Second Amended And Restated 1993 Stock Option Plan

EXHIBIT 10.4.2
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ACTION PERFORMANCE COMPANIES, INC.


SECOND AMENDED AND RESTATED
1993 STOCK OPTION PLAN


(as amended through January 16, 1997)


ARTICLE I
General


Section 1.1 Purpose of Plan; Term


(a) Background. On December 9, 1992, the Board of Directors of Action Performance Companies, Inc., an Arizona corporation, adopted the 1993 Stock Option Plan (as adopted and as subsequently amended, the "Plan"), which was approved by the shareholders of the Company on December 9, 1992. On January 14, 1993, the Plan was subsequently amended and restated (the "First Restated Plan"). The First Restated Plan was approved by the shareholders of the Company on January 14, 1993. On January 11, 1994, the Board of Directors amended and restated the Plan (the "Second Restated Plan"). The Second Restated Plan was approved by the shareholders of the Company on July 12, 1994. On January 4, 1995, the Board of Directors made a technical amendment to the Plan that did not require shareholder approval. On July 3, 1995, the Board of Directors amended the Plan (the "Third Restated Plan"). The Third Restated Plan was approved by the shareholders of the Company on February 28, 1996. On September 4, 1996, (the "Effective Date") and January 16, 1997, the Board of Directors amended the Plan as stated herein (the "Fourth Restated Plan"). Any Options outstanding under the First Restated Plan, the Second Restated Plan, or the Third Restated Plan shall remain valid and unchanged. The effective date of the Fourth Restated Plan shall be September 4, 1996; provided, however, that if this Fourth Restated Plan is not approved by the shareholders by September 4, 1997, this Fourth Restated Plan shall not become effective and the Third Restated Plan shall remain in effect.


(b) General Purpose. The purpose of the Plan is to further the interests of Action Performance Companies, Inc., an Arizona corporation (the "Company"), and its shareholders by encouraging key persons associated with the Company (or parent or subsidiary corporations of the Company) to acquire shares of the Company's common stock, thereby acquiring a proprietary interest in its business and an increased personal interest in its continued success and progress. Such purpose shall be accomplished through the Discretionary Program set forth in Article II hereof and the Automatic Program as specified in Article III hereof by providing for the granting of options to acquire the Company's common stock ("Options"), the direct granting of the Company's common stock ("Stock Awards"), the granting of stock appreciation rights ("SARs"), or the granting of other cash awards ("Cash Awards") (Stock Awards, SARs and Cash Awards shall be collectively referred to herein as "Awards"). A "parent corporation" for purposes of this Plan is any corporation in the unbroken chain of corporations ending with the employer corporation, where, at each link of the chain, the corporation and the link above owns at least 50 percent of the combined total voting power of all classes of the stock in the corporation in the link below. A "subsidiary corporation" for purposes of this Plan is any corporation in the unbroken chain of corporations starting with the employer corporation, where, at each link of the chain, the corporation and the link above owns at least 50 percent of the combined voting power of all classes of stock in the corporation below.


(c) Options. Options granted under this Plan to employees of the Company (or parent or subsidiary corporations of the Company) which are intended to qualify as an "incentive stock option" as defined in section 422 of the Internal Revenue Code of 1986, as amended (the "Code") will be specified in the applicable stock option agreement. All other Options granted under this Plan will be nonqualified options.
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(d) Rule 16b-3 Plan. With respect to persons subject to Section 16 of the Securities Exchange Act of 1934, as amended ("1934 Act"), this Plan is intended to comply with all applicable conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated under the 1934 Act. To the extent any provision of the Plan or action by the Plan Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Plan Administrator. In addition, the Board may amend the Plan from time to time as it deems necessary in order to meet the requirements of any amendments to Rule 16b-3 without the consent of the shareholders of the Company.


(e) Duration of Plan. The term of the Plan is until September 24, 2001. No Option or Award shall be granted under the Plan after that date, but Options or Awards outstanding on that date shall not be terminated or otherwise affected by virtue of the Plan's expiration.


Section 1.2 Stock and Maximum Number of Shares Subject to Plan


(a) Description of Stock and Maximum Shares Allocated. The stock subject to the provisions of the Plan and issuable upon the grant of Stock Awards or upon the exercise of SARs or Options granted under the Plan are shares of the Company's common stock (the "Stock"), which may be either unissued or treasury shares, as the Board may from time to time determine. Subject to adjustment as provided in Article IV hereof, the aggregate number of shares of Stock covered by the Plan and issuable thereunder shall be 2,750,000 shares of Stock.


(b) Calculation of Available Shares. For purposes of calculating the maximum number of shares of Stock which may be issued under the Plan: (i) the shares issued (including the shares, if any, withheld for tax withholding requirements) upon exercise of an Option shall be counted and (ii) the shares issued (including the shares, if any, withheld for tax withholding requirements) as a result of a grant of a Stock Award or an exercise of an SAR shall be counted.


(c) Restoration of Unpurchased Shares. If an Option or SAR expires or terminates for any reason prior to its exercise in full and before the term of the Plan expires, the shares of Stock subject to, but not issued under, such Option or SAR shall, without further action by or on behalf of the Company, again be available under the Plan.


Section 1.3 Administration; Approval; Amendments


(a) Administration of the Discretionary Program. The Eligible Persons (including all existing Optionholders) under the Discretionary Program are divided into two groups and there shall be a separate administrator for each group. One group will be comprised of Eligible Persons that are Affiliates. For purposes of this Plan, the term "Affiliates" shall mean all "officers" (as that term is defined in Rule 16a-1(f) promulgated under the 1934 Act) and directors of the Company and all persons who own ten percent or more of the Company's issued and outstanding Stock. The power to administer the Discretionary Program with respect to Eligible Persons that are Affiliates shall be vested exclusively with the Board or a committee ("Senior Committee") comprised of two or more Non-Employee Directors which are appointed by the Board. The Senior Committee, at its sole discretion, may require approval of the Board for specific grants of Options or Awards under the Grant Program. The second group shall be composed of all Eligible Persons that are not Affiliates ("Non-Affiliates"), and the power to administer the Discretionary Program with respect to Non-Affiliates shall be vested exclusively with the Board. The Board, however, may at any time appoint a committee (the "Employee Committee") of one or more persons who are members of the Board and delegate to such Employee Committee the power to administer the Discretionary Program with respect to the Non-Affiliates. Members of the Senior Committee and of the Employee Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may at any time terminate all or a portion of the functions of either the Senior or Employee Committee and reassume all of a portion of powers and authority previously delegated to that Committee.
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(b) Plan Administrator. The Senior Committee, the Employee Committee, and/or the Board, whichever is applicable, shall be referred to herein as the "Plan Administrator." The Plan Administrator for each administered group shall have the authority and discretion to select which Eligible Persons shall participate in the Discretionary Program, to grant Options or Awards under the Discretionary Program, to establish such rules and regulations as they may deem appropriate with the proper administration of the Discretionary Program and to make such determinations under, and issue such interpretations of, the Discretionary Program and any outstanding Option or Award as they may deem necessary or advisable. If an Optionholder's status as an Affiliate or non-Affiliate changes, the Optionholder's Plan Administrator will likewise change. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in any outstanding Option or Award issued or granted pursuant to the Discretionary Program.


(c) Automatic Program. Any decisions or interpretations of the Plan with respect to the Automatic Program shall be made by the Board.


(d) Approval by Shareholders. This Fourth Restated Plan shall be submitted to the shareholders of the Company for their approval at a regular or special meeting to be held within 12 months after the adoption of this Fourth Restated Plan by the Board. Shareholder approval shall be evidenced by the affirmative vote of the holders of a majority of the shares of the Company's Common Stock present in person or by proxy and voting at the meeting. If the shareholders decline to approve this Fourth Restated Plan at such meeting or if this Fourth Restated Plan is not approved by the shareholders within 12 months after its adoption by the Board, this Fourth Restated Plan (and all Options or Awards granted hereunder after the Effective Date) shall automatically terminate to the same extent and with the same effect as though this Fourth Restated Plan had never been adopted. In such instance, the Third Restated Plan shall remain in effect. If this Fourth Restated Plan is approved by shareholders, all Options or Awards granted under the Plan to Eligible Persons who are Affiliates shall be deemed acquired on the date such approval is obtained.


(e) Amendments to Plan. The Board may, without action on the part of the Company's shareholders, make such amendments to, changes in and additions to the Plan as it may, from time to time, deem necessary or appropriate and in the best interests of the Company; provided that the Board may not, without the consent of an Optionholder, take any action which disqualifies any Option previously granted under the Plan for treatment as an incentive stock option or which adversely affects or impairs the rights of the Optionholder of any Option outstanding under the Plan, and further provided that, except as provided in Section 1.1(d) and Article IV hereof, the Board may not, without the approval of the Company's shareholders, (i) increase the aggregate number of shares of Stock subject to the Plan, (ii) reduce the exercise price at which Options may be granted or the exercise price at which any outstanding Option may be exercised, (iii) extend the term of the Plan, (iv) change the class of persons eligible to receive Options or Awards under the Plan, or (v) materially increase the benefits accruing to participants under the Plan. Notwithstanding the foregoing, Options or Awards may be granted under this Plan to purchase shares of Stock in excess of the number of shares then available for issuance under the Plan if (A) an amendment to increase the maximum number of shares issuable under the Plan is adopted by the Board prior to the initial grant of any such Option or Award and within one year thereafter such amendment is approved by the Company's shareholders and (B) each such Option or Award granted is not to become exercisable or vested, in whole or in part, at any time prior to the obtaining of such shareholder approval.


Section 1.4 Participants


(a) Discretionary Program. Options and Awards in the Discretionary Program may be granted only to persons ("Eligible Persons") who at the time of grant are (i) key personnel (including officers and directors) of the Company or parent or subsidiaries of the Company, or (ii) consultants or independent contractors who provide valuable services to the Company or parent or subsidiaries of the Company. Notwithstanding the foregoing, (A) incentive stock options may only be granted to key personnel of the Company (and its parent or subsidiary) who are also employees of the Company (or its parent or subsidiary) and (B) the maximum number of
A-3 shares of stock with respect to which Options or SARs may be granted to any employee during the term of the Plan shall not exceed 50 percent of the shares of Stock covered by the Plan. The Plan Administrator shall have full authority to determine which Eligible Persons in its administered group are to receive Option grants in the Discretionary Program, the number of shares to be covered by each such grant, whether the granted Option is to be an incentive stock option which satisfies the requirements of Section 422 of the Code or a nonqualified option not intended to meet such requirements, the time or times at which each such Option is to become exercisable, and the maximum term for which the Option is to be outstanding. The Plan Administrator shall also have full authority to determine which Eligible Persons in such group are to receive Awards under the Discretionary Program and the conditions relating to such Award.


(b) Automatic Program. Persons eligible to participate in the Automatic Program shall be limited to non-employee Board members ("Eligible Directors"). Unless otherwise provided in the Plan, persons who are eligible under the Automatic Program may also be eligible to receive Options or Awards under the Discretionary Program.


ARTICLE II
Discretionary Program


Section 2.1 Terms and Conditions of Options


(a) Allotment of Shares. The Plan Administrator shall determine the number of shares of Stock to be optioned from time to time and the number of shares to be optioned to any Eligible Person (the "Optioned Shares"), except that the Board must approve the grant to any Eligible Person of any Option to purchase more than 50,000 Optioned Shares. The grant of an Option to a person shall neither entitle such person to, nor disqualify such person from, participation in any other grant of Options or Stock Awards under this Plan or any other stock option plan of the Company.


(b) Exercise Price. Upon the grant of any Option, the Plan Administrator shall specify the option price per share. In no event may the option price per share for an Option that is not an incentive stock option be less than 85 percent of the fair market value per share of the Stock on the date the Option is granted and in no event may the option price per share specified by a Plan Administrator for an incentive stock option be less than 100 percent of the fair market value per share of the Stock on the date the Option is granted (110 percent if Options are intended to be incentive stock options and are granted to a shareholder who at the time the Option is granted owns or is deemed to own stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or any subsidiary corporation of the Company).


(c) Individual Stock Option Agreements. Options granted under the Plan shall be evidenced by option agreements in such form and content as a Plan Administrator from time to time approves, which agreements shall substantially comply with and be subject to the terms of the Plan, including the terms and conditions of this Section 2.1. As determined by a Plan Administrator, each option agreement shall state (i) the total number of shares to which it pertains, (ii) the exercise price for the shares covered by the Option, (iii) the time at which the Options vest and become exercisable and (iv) the Option's scheduled expiration date. The option agreements may contain such other provisions or conditions as a Plan Administrator deems necessary or appropriate to effectuate the sense and purpose of the Plan, including covenants by the Optionholder not-to-compete and remedies to the Company in the event of the breach of any such covenant.


(d) Option Period. Unless otherwise provided in the Stock Option Agreement, the term of each Option shall be ten years from the date of grant. No Option granted under the Plan that is intended to be an incentive stock option shall be exercisable for a period in excess of 10 years from the date of its grant (five years if the Option is granted to a shareholder who at the time the Option is granted owns or is deemed to own stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of
A-4 its parent or any subsidiary corporation), subject to earlier termination in the event of termination of employment, retirement or death of the Optionholder. An Option may be exercised in full or in part at any time or from time to time during the term of the Option or provide for its exercise in stated installments at stated times during the Option's term.


(e) Vesting; Limitations. The time at which the Optioned Shares vest with respect to a participant shall be in the discretion of that participant's Plan Administrator. Notwithstanding the foregoing, to the extent an Option is intended to qualify as an incentive stock option under the Code, the aggregate fair market value (determined as of the respective date or dates of grant) of the Stock for which one or more Options granted to any person under this Plan (or any other option plan of the Company or its parent or subsidiary corporations) may for the first time become exercisable as incentive stock options under the Code during any one calendar year shall not exceed the sum of $100,000 (referred to herein as the "$100,000 Limitation"). To the extent that any person holds two or more Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability as an incentive stock option shall be applied on the basis of the order in which such Options are granted.


(f) No Fractional Shares. Options shall be exercisable only for whole shares; no fractional shares will be issuable upon exercise of any Option granted under the Plan.


(g) Method of Exercising Options; Full Payment. Options shall be exercised by written notice to the Company, addressed to the Company at its principal place of business. Such notice shall state the election to exercise the Option and the number of shares with respect to which it is being exercised, and shall be signed by the person exercising the Option. Such notice shall be accompanied by payment in full of the exercise price for the number of shares being purchased. Upon the exercise of any Option, the Company shall deliver, or cause to be delivered, to the Optionholder a certificate or certificates representing the shares of Stock purchased upon such exercise as soon as practicable after payment for those shares has been received by the Company. If an Option is exercised pursuant to Section 2.1(l) hereof by any person other than the Optionholder, such notice shall be accompanied by appropriate proof of the right of such person to exercise the Option. All shares that are purchased and paid for in full upon the exercise of an Option shall be fully paid and non-assessable. Except as provided in Section 2.1(h) hereof, the aggregate Option price shall be payable in one of the alternative forms specific below:


(i) full payment in cash or check made payable to the Company's order;


(ii) full payment in shares of Stock held for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at fair market value on the exercise date (as determined in accordance with Section 4.2 hereof); or


(iii) if a cashless exercise program has been implemented by the Board, full payment through a sale and remittance procedure pursuant to which the Optionholder (A) shall provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the Optioned Shares to be purchased and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the Optioned Shares to be purcha ...