I • •

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• • K. FILED LODGED

1 BONNETT, FAIRBOURN, FRIEDMAN RECEIVED COPY& BALINT, P.C.

2 ANDREW S. FRIEDMAN (AZ005425) NOV 3 0 19994041 N. Central Avenue, Suite 1100

3 Phoenix, AZ 85012-3311 RIOT COURTTelephone: 602/274-1100 .- DISTRICT 0 ZONA

4 - 8 OPLITY MILBERG WEISS BERSHAD HYNES

5 & LERACH LLPWILLIAM S. LERACH

6 HELEN J. HODGESKIRK B. HULETT

7 DARREN J. ROBBINS600 West Broadway, Suite 1800

8 San Diego, CA 92101Telephone: 619/231-1058

9Attorneys for Plaintiffs

1011 [Additional counsel appear on signature page.]

12 UNITED STATES DISTRICT COURT

13 DISTRICT OF ARIZONA

141. C. William Husbands and 1404

15 2. Adrian Vance, On Behalf of ThemselvesqP? ° 6 PHX ROS

and All Others Similarly Situated, CLA ACT 5/116

Plaintiffs, COMPLAINT FOR VIOLATION OF17 THE SECURITIES EXCHANGE ACT

vs. OF 193418

3. Action Performance Companies, Inc.,19 4. Fred W. Wagenhals,

5. Christopher E. Besmg and20 6. Tod J. Wagenhals,

21 Defendants. DEMAND FOR JURY TRIAL

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1 SUMMARY AND OVERVIEW

2 1. This is a securities class action on behalf of all purchasers of the publicly

3 traded securities of Action Performance Companies, Inc. ("Action Performance" or the

4 "Company") between 7/27/99 and 11/4/99 (the "Class Period"), against Action Perfonnance

5 and certain of its officers and directors for violations of the Securities Exchange Act of 1934

6 (the "1934 Act").

7 2. Action Performance is engaged in the design, marketing, promotion and

8 distribution of licensed motorsports collectible and consumer products. On 7/6/99, the

9 Company's wholly owned subsidiary goracing.com filed a registration statement with the

10 SEC for an initial public offering ("IPO") to raise $80 million. Because Action Performance

11 would own 80% of the stock of goracing.com, the top officers of Action Performance wanted

12 to make the IPO of goracing.com successful. To this end, it was essential that Action

13 Performance also appear to be successfully growing. Thus, defendants issued false

14 statements about the state of Action Performance's business, the shipment of certain of its

15 products to Home Depot and touted the Company's prospects. On 11/4/99, Action

16 Performance issued a press release announcing its preliminary 4thQ F99 results.' These

17 preliminary results were worse than defendants had told the markets to expect, principally

18 because an $8 million sale to Home Depot had not occurred as of 9/30/99, which was

19 contrary to defendants' statements on 9/29/99. The spin-off of goracing.com, which has

20 proved to be a drain on Action Performance's quarterly earnings, has been delayed and the

21 Company has had to restate its results to properly account for an acquisition.

22 3. On these disclosures, Action Performance's stock price declined $24-7/8 to

23 $12-1/4 per share on enormous volume of 9.8 million shares, a 51% decline in one day.

24 4. As a result of the defendants' false statements, Action Performance's stock price

25 traded at inflated levels during the Class Period.

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28 Action Performance's fiscal year ends on 9/30.

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. . .

1 JURISDICTION AND VENUE

2 5. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted herein

3 arise under §§10(b) and 20(a) of the 1934 Act and Rule 10b-5.

4 6. Venue is proper in this District pursuant to §27 of the 1934 Act. Many of the

5 false and misleading statements were made in or issued from this District. The Company's

6 operational headquarters are in Phoenix, Arizona, where the day-to-day operations of the

7 Company are directed and managed.

8 THE PARTIES

9 7. (a) Plaintiff Adrian Vance purchased shares of Action Performance

10 common stock as described in the attached certification and was damaged thereby.

11 (b) Plaintiff C. William Husbands purchased shares of Action Performance

12 common stock as described in the attached certification and was damaged thereby.

13 8. Defendant Action Performance is engaged in the design, marketing, promotion

14 and distribution of licensed motorsports collectible and consumer products. Its products

15 include a broad range of motorsports-related die-cast car replica collectibles, apparel,

16 souvenirs, and other memorabilia. The Company markets and distributes products through

17 a variety of channels, including the 165,000-member Racing Collectables Club of America

18 ("RCCA"), online through SpeedMall at goracing.com , trackside at racing events, in mass

19 retail department stores, and through a worldwide network of wholesale distributors and

20 specialty dealers. Action Performance's common stock trades in an efficient market on the

21 NASDAQ National Market System.

22 9. (a) Defendant Fred W. Wagenhals ("Fred Wagenhals") is a founder and the

23 President, CEO and Chairman of the Board of Action Performance.

24 (b) Defendant Christopher S. Besing ("Besing") is Vice President, Chief

25 Financial Officer and Treasurer of the Company.

26 (c) Defendant Tod J. Wagenhals ("Tod Wagenhals") is Executive Vice

27 President and Secretary of Action Performance.

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1 10. The individuals named as defendants in ¶9(a)-(c) are referred to herein as the

2 "Individual Defendants." The Individual Defendants, because of their positions with the

3 Company, possessed the power and authority to control the contents of Action Performance's

4 quarterly reports, press releases and presentations to securities analysts, money and portfolio

5 managers and institutional investors, i.e., the market. Each defendant was provided with

6 copies of the Company's reports and press releases alleged herein to be misleading prior to

7 or shortly after their issuance and had the ability and opportunity to prevent their issuance

8 or cause them to be corrected. Because of their positions and access to material non-public

9 information available to them but not to the public, each of these defendants knew that the

10 adverse facts specified herein had not been disclosed to and were being concealed from the

11 public and that the positive representations which were being made were then materially

12 false and misleading. The Individual Defendants are liable for the false statements pleaded

13 herein at n14, 17, 19 and 24, as those statements were each "group-published" information,

14 the result of the collective action of the Individual Defendants.

15 FRAUDULENT SCHEME AND COURSE OF BUSINESS

16 11. Each defendant is liable for (i) making false statements, or (ii) participating in

17 a fraudulent scheme which permitted defendants to inflate Action Performance's stock price

18 to make the spin-off of goracing.com successful. Defendants' fraudulent scheme and course

19 of business that operated as a fraud or deceit on purchasers of Action Performance stock was

20 a success, as it (i) deceived the investing public regarding Action Performance's prospects

21 and business; (ii) artificially inflated the price of Action Performance stock; and (iii) caused

22 plaintiffs and other members of the Class to purchase Action Performance stock at inflated

23 prices.

24 BACKGROUND TO THE CLASS PERIOD

25 12. Action Performance was formed in 1992, and from early 1996 to early 1999

26 Action Performance's stock was an extremely strong performer increasing from a split-

27 adjusted $2 to as high as $48 per share as Action Performance made 14 acquisitions. In early

28 1999, as Action Performance's growth began to cool somewhat, due to a leveling off in

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1 NAS CAR interest, the Company began to focus its attention on the Internet. This occurred

2 as the Company was facing increasingly intense competition. Moreover, the Internet entry

3 was angering distributors of the Company who were also angry about Action Performance

4 dumping excess product on the market. The defendants sought to minimize these problems

5 so that they could successfully spin-off goracing.com and raise money to develop the

6 Company's Internet capabilities.

7 13. On 6/24/99, Action Performance announced that its goracing.com subsidiary

8 planned to file a registration statement with the SEC for an IPO of its common stock. The

9 release stated:

10 Our goracing.com network is an online provider of worldwide motorsports-related news and information, a meeting place and community for motorsports

11 fans, and an e-commerce marketplace for motorsports merchandise.

12 goracing.coln, inc. plans to use the proceeds from the offering topromote the goracmg network and expand saes and marketing activities-, to

13 add online content, community features, and e-commerce opportunities on thegoracing network; to hire management and other personnel; to enhance

14 network technology, software, and basic infrastructure; to expandinternationally; and to pursue strategic relationships and acquisitions. The

15 Company will continue to own more than 80% of the shares of goracing.com ,inc. a.fter the offering. The filing is anticipated in early July. The Company

16 is making this announcement in response to investor inquiries.

17 The Company made a strategic decision during the current quarter toincrease and accelerate the pace of its investment in its Internet operations,

18 including enhancing the goracing network, building its brand awareness, .andexpanding its business. The Company expects these costs to impact earnings

by approximately $1.1 million, or $.06 per share, during the current quarterending June 30. Apart from the impact of Internet-related expenditures, the

20 Company anticipates its earnings will be in line with expectations.

21 Fred W. Wagenhals, the Company's Chief Executive Officer, stated,"We are very pleased with the progress of our Internet business. In addition,

22 we continue to see strong revenue growth across all product lines and in alldistribution channels, including mass market sales in association with Hasbro."

23FALSE AND MISLEADING STATEMENTS

24

2514. On 7/27/99, Action Performance issued a press release announcing "record"

3rdQ F99 results:26

For the fiscal third quarter, sales grew 32% to a record $101.5 million27 from $76.8 million for the comparable quarter of fiscal 1998. Net income for

the third quarter of fiscal 1999 was $12.7 million, or $0.70 per share,28 excluding the dilutive impact of the company's Internet business of

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1 approximatel3r $0.06 per share, compared to net income for the third quarterof-fiscal 1998 of $8.5-million, or $0.50 per share.

2* * *

3Said Fred Wagenhals, Action chairman, president and CEO, "We are

4 extremely pleased with our operating results for the third quarter. Wecontinue to see momentum in the sport and strong demand for the Company's

5 products. Our domestic trackside operations grew more than 20% over thesame period of 1998 on a same-race-basis, and in Europe, our first outing at

6 the British Grand Prix, we generated over $1.0 million in product sales andrights fees at the track.

7

815. Subsequent to the release of its 3rdQ F99 results, Action Performance

management spoke to securities analysts, money and portfolio managers, institutional9

investors, large Action Performance shareholders, brokers and stock traders to discuss Action1011 Performance's business and its prospects. During these conversations, Action Performance

12 management (Fred Wagenhals/Besing) directly disseminated important information to the

market stating:13

• The Company's fundamental business remained strong and Action Performance

14 continued to capitalize on the momentum in the motorsports industry.

15 • The e-commerce side of the business was running well above plan.

16 • Each distribution channel was doing better year over year due to increasingunderlying collector demand.

17• Internal sales growth was over 20%.

18• Apparel and souvenir sales were slightly below estimates but that was only

19 because of the switch to wholesale distribution which caused some disruption.

20 • Although accounts receivables had surged 44%, this was not a reason forconcern as the surge was temporary and was due to ship-date restrictions involving

21 the Company's special programs with Star Wars and receivables had already declined-.

22 • Inventory levels were improving and were in good shape.

23 • Action Performance's unique business model was well suited to success on theInternet.

24• International opportunities were excellent and the Company had made new

25 executive appointments to capitalize on the opportunities.

26 • Action Performance was on track to report EPS of $1.98-$2.00 and $2.62-$2.65 in F99 and F2000, respectively.

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1 16. Subsequent to the conference call, and based on statements made in the

2 conference call and statements made by Action Performance management in follow-up

3 conversations with analysts, several investment firms issued reports on Action Performance.

4 These reports were uniformly positive on the Company and its prospects. The reports

5 forecast F99 and F2000 earnings and rated Action Performance as follows:

6Firm7 _ Analyst Date F1999 EPS F2000 EPS Rating

8 Morgan Keegan Delean 7/29/99 $2.00 $2.64 OutperformU.S. Bancorp Piper Rystrom 7/28/99 $1.99 $2.65 BuyFirst Union Thomson 7/28/99 $2.02 $2.65 Buy

9 J.C. Bradford Wheeler 7/28/99 $1.98 $2.62 Strong BuyCIBC Eisenberg 7/28/99 $2.00 $2.65 Strong Buy

10 WorldMarkets11

These firms also wrote the following comments regarding Action Performance:12

• Morgan Keegan:13

Action Performance, the fully integrated motorsports marketing14 company, reported quarterly results that were in-line with recent guidance.

Revenues of$101.5 million increased by 32% driven by strong demand on the15 die-cast side of the business, which accounted for 63% of revenues. Apparel

and souvenir (A&S) continued to show softness as revenue grew by only 7%.16 This trend has contmued for about 9 months now and is primarily driven by

ACTN's initiative to move A&S product through its wholesale network While17 we believe that consumer demand for A&S product is still moderately strong,

a throughput problem occurred since many of Action's distributors were space18 constrained, preventing them from acceptmg initial shipments of hats, t-shirts,

etc. Management is working closely with its distributors to resolve this issue.19

• First Union Capital Markets:20

ACTN reported FQ3 results in line with our expectations both in revenue and21 earnings. EPS rose 28%, from $.50 to $0.64; they rose 40% if one looks at

core earning of $0.70 before the dilutive impact of ACTN's goracing.com22 subsidiary (GRCN) that it is plamting to take public in September. Operating

cash flow set a record at about $15 million in the quarter, despite a temporary23 spike in receivables resulting from late-quarter shipments of product. The

receivables are already back down to normal levels, and inventory turnover24 improved in the quarter. We are making no changes to our estimates (other

than fine-tuning), and we are maintaining our buy rating and $55 12-month

25 price target (20.7x FY 2000 EPS).

26 • J.C. Bradford & Co.:

27 On the balance sheet, accounts receivable sequentially escalated 44%or $17 million. While initially discouraging, management revealed the surge

28 was predominantly related to ship-date restrictions involving the company'sspecial programs with Star Wars and Superman. In particular, the Star Wars

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1 product shipped in late June. Receivables have already declined byapproximately $15 million in the current quarter. Inventory levels have

2 improved sequentially as a percentage of goods sold and appear in good shape.

3 • CIBC WorldMarkets Corp.:

4 The strong quarter re-affirms our belief that the company's fundamentalsremain strong. Action continues to capitalize on the momentum of the

5 motorsports industry. As a pure play on motorsports, the company is bestpositioned to benefit from the rapid growth of the sport as it continues to enjoy

6 a leading market position, supported by exclusive licensing agreements.

7 17. 08/24/99, Action Performance announced the extension of an exclusive

8 partnership with Hasbro. The release stated:

9 The companies' previously established domestic retail partnershippromoting Hasbro's Winner's Circle (R) Brand resulted in a dramatic increase

10 in product sales that has catapulted the brand to the number one racing-relateddie-cast line in mass retail. The agreement was extended and terms expanded

11 to capitalize on global growth opportunities for the brand.

12 Under the tenns of the agreement, Action Performance is now theexclusive licensing acquisitions agent for Hasbro's extensive range of toys,

13 games and puzzle prod.uct lines across all forms of motorsports worldwide,mcludinNASCAR, NARA, World of Outlaws, CART, Formula One, :World.

14 Super Bike, etc. The agreement also, provides Hasbro with a first right ofrefusal to exclusively utilize all licensing rights acquired by Action over the

15 duration of the partnership* Hasbro also has an option for an additional three-

year extension that would align the companies throughout the first decade of

16 the new millennium.

17 Fred W. Wagenhals, Action chairman, president and CEO said, "Thesignificant long-term strategic value of combining the respective strengths and

18 expertise of Action and Hasbro is undeniable."

19 18. On 9/3/99, Fred Wagenhals participated in a conference call sponsored by

20 Home Depot in which he touted a tie-in Action Performance was doing with Home Depot

21 for a special replica of a Habitat for Humanity racecar. According to TheStleet.com , Fred

22 Wagenhals was quoted on NASCAR.com on 9/3/99 as saying: "The action cars are on the

23 water headed for the U.S. right now. So, they should be on the market by the middle of

24 September as projected in plenty of time" for the race.

25 19. On 9/16/99, Action Performance announced that goracing.com had entered an

26 exclusive Internet and revenue sharing agreement with SBK Superbike World Championship.

27 The release stated:

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1 Under the agreement, goracing.com will serve as the exclusiveadvertising agent andpreferential technology partner for all of SBK's Internet-

2 related activities. goracing.com also will be SBK's exclusive e-commerceprovider and will host, manage and maintain all e-commerce functions of the

3 official SBK site.

4 The agreement also_provides goracing.com with two billboards ensuringtelevision coverage at all- SBK events, winch are broadcast in over 160

5 countries and have viewership of approximately 160 million per eventworldwide.

6Christopher Besing,, senior vice president of the company said,

7 "Bringing SBK into the goracing.com network is a significant strategic movetoward strengthening our position in the market by further increasing our

8 coverage across all forms of motorsports worldwide."

9 "This agreement increases our international exposure and allows us tooffer a wider range of content, products and services to a larger, global

10 consumer base."

11 20. On 9/29/99, Action Performance management (Fred Wagenhals) spoke to

12 analysts and money managers at a Banc of America Securities Investment conference in San

13 Francisco telling them that 4thQ sales were in-line with Street estimates of $98-$102 million

14 and that Action Performance had just shipped its $8 million Home Depot promotion. Fred

15 Wagenhals also told them:

16 • Business trends remain robust heading into F2000 as a result of the followingfactors:

171. Continued strength in NASCAR business.

18 2. Growth prospects for other domestic motorsports series (CART, Worldof Outlaws,

19 3. Tremendous growl prospects for the international business (F1,Superbikes).

20 4. New drivers under exclusive contracts are helping the company takeshare (Tony Stewart, Earnhardt Jr.).

21 5. Incremental Sponsorship opportunities through promotions and theInternet.

2222. As a result of defendants' statements, Action Performance's stock price traded

23at above $22 per share at the end of 9/99.

2423. In fact, defendants' statements about Action Performance's business,

2526 particularly the sale to Home Depot, were false and misleading. Action Performance's

27 products for Home Depot were not "on the water" as of 9/3/99 and Action Performance did

not even receive the shipment until late 9/99. Moreover, on 9/29/99, Action Performance28

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1 did not ship any product to Home Depot. If anything, the shipment was to an intermediary.

2 Home Depot would not bear the risk of loss during shipment so the product was shipped

3 FOB Destination. Thus, Action Performance had not sold the product as of 9/30/99 which

4 the defendants failed to disclose.

5 24. On 10/4/99, Action Performance announced changes to its distribution

6 network. The release stated:

7 To further strengthen its national distribution network, ActionPerformance Companies, Inc. (Nasdaq: NM: ACTN) today announced that it

8 had made a strategic reduction in the number of its distributors from twenty-six to eighteen.

9"By streamlining our distribution network and retaining those

10 distributors with the most pervasive dealer networks, the most strategicgeographical locations and the infrastructures capable of handling our

11 complete product line, Action is much better positioned to take advantage ofall of the growth.potential in this important channel," said Fred W. Wagenhals,

12 chairman, president and chief executive officer,. Action PerformanceCompanies. "When we have streamlined our distribution network in the past,

13 the company and the network have benefitted greatly in all areas, and we

14anticipate this reduction will have a similar positive effect."

In addition to helping maximize Action's long-term growth strategy, the

15 streamlining of the distribution network also ensures that proper controls aremaintained within the channel. "We anticipate that this decision will allow us

16 to more efficiently allocate our products to dealers throughout the country, aswell as minimize the sale of company products in unauthorized channels," said

17 Melodee Volosin, president, Action Racing Collectables.

18 25. On 10/21/99, Action Performance announced that its goracing.com subsidiary

19 acquired Fantasy Sports Enterprises, Inc., which operates Fantasy Cup Auto Racing through

20 its Web site at www.fantasycup.com .

21 26. The positive representations and forecasts made about Action Performance

22 during the Class Period were false. During the Class Period, defendants knowingly or

23 recklessly failed to disclose the following actual facts about Action Performance:

24 (a) Action Performance would fall short ofrevenue projections for the 4thQ

25 F99 as it had not shipped the product to Home Depot as it had represented, but rather, had

26 shipped it FOB Destination through an intermediary;

27 (b) Action Performance's relationship with distributors was deteriorating

28 as it had moved to more direct sales and distributors were taking longer to pay invoices due

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1 to this deteriorating relationship and due to the fact that the Company frequently misstated

2 invoices to show shipping dates prior to the actual ship date to make revenue estimates;

3 (c) The reason many distributors could not take additional shipments as of

4 6/30/99 is that demand for Action Performance's products was slowing significantly;

5 (d) As a result of the above, defendants knew the estimates of F2000 EPS

6 of $2.62 - $2.65 for Action Performance were unreasonable and could not and would not be

7 achieved.

8 27. On 11/4/99, Action Performance issued a press release announcing its

9 preliminary 4thQ F99 results. The release stated:

10

Action Performance Companies Inc. (Nasdaq: ACTN) Thursdayannounced preliminary operating results for its fiscal fourth quarter ended

11 Sept. 30, 1999.

12 For the quarter, sales are expected to be approximately $ 90.0 million

13with diluted earnings per share of-$ 0.30 to $0.3-3-.

The company's business continued to expand during the quarter, with14 strong demand for its products. However, $ 8.0 million of sales associated

with a premium promotional program, which was shipped in the fourth quarter15 of fiscal 1999, could not be recognized until the first quarter of 2000.

16

The company will recognize the revenue and earnings associated withthis_promotional program in its December 1999 quarter, providing a boost to

17 its fiscal 2000 operatmg results.

18

In addition to the effects of the aforementioned promotional program,operating results for the quarter were negatively impacted primarily by pretax

19 charges of (i) $ 3.6 million related to the preliminary settlement and legal feesassociated with the previously disclosed class action antitrust litigation arising

20 out of activities that were alleged to have occurred before the companyacquired three businesses in 1996 and 1997; (ii) $3.2 million associated with

21 the company's continued support of its goracmg.com subsidiary; and (iii)$800,000 related to a change in accounting treatment of the Tech 21000

22 acquisition from the pooling-of-interest method to the purchase method.

23 28. Analysts, including Morgan Keegan, immediately downgraded Action

24 Performance:

25

We are downgrading ACTN to Market Perform from Outperformthough we recognize this downgrade comes a bit late. Until management can

26 restore its credibility and rebuild investor confidence, we believe the stock willlikely languish in the teens.

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• 1 However, we are remaining on the sidelines on ACTN for 2 reasons. The firstconcerns management credibility, given the disappointing results just reported.

2 We believe it will take some time for the Street to warm back up to the story.Second, while management believes that the internal growth rate can continue

3 at 20-25% annually, we are somewhat concerned that organic growth may belower.

429. On 11/5/99, TheStreet.com published an article by Herb Greenberg, entitled

5

6 Why Action Performance's Credibility Has Crashed, which stated:

Action is in the biz of making and distributing Nascar die-cast replicas7 and collectibles, and it's no stranger to this column. Not long ago, in fact, the

Arizona company was thefocus of an item here that questioned whether it was8 trying to unclog its distribution channel by selling merchandise at fire-sale

prices. (At the time Action was on the verge of taking its goracing.com unit9 public, ain't seen hide nor hair of that deal yet. But more about that in a

moment.)10

The theme of the aborted story was how something at Action didn't add11 up. It pointed out how Action CEO Fred Wagenhals had been making a big

deal about a tie-in Action [itj was doing with Home Depot (HD:NYSE) for a12 special replica of a Habitat or Humanq racecar. The tie-in was linked to an

Oct. 10 race in Charlotte, .C., in which popular driver Tony Stewart would13 drive the Habitat car. On Sept. 3, Wagenlials was quoted on Nascar.com as

saying: "The Action cars are on the water headed for the U.S. right now. So,14 they should be on the market by the middle of September as projected, in

15plenty of time" for the race.

Then, on Sept. 29, at a Banc of America Securities investment16 conference in San Francisco, Wagenhals bragged that the fourth fiscal quarter,

ending Sept. 30, would include an $8 million order from Home Depot for the17 Habitat project. His comments were followed, on the same day, by an internal

report to brokers by Banc of America Securities analyst Chris Hansen (BofA18 is goracing.com's lead underwriter). Hansen confirmed that Action "has just

shipped its $8 million Home Depot promotion." (That's important because19 according to its 10-K, it recognizes revenue when it's shipped.)

20 That implied that the $8 million order, including the cars and othermemorabilia, had been shipped before the end of the quarter and booked as

21 revenue and that the cars would start appearing in Home Depot stores by earlyOctober. (Not September, as Wagenhars had said earlier.) As it turns out, they

22 didn't start arriving until the weekend after the race. Even then, calls to HomeDepot by me and Mark Martinez, my assistant, found that some Home Depots

23 still hadn't even received any of the merchandise. Remember, these are thesame cars that Wagenhals had bragged, back on Sept. 3, were on the water

24 headed to the U.S. (Must've been a slow boat from China!)

25 Fast forward to last night at 6:31 p.m. EST: Action issued a warningthat its fourth quarter earnings would be 30 to 33 cents per share, or roughly

26 half of what Wall Street was expecting. One reason for the disappointment?(It doesn't get any better than this, folks.) According to Action, $8 million "of

27 sales associated with a premium promotional program, which was shipped inthe fourth quarter of fiscal 1999, could not be recognized until the first quarter

28 of fiscal 2000." (The company didn't come right out and say it was the $8

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1 million Home Depot deal, but during the quarter Action discussed no other $8million promotional deals.)

2So, let's get this straight. Wagenhals said on Sept. 29 they had been

3 shipped. The quarter ended Sept. 30. The products, however, didn't get intoHome Depot stores until three weeks later. (Since when does it take three

4 weeks to ship products from the manufacturer to the retailer?) Now thecompany says the products were shipped in the fourth quarter, but that it won't

5 be able to recognize revenue until the first quarter. But according to its 10-K

6report, Action recognizes revenue when products are shipped.

Like I said, something definitely doesn't add up.7

Oh, and about that goracing. corn offering. Word from sources close to

8 the company, several weeks ago, was that the IPO was being delayed untilAction's stock got a little higher. Based on what's likely to happen to the stock

9 today, it'll have to wait longer than it expected. Interestingly, one reasonAction gave for its quarterly disappointment was a $3.2 million pretax

10 "charge' associated with the "continued support of its goracing. cornsubsidiary."

11Just one problem: goracing.com , as Action said, is a subsidiary. Since

12 when can a company take a charge against costs associated with running asubsidiary? Aren't those usually ongomg expenses? A charge should be for a

13 business that is being written otC but Action clearly said this charge is related

14to the "continued support" of its subsidiary.

1530. When trading opened on 11/5/99, Action Performance's stock immediately

16 dropped to as low as $12-1/4 on huge volume of 9.8 million shares, a 51% decline in one

day.17

FIRST CLAIM FOR RELIEF18

For Violation of §10(b) of the 1934 Act

19 and Rule 101b-5 Against All Defendants

20 31. Plaintiffs incorporate 1111-30 by reference.

21 32. During the Class Period, defendants disseminated or approved the false

22 statements specified above, which they knew or recklessly disregarded were misleading in

23 that they contained misrepresentations, and failed to disclose material facts necessary in

24 order to make the statements made, in light of the circumstances under which they were

25 made, not misleading.

26 33. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they:

27 34. (a) Employed devices, schemes and artifices to defraud;

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1 (b) Made untrue statements of material facts or omitted to state material

2 facts necessary in order to make statements made, in light of the circumstances under which

3 they were made, not misleading; or

4 (c) Engaged in acts, practices, and a course of business that operated as a

5 fraud or deceit upon plaintiffs and others similarly situated in connection with their

6 purchases of Action Performance common stock during the Class Period.

7 35. Plaintiffs and the Class have suffered damages in that, in reliance on the

8 integrity of the market, they paid artificially inflated prices for Action Performance stock.

9 Plaintiffs and the Class would not have purchased Action Performance stock at the prices

10 they paid, or at all, if they had been aware that the market prices had been artificially and

11 falsely inflated by defendants' misleading statements.

12 36. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and

13 the other members of the Class suffered damages in connection with their purchases of

14 Action Performance common stock during the Class Period.

15 SECOND CLAIM FOR RELIEF

16 For Violation of §20(a) of the 1934 Act AgainstDefendants Fred Wagenhals and Action Performance

17

1837. Plaintiffs incorporate 11-36 by reference.

38. Defendant Fred Wagenhals acted as controlling person of Action Performance1920 within the meaning of §20(a) of the 1934 Act. By reason of Fred Wagenhal's position as

21 CEO and Chairman of the Board, he had the power and authority to cause Action

22 Performance to engage in the wrongful conduct complained of herein. Action Performance

controlled each of the Individual Defendants and all of its employees. By reason of such2324 conduct, Fred Wagenhals and Action Performance are liable pursuant to §20(a) of the 1934

Act.25

CLASS ACTION ALLEGATIONS26

39. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal2728 Rules of Civil Procedure on behalf of all persons who purchased Action Performance stock

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. .

1 (the "Class") on the open market during the Class Period. Excluded from the Class are

2 defendants.

3 40. The members of the Class are so numerous that joinder of all members is

4 impracticable. The disposition of their claims in a class action will provide substantial

5 benefits to the parties and the Court. During the Class period Action Performance had more

6 than 16 million shares of stock outstanding, owned by hundreds if not thousands of persons.

7 41. There is a well-defined community of interest in the questions of law and fact

8 involved in this case. Questions of law and fact common to the members of the Class which

9 predominate over questions which may affect individual Class members include:

10 (a) Whether the 1934 Act was violated by defendants;

11 (b) Whether defendants omitted and/or misrepresented material facts;

12 (c) Whether defendants' statements omitted material facts necessary to

13 make the statements made, in light of the circumstances under which they were made, not

14 misleading;

15 (d) Whether defendants knew or recklessly disregarded that their statements

16 were false and misleading;

17 (e) Whether the price of Action Performance stock was artificially inflated;

18 and

19 (f) The extent of damage sustained by Class members and the appropriate

20 measure of damages.

21 42. Plaintiffs' claims are typical of those of the Class because plaintiffs and the

22 Class sustained damages from defendants' wrongful conduct.

23 43. Plaintiffs will adequately protect the interests of the Class and have retained

24 counsel who are experienced in class action securities litigation. Plaintiffs have no interests

25 which conflict with those of the Class.

26 44. A class action is superior to other available methods for the fair and efficient

27 adjudication of this controversy.

28

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•

1 STATUTORY SAFE HARBOR

2 45. The statutory safe harbor provided for forward-looking statements under

3 certain circumstances does not apply to any of the allegedly false forward-looking statements

4 pleaded in this Complaint. Also, none of the particular oral forward-looking statements

5 pleaded herein were identified as "forward-looking statements" when made. None of the

6 written forward-looking statements made were identified as forward-looking statements. Nor

7 was it stated as to either type of forward-looking statement that actual results "could differ

8 materially from those projected." Nor did meaningful cautionary statements identifying

9 important factors that could cause actual results to differ materially from those in the

10 forward-looking statements accompany those forward-looking statements. Each of the

11 forward-looking statements alleged herein to be false was authorized by an executive officer

12 of Action Performance and was actually known by each of the Individual Defendants to be

13 false when made.

14 PRAYER FOR RELIEF

15 WHEREFORE, plaintiffs pray for judgment as follows:

16 A. Declaring this action to be a proper class action pursuant to Federal Rule of

17 Civil Procedure 23;

18 B. Awarding plaintiffs and the members of the Class damages, interest and costs;

19 and

20 C. Awarding such other relief as the Court may deem just and proper.

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• : . .. .

1 JURY DEMAND

2 Plaintiffs demand a trial by jury.

3 DATED this 30th day of November, 1999.

4 BO , r : oURN, FRIEDMAN&B

5 AND' :WS. l JMAN(AZ005425)

6

7 Alyr REW S. FRIEDMAN

84041 N. Central Avenue, Suite 1100

9 Phoenix, AZ 85012-3311Telephone: 602/274-1100

10MILBERG WEISS BERSHAD HYNES

11 & LERACH LLPWILLIAM S. LERACH

12 HELEN J. HODGESKIRK B. HULETT

13 DARREN J. ROBBINS600 West Broadway, Suite 1800

14 San Diego, CA 92101Telephone: 619/231-1058

15LAW OFFICES OF RICHARD D. KRANICH

16 RICHARD D. KRANICH120 Broadway, Suite 1016

17 New York, NY 10271-0074Telephone: 212/608-8965

18LAW OFFICES OF BRUCE G. MURPHY

19 BRUCE G. MURPHY265 Lli,vyds Lane

20 Vero Beach, FL 32963Telephone: 561/231-4202

21Attorneys for Plaintiffs

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27

28 EAShared\CaseMecurities Fraud Caws\ Action Performance‘Complaint.doo

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