-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GMW6jUSfLTGdHxYrFfvz0Z1tvROlEudGom96LBoRSeU8jKmbpUVUFiUSwvpprU4B mooQubdqE2HOz4iNrE9WlQ== 0000950147-96-000581.txt : 19961125 0000950147-96-000581.hdr.sgml : 19961125 ACCESSION NUMBER: 0000950147-96-000581 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961107 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961122 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTION PERFORMANCE COMPANIES INC CENTRAL INDEX KEY: 0000892147 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [5090] IRS NUMBER: 860704792 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21630 FILM NUMBER: 96670802 BUSINESS ADDRESS: STREET 1: 2401 W 1ST ST STREET 2: STE 130 CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 6028940100 MAIL ADDRESS: STREET 1: 2401 W 1ST STREET CITY: TEMPE STATE: AZ ZIP: 85281 8-K 1 FORM 8-K 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): November 7, 1996 ACTION PERFORMANCE COMPANIES, INC. ---------------------------------- (Exact name of registrant as specified in its charter) ARIZONA 0-21630 86-0704792 - ------------------------------ --------------------- --------------------- (State or other (Commission File No.) (IRS Employer ID No.) jurisdiction of incorporation) 2401 West First Street, Tempe, Arizona 85281 -------------------------------------------- (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 Sports Image, Inc. On November 7, 1996, Action Performance Companies, Inc. (the "Company"), through SII Acquisition, Inc. ("SII"), a wholly owned subsidiary, acquired the business and substantially all of the assets and assumed specified liabilities of Sports Image, Inc. ("Seller" or "Sports Image"), a North Carolina corporation owned by seven-time Nascar Winston Cup Champion driver Dale Earnhardt and his wife. Following the acquisition, SII Acquisition, Inc. changed its name to Sports Image, Inc. Sports Image 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 Seller through its wholly owned subsidiary. The purchase price paid by the Company for the assets of Seller consisted of (i) a promissory note issued by SII in the principal amount of $24.0 million (the "Purchase Price Note"), and (ii) 403,361 shares of the Company's Common Stock (the "Shares") valued at $14.875 per share, which was slightly less than the closing price per share of the Company's Common Stock on November 6, 1996. The Purchase Price Note bears interest at 8% per annum, matures on January 2, 1997, and is secured by all of the transferred assets as well as the Company's guaranty of SII's obligation under the note. In connection with the issuance of the Shares, the Company entered into a registration agreement with Seller, Mr. Earnhardt, and Mr. Earnhardt's wife (the "Registration Agreement"). The Registration Agreement grants the holders of the Shares the right to one "demand" registration as well as "piggyback" registration rights. The Company and Mr. Earnhardt also entered into a license agreement (the "License Agreement") pursuant to which the Company has the right to market licensed motorsports products utilizing the likeness of Dale Earnhardt. Pursuant to the License Agreement, Mr. Earnhardt also granted the Company the right of first refusal to make, have made, use, sell, or otherwise distribute any new licensable products that Mr. Earnhardt becomes aware of and approves for marketing. The term of the License Agreement is 15 years and from year to year thereafter unless terminated by either party. In connection with the acquisition of the assets of Seller, the Company entered into a three-year employment agreement (the "Employment Agreement") with Joe Mattes, the principal operating officer of Seller. Pursuant to the terms of the Employment Agreement, Mr. Mattes will serve as the President of SII at a salary of $225,000 per year. In addition, Mr. Mattes will be eligible to receive an annual bonus of up to $67,500, as determined by the Company's Board of Directors based upon factors that it deems relevant, including Mr. Mattes' performance. The Company also granted to Mr. Mattes five-year options to acquire 50,000 shares of the Company's Common Stock at an exercise price of $14.875 per share. Of the options granted, options to acquire 30,000 shares were vested at the date of grant, options to acquire 10,000 shares will vest on November 7, 1997, and options to acquire the remaining 10,000 shares will vest on November 7, 1998. 2 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Businesses Acquired. As of the date of filing of this Report on Form 8-K, it is impracticable for the Registrant to provide the financial statements required by this Item 7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial statements shall be filed by amendment to this Form 8-K no later than January 21, 1997. (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 provide the pro forma financial information required by this Item 7(b). In accordance with Item 7(b) of Form 8-K, such financial statements shall be filed by amendment to this Form 8-K no later than January 21, 1997. (c) Exhibits.
Exhibit No. Description of Exhibit - ----------- ---------------------- 10.33 Asset Purchase Agreement dated as of November 7, 1996, among Action Performance Companies, Inc., SII Acquisition, Inc., Sports Image, Inc., and R. Dale Earnhardt and Teresa H. Earnhardt. 10.34 Promissory Note dated November 7, 1996, in the principal amount of $24,000,000 issued by SII Acquisition, Inc., as Maker, to Sports Image, Inc., as Payee, together with Guarantee of Action Performance Companies, Inc. 10.35 Security Agreement dated November 7, 1996, between Sports Image, Inc. and SII Acquisition, Inc. 10.36 Registration Agreement dated as of November 7, 1996, among Action Performance Companies, Inc., Sports Image, Inc., and R. Dale Earnhardt and Teresa H. Earnhardt. 10.37 License Agreement dated as of November 7, 1996, among SII Acquisition, Inc., Dale Earnhardt, and Action Performance Companies, Inc. 10.38 Employment Agreement dated as of November 7, 1996, between Action Performance Companies, Inc. and Joe Mattes. 21.1 List of Subsidiaries of Action Performance Companies, Inc.
3 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. November 21, 1996 ACTION PERFORMANCE COMPANIES, INC. By:/s/ Christopher Besing --------------------------------------------------- Christopher S. Besing Vice President, Chief Financial Officer, and Treasurer 4 EX-10.33 2 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT DATED AS OF NOVEMBER 7, 1996 AMONG ACTION PERFORMANCE COMPANIES, INC., SII ACQUISITION, INC., SPORTS IMAGE, INC., AND R. DALE EARNHARDT AND TERESA H. EARNHARDT TABLE OF CONTENTS
Page ---- SECTION 1 TRANSFER OF ASSETS.............................................................................................. 1 1.1 Purchase and Sale of Assets................................................................. 1 1.2 Assumption of Liabilities................................................................... 1 SECTION 2 PURCHASE PRICE.................................................................................................. 2 2.1 Purchase Price.............................................................................. 2 2.2 Allocation of Purchase Price................................................................ 2 SECTION 3 REPRESENTATIONS AND WARRANTIES.................................................................................. 2 3.1 Representations and Warranties of Seller.................................................... 2 (a) Due Incorporation, Good Standing, and Qualification.................................. 2 (b) Corporate Authority.................................................................. 2 (c) Capital Stock........................................................................ 3 (d) Options, Warrants, and Rights........................................................ 3 (e) Subsidiaries......................................................................... 3 (f) Financial Statements................................................................. 3 (g) No Material Change................................................................... 3 (h) Title to Properties.................................................................. 3 (i) Litigation........................................................................... 4 (j) Rights and Licenses.................................................................. 4 (k) No Violation......................................................................... 4 (l) Taxes................................................................................ 4 (m) Accounts Receivable.................................................................. 4 (n) Contracts............................................................................ 4 (o) Compliance with Law and Other Regulations............................................ 4 (p) Insurance............................................................................ 5 (q) Articles, Bylaws, and Minute Books................................................... 5 (r) Employees............................................................................ 5 (s) Intent and Access.................................................................... 5 (t) Accuracy of Statements............................................................... 5 3.2 Representations and Warranties of Buyer..................................................... 5 (a) Due Incorporation, Good Standing, and Qualification.................................. 5 (b) Corporate Authority.................................................................. 5 (c) Capital Stock........................................................................ 6 (d) Options, Warrants, and Rights........................................................ 6 (e) Subsidiaries......................................................................... 6 (f) Financial Statements................................................................. 6 (g) No Material Change................................................................... 6 (h) Title to Assets and Properties....................................................... 7 (i) Litigation........................................................................... 7 (j) Rights and Licenses.................................................................. 7 (k) No Violation......................................................................... 7 (l) Taxes................................................................................ 7
i (m) Accounts Receivable.................................................................. 7 (n) Contracts............................................................................ 8 (o) Compliance with Law and Other Regulations............................................ 8 (p) Insurance............................................................................ 8 (q) Articles, Bylaws, and Minute Books................................................... 8 (r) Employees............................................................................ 8 (s) SEC Reports.......................................................................... 8 (t) Accuracy of Statements............................................................... 8 (u) Status of Buyer Common Stock Being Issued............................................ 9 3.3 Survival of Representations and Warranties.................................................. 9 SECTION 4 COVENANTS TO SELLER............................................................................................. 9 4.1 Covenants of Seller......................................................................... 9 (a) Complete Liquidation and Dissolution................................................. 9 (b) Filing of Tax Returns................................................................ 9 (c) Dividends............................................................................ 9 (d) Change of Corporate Name............................................................. 9 4.2 Further Assurances.......................................................................... 9 SECTION 5 GENERAL......................................................................................................... 10 5.1 Costs and Indemnity Against Finders......................................................... 10 5.2 Controlling Law............................................................................. 10 5.3 Notices..................................................................................... 10 5.4 Binding Nature of Agreement; No Assignment.................................................. 10 5.5 Entire Agreement............................................................................ 10 5.6 Paragraph Headings.......................................................................... 10 5.7 Counterparts................................................................................ 10
ii ASSET PURCHASE AGREEMENT AGREEMENT dated as of November 7, 1996, among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation ("Buyer"); SPORTS IMAGE, INC., a North Carolina corporation ("Seller"); SII ACQUISITION, INC., an Arizona corporation ("Designated Subsidiary"); and R. DALE EARNHARDT and TERESA H. EARNHARDT (together "Shareholder"). Buyer desires to acquire, and Seller desires to transfer, substantially all of the assets, properties, rights, and goodwill of Seller upon the terms and conditions set forth in this Agreement. To facilitate the transactions contemplated hereby, Buyer has formed Designated Subsidiary, which is a wholly owned subsidiary of Buyer and has not conducted any business activities prior to the date of this Agreement (the "Closing Date"). Shareholder owns all the capital stock of Seller. NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth herein, the parties agree as follows: SECTION 1 TRANSFER OF ASSETS 1.1 Purchase and Sale of Assets. Based upon and subject to the representations, warranties, covenants, agreements, and other terms and conditions set forth in this Agreement, Seller hereby sells, conveys, transfers, assigns, and delivers, and Designated Subsidiary hereby purchases, acquires, and accepts, as provided herein, all of the assets, properties, rights, and goodwill of Seller of every kind and description, wherever located, including, without limitation, (a) all assets and properties, tangible or intangible, real, personal or mixed, (b) notes and accounts receivables, (c) computer equipment, (d) office and warehouse equipment, (e) vehicles, (f) reserves, (g) prepayments, (h) inventories, (i) deposits, (j) bank accounts, (k) cash and securities, (l) claims and rights under contracts, agreements, leases, and commitments of Seller of whatever nature (including all agreements and contract arrangements with R. Dale Earnhardt), (m) the name "Sports Image, Inc., (n) all computer programs, data bases, records, systems, and processes and all know how, information, and trade secrets relating thereto, and (o) all books and records of Seller relating to Seller's business. The assets, properties, rights, and goodwill conveyed, transferred, assigned, and delivered by Seller are sometimes herein called the "Transferred Assets" and shall include, without limitation, all of the assets and properties shown on or reflected in the Balance Sheet of Seller as at September 30, 1996 (the "Base Balance Sheet") and all assets and properties acquired by Seller after the date of the Base Balance Sheet and to the Closing Date. There is, however, excluded from the assets and properties sold and purchased pursuant to this Agreement, (i) any assets and properties disposed of by Seller since September 30, 1996 in the ordinary course of business, (ii) Seller's corporate franchises, stock record books, corporate record books containing the minutes of meetings of directors and shareholders, and such other records as have to do exclusively with Seller's organization or stock capitalization, and (iii) Seller's tax and employee records. 1.2 Assumption of Liabilities. Designated Subsidiary hereby assumes, and Buyer shall cause Designated Subsidiary to pay or discharge when due, all debts, obligations, and liabilities of Seller reflected and accrued on the Base Balance Sheet or incurred and accrued after the date of the Base Balance Sheet in the ordinary course of business and all other debts, obligations, and liabilities of Seller specifically listed in the Seller's Disclosure Schedule described in Section 3.1; provided, however, that Designated Subsidiary does not assume, and Buyer shall have no obligation to cause Designated Subsidiary to pay or discharge when due, any debts, obligations, or liabilities of Seller (a) that are in existence on the date of the Base Balance Sheet and do not appear thereon or in the Seller's Disclosure Schedule, (b) that arise under agreements and commitments that have not been assigned to Designated Subsidiary pursuant to this Agreement, (c) the existence of which would conflict with or constitute a breach of any representation, warranty, covenant, or agreement made by Seller in this Agreement, except to the extent disclosed in the Seller's Disclosure Schedule, (d) that arise in connection with lawsuits, which are not reflected in the Base Balance Sheet or as described in Seller's Disclosure Schedule, brought against Seller based on any circumstances that occurred on or prior to the Closing Date, (e) that arise by reason of or for any default, breach, or penalty of or by Seller under any agreement or commitment, which are not reflected in the Base Balance Sheet or as described in the Seller's Disclosure Schedule, (f) that related to any federal, state, or local income, sales, personal property, transfer, or other taxes, if any, which may be imposed on Seller in connection with the transactions contemplated by this Agreement or the liquidation and dissolution of Seller, or (g) that arise in connection with negotiating the terms of this Agreement, effecting the transactions contemplated by this Agreement, and liquidating or dissolving Seller, including the fees and expenses of Seller's legal counsel, accountants, and other consultants and advisers. SECTION 2 PURCHASE PRICE 2.1 Purchase Price. The purchase price for the Transferred Assets acquired pursuant to Section 1.1, in addition to the assumption of liabilities pursuant to Section 1.2, is an amount equal to $30,000,000 consisting of (a) a promissory note of Buyer or Designated Subsidiary ("Buyer's Promissory Note") in the principal amount of $24,000,000 due and payable on January 2, 1997 together with interest on the unpaid principal balance at a rate of 8% per annum, plus (b) $6,000,000 in shares of Common Stock of Buyer ("Buyer's Common Stock") valued at $14.875 per share, less any dividends or other distributions to the shareholders of Seller paid between the date of the Base Balance Sheet and the Closing Date that exceed the amount of Shareholder's tax obligation for Seller through October 31, 1996, which amount, if any, shall be deducted from the promissory note portion of the purchase price. 2.2 Allocation of Purchase Price. Buyer and Seller agree that the total purchase price (including liabilities assumed) for the assets and properties purchased pursuant to this Agreement shall be allocated to those assets and properties as set forth in Exhibit A as prepared by Buyer, which shall be attached to this Agreement within 60 days after the date hereof. Buyer and Seller agree that the allocation set forth in Exhibit A shall have been made in accordance with the requirements of Section 1060 of the Internal Revenue Code of 1986, as amended and any applicable Treasury Regulations promulgated thereunder. Buyer and Seller, each at its own expense, also agree to file appropriate forms with the Internal Revenue Service setting forth the information required to be furnished to the Internal Revenue Service by Section 1060 and the applicable Treasury Regulations thereunder. In consideration for agreeing to such allocation and the structure of the transactions contemplated hereby, Buyer shall cause Designated Subsidiary to pay to or to the order of Seller, not later than 90 days after the end of each year during the 15-year period following the date of this Agreement, an amount equal to the lesser of (a) 10% of the federal tax savings for such year resulting from tax deductible good will relating to the transaction contemplated hereby or (b) $66,000. SECTION 3 REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Seller and Shareholder. Except as otherwise set forth in the Seller Disclosure Schedule heretofore delivered by Seller to and acknowledged as received by Buyer, Seller and Shareholder jointly and severally represent and warrant to Buyer and Designated Subsidiary as follows: (a) Due Incorporation, Good Standing, and Qualification. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation with all requisite corporate power and authority to own, operate, and lease its assets and properties and to carry on its business as now being conducted. Seller is not subject to any material disability by reason of the failure to be duly qualified as a foreign corporation for the transaction of business or to be in good standing under the laws of any jurisdiction. Seller has heretofore delivered to Buyer a list setting forth, as of the date of this Agreement, each jurisdiction in which Seller is qualified to do business. (b) Corporate Authority. Seller has the corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. The Board of Directors and shareholders of Seller have duly authorized the execution, delivery, and performance of this Agreement. No other corporate proceedings on the part of Seller are necessary to authorize the execution and delivery by Seller of this Agreement or the consummation by Seller of the transactions contemplated hereby. This Agreement has been duly executed and delivered by, and constitutes a legal, valid, and binding agreement of, Seller and Shareholder, enforceable against Seller and Shareholder in accordance with its terms, except that (i) such enforcement may be subject to 2 bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. (c) Capital Stock. As of the date hereof, Seller has an authorized capital stock consisting of 10,000,000 shares of Common Stock, $.10 par value, of which 500,000 shares are issued and outstanding and all of which are owned by Shareholder, free and clear of all claims, liens, charges, and encumbrances. All of the issued and outstanding shares of capital stock of Seller have been validly authorized and issued and are fully paid and nonassessable. (d) Options, Warrants, and Rights. Seller does not have outstanding any options, warrants, or other rights to purchase, or securities or other obligations convertible into or exchangeable for, or contracts, commitments, agreements, arrangements, or understandings to issue, any shares of its capital stock or other securities. (e) Subsidiaries. Seller has no subsidiaries. Seller does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity or ownership interest in any corporation or other business. (f) Financial Statements. The Balance Sheet of Seller as of December 31, 1995 and September 30, 1996, and the Statements of Income and Retained Earnings and Cash Flows of Seller for the year ended December 31, 1995, and the nine months ended September 30, 1996, have been compiled by Gregg & Company, P.A., certified public accountants. All of the foregoing financial statements have been prepared in accordance with standards established by the American Institute of Certified Public Accountants, which were applied on a consistent basis, are correct and complete, and present fairly, in all material respects, the consolidated financial position, results of operations, and changes in financial position of Seller as of their respective dates and for the periods indicated. Seller does not have any material liabilities or obligations of a type that would be included in a balance sheet prepared in accordance with generally accepted accounting principles, whether related to tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or unliquidated, or otherwise, except as and to the extent disclosed or reflected in the Base Balance Sheet or Seller's Disclosure Schedule or incurred since the date of the Base Balance Sheet in the ordinary course of business. (g) No Material Change. Since September 30, 1996, there has not been and there is not threatened (i) any material adverse change in the business, assets, properties, financial condition, or operating results of Seller, (ii) any loss or damage (whether or not covered by insurance) to any of the assets or properties of Seller, which materially affects or impairs its ability to conduct its business, or (iii) any mortgage or pledge of any assets or properties of Seller, or any indebtedness incurred by Seller other than indebtedness, not material in the aggregate, incurred in the ordinary course of business. (h) Title to Properties. Seller has good and marketable title to all of its real and personal assets and properties, including all assets and properties reflected in the Base Balance Sheet or acquired subsequent to September 30, 1996, except assets or properties disposed of subsequent to that date in the ordinary course of business. Such assets and properties are subject to no mortgage, indenture, pledge, lien, claim, encumbrance, charge, security interest, or title retention or other security arrangement, except for liens for the payment of federal, state, and other taxes, the payment of which is neither delinquent nor subject to penalties, and except for other liens and encumbrances incidental to the conduct of the business of Seller or the ownership of its assets or properties, which were not incurred in connection with the borrowing of money or the obtaining of advances and which do not in the aggregate materially detract from the value of the assets or properties of Seller or materially impair the use thereof in the operation of its business, except in each case as disclosed in the Base Balance Sheet. All leases pursuant to which Seller leases any substantial amount of real or personal property are valid and effective in accordance with their respective terms. Seller owns or has the right to use all assets and properties necessary to conduct its business as currently conducted. 3 (i) Litigation. There are no actions, suits, proceedings, or other litigation pending or, to the knowledge of Seller, threatened against Seller, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality that, if determined adversely to Seller, would individually or in the aggregate have a material adverse effect on the business, assets, properties, operating results, prospects, or condition, financial or otherwise, of Seller. (j) Rights and Licenses. Seller is not subject to any material disability or liability by reason of its failure to possess any trademark, trademark right, trade name, trade name right, or license. (k) No Violation. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate or result in a breach by Seller of, or constitute a default under, or conflict with, or cause any acceleration of any obligation with respect to, (i) any provision or restriction of any charter, bylaw, loan, indenture, or mortgage of Seller, or (ii) any provision or restriction of any lien, lease agreement, contract, instrument, order, judgment, award, decree, ordinance, or regulation or any other restriction of any kind or character to which any assets or properties of Seller is subject or by which Seller is bound. (l) Taxes. Seller has filed all federal, state, foreign, local, and any other tax returns and reports required to be filed and has paid in full all taxes and assessments, if any, shown due thereon (together with all interest, penalties, assessments, and deficiencies assessed in connection therewith due through the date hereof). All such tax returns are accurate and complete in all material respects. No claims for taxes or assessments are being asserted or threatened against Seller. Seller has furnished to Buyer a list of all tax returns filed for it. Seller has duly and validly filed elections for S corporation status under the Internal Revenue Code; none of such elections have been revoked or terminated; and neither Seller nor any shareholder of Seller has taken any action that would cause a termination of such S elections. (m) Accounts Receivable. The accounts receivable of Seller have been acquired in the ordinary course of business, are valid and enforceable, and are fully collectible, subject to no known defenses, set-offs, or counterclaims, except to the extent of the reserve reflected in the books of Seller or in such other amount that is not material in the aggregate. (n) Contracts. Seller is not a party to (i) any plan or contract providing for bonuses, pensions, options, stock purchases, deferred compensation, retirement payments, or profit sharing, (ii) any collective bargaining or other contract or agreement with any labor union, (iii) any lease, installment purchase agreement, or other contract with respect to any real or personal property used or proposed to be used in its operations, excepting, in each case, items included within aggregate amounts disclosed or reflected in the Base Balance Sheet, (iv) any employment agreement or other similar arrangement not terminable by it upon 30 days or less notice without penalty to it, (v) any contract or agreement for the purchase of any commodity, material, fixed asset, or equipment in excess of $100,000, (vi) any contract or agreement creating an obligation of $100,000 or more, (vii) any contract or agreement that by its terms does not terminate or is not terminable by it upon 30 days or less notice without penalty to it, (viii) any loan agreement, indenture, promissory note, conditional sales agreement, or other similar type of arrangement, (ix) any material license agreement, or (x) any contract that may result in a material loss or obligation to it. All material contracts, agreements, and other arrangements to which Seller is a party are valid and enforceable in accordance with their terms; Seller and all other parties to each of the foregoing have performed all obligations required to be performed to date; neither Seller nor any such other party is in default or in arrears under the terms of any of the foregoing; and no condition exists or event has occurred that, with the giving of notice or lapse of time or both, would constitute a default under any of them. (o) Compliance with Law and Other Regulations. Seller is not subject to or has been threatened with any material fine, penalty, liability, or disability as the result of its failure to comply with any requirement of federal, state, local, or foreign law or regulation or any requirement of any governmental body or agency having jurisdiction over it, the conduct of its business, the use of its assets and properties, or any premises occupied by it. 4 (p) Insurance. Seller maintains in full force and effect insurance coverage on its assets, properties, premises, operations, and personnel in such amounts as Seller deems appropriate, all as set forth on Seller's Disclosure Schedule. (q) Articles, Bylaws, and Minute Books. Seller has heretofore delivered to Buyer true and complete copies of the Articles of Incorporation and Bylaws of Seller as currently in effect. The minute books of Seller contain complete and accurate records of all meetings and other corporate actions held or taken by the Boards of Directors (or committees of the Boards of Directors) and shareholders of Seller since its incorporation. (r) Employees. Seller has never maintained or contributed to any "employee benefit plan," as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including, without limitation, any stock option plan, stock purchase plan, deferred compensation plan, or other similar employee benefit plan. Seller never contributed to any "multi-employer pension plan," as such term is defined in Section 3(37)(A) of ERISA. (s) Intent and Access. Seller is acquiring the shares of Buyer's Common Stock and Buyer's Promissory Note without a view to the public distribution or resale in violation of any applicable federal or state securities laws. Seller and Shareholder acknowledge that Buyer's Common Stock and Buyer's Promissory Note are not registered under the Securities Act of 1933, as amended or any state securities laws and cannot be sold publicly without registration thereunder or an exemption from such registration. Seller and Shareholder understand that certificates for such shares and such note will contain a legend with respect to the restrictions on transfer under federal and applicable state securities laws as well as the fact that the shares and note are "restricted securities" under such federal and state laws. Seller and Shareholder have been furnished with such information, both financial and non-financial, with respect to the operations, business, capital structure, and financial position of Buyer and its subsidiaries as they believe necessary and have been given the opportunity to ask questions of and receive answers from Buyer and its subsidiaries and their officers concerning Buyer and its subsidiaries. Without limiting the foregoing, Seller and Shareholder specifically acknowledge the receipt of Buyer's Form 10-K Report for the fiscal year ended September 30, 1996, Buyer's Form 10-Q for the nine months ended June 30, 1996, Buyer's Proxy Statement dated July 29, 1996, Buyer's 1996 Annual Report to Shareholders, and Buyer's Prospectus dated May 29, 1996. Notwithstanding the foregoing, Seller shall have the right to transfer a portion of the Shares to Joe Mattes, David Furr, and Donald Hawk, each of whom is familiar with the transactions contemplated hereby and each of whom is an "accredited investor" under applicable rules of the Securities and Exchange Commission. (t) Accuracy of Statements. Neither this Agreement nor any statement, list, certificate, or other information furnished by Seller to Buyer in connection with this Agreement or any of the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of circumstances in which they are made, not misleading. 3.2 Representations and Warranties of Buyer. Except as otherwise set forth in the Buyer Disclosure Schedule heretofore delivered by Buyer to Seller, and except as disclosed in any document heretofore filed by Buyer with the Securities and Exchange Commission ("SEC"), Buyer represents and warrants to Seller as follows: (a) Due Incorporation, Good Standing, and Qualification. Buyer and each of its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of their jurisdictions of incorporation with all requisite corporate power and authority to own, operate, and lease their assets and properties and to carry on their business as now being conducted. Neither Buyer nor any of its subsidiaries is subject to any material disability by reason of the failure to be duly qualified as a foreign corporation for the transaction of business or to be in good standing under the laws of any jurisdiction. As used in this Agreement with reference to Buyer, the term "subsidiaries" shall include all direct or indirect subsidiaries of Buyer including Designated Subsidiary. (b) Corporate Authority. Buyer and Designated Subsidiary have the corporate power and authority to enter into this Agreement and carry out the transactions contemplated hereby. The Boards 5 of Directors of Buyer and Designated Subsidiary have duly authorized the execution, delivery, and performance of this Agreement. No other corporate proceedings on the part of Buyer or Designated Subsidiary, including a meeting of Buyer's shareholders, are necessary to authorize the execution and delivery by Buyer of this Agreement or the consummation by Buyer or Designated Subsidiary of the transactions contemplated hereby. This Agreement has been duly executed and delivered by, and constitutes a legal, valid, and binding agreement of, Buyer and Designated Subsidiary, enforceable against them in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. (c) Capital Stock. As of the date hereof, Buyer has authorized capital stock consisting of 25,000,000 shares of Common Stock, $.01 par value, of which 12,669,769 shares are issued and outstanding, and 5,000,000 shares of Preferred Stock, no par value, of which no shares are issued and outstanding. As of such date, 1,044,553 shares of Buyer Common Stock were reserved for issuance upon the exercise of outstanding stock options and warrants. All of the issued and outstanding shares of capital stock of Buyer and each of its subsidiaries have been validly authorized and issued and are fully paid and nonassessable. (d) Options, Warrants, and Rights. Neither Buyer nor any of its subsidiaries has outstanding any options, warrants, or other rights to purchase, or securities or other obligations convertible into or exchangeable for, or contracts, commitments, agreements, arrangements or understandings to issue, any shares of their capital stock or other securities, other than those referred to in Section 3.2(c). (e) Subsidiaries. The outstanding shares of capital stock of the subsidiaries of Buyer owned by Buyer or any of its subsidiaries are owned free and clear of all claims, liens, charges, and encumbrances. Buyer does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity or ownership interest in any corporation or other business. (f) Financial Statements. The Consolidated Balance Sheets of Buyer and its subsidiaries as of September 30, 1994 and September 30, 1995 and the Consolidated Statements of Operations, the Consolidated Statements of Shareholders' Equity, and the Consolidated Statements of Cash Flows of Buyer and its subsidiaries for the three years ended September 30, 1995, and all related schedules and notes to the foregoing, have been reported on by Arthur Andersen LLP, independent public accountants, and the Consolidated Balance Sheet of Buyer and its subsidiaries as of June 30, 1996 and the Consolidated Statement of Operations, the Consolidated Statement of Shareholders' Equity, and the Consolidated Statement of Cash Flows of Buyer and its subsidiaries for the nine months ended June 30, 1996 have been prepared by the Company without audit. All of the foregoing financial statements have been prepared in accordance with generally accepted accounting principles, which were applied on a consistent basis (except as described therein), are correct and complete, and present fairly, in all material respects, the financial position, results of operations, and changes of financial position of Buyer and its subsidiaries as of their respective dates and for the periods indicated. Neither Buyer nor any of its subsidiaries has any material liabilities or obligations of a type that would be included in a balance sheet prepared in accordance with generally accepted accounting principles, whether related to tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or unliquidated or otherwise, except as and to the extent disclosed or reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of June 30, 1996, or incurred since June 30, 1996, in the ordinary course of business or as contemplated by this Agreement. (g) No Material Change. Since June 30, 1996, there has not been and there is not threatened (i) any material adverse change in the business, assets, properties, financial condition, or operating results of Buyer or its subsidiaries taken as a whole, (ii) any loss or damage (whether or not covered by insurance) to any of the assets or properties of Buyer or its subsidiaries, which materially affects or impairs their ability to conduct their business, or (iii) any mortgage or pledge of any material amount of the assets or properties of Buyer or any of its subsidiaries, or any indebtedness incurred by Buyer or any of its subsidiaries, other than indebtedness, not material in the aggregate, incurred in the ordinary course of business. 6 (h) Title to Assets and Properties. Buyer and its subsidiaries have good and marketable title to all of their respective real and personal assets and properties, including all assets and properties reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of June 30, 1996, or acquired subsequent to June 30, 1996, except assets or properties disposed of subsequent to that date in the ordinary course of business. Such assets and properties are subject to no mortgage, indenture, pledge, lien, claim, encumbrance, charge, security interest, or title retention or other security arrangement, except for liens for the payment of federal, state, and other taxes, the payment of which is neither delinquent nor subject to penalties, and except for other liens and encumbrances incidental to the conduct of the business of Buyer and its subsidiaries or the ownership of their assets or properties, which were not incurred in connection with the borrowing of money or the obtaining of advances, and which do not in the aggregate materially detract from the value of the assets or properties of Buyer and its subsidiaries taken as a whole or materially impair the use thereof in the operation of their respective businesses, except in each case as disclosed in the Consolidated Balance Sheet as of June 30, 1996. All leases pursuant to which Buyer or any of its subsidiaries lease any substantial amount of real or personal property are valid and effective in accordance with their respective terms. Buyer and each of its subsidiaries own or have the right to use all assets and properties necessary to conduct their business as currently conducted. (i) Litigation. There are no actions, suits, proceedings, or other litigation pending or, to the knowledge of Buyer, threatened against Buyer or any of its subsidiaries, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality that, if determined adversely to Buyer or its subsidiaries, would individually or in the aggregate have a material adverse effect on the business, assets, properties, operating results, prospects, or condition, financial or otherwise, of Buyer and its subsidiaries taken as a whole. (j) Rights and Licenses. Neither Buyer nor any of its subsidiaries is subject to any material disability or liability by reason of its failure to possess any trademark, trademark right, trade name, trade name right, or license. (k) No Violation. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate or result in a breach by Buyer or any of its subsidiaries of, or constitute a default under, or conflict with, or cause any acceleration of any obligation with respect to, (i) any provision or restriction of any charter, bylaw, loan, indenture, or mortgage of Buyer or any of its subsidiaries, or (ii) any provision or restriction of any lien, lease agreement, contract, instrument, order, judgment, award, decree, ordinance, or regulation or any other restriction of any kind or character to which any assets or properties of Buyer or any of its subsidiaries is subject or by which Buyer or any of its subsidiaries is bound. (l) Taxes. Buyer has duly filed in correct form all Tax Returns relating to the activities of Buyer and its subsidiaries required or due to be filed (with regard to applicable extensions) on or prior to the Closing Date. All such Tax Returns are accurate and complete in all material respects, and Buyer has paid or made provision for the payment of all Taxes that have been incurred or are due or claimed to be due from it by federal, state, or local taxing authorities for all periods ending on or before the Closing Date, other than Taxes or other charges that are not delinquent or are being contested in good faith and have not been finally determined and have been disclosed to Seller. The amounts set up as reserves for Taxes on the books of Buyer and its subsidiaries are sufficient in the aggregate for the payment of all unpaid Taxes (including any interest or penalties thereon), whether or not disputed, accrued, or applicable. No claims for taxes or assessments are being asserted or threatened against Buyer or any of its subsidiaries. For purposes of this Agreement, the term "Taxes" shall mean all taxes, charges, fees, levies, or other assessments, including, without limitation, income, gross receipts, excise, property, sales, transfer, license, payroll, and franchise taxes, imposed by the United States, or any state, local or foreign government or subdivision or agency thereof and any interest, penalties or additions attributable thereto, and the term "Tax Return" shall mean any report, return, or other information required to be supplied to a taxing authority or required by a taxing authority to be supplied to any other person. (m) Accounts Receivable. The accounts receivable of Buyer and its subsidiaries have been acquired in the ordinary course of business, are valid and enforceable, and are fully collectible, subject to no known defenses, setoffs, or counterclaims, except to the extent of the reserve reflected in the books of Buyer and its subsidiaries or in such other amount that is not material in the aggregate. 7 (n) Contracts. Neither Buyer nor any of its subsidiaries is a party to (i) any plan or contract providing for bonuses, pensions, options, stock purchases, deferred compensation, retirement payments, or profit sharing, (ii) any collective bargaining or other contract or agreement with any labor union, (iii) any lease, installment purchase agreement, or other contract with respect to any real or personal property used or proposed to be used in its operations excepting, in each case, items included within aggregate amounts disclosed or reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of June 30, 1996, (iv) any employment agreement or other similar arrangement not terminable by it upon 30 days or less notice without penalty to it, (v) any contract or agreement for the purchase of any commodity, material, fixed asset, or equipment in excess of $100,000, (vi) any contract or agreement creating an obligation of $100,000 or more, (vii) any contract or agreement that by its terms does not terminate or is not terminable by it upon 30 days or less notice without penalty to it, (viii) any loan agreement, indenture, promissory note, conditional sales agreement, or other similar type of arrangement, (ix) any material license agreement, or (x) any contract that may result in a material loss or obligation to it. All material contracts, agreements, and other arrangements to which Buyer or any of its subsidiaries is a party are valid and enforceable in accordance with their terms; Buyer, its subsidiaries, and all other parties to each of the foregoing have performed all obligations required to be performed to date; neither Buyer, nor any of its subsidiaries, nor any such other party is in default or in arrears under the terms of any of the foregoing; and no condition exists or event has occurred that, with the giving of notice or lapse of time or both, would constitute a default under any of them. (o) Compliance with Law and Other Regulations. Neither Buyer nor any of its subsidiaries is subject to or has been threatened with any material fine, penalty, liability, or disability as the result of its failure to comply with any requirement of federal, state, local, or foreign law or regulation or any requirement of any governmental body or agency having jurisdiction over it, the conduct of its business, the use of its assets and properties, or any premises occupied by it. (p) Insurance. Buyer and each of its subsidiaries maintains in full force and effect insurance coverage on their assets, properties, premises, operations, and personnel in such amounts as Buyer deems appropriate. (q) Articles, Bylaws, and Minute Books. Buyer has heretofore delivered to Seller true and complete copies of the Articles of Incorporation and Bylaws of Buyer and Designated Subsidiary as currently in effect. The minute books of Buyer and Designated Subsidiary contain complete and accurate records of all meetings and other corporate actions held or taken by the Boards of Directors (or committees of the Boards of Directors) and shareholders of Buyer and its subsidiaries, as the case may be, since their respective incorporations. (r) Employees. Neither Buyer nor any of its subsidiaries has ever maintained or contributed to any "employee benefit plan," as such term is defined in Section 3(3) of ERISA, including, without limitation, any stock option plan, stock purchase plan, deferred compensation plan, or other similar employee benefit plan, other than Buyer's Stock Option Plans. Neither Buyer nor any of its subsidiaries has ever contributed to any "multi-employer pension plan," as such term is defined in Section 3(37)(A) of ERISA. (s) SEC Reports. Buyer's report on Form 10-K for the fiscal year ended September 30, 1995 filed with the SEC and all reports and proxy statements filed by Buyer thereafter pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of 1934, including Buyer's Form 10-Q Report for the quarter ended June 30, 1996, do not contain a misstatement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading as of the time the document was filed. Since the filing of such report on Form 10-K, no other report, proxy statement, or other document has been required to be filed by Buyer pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of 1934 that has not been filed. (t) Accuracy of Statements. Neither this Agreement nor any statement, list, certificate, or other information furnished by Buyer to Seller in connection with this Agreement or any of the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. 8 (u) Status of Buyer Common Stock Being Issued. The shares of Buyer's Common Stock issued in partial payment for the Transferred Assets are validly authorized and issued, fully paid, nonassessable, authorized for trading on the Nasdaq National Market, and free of preemptive or other similar rights, but subject to the resale restrictions required by Rule 144 promulgated pursuant to the Securities Act of 1933, as amended ("Rule 144"). 3.3 Survival of Representations and Warranties. Each of the representations and warranties contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement irrespective of any investigations or inquiries made by any party or any knowledge that any party may possess, and each party shall be entitled to rely upon such representations and warranties irrespective of any investigations, inquiries, or knowledge. SECTION 4 COVENANTS TO SELLER 4.1 Covenants of Seller. Seller further agrees, unless Buyer otherwise agrees in writing, subsequent to the Closing Date: (a) Complete Liquidation and Dissolution. Seller shall completely liquidate and dissolve as promptly as practicable after the Closing Date, and in connection therewith, Seller shall distribute to its shareholders all of its assets and properties (including the Buyer's Common Stock and Buyer's Promissory Note issued pursuant to Section 2.1) after paying outstanding obligations and liabilities not being assumed by Designated Subsidiary and providing adequate reserves so that Designated Subsidiary will have no responsibilities to Seller's creditors except as specifically assumed pursuant to Section 1.2. (b) Filing of Tax Returns. As promptly as practicable after the Closing Date, Seller shall file all federal, state, and local corporate and income tax returns for its last fiscal year and covering the period from the end of its last fiscal year to the date of its liquidation and dissolution. (c) Dividends. Nothing in this Agreement shall limit the ability or right of Seller to declare or pay dividends to its shareholders subsequent to the Closing Date. (d) Change of Corporate Name. Seller shall promptly change its corporate name to a name that does not include the words "Sports Image." 4.2 Further Assurances. From time to time, on and after the Closing Date, as and when requested by Buyer or Designated Subsidiary, the proper officers and directors of Seller as of the Closing Date shall, for and on behalf and in the name of Seller or otherwise, execute and deliver all such deeds, bills of sale, assignments, and other instruments and shall take or cause to be taken such further or other actions as Buyer or Designated Subsidiary may deem necessary or desirable in order to confirm of record or otherwise to Buyer or Designated Subsidiary title to and possession of all of the Transferred Assets and otherwise to carry out fully the provisions and purposes of this Agreement. In addition, Seller shall give Buyer access to all records of Seller not purchased hereunder, and Buyer shall give Seller access to all records of Buyer to the extent relevant to the transactions contemplated hereby. 9 SECTION 5 GENERAL 5.1 Costs and Indemnity Against Finders. Each party hereto shall be responsible for its own costs and expenses in negotiating and performing this Agreement and hereby indemnifies and holds the other parties harmless against any claim for finders' fees based on alleged retention of a finder by it. 5.2 Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance, and enforcement shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-law provisions to the contrary. 5.3 Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received when delivered against receipt or when deposited in the United States mails, first class postage prepaid, addressed as set forth below: If to Buyer or Designated Subsidiary: If to Seller or Shareholder: 2401 West First Street 5301 West WT Harris Boulevard Tempe, Arizona 85281 Charlotte, North Carolina 28269 Attention: Fred W. Wagenhals Attention: R. Dale Earnhardt with a copy given in the manner with a copy given in the manner prescribed above, to: prescribed above, to: O'Connor, Cavanagh, Anderson, Gray, Layton, Drum, Kersh, Solomon, Killingsworth & Beshears, P.A. Sigmon & Furr, P.A. One East Camelback Road 516 South New Hope Road Phoenix, Arizona 85012 Gastonia, North Carolina 28053 Attention: Robert S. Kant, Esq. Attention: David Furr, Esq.
Any party may alter the address to which communications or copies are to be sent by giving notice to such other parties of change of address in conformity with the provisions of this paragraph for the giving of notice. 5.4 Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, and assigns, except that no party may assign, delegate, or transfer its rights or obligations under this Agreement without the prior written consent of the other parties hereto. Any assignment, delegation, or transfer made in violation of this Section 5.4 shall be null and void. 5.5 Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, inducements, and conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 5.6 Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 5.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACTION PERFORMANCE COMPANIES, INC. By:_______________________________ President [Corporate Seal] By:_______________________________ Secretary SII ACQUISITION, INC. By:_______________________________ President [Corporate Seal] By:_______________________________ Secretary SPORTS IMAGE, INC. By:_______________________________ President [Corporate Seal] By:_______________________________ Secretary __________________________________ R. Dale Earnhardt __________________________________ Teresa H. Earnhardt 11 EX-10.34 3 PROMISSORY NOTE PROMISSORY NOTE $24,000,000 November 7, 1996 FOR VALUE RECEIVED, SII ACQUISITION, INC., an Arizona corporation, its successors and assigns ("Maker"), hereby promises to pay to the order of SPORTS IMAGE, INC., a North Carolina corporation or its successors or assigns ("Payee"), at the office of Payee, located at 5301 West WT Harris Boulevard, Charlotte, North Carolina 28269, the principal amount of $24,000,000, together with interest on the principal balance outstanding hereunder, from (and including) the date hereof until (but not including) the date of payment, at the interest rate specified below, in accordance with the following terms and conditions: 1. Stated Interest Rate. Except as provided in Section 3 below, the principal balance outstanding hereunder shall bear interest, until fully paid, at 8% per annum (the "Stated Interest Rate"). 2. Default Interest Rate. The Default Interest Rate shall be 15% per annum. The principal balance outstanding hereunder from time to time shall bear interest at the Default Interest Rate from the date of the occurrence of an Event of Default (as hereinafter defined) hereunder until the earlier of (a) the date on which the principal balance outstanding hereunder, together with all accrued interest and other amounts payable hereunder, is paid in full; or (b) the date on which such Event of Default is timely cured. 3. Payments. This Note shall be payable as follows: (a) Interest. Accrued and unpaid interest at the Stated Interest Rate or, to the extent applicable, the Default Interest Rate, shall be payable on the date set forth in Subsection 3(b) below for payment of the principal balance outstanding hereunder. (b) Principal. The principal balance outstanding hereunder, together with all accrued interest and other amounts payable hereunder, if not sooner paid as provided herein, shall be due and payable on January 2, 1997. 4. Application and Place of Payments. Payments received by Payee with respect to the indebtedness evidenced hereby shall be applied in such order and manner as Payee in its sole and absolute discretion may elect. Unless Payee otherwise elects, payments received by Payee shall be applied first to accrued and unpaid interest, next to the principal balance then outstanding hereunder, and the remainder to Additional Sums (as hereinafter defined) or other costs or added charges provided for in this Note. Payments hereunder shall be made at the address for Payee first set forth above or at such other address as Payee may specify to Maker in writing. 5. Events of Default; Acceleration. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder, and upon such Event of Default, the entire principal balance outstanding hereunder, together with all accrued interest and other amounts payable hereunder, at the election of Payee, shall become immediately due and payable, without any notice to Maker: (a) Nonpayment of principal, interest, or other amounts when the same shall become due and payable hereunder, and Maker does not cure such failure to pay within three days after the date such payment is due; or (b) The failure of Maker to comply with any provision of this Note; or (c) The dissolution, winding-up, or termination of the existence of Maker; or (d) The making by Maker of an assignment for the benefit of its creditors; or (e) The appointment of a receiver for Maker or the involuntary filing against Maker, which is not stayed or dismissed within 30 days of filing, or the voluntary filing by Maker of a petition or application for relief under federal bankruptcy law or any similar state or federal law. (f) An Event of Default under the License Agreement of even date between Maker and R. Dale Earnhardt. 6. Contracted For Interest. (a) Maker agrees to pay an effective contracted for rate of interest equal to the rate of interest resulting from all interest payable as provided in this Note, plus the additional rate of interest resulting from the Additional Sums. The Additional Sums shall consist of all fees, charges, goods, things in action, or any other sums or things of value (other than interest payable as provided in this Note) paid or payable by Maker, pursuant to this Note, that may be deemed to be interest for the purpose of any law of the state of North Carolina that may limit the maximum amount of interest to be charged with respect to this lending transaction. The Additional Sums shall be deemed to be interest for the purposes of any such law only. (b) Maker understands and believes that this transaction complies with the usury laws of the state of North Carolina; however, if any interest or other charges in connection with this transaction are ever determined to exceed the maximum amount permitted by law, then Maker agrees that (i) the amount of interest or charges payable pursuant to this transaction shall be reduced to the maximum amount permitted by law; and (ii) any excess amount previously collected from Maker in connection with this transaction, which exceeded the maximum amount permitted by law, will be credited against the principal balance then outstanding hereunder. If the outstanding principal balance hereunder has been paid in full, the excess amount paid will be refunded to Maker. 7. Costs of Collection. Maker agrees to pay all costs of collection, including, without limitation, attorneys' fees, whether or not suit is filed, and all costs of suit and preparation for suit (whether at trial or appellate level), in the event any payment of principal, interest, or other amount is not paid when due, or if at any time Payee should incur any attorneys' fees in any proceeding under any federal bankruptcy law (or any similar state or federal law) in connection with the obligations evidenced hereby. In the event of any court proceeding, court costs and attorneys' fees shall be set by the court and not by the jury and shall be included in any judgment obtained by Payee. 8. No Waiver by Payee. No delay or failure of Payee in exercising any right hereunder shall affect such right, nor shall any single or partial exercise of any right preclude further exercise thereof. 9. Governing Law. This Note shall be construed in accordance with and governed by the laws of the state of North Carolina without regard to the choice of law rules of the state of North Carolina. 10. Time of Essence. Time is of the essence of this Note and each and every provision hereof. 11. Conflicts; Inconsistency. In the event of any conflict or inconsistency between the provisions of this Note and the provisions of any one or more of the other documents executed in connection with this transaction, the provisions of this Note shall govern and control to the extent necessary to resolve such conflict or inconsistency. 12. Amendments. No amendment, modification, change, waiver, release, or discharge hereof and hereunder shall be effective unless evidenced by an instrument in writing and signed by the party against whom enforcement is sought. 13. Severability. The invalidity of any provision of this Note or portion of a provision shall not affect the validity of any other provision of this Note or the remaining portion of the applicable provision. 14. Binding Nature. The provisions of this Note shall be binding upon and inure to the benefit of Maker and Payee and their respective heirs, personal representatives, successors, and assigns, as applicable. 15. Notices. All notices, requests, demands, and other communications required or permitted under this Note shall be in writing and shall be deemed to have been duly given, made, and received when delivered 2 against receipt, upon receipt of a facsimile transmission, or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: If to Maker: 2401 West First Street Tempe, Arizona 85281 Attention: Fred W. Wagenhals with a copy: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. Suite 1100 One East Camelback Phoenix, Arizona 85012 Attention: Robert S. Kant, Esq. If to Payee: 5301 West WT Harris Boulevard Charlotte, North Carolina 28269 Attention: R. Dale Earnhardt with a copy to: Gray, Layton, Drum, Kersh, Solomon, Sigmon & Furr, P.A. 516 South New Hope Road Gastonia, North Carolina 28053 Attention: David Furr, Esq. Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this section for the giving of notice. 16. Construction. Maker and Payee participated in the drafting of this Note, and this document was reviewed by the respective legal counsel for Maker and Payee. The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be applied to the interpretation of this Note. The language of this Note shall be construed as a whole according to its fair meaning. The word "include(s)" means "include(s), without limitation," and the word "including" means "including, but not limited to." No inference in favor of, or against, Maker or Payee shall be drawn from the fact that one party has drafted any portion hereof. 17. Security Agreement. The rights and remedies of the Payee of this Note and any instrument securing the Note shall be cumulative and may be pursued singly or successively pursuant to the Security Agreement securing this Note in the sole discretion of Payee. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at such other time. IN WITNESS WHEREOF, Maker has executed this Note as of the date first set forth above. SII ACQUISITION, INC. By:_____________________________________ 3 GUARANTEE --------- The undersigned, Action Performance Companies, Inc., hereby guarantees the performance (including the payment obligations) of SII Acquisition, Inc. ("Maker") under the $24.0 million promissory note of SII Acquisition, Inc. dated November 7, 1996 payable to Sports Image, Inc. The undersigned agrees that the term "maker" in the promissory note shall include the undersigned with respect to any obligations, events of default, or similar matters set forth in the note. ACTION PERFORMANCE COMPANIES, INC. By:_______________________________ Dated: November 7, 1996 EX-10.35 4 SECURITY AGREEMENT STATE OF NORTH CAROLINA ) ) COUNTY OF MECKLENBURG ) SECURITY AGREEMENT ------------------ Security Agreement between SPORTS IMAGE, INC., a North Carolina corporation (herein referred to as "Secured Party") and SII ACQUISITION, INC. (herein referred to as "Debtor"). W I T N E S S E T H: 1. Collateral. The collateral of this Security Agreement is all of Debtor's right, title, and interest in the assets, properties, rights and goodwill transferred by Secured Party to Debtor pursuant to an Asset Purchase Agreement dated November 7, 1996 (the "Asset Purchase Agreement") among Debtor, Secured Party, and Dale and Teresa Earnhardt, including but not limited to, (i) all assets and properties, tangible or intangible, real, personal or mixed, (ii) notes and accounts receivable; (iii) computer equipment; (iv) office and warehouse equipment; (v) vehicles; (vi) reserves; (vii) prepayments; (viii) inventories; (ix) deposits; (x) bank accounts; (xi) cash and securities; (xii) claims and rights under contracts, agreements, licenses, and leases; (xiii) all computer programs, data bases, records, systems, processes, and all know how, information, and trade secrets relating thereto; (xiv) the name "Sports Image" and (xv) and all books and records; together with any additions, replacements, proceeds, and proceeds of proceeds thereof (the "Collateral"). 2. Debtor's Obligations. A. Obligation to Pay. This Agreement secures the payment and performance of Debtor's obligations under the Promissory Note for the purchase of such Collateral described in paragraph 1 above pursuant to this Security Agreement and in accordance with the terms of the Asset Purchase Agreement. The obligations to pay money as set forth herein and the additional obligations in paragraph B below are hereinafter referred to as "Debtor's Obligations." B. Additional Obligations. (1) Protection of Collateral. The Collateral: (a) Will be used or sold in the ordinary course of business by Debtor unless Secured Party consents in writing to another use, and (b) Will not be misused or abused, wasted or allowed to deteriorate, except for the ordinary wear and tear, and (c) Will be insured until this Security Agreement is terminated under such insurance policies and in such amounts as Secured Party may reasonably require and with said policies indicating insurance proceeds payable to both Secured Party and Debtor as their interests may appear. In the event of a loss, the Secured Party may, at its discretion, use the proceeds therefrom to replace the Collateral or apply said proceeds against the Debtor's obligation arising from the transaction contemplated herein. (d) Will be kept at Debtor's or Secured Party's present business location where Secured Party may inspect it at reasonable times after 48 hours prior notice except for its temporary removal in connection with its ordinary use or unless Debtor notifies secured party in writing and Secured Party consents in writing in advance of its removal to another location. (2) Protection of Security Interest. (a) The noninventory Collateral will not be sold, leased, transferred, conveyed, assigned, or otherwise disposed of except in the ordinary course (i.e. obsolescence) or be subject to any unpaid charge, including but not limited to, taxes, assessments, governmental charges, except liens in favor of Secured Party or to which the Collateral was subject when transferred to Debtor, or to any subsequent interest of a third party created or suffered by Debtor voluntarily or involuntarily, unless the Secured Party consents in advance in writing to such charge, transfer, disposition or subsequent interest; (b) Debtor will sign and execute along with Secured Party such financing statements or other documents or procure such documents, and pay all reasonable connected costs as may be reasonably necessary to protect or defend title and the security interest created under this Security Agreement against the rights or interest of third persons, and (c) Debtor will reimburse Secured Party for reasonable costs associated with any action to remedy a default which Secured Party elects pursuant to the terms hereof, including but not limited to reasonable attorneys' fees, costs of retaking, holding and preparing the Collateral for sale, insurance, and such other expenses as Secured Party may reasonably incur in the liquidation of said Collateral in a commercially reasonable manner. Should the proceeds from the sale of the Collateral be insufficient to cover the obligations of the Debtor and the costs incurred in such liquidation, the Debtor shall forthwith pay any deficiency. Should the proceeds from such liquidation exceed the liabilities of the Debtor, then, in any event, the Debtor shall be entitled to any surplus funds arising from said liquidation. (d) Debtor will give Secured Party full and prompt written notice of any default or any situation, which would constitute a default but for a lapse of time. Debtor will also serve Secured Party promptly notice of any legal, condemnation, forfeiture, or foreclosure 2 proceeding against or regarding said Debtor, its property or the Collateral. 3. Default. The occurrence of any of the following shall constitute an event of default: A. Any representation or warranty made herein shall, at the time made, be false or misleading in any material respect; B. Failure to pay any principal or interest under the Promissory Note when the same shall be due and payable or within three days thereafter. C. Debtor shall voluntarily file a petition under the Federal Bankruptcy Act, as such Act may from time to time be amended, or under any similar or successor Federal statute relating to bankruptcy, insolvency, arrangements or reorganizations, or under any state bankruptcy or insolvency act, or file an answer in an involuntary proceeding admitting insolvency or inability to pay debts, or if Debtor shall fail to obtain a vacation or stay or voluntary proceedings brought for the reorganization, dissolution, or liquidation of Debtor, or if Debtor shall be adjudged a bankrupt, or if a trustee or receiver shall be appointed for Debtor or a property, or if the property shall become subject to the jurisdiction of a Federal bankruptcy court or similar state court, or if Debtor shall make an assignment for the benefit of Debtor's creditors, or if there is an attachment, execution, or other judicial seizure of any portion of Debtor's assets and such seizure is not discharged within thirty (30) days; D. Final judgment for the payment of money in excess of $10,000 shall be rendered against the Debtor, and the same shall remain undischarged and shall not have been effectively stayed for a period of thirty (30) days. 4. Secured Party's Rights and Remedies. A. Secured Party may assign this Security Agreement only if the indebtedness under the Promissory Note is assigned simultaneously to the same person or entity, and (1) If Secured Party does assign this Security Agreement, the Assignee shall be entitled, upon notifying the Debtor, to performance of all of Debtor's obligations and agreements hereunder, and Assignee shall be entitled to all of the rights and remedies of Secured Party under this paragraph, and B. Upon Debtor's default, Secured Party may exercise its rights of enforcement under the Uniform Commercial Code in force in North Carolina at the date of this Security Agreement. 5. Rights and Remedies of Debtor. Debtor shall have all of the rights and remedies before or after default provided in Article 9 of the Uniform Commercial Code in force in North Carolina at the date of this Security Agreement. Debtor shall not, however, assign any and all of its interest in the Security Agreement without the prior written consent of the Secured Party, which consent shall not be unreasonably withheld. 3 6. Additional Agreements and Affirmations. A. Debtor Agrees and Affirms. (1) That information supplied and statements made by it in the negotiation of the purchase and sale of Collateral and any financial or credit statement prepared by it or on its behalf or application for credit prior to this Security Agreement are true and accurate, and (2) That the address of Debtor's place of business is that appearing below. (3) That the Secured Party shall have a valid security interest in the Collateral. B. Mutual Agreements. (1) "Debtor" and "Secured Party" as used in this Security Agreement include the heirs, executors and administrators, successors or assigns of those parties. (2) Except as herein otherwise provided the law governing this Secured Transaction shall be that of the State of North Carolina in force at the date of this Security Agreement. (3) Neither failure or delay on the part of the Secured Party nor partial exercise of any power, right or privilege granted hereunder shall be construed as a waiver of the same power, right or privilege held by the Secured Party. This Agreement shall not be modified except by written consent of the parties hereto. Debtor hereby waives protest of all instruments included or evidencing any liability by the Debtor, and any and all other demands whatsoever, whether or not relating specifically to such instruments. (4) If any part, term or condition of this Agreement shall be determined by the Court to be invalid or unenforceable, all other provisions nevertheless shall remain valid and effective as it is the intention of the parties that each provision hereof is being agreed upon separately. (5) This Agreement may not be changed or terminated orally. Any attempt to change, terminate or waive any provision hereof shall not be binding unless reduced to writing and executed by the parties against whom the same is sought to be enforced. All notices required by the provisions of this Agreement shall be delivered to the parties by certified mail, return receipt requested, at the addresses as set forth below, or such other addresses as the parties may hereafter designate: 4 To Secured Party: Sports Image, Inc. Attn: Dale Earnhardt 1675 Coddle Creek Highway Mooresville, North Carolina 2815 With a copy to: David M. Furr, Esq. Gray, Layton, Drum, Kersh, Solomon, Sigmon & Furr, P.A. P.O. Box 2636 516 South New Hope Road Gastonia, North Carolina 28053 To Debtor: Action Performance Companies, Inc. SSI Acquisition, Inc. Attn: Fred Wagenhals 2401 West First Street Tempe, Arizona 85281 With a copy to: Robert S. Kant, Esq. O'Connor, Cavanagh, Anderson, Killingsworth & Beshears One East Camelback Road Suite 1100 Phoenix, Arizona 85012 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the 7th day of November, 1996. SPORTS IMAGE, INC. By:_______________________________ Title:____________________________ SSI ACQUISITION, INC. By:_______________________________ Title:____________________________ 5 EX-10.36 5 REGISTRATION AGREEMENT REGISTRATION AGREEMENT REGISTRATION AGREEMENT dated as of November 7, 1996, among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation (the "Company"); SPORTS IMAGE, INC., a North Carolina corporation ("SII"); and R. DALE EARNHARDT and TERESA H. EARNHARDT (together "Earnhardt") who own all the capital stock of SII. (SII and Earnhardt are referred to as the "Holders.") WITNESSETH The Company acquired substantially all of the assets of SII under the terms of an Asset Purchase Agreement of even date. The consideration for the assets of SII included shares of Company's Common Stock (the "Shares"). The Shares are "restricted securities" as defined in Rule 144 under the Securities Act of 1933, as amended. As a result, there are substantial restrictions on the ability of the Holders to sell the Shares in the absence of registration under the Securities Act of 1933 and applicable state securities laws. In order to enable the Holders to sell all or a portion of the Shares, the Company has agreed to the terms of this Agreement. NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the receipt, adequacy, and sufficiency of which are hereby acknowledged by the parties, the parties hereby agree as follows: 1. REGISTRATION 1.1 Definitions. As used in this Agreement, the following terms shall have the following meanings: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Blackout Period" means any period (A) beginning on the date on which the Company notifies the Holders (as defined below) that (i) the Board of Directors of the Company, in its good faith judgement, has determined that there are material developments with respect to the Company such that it would be seriously detrimental to the Company and its shareholders to utilize a registration statement pursuant to Sections 1.2 or 1.3 below; (ii) the Board of Directors of the Company, in its good faith judgment, has determined that financial statements with respect to the Company, which may be required to utilize a registration statement pursuant to Sections 1.2 or 1.3 below, are unavailable; or (iii) the Company has notified the Holders that it intends to file a registration statement for a Subsequent Financing within 30 days of the mailing of such notice in accordance with Section 2.3 hereof, and (B) ending on the date (1) with respect to clause (i) above, as soon as practicable but not more than 30 days after the date on which the Company notifies the Holders of the Board of Directors' determination; (2) with respect to clause (ii) above, as soon as financial statements sufficient to permit Company to file or permit the utilization of a registration statement under the Act have become available; and (3) with respect to clause (iii) above, 90 days after the effective date of the registration statement for the Subsequent Financing. (c) The term "Holders" means those persons owning or having the right to acquire Registrable Securities (as defined below). (d) The term "Maximum Includable Securities" shall mean the maximum number of shares of each type or class of the Company's securities that a managing or principal underwriter, in its good faith judgment, deems practicable to offer and sell at that time in a firm commitment underwritten offering without materially and adversely affecting the marketability or price of the securities of the Company to be offered. When more than one type or class of the Company's securities are to be included in a registration, the managing or principal underwriter of the offering shall designate the maximum number of each such type or class of securities that is included in the Maximum Includable Securities. (e) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (f) The term "Registrable Security" shall refer to (i) the Shares, and (ii) any shares of Common Stock or other securities of Company that may subsequently be issued or issuable with respect to the Shares as a result of a stock split or dividend or any sale, transfer, assignment, or other transaction by the Company or a Holder involving the Shares and any securities into which the Shares may thereafter be changed as a result of merger, consolidation, recapitalization, or otherwise. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Act or sold to the public through a broker, dealer, or market-maker in compliance with Rule 144 under the Act. (g) "SEC" means the Securities and Exchange Commission. (h) The term "Subsequent Financing" means an offering of the Company's Common Stock or other securities convertible or exercisable into shares of the Company's Common Stock within 36 months after the date of this Agreement. 1.2 Demand Registration Rights. (a) If the Company shall receive at any time a written request from the Holders (the "Initiating Holders") of Shares requesting the registration of Registrable Securities, then the Company shall, within 10 days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of Section 1.2(b), effect as soon as practicable the registration under the Act of all Registrable Securities that the Holders request to be registered within 60 days of the mailing of such notice by the Company in accordance with the notice provisions of Section 2.3 hereof. (b) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the President of the Company stating that a Blackout Period is in effect, the Company shall have the right to defer such filing during the term of such Blackout Period. (c) If the Holders give written notice requesting registration of their Registrable Securities pursuant to this Section 1.2, and if the Company at that time is not eligible to register its securities on Form S-3, the Company shall prepare and file a registration statement on Form S-1 or S-2 (or other appropriate form for the general registration of securities) as may be appropriate in accordance with the terms and conditions set forth in this Section 1.2. (d) The Company may propose to include Additional Shares of Common Stock or other securities to be sold by the Company and/or by other holders of Common Stock or other securities in any registration statement to be filed pursuant to this Section 1.2. The Holders shall have the right to reduce the number of Additional Shares requested to be registered by the Company pursuant to this Section 1.2(c) (including, if necessary, to zero) if, in the good faith opinion of the underwriter or underwriters of such offering, the inclusion of such Additional Shares would materially and adversely affect the marketability or price of the Registrable Securities to be offered by the Holders in such registration. (e) The Company shall be obligated to effect only one such registration pursuant to this Section 1.2. 2 (f) The Holders shall have the right to select the underwriter or underwriters, subject to the approval of the Company, which approval shall not be unreasonably withheld, that will undertake the sale and distribution of the Shares to be included in a registration statement filed under the provisions of this Section 1.2. 1.3 Piggy-Back Registration Rights. (a) Except as provided in Section 1.3(e), if at any time the Company proposes to file on its behalf and/or on behalf of any of its securityholders a registration statement under the Act on Form S-1, S-2, or S-3 (or any other appropriate form for the general registration of securities) with respect to any of its capital stock or other securities, the Company shall give each Holder written notice at least 20 days before the filing with the SEC of such registration statement. If any Holder desires to have Registrable Securities registered pursuant to this Section 1.3, such Holder shall so advise the Company in writing within 15 days after the date of mailing of such notice from the Company. The Company shall thereupon include in such filing the number of Registrable Securities for which registration is so requested, subject to its right to reduce the number of Registrable Securities as hereinafter provided, and shall use its best efforts to effect registration under the Act of such Registrable Securities. Notwithstanding the foregoing, the Company shall not be required to provide notice of filing of a registration statement and to include therein any Registrable Securities if the proposed registration is (i) a registration of stock options, stock purchases, or compensation or incentive plans, or of securities issued or issuable pursuant to any such plan, or a dividend reinvestment plan on Form S-8, or other comparable form then in effect; or (ii) a registration of securities proposed to be issued in exchange for securities or assets of, or in connection with, a merger or consolidation with another corporation. (b) In the event the offering in which any Holder's Registrable Securities are to be included pursuant to this Section 1.3 is to be underwritten, the Company shall furnish the Holders with a written statement of the managing or principal underwriter as to the Maximum Includable Securities as soon as practicable after the expiration of the 15-day period provided for in Section 1.3(a). If the total number of securities proposed to be included in such registration statement is in excess of the Maximum Includable Securities, the number of securities to be included within the coverage of such registration statement shall be reduced to the Maximum Includable Securities as follows: (i) no reduction shall be made in the number of shares of capital stock or other securities to be registered for the account of the Company; and (ii) the number of Registrable Securities and other securities that may be included in the registration, if any, shall be allocated among the Holders of Registrable Securities and holders of other securities (the "Other Holders") requesting inclusion on a pro rata basis, with the number of each type or class of securities of each Holder and Other Holder thereof included in the registration to be that number determined by multiplying (A) the total number of such type or class of security included in the Maximum Includable Securities less (B) the number of such type or class of security to be registered for the account of the Company, by a fraction, the numerator of which will be the total number of such type or class of security that such Holder or Other Holder owns, and the denominator of which will be the total number of such type or class of security owned by all Holders and Other Holders that have requested inclusion of such type or class of security in the registration. (c) The Company shall, in its sole discretion, select the underwriter or underwriters, if any, that are to undertake the sale and distribution of the Registrable Securities to be included in a registration statement filed under the provisions of this Section 1.3. 3 (d) At such time that the Company intends to effect a Subsequent Financing, it shall notify the Holders of such intent and shall designate the proposed offering as a Subsequent Financing. Except to the extent that the Company, in its sole discretion, may otherwise permit, the Holders shall have no right to have any Registrable Securities registered pursuant to this Section 1.3 in any Subsequent Financing. (e) The right to registration provided in this Section 1.3 is in addition to and not in lieu of the demand registration rights provided in Section 1.2. The provisions of this Section 1.3 shall not apply, however, to any Holders requesting registration pursuant to this Section 1.3 that are or may be free, at the time, to sell within the next 90-day period all of the Registrable Securities with respect to which such registration was requested in accordance with Rule 144 (or any similar rule or regulation) under the Act. 1.4 Obligations of the Company. Whenever required under Section 1.2 or Section 1.3 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement on such form as the Company deems appropriate with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective. With respect to registration statements filed pursuant to Section 1.2 or Section 1.3 hereof, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, the Company shall keep such registration statement effective for up to 180 days, or such shorter period as is reasonably required to dispose of all securities covered by such registration statement, provided that the Company shall keep a registration statement filed pursuant to Section 1.2 effective for an additional 90 days if reasonably required to dispose of all securities covered by such registration statement. (b) Notify the Holders promptly after it has received notice of the time when such registration statement has become effective or any supplement to any prospectus forming a part of such registration statement has been filed. (c) Prepare and file with the SEC, and promptly notify the Holders of the filing of, such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (d) Advise each Holder promptly after it has received notice or obtained knowledge thereof of the issuance of any stop order by the SEC suspending the effectiveness of any such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. (e) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (f) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to file a general consent to service of process, or to become subject to tax liability in any such states or jurisdictions, or to agree to any restrictions as to the conduct of its business in the ordinary course thereof. (g) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering, together with each Holder participating in such underwritten offering, as provided in Section 1.5(c). 4 (h) Prepare and promptly file with the SEC, and promptly notify such Holders of the filing of, any amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Act, any event has occurred as the result of which any such prospectus must be amended in order that it does not make any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (i) In case any of such Holders or any underwriter for any such Holders is required to deliver a prospectus at a time when the prospectus then in effect may no longer be used under the Act, prepare promptly upon request such amendment or amendments to such registration statement and such prospectus as may be necessary to permit compliance with the requirements of the Act. (j) If any of the Registrable Securities are then listed on any securities exchange or the Nasdaq Stock Market, the Company will cause all such Registrable Securities covered by such registration statement to be listed on such exchange or the Nasdaq Stock Market. 1.5 Obligations of Holders. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement that each of the selling Holders shall: (a) Furnish to the Company such information regarding themselves, the Registrable Securities held by them, the intended method of sale or other disposition of such securities if the registration is pursuant to Section 1.2, the identity of and compensation to be paid to any underwriters proposed to be employed in connection with such sale or other disposition if the registration is pursuant to Section 1.2, and such other information as may reasonably be required to effect the registration of their Registrable Securities. (b) Notify the Company, at any time when a prospectus relating to Registrable Securities covered by a registration statement is required to be delivered under the Act, of the happening of any event with respect to such selling Holder as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (c) In the event of any underwritten public offering, each Holder participating in such underwriting shall enter into and perform its obligations under the underwriting agreement for such offering, and if requested to do so by the underwriters managing such offering, each Holder shall enter into a customary holdback agreement. 1.6 Expenses of Demand Registration. The Company shall bear and pay all expenses incurred in connection with registrations, filings, or qualifications pursuant to Section 1.2 (other than underwriting discounts and commissions with respect to Registrable Securities included in such registration and any fees and costs of the Holders' legal counsel or other advisors), including (without limitation) all registration, filing, and qualification fees, Blue Sky fees and expenses, printers' and accounting fees, costs of listing on Nasdaq, costs of furnishing such copies of each preliminary prospectus, final prospectus, and amendments thereto as each Holder may reasonably request, and fees and disbursements of counsel for the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case the Holders participating in such offering and favoring such withdrawal shall bear such expenses); provided further, however, that if such registration request has been withdrawn by virtue of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant Section 1.2. 5 1.7 Expenses of Piggy-Back Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to each of the registrations pursuant to Section 1.3 (other than underwriting discounts and commissions with respect to Registrable Securities included in such registration and any fees and costs of the Holders' legal counsel or other advisors), including (without limitation) all registration, filing, and qualification fees, Blue Sky fees and expenses, printers' and accounting fees, costs of listing on Nasdaq, costs of furnishing such copies of each preliminary prospectus, final prospectus, and amendments thereto as each Holder may reasonably request, and fees disbursements of counsel for the Company. 1.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) The Company will indemnify and hold harmless each Holder, the officers and directors of each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which such person or persons may become subject under the Act, the 1934 Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions, or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse each such Holder, officer or director, underwriter, or controlling person for any legal or other expenses reasonably incurred by such person or persons in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company, nor shall the Company be liable in any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon (i) a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter, or controlling person, or (ii) the failure of such Holder, underwriter, or controlling person to deliver a copy of the registration statement or the prospectus, or any amendments or supplements thereto, after the Company has furnished such person with a sufficient number of copies of the same. (b) Each selling Holder will indemnify and hold harmless the Company, each of its officers and directors, and each person, if any, who controls the Company within the meaning of the Act, any underwriter and any other Holder selling securities in such registration statement or any of its directors or officers or any person who controls such Holder, against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such officer, director, controlling person, or underwriter or controlling person may become subject, under the Act, the 1934 Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such officer, director, controlling person, underwriter or controlling person, other Holder, officer, director, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Holder. Notwithstanding anything to the contrary herein contained, a Holder's indemnity obligation, in such person's capacity as a Holder, shall be limited to the net proceeds received by such Holder from the offering out of which the indemnity obligation arises. 6 (c) Promptly after receipt by an indemnified party under this Section 1.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnified party, except that such fees and expenses shall be paid by the indemnifying party if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.8. (d) The indemnification provided by this Section 1.8 shall be a continuing right to indemnification and shall survive the registration and sale of any of the Registrable Securities hereunder and the expiration or termination of this Agreement. 1.9 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act, the Company agrees to use its best efforts to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder, as long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Act, and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form. 1.10 Amendment and Waiver. Any amendment or waiver of any provision under this Agreement may be effected only with the written consent of the Company and the Holders of at least a majority of the Registrable Securities then outstanding. 1.11 Remedies. The parties hereto acknowledge and agree that the breach of any part of this Agreement may cause irreparable harm and that monetary damages alone may be inadequate. The parties hereto therefore agree that any party shall be entitled to injunctive relief or such other applicable remedy as a court of competent jurisdiction may provide. Nothing contained herein will be construed to limit any party's right to any remedies at law, including recovery of damages for breach of any part of this Agreement. 2. MISCELLANEOUS 2.1 Notification for Benefit of Holders. In the event that (i) the Company is actively pursuing the preparation and filing of a registration statement for an underwritten offering in which it may be possible for the Holders to participate pursuant to Section 1.3 of this Agreement, and (ii) the Holders are not actively pursuing an offering or selling Registrable Securities pursuant to an offering at that time, the Company shall promptly notify 7 the Holders of such activity. Upon receipt of such notice, the Holders shall cease any sales of Registrable Securities pursuant to any registration statement or otherwise until the earlier of (a) 90 days after receipt of such notice; (b) two trading days after the Company files such registration statement or publicly announces its intention to file such registration statement (subject to the restrictions on any such sales provided for elsewhere in this Agreement); or (c) the Company notifies the Holder that it no longer is actively pursuing such underwritten offering. The Company shall promptly notify the Holders of any changes in its plans for or active pursuit of such underwritten offering. 2.2 Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-law provisions to the contrary. 2.3 Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made, and received when delivered against receipt, upon receipt of a facsimile transmission, or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: (a) If to the Company: 2401 West First Street Phoenix, Arizona 85281 Attention: Fred W. Wagenhals Phone: (602) 894-0100 Facsimile: (602) 967-1403 with a copy given in the manner prescribed above, to: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. One East Camelback Road Phoenix, Arizona 85012 Attention: Robert S. Kant, Esq. Phone: (602) 263-2606 Facsimile: (602) 263-2900 (b) If to any Holder: 5301 West WT Harris Boulevard Charlotte, North Carolina 28269 Attention: R. Dale Earnhardt Phone: (704) 599-8100 Facsimile: (704) 599-8126 8 with a copy given in the manner prescribed above, to: Gray, Layton, Drum, Kersh, Solomon, Sigmon & Furr, P.A. 516 South New Hope Road Gastonia, North Carolina 28053 Attention: David M. Furr, Esq. Phone: (704) 865-4400 Facsimile: (704) 866-8010 Any party may alter the address to which communications or copies are to be sent by giving notice of such change to each of the other parties hereto in conformity with the provisions of this paragraph for the giving of notice. 2.4 Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns. 2.5 Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 2.6 Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 2.7 Gender. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. 2.8 Indulgences, Not Waivers. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege preclude any other or further exercise of the same or any other right, remedy, power, or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. 2.9 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Any photographic or xerographic copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as of it were an executed counterpart of this Agreement. 2.10 Provisions Separable. The provisions of this Agreement are independent and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 9 2.11 Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays, and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday, or holiday, then the final day shall be deemed to be the next day which is not a Saturday, Sunday, or holiday. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date and year first above written. ACTION PERFORMANCE COMPANIES, INC. By:_______________________________ SPORTS IMAGE, INC. By:_______________________________ __________________________________ R. Dale Earnhardt __________________________________ Teresa H. Earnhardt 10 EX-10.37 6 LICENSE AGREEMENT 11/6/96 LICENSE AGREEMENT License Agreement entered into as of the 7th day of November, 1996 (the "Effective Date") among SII Acquisition, Inc. ("SII or Licensee"), an Arizona corporation, that plans to change its corporate name to Sports Image, Inc.; Dale Earnhardt, an individual, on behalf of himself and on behalf of Dale Earnhardt, Inc., a North Carolina corporation (together "Earnhardt or Licensor"); and Action Performance Companies, Inc., an Arizona corporation ("APC"). I. DEFINITIONS: A. "Likeness of Dale Earnhardt or Earnhardt" shall mean the name, signature, copyrights and trademarks (including, without limitation, those set forth on Schedule A attached), image or likeness of Dale Earnhardt relating to his personal motorsports racing; and to the extent Earnhardt has the right to grant a license, the likeness of his car(s) and its/their numbers, his racing colors, and his sponsor's, owner's or car manufacturer's name and trademarks, also relating to his personal motorsports racing. B. "Personal endorsement contracts" means contracts for the personal services of Dale Earnhardt to promote the sales of products or services. C. "Motorsports Racing Products" means all products utilizing, embodying or incorporating the Likeness of Dale Earnhardt in connection with motorsports racing, including but not limited to racing collectibles, die cast products, souvenirs, apparel, and accessories. D. "Licensable Products" means all Motorsports Racing Products that are the same or similar to those products advertised or sold by SII and/or APC, except the following: (1) those products endorsed by Earnhardt pursuant to the personal endorsement contracts; and (2) those products that are the subject matter of the contracts listed on Schedule B, attached. E. "Licensed Products" means Licensable Products of which SII has exercised its right of first refusal granted in this Agreement or listed as a current channel of distribution in Schedule B. Licensed Products do not include products purchased by SII from third parties licensed directly or otherwise authorized by Earnhardt. F. "Adjusted Gross Revenues" means the revenue derived by SII from the sale of Licensed Products represented by the quantity of each Licensed Product sold or otherwise distributed by SII multiplied by its wholesale sales price, exclusive of any government assessments imposed as taxes or otherwise, less returns actually refunded. II. LICENSE: A. GRANT OF LICENSE: Earnhardt hereby grants to SII the right of first refusal to make, have made, use, sell, or otherwise distribute throughout the world (hereafter "Market") Licensable Products bearing the Likeness of Dale Earnhardt. B. TERM: The term of this Agreement shall be 15 years from the Effective Date and shall continue from year to year thereafter until terminated by either party upon 60 days prior written notice. C. EXERCISE OF RIGHT: SII hereby exercises its right of first refusal to Market the Licensable Products currently Marketed by Sports Image, Inc. a North Carolina corporation ("SII-NC") as well as those Licensable Products listed in Schedule C, attached. D. NON-COMPETITION: If SII exercises its right of first refusal as to any Licensable Product, Earnhardt will not Market or permit any other person or entity to Market through the then current channels of distribution of SII and/or APC or their successors, the Likeness of Dale Earnhardt for use on or in connection with the same or similar product. E. NOTIFICATION OF NEW PRODUCTS: Earnhardt agrees to inform SII in writing of any new Licensable Product that Earnhardt becomes aware of and approves for marketing within 15 days after approving such new Licensable Product for marketing. SII shall have 15 days after receipt in writing of notice from Earnhardt in which to inform Earnhardt in writing of its intent to exercise its right of first refusal. F. THIRD PARTY LICENSES: If SII does not exercise its right of first refusal with respect to a Licensable Product, Earnhardt shall have the right to license third parties to Market the product, provided however, that Earnhardt will require the third party to agree to sell the Licensable Product to SII and/or APC or their successors at a price not greater than the lowest price offered by the third party to similarly situated purchasers of similar quantities of the product. III. QUALITY CONTROL: A. APPROVAL RIGHTS: SII will present to Earnhardt or Earnhardt's designee, with adequate advance notice, for approval, sample designs, prototypes or other representations of all new Licensable Products and the proposed distribution channels. Approval by Earnhardt or Earnhardt's designee shall not unreasonably be withheld or delayed. B. QUALITY AND APPEARANCE: SII agrees that all Licensed Products Marketed by it will be of high quality and of such style and appearance as to enhance the prestige and the goodwill represented by the Likeness of Dale Earnhardt. Earnhardt reserves the right to inspect any and all Licensed Products Marketed by SII bearing any registered trademarks for quality and appearance. SII agrees that if Earnhardt rejects any Licensable Products for failing to meet reasonable quality standards, those products will not be distributed unless and until they can be made to comply. IV. COPYRIGHTS AND TRADEMARKS: A. OWNERSHIP: Licensee recognizes the unique value of the Licensed Products, the likeness of Dale Earnhardt and the goodwill and secondary meaning associated therewith in the minds of the public. Licensee acknowledges that Licensee's use of the Licensed Products 2 or the likeness of Dale Earnhardt shall not confer or imply a grant of any right, title or interest in or to the Licensed Products, the likeness of Dale Earnhardt, or any goodwill associated therewith, and that the ownership of all copyright, trademark, service mark, trade name, design patent, trade dress and all other rights in or derived from the Licensed Products, the likeness of Dale Earnhardt and any articles, photographs, logos, adoptions, artwork, packaging, test, advertising, promotional and other materials, and all works derived therefrom, of any kind or nature whatsoever whether now known or hereafter devised (whether or not developed by or for Licensee) and all goodwill pertaining thereto (collectively, "Proprietary Material(s)" shall be, and at all times shall remain, the property of Licensor; provided, however, that the definition of Proprietary Materials does not include any of the actual Licensed Products. B. TRADEMARKS DEVELOPED BY LICENSEE: If Licensee develops any new trademark, service mark, trade name or trade dress for use on or in connection with the Licensed Products, Licensee shall present to Licensor a full and complete trademark search report and opinion letter from trademark counsel attesting to the availability of the trademark, service mark, trade name or trade dress along with Licensee's request for approval of use thereof on or in connection the Licensed Products. Upon approval by Licensor, the new trademark, service mark, trade name or trade dress shall become Licensed Product. Without Licensor's approval, no new trademark, service mark, trade name or trade dress shall be used by Licensee in connection with any Licensed Products. C. WORKS MADE FOR HIRE: Licensee shall insure that all Proprietary material are "works made for hire" within the meaning of the U.S. Copyright Act of 1976, as amended. All Proprietary Materials, shall be prepared by Licensee's employees under Licensee's sole supervision, responsibility, direction, control and monetary obligation, within the course and scope of each such person's employment by Licensee. If third parties who are not employees of Licensee contribute to the creation of any Proprietary Material, Licensee shall obtain from each such third party, prior to commencement of work, a complete, absolute, irrevocable and unconditional written assignment, in form and substance satisfactory to Licensor, by which all right, title and interest in the applicable Proprietary Materials (including, but not limited to, all copyrights and rights under copyright), throughout the universe in perpetuity, whether now known or hereafter devised, shall vest in Licensor irrevocably, exclusively and unconditionally. Nothing contained herein or otherwise shall, or shall be deemed to construed to, convey to Licensee any right, title or interest in or to any of the Proprietary Materials. D. DELIVERY OF PROPRIETARY MATERIALS TO LICENSOR: Promptly at the expiration or sooner termination of the Term set forth in Section II(B), and from time to time as Licensor may elect, Licensee shall deliver to Licensor all originals or duplicates (cost for duplication to be borne by Licensee) of all Proprietary Materials, whether supplied by Licensor or created by or on behalf of Licensee. E. COPYRIGHT AND TRADEMARK NOTICES: As a material condition to the continuation of this Agreement, Licensee shall comply fully with all applicable trademark, copyright and other proprietary rights notice requirements, and any other notices which Licensor from time to time may require. Subject to Licensor's approval of the content, size and placement thereof, Licensee shall have the right to place its own copyright and trademark notices 3 on any materials it owns or creates hereunder which are separate and apart from, and not related to, the Licensable Product or any Proprietary Material. F. PROTECTION OF COPYRIGHTS, TRADEMARKS AND GOODWILL: Licensee shall procure, maintain, defend and enforce Licensor's rights in the Licensed Products and Proprietary Material; and Licensor hereby grants to Licensee the right to do so to the maximum extent legally permissible. Licensee shall execute, acknowledge and deliver, and shall cause to be executed, acknowledged and delivered, to Licensor all additional documents and instruments Licensor may require (including, but not limited to, those necessary or appropriate to record Licensee as a registered user of any trademarks or to cancel any such recordation), each in form and substance satisfactory to Licensor. If Licensee fails to execute, acknowledge or deliver any such document or instrument, or to cause any such document or instrument to be delivered, Licensee hereby appoints Licensor as its attorney-in-fact to do any of the foregoing on Licensee's behalf and in Licensee's name, and Licensee acknowledges that such appointment is coupled with an interest and is irrevocable with full powers of substitution and delegation. Licensor makes no representation or warranty that copyright, trademark or any other protection has been or will be secured or maintained for any of the Licensable Product. Licensee shall prosecute absolutely all infringement claims or litigation to be brought against third parties involving or affecting the Licensed Products, and Licensor may join Licensee as a party thereto at Licensor's sole cost and expense. V. INDEMNIFICATION: A. Licensee shall defend, indemnify and hold harmless Licensor, and its officers, shareholders, directors, employees, partners, agents and other representatives, and their respective successors, assigns, parents, subsidiaries, affiliates, partners, heirs, executors, trustees, administrators and other representatives, and all other parties associated with the Licensed Products, from and against any and all claims, liabilities, losses, costs, damages and expenses (including reasonable attorneys' fees) arising out of or in connection with Licensee's acts or omissions in connection with this Agreement, the Licensed Products including, but not limited to, any defect (whether obvious or hidden and whether or not present in any sample approved by Licensor) in a Licensed Product or arising from personal injury or any infringement of any rights of anyone in connection with the manufacture, advertising, promotion, sale, possession or use of Licensed Product or any failure to comply with any applicable laws, treaties, regulations or standards (collectively, "Law(s)"). B. Licensor shall defend, indemnify and hold harmless Licensee, its officers, shareholders, directors, employees, partners, agents and other representatives, and their respective successors, assigns, parents, subsidiaries, affiliates, partners, heirs, executors, trustees, administrators and other representatives, and all other parties associated with the Licensed Products for, from and against any and all claims, liabilities, laches, costs, damages and expenses (including reasonably attorneys' fees) arising out of or in connection with Licensor's acts or omissions in connection with this Agreement, with respect to Licensor's ownership or right to use the Likeness of Dale Earnhardt or any failure to comply with any applicable Laws. 4 VI. PRODUCT LIABILITY AND GENERAL LIABILITY INSURANCE: A. INSURANCE: Licensee, at its sole cost, will obtain and maintain throughout the Term, and will provide Licensor written evidence from the insurance carrier of commercial general liability insurance including broad form coverage for contractual liability, products liability and personal injury liability (including bodily injury and death), and advertiser's liability insurance, each from a legally qualified insurance company reasonably acceptable to Licensor: (1) in an amount, with respect to the Product Liability Insurance, not less than $2,000,000 combined single limited for each single occurrence and with a deductible no greater than $10,000; (2) in an amount, with respect to the other general liability insurance, not less than $1,000,000/$3,000,000 with a deductible no greater than $10,000; (3) naming Licensor (and its designees from time to time) as additional named insureds and providing that each such insurance company shall waive any rights of subrogation against Licensor (and its designees from time to time); (4) non-cancelable and non-modifiable except on 30 days' prior written notice to Licensor and only if replaced so that there is no lapse in coverage as required herein. (5) providing that such insurance shall be primary insurance notwithstanding the existence or coverage of any other policy of insurance maintained by Licensor or by any other insured or third party; (6) as proof of such insurance, fully paid certificates of insurance shall be submitted to Licensor, naming each of the parties identified in subparagraph (3) above as additional named insureds, shall be submitted to Licensor by Licensee for Licensor's prior written approval before any Licensed Product is distributed or sold, not later than 30 days after the date of this Agreement. Each such certificate shall provide for no less than 30 days prior written notice to Licensor of any lapse, cancellation or termination of such insurance, and any proposed change in any certificate of insurance shall be submitted to Licensor for its prior written approval. Each party named as an additional insured as herein described shall be entitled to a copy of the then prevailing certificate of insurance at any time, upon request, which promptly shall be furnished by Licensee. No such party shall have any responsibility or liability for any deductible, premium or over-limit liability. VII. EVENTS OF DEFAULT: The following shall be Events of Default and cure, if any, shall be evidenced in each subsection: A. INSOLVENCY: If Licensee becomes unable to pay its debts as they become due, or if Licensee files or has filed against it a petition in bankruptcy, reorganization or for the adoption of an arrangement under any present or future bankruptcy, reorganization or similar 5 law (which petition, if filed against Licensee, is not dismissed within 30 days after the filing date), or if Licensee makes an assignment of all or substantially all of its property for the benefit of its creditors or is adjudicated bankrupt, or if a receiver, trustee, liquidator or sequestrator of all or substantially all of Licensee's property is appointed, or if Licensee discontinues its business, the license granted herein automatically shall terminate forthwith upon written notice to Licensee. B. CHANGE OF CONTROL: If Licensee's business is sold or transferred by operation of law or otherwise, and if there is a substantial change in Licensee's management, Licensor, in its sole and absolute discretion, shall have the right to convert this Agreement to a yearly term upon written notice to Licensee. C. FAILURE TO RENDER STATEMENTS OR MAKE ROYALTY PAYMENTS WHEN DUE: If Licensee fails to deliver to Licensor any statement accompanied by payment of Royalties then due, and continues to fail to render such statement and/or make payment of Royalties then due during the 30 business days immediately following Licensor's written notice of such default, Licensor may terminate this Agreement upon final written notice to Licensee. Notwithstanding the foregoing, the parties agree that any disputes regarding payment amounts will be resolved pursuant to Section IX (B) hereof. D. BREACH OF OTHER AGREEMENT: If APC breaches, without cure within the applicable time period, which shall include notice and opportunity to cure, that certain 1997- 2000 License Agreement ($500,000 minimum Advance Royalty Guarantee) between Licensee and Licensor, Licensor may terminate this Agreement upon written notice to Licensee. E. FAILURE TO COMPLETE PURCHASE OF LICENSEE: If APC fails to pay when due the $24 million promissory note to SII-NC, then this Agreement shall terminate immediately upon such failure. F. NO DISPARAGEMENT: If APC or SII commits an act or becomes involved in a situation or occurrence which, in Earnhardt's good faith opinion, tends to bring it or him into public disrepute, contempt, scandal or ridicule and tends to provoke, shock or offend the community or any sizable group or class thereof so that there is an unfavorable reflection on Earnhardt's reputation, or if APC or SII publicly disparages Earnhardt, then Earnhardt may terminate this Agreement effective at any time after the date on which Earnhardt first acquires knowledge and notifies APC and SII in writing thereof and after which no good faith action shall be promptly taken by APC or SII to cure the same to Earnhardt's good faith satisfaction. G. MISCELLANEOUS: If (A) Licensee (i) manufactures, offers to sell, sells, distributes or otherwise disposes of articles in any way utilizing any of the Licensed Products which are not approved as provided herein; (ii) purchases materials, products, or services from or acts as a broker, seller, distributor, or retailer for, any third party whom Licensor has given Licensee written notice is an infringer or Licensor's proprietary rights; (iii) registers or attempts to register any claim to copyright, trademark, service mark, design patent or any other right in or to any element of the Licensed Product or Likeness of Earnhardt; or (iv) fails to obtain or maintain insurance coverage as required hereunder, and (B) Licensee fails to cure any such 6 condition within 30 days written notice of the occurrence thereof from Licensor, Licensor may terminate this Agreement upon written notice to Licensee. VIII. CONSIDERATION: A. ROYALTY: SII agrees to pay to Earnhardt a royalty equal to 20% of the Adjusted Gross Revenue for the full term of this Agreement, including any extensions. B. INVENTORY LIQUIDATION: Notwithstanding anything in this Agreement to the contrary, if SII is required or deems it advisable to liquidate certain Licensed Products at a price that results in a gross margin of less than 40%, SII will pay to Earnhardt a royalty equal to one-half of the gross margin of the Licensed Product so liquidated. IX. REPORTING AND PAYMENT: A. QUARTERLY REPORTS AND PAYMENTS: Within 20 days after the end of each calendar quarter during the term of this Agreement, SII shall report to Earnhardt its Adjusted Gross Revenue, revenue and margins for any liquidated Licensed Products, and cumulative royalties due for the immediately preceding quarter, in a format having sufficient detail for reasonable verification of the royalty payment. Reports shall be signed and certified by an officer of SII as true and accurate and shall be accompanied by the applicable cumulative royalties payment. B. BOOKS AND RECORDS: SII shall keep full, clear and accurate books and records with respect to all sales or other disposition of Licensed Products subject to this Agreement. The books and records shall be maintained in such a manner that the quarterly royalty reports required herein shall be readily verifiable. Earnhardt and Earnhardt's authorized agent, shall have the right to examine and audit SII's records on SII's premises upon reasonable prior notice to SII and during normal business hours. In no event shall Earnhardt be entitled to examine and audit SII's records more than twice per calendar year unless a prior audit by Earnhardt in that year revealed a deficiency. In the event Earnhardt's audit reveals an overpayment in any royalty due under this Agreement, such amounts will be credited against the royalty next due. In the event Earnhardt's audit reveals a deficiency in any royalty due under this Agreement, SII shall remit the deficiency within 10 days together with interest at a rate of 10% per annum. In the event such audit shows a deficiency greater than 5% with respect to the funds that should have been paid to Earnhardt, the cost of such audit shall be paid by SII. Should Earnhardt fail to examine records for a period of three years from the date of any quarterly report which they were compiled, that quarterly report shall be deemed final and binding and Earnhardt shall have no further right to contest the report or payment of royalties called for therein. Notwithstanding the foregoing, in the event that SII disagrees with the results of an audit by Earnhardt, SII and Earnhardt shall mutually agree upon a "Big Six" accounting firm to review Earnhardt's audit and the results thereof shall be binding on Earnhardt and SII. 7 X. MISCELLANEOUS PROVISIONS: A. ASSIGNMENT: This Agreement may not be assigned by SII, Earnhardt, or APC without the written consent of the other party. B. THIRD PARTY BENEFICIARY AND GUARANTOR: This Agreement is entered into in connection with an Asset Purchase Agreement of even date among SII, APC and others. Accordingly, the parties agee that APC is also contemplated as third party beneficiary of this Agreement and APC shall also unconditionally guarantee all performance and all payment obligations and duties of SII under this Agreement as evidenced by the signature hereto. C. BINDING ON HEIRS AND APPROVED ASSIGNEES: This Agreement is binding on the parties, their heirs, successors and their approved assigns. D. REPRESENTATIONS AND WARRANTIES: The parties hereto each represents that they are authorized and empowered to enter into this Agreement and that by entering into this Agreement they will not be in breach of any other agreement with any person or entity. E. NOTICES: All notices or other communications required or permitted under this Agreement shall be in writing and shall be sent by first class, certified mail, return receipt requested, postage prepaid, to the party concerned at the address set forth below. Notice may be sent by facsimile provided confirmation is delivered as described above. Unless otherwise specifically provided to the contrary herein, any such notice shall be considered made on the date of receipt at the address of the intended recipient. To Earnhardt: To SII: 1675 Coddle Creek Highway Attn: Fred Wagenhals Mooresville, North Carolina 28115 Action Performance Companies 2401 W. First Street Tempe, Arizona 85281 With a copy to: With a copy to: David M. Furr Robert S. Kant, Esq. Gray, Layton, Drum, Kersh, O'Connor, Cavanagh Solomon, Sigmon & Furr, P.A. One East Camelback Road P.O. Box 2636 Suite. 1100 Gastonia, North Carolina 28053 Phoenix, Arizona 85012 or such change in address as may be given in writing according to the terms of this section. F. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement shall constitute a joint venture or legal partnership between the parties. The relationship of the parties is that of licensor and licensee. 8 G. CONTINGENCIES: The delay or failure of either party to perform any obligation otherwise due, as a result of force majeure, including but not limited to governmental action, laws, orders, regulations, directions or requests, or events such as war, acts of public enemies, strikes or other labor disturbances, fires, floods, acts of God or any causes of like or different kind, in each instance beyond the control of such party, but excluding delay or failure of SII to pay royalties promptly when due, shall be excused for so long as the cause exists and provided that party gives the other party timely notice of the cause of the delay or failure and exercises reasonable diligence to eliminate the cause or to find an alternative by which to resume performance. H. CHOICE OF LAW: This Agreement shall be interpreted under the laws of the State of North Carolina without resort to the choice of law provisions thereof and proper venue shall also reside in North Carolina. I. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings and communications between the parties relating to the subject matter hereof except existing License Agreements to which any or all of the parties hereto may be parties. No modification of this Agreement shall be effective unless made in writing, signed by all parties. Delay or inaction by any party will not constitute a waiver of its rights conferred by this Agreement. J. CONSTRUCTION: The parties acknowledge and agree that each party has participated in the drafting of this Agreement and that this document has been reviewed by their respective legal counsel. Accordingly, the parties agree that any ambiguity is not to be resolved against the drafting party. No inference in favor of, or against, any party will be drawn from the fact that one party has drafted any portion of this Agreement. K. COUNTING OF DAYS: For the purpose of calculating periods of time specified or allowed under this Agreement, all days are counted, including weekends and holidays. If the last day of the period is Saturday, Sunday, or legal holiday in the State of North Carolina, then the period will be extended through the next business day. L. EQUITABLE RELIEF: Licensee and Licensor each acknowledges that its failure to comply with any of the terms of this Agreement including, but not limited to, Licensee's obligation to cease the manufacture, sale or distribution of Licensed Products at the termination or expiration of this Agreement, will cause immediate and irreparable damage to the other and that, in addition to any and all other remedies, the other shall have the right to equitable relief for any breach including, but not limited to, temporary restraining order, preliminary and permanent injunction or other alternative relief without the necessity of posting any bond or other security or proving any damages. 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SII ACQUISITION, INC. By:___________________________________________ Name:_________________________________________ Title:________________________________________ DALE EARNHARDT, INC. By:___________________________________________ Dale Earnhardt Title:________________________________________ ACTION PERFORMANCE COMPANIES, INC. By:___________________________________________ Name:_________________________________________ Title:________________________________________ ________________________________________(Seal) Dale Earnhardt 10 EX-10.38 7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT DATED AS OF NOVEMBER 7, 1996 BETWEEN ACTION PERFORMANCE COMPANIES, INC. AND JOE MATTES TABLE OF CONTENTS Page ---- 1. Employment........................................ 1 2. Full Time Occupation.............................. 1 3. Compensation and other Benefits................... 1 (a) Salary................................... 1 (b) Bonus.................................... 1 (c) Stock Options............................ 1 (d) Fringe Benefits.......................... 1 (e) Reimbursement............................ 2 4. Term of Employment................................ 2 (a) Employment Term.......................... 2 (b) Termination Under Certain Circumstances.. 2 (c) Result of Termination.................... 2 5. Competition and Confidential Information.......... 2 (a) Interests to be Protected................ 2 (b) Non-Competition.......................... 3 (c) Non-Solicitation of Employees............ 3 (d) Confidential Information................. 3 (e) Return of Books and Papers............... 3 (f) Disclosure of Information................ 4 (g) Assignment............................... 4 (h) Equitable Relief......................... 4 (i) Restrictions Separable................... 4 6. Miscellaneous..................................... 4 (a) Notices.................................. 4 (b) Indulgences.............................. 5 (c) Controlling Law.......................... 5 (d) Binding Nature of Agreement.............. 5 (e) Execution in Counterpart................. 5 (f) Provisions Separable..................... 5 (g) Entire Agreement......................... 5 (h) Paragraph Headings....................... 6 (i) Gender................................... 6 (j) Number of Days........................... 6 7. Successors And Assigns............................ 6 i EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of the 7th day of November, 1996 by and between ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation ("Employer") and JOE MATTES ("Employee"). Employer's wholly owned subsidiary, SII Acquisition, Inc., an Arizona corporation ("SII"), has purchased substantially all the assets of Sports Image, Inc., a North Carolina corporation ("SNC"). Employee served as the President of SNC prior to the acquisition. SII, which plans to change its corporate name to Sports Image, Inc., will continue the business of SNC. Employer desires that Employee serve as President of SII and perform various other services for Employer and Employee desires to accept such employment upon the terms and conditions contained herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth in this Agreement, the parties hereto agree as follows: 1. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment, as Vice President of Employer and as President of Employer's SII subsidiary and in such other capacities and for such other duties and services of an executive nature as shall from time to time be specified by Employer. 2. Full Time Occupation. Employee shall devote Employee's entire business time, attention, and efforts to the performance of Employee's duties under this Agreement, shall serve Employer faithfully and diligently, and shall not engage in any other employment while employed by Employer. 3. Compensation and other Benefits. (a) Salary. Employer shall pay to Employee, as compensation for the services rendered by Employee during Employee's employment under this Agreement, a salary at a rate of $225,000 per annum, to be paid in equal monthly installments or in such other periodic installments upon which Employer and Employee mutually agree. (b) Bonus. Employee shall be eligible to receive an annual bonus in an amount of up to 30% of Employee's salary with the amount to be determined by the Board of Directors of Employer based upon such factors as may be deemed relevant by the directors, including the performance of Employee. (c) Stock Options and Awards. Employee shall be granted qualified stock options under Employer's Stock Option Plan to purchase a total of 50,000 shares of Employer's Common Stock at a price equal to $14.875 per share at any time or from time to time within five years of the date of grant, such options to vest 60% on the date of grant, 20% on the first anniversary of the grant, and 20% on the second anniversary of the grant. (d) Fringe Benefits. Employee shall be entitled to participate in any group insurance, pension, retirement, vacation, expense reimbursement, and other plans, programs, or benefits approved by Employer's Board of Directors and made available from time to time to executive personnel of Employer generally during the term of Employee's employment hereunder. The foregoing shall not obligate Employer to adopt or maintain any particular plan, program, or benefit. (e) Reimbursement. Employer shall reimburse Employee for all travel and entertainment expenses and other ordinary and necessary business expenses incurred by Employee in connection with the business of Employer and Employee's duties under this Agreement; provided, however, that Employee shall not incur such expenses in an amount in excess of $5,000 during any month without written authorization from Employer. The term "business expenses" shall not include any item not deductible in whole or in part by Employer for federal income tax purposes. To obtain reimbursement, Employee must submit to Employer receipts, bills, or sales slips for the expenses incurred. Reimbursements will be made by Employer monthly within 10 days of presentation by Employee of satisfactory evidence of the expenses incurred. 4. Term of Employment. (a) Employment Term. The term of Employee's employment under this Agreement shall be for a period of three years commencing on the date of this Agreement and continuing from year to year thereafter, unless and until terminated by either party giving written notice to the other not less than 60 days prior to the end of the then-current term of Employee's employment under this Agreement. (b) Termination Under Certain Circumstances. Notwithstanding anything to the contrary herein contained: (i) Death. Employee's employment shall automatically terminate, without notice, effective upon the date of Employee's death. (ii) Disability. If Employee shall fail, for a period of more than 60 consecutive days, or for 60 days within any 180-day period, to perform any of Employee's duties under this Agreement as the result of illness or other incapacity, Employer, at its option and upon notice to Employee, may terminate Employee's employment effective on the date of that notice. (iii) Unilateral Decision of Employer. Employer, at its option and upon notice to Employee, may terminate Employee's employment effective on the date of that notice. (iv) Unilateral Decision by Employee. Employee, at his option, may terminate Employee's employment upon 90 days prior notice to Employer. (v) Certain Acts. If Employee engages in an act or acts involving a crime, moral turpitude, fraud, or dishonesty, Employer, at its option and upon notice to Employee, may terminate Employee's employment effective on the date of that notice. (c) Result of Termination. In the event of the termination of Employee's employment pursuant to Sections 4(b)(i), (ii), or (v) above, Employee shall receive no further compensation under this Agreement. In the event of the termination of Employee's employment pursuant to Section 4(b)(iii) above, Employee shall continue to receive Employee's fixed compensation during the remainder of the then-current term of Employee's employment under this Agreement prior to such termination if termination is before the 24th month. After the 24th month and during any renewal term, Employee shall have a rolling 12 month severance compensation. In the event of the termination of Employee's employment pursuant to 4(b)(iv) above, Employee shall be entitled to receive an amount equal to Employee's fixed salary as provided in Section 3(a) above during the four-month period immediately following the termination. 5. Competition and Confidential Information. (a) Interests to be Protected. The parties acknowledge that Employee will perform essential services for Employer, its employees, and its stockholders during the term of Employee's employment with 2 Employer. Employee will be exposed to, have access to, and work with, a considerable amount of Confidential Information (as defined below). The parties also expressly recognize and acknowledge that the personnel of Employer have been trained by, and are valuable to, Employer and that Employer will incur substantial recruiting and training expenses if Employer must hire new personnel or retrain existing personnel to fill vacancies. The parties expressly recognize that it could seriously impair the goodwill and diminish the value of Employer's business should Employee compete with Employer in any manner whatsoever. The parties acknowledge that this covenant has an extended duration; however, they agree that this covenant is reasonable and it is necessary for the protection of Employer, its stockholders, and employees. For these and other reasons, and the fact that there are many other employment opportunities available to Employee if he should terminate his employment, the parties are in full and complete agreement that the following restrictive covenants are fair and reasonable and are entered into freely, voluntarily, and knowingly. Furthermore, each party was given the opportunity to consult with independent legal counsel before entering into this Agreement. (b) Non-Competition. During the term of Employee's employment with Employer and for the period ending six months after the termination of Employee's employment with Employer, provided termination is pursuant to Section 4(b)(iv) (but 12 months if pursuant to Section 4(b)(ii) or Section 4(b)(v)), Employee shall not (whether directly or indirectly, as owner, principal, agent, stockholder, director, officer, manager, employee, partner, participant, or in any other capacity) engage or become financially interested in any competitive business conducted within the Restricted Territory (as defined below). As used herein, the term "competitive business" shall mean any business that sells or provides or attempts to sell or provide products or services the same as or substantially similar to the products or services sold or provided by Employer during Employee's employment hereunder, and the term "Restricted Territory" shall mean any state in which Employer sells products or provides services during Employee's employment hereunder. If termination of employment pursuant to Section 4(b)(iii), then this Section is not applicable. (c) Non-Solicitation of Employees. During the term of Employee's employment and for a period of 12 months after the termination of Employee's employment with Employee, regardless of the reason therefor, Employee shall not directly or indirectly, for himself, or on behalf of, or in conjunction with, any other person, company, partnership, corporation, or governmental entity, seek to hire or hire any of Employer's personnel or employees for the purpose of having any such employee engage in services that are the same as or similar or related to the services that such employee provided for Employer. (d) Confidential Information. Employee shall maintain in strict secrecy all confidential or trade secret information relating to the business of Employer (the "Confidential Information") obtained by Employee in the course of Employee's employment, and Employee shall not, unless first authorized in writing by Employer, disclose to, or use for Employee's benefit or for the benefit of, any person, firm, or entity at any time either during or subsequent to the term of Employee's employment, any Confidential Information, except as required in the performance of Employee's duties on behalf of Employer. For purposes hereof, Confidential Information shall include without limitation any materials, trade secrets, knowledge, or information with respect to management, operational, or investment policies and practices of Employer; any business methods or forms; any names or addresses of customers or data on customers or suppliers; and any business policies or other information relating to or dealing with the management, operational, or investment policies or practices of Employer. (e) Return of Books and Papers. Upon the termination of Employee's employment with Employer for any reason, Employee shall deliver promptly to Employer all files, lists, books, records, manuals, memoranda, drawings, and specifications; all cost, pricing, and other financial data; all other written or printed materials that are the property of Employer (and any copies of them); and all other materials that may contain Confidential Information relating to the business of Employer, which Employee may then have in Employee's possession, whether prepared by Employee or not. 3 (f) Disclosure of Information. Employee shall disclose promptly to Employer, or its nominee, any and all ideas, designs, processes, and improvements of any kind relating to the business of Employer, whether patentable or not, conceived or made by Employee, either alone or jointly with others, during working hours or otherwise, during the entire period of Employee's employment with Employer or within six months thereafter. (g) Assignment. Employee hereby assigns to Employer or its nominee, the entire right, title, and interest in and to all inventions, discoveries, and improvements, whether patentable or not, that Employee may conceive or make during Employee's employment with Employer, or within six months thereafter, and which relate to the business of Employer. (h) Equitable Relief. In the event a violation of any of the restrictions contained in this Section is established, Employer shall be entitled to preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits, and other benefits arising from such violation, which right shall be cumulative and in addition to any other rights or remedies to which Employer may be entitled. In the event of a violation of any provision of subsection (b), (c), (f), or (g) of this Section, the period for which those provisions would remain in effect shall be extended for a period of time equal to that period beginning when such violation commenced and ending when the activities constituting such violation shall have been finally terminated in good faith. (i) Restrictions Separable. If the scope of any provision of this Agreement (whether in this Section 5 or otherwise) is found by a Court to be too broad to permit enforcement to its full extent, then such provision shall be enforced to the maximum extent permitted by law. The parties agree that the scope of any provision of this Agreement may be modified by a judge in any proceeding to enforce this Agreement, so that such provision can be enforced to the maximum extent permitted by law. Each and every restriction set forth in this Section 5 is independent and severable from the others, and no such restriction shall be rendered unenforceable by virtue of the fact that, for any reason, any other or others of them may be unenforceable in whole or in part. 6. Miscellaneous. (a) Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made, and received (i) if personally delivered, on the date of delivery, (ii) if by facsimile transmission, upon receipt, (iii) if mailed, three days after deposit in the United States mail, registered or certified, return receipt requested, postage prepaid, and addressed as provided below, or (iv) if by a courier delivery service providing overnight or "next-day" delivery, on the next business day after deposit with such service addressed as follows: (1) If to Employer: 2401 West First Street Tempe, Arizona 85281 Attention: Fred W. Wagenhals 4 with a copy given in the manner prescribed above, to: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. One East Camelback Road Phoenix, Arizona 85012 Attention: Robert S. Kant, Esq. (2) If to Employee: 5301 West WT Harris Boulevard Charlotte, North Carolina 28269 with a copy given in the manner prescribed above, to: Gray, Layton, Drum, Kersh, Solomon, Sigmon & Furr, P.A. 516 South New Hope Road Gastonia, North Carolina 28053 Attention: David Furr, Esq. Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 6 for the giving of notice. (b) Indulgences; Waivers. Neither any failure nor any delay on the part of either party to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any other occurrence. No waiver shall be binding unless executed in writing by the party making the waiver. (c) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-interest provisions to the contrary. (d) Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns, except that no party may assign or transfer such party's rights or obligations under this Agreement without the prior written consent of the other party. (e) Execution in Counterpart. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as the signatories. 5 (f) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (g) Entire Agreement. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, inducements and conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. (h) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. (i) Gender. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the context requires. (j) Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays, and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday, or holiday, then the final day shall be deemed to be the next day that is not a Saturday, Sunday, or holiday. 7. Successors And Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto; provided that because the obligations of Employee hereunder involve the performance of personal services, such obligations shall not be delegated by Employee. For purposes of this Agreement successors and assigns shall include, but not be limited to, any individual, corporation, trust, partnership, or other entity that acquires a majority of the stock or assets of Employer by sale, merger, consolidation, liquidation, or other form of transfer. Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of Employer to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. Without limiting the foregoing, unless the context otherwise requires, the term "Employer" includes all subsidiaries of Employer including SII. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ACTION PERFORMANCE COMPANIES, INC. By:_____________________________________ Its:____________________________________ ________________________________________ JOE MATTES 6 EX-21.1 8 LIST OF SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES Subsidiary State of Incorporation - ---------- ---------------------- Sports Image, Inc. Arizona Racing Collectibles, Inc. Florida Racing Collectables Club of America, Inc. Florida -----END PRIVACY-ENHANCED MESSAGE-----