<PAGE> 1
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
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
ACTION PERFORMANCE COMPANIES, INC.
(Name of Registrant as Specified In Its Charter)
(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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
ACTION PERFORMANCE COMPANIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH 25, 1999
The Annual Meeting of Shareholders of Action Performance Companies,
Inc., an Arizona corporation (the "Company"), will be held at 10:00 a.m., on
Thursday, March 25, 1999, 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 approve an amendment to the Company's First Amended and Restated
Articles of Incorporation to (a) increase the number of authorized shares of
Common Stock, par value $.01 per share, from 25,000,000 to 100,000,000 shares,
and (b) eliminate the authorization to issue Class A Preferred Stock, no par
value per share.
3. To approve the Company's 1999 Incentive Stock Plan.
4. To approve the Company's 1999 Employee Stock Purchase Plan.
5. To ratify the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending September 30, 1999.
6. 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 19,
1999 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
February 17, 1999 Secretary
<PAGE> 3
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 Thursday, March 25, 1999 (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
February 17, 1999, to all shareholders entitled to vote at the Meeting.
VOTING SECURITIES AND VOTING RIGHTS
Shareholders of record at the close of business on January 19, 1999
(the "Record Date") are entitled to notice of and to vote at the Meeting. On the
Record Date, there were issued and outstanding 16,761,598 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, (ii) for the approval of the Company's 1999 Incentive
Stock Plan (the "Incentive Plan"), (iii) for the approval of the Company's 1999
Employee Stock Purchase Plan (the "Purchase Plan"), and (iv) for the
ratification of the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending September 30, 1999. The
affirmative vote of a majority of the outstanding shares of Common Stock of the
Company entitled to vote is required to approve the amendment to the Company's
First Amended and Restated Articles of Incorporation to increase the number of
authorized shares of the Company's Common Stock from 25,000,000 to 100,000,000
shares and to eliminate the authorization to issue Class A Preferred Stock.
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.
<PAGE> 4
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 Proxy Statement, (ii) "for" approval of the amendment to the Company's
First Amended and Restated Articles of Incorporation to increase the number of
authorized shares of Common Stock and to eliminate the authorization to issue
Class A Preferred Stock, (iii) "for" approval of the Incentive Plan, (iv) "for"
approval of the Purchase Plan, and (v) "for" the ratification of the appointment
of Arthur Andersen LLP as the independent auditors of the Company for the fiscal
year ending September 30, 1999.
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, by delivering to
the Company 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 1998 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, 1998 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
EXHIBITS. 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 nine 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
<PAGE> 5
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 57 Chairman of the Board, President, and
Chief Executive Officer
Tod J. Wagenhals 34 Executive Vice President, Secretary, and Director
Christopher S. Besing 38 Vice President, Chief Financial Officer,
Treasurer, and Director
Melodee L. Volosin 34 Vice President - Wholesale Division and Director
John S. Bickford, Sr. 52 Vice President - Strategic Alliances and Director
Paul G. Lang 50 Managing Director of MiniChamps and Director
Jack M. Lloyd 49 Director
Robert H. Manschot 55 Director
Edward J. Bauman 74 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., 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 Action Performance Sales, Inc. 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.
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 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.
3
<PAGE> 6
Paul G. Lang has served as a director of the Company since August 1998.
Mr. Lang also serves as Managing Director of Paul's Model Art, GmbH, MiniChamps,
GmbH, Lang Miniaturen, GmbH, and Spielwaren Danhausen, GmbH (collectively,
"MiniChamps"). Mr. Lang co-founded the various MiniChamps entities between 1988
and 1996 and served as Managing Director of each of those companies prior to the
Company's acquisition of an 80% ownership interest in MiniChamps in August 1998.
See "Certain Transactions" and "Executive Compensation - Employment Agreements."
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 owns and franchises Black-eyed Pea
restaurants and is the largest franchisee of Denny's restaurants in the United
States, 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.
Robert H. Manschot has served as a director of the Company since July
1995. Mr. Manschot currently serves as the Managing Director and Chairman of
Manschot Investment Group L.L.C., an investment fund that is in the business of
identifying and investing in companies that have significant potential for
growth. Mr. Manschot also serves as Chairman 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 Europe, 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, DenAmerica Corp., and Premium Cigars International, which are
publicly traded companies, and as a director of Silicon Entertainment, Inc.,
Thomas Pride Development, Inc., First Wave, Inc., Motorsports Promotions, Inc.,
and Sports Southwest, Inc., all of which are privately held companies.
Edward J. Bauman has served as a director of the Company since February
1998. Mr. Bauman is the former owner and director of Richmond International
Raceway. Mr. Bauman also served as Chairman of Draper Corporation, a textile
machinery company, from 1987 until 1995 and as the Senior Advisor of Mergers &
Acquisitions for Bankers Trust, New York from 1987 until 1992. Mr. Bauman served
in various capacities with Blue Bell, Inc., the manufacturer of Wranglers,
Jantzen, and other apparel from 1950 until 1987, most recently as Chairman,
President, and Chief Executive Officer. Mr. Bauman currently serves as Chairman
of the Board of Anderson Bauman Tourtellot Vos & Co., a turnaround management
consulting firm. Mr. Bauman also serves as a director of Elk River Development
Corp. and First Union Corporation, both of which are publicly traded companies,
and Jay Garment Company, Precision Fabrics Group, Inc., and American Emergency
Vehicles, 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, 1998. 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 1998, and (ii) the total number of meetings held
by all committees of the Board of Directors on which such person served during
fiscal 1998.
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,
non-employee directors of the Company, reviews the annual financial statements,
any significant accounting issues, and the scope of the audit with the Company's
independent auditors and discusses with the
4
<PAGE> 7
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. 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 automatic grants of stock
options pursuant to the Company's 1993 Stock Option Plan (the "1993 Plan").
Pursuant to the 1993 Plan, each of Messrs. Lloyd, Manschot, and Bauman received
an automatic grant of options to acquire 10,000 shares of the Company's Common
Stock 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, Manschot, and Bauman 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 other 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, 1996, 1997, and 1998
earned by the Company's Chief Executive Officer and by the Company's other
executive officers whose cash salary and bonus exceeded $100,000 during fiscal
1998 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
AWARDS
-------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($)(2) BONUS($) OPTIONS(#)(3) ($)(4)
- ------------------------------ ---- ------------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Fred W. Wagenhals 1998 $459,616 $100,000 60,000(5) $3,200
Chairman of the Board, President, 1997 276,923 50,000 16,000 1,952
and Chief Executive Officer 1996 250,000 75,000 -- 4,854
Tod J. Wagenhals 1998 $160,962 $40,000 40,000(6) $3,200
Executive Vice President, 1997 112,500 21,000 15,000 2,673
Secretary, and Director 1996 75,000 26,000 20,000 1,832
Christopher S. Besing 1998 $160,962 $40,000 40,000(6) $3,200
Vice President, Chief Financial 1997 113,462 21,000 15,000 2,535
Officer, Treasurer, and Director 1996 75,000 26,000 20,000 1,572
</TABLE>
5
<PAGE> 8
- ------------------
(1) The Company considers Fred W. Wagenhals, Tod J. Wagenhals, Christopher S.
Besing, and David A. Husband to be its executive officers. Mr. Husband
began his employment with the Company in May 1998, and his cash
compensation during fiscal 1998 did not exceed $100,000.
(2) Messrs. Wagenhals, Wagenhals, and Besing also received certain perquisites,
the value of which did not exceed 10% of their salary and bonus during
fiscal 1998.
(3) The exercise prices of all stock options granted were equal to the fair
market value of the Company's Common Stock on the date of grant.
(4) Amounts shown for fiscal 1998 represent matching contributions made by the
Company to the Company's 401(k) Plan.
(5) Includes 30,000 options that were cancelled and reissued in June 1998. See
"Executive Compensation - Option Repricings."
(6) Includes 20,000 options that were cancelled and reissued in June 1998. See
"Executive Compensation - Option Repricings."
OPTION GRANTS
The following table provides information on stock options granted to
the Company's Named Officers during the fiscal year ended September 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS GRANTED EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME (#)(1) FISCAL YEAR PRICE ($/SH) DATE 5% 10%
- ---- ------ ----------- ------------ ---- -- ---
<S> <C> <C> <C> <C> <C>
Fred W. Wagenhals........ 30,000(3) 6.0% $30.75 1/29/04(3) -- --
30,000 6.0% $25.91 6/02/04 $264,316 $599,642
Tod J. Wagenhals......... 20,000(3) 4.0% $30.75 1/29/04(3) -- --
20,000 4.0% $25.91 6/02/04 $176,210 $399,761
Christopher S. Besing.... 20,000(3) 4.0% $30.75 1/29/04(3) -- --
20,000 4.0% $25.91 6/02/04 $176,210 $399,761
</TABLE>
- ------------------
(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 SEC 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.
(3) These options were cancelled and reissued in June 1998. See "Executive
Compensation - Option Repricings."
RECENT GRANTS OF STOCK OPTIONS
During October and November 1998, the Company granted options to
acquire an aggregate of 200,500 shares of Common Stock. These options include
options to acquire 50,000 shares of Common Stock at an exercise price of $26.38
per share granted to Fred W. Wagenhals; options to acquire 20,000 shares of
Common Stock at an exercise price of $26.38 per share granted to each of
Christopher S. Besing, Melodee L. Volosin, and John S.
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<PAGE> 9
Bickford, Sr.; and options to acquire 10,000 shares of Common Stock at an
exercise price of $26.38 per share granted to David A. Husband, all of which
options were granted on November 20, 1998.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides information on options exercised in the
last fiscal year by the Company's Named Officers and the value of each such
officer's unexercised options at September 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
SHARES ACQUIRED VALUE ----------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Fred W. Wagenhals..... 200,000 $4,375,000 95,333 40,667 $2,109,497 $116,823
Tod J. Wagenhals...... -- -- 157,732 36,668 $3,685,495 $209,810
Christopher S. Besing. 26,472 $ 818,978 18,333 36,667 $255,828 $206,052
</TABLE>
- ------------------
(1) Calculated based upon the closing price of the Company's Common Stock
as reported on the Nasdaq National Market on September 30, 1998 of
$27.00 per share.
OPTION REPRICINGS
The following table sets forth certain information with respect to the
cancellation of outstanding stock options held by and the grant of replacement
options to any of the Company's Named Officers during fiscal 1998. The Company
has not repriced any options held by any of the Company's other executive
officers since April 27, 1993, the date on which the Company's Common Stock
became registered under Section 12 of the Exchange Act as a result of the
Company's initial public offering. See "Compensation Committee Report on
Executive Compensation Compensation Program - Stock Option Grants."
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF MARKET EXERCISE LENGTH OF
SECURITIES PRICE OF PRICE AT ORIGINAL
UNDERLYING STOCK AT TIME OF OPTION TERM
OPTIONS TIME OF REPRICING REMAINING AT
REPRICED OR REPRICING OR OR NEW DATE OF
NAME AND PRINCIPAL AMENDMENT AMENDMENT AMENDMENT EXERCISE REPRICING OR
POSITION DATE (#) ($) ($) PRICE ($) AMENDMENT
- -------- ------- ----------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fred W. Wagenhals 6/02/98 30,000 $25.91 $30.75 $25.91 5 yrs., 8 mo.
Chairman of the Board,
President, and Chief
Executive Officer
Tod J. Wagenhals 6/02/98 20,000 $25.91 $30.75 $25.91 5 yrs., 8 mo.
Executive Vice President,
Secretary, and Director
Christopher S. Besing 6/02/98 20,000 $25.91 $30.75 $25.91 5 yrs., 8 mo.
Vice President, Chief
Financial Officer, Treasurer,
and Director
</TABLE>
7
<PAGE> 10
EMPLOYMENT AGREEMENTS
In connection with the August 1998 acquisition of MiniChamps, the
Company, Paul G. Lang, and Mr. Lang's spouse entered into an Operating Agreement
with respect to the management and operations of the MiniChamps entities. The
Company and Mr. Lang also amended the terms of the then-existing Managing
Director's Contract between Mr. Lang and Paul's Model Art GmbH. Under the
Operating Agreement and the Managing Director's Contract, as amended (the
"Service Agreement"), Mr. Lang serves as a Managing Director of the Company's
operations in the European Community at a base salary of approximately $245,000
per annum, plus reimbursement for certain costs that Mr. Lang may be obligated
to pay under German law. Mr. Lang also will be eligible to receive an annual
bonus of 10% of the pre-tax profits of the MiniChamps entities, not to exceed
approximately $55,000 per annum. Pursuant to the Service Agreement, in August
1998 the Company also granted Mr. Lang options to acquire 10,000 shares of
Common Stock at an exercise price of $25.00 per share. The terms of the Service
Agreement require the Company to reimburse Mr. Lang for expenses incurred on
business trips and to provide Mr. Lang with an automobile. The Service Agreement
contains provisions that prohibit Mr. Lang from (i) competing with the business
of the Company, (ii) taking certain actions intended to hire other employees
away from their employment with the Company, and (iii) making unauthorized use
or disclosure of the Company's confidential information. The Service Agreement
expires in August 2002, subject to automatic extension for the same length of
time as any extension of the Operating Agreement.
The Company has no written employment contracts with any of its other
executive officers or directors. The Company offers its employees, including
officers, medical and life insurance benefits. The executive officers and other
key personnel of the Company are eligible to receive profit sharing
distributions and discretionary bonuses, and are eligible to receive stock
options under the Company's stock options plans.
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 (the "1993 Plan"),
provides for the granting of options to acquire Common Stock of the Company as
well as stock-based awards, as described below. A total of 2,750,000 shares of
Common Stock may be issued under the 1993 Plan. As of January 19, 1999, an
aggregate of 1,771,133 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 928,507 shares of the Company's
Common Stock. The 1993 Plan will remain in effect until September 24, 2001.
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 10% of the total
combined voting power of
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<PAGE> 11
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.
The 1993 Plan includes an automatic program that provides for the
automatic grant of stock options ("Automatic Options") to non-employee
directors. Under the automatic program, each newly elected non-employee member
of the Board of Directors receives 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. Stock appreciation rights ("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 enable the Company to make direct grants of Common Stock to recipients.
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.
1998 NON-QUALIFIED STOCK OPTION PLAN
Under the Company's 1998 Non-Qualified Stock Option Plan (the "1998
Plan"), the Board of Directors may from time to time grant to key employees of
the Company, other than directors or executive officers, non-statutory options
to purchase shares of the Company's Common Stock. The exercise price, term,
vesting conditions, and other terms for all options granted under the 1998 Plan
will be determined at the time of grant by the Board of Directors or a board
committee appointed to administer the 1998 Plan. A total of 500,000 shares of
Common Stock may be issued pursuant to the 1998 Plan. As of January 19, 1999, an
aggregate of 6,667 shares of Common Stock has been issued upon exercise of
options granted pursuant to the 1988 Plan and there were outstanding options to
acquire 171,333 shares of Common Stock. The 1998 Plan expires in 2008.
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 (i) the amount of a
financial benefit received by the director to which the director is not
entitled; (ii) an intentional infliction of harm on the Company or its
shareholders; (iii) certain unlawful distributions to shareholders; and (iv) 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 (i) through (iv) 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
9
<PAGE> 12
the Business Corporation Act. In addition, the Company, in its sole discretion,
may 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
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. Prior to March 1998, Fred W. Wagenhals owned a one-third interest in F.W.
Investments, a partnership that owned this facility. In March 1998, Mr.
Wagenhals became the sole owner of this facility. The Company paid F.W.
Investments rent of approximately $175,000 during fiscal 1998. During fiscal
1998, the Company made a refundable deposit of $900,000 to Mr. Wagenhals towards
the purchase of the facility. The Company currently is negotiating the final
purchase agreement with Mr. Wagenhals and intends to either sell or lease the
facility to an unaffiliated third party.
In connection with the formation of Performance Plus Nutritional,
L.L.C. ("Performance Plus"), Fred W. Wagenhals and Mr. Wagenhals' spouse
personally invested on behalf of Performance Plus certain organizational and
other capital expenditures totally approximately $134,000. In addition, Mr. and
Mrs. Wagenhals personally assisted in the creation and procurement of certain
intangible assets on behalf of Performance Plus, including procuring certain
license and endorsement agreements between Performance Plus and certain third
parties. The Company owns 58% of the membership interests of Performance Plus
and has agreed to provide a line of credit to Performance Plus for up to $4.0
million for working capital purposes. Upon the formation of Performance Plus,
Mrs. Wagenhals was appointed as President of Performance Plus and is one of the
Managers of Performance Plus pursuant to Performance Plus' Operating Agreement.
In September 1998, Performance Plus paid to Mr. and Mrs. Wagenhals an aggregate
of $250,000 as return of amounts invested by Mr. and Mrs. Wagenhals on behalf of
Performance Plus and in connection with the creation of Performance Plus and
procurement of intangible assets on behalf of Performance Plus. In connection
with this payment, Mr. and Mrs. Wagenhals released any claim for or right to any
membership interest in Performance Plus prior to or at the time of its
organization.
In August 1998, the Company acquired an 80% ownership interest in
MiniChamps from Paul G. Lang and Mr. Lang's spouse. The purchase price paid by
the Company to Mr. and Mrs. Lang consisted of cash of $21.5 million. In
connection with the acquisition of MiniChamps, Mr. Lang became a director of the
Company and entered into a Service Agreement with the Company. See "Executive
Compensation - Employment Agreements." In addition, the Company and Mrs. Lang
entered into a Service Agreement on terms substantially the same as the
agreement with Mr. Lang, except that Mrs. Lang receives a salary of
approximately $126,000 per annum and her bonus may not exceed approximately
$39,000 per annum.
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
10
<PAGE> 13
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 fiscal year ended September 30,
1998, 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 uses 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 takes 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 1998 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 1998, the Company paid incentive bonuses to its
executive officers for their performance during fiscal 1997.
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. In January 1998, the Board of Directors granted
options an aggregate of 132,500 shares of Common Stock to certain key employees
of the Company. These option grants included options to acquire 30,000, 20,000,
and 20,000 shares of Common Stock at an exercise price of $30.75 per share to
Fred W. Wagenhals, Tod J. Wagenhals, and Christopher S. Besing, respectively.
In June 1998, the Committee authorized a reduction of the exercise
price of the options granted to key employees in January 1998, including options
granted to Messrs. Wagenhals, Wagenhals, and Besing. The new exercise price for
those options was fixed at $25.91 per share, which was the market price of the
Company's
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<PAGE> 14
Common Stock at the time of the repricings. Stock options granted to employees
under the Company's stock option plans are intended to provide incentives to the
employees to work to achieve long-term success for the Company. The decline in
the market price of the Company's Common Stock following the January 1998 grant
date frustrated the purpose of the options, and the Committee deemed it in the
best interest of the Company to reduce the exercise price to the market price at
the time of the repricing. With respect to the repriced options, the vesting
period of those options was revised at the time of repricing. See the table
included under "Executive Compensation - Option Repricings" for further
information on the option repricing.
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 1998, the Company increased Mr.
Wagenhals base salary from $350,000 to $500,000 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 1998, the Company paid a bonus of
$100,000 to Mr. Wagenhals for his performance during fiscal 1997.
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, 1998, 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% 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% 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,
1998 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% of the Company's Common
Stock complied with all Section 16(a) filing requirements during such fiscal
year except that (i) Edward J. Bauman, David A. Husband, and Charles C. Blossom
(a former officer and director of the Company) 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 officers and/or directors of the Company; (ii) Fred W.
Wagenhals filed a late report on Form 5 covering two transactions; (iii)
Christopher S.
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<PAGE> 15
Besing filed a late report on Form 5 covering two transactions; and (iv) Paul G.
Lang timely filed a report on Form 5 covering one transaction that was required
to have been reported earlier on Form 4.
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, the SmallCap 600, and the Russell 2000 of $100 on September 30, 1994. The
graph covers the period from October 1, 1994 through the fiscal year ended
September 30, 1998. The calculation of cumulative 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
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9/93 9/94 9/95 9/96 9/97 9/98
------ ------ ------ ------ -------- --------
ACTION PERFORMANCE COMPANIES, INC. 100.00 102.50 340.00 515.00 1,165.00 1,080.00
SMALLCAP 600 100.00 99.42 125.45 144.66 198.14 167.73
RUSSELL 2000 100.00 102.56 126.66 143.20 190.84 157.54
</TABLE>
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<PAGE> 16
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 19,
1999 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 beneficially own or to 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........................... 2,194,933 (3) 13.0%
Tod J. Wagenhals............................ 80,321 (4) *
Christopher S. Besing....................... 41,861 (5) *
Melodee L. Volosin.......................... 21,331 (6) *
John S. Bickford, Sr........................ 23,976 (7) *
Paul G. Lang................................ 12,000 *
David A. Husband(8)......................... --- ---
Jack M. Lloyd............................... 34,000 (9) *
Robert H. Manschot.......................... 35,200 (10) *
Edward J. Bauman............................ 12,000 (11) *
All directors and executive officers
as a group (ten persons).................... 2,468,622 14.5%
5% SHAREHOLDERS
- ---------------
Pilgrim Baxter & Associates................. 1,189,700 (12) 7.1%
Rainier Investment Management, Inc.......... 1,087,350 (13) 6.5%
AMVESCAP PLC................................ 971,780 (14) 5.8%
FMR Corp.................................... 907,001 (15) 5.4%
</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 person may be reached through the Company at 4707
East Baseline Road, Phoenix, Arizona 85040.
(2) The percentages shown are calculated based upon 16,761,598 shares of Common
Stock outstanding on January 19, 1999. The numbers and percentages shown
include the shares of Common Stock actually owned as of January 19, 1999
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 19, 1999 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
95,333 shares of Common Stock.
(4) Represents 41,456 shares of Common Stock and vested options to acquire
38,865 shares of Common Stock.
(5) Represents 23,528 shares of Common Stock and vested options to acquire
18,333 shares of Common Stock.
(6) Represents vested options to acquire 21,331 shares of Common Stock.
(7) Represents 15,643 shares of Common Stock and vested options to acquire
8,333 shares of Common Stock.
(8) Mr. Husband serves as the Company's Vice President - Finance and Accounting
and Chief Accounting Officer.
(9) Represents vested options to acquire 34,000 shares of Common Stock.
(10) Represents 5,000 shares of Common Stock and vested options to acquire
30,200 shares of Common Stock.
(11) Represents 2,000 shares of Common Stock and vested options to acquire
10,000 shares of Common Stock.
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<PAGE> 17
(12) Represents 1,189,700 shares beneficially owned by Pilgrim Baxter &
Associates, Ltd. ("Pilgrim"). Pilgrim has sole voting power with respect to
1,189,700 shares and sole dispositive power with respect to 1,013,400
shares of Common Stock. The address of Pilgrim is 825 Duportail Road,
Wayne, Pennsylvania, 19087.
(13) Represents 1,087,350 shares beneficially owned by Rainier Investment
Management, Inc. ("Rainier"). Rainier has sole voting power with respect to
969,500 shares and sole dispositive power with respect to 1,087,350 shares
of Common Stock. All shares of the Common Stock are held by individual and
institutional clients for which Rainier serves as investment adviser.
Rainier is the owner of record and disclaims beneficial ownership of such
shares. The address of Rainier is 601 Union Street, Suite 2801, Seattle,
Washington 98101.
(14) Represents 971,780 shares beneficially owned by AMVESCAP PLC. AMVESCAP PLC
and six of its subsidiaries have shared voting power and shared dispositive
power with respect to 971,780 shares of Common Stock. Such shares of Common
Stock are held by the six subsidiaries of AMVESCAP PLC on behalf of other
persons who have the right to receive or the power to direct the receipt of
dividends from such shares or the proceeds from the sale of such shares.
The interest of any of such persons does not exceed 5% of the outstanding
shares of Common Stock. AMVESCAP PLC and its subsidiaries may disclaim
beneficial ownership of such shares. The address of AMVESCAP PLC is 1315
Peachtree St. NE, Atlanta, Georgia 30309.
(15) Represents 907,001 shares beneficially owned by FMR Corp., Edward C.
Johnson 3d, Chairman of FMR Corp., and Abigail Johnson, Director of FMR
Corp. FMR Corp., Mr. Johnson, and Ms. Johnson have sole voting power with
respect to 232,500 shares and sole dispositive power with respect to
907,001 shares of Common Stock. All shares of the Common Stock are held by
various subsidiaries or entities either wholly owned or controlled by FMR
Corp., Mr. Johnson, or Ms. Johnson that serve as investment advisers to
various investment companies. The address of FMR Corp., Mr. Johnson, and
Ms. Johnson is 82 Devonshire Street, Boston, Massachusetts 02109.
PROPOSAL TO AMEND THE COMPANY'S
ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
AND TO ELIMINATE AUTHORITY TO ISSUE SHARES OF
CLASS A PREFERRED STOCK
The Board of Directors has approved a proposal to amend the Company's
First Amended and Restated Articles of Incorporation (the "Articles") to
increase the number of authorized shares of Common Stock from 25,000,000 to
100,000,000 shares and to eliminate the authorization to issue Class A Preferred
Stock. The Board of Directors recommends a vote "FOR" the proposed amendment of
the Company's Articles. The full text of the proposed amendment is included as
"Appendix A" to this Proxy Statement. If approved by the shareholders, the
proposed amendment will become effective upon the filing of Articles of
Amendment to the Articles with the Arizona Corporation Commission, which will
occur as soon as reasonably practicable.
INCREASE IN NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
It is proposed to increase the number of shares of Common Stock
authorized for issuance from 25,000,000 shares to a maximum of 100,000,000
shares. The proposed increase in the number of shares authorized for issuance
recognizes the growth of the Company's operations and the increase in the number
of outstanding shares of the Company's Common Stock as a result of (i) the
Company's initial public offering in 1993 and subsequent public and private
offerings of Common Stock; (ii) the issuance of shares of Common Stock in
connection with various acquisitions; (iii) the issuance of shares as a result
of a stock split effected as a stock dividend in May 1996; and (iv) the issuance
of shares of Common Stock upon exercise of employee stock options. As a result
of these issuances, as of the Record Date there were 16,761,598 shares of Common
Stock outstanding. Approximately 3,199,500 additional shares of Common Stock
currently are issuable upon exercise of outstanding employee stock options and
warrants and upon conversion of outstanding convertible notes. As a result, an
aggregate of approximately 19,961,100 of the 25,000,000 shares of Common Stock
authorized for issuance under the Articles currently are outstanding or
issuable.
The proposed increase in the number of shares of Common Stock
authorized for issuance will provide the Company with the flexibility necessary
to enable it to (a) raise additional capital through one or more public
offerings or private placements of shares of Common Stock or options, warrants,
convertible debt, convertible preferred stock, or other securities exercisable
or convertible into shares of Common Stock; (b) acquire additional assets or
businesses by using shares of Common Stock for a portion or all of the
consideration paid to the sellers; (c) repay existing indebtedness by issuing
shares of Common Stock in lieu of cash; (d) attract and retain directors,
officers, and key employees and motivate such persons to exert their best
efforts on behalf of the Company by issuing options to acquire shares of Common
Stock; or (e) effect stock splits in the form of a stock dividend or
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otherwise to make stock dividends to existing shareholders. The Board of
Directors believes that the number of shares of Common Stock currently
authorized for issuance is not adequate to provide a sufficient number of shares
for transactions such as those described above as and when they may arise in the
future. For example, the Board of Directors may in the future determine that the
significant increase in market value of the Company's Common Stock in recent
years would make it advisable to declare a stock split in the form of a stock
dividend to existing shareholders. The Board of Directors also believes that the
proposed increase in the number of authorized shares of Common Stock could be an
important factor in the Company's ability to raise capital and to acquire
significant amounts of new assets. Accordingly, the Board of Directors believes
that the proposed amendment to the Articles is appropriate and in the best
interests of the Company and its shareholders generally.
Upon approval of the proposed amendment to the Articles and filing of
Articles of Amendment with the Arizona Corporation Commission, the authorized
shares of Common Stock will be available for issuance by action of the Board of
Directors for any of the reasons described above or for any other corporate
purpose. The authorized shares of Common Stock in excess of those issued will be
available for issuance at such times and for such corporate purposes as the
Board of Directors may deem advisable, without further action by the Company's
shareholders, except as may be required by applicable law or by the rules of the
Nasdaq National Market or any other stock exchange or national securities
association trading system on which the Common Stock may be listed or traded.
Upon issuance, such shares will have the same rights as the outstanding shares
of Common Stock. Holders of Common Stock have no preemptive rights.
The Company has no arrangements, agreements, understandings, or plans
at the present time for the issuance or use of the additional shares of Common
Stock proposed to be authorized. The Board of Directors does not intend to issue
any Common Stock except on terms that the directors deem to be in the best
interests of the Company and its then-existing shareholders. Any future issuance
of Common Stock will be subject to the rights and preferences of holders of
outstanding shares of any preferred stock that the Company may issue in the
future.
SERIAL PREFERRED STOCK
The proposed amendment will not affect the ability of the Company to
issue Serial Preferred Stock. The Articles authorize the Board of Directors to
issue up to 5,000,000 shares of Serial Preferred Stock in one or more series and
to fix the rights, preferences, privileges, and restrictions, including dividend
rights, conversion rights, voting rights, rights and terms of redemption,
redemption price or prices, liquidation preferences, and the number of shares
constituting any series or the designation of such series, without any further
vote or action by the shareholders. The issuance of Serial Preferred Stock may
have the effect of delaying, deferring, or preventing a change in control of the
Company without further action by the shareholders. The issuance of Serial
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. No Serial Preferred Stock currently is outstanding and the
Company has no present plans to issue any shares of Serial Preferred Stock.
ELIMINATION OF CLASS A PREFERRED STOCK
In connection with a specific transaction in 1995, the Company issued
500 shares of Class A Preferred Stock out of the authorized Serial Preferred
Stock. During 1996, the holder of those shares converted all outstanding shares
of Class A Preferred Stock into shares of Common Stock and the Class A Preferred
Stock was returned to the status of authorized but unissued Serial Preferred
Stock. The proposed amendment is intended to simplify the Articles by
eliminating shares of Class A Preferred Stock from the Company's authorized
capital.
POTENTIAL EFFECTS OF THE PROPOSED AMENDMENT
In deciding whether to issue additional shares of Common Stock, the
Board of Directors will carefully consider the effect of the issuance on the
operating results of the Company and its then-existing shareholders. With the
exception of stock dividends, including stock splits effected as stock
dividends, issuances of Common Stock may result in dilution to the investments
of existing shareholders. In addition, issuances of Common Stock could be used
to discourage or make more difficult a business combination or an attempt to
obtain control of the Company that is not approved by the Company's Board of
Directors, even when those attempts may be in the best interests of some or all
of the Company's shareholders. Certain provisions of Arizona law relating to
business combinations with interested shareholders also may create a potential
restraint on takeovers or other changes in control of the
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Company. The Board of Directors did not propose this amendment for the purpose
of discouraging mergers, tender offers, proxy contests or other changes in
control of the Company and the Company is not aware of any specific effort to
accumulate its Common Stock or to obtain control of the Company by means of a
merger, tender offer, solicitation, or otherwise.
No rights of appraisal or similar rights of dissenters exist with
respect to this matter.
RATIFICATION BY SHAREHOLDERS OF THE PROPOSED AMENDMENT TO THE RESTATED ARTICLES
Approval of the proposed amendment to the Articles will require the
affirmative vote of the holders of a majority of the total number of the issued
and outstanding shares of the Company's Common Stock. Upon approval by the
Company's shareholders, the proposed amendment will become effective upon filing
of Articles of Amendment with the Arizona Corporation Commission, which will
occur as soon as practicable following the Meeting. In the event that the
proposed amendment is not approved by the Company's shareholders at the Meeting,
the current Articles will remain in effect.
PROPOSAL TO APPROVE THE COMPANY'S
1999 INCENTIVE STOCK PLAN
The Board of Directors has approved the Company's 1999 Incentive Stock
Plan (the "Incentive Plan"), subject to approval by the Company's shareholders
at the Meeting. The full text of the Incentive Plan is included as "Appendix B"
to this Proxy Statement. The Board of Directors believes that it is in the best
interests of the Company to adopt the Incentive Plan. Accordingly, the Board of
Directors recommends a vote "FOR" the proposal to approve the Incentive Plan.
GENERAL TERMS OF THE INCENTIVE PLAN; SHARES AVAILABLE FOR ISSUANCE
The Incentive Plan is intended to attract, retain, and motivate
directors, employees, and independent contractors who provide valuable services
to the Company by providing them with the opportunity to acquire a proprietary
interest in the Company and to link their interest and efforts to the long-term
interests of the Company's shareholders. The Incentive Plan provides for the
granting of awards to employees, directors, and independent contractors eligible
to receive awards under the Incentive Plan. Such awards may include, but are not
limited to, incentive stock options, nonqualified stock options, stock
appreciation rights ("SARs"), and restricted stock awards.
The Incentive Plan authorizes the issuance of the lesser of (i) a
number of shares equal to 5% of the outstanding shares of Common Stock, or (ii)
2,000,000 shares of Common Stock. The maximum number of shares covered by awards
granted to any individual in any year may not exceed 50% of the total number of
shares that may be issued under the Incentive Plan. If any award is forfeited,
terminated, canceled, does not vest, or expires without having been exercised in
full, stock not issued under such award will again be available for the purposes
of the Incentive Plan. If SARs are settled in cash, the shares covered by such
SARs will remain available for the granting of other awards. If any change is
made in the stock subject to the Incentive Plan, or subject to any award granted
under the Incentive Plan (through consolidation, spin-off, recapitalization,
stock dividend, split-up, combination of shares, exchange of shares, or
otherwise), the Incentive Plan provides that appropriate adjustments will be
made as to the aggregate number and type of shares available for awards, the
maximum number and type of shares that may be subject to awards to any
individual, the number and type of shares covered by each outstanding award, and
the exercise price per share (but not the total price) for stock options, SARs,
or similar outstanding awards.
The Incentive Plan provides that it is not intended to be the exclusive
means by which the Company may issue options to acquire its Common Stock or any
other type of award. To the extent permitted by applicable law, the Company may
issue any other options, warrants, or awards other than pursuant to the
Incentive Plan without shareholder approval.
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ELIGIBILITY AND ADMINISTRATION
Employees of the Company, non-employee directors, proposed directors,
proposed employees, and independent contractors will be eligible to receive
Awards under the Incentive Plan. Options that are incentive stock options may be
granted only to employees of the Company.
The Board of Directors will administer the Incentive Plan. The Board,
in its sole discretion, may delegate all or any portion of its authority and
duties under the Incentive Plan to one or more committees appointed by the Board
under such conditions and limitations as the Board may from time to time
establish. The Board and/or any committee that has been delegated the authority
to administer the Incentive Plan is referred to as the "Plan Administrator." The
Plan Administrator will have the authority, in its discretion, to determine all
matters relating to awards, including the selection of the individuals to be
granted awards, the type of awards, the number of shares of Common Stock subject
to an award, vesting conditions, and any and all other terms, conditions,
restrictions, and limitations, if any, of an award.
GRANT AND EXERCISE OF AWARDS
Stock Options
The expiration date, maximum number of shares purchasable, vesting
provisions, and any other provisions of options granted under the Incentive Plan
will be established at the time of grant. The Plan Administrator will set the
term of each option, but no incentive stock options may be granted for terms of
greater than 10 years. Options will vest and become exercisable in whole or in
one or more installments at such time as may be determined by the Plan
Administrator. The Board of Directors will have the discretion to provide for
the automatic acceleration of the vesting of outstanding options in the event of
a "Transfer of Control" (as defined in the Incentive Plan).
The exercise prices of options will be determined by the Plan
Administrator, but if the option is intended to be an incentive stock option,
the exercise price may not be less than 100% of the fair market value of the
Common Stock at the time of the grant (110% of the fair market value if the
option is granted to a shareholder who at the time the option is granted owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its subsidiaries). On January 19, 1999, the
closing price of the Company's Common Stock on the Nasdaq National Market was
$36.38 per share.
Stock Appreciation Rights
SARs will entitle the holder to receive a payment equal to the
appreciation in the 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 exercised. Such payment may be made in cash or in
shares of Common Stock valued as of the date of the surrender, or partly in cash
and partly in shares of Common Stock, as determined in the sole discretion of
the Plan Administrator. The Plan Administrator may grant SARs either in tandem
with an option or with respect to a number of shares for which no options are
granted. Consistent with the provisions of the Incentive Plan, the Plan
Administrator may determine such terms, conditions, restrictions, and
limitations, if any, on any SARs, including a maximum appreciation value payable
for SARs.
Restricted Stock Awards
The Plan Administrator also may grant restricted stock awards in Common
Stock or denominated in units of Common Stock. The Plan Administrator, in its
discretion, may make such awards subject to conditions and restrictions that may
be based on continuous service with the Company or the attainment of certain
performance goals related to profits, profit growth, profit-related return
ratios, cash flow or shareholder returns. The Plan Administrator may choose, at
the time of granting a restricted stock award or at any time thereafter up to
the time of payment of the award, to include as part of such award an
entitlement to receive dividends or dividend equivalents, subject to such terms
as the Plan Administrator may establish. All dividends or dividend equivalents
that are not paid currently, in the Plan Administrator's sole discretion, may
accrue interest and be paid to the award holder if, when, and to the extent such
award is paid.
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TRANSFERABILITY OF OPTIONS; TERMINATION OF EMPLOYMENT OR SERVICES TO THE COMPANY
Except as otherwise allowed by the Plan Administrator, options granted
under the Incentive Plan are nontransferable other than by will or by the laws
of descent and distribution upon the death of the holder and, during the
lifetime of the holder, are exercisable only by such holder. The Plan
Administrator will determine the terms and conditions under which options may be
exercised following the termination of the holder's relationship with the
Company. Incentive stock options, however, will not be exercisable for more than
(i) up to three months after termination of the holder's employment for reasons
other than death or disability, or (ii) up to one year after termination due to
disability.
DURATION AND MODIFICATION
The Incentive Plan will remain in force until January 29, 2009, unless
sooner terminated by the Board of Directors. After the Incentive Plan is
terminated, no future awards may be granted, but awards previously granted will
remain outstanding in accordance with their applicable terms and conditions. The
Board of Directors may amend, suspend or terminate the Incentive Plan at any
time, except that that the Board of Directors may not amend the Incentive Plan
to increase the number of shares available for issuance under the Incentive Plan
(other than through consolidation, spin-off, recapitalization, stock dividend,
split-up, combination of shares, exchange of shares, or otherwise) without the
approval of the Company's shareholders. Despite the foregoing, the Board of
Directors, in its sole discretion, may bifurcate the Incentive Plan so as to
restrict, limit, or condition the use of any provision of the Incentive Plan to
participants who are officers, directors or shareholders subject to Section 16
of the Exchange Act without so restricting, limiting or conditioning the
Incentive Plan with respect to other participants.
FEDERAL INCOME TAX CONSEQUENCES
Certain options granted under the Incentive Plan will be intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
Code. Accordingly, there will be no taxable income to an employee when an
incentive stock option is granted to him or her or when that option is
exercised. The amount by which the fair market value of the shares at the time
of exercise exceeds the exercise price, however, generally will be treated as an
item of preference in computing the alternate minimum taxable income of the
optionholder. If an optionholder exercises an incentive stock option and does
not dispose of the shares within either two years after the date of the grant of
the option or one year of the date the shares were transferred to the
optionholder upon exercise, any gain realized upon disposition will be taxable
to the optionholder as a capital gain. If the optionholder does not satisfy the
applicable holding periods, however, the difference between the exercise price
and the fair market value of the shares on the date of exercise of the option
will be taxed as ordinary income, and the balance of the gain, if any, will be
taxed as capital gain. If the shares are disposed of before the expiration of
the one-year and two-year periods and the amount realized is less than the fair
market value of the shares at the date of exercise, the employee's ordinary
income is limited to the amount realized less the exercise price paid. The
Company will be entitled to a tax deduction only to the extent the optionholder
has ordinary income upon the sale or other disposition of the shares received
when the option was exercised.
Certain other options issued under the Incentive Plan may be
nonqualified options. The income tax consequences of nonqualified options, as
well as other awards granted under the Incentive Plan, will be governed by
Section 83 of the Internal Revenue Code. Under Section 83, the excess of the
fair market value of the shares of the Company's Common Stock acquired pursuant
to the exercise of any nonqualified option or the grant of other awards over the
amount paid for such stock (the "Excess Value") must be included in the gross
income of the holder in the first taxable year in which the Common Stock
acquired by the holder is not subject to a substantial risk of forfeiture. In
calculating the Excess Value, fair market value will be determined on the date
that the substantial risk of forfeiture expires, unless a Section 83(b) election
is made to include the Excess Value in income immediately after the acquisition,
in which case fair market value will be determined on the date of the
acquisition. Generally, the Company will be entitled to a federal income tax
deduction in the same taxable year that holders recognize income. The Company
will be required to withhold income taxes with respect to income reportable
pursuant to Section 83 by a holder. The basis of the shares acquired by an
optionholder or award recipient will be equal to the exercise price of those
shares plus any income recognized pursuant to Section 83. Subsequent sales of
the acquired shares will produce capital gain or loss. Such capital gain or loss
will be long term if the stock has been held for more than 12 months from the
date the substantial risk of forfeiture lapsed or, if a Section 83(b) election
is made, more than 12
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months from the date the shares were acquired. The maximum federal capital gains
tax rate currently is 20% for property held more than 12 months.
RATIFICATION BY SHAREHOLDERS OF THE INCENTIVE PLAN
Approval of the Incentive Plan will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the Company
present in person or by proxy at the Meeting. Upon approval of the Incentive
Plan by the Company's shareholders, any awards granted pursuant to the Incentive
Plan prior to shareholder approval will remain valid and unchanged. In the event
that the proposal to approve the Incentive Plan is not approved by the
shareholders of the Company at the Meeting, any awards granted pursuant to the
Incentive Plan will automatically terminate and be forfeited to the same extent
and with the same effect as though the Incentive Plan had never been adopted,
and the Company will not make any further grants of awards under the Incentive
Plan.
PROPOSAL TO APPROVE THE COMPANY'S
1999 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has approved the Company's 1999 Employee Stock
Purchase Plan (the "Purchase Plan"), subject to approval by the Company's
shareholders at the Meeting. The full text of the Purchase Plan is included as
"Appendix C" to this Proxy Statement. The Board of Directors believes that it is
in the best interests of the Company to adopt the Purchase Plan. Accordingly,
the Board of Directors recommends a vote "FOR" the proposal to approve the
Purchase Plan.
GENERAL TERMS OF THE PURCHASE PLAN; SHARES AVAILABLE FOR ISSUANCE
The Purchase Plan is intended to provide a method whereby employees of
the Company will have an opportunity to acquire a proprietary interest in the
Company through the purchase of shares of the Company's Common Stock through
accumulated voluntary payroll deductions. The Company intends to have the
Purchase Plan qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code. The Purchase Plan permits eligible employees to
authorize payroll deductions that will be utilized to purchase shares of the
Company's Common Stock during a series of consecutive offering periods.
Employees may purchase shares of Common Stock pursuant to the Purchase Plan at a
purchase price equal to the lower of (i) 85% of the closing price of the
Company's Common Stock on the first day of the offering period, or (ii) 85% of
the closing price of the Company's Common Stock on the last day of the
applicable offering period.
Subject to adjustment upon changes in capitalization of the Company,
the number of shares of Common Stock that may be issued under the Purchase Plan
will be 200,000 shares, plus an annual increase to be added on the first day of
each fiscal year beginning with the Company's fiscal year beginning on October
1, 2001. The annual increase will be equal to the lesser of (a) 200,000 shares
or (b) 1.0% of the outstanding shares on the last day of the Company' prior
fiscal year, provided that the Board of Directors may reduce the number of
shares to be automatically added if the directors determine that the automatic
increase will be too large relative to the anticipated number of share purchases
under the Purchase Plan. See "Proposal to Approve the Company's 1999 Employee
Stock Purchase Plan - Accounting Considerations." Under this formula, a maximum
of 1,800,000 shares of Common Stock may be issued under the Purchase Plan. If
any change is made in the stock subject to the Purchase Plan or subject to any
outstanding options under the Purchase Plan (through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split, or similar
transaction), appropriate and proportionate adjustments may be made by the Plan
Committee (as defined below) in the number and type of shares of Common Stock
that are subject to purchase under outstanding options and to the option price
applicable to such outstanding options.
ELIGIBILITY AND ADMINISTRATION
An employee who has completed six months of service with the Company or
certain of the Company's subsidiaries will be eligible to participate in the
Purchase Plan. An employee may not participate in the Purchase Plan if (i)
immediately after the grant, such employee would own Common Stock, including
outstanding options to purchase Common Stock under the Purchase Plan, possessing
5% or more of the total combined voting power or value of Common Stock of the
Company, or (ii) participation in the Purchase Plan would permit such employee's
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rights to purchase Common Stock under all employee stock purchase plans of the
Company to exceed $25,000 in fair market value (determined at the time the
option is granted) of the Common Stock for each calendar year in which such
option is outstanding.
The Board of Directors will appoint a committee consisting of at least
two members of the Board of Directors to administer the Plan (the "Plan
Committee"). The Plan Committee will have the authority to (a) interpret and
construe any provision of the Purchase Plan, (b) adopt rules and regulations for
administering the Purchase Plan, and (c) make all other determinations deemed
necessary or advisable for administering the Purchase Plan. The Plan Committee
may delegate its authority as it deems necessary or appropriate.
OFFERING PERIODS AND EMPLOYEE PARTICIPATION
During the first year of the Purchase Plan, there will be an offering
period commencing on May 1, 1999 and ending on July 31, 1999 and an offering
period commencing on August 1, 1999 and ending on January 31, 2000. Thereafter,
in each of the nine years beginning on February 1, 2000 and ending January 31,
2009, there will be two six-month offerings commencing on February 1 and August
1 of each year and ending on the following July 31 or January 31, as applicable.
The Plan Committee, in its discretion, may designate a longer or shorter term
for any offering (other than to extend the final offering beyond January 31,
2009) by giving written notice of the change to the Purchase Plan participants
prior to the commencement of the affected offering.
At the time an employee becomes a participant in the Purchase Plan, the
employee may elect payroll deductions of up to 15% of such employee's
compensation for each pay period during an offering. For purposes of the
Purchase Plan, compensation consists of regular gross cash compensation paid by
the Company or subsidiaries that participate in the Purchase Plan, which
includes straight time wages, salary, or base commissions, but excludes
overtime, bonus payments, incentive payments, expense allowances, and non-cash
compensation. Participants may reduce or increase future payroll deductions up
to two times during an offering period. All payroll deductions made by each
participant will be credited to an account set up for that participant under the
Purchase Plan. The Plan Committee may, prior to the beginning of an offering
period, limit the percentage of compensation that an employee may contribute to
his or her account.
GRANTS AND EXERCISES OF OPTIONS
On the commencement date of each offering period, a participant will be
deemed to have been granted an option to purchase a number of shares of Common
Stock determined by dividing (i) the amount of such participant's payroll
deductions accumulated during the offering period by (ii) an amount equal to the
lower of (a) 85% of the closing price of the Company's Common Stock at the
beginning of the offering period, or (b) 85% of the closing price of the
Company's Common Stock at the end of the offering period. The participant's
option will be deemed to have been exercised automatically on the last day of
the offering period. A participant will have no interest in shares of Common
Stock covered by the participant's option until such option has been exercised.
WITHDRAWAL; TERMINATION; LEAVE OF ABSENCE
A participant in the Purchase Plan may withdraw all of the payroll
deductions credited to such participant's account under the Purchase Plan by
giving written notice to the Company at any time prior to the last five days of
an offering period. If a participant withdraws from an offering period, he or
she may not participate in that offering but may participate in any succeeding
offering under the Purchase Plan or in any similar plan that the Company may
adopt.
Upon termination of a participant's employment for any reason, other
than death or permanent disability (as defined in the Internal Revenue Code),
the payroll deductions credited to such participant's account will be returned
to the participant. If the participant's employment terminates due to death or
permanent disability, the participant or the participant's beneficiary will have
the right to elect (i) to withdraw all of the payroll deductions credited to the
participant's account under the Purchase Plan, or (ii) to exercise the
participant's option on the next offering termination date and purchase the
number of shares of Common Stock that the accumulated payroll deductions in the
participant's account will purchase at the applicable option price. Any excess
in the participant's account will be returned to the participant or his or her
beneficiary, without interest. In the event that the Company receives no
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notice of election from the participant or his or her beneficiary, the
participant or his or her beneficiary will be deemed to have elected to exercise
the participant's option.
A participant on leave of absence will be deemed to be an employee
during the first 90 days of the leave of absence and may continue to be a
participant in the Purchase Plan during that 90-day period. A participant who
has been on leave of absence for more than 90 days will be deemed to have been
terminated as an employee and will not be entitled to participate in any
offering commencing after the 90th day of such leave of absence. Unless a
participant on leave of absence returns to regular full time or part time
employment with the Company at the earlier of (i) the termination of such leave
of absence, or (ii) three months after the 90th day of such leave of absence,
the participant's participation in the Purchase Plan will terminate on the
earlier of those dates.
TRANSFERABILITY
Neither the payroll deductions credited to a participant's account nor
any rights with respect to an option granted under the Purchase Plan may be
assigned, transferred, pledged, or otherwise disposed of by the participant,
other than by will or the laws of descent and distribution. Any such attempted
assignment, transfer, pledge, or other disposition will be ineffective and the
Company may treat any such act as an election to withdraw from participation in
the Purchase Plan.
DURATION AND MODIFICATION
The Purchase Plan will remain in effect until January 31, 2009. The
Board of Directors will have complete authority to terminate or amend the
Purchase Plan, except that the Board of Directors may not, without the approval
of the Company's shareholders, (a) increase the maximum number of shares of
Common Stock that may be issued under the Purchase Plan, or (b) amend the
requirements as to the class of employees eligible to purchase Common Stock
under the Purchase Plan.
ACCOUNTING CONSIDERATIONS
Generally accepted accounting principles currently will require the
Company to record compensation expense if (i) at the beginning of an offering
period, the shares reserved for issuance under the Purchase Plan are not
sufficient to cover all shares issuable during the offering period, (ii) after
the offering period commences, shareholders subsequently approve an increase in
the number of shares available under the Purchase Plan, and (iii) the fair
market value of the Common Stock on the date of shareholder approval is higher
than the fair market value on the date the offering period commenced. The
Purchase Plan provides for automatic annual share increases, up to a maximum of
1,800,000 shares, that are intended to ensure that a sufficient number of shares
remain available for purchases throughout the term of the Purchase Plan without
triggering the need to obtain shareholder approval of subsequent share
increases. By reducing the need for shareholder approval of share increases in
the future, the Purchase Plan minimizes the likelihood that the Company will be
required to record compensation expense at the time of shareholder approval.
During 1998, the Financial Accounting Standards Board ("FASB")
tentatively reached the conclusion that employee stock purchase plans, such as
the Purchase Plan, that provide for a purchase price based on the lower of the
market price at the grant date or the exercise date would result in "variable
plan" accounting treatment. "Variable plan" accounting treatment would require
the Company to record compensation expense related to Common Stock purchases
under the Purchase Plan during each accounting period until the price of the
shares is determined. The FASB subsequently rescinded its position. In the
event that the FASB were to adopt this or a similar position in the future,
however, the Company may be required to reflect compensation charges related to
the Purchase Plan in its financial statements, which could adversely impact the
Company's operating results. Under the Purchase Plan, however, the Board of
Directors will have authority to terminate or amend the Purchase Plan in order
to avoid these or other potentially adverse accounting considerations.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Internal Revenue Code. Under these provisions, no income will be taxable
to a participant until the shares purchased under the Purchase Plan are sold or
otherwise disposed of. Upon sale or other disposition of the shares, the
participant will generally be subject to tax and the amount of the tax will
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depend upon the holding period. If the shares are sold or otherwise disposed of
more than (a) two years from the first day of the offering period and (b) more
than one year from the date of transfer of the shares to the participant, then
the participant will recognize ordinary income measured as the lesser of (i) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price, or (ii) an amount equal to 15% of the fair
market value of the shares as of the first day of the offering period. Any
additional gain will be treated as long-term capital gain. If the shares are
sold or otherwise disposed of before the expiration of these holding periods,
the participant will recognize ordinary income generally measured as the excess
of the fair market value of the shares on the date the shares are purchased over
the price at which the participant purchased the shares under the Purchase Plan.
Any additional gain or loss on such sale or disposition will be long-term or
short-term capital gain or loss, depending on the holding period. The Company
will not be entitled to a deduction for amounts taxed as ordinary income or
capital gain to a participant except to the extent ordinary income is recognized
by participants as a result of a sale or disposition of shares prior to the
expiration of the holding periods described above.
RATIFICATION BY SHAREHOLDERS OF THE PURCHASE PLAN
Approval of the Purchase Plan will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the Company
present in person or by proxy at the Meeting. Upon approval of the Purchase Plan
by the Company's shareholders, the Purchase Plan will go into effect and
employees of the Company will be entitled to enroll for participation in the
Purchase Plan. In the event that the proposal to approve the Purchase Plan is
not approved by the shareholders of the Company at the Meeting, the Purchase
Plan will automatically terminate to the same extent and with the same effect as
though it had never been adopted; employees will not be able to purchase shares
of Common Stock under the Purchase Plan; any options to purchase shares of
Common Stock under the Purchase Plan will be terminated; and no shares of Common
Stock will be issued under the Purchase Plan.
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, 1999 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 2000 must be received by the Company no later than October 20,
1999 in order to be included in the proxy statement and form of proxy relating
to such meeting. Pursuant to Rule 14a-4 under the Exchange Act, the Company
intends to retain discretionary authority to vote proxies with respect to
shareholder proposals for which the proponent does not seek to have the Company
include the proposed matter in the proxy statement for the annual meeting to be
held during calendar 2000, except in circumstances where (i) the Company
receives notice of the proposed matter no later than January 3, 1999 and (ii)
the proponent complies with the other requirements set forth in Rule 14a-4.
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: February 17, 1999
23
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APPENDIX A
PROPOSED AMENDMENT TO FIRST
AMENDED AND RESTATED ARTICLES
OF INCORPORATION OF
ACTION PERFORMANCE COMPANIES, INC.
ARTICLE 4.
A. The Corporation shall have authority to issue a total of One Hundred
Five Million (105,000,000) shares of capital stock, consisting of:
(1) One Hundred Million (100,000,000) shares of common stock, par
value one cent ($.01) per share; and
(2) Five Million (5,000,000) shares of serial preferred stock, no
par value per share.
B. The preferences, limitations and relative rights granted to or
imposed on the respective classes of the capital stock of the Corporation, or
the holders thereof are as follows:
(1) Common Stock. Each issued and outstanding share of common stock
will entitle the holder thereof to one (1) vote on any matter submitted to a
vote of or for consent of shareholders generally.
(2) Serial Preferred Stock. The board of directors is authorized to
provide from time to time for the issuance of shares of serial preferred stock
in series and to fix from time to time before issuance the designation,
preferences, privileges and voting powers of the shares of each series of serial
preferred stock and the restrictions or qualifications thereof, including,
without limiting the generality of the foregoing, the following:
i. The serial designation and authorized number of shares;
ii. The dividend rate, the date or dates on which such dividends
will be payable, and the extent to which such dividends may be cumulative;
iii. The amount or amounts to be received by the holders in the
event of voluntary or involuntary dissolution or liquidation of the Corporation;
iv. The price or prices at which shares may be redeemed and any
terms, conditions and limitations upon such redemption;
v. Any sinking fund provisions for redemption or purchase of
shares of such series; and
vi. The terms and conditions, if any, on which shares may be
converted into shares of other capital stock, or of other series of serial
preferred stock of the Corporation.
Each series of serial preferred stock, in preference to the common
stock, may be entitled to dividends, from funds or other assets legally
available therefor, at such rates, payable at such times and cumulative to such
extent as may be fixed by the board of directors pursuant to the authority
herein conferred upon it. In the event of dissolution or liquidation of the
Corporation, voluntary or involuntary, the holders of the serial preferred
stock, in preference to the common stock, may be entitled to receive such amount
or amounts as may be fixed by the board of directors pursuant to the authority
herein conferred upon it. Each issued and outstanding share of serial preferred
stock will entitle the holder thereof only to those votes, if any, which may
expressly be fixed as hereinafter provided for the respective series thereof and
to voting rights on certain matters, and in certain circumstances, as set forth
in this Article.
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Preference stock of any series redeemed, converted, exchanged,
purchased or otherwise acquired by the Corporation shall be cancelled by the
Corporation and returned to the status of authorized but unissued serial
preferred stock unless otherwise provided herein or in resolutions of the board
of directors duly filed with the Arizona Corporation Commission authorizing the
issuance of the series.
All shares of any series of serial preferred stock, as between
themselves, shall rank equally and be identical; and all series of serial
preferred stock, as between themselves shall rank equally and be identical
except as set forth in resolutions of the board of directors duly filed with the
Arizona Corporation Commission authorizing the issuance of the series.
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APPENDIX B
ACTION PERFORMANCE COMPANIES, INC.
1999 INCENTIVE STOCK PLAN
ADOPTED BY THE BOARD OF DIRECTORS AS OF JANUARY 29, 1999
1. PURPOSE. The purpose of this 1999 Incentive Stock Plan (the "Plan")
is to attract, retain and motivate employees, directors, and independent
contractors by providing them with the opportunity to acquire a proprietary
interest in ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation (the
"Company") and to link their interest and efforts to the long-term interests of
the Company's shareholders.
2. PLAN ADMINISTRATION
2.1 IN GENERAL. The Plan shall be administered by the Company's
Board of Directors (the "Board"). Except for the power to amend the Plan as
provided in Section 11, the Board, in its sole discretion, may delegate all or
any portion of its authority and duties under the Plan to one or more committees
appointed by the Board and consisting of at least one member of the Board, under
such conditions and limitations as the Board may from time to time establish.
The Board and/or any committee that has been delegated the authority to
administer the Plan shall be referred to as the "Plan Administrator." Except as
otherwise explicitly set forth in the Plan, the Plan Administrator shall have
the authority, in its discretion, to determine all matters relating to awards
(as described in Section 5) under the Plan, including the selection of the
individuals to be granted awards, the type of awards, the number of shares of
the Company's common stock ("Common Stock") subject to an award, vesting
conditions, and any and all other terms, conditions, restrictions and
limitations, if any, of an award. All decisions made by the Plan Administrator
pursuant to the Plan and related orders and resolutions shall be final and
conclusive.
2.2 RULE 16b-3 AND CODE SECTION 162(m). Notwithstanding any
provision of this Plan to the contrary, only the Board or a committee composed
of two or more "Non-Employee Directors" may make determinations regarding grants
of awards to officers, directors, and 10% shareholders of the Company. For
purposes of this Plan, the term "Non-Employee Directors" shall have the meaning
set forth in Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "1934 Act"). The Plan Administrator shall have the authority and
discretion to determine the extent to which awards will conform to the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and to take such action, establish such procedures, and impose such
restrictions as the Plan Administrator determines to be necessary or appropriate
to conform to such requirements.
2.3 OTHER PLANS. The Plan Administrator also shall have authority to
grant awards as an alternative to or as the form of payment for grants or rights
earned or due under other compensation plans or arrangements of the Company,
including the plan of any entity acquired by the Company.
3. ELIGIBILITY. Any employee of the Company shall be eligible to
receive any award under the Plan. Directors who are not employees, proposed
directors, proposed employees and independent contractors shall be eligible to
receive awards other than Incentive Stock Options (as defined in Section 5.2).
For purposes of this Section 3, the "Company," with respect to all awards under
the Plan, other than Incentive Stock Options, includes any entity that is
directly or indirectly controlled by the Company or any entity in which the
Company has a significant equity interest, as determined by the Plan
Administrator. With respect to Incentive Stock Options, the "Company" includes
any parent or subsidiary of the Company as defined in Section 424 of the Code.
4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER AND SOURCE. The shares offered under the Plan shall be
shares of Common Stock and may be unissued shares or shares now held or
subsequently acquired by the Company as treasury shares, as the Plan
Administrator may from time to time determine. Subject to adjustment as provided
in Section 4.3, the aggregate number of shares that may be issued under the Plan
shall not exceed 2,000,000 shares; provided, however
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that awards shall not be granted under the Plan if, at the time of such grant,
the aggregate number of shares of Stock that have been or may be issued under
previously granted awards or options under the Plan equal or exceed 5% of the
total number of outstanding shares at such time. The aggregate number of shares
that may be covered by awards granted to any one individual in any year shall
not exceed 50% of the total number of shares that may be issued under the Plan.
4.2 SHARES AVAILABLE. Any shares subject to an award granted under
the Plan that is forfeited, terminated or canceled, or any shares that do not
vest, shall again be available for the granting of awards under the Plan. If a
stock appreciation right is settled in cash, the shares covered by such award
shall remain available for the granting of other awards. The payment of cash
dividends and dividend equivalents paid in cash in conjunction with outstanding
awards shall not be counted against the shares available for issuance.
4.3 ADJUSTMENT OF SHARES AVAILABLE. The aggregate number and type of
shares available for awards under the Plan, the maximum number and type of
shares that may be subject to awards to any individual under the Plan, the
number and type of shares covered by each outstanding award, and the exercise
price per share (but not the total price) for stock options, stock appreciation
rights or similar awards outstanding under the Plan shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from any split-up, combination or exchange of shares,
consolidation, spin-off or recapitalization of shares or any like capital
adjustment or the payment of any stock dividend.
4.4 TRANSFER OF CONTROL. In the event of a Transfer of Control of
the Company (as defined below), the surviving, continuing, successor or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation") shall either assume the Company's rights and
obligations under outstanding awards or substitute for outstanding awards
substantially equivalent awards for the Acquiring Corporation's stock. In the
event the Acquiring Corporation elects not to assume or substitute for such
outstanding awards in connection with the Transfer of Control, the Board may, in
its discretion, provide that any unexercisable and/or unvested portion of the
outstanding awards shall be immediately exercisable and vested in full on or
before the date of the Transfer of Control. The exercise and/or vesting of any
award that is permissible solely by reason of this Section 4.4 shall be
conditioned upon the consummation of the Transfer of Control. Any awards that
are neither (i) assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor (ii) exercised on or before the date
of the Transfer of Control shall terminate and cease to be outstanding effective
as of the date of the Transfer of Control. Unless otherwise determined by the
Board, a "Transfer of Control" shall be deemed to have occurred in the event of
any of the following: (a) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company if the shareholders of the Company before such sale or exchange do not
retain, directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the Company after such sale or exchange; (b) a merger or
consolidation if the shareholders of the Company before such merger or
consolidation do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Company after such merger or
consolidation (regardless of whether the Company is the surviving corporation);
(c) the sale, exchange or transfer of all or substantially all of the assets of
the Company; or (d) a liquidation or dissolution of the Company.
5. AWARDS
5.1 TYPES OF AWARDS. Awards granted under this Plan may include, but
are not limited to, Incentive Stock Options or Nonqualified Stock Options (as
defined in Section 5.2), stock appreciation rights or restricted stock awards.
Such awards may be granted either alone, in addition to, or in tandem with any
other type of award granted under the Plan.
5.2 STOCK OPTIONS. The Plan Administrator may grant stock options,
designated as "Incentive Stock Options," which comply with the provisions of
Section 422 of the Code or any successor statutory provision, or "Nonqualified
Stock Options" that do not comply with the provisions of Section 422 of the Code
or any successor statutory provision. The price for which shares may be
purchased upon exercise of a particular option shall be determined by the Plan
Administrator; however, the exercise price of an Incentive Stock Option shall
not be less than 100% of the Fair Market Value (as defined below) of such shares
on the date such option is granted (110% of the Fair Market Value if options are
intended to be Incentive Stock Options and are granted to a shareholder who at
the time the option is granted owns or is deemed to own stock possessing more
than 10% of the total combined
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voting power of all classes of stock of the Company or of any parent or
subsidiary of the Company). For purposes of the Plan, "Fair Market Value" as to
a particular day shall be the per-share closing price for the Common Stock as
reported for the prior trading day in The Wall Street Journal or in such other
source as the Plan Administrator deems reliable. The Plan Administrator shall
set the term of each stock option, but no Incentive Stock Option shall be
exercisable more than 10 years after the date such option is granted and, to the
extent the aggregate Fair Market Value (determined as of the date the option is
granted) of Common Stock with respect to which Incentive Stock Options granted
to a particular individual become exercisable for the first time during any
calendar year (under the Plan and all other stock option plans of the Company)
exceeds $100,000 (or such corresponding amount as may be set by the Code) such
options shall be treated as Nonqualified Stock Options. An optionholder and the
Plan Administrator can agree at any time to convert an Incentive Stock Option to
a Nonqualified Stock Option.
5.3 STOCK APPRECIATION RIGHTS. The Plan Administrator may grant
stock appreciation rights, either in tandem with a stock option granted under
the Plan or with respect to a number of shares for which an option is not
granted. A stock appreciation right shall entitle the holder to receive, with
respect to each share of stock as to which the right is exercised, payment in an
amount equal to the excess of the share's Fair Market Value on the date the
right is exercised over its Fair Market Value on the date the right was granted.
Such payment may be made in cash or in shares of Common Stock valued at Fair
Market Value as of the date of the surrender, or partly in cash and partly in
shares of Common Stock, as determined by the Plan Administrator in its sole
discretion. The Plan Administrator may establish a maximum appreciation value
payable for stock appreciation rights.
5.4 RESTRICTED STOCK AWARDS. The Plan Administrator may grant
restricted stock awards under the Plan in Common Stock or denominated in units
of Common Stock. The Plan Administrator, in its discretion, may make such awards
subject to conditions and restrictions, as set forth in the instrument
evidencing the award, which may be based on continuous service with the Company
or the attainment of certain performance goals related to profits, profit
growth, profit-related return ratios, cash flow or shareholder returns, where
such goals may be stated in absolute terms or relative to comparison companies
or indices or to be achieved during a period of time. The Plan Administrator may
choose, at the time of granting a restricted stock award or at any time
thereafter up to the time of payment of the award, to include as part of such
award an entitlement to receive dividends or dividend equivalents, subject to
such terms as the Plan Administrator may establish. All dividends or dividend
equivalents that are not paid currently may, in the Plan Administrator's sole
discretion, accrue interest and be paid to the participant if, when, and to the
extent such award is paid.
5.5 PAYMENT; DEFERRAL. Awards granted under the Plan may be settled
through cash payments, the delivery of Common Stock (valued at Fair Market
Value) or the granting of awards or combinations thereof as the Plan
Administrator shall determine. Any award settlement, including payment
deferrals, may be subject to such conditions, restrictions, and contingencies as
the Plan Administrator shall determine. The Plan Administrator may permit or
require the deferral of any award payment, subject to such rules and procedures
as it may establish, which may include provisions for the payment or crediting
of interest, or dividend equivalents, including converting such credits to
deferred stock unit equivalents.
5.6 INDIVIDUAL AWARD AGREEMENTS. Stock Options shall and other
awards may be evidenced by agreements between the Company and the recipient in
such form and content as the Plan Administrator from time to time approves,
which agreements shall substantially comply with and be subject to the terms of
the Plan. Such individual agreements may contain such provisions or conditions
as the Plan Administrator deems necessary or appropriate to effectuate the sense
and purpose of the Plan and may be amended from time to time in accordance with
the terms thereof.
6. AWARD EXERCISE
6.1 PRECONDITION TO STOCK ISSUANCE. No shares shall be delivered
pursuant to the exercise of any stock option or stock appreciation right, in
whole or in part, until qualified for delivery under such securities laws and
regulations as may be deemed by the Plan Administrator to be applicable thereto
and until, in the case of the exercise of an option, payment in full of the
option price thereof (in cash or stock as provided in Section 6.3) is received
by the Company. No holder of an option or stock appreciation right, or any legal
representative, legatee or distributee shall be or be deemed to be a holder of
any shares subject to such option or right unless and until such option or right
is exercised, the exercise price is paid, and such shares are issued.
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6.2 NO FRACTIONAL SHARES. No stock option may at any time be
exercised with respect to a fractional share. No fractional share shall be
issued with respect to a stock appreciation right; however, a fractional stock
appreciation right may be exercised for cash.
6.3 FORM OF PAYMENT. An optionee may exercise a stock option using
as the form of payment (a) cash or cash equivalent, (b) stock-for-stock payment
(as described below), (c) cashless exercises, (d) any combination of the above,
or (e) such other means as the Plan Administrator may approve. Any optionee who
owns Common Stock may use such shares as a form of payment to exercise stock
options granted under the Plan. The Plan Administrator, in its discretion, may
restrict or rescind this right by notice to optionees. A stock option may be
exercised in such manner only by tendering (actually or by attestation) to the
Company whole shares of Common Stock having a Fair Market Value equal to or less
than the exercise price. If an option is exercised by surrender of shares having
a Fair Market Value less than the exercise price, the optionholder must pay the
difference in cash.
7. TRANSFERABILITY. Any Incentive Stock Option granted under the Plan
shall, during the recipient's lifetime, be exercisable only by such recipient,
and shall not be assignable or transferable by such recipient other than by will
or the laws of descent and distribution. Except as specifically allowed by the
Plan Administrator, any other award under the Plan and any of the rights and
privileges conferred thereby shall not be assignable or transferable by the
recipient other than by will or the laws of descent and distribution and such
award shall be exercisable during the recipient's lifetime only by the
recipient.
8. WITHHOLDING TAXES; OTHER DEDUCTIONS. The Company shall have the
right to deduct from any settlement of an award granted under the Plan,
including the delivery or vesting of shares, (a) an amount of cash or shares of
Common Stock having a value sufficient to cover withholding as required by law
for any federal, state or local taxes, and (b) any amounts due from the
recipient of such award to the Company or to any parent or subsidiary of the
Company or to take such other action as may be necessary to satisfy any such
withholding or other obligations, including withholding from any other cash
amounts due or to become due from the Company to such recipient an amount equal
to such taxes or obligations. The Plan Administrator also may, in its
discretion, permit the holder of an award to deliver to the Company, at the time
the award is exercised or vests, one or more shares of Common Stock previously
acquired by such individual (other than pursuant to the transaction triggering
the taxes) with an aggregate Fair Market Value up to or equal to (but not in
excess of) the amount of the taxes incurred in connection with such exercise or
vesting.
9. TERMINATION OF SERVICES. The terms and conditions under which an
award may be exercised following termination of a recipient's employment,
directorship or independent contractor relationship with the Company shall be
determined by the Plan Administrator; provided, however, that Incentive Stock
Options shall not be exercisable at any time after the earliest of the date that
is (a) three months after termination of employment, unless due to death or
Disability (as defined in Section 22(e)(3) of the Code); (b) one year after
termination of employment due to Disability; or (c) ten years after the date of
grant (five years if granted to a shareholder who at the time the option is
granted owns or is deemed to own stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary of the Company).
10. TERM OF THE PLAN. The Plan shall become effective as of the date of
adoption by the Board and shall remain in full force and effect through the date
that is ten years thereafter, unless sooner terminated by the Board. After the
Plan is terminated, no future awards may be granted, but awards previously
granted shall remain outstanding in accordance with their applicable terms and
conditions and the Plan's terms and conditions.
11. PLAN AMENDMENT; BIFURCATION OF THE PLAN. The Board may amend,
suspend or terminate the Plan at any time; provided that no such amendment shall
be made without the approval of the Company's shareholders (a) that would
increase the number of shares available for issuance under the Plan (other than
in accordance with Section 4.3), or (b) if such approval is required (i) to
comply with Section 422 of the Code with respect to Incentive Stock Options, or
(ii) for purposes of Section 162(m) of the Code. Notwithstanding any provision
of this Plan to the contrary, the Board, in its sole discretion, may bifurcate
the Plan so as to restrict, limit or condition the use of any provision of the
Plan to participants who are officers, directors or shareholders subject to
Section 16 of the 1934 Act without so restricting, limiting or conditioning the
Plan with respect to other participants.
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12. PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive
means by which the Company may issue awards to acquire its Common Stock.
13. GOVERNING LAW. The Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the laws of the State
of Arizona.
14. APPROVAL BY SHAREHOLDERS. This Plan shall be submitted to the
shareholders of the Company for their approval at a regular or special meeting
to be held within 12 months after the adoption of this Plan by the Board.
Shareholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the shares of the Company's Common Stock present in person or
by proxy and voting at the meeting. If the shareholders decline to approve this
Plan at such meeting or if this Plan is not approved by the shareholders within
12 months after its adoption by the Board, this Plan (and all awards granted
hereunder) shall automatically terminate to the same extent and with the same
effect as though this Plan had never been adopted. If this Plan is approved by
shareholders, all awards granted under the Plan to persons who are "Affiliates"
of the Company (as defined under the Securities Act of 1933, as amended) shall
be deemed acquired on the date such approval is obtained.
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APPENDIX C
ACTION PERFORMANCE COMPANIES, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS AS OF JANUARY 29, 1999
ARTICLE 1
PURPOSE
1.1 NAME. This Stock Purchase Plan shall be known as the Action
Performance Companies, Inc. 1999 Employee Stock Purchase Plan (the "Plan").
1.2 PURPOSE. The Plan is intended to provide a method whereby
employees of Action Performance Companies, Inc., an Arizona corporation (the
"Company"), and one or more of its Subsidiary Corporations (as defined below)
will have an opportunity to acquire a proprietary interest in the Company
through the purchase of shares of the Company's Common Stock.
1.3 QUALIFICATION. It is the Company's intention to have the Plan
qualify as an "employee stock purchase plan" uNder Section 423 of the Code (as
defined below). The provisions of the Plan shall be construed so as to extend
and limit participation in a manner consistent with the requirements of that
section of the Code.
ARTICLE 2
DEFINITIONS
2.1 CLOSING PRICE. "Closing Price" shall have the meaning set forth in
Section 6.2.
2.2 CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.3 COMMITTEE. "Committee" shall have the meaning set forth in Section
11.1.
2.4 COMPENSATION. "Compensation" shall mean the regular gross cash
compensation (including straight-time wages, base salary, or base commissions)
paid by any Participating Company to a Participant in accordance with the terms
of employment, but excluding all overtime, bonus payments, incentive payments,
expense allowances, and compensation paid in a form other than cash.
2.5 EFFECTIVE DATE. "Effective Date" shall have the meaning set forth
in Section 12.6.
2.6 EMPLOYEE. "Employee" shall mean any person who is customarily
employed on a full-time or part-time basis by any Participating Company and who
is regularly scheduled to work 20 hours or more per week.
2.7 OFFERING. "Offering" shall have the meaning set forth in Section
4.1.
2.8 OFFERING COMMENCEMENT DATE. "Offering Commencement Date" shall
have the meaning set forth in Section 4.1.
2.9 OFFERING TERMINATION DATE. "Offering Termination Date" shall have
the meaning set forth in Section 4.1.
2.10 OPTION. "Option" shall have the meaning set forth in Section 6.1.
2.11 OPTION PRICE. "Option Price" shall have the meaning set forth in
Section 6.2.
2.12 PARTICIPATING COMPANY. "Participating Company" shall mean the
Company, the Subsidiary Corporations listed on Schedule A hereto, and such
additional Subsidiary Corporations as may be designated from
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time to time by the Board of Directors of the Company. Any corporation organized
within any jurisdiction in the United States that becomes a Subsidiary
Corporation after the Effective Date shall automatically become a Participating
Company as of the date it is organized or acquired by the Company, unless the
Board of Directors decides to exclude such Subsidiary Corporation from
designation as a Participating Company. Any corporation organized in any
jurisdiction outside the United States that becomes a Subsidiary Corporation
after the Effective Date shall become a Participating Company only upon the
decision of the Board of Directors of the Company to designate such Subsidiary
Corporation as a Participating Company and to extend the benefits of the Plan to
its eligible Employees.
2.13 PARTICIPANT. "Participant" shall have the meaning set forth in
Section 3.4.
2.14 PARTICIPATION AMOUNT. "Participation Amount" shall have the
meaning set forth in Section 5.1.
2.15 COMMON STOCK. "Common Stock" shall mean the Company's Common
Stock, par value $.01 per share.
2.16 SUBSIDIARY CORPORATION. "Subsidiary Corporation" shall mean any
present or future corporation that would be a "subsidiary corporation" of the
Company, as that term is defined in Section 424 of the Code.
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
3.1 INITIAL ELIGIBILITY. Any Employee who shall have completed six
months of continuous employment with a Participating Company and is employed by
a Participating Company on the date such Employee's participation in the Plan is
to become effective shall be eligible to participate in Offerings under the Plan
that commence on or after such six-month employment period has concluded.
3.2 LEAVE OF ABSENCE. For purposes of participation in the Plan, a
person on leave of absence shall be deemed to be an Employee for the first 90
days of such leave of absence and such Employee's employment shall be deemed to
have terminated at the close of business on the 90th day of such leave of
absence unless such Employee shall have returned to regular full-time or
part-time employment (as the case may be) prior to the close of business on such
90th day. Termination by a Participating Company of any Employee's leave of
absence, other than termination of such leave of absence on return to full time
or part time employment, shall terminate an Employee's employment for all
purposes of the Plan and shall terminate such Employee's participation in the
Plan and right to exercise any Option.
3.3 RESTRICTIONS ON PARTICIPATION. Notwithstanding any provision of
the Plan to the contrary, no Employee shall be granted an Option to purchase
shares of Common Stock under the Plan:
(a) if, immediately after the grant, such Employee would own
Common Stock, and/or hold outstanding Options to purchase Common Stock,
possessing 5% or more of the total combined voting power or value of all classes
of Common Stock of the Company (for purposes of this paragraph, the rules of
Section 424(d) of the Code shall apply in determining Common Stock ownership of
any Employee); or
(b) which permits such Employee's rights to purchase Common Stock
under all employee stock purchase plans of the Company to accrue at a rate that
exceeds $25,000 in fair market value of the Common Stock (determined at the time
such Option is granted) for each calendar year in which such Option is
outstanding.
3.4 COMMENCEMENT OF PARTICIPATION. An eligible Employee may become a
participant ("Participant") by completing the enrollment forms prescribed by the
Committee (including a purchase agreement and a payroll deduction authorization)
and filing such forms with the designated office of the Company prior to the
Offering Commencement Date for the next scheduled Offering. Payroll deductions
for a Participant shall commence on the next scheduled Offering Commencement
Date after such Participant's authorization for a payroll
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deduction becomes effective and shall continue in effect for the term of this
Plan, except to the extent such payroll deduction is changed in accordance with
Section 5.3 or terminated in accordance with Article 8.
ARTICLE 4
OFFERINGS
4.1 ANNUAL OFFERINGS. Except as described below with respect to the
first year the Plan is in effect, the Plan will be implemented by two six-month
offerings of the Company's Common Stock each year that the Plan is in effect
(the "Offerings"). During the first year that the Plan is in effect, there will
be (a) an Offering beginning on May 1, 1999 and ending on July 31, 1999, and (b)
an Offering beginning on August 1, 1999 and ending on January 31, 2000.
Thereafter, in each of the nine years beginning on February 1, 2000 and ending
January 31, 1999, there will be two six-month Offerings commencing on February 1
and August 1 of each year and ending on the following July 31 or January 31, as
applicable. As used in the Plan, "Offering Commencement Date" means the May 1,
August 1, or February 1, as the case may be, on which the particular Offering
begins and "Offering Termination Date" means the January 31 or July 31, as the
case may be, on which the particular Offering terminates. Subject to any
limitations imposed by the Code, the Committee may, in its discretion, designate
a longer or shorter term for any Offering (other than to extend the final
Offering beyond January 31, 2009) by giving written notice to the Participants
prior to the Offering Commencement Date for such Offering.
ARTICLE 5
PAYROLL DEDUCTIONS
5.1 PAYROLL DEDUCTIONS. At the time an Employee files an authorization
for payroll deductions and becomes a Participant in the Plan, the forms
described in Section 3.3 will permit the Employee to elect payroll deductions of
zero percent (0%) or any whole percentage from one percent (1%) through fifteen
percent (15%) of such Employee's Compensation for each pay period during an
Offering; provided, however, that prior to any Offering Commencement Date, the
Committee shall have the discretion to limit deductions to less than 15 percent
(15%) for any Offering.
5.2 PARTICIPANT'S ACCOUNT. All payroll deductions made for a
Participant pursuant to this Article 5 shall be credited to such Participant's
account under the Plan. A Participant may not make any separate cash payment
into such account except when on leave of absence and then only as provided in
Section 5.4.
5.3 CHANGES IN PAYROLL DEDUCTIONS. A Participant may discontinue
participation in the Plan as provided in Article 8 and may reduce or increase
future payroll deductions (within the limits described in Section 5.1 by filing
with the Plan Representative a form provided by the Company for such purpose,
provided that a Participant may not make more than two changes to the amount of
his or her payroll deductions during any Offering. The effective date of any
increase or reduction in future payroll deductions will be the first day of the
next pay period succeeding processing of the change form.
5.4 LEAVE OF ABSENCE. If a Participant goes on a leave of absence, such
Participant shall have the right to elect (a) to withdraw the balance in such
Participant's account pursuant to Section 8.1 hereof, or (b) to remain a
Participant in the Plan but to discontinue contributions to the Plan, or (c) to
remain a Participant in the Plan during such leave of absence, authorizing
deductions to be made from payments by the Company to the Participant during
such leave of absence and undertaking to make cash payments to the Plan at the
end of each payroll period to the extent that amounts payable by the
Participating Company to such Participant are insufficient to meet such
Participant's authorized Plan deductions.
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ARTICLE 6
GRANTING OF OPTION
6.1 NUMBER OF OPTION SHARES. On each Offering Commencement Date, a
Participant shall be deemed to have been granted an option ("Option") to
purchase the whole number of shares of Common Stock determined by dividing (a)
the amount of such Participant's payroll deductions accumulated during such
Offering and credited to such Participant's account as of the Offering
Termination Date by (b) the Option Price, determined as provided in Section 6.2,
below.
6.2 OPTION PRICE. The "Option Price" of Common Stock for each Offering
shall be the lower of (a) 85% of the Closing Price of the Common Stock on the
Offering Commencement Date, or (b) 85% of the Closing Price of the Common Stock
on the Offering Termination Date. The "Closing Price" of the Common Stock as to
a particular day shall be the closing price of the Common Stock as reported for
such day in The Wall Street Journal or in such other source as the Committee
deems reliable. If the Common Stock is not traded on the Nasdaq National Market
or other principal exchange or market on which it is authorized or listed for
trading on the Offering Commencement Date and/or Offering Termination Date, as
the case may be, the Closing Price for the Common Stock as to either of such
dates on which such trading did not occur shall be the Closing Price on the
nearest prior business day on which trading did occur.
ARTICLE 7
EXERCISE OF OPTION
7.1 AUTOMATIC EXERCISE. Unless a Participant gives written notice to
the Company as provided in Section 8.1, such Participant's Option for the
purchase of Common Stock with payroll deductions made during any Offering will
be deemed to have been exercised automatically on the applicable Offering
Termination Date for the purchase of the number of full shares of Common Stock
that the accumulated payroll deductions in such Participant's account at that
time will purchase at the applicable Option Price (but not in excess of the
number of shares for which Options have been granted to the Employee pursuant to
Section 6.1 hereof).
7.2 FRACTIONAL SHARES. Fractional shares will not be issued under the
Plan. Any accumulated payroll deductions that would have been used to purchase
fractional shares will be, at the option of the Committee, either (a) returned
(without interest) to the Participant promptly following the termination of an
Offering, or (b) added to the Participation Amount for such Participant and held
for the purchase of Common Stock in connection with the next Offering; provided,
however, that such amount (without interest) shall be refunded to any
Participant who provides the Company with a written request for a refund prior
to the use of such amount to purchase Common Stock at the end of the next
Offering.
7.3 TRANSFERABILITY OF OPTION. During a Participant's lifetime, Options
held by such Participant shall be exercisable only by such Participant.
7.4 DELIVERY OF STOCK. As promptly as practicable after the Offering
Termination Date of each Offering, the Company will deliver to each Participant,
as appropriate, the shares of Common Stock purchased upon exercise of such
Participant's Option. The Company may deliver such shares in certificated or
book entry form, at the Company's sole election.
ARTICLE 8
WITHDRAWAL
8.1 IN GENERAL. At any time prior to the last five days of an Offering,
a Participant may withdraw all but not less than all of the payroll deductions
credited to such Participant's account under the Plan by giving written notice
to the designated office of the Company, which withdrawal notice shall be in
form and substance as decided by the Committee. All of the Participant's payroll
deductions credited to the Participant's account will be paid to the Participant
promptly after receipt of such Participant's notice of withdrawal, and no
further payroll deductions will be made from the Participant's pay during such
Offering or during any subsequent Offering unless the Participant re-enrolls as
provided in Section 8.2 hereof. The Company may, at its option, treat any
attempt by a Participant to
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borrow on the security of such Participant's accumulated payroll deductions as
an election to withdraw such deductions.
8.2 EFFECT ON SUBSEQUENT PARTICIPATION. An Employee's withdrawal from
any Offering will not have any effect upon such Employee's eligibility to
participate in any succeeding Offering or in any similar plan that may hereafter
be adopted by the Company. In order to be eligible for a subsequent Offering,
however, an Employee who has withdrawn from an Offering must satisfy the
requirements of Section 3.4 hereof prior to the Offering Commencement Date of
such subsequent Offering.
8.3 TERMINATION OF EMPLOYMENT. Upon termination of a Participant's
employment for any reason, including retirement (but excluding death or
permanent disablement while in the employ of a Participating Company or
continuation of a leave of absence for a period beyond 90 days), the payroll
deductions credited to such Participant's account will be returned to the
Participant, or, in the case of the Participant's death subsequent to the
termination of such Participant's employment, to the person or persons entitled
thereto under Section 12.1 hereof.
8.4 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABLEMENT. Upon
termination of a Participant's employment because of death or permanent
disablement, the Participant or Participant's beneficiary (as defined in Section
12.1 hereof) shall have the right to elect, by written notice given to the
designated office of the Company prior to the earlier of the Offering
Termination Date or the expiration of a period of 60 days commencing with the
termination of the Participant's employment, either:
(a) to withdraw all of the payroll deductions credited to the
Participant's account under the Plan; or
(b) to exercise the Participant's Option on the next Offering
Termination Date and purchase the number of full shares of Stock that the
accumulated payroll deductions in the Participant's account at the date of the
Participant's cessation of employment will purchase at the applicable Option
Price, and any excess in such account will be returned to said beneficiary,
without interest.
In the event that no such written notice of election shall be duly received by
the designated office of the Company, the beneficiary shall automatically be
deemed to have elected, pursuant to paragraph (b), to exercise the Participant's
Option.
8.5 LEAVE OF ABSENCE. A Participant on leave of absence shall, subject
to the election made by such Participant pursuant to Section 5.5 hereof,
continue to be a Participant in the Plan so long as such Participant is on
continuous leave of absence. A Participant who has been on leave of absence for
more than 90 days and who therefore is not an Employee for the purpose of the
Plan shall not be entitled to participate in any Offering commencing after the
90th day of such leave of absence. Notwithstanding any other provisions of the
Plan, unless a Participant on leave of absence returns to regular full time or
part time employment with the Company at the earlier of (a) the termination of
such leave of absence, or (b) three months after the 90th day of such leave of
absence, such Participant's participation in the Plan shall terminate on
whichever of such dates first occurs.
ARTICLE 9
INTEREST
9.1 PAYMENT OF INTEREST. No interest will be paid or allowed on any
money paid into the Plan or credited to the account of any Participant,
including any interest paid on any and all money which is distributed to a
Participant or such Participant's beneficiary pursuant to any of the provisions
of the Plan.
ARTICLE 10
COMMON STOCK SUBJECT TO THE PLAN
10.1 MAXIMUM SHARES. Subject to adjustment upon changes in
capitalization of the Company as provided in Section 12.4 hereof, the maximum
number of shares of Common Stock that may be issued under the Plan shall be
200,000 shares, plus an annual increase to be added on the first day of the
Company's fiscal year
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beginning in 2001 equal to the lesser of (i) 200,000 shares, (ii) 1.0% of the
outstanding shares on the last day of the Company's prior fiscal year or (iii)
such amount as may be determined by the Board. If the total number of shares for
which Options are exercised on any Offering Termination Date in accordance with
Article 6 exceeds the maximum number of shares for the applicable Offering, the
Committee shall make a pro rata allocation of the shares available for delivery
and distribution in as nearly a uniform manner as shall be practicable and as
the Committee shall determine to be equitable, and the balance of payroll
deductions credited to the account of each Participant under the Plan shall be
returned to such Participant as promptly as possible.
10.2 PARTICIPANT'S INTEREST IN OPTION STOCK. A Participant will have no
interest in shares of Common Stock covered by such Participant's Option until
such Option has been exercised.
10.3 REGISTRATION OF STOCK. Shares of Common Stock to be delivered to a
Participant under the Plan will be registered in the name of the Participant,
or, if the Participant so directs by written notice to the designated office of
the Company prior to the Offering Termination Date applicable thereto, in the
names of the Participant and the Participant's spouse, in the form and manner
permitted by applicable law.
10.4 RESTRICTIONS ON EXERCISE. The Board of Directors may, in its
discretion, require as conditions to the exercise of any Option that the shares
of Common Stock reserved for issuance upon the exercise of such Option shall
have been duly listed for trading on the Nasdaq National Market or other
principal exchange or market on which the Common Stock is authorized or listed
for trading, and that either:
(a) a registration statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective; or
(b) the Participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is such
Participant's intention to purchase the shares for investment and not for resale
or distribution.
ARTICLE 11
ADMINISTRATION
11.1 APPOINTMENT OF COMMITTEE. The Board of Directors shall appoint a
committee (the "Committee") to administer the Plan, which shall consist of no
fewer than two (2) members of the Board of Directors. Members of the Committee
who are Employees shall be eligible to purchase Stock under the Plan.
11.2 AUTHORITY OF COMMITTEE. Subject to the express provisions of the
Plan, the Committee shall have plenary authority in its discretion to interpret
and construe any and all provisions of the Plan, to adopt rules and regulations
for administering the Plan, and to make all other determinations deemed
necessary or advisable for administering the Plan. The Committee's determination
regarding the foregoing matters shall be conclusive. The Committee may delegate
its authority as it deems necessary or appropriate.
11.3 RULES GOVERNING ADMINISTRATION OF THE COMMITTEE. The Board of
Directors may from time to time appoint members of the Committee in substitution
for or in addition to members previously appointed and may fill vacancies,
however caused, in the Committee. The Committee may select one of its members as
its Chairman and shall hold its meetings at such times and places as it shall
deem advisable and may hold telephonic meetings. All determinations of the
Committee shall be made by a majority of its members. The Committee may correct
any defect or omission or reconcile any inconsistency in the Plan, in the manner
and to the extent it shall deem desirable. Any decision or determination reduced
to writing and signed by a majority of the members of the Committee shall be as
fully effective as if it had been made by a majority vote at a meeting duly
called and held. The Committee may appoint a secretary and shall make such rules
and regulations for the conduct of its business as it shall deem advisable.
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ARTICLE 12
MISCELLANEOUS
12.1 DESIGNATION OF BENEFICIARY. A Participant may file a written
designation of a beneficiary who is to receive any shares of Common Stock and/or
cash under the Plan upon the participant's death. Such designation of
beneficiary may be changed by the Participant at any time by written notice to
the designated office of the Company. Upon the death of a Participant and upon
receipt by the Company of proof of identity and existence at the Participant's
death of a beneficiary validly designated by the Participant under the Plan, the
Company shall deliver such shares of Common Stock and/or cash to such
beneficiary. In the event of the death of a Participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver such shares of Common Stock
and/or cash to the executor or administrator of the estate of the Participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares of Common
Stock and/or cash to the spouse or to any one or more dependents of the
Participant as the Company may designate, in each case without any further
liability of the Company whatsoever. No beneficiary shall, prior to the death of
the Participant by whom he has been designated, acquire any interest in the
shares of Common Stock and/or cash credited to the Participant under the Plan.
12.2 TRANSFERABILITY. Neither payroll deductions credited to a
Participant's account nor any rights with regard to an Option granted under the
Plan may be assigned, transferred, pledged, or otherwise disposed of in any way
by the Participant, other than by will or the laws of descent and distribution.
Any such attempted assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw from participation in the Plan in accordance with Article 8.
12.3 USE OF FUNDS. All payroll deductions received or held by the
Company under this Plan may be used by the Company for any corporate purpose.
The Company shall not be obligated to segregate such payroll deductions.
12.4 ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) If, while any Options are outstanding, the outstanding shares
of Common Stock of the Company have increased, decreased, changed into, or been
exchanged for a different number or type of shares or securities of the Company
through reorganization, merger, recapitalization, reclassification, stock split
(whether or not effected in the form of a stock dividend), reverse stock split
or similar transaction, appropriate and proportionate adjustments may be made by
the Committee in the number and/or type of shares of stock that are subject to
purchase under outstanding Options and to the Option Price applicable to such
outstanding Options. In addition, in any such event, the number and/or type of
shares of stock which may be offered in the Offerings described in Article 4
hereof shall also be proportionately adjusted.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the assets or stock of the Company to
another corporation, the holder of each Option then outstanding under the Plan
will thereafter be entitled to receive at the next Offering Termination Date,
upon the exercise of such Option, for each share as to which such Option shall
be exercised, as nearly as reasonably may be determined, the cash, securities
and/or property that a holder of one share of Common Stock was entitled to
receive upon and at the time of such transaction. The Board of Directors shall
take such steps in connection with such transactions as the directors shall deem
necessary to assure that the provisions of this Section 12.4 shall thereafter be
applicable, as nearly as reasonably may be determined, in relation to the said
cash, securities and/or property as to which such holder of such Option might
thereafter be entitled to receive.
12.5 AMENDMENT AND TERMINATION. The Board of Directors shall have
complete power and authority to terminate or amend the Plan; provided, however,
that the Board of Directors shall not, without the approval of the shareholders
of the Company, (a) increase the maximum number of shares of Common Stock that
may be issued under the Plan (except pursuant to Section 12.4 hereof); or (b)
amend the requirements as to the class of Employees eligible to purchase Common
Stock under the Plan. No termination, modification, or amendment of the Plan
may,
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without the consent of a Participant then holding an Option under the Plan to
purchase shares of Common Stock, adversely affect the rights of such Participant
under such Option.
12.6 EFFECTIVE DATE. The Plan shall become effective as of January 31,
1999 (the "Effective Date"), subject to approval by the holders of a majority of
the shares of Common Stock present and represented at any special or annual
meeting of the shareholders of the Company duly held within 12 months after
adoption of the Plan. If the Plan is not so approved, the Plan shall not become
effective.
12.7 NO EMPLOYMENT RIGHTS. The Plan does not, directly or indirectly,
create in any Employee or class of Employees any right with respect to
continuation of employment by any Participating Company and it shall not be
deemed to interfere in any way with any Participating Company's right to
terminate, or otherwise modify, an Employee's employment at any time.
12.8 EFFECT OF PLAN. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all successors of
each Participant, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
12.9 GOVERNING LAW. The law of the State of Arizona will govern all
matters relating to this Plan except to the extent it is superseded by the
federal laws of the United States.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ACTION PERFORMANCE COMPANIES, INC.
1999 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
February 17, 1999, 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 1999 Annual Meeting of Shareholders of ACTION PERFORMANCE
COMPANIES, INC., to be held on Thursday, March 25, 1999, 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
<TABLE>
WITHHOLD
FOR all nominees AUTHORITY
listed at right (except to vote for all nominees
as indicated) listed at right NOMINEES:
<S> <C> <C> <C>
1. ELECTION
OF |_| |_| Fred W. Wagenhals
DIRECTORS: Tod J. Wagenhals
Christopher S. Besing
Melodee L. Volosin
John S. Bickford, Sr.
Paul G. Lang
Jack M. Lloyd
Robert H. Manschot
Edward J. Bauman
</TABLE>
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list at right.
2. Proposal to approve the amendment to the Company's First Amended and Restated
Articles of Incorporation.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to approve the Company's 1999 Incentive Stock Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Proposal to approve the Company's 1999 Employee Stock Purchase Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
5. Proposal to ratify the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending September 30, 1999.
|_| 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 APPROVAL OF THE AMENDMENT TO
THE COMPANY'S FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION; FOR APPROVAL
OF THE 1999 INCENTIVE STOCK PLAN; FOR APPROVAL OF THE 1999 EMPLOYEE STOCK
PURCHASE PLAN; 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.
<TABLE>
<S> <C> <C>
Signature Dated: , 1999
------------------------------ --------------------------------- -----------------
Signature if held jointly
</TABLE>
NOTE: (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.)
