may be granted only to persons ("Eligible Persons")
who at the time of grant are either (i) key personnel (including officers) of
the Company or its subsidiaries, or (ii) consultants and independent contractors
who provide valuable services to the Company or to its subsidiaries. Directors
who are not employees of the Company are ineligible to receive Options or Awards
except under the Automatic Program described below. Options that are incentive
stock options may only be granted to key personnel of the Company (or its
subsidiaries) who are also employees of the Company (or its subsidiaries). To
the extent that granted Options are incentive stock options, the terms and
conditions of those Options must be consistent with the qualification
requirements set forth in the Internal Revenue Code. There is no restriction as
to the number of Options or Awards that can be granted to any one employee
(including officers) or as to the maximum number of shares with respect to which
Options or Awards can be granted to any one employee (including officers).
To exercise an Option, the optionholder will be required to deliver to
the Company full payment of the exercise price for the shares as to which the
option is being exercised. Generally, options can be exercised by delivery of
cash, bank cashier's check or shares of Common Stock of the Company.
29
<PAGE>
Unless otherwise authorized by the Board of Directors in its sole
discretion, Options granted under the 1993 Plan are nontransferable other than
by will or by the laws of descent and distribution upon the death of the
optionholder and, during the lifetime of the optionholder, are exercisable only
by such optionholder. Unless the terms of the stock option agreement otherwise
provide, in the event of the death or termination of the employment or services
of the participant (but never later than the expiration of the term of the
Option) Options may be exercised within a one-month period. If termination is by
reason of disability, however, Options may be exercised by the optionholder or
the optionholder's estate or successor by bequest or inheritance during the
period ending one year after the optionholder's retirement (but not later than
the expiration of the term of the option). Termination of employment at any time
for cause immediately terminates all Options held by the terminated employee.
The 1993 Plan includes an Automatic Program that provides for the
automatic grant of stock options ("Automatic Options") to non-employee
directors. Each non-employee director serving on the Board of Directors on the
date the amendments to the 1993 Plan providing for the Automatic Program were
approved by the Company's shareholders received Automatic Options to acquire
10,000 shares of Common Stock on that date, and each subsequently newly elected
non-employee member of the Board of Directors will receive Automatic Options to
acquire 10,000 shares of Common Stock on the date of his or her first
appointment or election to the Board of Directors. In addition, Automatic
Options to acquire 8,000 shares of Common Stock will be automatically granted to
each non-employee director at the meeting of the Board of Directors held
immediately after each annual meeting of shareholders. All Automatic Options
vest and become exercisable immediately upon grant. A non-employee member of the
Board of Directors is not eligible to receive the 8,000-share Automatic Option
grant if that option grant date is within 30 days of such non-employee member
receiving the 10,000-share Automatic Option grant. The exercise price per share
of Common Stock subject to Automatic Options granted under the 1993 Plan will be
equal to 100% of the fair market value of the Company's Common Stock (as defined
in the 1993 Plan) on the date such options are granted. The Company believes
that the automatic grant of stock options to non-employee directors is necessary
to attract, retain and motivate independent directors. The non-discretionary
feature is intended to satisfy the requirements of rules adopted under the
Exchange Act.
The Company also may grant Awards to Eligible Persons under the 1993
Plan. SARs entitle the recipient to receive a payment equal to the appreciation
in market value of a stated number of shares of Common Stock from the price
stated in the award agreement to the market value of the Common Stock on the
date first exercised or surrendered. Stock Awards entitle the recipient to
directly receive Common Stock. Cash Awards entitle the recipient to receive
direct payments of cash depending on the market value or the appreciation of the
Common Stock or other securities of the Company.
Employment Agreements
In January 1993, the Company entered into a three-year employment
agreement with Fred W. Wagenhals, the Company's Chairman of the Board, President
and Chief Executive Officer. The agreement with Mr. Wagenhals provided for a
minimum annual salary of $150,000. Under the terms of the employment agreement,
the Company also granted Mr. Wagenhals options to purchase 200,000 shares of
Common Stock. The Company and Mr. Wagenhals currently are negotiating a new
three-year employment agreement.
The Company offers its employees medical and life insurance benefits.
The executive officers and other key employees of the Company, including
directors who also are employees of the Company, are eligible to receive stock
options under the Company's stock option plan. See "Management - 1993 Stock
Option Plan."
Directors' Compensation
Employees of the Company do not receive compensation for serving as
members of the Company's Board of Directors. Independent directors receive
$2,500 for each meeting attended in person. All directors are reimbursed for
their expenses in attending meetings of the Board of Directors. Directors who
are employees of the Company are eligible to receive stock options pursuant to
the Company's 1993 Stock Option Plan. Pursuant to the 1993 Plan,
30
<PAGE>
each non-employee director of the Company receives an automatic grant of options
to acquire 10,000 shares of the Common Stock on the date of his or her election
or appointment as a director. Non-employee directors also receive an automatic
grant of options to purchase 8,000 shares of Common Stock on the date of the
meeting of the Board of Directors held immediately after each subsequent annual
meeting of the shareholders of the Company. See "Management - 1993 Stock Option
Plan."
Limitation of Directors' Liability; Indemnification of Directors, Officers,
Employees, and Agents
The Company's Restated Articles eliminate the personal liability of any
director of the Company to the Company or its shareholders for money damages for
any action taken or failure to take any action as a director of the Company, to
the fullest extent allowed by the Arizona Business Corporation Act (the
"Business Corporation Act"). Under the Business Corporation Act, directors of
the Company will be liable to the Company or its shareholders only for (a) the
amount of a financial benefit received by the director to which the director is
not entitled; (b) an intentional infliction of harm on the Company or its
shareholders; (c) certain unlawful distributions to shareholders; and (d) an
intentional violation of criminal law. The effect of these provisions in the
Restated Articles is to eliminate the rights of the Company and its shareholders
(through shareholders' derivative suits on behalf of the Company) to recover
money damages from a director for all actions or omissions as a director
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (a) through (d) above. These
provisions do not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care.
The Company's Restated Articles require the Company to indemnify and
advance expenses to any person who incurs liability or expense by reason of such
person acting as a director of the Corporation, to the fullest extent allowed by
the Business Corporation Act. This indemnification is mandatory with respect to
directors in all circumstances in which indemnification is permitted by the
Business Corporation Act, subject to the requirements of the Business
Corporation Act. In addition, the Company may, in its sole discretion, indemnify
and advance expenses, to the fullest extent allowed by the Business Corporation
Act, to any person who incurs liability or expense by reason of such person
acting as an officer, employee or agent of the Company, except where
indemnification is mandatory pursuant to the Business Corporation Act, in which
case the Company is required to indemnify to the fullest extent required by the
Business Corporation Act.
CERTAIN TRANSACTIONS
In November 1993, Fred W. Wagenhals advanced the Company $473,000. This
advance was made to enable the Company to cover advance production costs on the
manufacture of certain die-cast promotional programs. The Company issued a
promissory note to Mr. Wagenhals in the amount of the advance, bearing interest
at 8% per annum. As of September 30, 1994, the promissory note was paid in full.
In November 1993, the Company entered into an agreement with Action
Performance Sales, Inc., Fred W. Wagenhals, and Edward M. Topham and Bruce S.
Gill, former officers and directors of the Company. The agreement was
subsequently modified in March 1994. Pursuant to the modified agreement, (i) Mr.
Wagenhals and his designees purchased 39,822 shares of the Company's Common
Stock from Mr. Gill for $46,390, or $1.16 per share; (ii) the Company purchased
and retired 560,178 shares of the Company's Common Stock from Mr. Gill for
$653,610, or $1.16 per share; (iii) Mr. Gill's employment agreement with the
Company, which provided forminimum compensation of $150,000 per year through
July 1996, was cancelled except for certain non-competition covenants; (iv) Mr.
Gill resigned as a director and officer of the Company and its subsidiaries; (v)
options to purchase 200,000 shares of the Company's Common Stock at $2.75 per
share held by Mr. Gill were cancelled; and (vi) the Company sold certain real
and personal property located in Florida to Mr. Gill for approximately $31,300
and the assumption by Mr. Gill of a mortgage with a principal amount of
approximately $23,344.
31
<PAGE>
Pursuant to the same agreement, (a) Mr. Topham's employment agreement
with the Company, which provided for minimum compensation of $100,000 per year
through December 1995, was cancelled except for certain non-competition
covenants; (b) in January 1994 designees of Mr. Wagenhals purchased certain
bonus rights and options to acquire 160,000 shares of the Company's Common Stock
from Mr. Topham for $260,000; and (c) Mr. Topham agreed to assist the Company in
certain matters relating to his former responsibilities as the Company's Chief
Financial Officer for a period of not more than 60 days, for an amount equal to
$100,000.
In November 1993, the Company entered into an agreement with Fred W.
Wagenhals and V. Andrew Gill, a former officer and director of the Company. The
agreement was subsequently modified in March 1994. Pursuant to the modified
agreement, (1) Mr. Wagenhals and his designees purchased 36,978 shares of the
Company's Common Stock from Mr. Gill for $40,010, or $1.08 per share; (2) the
Company purchased and retired a total of 563,022 shares of the Company's Common
Stock from Mr. Gill for $559,990 and the cancellation of Mr. Gill's promissory
note in favor of the Company in the amount of $50,000, or $1.08 per share; (3)
Mr. Gill's employment agreement with the Company, which provided for minimum
compensation of $150,000 per year through July 1996, was cancelled except for
certain non-competition covenants; (4) Mr. Gill resigned as an officer of the
Company and its subsidiaries; and (5) options to acquire 200,000 shares of the
Company's Common Stock at $2.75 per share held by Mr. Gill were cancelled. Mr.
Gill resigned as a director of the Company on January 3, 1994.
In December 1994, Fred W. Wagenhals advanced $300,000 to the Company in
order to enable the Company to make certain advance royalty payments related to
license agreements entered into by the Company for die-cast products to be
marketed by the Company beginning in the second quarter of fiscal 1995. The
Company issued a promissory note to Mr. Wagenhals for the advance, bearing
interest, at 9% per annum, providing for monthly payment of accrued interest and
calling for the payment of the principal no later than March 31, 1995. The
Company repaid the note in full on February 9, 1995. The Company's prepaid
expenses and other assets at September 30, 1995 included an advance of $50,000
to Mr. Wagenhals, which was repaid in fiscal 1996.
In January 1995, the Company entered into a consulting agreement with
Speedway Collectibles & Souvenirs ("Speedway"), a distributor of the Company's
die-cast collectible products at that time. The Company issued to Speedway
200,000 shares of the Company's Common Stock as compensation for consulting
services provided to the Company by Speedway pursuant to the agreement. Speedway
served as a distributor of the Company's die-cast collectibles and other
products from the time of the Company's inception in May 1992 until Speedway
ceased business operations in August 1995, and regularly purchased such products
from the Company in the ordinary course of business and on similar terms as
other distributors of the Company's products. Carol Leicht, mother of Russell W.
Leicht, Jr. (who became an officer and director of the Company in May 1995) was
the owner of Speedway. In addition, Mr. Leicht's father, brother, and sister
were employees of Speedway. Russell W. Leicht, Jr. was not an employee of, and
had no ownership interest in, Speedway. In March 1995, Speedway distributed the
shares of Common Stock to Mr. Leicht and Mr. Leicht's mother, brother, and
sister. Such shares are being registered for resale pursuant to the Registration
Statement of which this Prospectus forms a part.
The Company currently leases a building in Tempe, Arizona, containing
approximately 32,000 square feet, for its corporate, administrative and sales
offices and warehouse facilities. Fred W. Wagenhals currently owns a one-third
interest in F. W. Investments, a partnership which owns this facility. Prior to
February 1994, the Company occupied a separate leased facility in Tempe, Arizona
totalling approximately 47,000 square feet, which was utilized as offices and
for manufacturing. F.W. Investments also owns this building facility. The
Company paid F.W. Investments rent of approximately $171,000, $177,000 and
$101,000 respectively, during fiscal 1994 and 1995 and the six months ended
March 31, 1996.
32
<PAGE>
PRIVATE PLACEMENTS
In January 1994, the Company completed a private placement of 83 units
and in March 1994, the Company completed a private placement of 125 units for
$20,000 per unit. Each unit consisted of $12,500 in principal amount of 10%
Convertible Subordinated Debentures and 5,400 shares of Common Stock. All of the
Debentures were subsequently converted into shares of the Company's Common Stock
at a conversion price of $1.75 per share. An aggregate of 77,998 shares of
Common Stock that were issued as part of the units or upon conversion of the
Debentures are being registered for resale pursuant to the Registration
Statement of which this Prospectus forms a part.
In August 1994, the Company issued 100,000 shares of Common Stock to
F.M. Motorsports, Inc., formerly Fan Fueler, Inc., as consideration for the
assets and liabilities acquired from Fan Fueler, Inc. at that time. See
"Business - Development of the Company." The shares held by F.M. Motorsports,
Inc. are being registered for resale pursuant to the Registration Statement of
which this Prospectus forms a part.
During the quarter ended March 31, 1995, the Company completed the sale
of 500 shares of Class A Preferred Stock to an affiliate of its principal
manufacturer of die-cast collectibles, for a purchase price of $2.0 million. The
sale was effected primarily as a long-term strategic transaction intended to
align the interests of the manufacturer with those of the Company. The shares of
Class A Preferred Stock do not receive dividends unless dividends are paid on
shares of the Company's Common Stock. The shares are convertible into an
aggregate of 1,000,000 shares of Common Stock commencing in May 1996. The
Company will have the right to redeem the Class A Preferred Stock after the date
on which the Class A Preferred Stock has become convertible into Common Stock
and other conditions have been satisfied. See "Description of Securities - Class
A Preferred Stock." The Registration Statement of which this Prospectus forms a
part is intended to satisfy the Company's requirement to register the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock. In order
to avoid any conflict of interest arising from the holder's status as the
Company's principal manufacturer, the shares are subject to a voting trust under
which Fred W. Wagenhals, the Company's Chairman of the Board, President, and
Chief Executive Officer, serves as voting trustee. Of the $2.0 million in
proceeds, the Company utilized approximately $1.0 million to purchase tooling
used in the manufacture of its die-cast collectibles and approximately $1.0
million for working capital.
33
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the shares
of the Company's outstanding Common Stock beneficially owned as of May 1, 1996
(i) by each of the Company's directors and executive officers; (ii) by all
directors and executive officers of the Company as a group; (iii) by each person
who is known by the Company to own beneficially or exercise voting or
dispositive control over more than 5% of the Company's Common Stock; and (iv) by
each of the Selling Shareholders.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering(1)(2) Shares Being Offering(2)
Name and Address of ------------------- Registered for -------------------
Beneficial Owner Number Percent Sale(3) Number Percent(4)
- ---------------- ------ ------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Directors and Executive Officers
- --------------------------------
Fred W. Wagenhals 3,854,000(5) 30.2% 0 3,854,000 30.0%
Tod J. Wagenhals 171,456(6) 1.5% 0 171,456 1.3%
Christopher S. Besing 90,000(7) * 0 90,000 *
Russell W. Leicht, Jr. 160,000(8) 1.4% 100,000 60,000 *
Jack M. Lloyd 18,000(9) * 0 18,000 *
Robert H. Manschot 24,000(10) * 0 24,000 *
All directors and executive officers
as a group (six persons) 4,317,456 33.0% 100,000 4,217,456 32.1%
Non-Management 5% Shareholder
- -----------------------------
CMC Enterprises Limited 1,000,000(11) 8.0% 0 1,000,000 8.0%
Other Selling Shareholders
- --------------------------
Richard Nager 193,508(12) 1.7% 31,774 161,734 1.3%
Murray Forman 139,828(13) 1.2% 31,776 98,052 *
Carol Leicht 108,000 * 76,000 32,000 *
F.M. Motorsports, Inc. 100,000(14) * 100,000 0 *
Philip C. Leavitt 56,920 * 55,620 1,300 *
Gene Leicht 12,000 * 12,000 0 *
Sherri L. Leicht 12,000 * 12,000 0 *
Dianne Leavitt 11,142 * 11,142 0 *
David Leavitt 11,036 * 11,036 0 *
</TABLE>
- ------------------------
*Less than 1% of outstanding shares of Common Stock.
(1) Except as otherwise indicated, each person named in the table has sole
voting and investment power with respect to all Common Stock beneficially
owned by him, subject to applicable community property law. Except as
otherwise indicated, each of such persons may be reached through the
Company at 2401 West First Street, Tempe, Arizona 85251.
(2) The numbers and percentages shown include the shares of Common Stock
actually owned as of May 1, 1996 and the shares of Common Stock which the
person or group had the right to acquire within 60 days of such date. In
calculating the percentage of ownership, all shares of Common Stock which
the identified person or group had the right to acquire within 60 days of
May 1, 1996 upon the conversion of Class A Preferred Stock or upon the
exercise of options and warrants are deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned by
such person or group, but are not deemed to be outstanding for the purpose
of computing the percentage of the shares of Common Stock owned by any
other person.
(3) Each of the Selling Shareholders is assumed to be selling all of the shares
of Common Stock registered for sale and will own no shares of Common Stock
after the offering, except for 60,000 shares of Common Stock issuable upon
exercise of options held by Russell W. Leicht, Jr. and 161,734, 98,052,
32,000 and 1,300 shares of Common Stock to be owned by Richard Nager,
Murray Forman, Carol Leicht and Philip C. Leavitt, respectively. The
Company has no assurance that the Selling Shareholders will sell any of the
securities being registered hereby.
(4) Calculation of percentages of shares of Common Stock beneficially owned
after the offering assumes conversion of all outstanding shares of Class A
Preferred Stock and exercise of all outstanding Bridge Warrants.
34
<PAGE>
(5) Represents 2,564,000 shares of Common Stock, options to acquire 290,000
shares of Common Stock, and 1,000,000 shares issuable upon conversion of
500 shares of Class A Preferred Stock over which Mr. Wagenhals has sole
voting power as voting trustee under a voting trust agreement with the
beneficial owner of the Company's Class A Preferred Stock. See footnote 11.
Mr. Wagenhals disclaims beneficial ownership with respect to the shares
issuable upon conversion of Class A Preferred Stock except to the extent of
his right to vote such shares pursuant to the voting trust agreement.
(6) Represents 1,456 shares of Common Stock and options to acquire 170,000
shares of Common Stock.
(7) Represents 40,000 shares of Common Stock and options to acquire 50,000
shares of Common Stock.
(8) Represents 100,000 shares of Common Stock and options to acquire 60,000
shares of Common Stock.
(9) Represents options to acquire 18,000 shares of Common Stock.
(10) Represents 6,000 shares of Common Stock and options to acquire 18,000
shares of Common Stock.
(11) Represents 1,000,000 shares of Common Stock issuable upon conversion of
Class A Preferred Stock held by CMC Enterprises Limited ("CMC"). CMC is
owned by Choi Lim Shuk, Linda Lee, and Flora To, each of whom is a director
of CMC and each of whom may be deemed to be the beneficial owner of shares
held by CMC. The address of CMC Enterprises Limited is 23/F, Block E, Phase
2, Superluck Industrial Centre, 57 Sha Tsui Road, Tsuen Wan, New
Territories, Hong Kong.
(12) Represents 103,534 shares of Common Stock and 31,774 shares issuable upon
exercise of Bridge Warrants held by Mr. Nager; 29,200 shares of Common
Stock held by Richard Nager Assoc., Inc. Defined Contribution Plan; 12,000
shares held by the Richard Nager IRA; and 17,000 shares held by The Aldine
Trust, Richard Nager and Marvin Bank, Trustees. After the offering, Mr.
Nager will beneficially own 161,734 shares of Common Stock.
(13) Represents 98,052 shares of Common Stock and 31,776 shares issuable upon
exercise of Bridge Warrants held by Mr. Forman. After the offering, Mr.
Forman will beneficially own 98,052 shares of Common Stock.
(14) F.M. Motorsports, Inc. is owned by Fred Miller, III and Peter LaMonica,
each of whom may be deemed to be the beneficial owner of the shares held by
F.M. Motorsports, Inc. Each of Messrs. Miller and LaMonica disclaims
beneficial ownership of the shares held by F.M. Motorsports, Inc., except
to the extent of his respective ownership interest in F.M. Motorsports,
Inc.
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 25,000,000 shares of Common
Stock, $0.01 par value and 5,000,000 shares of serial preferred stock, no par
value (the "Serial Preferred Stock"), of which there were 500 shares designated
as Class A Preferred Stock outstanding at May 1, 1996. As of May 1, 1996,
11,488,472 shares of Common Stock were issued and outstanding. An additional
1,000,000 shares have been reserved for issuance upon conversion of the Class A
Preferred Stock, 63,550 shares have been reserved for issuance upon exercise of
outstanding warrants and Bridge Warrants, and 1,033,500 shares of Common Stock
may be issued upon exercise of options outstanding or available under the
Company's 1993 Stock Option Plan. The issued and outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby, when issued will be,
fully paid and non-assessable.
Common Stock
Holders of shares of Common Stock are entitled to one vote for each
share of Common Stock held of record on all matters submitted to a vote of the
shareholders, other than the election of directors in which shareholders are
entitled to cumulate their votes in accordance with Arizona law. Subject to the
preferences of any outstanding preferred stock, each share of Common Stock is
entitled to receive dividends as may be declared by the Company's Board of
Directors out of funds legally available. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment in full of all
creditors of the Company and the liquidation preferences of any outstanding
shares of preferred stock.
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Class A Preferred Stock
Holders of shares of Class A Preferred Stock are entitled to receive
dividends only if, when, and as dividends are declared with respect to shares of
the Company's Common Stock, in an amount equal to the amount that such holders
would receive if their respective shares of Class A Preferred Stock had been
converted into Common Stock, as described below. The holders of Class A
Preferred Stock are entitled to one vote for each share of Common Stock into
which the Class A Preferred Stock may be converted on all matters submitted to a
vote of the shareholders of the Company. Except as otherwise provided by Arizona
law or the Company's Restated Articles, holders of shares of Class A Preferred
Stock and Common Stock vote together and not as separate classes. The
outstanding shares of Class A Preferred Stock currently are subject to a voting
trust pursuant to which Fred W. Wagenhals, the Company's Chairman of the Board,
President, and Chief Executive Officer, serves as voting trustee. The shares of
Common Stock issuable upon conversion of the Class A Preferred Stock will be
subject to the voting trust, which expires on January 1, 2005.
The holders of Class A Preferred Stock will be entitled to convert each
share of Class A Preferred Stock into 2,000 shares of Common Stock at any time
after May 29, 1996, including the 30-to-60 day period after the Company has
given written notice of its intent to redeem the Class A Preferred Stock as
described below. The conversion ratio will be proportionately adjusted for stock
splits, stock dividends, reclassification of, or combination of (a reverse
split) the outstanding shares of Common Stock. Unless the Class A Preferred
Stock has been converted prior to redemption, the Company will have the right to
redeem the Class A Preferred Stock in whole or in part upon payment by the
Company of the redemption price of $4,000 per share upon not less than 30 nor
more than 60 days' written notice given to the holders of the Class A Preferred
Stock at any time after May 29, 1996, provided that the Common Stock issuable
upon conversion of the Class A Preferred Stock has been registered for issuance
under the Securities Act. The Registration Statement of which this Prospectus
forms a part is intended to fulfill the Company's obligation to register the
shares of Common Stock issuable upon conversion of the Class A Preferred Stock.
In the event of liquidation, dissolution, or winding up of the Company, the
holders of Class A Preferred Stock will be entitled to a liquidation preference
of $4,000 per share of Class A Preferred Stock from the assets remaining after
payment in full of all creditors of the Company and before any payment is made
to holders of the Company's Common Stock. The holders of Class A Preferred Stock
will not be entitled to any further payment after full payment of the
liquidation preference has been made.
Serial Preferred Stock
The Serial Preferred Stock may be issued in such series and
denominations as deemed advisable by the Company's Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder approval,
to issue Serial Preferred Stock with dividend, liquidation, conversion, voting
or other rights that could adversely affect the voting power or other rights of
holders of the Common Stock. In the event of issuance, the Serial Preferred
Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. The
Company does not currently intend to issue any shares of Serial Preferred Stock.
Bridge Warrants
Up to 63,550 shares of Common Stock may be issued upon exercise of the
Bridge Warrants. The Bridge Warrants were included in units issued upon
conversion of the Company's Series A Convertible Notes in April 1993. Each
Bridge Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $3.30 per share at any time on or before April 27, 1998. The
Bridge Warrants are not subject to redemption by the Company. The shares of
Common Stock underlying the Bridge Warrants, when issued upon exercise of a
warrant and payment of the exercise price for such shares of Common Stock, will
be fully paid and nonassessable and the Company will pay any transfer tax
incurred as the result of the issuance of Common Stock to the holder upon its
exercise. The Bridge Warrants contain certain provisions that protect the
holders against dilution by adjustment of the exercise price and the number of
shares issuable upon exercise of the warrants upon the occurrence of certain
events, such as stock
36
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dividends and distributions, stock splits, recapitalizations, mergers or
consolidation. The Company is not required to issue fractional shares upon the
exercise of any Bridge Warrant. The holder of a Bridge Warrant will not possess
any rights as a shareholder of the Company until such holder exercises the
warrant.
Arizona Corporate Takeover Act and Certain Charter Provisions
The Company is subject to the provisions of Arizona Revised Statutes
Sections 10-2701 et. seq. (the "Arizona Corporate Takeover Act"). The Arizona
Takeover Act and certain provisions of the Company's Restated Articles and
Restated Bylaws, as summarized in the following paragraphs, may have the effect
of discouraging, delaying, or preventing hostile takeovers (including those that
might result in a premium over the market price of the Company's Common Stock),
or discouraging, delaying, or preventing changes in control or management of the
Company.
Arizona Corporate Takeover Act
Article 1 of the Arizona Corporate Takeover Act is intended to restrict
"greenmail" attempts by prohibiting the Company from purchasing any shares of
its capital stock from any beneficial owner of more than 5% of the voting power
of the Company (a "5% Owner") at a per share price in excess of the average
market price during the 30 trading days prior to the purchase, unless (i) the 5%
Owner has beneficially owned the shares to be purchased for a period of at least
three years prior to the purchase; (ii) a majority of the Company's shareholders
(excluding the 5% Owner, its affiliates or associates, and any officer or
director of the Company) approves the purchase; or (iii) the Company makes the
offer available to all holders of shares of its capital stock on the same terms.
Article 2 of the Arizona Corporate Takeover Act is intended to
discourage the direct or indirect acquisition by any person of beneficial
ownership of shares of the Company (other than an acquisition of shares from the
Company) that would, when added to other shares of the Company beneficially
owned by such person, immediately after the acquisition entitle such person to
exercise or direct the exercise of (a) at least 20% but less than 33 1/3%, (b)
at least 33 1/3% but less than or equal to 50%, or (c) more than 50% of the
voting power of the Company's capital stock (a "Control Share Acquisition"). The
Arizona Corporate Takeover Act (1) gives the shareholders of the Company other
than any person that makes or proposes to make a Control Share Acquisition (the
"Acquiring Person") or the Company's directors and officers, the right to limit
the voting power of the shares acquired by the Acquiring Person that exceed the
threshold voting ranges described above, other than in the election of
directors, and (2) gives the Company the right to redeem such shares from the
Acquiring Person at a price equal to their fair market value under certain
circumstances.
Article 3 of the Arizona Corporate Takeover Act is intended to
discourage the Company from entering into certain mergers, consolidations, share
exchanges, sales or other dispositions of the Company's assets, liquidation or
dissolution of the Company, reclassifications of securities, stock dividends,
stock splits, or other distribution of shares, and certain other transactions
(each a "Business Combination") with any Interested Shareholder (as defined
below) or any of the Interested Shareholder's affiliates or for a period of
three years after the date that the Interested Shareholder first acquired the
shares of Common Stock that qualify such person as an Interested Shareholder,
unless either the Business Combination or the Interested Shareholder's
acquisition of shares is approved by a committee of the Company's Board of
Directors (comprised of disinterested directors or other persons) prior to the
date on which the Interested Shareholder first acquired the shares that qualify
such person as an Interested Shareholder. In addition, Article 3 prohibits the
Company from engaging in any Business Combination with an Interested Shareholder
or any of the Interested Shareholder's affiliates after such three-year period
unless (i) the Business Combination or acquisition of shares by the Interested
Shareholder was approved by the Company's Board of Directors prior to the date
on which the Interested Shareholder acquired the shares that qualified such
person as an Interested Shareholder; (ii) the Business Combination is approved
by the Company's shareholders (excluding the Interested Person or any of its
affiliates) at a meeting called after such three-year period; or (iii) the
Business Combination satisfies each of certain statutory requirements. Article 3
defines an "Interested Shareholder" as any person (other than the Company
37
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and its subsidiaries) that either (a) beneficially owns 10% or more of the
voting power of the outstanding shares of the Company, or (b) is an affiliate or
associate of the Company and who, at any time within the three-year period
preceding the transaction, was the beneficial owner of 10% or more of the voting
power of the outstanding shares of the Company.
Certain Charter Provisions
In addition to the provisions of the Arizona Corporate Takeover Act
described above, the Company's Restated Articles and Restated Bylaws contain a
number of provisions relating to corporate governance and the rights of
shareholders. These provisions include (a) the authority of the Board of
Directors to fill vacancies on the Board of Directors; (b) the authority of the
Board of Directors to issue preferred stock in series with such voting rights
and other powers as the Board of Directors may determine; (c) a provision that,
unless otherwise prohibited by law, special meetings of the shareholders may be
called only by the President of the Company, the Board of Directors, or by
holders of not fewer than 10% of all shares entitled to vote at the meeting; and
(d) a provision for cumulative voting in the election of directors, pursuant to
Arizona law.
Shares Eligible For Future Sale
The Company currently has 11,488,472 shares of Common Stock outstanding
and will have outstanding 12,552,022 shares of Common Stock upon conversion of
all outstanding shares of Class A Preferred Stock and upon the exercise of the
Bridge Warrants. Of the 11,488,472 shares of Common Stock currently outstanding,
approximately 8,545,218 shares are eligible for resale in the public market
without restriction unless held by an existing "affiliate" of the Company, as
that term is defined under the Securities Act. The remaining 2,943,254 shares of
Common Stock currently outstanding are "restricted securities," as that term is
defined in Rule 144, and may be sold only in compliance with Rule 144, pursuant
to registration under the Securities Act or pursuant to an exemption therefrom.
An aggregate of 377,798 shares of "restricted securities" and an additional
63,550 shares issuable upon exercise of the Bridge Warrants are being registered
for resale pursuant to the Registration Statement of which this Prospectus forms
a part. The 1,000,000 shares being registered hereby for issuance upon
conversion of the Company's Class A Preferred Stock will be eligible for resale
in the public market without restriction, except for any shares held by or
issued to an existing affiliate of the Company. Affiliates will be subject to
certain of the resale limitations of Rule 144 as promulgated under the
Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three-month period, a number of shares beneficially
owned by such person for at least two years in such amount that does not exceed
the greater of (i) one percent of the then-outstanding shares of Common Stock,
or (ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 also are subject to
certain requirements as to the manner of sale, notice, and the availability of
current public information about the Company. However, a person who is not an
affiliate and has beneficially owned his or her shares for at least three years
is entitled to sell them without regard to the volume, manner of sale or notice
requirements. An aggregate of 2,512,000 shares held by Fred W. Wagenhals, the
Chairman of the Board, President, and Chief Executive Officer of the Company,
currently are available for sale under Rule 144. Sales of substantial amounts of
Common Stock by shareholders of the Company under Rule 144 or otherwise, or even
the potential for such sales, are likely to have a depressive effect on the
market price of the Common Stock and could impair the Company's ability to raise
capital through the sale of its equity securities.
As of March 31, 1996, options to purchase a total of 1,024,100 shares of
Common Stock were outstanding under the Company's 1993 Stock Option Plan. An
additional 9,400 shares currently are available for future option grants under
the 1993 Plan. See "Management - 1993 Stock Option Plan." The Company has filed
a registration statement under the Securities Act to register for offer and sale
the shares of Common Stock reserved for issuance
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pursuant to the exercise of stock options granted under the 1993 Plan. Shares
issued upon the exercise of stock options granted under the 1993 Plan generally
will be eligible for sale in the public market.
Transfer Agent and Warrant Agent
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company, New York, New York.
PLAN OF DISTRIBUTION
The Company is registering hereby 1,000,000 shares of Common Stock
issuable upon conversion of 500 shares of its Class A Preferred Stock issued in
March 1995. The Company has granted registration rights to the holder of the
Class A Preferred Stock, which the Registration Statement of which this
Prospectus forms a part is intended to satisfy. The Company will not receive any
cash consideration upon conversion of the Class A Preferred Stock and will not
pay any compensation to an NASD member in connection with the issuance of shares
upon conversion of the Class A Preferred Stock. Brokerage commissions, if any,
attributable to the sale of shares of Common Stock issued upon conversion of the
Class A Preferred Stock will be borne by the holders thereof.
The Company also is registering hereby 441,348 shares of Common Stock
currently outstanding or issuable to the Selling Shareholders upon exercise of
Bridge Warrants, all of which shares may be sold from time to time by the
Selling Shareholders. The Company has granted registration rights to certain of
the Selling Shareholders, which the Registration Statement of which this
Prospectus forms a part is intended to satisfy. Each Selling Shareholder may use
this Prospectus as updated from time to time to offer the shares of Common Stock
for sale in transactions in which the Selling Shareholder is or may be deemed to
be an underwriter within the meaning of the Securities Act. The Company will not
receive any proceeds from the sale of any shares of Common Stock by the Selling
Shareholders. The Company will not pay any compensation to an NASD member in
connection with this offering. Brokerage commissions, if any, attributable to
the sale of the shares of Common Stock offered hereby will be borne by the
holders thereof.
Each currently outstanding share of Common Stock being registered for
resale hereby and each share of Common Stock issued upon exercise of the Bridge
Warrants may be sold by the holder thereof in transactions that are exempt from
registration under the Securities Act or as long as the Registration Statement
of which this Prospectus forms a part is effective under the Securities Act, and
as long as there is a qualification in effect under, or an available exemption
from, any applicable state securities law with respect to the resale of such
shares. The Selling Shareholders, in addition to selling pursuant to the
Registration Statement of which this Prospectus is a part, also may sell under
Rule 144 as promulgated under the Securities Act, if applicable. See
"Description of Securities - Shares Eligible for Future Sale."
The Selling Shareholders also may pledge the shares of Common Stock
being registered for resale hereby to NASD broker/dealers (each a "Pledgee")
pursuant to the margin provisions of each Selling Shareholder's customer
agreements with such Pledgees. Upon default by a Selling Shareholder, the
Pledgee may offer and sell shares of Common Stock from time to time as described
above.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by O'Connor, Cavanagh, Anderson, Killingsworth & Beshears,
a professional association, Phoenix, Arizona. Certain members of such firm
beneficially owned 18,000 shares of the Company's Common Stock as of the date of
this Prospectus.
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EXPERTS
The consolidated financial statements incorporated by reference in this
Prospectus and elsewhere in the Registration Statement of which this Prospectus
forms a part have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-3 under the
Securities Act of 1933, with respect to the shares offered hereby. This
Prospectus does not contain all the information contained in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information regarding the Company and
the shares of Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits which are a part thereof, which may be
obtained upon request to the Commission and the payment of the prescribed fee.
Material contained in the Registration Statement may be examined at the
Commission's Washington, D.C. office and copies may be obtained at the
Commission's Washington, D. C. office upon payment of prescribed fees.
Statements contained in this Prospectus are not necessarily complete, and in
each case reference is made to the copy of such contracts or documents filed as
an exhibit to the Registration Statement, each such statement being qualified by
this reference.
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- ------------------------------------------------ ---------------------------
No person has been authorized to give any 1,441,348 Shares of
information or to make any representation not Common Stock
contained in this Prospectus, and, if given or
made, such information or representation must
not be relied upon as having been authorized by
or on behalf of the Company. This Prospectus
does not constitute an offer to sell or a
solicitation of an offer to buy any shares
covered by this Prospectus in any jurisdiction
or to any person to whom it is unlawful to make
such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances,
create any implication that there has been no
change in the affairs of the Company or that
the information contained herein is correct as ACTION PERFORMANCE
of any date subsequent to the date hereof. COMPANIES, INC.
Page
Available Information....................... 2
Incorporation of Certain Information
by Reference............................... 2
Prospectus Summary.......................... 3
Risk Factors................................ 5
Use of Proceeds.............................10
Dividends...................................10
Capitalization..............................10
Price Range of Common Stock.................11
Selected Consolidated Financial Data........12
Management's Discussion and Analysis of ---------------
Financial Condition and Results of P R O S P E C T U S
Operations.................................13 ---------------
Business....................................17
Properties..................................25
Management..................................26
Certain Transactions........................31
Private Placements..........................33
Principal and Selling Shareholders..........34
Description of Securities...................35
Plan of Distribution........................39
Legal Opinions..............................39
Experts.....................................40 , 1996
Additional Information......................40
- ---------------------------------------------- -----------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses payable by the Registrant in
connection with the offering described in the Registration Statement. All of the
amounts shown are estimates except for the registration fees:
Amount to be Paid
-----------------
Registration Fee.................................. $ 7,466.59
NASD Filing Fee................................... 10,000.00
Accountants' Fees and Expenses.................... 5,000.00
Legal Fees and Expenses........................... 25,000.00
Printing and Engraving Expenses................... 2,000.00
Miscellaneous Fees................................ 533.41
---------
Total........................................... $ 50,000.00
=========
Item 15. Indemnification of Directors and Officers.
The Registrant's Amended and Restated Articles of Incorporation (the
"Restated Articles") require the Registrant to indemnify and advance expenses to
any person who incurs liability or expense by reason of such person acting as a
director of the Corporation, to the fullest extent allowed by the Arizona
Business Corporation Act (the "Business Corporation Act"). This indemnification
is mandatory with respect to directors in all circumstances in which
indemnification is permitted by the Business Corporation Act, subject to the
requirements of the Business Corporation Act. In addition, the Registrant may,
in its sole discretion, indemnify and advance expenses, to the fullest extent
allowed by the Business Corporation Act, to any person who incurs liability or
expense by reason of such person acting as an officer, employee or agent of the
Registrant, except where indemnification is mandatory pursuant to the Business
Corporation Act, in which case the Registrant is required to indemnify to the
fullest extent required by the Business Corporation Act. The effect of these
provisions is described below.
Required Indemnification
The Restated Articles and the Business Corporation Act require the
Registrant to indemnify all "Outside Directors," as defined below, and officers
of the Registrant who are not directors against "liability," as defined below.
The Restated Articles and the Business Corporation Act also require the
Registrant to indemnify against reasonable "expenses," as defined below, any
director who is the prevailing party in the defense of any proceeding to which
the director is a party because such person is or was a director of the
Registrant. In addition, the Business Corporation Act requires the Registrant to
pay expenses to Outside Directors in advance of a final disposition of the
proceeding if (1) the director furnishes to the Registrant a written affirmation
(an "Affirmation") of his or her good faith belief that (i) his or her conduct
was in good faith, (ii) he or she reasonably believed that the conduct was in
the best interests of the Registrant or at least not opposed to the Registrant's
best interests, and (iii) in the case of any criminal proceeding, he or she had
no reasonable cause to believe the conduct was unlawful (the "Standard of
Conduct"), and (2) the director provides the Registrant with a written
undertaking (an "Undertaking") to repay the advance if it ultimately is
determined that the director did not meet the Standard of Conduct. However, the
Business Corporation Act prohibits the Registrant from advancing expenses to an
Outside Director if a court determines before payment that the director failed
to meet the Standard of Conduct and a court does not otherwise authorize
indemnification.
R-1
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The Restated Articles and the Business Corporation Act also require the
Registrant to indemnify a director who is not an Outside Director against
liability, but only if the Registrant is authorized in the specific case after a
determination has been made by either (a) a majority of the members of the Board
of Directors who are not at the time parties to the proceeding, (b) special
legal counsel, or (c) the shareholders of the Registrant (excluding shares owned
by or voted under the control of directors who are at the time parties to the
proceeding) that the director has met the Standard of Conduct (a
"Determination"). In addition, the Business Corporation Act prohibits the
Registrant from indemnifying a director who is not an Outside Director in
connection with a proceeding by or in the right of the Registrant in which the
director is adjudged liable to the Registrant, or in connection with a
proceeding in which the director was adjudged liable on the basis that the
director improperly received a personal benefit. As permitted by the Business
Corporation Act, the Restated Articles also require the Registrant to pay for or
reimburse the reasonable expenses of a director who is not an Outside Director
in advance of the final disposition of a proceeding if the director furnishes
the Registrant with an Affirmation, an Undertaking, and a Determination is made
that the facts then known to the persons making the Determination would not
preclude indemnification under the Business Corporation Act.
Optional Indemnification
Except for situations where the Registrant is required to indemnify its
officers who are not also directors against liability, as described above, the
Restated Articles and the Business Corporation Act permit the Registrant, in its
sole discretion, to indemnify against liability and advance expenses to any
officer, employee, or agent who is not a director to the same extent as to a
director. However, the Business Corporation Act prohibits the Registrant from
indemnifying such persons against liability unless a Determination is made that
indemnification is permissible because the person has met the Standard of
Conduct. The Business Corporation Act permits the Registrant to pay for or
reimburse expenses to an officer, employee, or agent who is not a director in
advance of a final disposition of the proceeding, but only if the person
furnishes to the Registrant an Affirmation and an Undertaking, and a
Determination is made that the facts then known to the persons making the
Determination would not otherwise preclude indemnification.
Court Ordered Indemnification
The Restated Articles and the Business Corporation Act permit a director
or officer of the Registrant to apply to a court for indemnification, in which
case the court may, subject to certain conditions, order the Registrant to
indemnify such person for part or all of the person's liability and expenses.
Definitions
The Business Corporation Act defines "Outside Director" to mean a
director who, when serving as a director, was not an officer, employee or holder
of more than 5% of the outstanding shares of any class of stock of the
Registrant. "Liability" under the Business Corporation Act means the obligation
to pay a judgment, settlement, penalty or fine, including an excise tax assessed
with respect to an employee benefit plan, or reasonable expenses incurred with
respect to a proceeding and includes obligations and expenses that have not yet
been paid by the indemnified person but that have been or may be incurred. The
Business Corporation Act defines "expenses" as attorney fees and all other costs
and expenses reasonably related to a proceeding.
R-2
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Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
1.1 Form of Underwriting Agreement(1)
1.2 Form of Agreement Among Underwriters(1)
3.1 First Amended and Restated Articles of Incorporation of Registrant(2)
3.2 Amended and Restated Bylaws of Registrant(2)
4.1 Form of Certificate of Common Stock(1)
4.2 Form of Unit Warrant(1)
4.3 Form of Warrant Agreement(1)
4.4 Form of Representative's Warrant(1)
4.5 Form of Bridge Warrant(1)
4.6 Form of Consultant's Warrant(3)
4.7 Form of 10% Convertible Subordinated Debenture due December 31, 1996(3)
4.8 Form of 10% Convertible Subordinated Debenture due March 31, 1997(3)
4.9 Certificate Pursuant to Arizona Revised Statutes Section 10-016 Establishing and
Designating the Company's Class A Preferred Stock (4)
5.0 Opinion of O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, a professional
association
9.1 Voting Trust Agreement dated as of February 13, 1995, as amended (4)
10.1 Settlement Agreement dated May 1, 1992, between First Interstate Bank, Hrudka,
Wagenhals, Fochtman and F.W. Investments(1)
10.2.1 Memorandum of Agreement dated September 1, 1992, between Hrudka, Fochtman,
Wagenhals and the Company(1)
10.2.2 Letter Agreement entered into between Hrudka, Fochtman, Wagenhals and the
Company(1)
10.3.1 Employment Agreement between the Company and Fred W. Wagenhals dated January
15, 1993(1)
10.3.2 Employment Agreement between the Company and Bill E. Dorough dated January 15,
1993(1)
10.3.3 Employment Agreement between the Company and Edward M. Topham dated January
15, 1993(1)
10.4.1 1993 Stock Option Plan, as amended and restated through July 3, 1995(5)
10.4.2 Non-Statutory Stock Option Agreement between the Company and Fred W.
Wagenhals dated January 15, 1993(1)
10.4.3 Non-Statutory Stock Option Agreement between the Company and Bill E. Dorough
dated January 15, 1993(1)
10.4.4 Non-Statutory Stock Option Agreement between the Company and Bill E. Dorough
dated January 15, 1993(1)
10.4.5 Non-Statutory Stock Option Agreement between the Company and Edward M.
Topham dated January 15, 1993(1)
10.5 Form of M-CarTM Grand Prix Contract(1)
10.6 Manufacturing and Marketing Agreement between the Company and Racing
Collectibles, Inc. dated March 1, 1993(1)
10.7 Form of Series A Convertible Promissory Note delivered to Bridge Note Holders(1)
10.8 Form of Indemnification Agreement entered into with the Directors of the
Registrant(1)
</TABLE>
R-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
10.9 Letter Agreement entered into between the Company and Hedstrom Corporation on
September 28, 1992(1)
10.10 Stock Purchase Agreement between Fred W. Wagenhals, Race Z, Inc. and the
Company, dated May 2, 1992(1)
10.11 Bill of Sale and Assignment between Tommy Cassella and the Company, dated May
2, 1992(1)
10.12 Promissory Note in the amount of $150,000 between the Company and Tassos P.
Nassos, dated March 9, 1993(1)
10.13 Promissory Note in the amount of $50,000 between the Company and George Nassos,
dated March 9, 1993(1)
10.14 Acquisition Agreement and Plan of Reorganization among the Company, Racing
Collectibles, Inc., Racing Collectibles Club of America, Inc., V. Andrew Gill and
Bruce S. Gill, dated July 30, 1993(6)
10.15 Agreement between the Company, Action Performance Sales, Inc., Fred W.
Wagenhals,Edward M. Topham and Bruce S. Gill dated November 17, 1993(7)
10.16 Agreement between Fred W. Wagenhals and V. Andrew Gill dated November 18,
1993(7)
10.17 Settlement Agreement between the Company and AMA Financial Services, Inc.,
Harvey Turner, Fred W. Wagenhals and Lisa Wagenhals dated November 22, 1993(7)
10.18 Consulting Agreement between the Company and AMA Financial Services, Inc. dated
November 22, 1993(7)
10.19 Purchase Agreement between the Company and Biggs Manufacturing, Inc. dated
January 26, 1994(8)
10.20 Exclusive Manufacturing Agreement between the Company and Biggs Manufacturing,
Inc. dated January 26, 1994(8)
10.21 Lease between the Company and F.W. Investments dated January 1, 1994(8)
10.22 Modification Agreement between the Company, Action Performance Sales, Inc., Fred
W. Wagenhals, and Bruce S. Gill dated March 17, 1994(8)
10.23 Settlement Agreement and Mutual Release between the Company, Action Performance
Sales, Inc., V. Andrew Gill, Kerry Gill, Fred W. Wagenhals, and Lisa Wagenhals
dated March 17, 1994(8)
10.24.1 Commercial Credit Agreement dated March 6, 1995 between the Company and the
Hong Kong and Shanghai Banking Corporation Limited(4)
10.24.2 Optional Advance Time Note (Loans Against Imports) dated March 6, 1995 between
the Company and the Hong Kong and Shanghai Banking Corporation(4)
10.25 Bill of Sale and Asset Purchase Agreement between the Company, Fan Fueler, Inc.,
Peter LaMonica, and Fred Miller, III dated August 12, 1994(9)
10.26 Bill of Sale and Asset Purchase Agreement between the Company, M-Car,
Incorporated, and Robert Scott Tremonti dated September 29, 1994(9)
10.27 Manufacturing Agreement between the Company and Early Light International
(Holdings) Ltd. dated December 5, 1994(9)
10.28 Consulting Agreement dated January 1, 1995 between the Company and Speedway
Collectibles & Souvenirs(10)
10.29 Asset Purchase Agreement dated March 31, 1995 between the Company and
Motorsports Promotion, Inc.(4)
10.30 Promissory Note dated March 31, 1995 between Motorsports Promotions, Inc., as
borrower, and the Company, as lender(4)
10.31 Security Agreement dated March 31, 1995 between Motorsports Promotions, Inc., as
debtor, and the Company, as secured party(4)
11.1 Computation of Primary Earnings Per Share(2)(11)
</TABLE>
R-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
11.2 Computation of Fully Diluted Earnings Per Share(2)(11)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, a professional
association (included as Exhibit 5 hereto)
24.0 Powers of Attorney of Directors and Executive Officers (included on the Signature
Page of the Registration Statement)
</TABLE>
- ----------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (Registration No. 33-57414-LA).
(2) Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended March 31, 1996, as filed with the Securities and Exchange
Commission on May 2, 1996.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-3 (Registration No. 33-79942).
(4) Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended March 31, 1995, as filed with the Securities and Exchange
Commission on May 15, 1995.
(5) Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form S-8 (Registration No. 33-66980) filed
with the Securities and Exchange Commission on February 29, 1996.
(6) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on August 5, 1993.
(7) Incorporated by reference to the Registrant's Form 10-KSB for the year
ended September 30, 1993, as filed with the Securities and Exchange
Commission on January 13, 1994, as amended on Forms 10-KSB/A filed with
the Securities and Exchange Commission on August 3, 1994 and September
1, 1994.
(8) Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended March 31, 1994 filed with the Securities and Exchange
Commission on May 16, 1994.
(9) Incorporated by reference to the Registrant's Form 10-KSB for the year
ended September 30, 1994, as filed with the Securities and Exchange
Commission on December 22, 1994.
(10) Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended June 30, 1995, as filed with the Securities and Exchange
Commission on July 31, 1995.
(11) Incorporated by reference to the Registrant's Form 10-KSB for the year
ended September 30, 1995, as filed with the Securities and Exchange
Commission on December 22, 1995, as amended on Form 10-KSB/A filed with
the Securities and Exchange Commission on January 24, 1996.
Item 17. Undertakings
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:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) 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. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
R-5
<PAGE>
(iii) 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 clauses (1)(i) and (1)(ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference into the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 above, 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 Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by 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 by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
R-6
<PAGE>
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 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 Tempe, Arizona, on the 10th day of May, 1996.
ACTION PERFORMANCE COMPANIES, INC.
By: /s/ Fred W. Wagenhals
---------------------
Fred W. Wagenhals
Chairman of the Board, President, and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints jointly and severally, Fred W. Wagenhals
and Christopher S. Besing and each one of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement, and to sign any
Registration Statement and amendments thereto for the same offering 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 attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all which said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, 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 by the following persons in the
capacities and on the dates indicated:
Signature Position Date
--------- -------- ----
/s/ Fred W. Wagenhals Chairman of the Board, President, May 10, 1996
- ------------------------- and Chief Executive Officer
Fred W. Wagenhals (Principal Executive Officer)
/s/ Tod J. Wagenhals Executive Vice President, Secretary, May 10, 1996
- -------------------------- and Director
Tod J. Wagenhals
/s/ Christopher S. Besing Vice President, Chief Financial May 10, 1996
- -------------------------- Officer, Treasurer, and Director
Christopher S. Besing Principal Financial and Accounting
Officer)
/s/ Russell W. Leicht, Jr. Vice President of Product May 10, 1996
- -------------------------- Development and Manufacturing,
Russell W. Leicht, Jr. and Director
/s/ Jack M. Lloyd Director May 15, 1996
- --------------------------
Jack M. Lloyd
/s/ Robert H. Manschot Director May 15, 1996
- --------------------------
Robert H. Manschot
R-7
O'CONNOR, CAVANAGH, ANDERSON,
KILLINGSWORTH & BESHEARS, P.A.
One East Camelback Road, Suite 1100
Phoenix, Arizona 85012-1656
Telephone 602-263-2400
Facsimile 602-263-2900
Robert S. Kant
602-263-2606
May 14, 1996
Action Performance Companies, Inc.
2401 West First Street
Tempe, Arizona 85281
Re: Registration Statement on Form S-3
Action Performance Companies, Inc.
Gentlemen:
We have acted as legal counsel to Action Performance Companies,
Inc. (the "Company"), in connection with the preparation of the Company's
Registration Statement on Form S-3 (the "Registration Statement"), to be filed
with the Securities and Exchange Commission (the "Commission") on or about May
16, 1996 under the Securities Act of 1933, as amended, covering (i) 1,000,000
shares of the Company's common stock, par value $.01 per share (the "Common
Stock") that may be issued by the Company upon conversion of the Company's
currently outstanding Class A Preferred Stock (as described in the Registration
Statement); and (ii) an aggregate of 300,000 shares of Common Stock which may be
sold from time to time by certain of the Company's shareholders (the "Selling
Shareholders") (all such shares of Common Stock collectively called the
"Shares"). All share amounts stated herein have been adjusted to reflect the
two-for-one stock split to be effected as a stock dividend on May 28, 1996.
With respect to the opinions set forth below, we have examined
originals, certified copies, or copies otherwise identified to our satisfaction
as being true copies, of the Registration Statement and such other corporate
records of the Company, agreements and other instruments, and certificates of
public officials and officers of the Company as we have deemed necessary as a
basis for the opinions hereinafter expressed. As to various questions of fact
material to such opinions, we have, where relevant facts were not independently
established, relied upon statements of officers of the Company.
Subject to the assumptions that (i) the documents and signatures
examined by us are genuine and authentic, and (ii) the persons executing the
documents examined by us have the legal capacity to execute such documents, and
subject to such further limitations and
<PAGE>
Action Performance Companies, Inc.
May 14, 1996
Page 2
qualifications set forth below, it is our opinion that when (a) the Registration
Statement as then amended shall have been declared effective by the Commission,
(b) the shares of the Company's Class A Preferred Stock are converted in
accordance with their terms, and (c) the Shares have been sold by the Selling
Shareholders as described in the Registration Statement, the Shares will be
validly issued, fully paid and non-assessable.
We have assumed, with respect to the Shares that are to be sold
by the Selling Shareholders, (i) the payment by the Selling Shareholders (or the
prior holders thereof) of the full and sufficient consideration due from them to
the Company for such Shares, and (ii) the Shares have been duly issued,
executed, and authenticated by the Company.
For purposes of our opinion, we have assumed that the Company has
paid all taxes, penalties and interest which are due and owing to the State of
Arizona.
We express no opinion as to the applicability or effect of any
laws, orders or judgments of any state or other jurisdiction other than federal
securities laws and the substantive laws of the State of Arizona. Further, our
opinion is based solely upon existing laws, rules and regulations, and we
undertake no obligation to advise you of any changes that may be brought to our
attention after the date hereof.
We hereby expressly consent to any reference to our firm in the
Registration Statement, the inclusion of this opinion as an exhibit to the
Registration Statement, and to the filing of this opinion with any other
appropriate governmental agency.
Very truly yours,
O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, P.A.
RSK:sr
[Arthur Andersen LLP Letter head]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated November 21, 1995,
included in Action Performance Companies, Inc.'s Form 10-KSB/A for the year
ended September 30, 1995, and to all references to our firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
May 14, 1996
