EXHIBIT 10.1

CHANGE OF CONTROL AGREEMENT

DATED AS OF JUNE 2, 2005

BETWEEN

ACTION PERFORMANCE COMPANIES, INC.

AND

DAVID M. RIDDIFORD

 

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CHANGE OF CONTROL AGREEMENT

     Change of Control Agreement dated as of June 2, 2005, by and between Action
Performance Companies, Inc., an Arizona corporation (“Employer”) and David M.
Riddiford (“Executive”).

RECITALS

     Executive currently serves as Chief Financial Officer, Secretary and
Treasurer of Employer.

     The Board of Directors of the Employer (the “Board”), has determined that
it is in the best interests of the Employer and its stockholders to assure that
the Employer will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Employer. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive’s full attention and dedication to the Employer
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations.

     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth in this Agreement, the parties hereto agree as follows:

AGREEMENT

     1. Term. The term of this Agreement shall commence on the date hereof and
shall continue until December 31, 2007 (the “Initial Term”) and from year to
year thereafter (each a “Renewal Term” and collectively with the Initial Term,
the “Term”), unless and until terminated by either party giving written notice
to the other not less than sixty (60) days prior to the end of the then current
term, unless earlier terminated under the terms of this Agreement. If a Change
in Control occurs during the Term, then the provisions of Sections 3 and 4
hereof shall continue for the periods set forth therein. Notwithstanding the
foregoing, this Agreement will terminate upon the effective date of any
termination for Cause of, voluntary resignation (other than for Good Reason
after a Change in Control, as each term is defined below) by, or death or
disability of, Executive (an “Involuntary Termination”), and thereafter
Executive shall not be entitled to any of the benefits hereunder.

     2. Certain Definitions.

          (a) “Change in Control” of Employer shall mean a Change in Control of
a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934 as in effect on the date of this Agreement or, if Item 6(e) is no longer in
effect, any regulations issued by the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 that serve similar

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purposes; provided that, without limitation, such a Change in Control shall be
deemed to have occurred if and when:

               (i) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner”
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934) directly or
indirectly of equity securities of Employer representing thirty percent (30%) or
more of the combined voting power of Employer’s then-outstanding equity
securities;

               (ii) during the term of this Agreement, individuals who, at the
beginning of such period, constituted the Board of Directors of Employer (the
“Original Directors”), cease for any reason to constitute at least a majority
thereof unless the election or nomination for election of each new director was
approved (an “Approved Director”) by the unanimous vote of the Board constituted
entirely of Original Directors and/or Approved Directors;

               (iii) a tender offer or exchange offer is made whereby the effect
of such offer is to take over and control Employer, and such offer is
consummated for the equity securities of Employer representing twenty percent
(20%) or more of the combined voting power of Employer’s then-outstanding voting
securities;

               (iv) Employer is merged, consolidated, or enters into a
reorganization transaction with another person and, as the result of such
merger, consolidation, or reorganization, less than seventy-five percent (75%)
of the outstanding equity securities of the surviving, or resulting person shall
then be owned in the aggregate by the former stockholders of Employer; or

               (v) Employer transfers substantially all of its assets to another
person or entity which is not a wholly owned subsidiary of Employer.

          (b) “Good Reason” shall mean the occurrence of any of the following
events:

               (i) any reduction in Executive’s status, duties, authority, or
compensation;

               (ii) Executive is demoted to a position of less stature or
importance within Employer than the position described in the recitals of this
Agreement;

               (iii) Executive is assigned duties inconsistent with the
positions, duties, responsibilities, or status of the Chief Financial Officer of
Employer; or

               (iv) Executive is required to relocate to an employment location
that is more than twenty-five (25) miles from his current employment location
which the parties agrees is Employer’s present corporate headquarters.

          (c) “Cause” shall be limited to discharge resulting from a
determination by the Board that Executive:

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               (i) has been convicted of a felony, involving dishonesty, fraud,
theft, or embezzlement;

               (ii) has repeatedly failed or refused, after written notice from
Employer along with a failure of Executive to cure within thirty (30) days or
receipt of such notice, in a material respect to follow reasonable policies or
directors established by Employer;

               (iii) has willfully and persistently failed, after written notice
from Employer within thirty (30) days of receipt of such notice, to attend to
material duties or obligations imposed upon him under this Agreement; or

               (iv) has performed an act or failed to act for which if he were
prosecuted and convicted, would constitute a felony involving One Thousand
Dollars ($1,000) or more of money or property of Employer.

          The existence of “Cause” shall be determined by the Board acting in
good faith after prior notice to Executive and after providing Executive with an
opportunity to be heard.

     3. Change in Control Benefits.

          (a) Length of Benefit. If during the Term there is a Change of Control
and within two (2) years thereafter Executive shall be terminated without Cause
or shall resign for Good Reason, then Executive shall receive the “Change in
Control Benefits” provided below.

          (b) Benefits. The Executive’s Change in Control Benefits shall consist
of two (2) times the Executive’s then base salary and bonus compensation. The
Company will pay this amount to Executive in a lump sum, within 10 days of
termination. Executive’s bonus compensation shall be the greater of (i) the
amount paid to him as bonus or incentive compensation for the prior year, and
(ii) an amount estimated to be due him under any then current bonus program. By
way of example, if Executive was paid a bonus of $100,000 for the prior year,
and is estimated to earn a $60,000 bonus in the year of termination, he would be
paid $200,000 as his bonus payout upon termination. The Change in Control
Benefits shall also consist of the continuation for two (2) years of any health,
life, disability, or other insurance benefits that Executive was receiving as of
the Change of Control date, but only to the extent permitted under the policies
for such benefits. If a particular insurance benefit may not be continued for
any reason, Employer shall pay to the Executive in a lump sum an amount
estimated in good faith for him to obtain comparable coverage for the two
(2) year post-termination period.

          (c) Future Employment. The payment of Change in Control Benefits shall
not be affected by whether Executive seeks or obtains other employment.
Executive shall have no obligation to seek or obtain other employment, and
Executive’s Change in Control Benefits shall not be impacted by Executive’s
failure to mitigate.

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     4. Covenant-Not-to-Compete.

          (a) Interests to be Protected.

               (i) Customers. The parties acknowledge that Executive’s
employment during the term of this Agreement, Executive will perform essential
services for Employer, its employees, and shareholders, and for customers of
Employer. Therefore, Executive will be given an opportunity to meet, work with,
and develop close working relationships with Employer’s customers on a
first-hand basis and will gain valuable insight as to the customers’ operations,
personnel, and need for services. In addition, Executive will be exposed to,
have access to, and be required to work with, a considerable amount of
Employer’s Confidential and Proprietary Information.

               (ii) Employees. The parties also expressly recognize and
acknowledge that the personnel of Employer have been trained by, and are
valuable to Employer, and that if Employer must hire new personnel or retrain
existing personnel to fill vacancies it will incur substantial expense in
recruiting and training such personnel. The parties expressly recognize that
should Executive compete with Employer in any manner whatsoever, it could
seriously impair the goodwill and diminish the value of Employer’s business.

               (iii) Extended Duration. 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 shareholders
and employees.

               (iv) Fair and Reasonable. For these and other reasons, and the
fact that there are many other employment opportunities available to Executive
if his employment with Employer should terminate as a result of a Change of
Control, the parties are in full and complete agreement that the following
restrictive covenants (which together are referred to as the
“Covenant-Not-To-Compete”) are fair and reasonable and are freely, voluntarily,
and knowingly entered into. Further, each party has been given the opportunity
to consult with independent legal counsel before entering into this Agreement.

          (b) Non-Solicitation of Customers. During the Term and any Guaranteed
Payment Term, Executive shall not, directly or indirectly, for himself, or on
behalf of, or in conjunction with, any other person, company, partnership,
corporation, or governmental entity, in any manner whatsoever, call upon,
contact, encourage, handle, or solicit customers of Employer with whom he has
worked as an employee of Employer at any time prior to termination, or at the
time of termination, for the purpose of soliciting or selling such customer the
same, similar, or related services that he provided on behalf of Employer.

          (c) Non-Solicitation of Executives. During the Term and any Guaranteed
Payment Term, Executive 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, and/or hire any of Employer’s
personnel or employees for the purpose of having such employee engage in
services that are the same, similar, or related to the services that such
employee provided for Employer.

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          (d) Competing Business. During the Term and any Guaranteed Payment
Term, Executive shall not, directly or indirectly, for himself, or on behalf of,
or in conjunction with, any other person, company, partnership, corporation, or
governmental entity, in any manner whatsoever, engage in the same or similar
business as Employer, which would be in direct competition with any Employer
line of business, in any geographical service area where Employer engaged in
business at time of termination. For the purposes of this provision, the term
“competition” shall mean directly or indirectly engaging in or having a
substantial interest in a business or operation which has been, is, or will be,
providing the same products provided by Employer; provided, however the
ownership of not more than 5% by Executive of a publicly held corporation shall
not constitute competition which is prohibited by this paragraph 8(e).

          (e) Limitation and Judicial Amendment. Notwithstanding any other
provision of this Agreement, the provisions contained in paragraphs 4(b), 4(c)
and 4(e) shall not apply for more than twelve (12) months after Executive fails
to receive Change in Control Benefits under this Agreement. Moreover, if the
scope of any provision of this Agreement 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. If any provision of this Agreement is found to be
invalid or unenforceable for any reason, it shall not affect the validity of the
remaining provisions of this Agreement.

          (f) Injunctive Relief, Damages and Forfeiture. Due to the nature of
Executive’s position with Employer, and with full realization that a violation
of this Agreement will cause immediate and irreparable injury and damage, which
is not readily measurable, and to protect Employer’s interests, Executive
understands and agrees that in addition to instituting legal proceedings to
recover damages resulting from a breach of this Agreement, Employer may seek to
enforce this Agreement with an action for injunctive relief, to cease or prevent
any actual or threatened violation of this Agreement on the part of Executive.

          (g) Survival. The provisions of this paragraph shall survive the
termination of Executive’s employment to the extent necessary to enforce such
provisions.

     5. Confidential Information. During the course of his employment during the
term of this Agreement, Executive will become exposed to a substantial amount of
confidential and proprietary information, including, but not limited to,
financial information, annual reports, audited and unaudited financial reports,
operational budgets and strategies, methods of operation, customer lists,
strategic plans, business plans, marketing plans and strategies, new business
strategies, merger and acquisition strategies, management systems programs,
computer systems, personnel and compensation information and payroll data, and
other such reports, documents, or information (collectively the “Confidential
and Proprietary Information”). In the event his employment is terminated by
either party for any reason, Executive agrees that he will not take with him any
copies of such Confidential and Proprietary Information in any form, format, or
manner whatsoever (including computer print-outs, computer tapes, floppy disks,
and CD roms) nor will he disclose the same in whole or in part to any person or
entity, in any manner either directly or indirectly. Information that is already
disclosed to third parties and is in the public domain or that Employer consents
to be disclosed, with such consent to be in writing, is excluded

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from this Agreement. The provisions of this paragraph shall survive the
termination of this Agreement.

     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 upon (a) personal delivery, (b) transmitter’s
confirmation of the receipt of a facsimile or e-mail transmission, (c) confirmed
delivery by a standard overnight carrier, or (d) the expiration of three
business days after the day when mailed via United States Postal Service by
certified or registered mail, return receipt requested, postage prepaid at the
following addresses:

  (i)   If to Employer:         Action Performance Companies, Inc.
1480 South Hohokam Avenue
Tempe, Arizona 85281
Attention: Chief Executive Officer     (ii)   If to Executive:        10840 N.
52nd Street
Scottsdale, Arizona 85254

Either party may alter the address to which communications are to be sent by
giving notice of such change of Laddress in conformity with the provisions of
this paragraph for the giving of notice.

          (b) Indulgences. 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.

          (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 permitted assigns.

          (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

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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.

          (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) 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.

          (j) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of the parties hereto. 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 shall 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.

          (k) Withholding. All amounts due hereunder shall be subject to
withholding as required by law.

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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

              EMPLOYER:
 
            ACTION PERFORMANCE COMPANIES, INC.,
an Arizona corporation
 
       

  By:   /s/ Fred W. Wagenhals

       

  Name:   Fred W. Wagenhals

  Its:   President and Chief Executive Officer
 
            EXECUTIVE:
 
            /s/ David M. Riddiford           David M. Riddiford

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