SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
Action Performance Companies, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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ACTION PERFORMANCE COMPANIES, INC.
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 2, 1998
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The Annual Meeting of Shareholders of Action Performance Companies,
Inc., an Arizona corporation (the "Company"), will be held at 10:00 a.m., on
Monday, March 2, 1998, at The Fiesta Inn, 2100 S. Priest Drive, Tempe, Arizona
85282, for the following purposes:
1. To elect directors to serve until the next annual meeting of
shareholders and until their successors are elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending September 30, 1998.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on January 23,
1998 are entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting in person.
To assure your representation at the meeting, however, you are urged to mark,
sign, date, and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she previously has returned a
proxy.
Sincerely,
Phoenix, Arizona Tod J. Wagenhals
January 28, 1998 Secretary
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
4707 East Baseline Road
Phoenix, Arizona 85040
PROXY STATEMENT
VOTING AND OTHER MATTERS
General
The enclosed proxy is solicited on behalf of Action Performance
Companies, Inc., an Arizona corporation (the "Company"), by the Company's board
of directors (the "Board of Directors") for use at the Company's Annual Meeting
of Shareholders to be held at 10:00 a.m. on Monday, March 2, 1998 (the
"Meeting"), or at any adjournment thereof, for the purposes set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Shareholders. The Meeting will be held at The Fiesta Inn, 2100 S. Priest Drive,
Tempe, Arizona 85282.
These proxy solicitation materials were first mailed on or about
January 28, 1998, to all shareholders entitled to vote at the Meeting.
Voting Securities and Voting Rights
Shareholders of record at the close of business on January 23, 1998
(the "Record Date") are entitled to notice of and to vote at the Meeting. On the
Record Date, there were issued and outstanding 16,014,044 shares of the
Company's Common Stock, $0.01 par value per share (the "Common Stock"). Each
holder of Common Stock voting at the Meeting, either in person or by proxy, may
cast one vote per share of Common Stock held on all matters to be voted on at
the Meeting.
The presence, in person or by proxy, of the holders of a majority of
the total number of shares entitled to vote constitutes a quorum for the
transaction of business at the Meeting. Assuming that a quorum is present, the
affirmative vote of a majority of the shares of the Company present in person or
represented by proxy at the Meeting and entitled to vote is required (i) for the
election of directors, and (ii) for the ratification of the appointment of
Arthur Andersen LLP as the independent auditors of the Company for the fiscal
year ending September 30, 1998.
Arizona law requires cumulative voting in elections for directors,
which means that each shareholder may cast that number of votes that is equal to
the number of shares held of record, multiplied by the number of directors to be
elected. Each shareholder may cast the whole number of votes for one candidate
or distribute such votes among two or more candidates. The enclosed proxy does
not seek discretionary authority to cumulate votes in the election of directors.
Votes cast by proxy or in person at the Meeting will be tabulated by
the election inspectors appointed for the Meeting and will determine whether a
quorum is present. The election inspectors will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum, but as unvoted for purposes of determining the approval of any matter
submitted to the shareholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
Voting of Proxies
When a proxy is properly executed and returned, the shares it
represents will be voted at the Meeting as directed. If no specification is
indicated, the shares will be voted (i) "for" the election of nominees set forth
in this
<PAGE>
Proxy Statement, and (ii) "for" the ratification of the appointment of Arthur
Andersen LLP as the independent auditors of the Company for the fiscal year
ending September 30, 1998.
Revocability of Proxies
Any person giving a proxy may revoke the proxy at any time before its
use by delivering to the Company written notice of revocation or a duly executed
proxy bearing a later date or by attending the Meeting and voting in person.
Solicitation
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for expenses incurred in forwarding
solicitation materials to such beneficial owners. Proxies also may be solicited
by certain of the Company's directors and officers, personally or by telephone
or telegram, without additional compensation.
Annual Report and Other Matters
The Company's 1997 Annual Report to Shareholders, which was mailed to
shareholders with or preceding this Proxy Statement, contains financial and
other information about the Company, but is not incorporated into this Proxy
Statement and is not to be considered a part of these proxy soliciting materials
or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
information contained in the "Compensation Committee Report on Executive
Compensation" below and "Performance Graph" below shall not be deemed "filed"
with the Securities and Exchange Commission (the "SEC") or subject to
Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.
The Company will provide upon written request, without charge to each
shareholder of record as of the Record Date, a copy of the Company's annual
report on Form 10-K for the fiscal year ended September 30, 1997, as filed with
the SEC. Any exhibits listed in the Form 10-K report also will be furnished upon
request at the actual expense incurred by the Company in furnishing such
exhibit. Any such requests should be directed to the Company's Secretary at the
Company's executive offices set forth in this Proxy Statement.
ELECTION OF DIRECTORS
Nominees
The Company's bylaws provide that the number of directors shall be
fixed from time to time by resolution of the Board of Directors. All directors
are elected at each annual meeting of the Company's shareholders. Directors hold
office until the next annual meeting of shareholders or until their successors
have been elected and qualified.
A board of eight directors is to be elected at the Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for each of the nominees named below. All of the nominees currently are
directors of the Company. In the event that any such nominee is unable or
declines to serve as a director at the time of the Meeting, the proxies will be
voted for any nominee designated by the current Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director.
2
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The following table sets forth certain information regarding the
Company's directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Fred W. Wagenhals...................... 56 Chairman of the Board, President, and
Chief Executive Officer
Tod J. Wagenhals....................... 33 Executive Vice President, Secretary, and Director
Charles C. Blossom, Jr................. 47 Vice President, Chief Operating Officer, and Director
Christopher S. Besing.................. 37 Vice President, Chief Financial Officer,
Treasurer, and Director
Melodee L. Volosin..................... 33 Vice President - Wholesale Division and Director
John S. Bickford, Sr................... 51 Vice President - Strategic Alliances and Director
Jack M. Lloyd.......................... 48 Director
Robert H. Manschot..................... 54 Director
</TABLE>
Fred W. Wagenhals has served as 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. ("APS"), which were engaged in sales of promotional
products and collectible items related to the racing industry.
Tod J. Wagenhals has served as Executive Vice President of the Company
since July 1995, as a director of the Company since December 1993, and as
Secretary of the Company since November 1993. Mr. Wagenhals served as a Vice
President of the Company from September 1993 to July 1995. 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 Action Products, Inc. from January 1989 to October 1991. Mr.
Wagenhals is the son of Fred W. Wagenhals.
Charles C. Blossom, Jr. has served as Vice President, Chief Operating
Officer, and as a director of the Company since November 1997. Mr. Blossom
served as Senior Vice President -- Sales and Marketing of the Company from July
1997 to November 1997. From January 1996 to July 1997, Mr. Blossom was engaged
in providing professional business consulting services. From October 1992 to
January 1996, Mr. Blossom served as President of Mac Tools, a $300 million
subsidiary of The Stanley Works, which manufactures and distributes tools and
equipment to the automotive aftermarket. Mr. Blossom served as Vice President -
Sales and Marketing of Mac Tools from May 1992 to October 1992 and as Vice
President - Air Tool Operations from September 1989 to May 1992. From December
1983 to September 1989, Mr. Blossom owned and operated American Pneumatic
Technologies, Inc. before selling that business to Mac Tools.
Christopher S. Besing has served as a Vice President and the Chief
Financial Officer of the Company since joining the Company in January 1994, as a
director of the Company since May 1995, and as Treasurer of the Company since
February 1996. Prior to joining the Company, Mr. Besing held several financial
and accounting 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, Mr. Besing was employed as an accountant with Arthur Andersen LLP from
January 1985 to August 1986. Mr. Besing is a Certified Public Accountant.
Melodee L. Volosin has served as the Company's Vice President -
Wholesale Division since September 1997 and has been a director of the Company
since January 1997. Ms. Volosin served as the Director of the Company's
Wholesale Division from May 1992 to September 1997. Ms. Volosin's duties include
managing all of the
3
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Company's wholesale distribution of die-cast collectibles and other products,
including advertising programs and budgeting. From 1983 to May 1992, Ms. Volosin
served in various marketing capacities with Action Products, Inc. and its
predecessors.
John S. Bickford, Sr. has served as the Company's Vice President -
Strategic Alliances since July 1997 and as a director of the Company since
January 1997. Mr. Bickford also served as a consultant to the Company from
January 1997 to June 1997. Mr. Bickford has served as President of Bickford
Motorsports, Inc., which provides consulting and special project coordination
services to race car drivers, car owners, and other businesses, from 1990 to the
present. Mr. Bickford also publishes Racing for Kids magazine. From 1976 to the
present, Mr. Bickford has served as President of MPD Racing Products, Inc.,
which manufactures race car parts for distribution through speed shops and
high-performance engine shops. Mr. Bickford served as Vice President and General
Manager of Jeff Gordon, Inc. from 1990 to 1995. Mr. Bickford currently serves as
a director of Equipoise Balancing, Inc., a privately held company.
Jack M. Lloyd has served as 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 that is the largest franchisee of Denny's
restaurants in the United States and owns and franchises Black-eyed Pea
restaurants, since March 1996 and as Chairman of the Board of DenAmerica Corp.
since July 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 Federated Investment Corporation during the early and mid-1980s. Mr. Lloyd
currently serves as a director of Star Buffet, Inc., a publicly held company,
and Masterview Window Company, a privately held company.
Robert H. Manschot has served as a director of the Company since July
1995. Mr. Manschot currently serves as Chairman and Chief Executive Officer of
Seceurop Security Services in the United Kingdom and engages in business
consulting services and venture capital activities as Chairman of RHEM
International Enterprises, Inc. 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. Mr. Manschot currently serves as a
director of Samoth Capital Corporation and Premium Cigars International, both of
which are publicly traded companies, and as a director of LBE Technologies,
Inc., Thomas Pride Development, Inc., and Sports Southwest, Inc., all of which
are privately held companies.
Meetings and Committees of the Board of Directors
The Board of Directors of the Company held 11 meetings during the
fiscal year ended September 30, 1997. Each of the Company's directors attended
at least 75% of the aggregate of (i) the total number of meetings of the Board
of Directors held during fiscal 1997, and (ii) the total number of meetings held
by all committees of the Board of Directors on which such person served during
fiscal 1997.
The Company's bylaws authorize the Board of Directors to appoint among
its members one or more committees consisting of one or more directors. The
Audit Committee, which consists of Jack M. Lloyd and Robert H. Manschot, the
non-employee directors of the Company, reviews the annual financial statements,
the significant accounting issues, and the scope of the audit with the Company's
independent auditors and discusses with the auditors any other audit related
matters that may arise during the year. The Compensation Committee, which
consists of Jack M. Lloyd and Robert H. Manschot, reviews and acts on matters
relating to compensation levels and benefit plans for key executives of the
Company. The Senior Committee, which consists of Jack M. Lloyd and Robert H.
4
<PAGE>
Manschot, administers the discretionary program of the Company's 1993 Stock
Option Plan with respect to grants of stock options and awards to officers of
the Company, directors who are employees of the Company, and persons who own
more than 10% of the Company's issued and outstanding Common Stock.
Director Compensation and Other Information
Employees of the Company do not receive compensation for serving as
members of the Company's Board of Directors. Non-employee 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 (the "1993 Plan"). Pursuant to the 1993
Plan, each of Messrs. Lloyd and Manschot received an automatic grant of options
to acquire 10,000 shares of the Company's Common Stock (as adjusted for the
two-for-one stock split effected in May 1996) on the date they were first
elected as directors of the Company. In addition, each subsequent non-employee
director of the Company will receive an automatic grant of options to acquire
10,000 shares of the Common Stock upon the date of his or her election or
appointment as directors. Non-employee directors also receive an automatic grant
of options to purchase 8,000 shares of Common Stock on the date of each annual
meeting of shareholders of the Company. Accordingly, each of Messrs. Lloyd and
Manschot will receive an automatic grant of options to purchase 8,000 shares of
Common Stock on the date of the Meeting. Non-employee directors also are
eligible to receive grants of stock options or awards pursuant to the
discretionary program of the 1993 Plan. See "Executive Compensation - 1993 Stock
Option Plan."
EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table sets forth certain information concerning the
compensation for the fiscal years ended September 30, 1995, 1996, and 1997
earned by the Company's Chief Executive Officer and by the Company's other
executive officers whose cash salary and bonus exceeded $100,000 during fiscal
1997 (the "Named Officers"). No other officer of the Company received
compensation of $100,000 or more during fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Awards
------------
Annual Compensation Securities All Other
------------------- Underlying Compensation
Name and Principal Position Year Salary($)(1) Bonus($) Options(#)(2) ($)(3)
- --------------------------- ---- ------------ -------- ------------- ------
<S> <C> <C> <C> <C> <C>
Fred W. Wagenhals 1997 $276,923 $ 50,000 16,000 $ 1,952
Chairman of the Board, President, 1996 250,000 75,000 -- 4,854
and Chief Executive Officer 1995 164,423 23,000 50,000 3,173
Tod J. Wagenhals 1997 $112,500 $ 21,000 15,000 $ 2,673
Executive Vice President, 1996 75,000 26,000 20,000 1,832
Secretary, and Director 1995 59,596 8,000 50,000 1,247
Christopher S. Besing 1997 $113,462 $ 21,000 15,000 $ 2,535
Vice President, Chief Financial 1996 75,000 26,000 20,000 1,572
Officer, Treasurer, and Director 1995 71,250 10,000 50,000 1,425
</TABLE>
5
<PAGE>
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(1) Messrs. Wagenhals, Wagenhals, and Besing also received certain
perquisites, the value of which did not exceed 10% of their salary and
bonus during fiscal 1997. The Company offers its employees, including
officers, medical and life insurance benefits.
(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 1997 represent matching contributions made by
the Company to the Company's 401(k) Plan.
The following table provides information on stock options granted to
the Company's Named Officers during the fiscal year ended September 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------------------ Annual Rates
Number of % of Total of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term(2)
Options Employees in Price Expiration ------------------
Name Granted (#)(1) Fiscal Year ($/Sh) Date 5% 10%
- ---- -------------- ----------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Fred W. Wagenhals 16,000 7.8% $19.50 4/3/03 $106,080 $240,800
Tod J. Wagenhals 15,000 7.3% $19.50 4/3/03 $ 99,450 $225,750
Christopher S. Besing 15,000 7.3% $19.50 4/3/03 $ 99,450 $225,750
</TABLE>
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(1) The options were granted at the fair value of the shares on the date of
grant and have six-year terms. One-third of the options vest and become
exercisable on each of the first, second, and third anniversaries of
the date of grant.
(2) Potential gains are net of the exercise price, but before taxes
associated with the exercise. Amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of
the option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future price of the Company's Common
Stock. Actual gains, if any, on stock option exercises will depend upon
the future market prices of the Company's Common Stock.
The following table provides information on options exercised in the
last fiscal year by the Company's Named Officers and the value of each such
officer's unexercised options at September 30, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the Money Options
Options at Fiscal Year-End (#) at Fiscal Year-End ($)(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 16,000 $7,833,750 $ 154,000
Tod J. Wagenhals 30,600 $ 589,630 146,066 28,334 $3,847,346 $ 391,054
Christopher S. Besing 23,528 $ 676,430 33,138 28,334 $ 781,812 $ 391,054
</TABLE>
- ------------------
(1) Calculated based upon the closing price of the Company's Common Stock
as reported on the Nasdaq National Market on September 30, 1997 of
$29.125 per share.
6
<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.
1993 Stock Option Plan
The Company's 1993 Stock Option Plan, as amended, 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 total of 2,750,000 shares of Common Stock may be issued under the
1993 Plan. As of January 23, 1998, an aggregate of 1,340,612 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
1,143,028 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 and
directors of the Company or its subsidiaries, or (ii) consultants and
independent contractors who provide valuable services to the Company or to its
subsidiaries. Options that are incentive stock options may only be granted to
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. No employee of the Company may receive grants of Options or Awards
representing more than 50 percent of the shares of Common Stock issuable under
the 1993 Plan.
The exercise prices, expiration dates, maximum number of shares
purchasable, and the other provisions of the Options will be established at the
time of grant. The exercise prices of Options that are not incentive stock
options may not be less than 85% of the fair market value of the Common Stock at
the time of the grant, and the exercise prices of incentive stock options may
not be less than 100% (110% if the option is granted to a shareholder who at the
time the option is granted owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company) of the fair
market value of the Common Stock at the time of the grant. Options may be
granted for terms of up to ten years and become exercisable in whole or in one
or more installments at such time as may be determined upon a grant of the
Options. To exercise an Option, the optionholder will be required to deliver to
the Company full payment of the exercise price of 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.
7
<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 (as adjusted for a subsequent stock split) 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 are 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 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 the SAR is 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.
Limitation of Directors' Liability; Indemnification of Directors, Officers,
Employees, and Agents
The Company's Amended and Restated Articles of Incorporation (the
"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, in its sole discretion, may indemnify
and advance
8
<PAGE>
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
The Company currently leases a building in Tempe, Arizona, containing
approximately 46,000 square feet, which the Company utilized for its corporate,
administrative and sales offices and warehouse facilities prior to September
1997. Fred W. Wagenhals currently owns a one-third interest in F. W.
Investments, a partnership that owns this facility. The Company paid F.W.
Investments rent of approximately $183,000 during fiscal 1997.
In November 1996, the Company issued to the seller of Sports Image and
persons affiliated with the seller an aggregate of 403,361 shares of Common
Stock as a portion of the consideration paid for the assets and liabilities of
Sports Image, Inc. Joseph M. Mattes, who served as an officer and director of
the Company from December 1996 until June 1997, received 15,000 shares of Common
Stock as part of that transaction.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Company's Board of Directors has appointed a Compensation Committee
(the "Committee"), consisting of non-employee members of the Board of Directors,
which makes decisions on the compensation of the Company's executive officers.
The Compensation Committee makes every effort to ensure that the compensation
plan is consistent with the Company's values and is aligned with the Company's
business strategy and goals.
The Company's compensation program for executive officers consists
primarily of base salary, annual discretionary bonuses, and long-term incentives
in the form of stock options. Executives also participate in various other
benefit plans, including medical and retirement plans, that generally are
available to all employees of the Company.
The Company's philosophy is to pay base salaries to executives at
levels that enable the Company to attract, motivate, and retain highly qualified
executives. The bonus program is designed to reward individuals for performance
based on the Company's financial results as well as the achievement of personal
and corporate objectives that contribute to the long-term success of the Company
in building shareholder value. Stock option grants are intended to result in
minimal or no rewards if the price of the Company's Common Stock does not
appreciate, but may provide substantial rewards to executives as the Company's
shareholders in general benefit from stock price appreciation.
The Company follows a subjective and flexible approach rather than an
objective or formula approach to compensation. Various factors, as discussed
below, receive consideration without any particular weighting or emphasis on any
one factor. In establishing compensation for the year ended September 30, 1997,
the Committee took into account, among other things, the financial results of
the Company, compensation paid in prior years, and compensation of executive
officers employed by companies of similar size in similar industries.
Base Salary
Base salaries for executive positions are established relative to the
Company's financial performance and comparable positions in similarly sized
companies. From time to time, the Company may use competitive surveys and
outside consultants to help determine the relevant competitive pay levels. The
Company targets base pay at the level required to attract and retain highly
qualified executives. In determining salaries, the Committee also will take
9
<PAGE>
into account individual experience and performance, salary levels relative to
other positions within the Company, and specific needs particular to the
Company.
The Committee reviews salaries recommended by the Chief Executive
Officer for executive officers other than the Chief Executive Officer. In
formulating these recommendations, the Chief Executive Officer considers the
overall performance of the Company and conducts an informal evaluation of
individual officer performance. Final decisions on any adjustments to the base
salary for executives other than the Chief Executive Officer are made by the
Committee in conjunction with the Chief Executive Officer. The Committee's
evaluation of the recommendations by the Chief Executive Officer considers the
same factors outlined above and is subjective, with no particular weight
assigned to any one factor. After reviewing the Chief Executive Officer's
recommendations, the Committee approved base salary increases for the Company's
executive officers during fiscal 1997 as a result of increased responsibilities
and the Company's financial performance during the year.
Annual Discretionary Bonuses
Annual discretionary bonuses are based on the Company's financial
performance and the efforts of its executives. Performance is measured based on
profitability and revenue and the successful achievement of functional and
personal goals. The Committee reviews discretionary bonuses recommend by the
Chief Executive Officer for executives officers other than the Chief Executive
Officer. In formulating these recommendations, the Chief Executive Officer takes
into consideration the Company's achievement of sales, net income, and other
performance criteria as well as individual responsibility, performance, and
compensation levels. The Committee reviews these recommendations with the Chief
Executive Officer and makes final adjustments to the discretionary bonus
amounts. The Committee's evaluation of the factors described above is
subjective, with no particular weight being assigned to any one factor. During
the first quarter of fiscal 1997, the Company paid incentive bonuses to its
executive officers for their performance during fiscal 1996.
Stock Option Grants
The Company strongly believes in utilizing grants of stock options to
tie executive rewards directly to the long-term success of the Company and
increases in shareholder value. Stock option grants also will enable executives
to develop and maintain a significant ownership position in the Company's Common
Stock. The amount of options granted takes into account options previously
granted to an individual. During fiscal 1997, the Board of Directors granted
options to acquire 16,000, 15,000, and 15,000 shares of Common Stock at an
exercise price of $19.50 per share to Fred W. Wagenhals, Tod J. Wagenhals, and
Christopher S. Besing, respectively.
Other Benefits
Executive officers are eligible to participate in benefit programs
designed for all full-time employees of the Company. These programs include
medical insurance, a qualified retirement program allowed under Section 401(k)
of the Internal Revenue Code, and life insurance coverage.
Chief Executive Officer Compensation
The Committee considers the same factors outlined above for other
executive officers in evaluating the base salary, incentive bonus, and other
compensation of Fred W. Wagenhals, the Company's Chairman of the Board,
President, and Chief Executive Officer. The Committee's evaluation of Mr.
Wagenhals' base salary and incentive bonus is subjective, with no particular
weight assigned to any one factor. During fiscal 1997, the Company increased Mr.
Wagenhals base salary from $250,000 to $350,000 per annum as a result of the
significant increases in the Company's sales, net income, and other criteria. In
addition, during the first quarter of fiscal 1997 the Company paid a bonus of
$50,000 to Mr. Wagenhals for his performance during fiscal 1996.
10
<PAGE>
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation in excess of $1.0 million paid to
each of any publicly held corporation's chief executive officer and four other
most highly compensated executive officers. Qualifying performance-based
compensation is not subject to the deduction limit if certain requirements are
met. The Company believes that its compensation arrangements with its executive
officers will not exceed the limits on deductibility during its current fiscal
year.
This report has been furnished by the members of the Compensation
Committee of the Board of Directors of Action Performance Companies, Inc.
Jack M. Lloyd
Robert H. Manschot
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1997, the Company's
Compensation Committee consisted of Jack M. Lloyd and Robert H. Manschot.
Neither of such individuals had any contractual or other relationships with the
Company during such fiscal year except as directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
officers, and persons who own more than 10 percent of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the SEC. Directors, officers and greater than 10 percent
shareholders are required by the SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely upon the Company's
review of the copies of such forms received by it during the fiscal year ended
September 30, 1997, and written representations that no other reports were
required, the Company believes that each person who at any time during such
fiscal year was a director, officer, or beneficial owner of more than 10 percent
of the Company's Common Stock complied with all Section 16(a) filing
requirements during such fiscal year except that (i) Melodee L. Volosin and John
S. Bickford, Sr. each filed a late report on Form 3 with respect to their
ownership of the Company's securities as of the date that they became directors
of the Company, and (ii) Christopher S. Besing filed a late report on Form 5
covering one transaction.
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<PAGE>
PERFORMANCE GRAPH
The following line graph compares cumulative total shareholder returns
for (i) the Company's Common Stock; (ii) the Standard & Poor's SmallCap 600
Index (the "SmallCap 600"); and (iii) the Russell 2000 Index (the "Russell
2000"). At this time, the Company does not believe it can reasonably identify an
industry peer group. The Company has instead selected the Russell 2000, which
includes companies with similar market capitalizations to that of the Company,
as a comparative index for purposes of complying with certain requirements of
the SEC.
The graph assumes an investment of $100 in each of the Company's Common
Stock on April 27, 1993, the date on which the Company's Common Stock became
registered under Section 12 of the Exchange Act as a result of the Company's
initial public offering, and an investment in each of the SmallCap 600 and the
Russell 2000 of $100 on March 31, 1993. The graph covers the period from April
27, 1993 through the fiscal year ended September 30, 1997.
The calculation of cummulative shareholder return for the SmallCap 600
and the Russell 2000 includes reinvestment of dividends. The calculation of
cumulative shareholder return on the Company's Common Stock does not include
reinvestment of dividends because the Company did not pay dividends during the
measurement period. The performance shown is not necessarily indicative of
future performance.
<TABLE>
<CAPTION>
Cumulative Total Return
----------------------------------------------------
4/27/93 9/93 9/94 9/95 9/96 9/97
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ACTION PERFORMANCE COMPANIES, INC ACTN 100.00 80.00 82.00 272.00 412.00 932.00
S & P SMALLCAP 600 I600 100.00 112.63 111.98 141.30 162.93 223.16
RUSSELL 2000 IR20 100.00 111.10 113.95 140.72 159.10 212.03
</TABLE>
12
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS,
AND OFFICERS
The following table sets forth certain information regarding the shares
of the Company's outstanding Common Stock beneficially owned as of January 23,
1998 by (i) each of the Company's directors and executive officers, (ii) all
directors and executive officers as a group, and (iii) each other 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.
<TABLE>
<CAPTION>
Number of Shares Approximate
Name and Address of and Nature of Percentage of
Beneficial Owner(1) Beneficial Ownership(2) Outstanding Shares(2)
- ------------------- ----------------------- ---------------------
<S> <C> <C>
Directors and Executive Officers
Fred W. Wagenhals.................................... 2,389,600 (3) 14.7%
Tod J. Wagenhals..................................... 147,522 (4) *
Charles C. Blossom, Jr............................... 50,000 (5) *
Christopher S. Besing................................ 56,666 (6) *
Melodee L. Volosin................................... 30,833 (7) *
John S. Bickford, Sr................................. 15,693 (8) *
Jack M. Lloyd........................................ 26,000 (9) *
Robert H. Manschot................................... 30,000 (10) *
All directors and executive officers
as a group (eight persons)........................... 2,746,314 16.5%
</TABLE>
- --------------------
* Less than 1% of outstanding shares of Common Stock
(1) Each person named in the table has sole voting and investment power with
respect to all Common Stock beneficially owned by him or her, subject to
applicable community property law, except as otherwise indicated. Except
as otherwise indicated, each of such persons may be reached through the
Company at 4707 East Baseline Road, Phoenix, Arizona 85040.
(2) The percentages shown are calculated based upon 16,014,044 shares of
Common Stock outstanding on January 23, 1998. The numbers and percentages
shown include the shares of Common Stock actually owned as of January 23,
1998 and the shares of Common Stock that the identified 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 that the identified
person or group had the right to acquire within 60 days of January 23,
1998 upon the exercise of options 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) Represents 2,099,600 shares of Common Stock and vested options to acquire
290,000 shares of Common Stock.
(4) Represents 1,456 shares of Common Stock and vested options to acquire
146,066 shares of Common Stock.
(5) Represents vested options to acquire 50,000 shares of Common Stock.
(6) Represents 23,528 shares of Common Stock and vested options to acquire
33,138 shares of Common Stock.
(7) Represents vested options to acquire 30,833 shares of Common Stock.
(8) Includes 50 shares held by Mr. Bickford as custodian for Boston Reid.
(9) Represents vested options to acquire 26,000 shares of Common Stock.
(10) Represents 4,000 shares of Common Stock and vested options to acquire
26,000 shares of Common Stock.
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<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending September 30, 1998 and recommends that the
shareholders vote in favor of the ratification of such appointment. In the event
of a negative vote on such ratification, the Board of Directors will reconsider
its selection. The Board of Directors anticipates that representatives of Arthur
Andersen LLP will be present at the Meeting, will have the opportunity to make a
statement if they desire, and will be available to respond to appropriate
questions.
DEADLINE FOR RECEIPT OF SHAREHOLDERS PROPOSALS
Shareholder proposals that are intended to be presented by such
shareholders at the annual meeting of shareholders of the Company to be held
during calendar 1999 must be received by the Company no later than September 30,
1998 in order to be included in the proxy statement and form of proxy relating
to such meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting.
If any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
Dated: January 28, 1998
14
<PAGE>
<TABLE>
<CAPTION>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ACTION PERFORMANCE COMPANIES, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation (the "Company"), hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement of the Company, each dated January 28,
1998, and hereby appoints Fred W. Wagenhals and Christopher S. Besing, and each of them, proxies and attorneys-in-fact, with full
power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the 1998 Annual Meeting
of Shareholders of ACTION PERFORMANCE COMPANIES, INC., to be held on Monday, March 2, 1998, at 10:00 a.m., local time, at The Fiesta
Inn, 2100 S. Priest Drive, Tempe, Arizona 85282, and at any adjournment or adjournments thereof, and to vote all shares of Common
Stock which the undersigned would be entitled to vote if then and there personally present on the matters set forth on the reverse
side of this Proxy Card.
(Continued and to be signed on the other side.)
[X] Please mark your votes as in this example
<S> <C> <C> <C> <C>
WITHHOLD
FOR all nominees AUTHORITY
listed at right (except to vote for all nominees
as indicated) listed at right Nominees: Fred W. Wagenhals
1. ELECTION [ ] [ ] Tod J. Wagenhals
OF Christopher S. Besing
DIRECTORS: Charles C. Blossom, Jr.
Melodee L. Volosin
If you wish to withhold authority to vote for any John S. Bickford, Sr.
individual nominee, strike a line through that nominee's Jack M. Lloyd
name in the list at right. Robert H. Manschot
2. Proposal to ratify the appointment of Arthur Andersen LLP as the independent auditors of the Company for the fiscal year
ending September 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and upon such matters which may properly come before the meeting or any adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS; FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY; AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
A majority of such attorneys-in-fact or substitutes as shall be present and shall act at said meeting or any adjournment or
adjournments thereof (or if only one shall be present and act, then that one) shall have and may exercise all of the powers of said
attorneys-in-fact hereunder.
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
Signature Dated: , 1998
----------------------------------- ------------------------------------------ -------------
Signature if held jointly
(This Proxy should be dated, signed by the shareholder(s) exactly as his or her name
appears hereon, and returned promptly in the enclosed envelope. Persons signing in a
fiduciary capacity should so indicate. If shares are held by joint tenants or as
community property, both shareholders should sign.)
</TABLE>
