SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 8, 1997
ACTION PERFORMANCE COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
ARIZONA 0-21630 86-0704792
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(State or other (Commission File No.) (IRS Employer ID No.)
jurisdiction of incorporation)
2401 West First Street, Tempe, Arizona 85281
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (602) 894-0100
ACTION PERFORMANCE COMPANIES, INC.
CURRENT REPORT ON
FORM 8-K
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Acquisition of Motorsport Traditions
On January 8, 1997, Action Performance Companies, Inc. (the "Company"),
through MTL Acquisition, Inc. ("MTL Acquisition"), a wholly owned subsidiary,
acquired the business and substantially all of the assets and assumed specified
liabilities of Motorsport Traditions Limited Partnership, a North Carolina
limited partnership ("MTL"). Also on January 8, 1997, the Company acquired all
of the outstanding capital stock of Creative Marketing and Promotions, Inc., a
North Carolina corporation ("CMP" and, together with MTL, "Motorsport
Traditions") from Kenneth R. Barbee and 1995 Nascar Winston Cup Champion driver
Jeff Gordon. The effective date of the acquisition of Motorsport Traditions is
January 1, 1997. Motorsport Traditions markets and distributes licensed
motorsports products, including apparel and other souvenir items, through a
network of wholesale distributors, trackside events, and fan clubs. The Company
intends to continue to operate the business of Motorsport Traditions in
conjunction with the business of Sports Image, Inc., which the Company acquired
in November 1996.
The purchase price paid by the Company for the assets of MTL consisted
of (i) cash in the amount of $5,400,000; (ii) a promissory note issued by MTL
Acquisition in the principal amount of $1,600,000 (the "Purchase Price Note");
and (iii) 57,143 shares of the Company's Common Stock (the "MTL Shares"). The
Purchase Price Note bears interest at 4% per annum, matures on December 31,
1998, and has been guaranteed by the Company. The Company acquired all of the
outstanding capital stock of CMP from Messrs. Barbee and Gordon in exchange for
an aggregate of 285,714 shares of the Company's Common Stock (the "CMP Shares").
In connection with the issuance of the MTL Shares, the Company entered
into a registration agreement with MTL and the general and limited partners of
MTL. In connection with the issuance of the CMP Shares, the Company entered into
a registration agreement with Messrs. Barbee and Gordon. These agreements
require the Company to file a registration statement covering the MTL Shares and
CMP Shares no later than January 31, 1997, and to use its best efforts to cause
the registration statement to become effective as soon as practicable and to
remain effective until December 31, 1999. In addition, the registration
agreements grant the holders of the MTL Shares and the CMP Shares "piggyback"
registration rights.
Financing Transactions
In connection with the acquisition of Motorsport Traditions and the
Company's November 1996 acquisition of Sports Image, on January 2, 1997, the
Company entered into a $16.0 million credit facility with First Union National
Bank of North Carolina (the "Credit Facility"). The Credit Facility consists of
a revolving line of credit for up to $10.0 million through September 30, 1997,
and up to $6.0 million from September 30, 1997 to March 31, 1998 (the "Line of
Credit") and a $6.0 million letter of credit/bankers' acceptances facility (the
"Letter of Credit/BA Facility"). The Line of Credit bears interest, at the
Company's option, at a rate equal to either (i) the greater of (a) the bank's
publicly announced prime rate or (b) a weighted average Federal Funds rate plus
0.5%, or (ii) LIBOR plus 1.9%. The Line of Credit is guaranteed by Sports Image
and Motorsport Traditions. The Company utilized $4.0 million of the Line of
Credit to provide part of the cash portion of the purchase price for Motorsport
Traditions and an additional $4.0 million of the Line of Credit to repay a
portion of the $24.0 million
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promissory note issued in connection with the acquisition of Sports Image. The
Letter of Credit/BA Facility is available for issuances of letters of credit and
eligible bankers' acceptances in an aggregate amount up to $6.0 million to
enable the Company to finance purchases of products from its overseas vendors.
The Credit Facility will mature on March 31, 1998. The Credit Facility contains
certain provisions that, among other things, will require the Company to comply
with certain financial ratios and net worth requirements and will limit the
ability of the Company and its subsidiaries to incur additional indebtedness or
to sell assets or engage in certain mergers or consolidations.
On January 2, 1997, the Company issued an aggregate of $20.0 million
principal amount of senior notes (the "Senior Notes") to three insurance
companies. The Senior Notes bear interest at the rate of 8.05% per annum,
provide for semi-annual payments of accrued interest, and will mature on January
2, 1999. The Company may not prepay the Senior Notes prior to maturity, but will
be required to offer to redeem the Senior Notes in the event of a "Change of
Control" of the Company, as defined in the Senior Notes. The Senior Notes
contain certain provisions that, among other things, will require the Company to
comply with certain financial ratios and net worth requirements and will limit
the ability of the Company and its subsidiares to incur additional indebtedness
or to sell assets or engage in certain mergers on consolidations. The Senior
Notes are guaranteed by Sports Image and Motorsport Traditions. The Company
utilized the proceeds from the Senior Notes to repay the remainder of the
promissory note issued in connection with the acquisition of Sports Image.
License and Endorsement Agreements
In connection with the acquisition of Motorsport Traditions, the
Company acquired the exclusive rights to manufacture and market various apparel
and souvenir products bearing the name, likeness, and signature of Jeff Gordon
and the likeness of his race car, pursuant to a license agreement with an
affiliate of Mr. Gordon (the "Apparel and Souvenir License"). The Apparel and
Souvenir License expires on December 31, 2000, subject to renewal by agreement
between the parties. The Apparel and Souvenir License requires the Company to
pay the licensor royalties based on a percentage of the wholesale price of
licensed products sold by the Company, with minimum royalty payments each year
during the term of the agreement.
Also in connection with the acquisition of Motorsport Traditions, the
Company entered into a license agreement (the "Die-Cast License") with an
affiliate of Jeff Gordon, pursuant to which the Company has the exclusive right
to manufacture and market die-cast replicas of Mr. Gordon's race car and related
vehicles. The Die-Cast License excludes the right to manufacture and market
certain die-cast collectibles currently licensed by a third party until that
license expires in September 1997. The Die-Cast License expires on December 31,
2000. The Die-Cast License requires the Company the pay the licensor royalties
based on a percentage of the wholesale price of licensed products sold by the
Company, with minimum royalty payments each year during the term of the
agreement.
In connection with the Die-Cast License, the Company entered into a
personal service and endorsement agreement with Jeff Gordon and an affiliate of
Mr. Gordon (the "Endorsement Agreement"). The Endorsement Agreement expires on
December 31, 2000. During the term of the Endorsement Agreement, the Company
will have the right to use Mr. Gordon's name, likeness, signature, and
endorsement in connection with the advertisement, promotion, and sale of the
die-cast collectibles to be produced under the Die-Cast License. The Endorsement
Agreement requires Mr. Gordon to make two personal appearances and to
participate in photo shoots and the production of one television commercial and
two radio commercial production sessions per year during the term of the
Endorsement Agreement, to the extent that the Company requests him to do so.
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Employment and Consulting Agreements
In connection with the acquisition of Motorsport Traditions, the
Company entered into a two-year employment agreement (the "Employment
Agreement") with Kenneth R. Barbee, who served in various executive capacities
with Motorsport Traditions prior to the acquisition. Pursuant to the terms of
the Employment Agreement, Mr. Barbee will serve as a Vice President of the
Company's wholly owned subsidiary, Sports Image, at a salary of $120,000 per
year. In addition, Mr. Barbee will be eligible to receive an annual bonus of up
to $24,000, as determined by the Company's Board of Directors based upon factors
that it deems relevant, including Mr. Barbee's performance. The Company also
granted to Mr. Barbee six-year options to acquire 15,000 shares of the Company's
Common Stock at an exercise price of $17.50 per share. Of the options granted,
options to acquire 7,500 shares were vested at the date of grant and options to
acquire the remaining 7,500 shares will vest on the first anniversary of the
date of grant.
Also in connection with the acquisition of Motorsport Traditions, the
Company entered into a four-year consulting agreement (the "Consulting
Agreement") with John Bickford pursuant to which Mr. Bickford will provide
consulting services with respect to representing the Company in the motorsports
community, creating new marketing and promotional campaigns, and advising the
Company with respect to the motorsports industry. The Company will pay Mr.
Bickford an annual fee of $100,000 for services provided in connection with the
Consulting Agreement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Businesses Acquired.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to determine whether it is required to provide
the financial statements required by this Item 7(a). In the event that the
Company determines that it is required to provide the financial statements
required by this Item 7(a), such financial statements shall be filed by
amendment to this Form 8-K no later than March 24, 1997, in accordance with Item
7(a)(4) of Form 8-K.
(b) Pro Forma Financial Information.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to determine whether it is required to provide
the pro forma financial information required by this Item 7(b). In the event
that the Company determines that it is required to provide the financial
statements required by this Item 7(b), such financial statements shall be filed
by amendment to this Form 8-K no later than March 24, 1997, in accordance with
Item 7(b) of Form 8-K.
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(c) Exhibits.
Exhibit No. Description of Exhibit
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10.39 Asset Purchase Agreement dated as of January 1, 1997,
among Action Performance Companies, Inc., MTL
Acquisition, Inc., Motorsport Traditions Limited
Partnership, Midland Leasing, Inc., and Motorsports By
Mail, Inc.
10.40 Exchange Agreement dated as of January 1, 1997, among
Action Performance Companies, Inc., Kenneth R. Barbee,
and Jeffery M. Gordon
10.41 Promissory Note dated January 1, 1997, in the principal
amount of $1,600,000 issued by MTL Acquisition, Inc., as
Maker, to Motorsport Traditions Limited Partnership, as
Payee, together with Guarantee of Action Performance
Companies, Inc.
10.42 Note Purchase Agreement dated as of January 2, 1997,
among Action Performance Companies, Inc., Jefferson-Pilot
Life Insurance Company, Alexander Hamilton Life Insurance
Company of America, and First Alexander Hamilton Life
Insurance Company, together with form of Note, form of
Subsidiary Guaranty, and form of Subsidiary Joinder
10.43 Credit Agreement dated as of January 2, 1997, among
Action Performance Companies, Inc., Sports Image, Inc.,
MTL Acquisition, Inc., and First Union National Bank of
North Carolina
10.44 Registration Agreement dated as of January 1, 1997, among
Action Performance Companies, Inc., Motorsport Traditions
Limited Partnership, Midland Leasing, Inc., and
Motorsports By Mail, Inc.
10.45 Registration Agreement dated as of January 1, 1997, among
Action Performance Companies, Inc., Kenneth R. Barbee,
and Jeffery M. Gordon
10.46 Employment Agreement dated as of January 1, 1997, between
Action Performance Companies, Inc. and Kenneth R. Barbee
10.47 Consulting Agreement dated as of January 1, 1997, between
Action Performance Companies, Inc. and John Bickford
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
January 23, 1997 ACTION PERFORMANCE COMPANIES, INC.
By: /s/ Christopher S. Besing
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Christopher S. Besing
Vice President, Chief Financial
Officer, and Treasurer
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