SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 20, 1996
ACTION PERFORMANCE COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
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ARIZONA 1-11866 86-0704792
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(State or other (Commission File No.) (IRS Employer ID No.)
jurisdiction of incorporation)
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2401 West First Street, Tempe, Arizona 85281
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (602) 894-0100
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Item 5. Other Events.
On June 20, 1996, Action Performance Companies, Inc. (the "Company")
and Hasbro, Inc. ("Hasbro") entered into a letter of intent (the "Letter of
Intent") pursuant to which the Company and Hasbro have agreed to enter into a
license agreement (the "License Agreement"). The License Agreement will cover
the exclusive sale by Hasbro of the Company's motorsports-related products in
the mass-merchandise market (the "Licensed Products"). The Company and Hasbro
currently are negotiating a definitive License Agreement, the terms of which may
vary from the proposed terms set forth in the Letter of Intent, as described
below.
The License Agreement will cover products for which the Company has or
will secure exclusive or non-exclusive licenses from racing drivers, car owners,
manufacturers, or sponsors (the "Licensors"). Under the License Agreement, the
Company will be responsible for acquiring and maintaining the license rights
with the Licensors, and Hasbro will be responsible for all costs and other
arrangements relating to tooling, manufacturing, transportation, marketing,
distribution, and sales of Licensed Products. Hasbro will pay the Company
royalties as described below, with minimum annual royalty payments in each year
during the term of the License Agreement. Hasbro also will be responsible for
royalties, including advances and guarantees, paid to Licensors for Licensed
Products. Hasbro will pay or reimburse the Company for all license fees paid to
Licensors for Licensed Products.
The Licensed Products will consist of (i) die-cast replicas of
motorsports vehicles and the 1/18th-scale plastic toy car that the Company
currently markets, for which Hasbro will pay a royalty of 6.5% of the wholesale
price with increases of up to 2.0% based on cost incentives and an additional
1.0% based on volume incentives, and (ii) all other products that Hasbro may
market as licensed motorsports products, including, for example, radio-control
cars, slot car sets, games (including CD-ROM interactive games), plush toys,
figurines, play sets, walkie talkies, and other products, for which Hasbro will
pay a royalty of 3.0% of the wholesale price. Hasbro currently markets certain
of these products under the "Kenner," "Tonka," "Milton Bradley," and other brand
names.
Hasbro's initial focus under the License Agreement will be to develop,
with the Company's guidance, a line of motorsports die-cast products for the
retail mass-merchandise market. Hasbro will fund all capital requirements for
this product line and will manufacture, distribute, and market the products
under a Hasbro brand name to be determined. The Company and Hasbro intend to
introduce this product line to the mass-market retail industry in the fall of
1996, with shipments expected to begin in December 1996 for January 1997 retail
sales. The mass-market die-cast products manufactured and marketed by Hasbro
will be completely distinct from the Company's current products and will not
compete directly with the Company's current limited-edition motorsports die-cast
collectible products.
The License Agreement will provide for a term ending on December 31,
2001. Hasbro may extend the License Agreement for an additional three-year term,
provided that total
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wholesale revenue of Licensed Products exceeds a specified amount during the
initial five-year term.
The Company believes that the License Agreement will enable it to
remain focused on its core business of designing and marketing motorsports
collectible products, while enabling the Company to benefit from Hasbro's retail
mass merchandise marketing expertise and resources as a means of expanding the
Company's product offerings without committing substantial resources to
manufacturing and marketing activities.
In addition to the License Agreement, the Letter of Intent provides
that the Company and Hasbro will enter into an equity agreement (the "Put
Option") pursuant to which the Company will be able to require Hasbro to
purchase $15.0 million of the Company's common stock at any time during a
four-year period beginning on the date of execution of the Put Option, subject
to the approval by Hasbro of the use of the proceeds of such exercise. The
exercise price of the Put Option will be equal to the average closing price of
the Company's common stock for the five business days prior to the date on which
the Company exercises the Put Option. Upon the issuance and in consideration of
the Put Option, the Company will issue to Hasbro five-year warrants to purchase
375,000 shares of the Company's common stock at an exercise price of $19.225 per
share, which is equal to the average closing price of the Company's common stock
for the five business days prior to the date on which the Letter of Intent was
executed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
June 24, 1996 ACTION PERFORMANCE COMPANIES, INC.
By: /s/ Christopher S. Besing
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Christopher S. Besing
Vice President and Chief Financial Officer
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