Preliminary Proxy Statement

PRE 14A 1 dpre14a.htm PRELIMINARY PROXY STATEMENT Preliminary Proxy Statement

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant x Filed by a Party other than the Registrant ¨

Check the appropriate box:

x	Preliminary Proxy Statement

¨	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

¨	Definitive Proxy Statement

¨	Definitive Additional Materials

¨	Soliciting Material Pursuant to Section 240.14a-12

ACTION PRODUCTS INTERNATIONAL, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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ACTION PRODUCTS INTERNATIONAL, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

June 3, 2004

TO OUR SHAREHOLDERS:

The Annual Meeting of the Shareholders of Action Products International, Inc. (the “Company”) will be held at the principal executive offices of the Company at 1101 North Keller Road, Suite E, Orlando, Florida 32810 on 3^rd day, June, 2004 at 10:00 a.m., to consider and vote upon the following proposals, all of which are more completely set forth in the accompanying Proxy Statement:

To elect two members of the Board of Directors to serve until either (i) the 2005 Annual Meeting of Shareholders if Proposal 2 is approved or (ii) the 2006 Annual Meeting of Shareholders if Proposal 2 is NOT approved, and until their successors have been duly elected and qualified;

To vote upon a proposal to amend the Company’s Amended and Restated Articles of Incorporation and Amended and Restated Bylaws which will declassify the organization of the Board of Directors; and

To transact such other business as may properly come before the meeting.

The Board of Directors has established April 16, 2004 as the record date for the Annual Meeting and only shareholders of record at the close of business on that date will be entitled to vote at the meeting. A form of proxy and the Company’s Annual Report for the fiscal year ended December 31, 2003 are enclosed.

Your vote is important. Whether or not you expect to attend the meeting, please read the accompanying Proxy Statement and complete, sign, date and return the accompanying proxy in the enclosed postage paid envelope at your earliest convenience. You may revoke your proxy at any time before it is exercised by following the instructions set forth on the first page of the accompanying Proxy Statement.

BY ORDER OF THE BOARD OF DIRECTORS

ACTION PRODUCTS INTERNATIONAL, INC.

/s/ Robert L. Burrows

Robert L. Burrows

Secretary

Orlando, Florida

[ ], 2004

ACTION PRODUCTS INTERNATIONAL, INC.

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

June 3, 2004

10:00 a.m.

CORPORATE OFFICES

1101 NORTH KELLER ROAD

SUITE E

ORLANDO, FLORIDA

GENERAL INFORMATION

This Proxy Statement is furnished to shareholders of Action Products International, Inc. (the “Company”) in connection with the solicitation by the Board of Directors of proxies to be used at the 2004 Annual Meeting of Shareholders of the Company and any adjournment or postponement thereof (the “Meeting”). The time and place of the Meeting are noted above. This Proxy Statement and enclosed form of Proxy are being mailed to shareholders on or about [ ], 2004. The Company’s Annual Report for the year ended December 31, 2003, including audited financial statements, is also enclosed.

The Board of Directors of the Company is soliciting proxies so that each shareholder is given an opportunity to vote. These proxies enable shareholders to vote on all matters that are scheduled to come before the Meeting. When proxies are returned properly executed, the Proxy Committee will vote the shares represented thereby in accordance with the shareholders’ directions. The Proxy Committee is composed of Judith H. Kaplan, Director and Robert L. Burrows, Secretary and Chief Financial Officer of the Company, who will vote all shares of common stock represented by proxies

Shareholders are urged to specify their choices by marking the enclosed proxy; if no choice has been specified, the shares will be voted FOR the election of the three nominees as directors and FOR amending the Company’s Amended and Restated Articles of Incorporation and Bylaws to declassify the organization of the Board of Directors. The proxy also confers upon the Proxy Committee discretionary authority to vote the shares represented thereby on any other matter that may properly be presented for action at the Meeting, although the Board of Directors currently knows of no other proposals or business to be presented.

Votes cast by proxy or in person at the Meeting will be tabulated by an Inspector of Elections, who will determine whether or not a quorum is present. It is currently expected that the Company’s accountants, Moore Stephens Lovelace, P.A., will serve as the Inspector of Elections. The presence at the Meeting, in person or by proxy, of the holders of a majority of the Company’s outstanding shares of common stock as of the record date will constitute a quorum. Votes withheld from any nominee, abstentions and broker “non-votes” are counted as present or represented for purposes of determining the presence or absence of a quorum for the Meeting. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner has not received instructions from the beneficial owner.

In the election of directors, the nominees receiving the highest number of affirmative votes of the shares present or represented and entitled to vote at the Meeting shall be elected as directors. The affirmative vote of a majority of the shares of common stock outstanding on the record date is required to approve the amendment to the Amended and Restated Articles of Incorporation and Bylaws to declassify the organization of the Board of Directors. Votes withheld in connection with the election of one or more of the nominees for director will not be counted as votes for such individual.

The principal offices of the Company are located at 1101 North Keller Road, Suite E, Orlando, Florida 32810 and its telephone number is (407) 481-8007.

Securities Outstanding and Voting Rights

Only holders of shares of the Company’s common stock of record at the close of business on April 16, 2004 will be entitled to vote at the Meeting. On the record date, **[number]** shares of the Company’s common stock were issued and outstanding.

Each share of common stock is entitled to one vote on all matters submitted to a vote of shareholders, including the election of directors.

A list of the shareholders entitled to be present and to vote at the Meeting will be available at the offices of the Company, 1101 North Keller Road, Suite E, Orlando, Florida for inspection by any shareholder during regular business hours for a ten-day period prior to the date of the Meeting.

Officers, directors and principal shareholders of the Company currently beneficially own approximately 60 percent of the Company’s outstanding shares of common stock. See “Security Ownership of Management and Principal Shareholders.” Accordingly, approval of the nominees for directors and any other matters presented at the Meeting is virtually assured.

Revocability of Proxies

Any proxy may be revoked at any time before it is voted by written notice mailed or delivered to the Secretary of the Company, by receipt of a proxy properly signed and dated subsequent to an earlier proxy, and by revocation of a written proxy request in person at the Meeting, but if not so revoked, the shares represented by such proxy will be voted.

MANAGEMENT/BOARD OF DIRECTORS

The executive officers and directors of the Company are as follows:


Name	Age	Position
Ronald S. Kaplan	37	President/Chief Executive Officer/Director

Robert Burrows	38	Chief Financial Officer & Secretary

Neil Swartz	42	Director

Scott Runkel	56	Director

Judith Kaplan	65	Director

Warren Kaplan	66	Chairperson of the Board

Ann E. W. Stone	51	Director

Ronald S. Kaplan, President, Chief Executive Officer and Director. Ronald Kaplan has served as the Company’s Chief Executive Officer since January 1996 and as a Director since 1991. He reassumed the title of President in July 2002. He is the son of the Company’s founders and two of the Company’s directors, Judith Kaplan and Warren Kaplan. Prior to joining the Company Mr. Kaplan’s professional experience includes retail store operations and service in the United States Army where he held a secret clearance level. Prior to becoming CEO he managed Logo America, an apparel and promotional products sales and manufacturing business.

Robert L. Burrows, Chief Financial Officer and Secretary. Robert L. Burrows has served as the Company’s Chief Financial Officer and Secretary since July, 2001. Mr. Burrows is a graduate of the University of Virginia with a Bachelor of Science degree in accounting and finance. He also holds an MBA from the Rollins College—Crummer School of Business. Prior to joining the Company he held various accounting and

finance positions with General Electric and Lockheed Martin. From 1991 through 1996 he held various financial and operational positions, including Division Vice President of HBO & Company a leading developer and marketer of healthcare software systems. From 1996 through 1998 he served as Chief Operating Officer for Quadramed Corp. a publicly held Nasdaq listed company and CEDCO Publishing a privately held gift and stationery book publisher. From 1999 through 2001 he served as Chief Financial Officer of Lawgic Publishing a venture funded internet application service provider of intelligent legal software.

Neil Swartz, Director. Neil Swartz, a member of the Board of Directors since 2002, founded MCG Partners, Inc., a merchant banking firm based in Boca Raton, Florida in early 1999 and serves as Chairman. Mr. Swartz served as the Chairman, President and Chief Executive Officer of a software company, which he took public on the Nasdaq Small Cap Market, from 1989 to 1998. He is a CPA and received his B.S. degree in accounting from Northeastern University. Mr. Swartz serves on the audit and nominating committees.

Scott Runkel, Director. Scott Runkel, a member of the Board of Directors since 2002, is the Chief Financial Officer of Gencor Industries Inc. (GCRX) a $70 million leading manufacturer of heavy machinery used for the production of highway construction materials, based in Orlando, Florida. Mr. Runkel has over 30 years experience as a financial executive. Previously Mr. Runkel was an Audit Partner and Director of Entrepreneurial Services at Ernst & Young. He was also a partner and co-founder of Curry & Runkel Financial Services, a firm specializing in financing and consulting for privately owned businesses. He received his B.A. degree in accounting from the University of Wisconsin-Oshkosh, and is a CPA. Mr. Runkel chairs the Company’s audit committee.

Judith Kaplan, Founder and Director. Judith Kaplan, a member of the Company’s Board of Directors since 1980, served as the Chairperson of the Board since the Company’s inception in 1980 until December 31, 1995. Ms. Kaplan also served in various other executive capacities over the years, namely, President (‘80-’87), Secretary (‘80-’97), Chief Executive Officer (‘80-’95), Chief Financial Officer (‘80-’98) and Treasurer (‘80-’91). She is married to Warren Kaplan and is the mother of Ronald Kaplan.

Warren Kaplan, Founder and Chairperson of the Board. Warren Kaplan, a member of the Board of Directors since December 2002, was elected Chairperson in April 2003. Mr. Kaplan served as the Company’s president for many years prior to 1996 before becoming a Managing Partner of Kaplan Asset Management. Mr. Kaplan has over 40 years experience in investment banking, asset management and business operations. He holds a BBA from CUNY. He is married to Judith Kaplan and is the father of Ronald Kaplan.

Ann E. W. Stone, Director. Ann Stone is the founder and president of The Stone Group, a nationally recognized and award-winning direct marketing business. She serves on the board of: The Association of Direct Marketing Agencies (ADMA), The Washington Center (Women as Leaders), among others. She is also active in the National Association of Women Business Owners (NAWBO), Alexandria Society for the Preservation of Black Heritage, and the Animal Welfare League. A graduate of George Washington University, with a double major in history and communications, Ms. Stone did graduate work in corporate finance and management at the Wharton School of Business consortium. Ms. Stone chairs the Company’s nominating committee.

Board of Directors Meetings

The Board of Directors has responsibility for establishing broad corporate policies and reviewing the Company’s overall performance rather than day-to-day operations. The Board’s primary responsibility is to oversee the management of the Company and, in so doing, serve the best interests of the Company and its shareholders. The Board selects, evaluates and provides for the succession of executive officers and, subject to shareholder election, directors. It reviews and approves corporate objectives and strategies, and evaluates significant policies and proposed major commitments of corporate resources. It participates in decisions that have a potential major economic impact on the Company. Management keeps the directors informed of the Company’s activity through regular written reports and presentations at Board and committee meetings. The Company does not have a policy requiring board members to attend the annual board of directors meeting. However, all of the Directors attended the 2003 annual meeting of the Board of Directors.

The Board of Directors met four times in 2003 and did not execute an action by unanimous written consent.

Committees of the Board of Directors

The Board has two standing committees—the Audit Committee and the Nominating Committee. The Company’s Board does not have a standing compensation committee. Each committee has a charter that has been approved by the Board. Each committee must review the appropriateness of its charter and perform a self-evaluation at least annually. They do not participate in any meeting at which their compensation is evaluated. All members of both committees are non-employee directors.

Current members of the committees are named below:


Audit Committee		Nomination Committee
Scott Runkel (chair)		Ann E. W. Stone (chair)
Neil Swartz		Neil Swartz

Audit Committee

The current members of the Audit Committee are Messrs. Runkel and Swartz. Each of Messrs. Runkel and Swartz qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission. Each of Messrs. Runkel and Swartz is an “independent director” under the rules of the Nasdaq Stock Market governing the qualifications of the members of audit committees. In addition, the Board of Directors has determined that each member of the Audit Committee is financially literate and that each of Messrs. Runkel and Swartz has accounting and/or related financial management expertise as required under the rules of the Nasdaq Stock Market. None of Messrs. Runkel or Swartz serve on the audit committees of any other public companies. The Audit Committee met four times during 2003 (including four teleconference meetings). The responsibilities of the Audit Committee and its activities during 2003 are described in the Report of the Audit Committee contained in this proxy statement. The Audit Committee operates under a written charter adopted by the Board of Directors that is attached as Appendix I to this proxy statement.

The Audit Committee is charged with exercising the power and authority of the Board of Directors in the administration and review of (1) the quality and integrity of the Company’s financial statements, (2) compliance by the Company with regulatory requirements and (3) the selection, independence and performance of the Company’s external and internal auditors. During fiscal 2003, the Audit Committee met four times and each member serving on the committee, attended 100% of said meetings.

Nominating Committee

The current members of the Nominating Committee are Ann E. W. Stone and Neil Swartz. The Board has determined that each of Ms. Stone and Mr. Swartz is independent as defined under the rules of the Nasdaq Stock Market. The purpose of the Nominating Committee is to identify individuals qualified to become Board members, recommend to the Board the persons to be nominated by the Board for election as directors at the annual meeting of shareholders, and oversee the evaluation of the Board.

The Nominating Committee may consider candidates recommended by the Company’s shareholders as well as from other sources such as other directors and officers, third party search firms or other appropriate sources. For all potential candidates, the Nominating Committee may consider all factors it deems relevant, such as a candidate’s personal integrity and sound judgment, business and professional skills and experience, independence, knowledge of the Company’s industry, possible conflicts of interest, the extent to which the candidate would fill a present need on the Board, and concern for the long-term interests of the Company’s shareholders. In general, persons recommend by shareholders will be considered on the same basis as candidates from other sources. If a shareholder wishes to nominate a candidate to be considered for election as a director at the 2005 Annual Meeting of Shareholders using the procedures set forth in the Company’s

Bylaws, it must follow the procedures described in “Shareholder Proposals” elsewhere in this proxy statement. If a shareholder wishes simply to propose a candidate for consideration as a nominee by the Nominating Committee, it should submit any pertinent information regarding the candidate to the attention of Ann E. W. Stone, Chair of the Nominating Committee, c/o Action Products International, Inc., 1101 North Keller Rd. Suite E, Orlando, FL 32810.

The Nominating Committee did not hold meetings during fiscal year 2003. The Nomination Committee operates under a written charter adopted by the Board of Directors that is attached as Appendix II to this proxy statement.

Audit Committee Report

The Audit Committee of the Board of Directors is responsible for providing independent, objective oversight of the Company’s accounting functions and internal controls. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors, reviews the Company’s financial disclosures, and meets privately, outside the presence of management, with the Company’s independent auditors to discuss the Company’s internal accounting control policies and procedures. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report on Form 10-KSB with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee reports on these meetings to the Board of Directors. The Audit Committee also selects and appoints the Company’s independent auditors, reviews the performance of the independent auditors in the annual audit and in assignments unrelated to the audit, and reviews the independent auditors’ fees.

The Audit Committee is composed of two non-employee directors, each of whom is an “independent director” under the rules of the Nasdaq Stock Market governing the qualifications of the members of audit committees. Each of Messrs. Runkel and Swartz qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission. In addition, the Board of Directors has determined that each member of the Audit Committee is financially literate and that each of Messrs. Runkel and Swartz has accounting and/or related financial management expertise as required under the rules of the Nasdaq Stock Market.

The Audit Committee held four meetings during 2003. The meetings were designed to facilitate and encourage communication between members of the Audit Committee and management as well as private communication between the members of the Audit Committee, the Company’s internal auditors, and the Company’s independent auditors, Moore Stephens Lovelace, P.A.

The Audit Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of the audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. In addition, the Audit Committee has discussed with the independent auditors (i) the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU§380), and (ii) the auditors’ independence from the Company and its management, including the matters in the written disclosures the Audit Committee received from the auditors as required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and considered the compatibility of the provision of non-audit services by the independent auditors with the auditors’ independence.

Based on its review of the audited financial statements and discussions with management and the independent auditors, the Audit Committee recommended to the Board of Directors (and the Board of Directors has approved) that the Company’s audited financial statements be included in the Annual Report on Form 10-KSB for the year ended December 31, 2003. The Audit Committee and Board of Directors also have

recommended the selection of Moore Stephens Lovelace, P.A. as the Company’s independent auditors for the year ending December 31, 2004.

Scott Runkel, Chair

Neil Swartz

Communications from Shareholders and Other Interested Parties

The Board will give appropriate attention to written communications on issues that are submitted by shareholders and other interested parties, and will respond if and as appropriate. Absent unusual circumstances or as contemplated by committee charters, the Chair of the Nominating Committee will, with the assistance of the Company’s legal counsel, be primarily responsible for monitoring communications from shareholders and other interested parties and provide copies or summaries of such communications to the other directors as he or she considers appropriate.

Communications will be forwarded to all directors if they relate to substantive matters and include suggestions or comments that the Chair of the Nominating Committee considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to personal grievances and matters as to which the Company tends to receive repetitive or duplicative communications.

Shareholders and other interested parties who wish to send communications on any topic to the Board should address such communications to Ann E. W. Stone, Chair of the Nominating Committee, c/o Action Products International, Inc., 1101 North Keller Rd. Suite E, Orlando, FL 32810.

Shareholders may make nominations for the election of directors by delivering notice in writing to the Secretary of the Company in accordance with the instructions contained in Article XVII of the Company’s Bylaws.

Director Compensation

Directors who are full-time employees of the Company receive no additional compensation for services rendered as members of the Company’s Board or any committee thereof. Directors who are not full-time employees of the Company receive $2,500 per year, $500 for each Board meeting attended in person, and $250 for each Company Board meeting attended telephonically. In addition, from time to time the Company may grant incentive stock options with an exercise price greater than the market value of the underlying stock to the directors for services rendered while serving on the Board. In the past, outside directors have been granted 10,000 shares under the Stock Option Plan for each year of service on the Board at an exercise price above the market value of the shares as listed at the time of the grant.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than ten percent of the Company’s outstanding common stock to file with the Securities and Exchange Commission (the “SEC”) and Nasdaq initial reports of ownership and reports of changes in ownership of common stock. Such persons are required by the SEC regulations to furnish the Company with copies of all such reports they file. To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company, all Section 16(a) filing requirements applicable to officers, directors and greater than ten percent beneficial owners were current.

EXECUTIVE COMPENSATION

The following table sets forth the aggregate compensation paid to the Company’s Chief Executive Officer and executive officers who were paid $100,000 or more during the 2003 fiscal year (the “Named Executives”). Except as set forth in the table below, no bonuses or other compensation was paid during the 2003, 2002 or 2001 fiscal years.

Summary Compensation Table

Annual Compensation


Name and Principal Position	Year	Salary ($)		Annual Bonus ($)		Other Annual Compensation ($) ¹
Ronald Kaplan,	2003	$	130,000	$	—	$	16,150
President and	2002	$	130,000	$	—	$	6,000
Chief Executive Officer	2001	$	130,000	$	—	$	6,000

Robert Burrows²	2003	$	108,800			$	—
Chief Financial Officer and	2002	$	110,000	$	—	$	—
Secretary	2001	$	50,800	$	—	$	—

(1)	Includes value of use of automobile and payout of earned unused vacation

(2)	Mr. Burrows became Chief Financial Officer and Secretary in July 2001

Option/SAR Grants in Last Fiscal Year

No stock options were granted to any of the executives named in the Summary Compensation Table for the fiscal year ending December 31, 2003.

Aggregated Option/SAR Exercises and Year End Option/SAR Values in Last Fiscal Year

The following table sets forth the aggregate of options exercised in the year ended December 31, 2003 and the value of options held at December 31, 2003.

Option Exercises/Option Values


Name	Shares Acquired on Exercise (#)	Value Realized ($)		Number of Securities Underlying Unexercised Options/Warrants at Fiscal Year End Exercisable/Un-exercisable	Value of Unexercised In-the- money Options/Warrants At Fiscal Year End Exercisable/Un-exercisable⁽¹⁾
Ronald S. Kaplan	0	$	0	150,000/0	$106,500
Robert Burrows	0	$	0	50,000/25,000	$48,000/$5,250

⁽¹⁾

The dollar value was calculated by determining the difference between the fair market value at fiscal year-end of the common stock underlying the options/warrants and the exercise prices of the options/warrants. The last sale price of a share of the Company’s common stock on December 31, 2003 as reported by Nasdaq was $3.21. The unexercised options are in-the-money.

Long-Term Incentive Plans

As of December 31, 2003, the Company did not maintain any long term incentive plans.

Employee Contracts, Termination Agreements, Changes in Control

The Company does not have an employment agreement with any of the executive officers named in the Summary Compensation Table.

Other

Employee Stock Ownership Plan. On April 23, 1984, the Company adopted an Employee Stock Ownership Plan (“ESOP”). The ESOP qualifies for special tax benefits under the Internal Revenue Code. Under

the ESOP, the Company, at the discretion of its Board of Directors, may make an annual contribution to a trust that purchases the Company’s stock from the Company for the benefit of employees who have completed at least 1,000 hours of work during the fiscal year. Employer contributions under the ESOP are allocated to each eligible employee’s account on a pro-rata basis according to the total compensation paid to, and the number of years of service by, all eligible employees. An employee becomes 100% vested in the ESOP following 5 years of plan eligibility. On November 30, 2003 the plan was terminated. All plan assets, which were comprised of 13,800 shares of common stock, were distributed to eligible participants.

401(k) Plan. Effective October 3, 1986, the Company adopted a Voluntary 401(k) Plan. All employees are eligible for the plan. Previously, employees who had worked for the Company for 18 months were currently eligible for a 34% match of their subsequent contributions, however, the match policy was suspended January 1, 2003. Benefits are determined annually. The lowest 66% of paid employees may contribute the lesser of 15% of their salary or the applicable maximum allowed by the Internal Revenue Code. The top 1/3 of employees cannot contribute a percentage greater than 15% of their compensation or 150% of the average contribution of the lowest 66% of paid employees to the applicable maximum allowed by the Internal Revenue Code. Employer contributions vest within three months and all contributions are held in individual employee accounts with an outside financial institution. Company shares have never been allowed to be invested in the 401(k) plan.

Stock Option Plan. To increase the officers, key employees and consultants interest in the Company and to align their interests more closely with the interests of the Company’s shareholders, the Board of Directors adopted a stock option plan called the “1996 Stock Option Plan” (the “Plan”) on May 28, 1996. The Plan was subsequently ratified by a majority vote of the Company’s shareholders.

Under the Plan, the Company has reserved an aggregate of 900,000 shares of common stock for issuance pursuant to options granted under the Plan. Plan Options are either (1) options qualifying as incentive stock options or (2) options that do not qualify—non-qualified options. Any incentive option granted under the Plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of such grant. The exercise price of non-qualified options shall be determined by the Board of Directors or the Committee but shall in no event be less than 75% of the fair market value of the underlying shares on the date of the grant. As of December 31, 2003, there were 485,800 incentive options and 165,000 non-qualified options existing under the plan.

Equity Compensation Plan Information


Plan category	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by shareholders	650,800	$	2.79	226,200
Equity compensation plans not approved by shareholders	None		N/A	N/A
Total	650,800	$	2.79	226,200

These securities describe in this table were granted solely under the Company’s 1996 Stock Option Plan. See “Stock Option Plan” above.

Code of Conduct

The Company has adopted a code of conduct that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The text of the code is available upon request. Written requests should be addressed to Robert L. Burrows, Chief Financial Officer, Action Products International, Inc., 1101 North Keller Road, Orlando, Florida 32810, or telephone 407-481-8007.

SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to the number of shares of Common Stock beneficially owned by (i) each director of the Company, (ii) the executive officer named in the Summary Compensation Table, (iii) all directors and officers as a group and (iv) each shareholder known by the Company to be a beneficial owner of more than 5% of the Company’s common stock as of March 31, 2004. Except as otherwise indicated, each of the shareholders listed below has sole voting and investment power over the shares beneficially owned and the address of each beneficial owner is c/o Action Products International, Inc., 1101 North Keller Road, Suite F, Orlando, Florida 32810. As of March 31, 2004, there were issued and outstanding 3,771,100 shares of Common Stock.

Table of Beneficial Ownership


	Amount and Nature of
Name	Beneficial Ownership		Percent of Class

Ronald S. Kaplan	1,696,832	(1)	39.1	%
Robert Burrows	56,000	(2)	<1	%
Judith Kaplan	1,330,043	(3)	28.4	%
Warren Kaplan	1,249,232	(4)	27.2	%
Elissa Paykin	340,508	(5)	8.8	%
Neil Swartz	10,000	(6)	<1	%
Scott Runkel	25,000	(7)	<1	%
Ann E. W. Stone	10,000	(8)	<1	%

All Directors and Executive Officers as a Group (7 persons)	4,377,107	(9)	70.9	%

1	Includes immediately exercisable options to purchase 150,000 shares at $2.00, $2.50 and $3.00 per share and exercisable warrants to purchase 418,416 shares at $2.00 per share.

2	Includes immediately exercisable options to purchase 50,000 shares at $2.00 and $2.50 per share and exercisable warrants to purchase 1,000 shares at $2.00 per share. Excludes currently unexercisable options to purchase an additional 25,000 shares at $3.00 per share.

Includes 419,134 shares owned individually and immediately exercisable options to purchase 50,000 shares at $3.00 per share. Also includes exercisable warrants to purchase 811,909 shares at $2.00 per share and warrants to purchase 49,000 shares at $4.50 per share. Ms. Kaplan disclaims beneficial ownership in all 424,837 of her husband’s shares.

Includes 424,837 shares owned individually and immediately exercisable options to purchase 100,000 shares at $3.00 per share. Also includes exercisable warrants to purchase 674,395 shares at $2.00 per share and warrants to purchase 50,000 shares at $4.50 per share . Mr. Kaplan disclaims beneficial ownership in all 419,134 of his wife’s shares.

5	Includes exercisable warrants to purchase 108,754 shares at $2.00 per share. Elissa Paykin is the daughter of Judith and Warren Kaplan.

6	Includes immediately exercisable options to purchase 10,000 shares at $1.25 per share.

7	Includes immediately exercisable options to purchase 5,000 shares at $1.88 per share, exercisable options to purchase 10,000 shares at $4.38 per share and exercisable warrants to purchase 5,000 shares at $2.00 per share.

8	Includes immediately exercisable options to purchase 10,000 shares at $4.38 per share.

9	Includes immediately exercisable options to purchase 385,000 shares and exercisable warrants to purchase 2,118,474 shares

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On February 7, 2003, Ronald Tuchman, a director and the Company’s former president, entered into an agreement to terminate his employment with the Company. Under the terms of the agreement, Mr. Tuchman relinquished all stock options and any future compensation. Mr. Tuchman received $128,000 payment from the Company for the repurchase of 114,300 shares of the Company’s common stock Mr. Tuchman originally acquired at the outset of his employment with the Company in 2001.

INDEPENDENT PUBLIC ACCOUNTANTS

Moore Stephens Lovelace, P.A., acted as the principal accountants for the Company for the fiscal year most recently completed. The Company expects representatives of Moore Stephens Lovelace, P.A. to be present at the Meeting, to have an opportunity to make a statement if they desire to do so, and to be available to respond to appropriate questions. It is also expected that a Moore Stephens Lovelace P.A. representative will serve as the Inspector of Elections.

Principal Accountant Fees and Services

The Company paid the following fees to its auditor during 2003 and 2002:


Year Ending	Audit Fees⁽¹⁾		Audit-Related Fees		Percentage of Audit-Related Services Approved by the Audit Committee	Tax Fees⁽²⁾		Percentage of Tax Services Approved by the Audit Committee		All Other Fees		Percentage of All Other Services Approved by the Audit Committee
2003	$	48,000	$	0	N/A	$	10,700	100	%	$	0	N/A
2002	$	37,900	$	0	N/A	$	11,500	100	%	$	0	N/A

(1)	Audit Fees consist of fees for professional services rendered for the audit of the Company’s annual financial statements and a review of the interim financial statements included in the quarterly reports and services normally provided by Moore Stephens Lovelace, P.A.

(2)	Tax Fees consists of fees for professional services rendered in preparing the federal and state tax returns, and for providing tax compliance, tax advice and tax planning assistance.

Audit Committee’s Pre-approval Policy and Procedures

The Audit Committee of the Board of Directors has recently adopted policies and procedures for the pre-approval of audit and non-audit services for the purpose of maintaining the independence of the Company’s independent auditors. The Company may not engage its independent auditors to render any audit or non-audit service unless either the Audit Committee approves the service in advance or the engagement to render the service is entered into pursuant to the Audit Committee’s pre-approval policies and procedures. Pre-approval of audit services shall not be delegated to management, but may be delegated to one or more independent members of the Committee so long as that member or members report their decisions to the Committee at all regularly scheduled meetings. During 2003, no services were provided to the Company by Moore Stephens Lovelace, P.A. or any other accounting firm other than in accordance with the pre-approval policies and procedures described above.

PROPOSALS TO THE SHAREHOLDERS

PROPOSAL 1.

ELECTION OF DIRECTORS

Current Nominees

The Board of Directors is currently composed of six directors, divided into two classes. Each class of directors is elected for a term of office to expire at the second succeeding annual meeting of shareholders of the Company after their election and until their respective successors are elected and qualified. The terms of three directors are expiring at the Meeting and the Nomination Committee of the Board of Directors have nominated Messrs. Ronald S. Kaplan, Warren Kaplan and Neil Swartz currently serving as directors of the Company since 1991, 2002 and 2002, respectively, as nominees for re-election to the Board of Directors. If elected, the term of the Board of Directors’ nominees expires at (i) the 2005 Annual Meeting if the Amended and Restated Articles of Incorporation and Bylaws of the Company are amended under Proposal 2, or (ii) the 2006 Annual Meeting as Class II directors, if Proposal 2 is NOT approved, and when their respective successors are duly elected and shall have qualified.

Should any nominee become unable or unwilling to accept a nomination or election, the Board of Directors will either select a substitute nominee or will reduce the size of the Board. If you have properly executed and returned a proxy and a substitute nominee is selected, the holders of the proxy will vote your shares FOR the election of the substitute nominee. The Board of Directors has no reason to believe that any nominee will be unable or unwilling to serve if elected.

In accordance with the Company’s Bylaws, directors are elected by a plurality of the votes of the shares represented and entitled to vote at the meeting. That means the three nominees will be elected if they receive more affirmative votes than any other nominees.

Continuing Directors

The Company’s Board of Directors is separated into two classes, and the directors of each class are elected to serve for two-year terms. The terms of the Class I directors expire at the annual meeting of shareholders to be held in 2005, and the terms of the Class II directors expire at the annual meeting of shareholders to be held in 2004. Assuming election of the nominees named above, the following is a list of the persons that will constitute the Company’s Board of Directors.


Name	Age	Class	Committees	Expiration
Ronald S. Kaplan	38	II		2004
Neil Swartz	42	II	Audit/Nominating	2004
Warren Kaplan	66	II		2004
Scott Runkel	56	I	Audit (Chair)	2005
Judith H. Kaplan	65	I		2005
Ann E. W. Stone	51	I	Nominating (Chair)	2005

Vote Required and Recommendation

The nominees for election to the Board of Directors who receive the greatest number of votes cast for the election of directors by the shares present, in person or by proxy, shall be elected directors. Shareholders do not have the right to cumulate their votes for directors. In the election of directors, an abstention or broker nonvote will have no effect on the outcome.

The Board of Directors recommends a vote FOR the election of these three nominees.

PROPOSAL 2

AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION AND

BYLAWS TO DECLASSIFY ORGANIZATION OF THE BOARD OF DIRECTORS

Article Sixth of the Amended and Restated Articles of Incorporation of the Company, and Article III, Section 2 of the Amended and Restated Bylaws of the Company provide that the Board of Directors be divided into two classes with the number of Directors in each class being as nearly equal as possible. This means that one-half of the Directors are elected annually and serve a two-year term. Proposal 2 is an amendment to the Company’s Amended and Restated Articles of Incorporation and Amended and Restated Bylaws to declassify

the organization of the Board of Directors and provide for annual election of all directors. The proposed amendments to Article Sixth of the Amended and Restated Articles of Incorporation, and Article III, Section 2 of the Amended and Restated Bylaws are set forth on Appendix III of this Proxy Statement.

The adoption by the Company—and many other major corporations—of a classified board reflects widespread concern over hostile and non-negotiated attempts to acquire corporations to the disadvantage of shareholders. A classified board has been widely viewed as discouraging proxy contests for the election of directors, or acquisitions of substantial blocks of stock, by a person or group seeking to acquire control of a company, because the extended and staggered terms of directors could operate to prevent changing the composition of, or the acquisition of control of, the board in a relatively short period of time. In a hostile takeover attempt, for example, a classified board may encourage a person seeking control of the Company to initiate arm’s length discussions with the Board of Directors, which may be in a position to negotiate a higher price or more favorable terms for shareholders or to try and prevent a takeover that the Board of Directors believes is not in the best interest of the shareholders.

A classified board has also been viewed as promoting stability and may help to maintain a greater continuity of experience because the majority of directors at any given time will have at least one year of experience with the Company. This continuity may assist a company in long-term strategic planning.

Some investors have, however, come to view classified boards as having the effect of insulating directors from being accountable to the corporation’s shareholders. A classified board of directors, for example, limits the ability of shareholders to elect all directors on an annual basis and exercise influence over the Company, and may discourage proxy contests in which shareholders have an opportunity to vote for a competing slate of nominees. The election of directors is the primary means for shareholders to influence corporate governance policies and to hold management accountable for its implementation of those corporate governance policies and to hold management accountable for its implementation of those policies. In keeping with its goal of ensuring that the Company’s corporate governance policies maximize management accountability to its shareholders, the Board of Directors has determined that shareholders should be allowed to vote on a proposal declassifying the organization of the Board of Directors and, if approved by the requisite vote of the shareholders as set forth below, the Amended and Restated Articles of Incorporation and Bylaws shall be amended to declassify the Board of Directors.

The proposed amendment would not reduce the term of any Director elected prior to its effectiveness. It would, however, if approved by the shareholders, apply to the Directors elected at this 2004 Annual Meeting. Therefore if the proposed amendment is approved by the shareholders, then all Directors of the Company, including Directors elected at this 2004 Annual Meeting of Shareholders, would be required to stand for re-election at the 2005 Annual Meeting of Shareholders and thereafter.

No Dissenters’ Rights

Shareholders do not have the statutory right to dissent and obtain an appraisal of their shares under Florida law in connection with Proposal 2 to amend the Amended and Restated Articles of Incorporation or Amended and Restated Bylaws.

Vote Required and Recommendation

The affirmative vote of the holders of a majority of the common shares outstanding as of the record date is required to approve Proposal 2. Abstentions and broker non-votes will have the same effect as a vote against the proposal.

The Board of Directors recommends a vote for the proposal to amend the Company’s Amended and Restated Articles of Incorporation and Amended and Restated Bylaws to declassify the organization of the Board of Directors.

OTHER MATTERS

As of the date of this Proxy Statement, there are no other matters to be brought before the Meeting. Should any other matters come before the Meeting, action may be taken thereon pursuant to the proxies in the form enclosed, which confer discretionary authority on the persons named therein or their substitutes with respect to such matters.

SHAREHOLDER PROPOSALS

To be considered for inclusion in next year’s proxy statement, shareholder proposals must be received at the Company’s principal executive offices not later than the close of business on January 14, 2005. For any proposal that is not submitted for inclusion in next year’s proxy statement (as described in the preceding sentence) but is instead sought to be presented directly at next year’s annual meeting, Securities and Exchange Commission rules permit management to vote proxies in its discretion if (a) the Company received notice of the proposal before the close of business on March 31, 2005 and advises shareholders in next year’s proxy statement about the nature of the matter and how management intends to vote on such matter, or (b) does not receive notice of the proposal prior to the close of business on March 31, 2005. Article XVII of the Company’s Bylaws provides that all shareholder proposals must contain certain information regarding the shareholder, including the shareholder’s name and address, the names of any person nominated by the shareholder as a director, any arrangement between the shareholder and such nominee, and any other information regarding the matter of business proposed by the shareholder that would be required in a proxy statement filed under the proxy rules of the Securities and Exchange Commission.

Notices of intention to present proposals at the 2005 Annual Meeting should be addressed to Robert L. Burrows, Secretary and Chief Financial Officer, Action Products International, Inc., 1101 North Keller Road, Suite F, Orlando, Florida 32810. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.

EXPENSES OF SOLICITATION

The cost of this solicitation of proxies will be borne by the Company, including expenses in connection with preparing, assembling and mailing the proxy solicitation materials and the charges and expense of brokerage houses and other custodians, nominees and fiduciaries for forwarding solicitation materials to beneficial owners. In addition to solicitation by mail, proxies may be solicited personally or by telephone or telegraph by directors, officers or employees of the Company, who will receive no additional compensation for such services.

Shareholders are urged to specify their choices, date, sign and return the enclosed proxy in the enclosed postage-paid envelope whether or not they plan to attend the meeting. Shareholders present at the meeting may revoke their proxies and vote in person. Prompt response is helpful, and your cooperation will be appreciated.

Dated: [ ], 2004

Appendix I

Amended and Restated

Charter of the Audit Committee

The Board of Directors

Action Products International, Inc.

The objectives, policies and functions of the Audit Committee (the “Committee”) of the Board of Directors of Action Products International, Inc. (the “Company”) shall be as follows:

Purpose and Authority:

The Audit Committee (the “Committee”) shall assist the Board in oversight of (1) the integrity of the Company’s financial statements and the Company’s accounting and financial reporting processes,, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence, (4) the performance of the Company’s internal and independent auditors and the audits of the Company’s financial statements,, and (5) compliance with the Company’s code of conduct for all Company employees. The Committee shall have the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent auditor. The Committee shall also have all authority necessary to fulfill the duties and responsibilities assigned to the Committee in this Charter or otherwise assigned to it by the Board.

As the Committee deems appropriate, it may retain independent counsel, accounting and other professionals to assist the Committee without seeking Board approval with respect to the selection, fees or terms of engagement of any such advisors.

The Committee when appropriate may form and delegate authority to subcommittees and may delegate authority to one or more designated members of the Committee.

Composition:

Independence

The Committee shall be composed of two or more directors, as determined by the Board, each of whom shall meet the independence requirements established by the Board, the Nasdaq Stock Market, Inc. (“Nasdaq”) and any other regulations applicable to the Company from time to time.

Financial Literacy/ Expertise

Each Committee member shall be financially literate in the business judgment of the Board. At least one Committee member shall have, through education and experience as a public accountant or auditor or a principal financial officer, comptroller or principal accounting officer or from performance of similar functions, sufficient financial expertise in accounting and auditing so as to be a “financial expert,” in accordance with such rules and regulations, including rules and regulations of Nasdaq, as may be applicable to the Company from time to time.

Service on Other Public Company Audit Committees

No member of the Committee shall serve on more than two audit committees of publicly traded companies, other than the Company, at the same time such member serves on this Committee, unless the Board determines that such simultaneous service would not impair the ability of such member to effectively serve on this Committee. If a Committee member serves on the audit committees of both a public company and a wholly owned subsidiary of such company, such service shall be counted as service on one audit committee, rather than two.

Appointment and Removal of Members

The members of the Committee shall be appointed by the Board on the recommendation of the Nominating Committee. The Board may remove any member from the Committee at any time with or without cause.

Duties and Responsibilities:

The Committee shall have the following duties and responsibilities, in addition to any duties and responsibilities assigned to the Committee from time to time by the Board.

Engagement of Independent Auditor

•

Select and retain the independent auditor; determine and approve compensation of the independent auditor; resolve disagreements between management and the independent auditor; oversee and evaluate the independent auditor and, where appropriate, replace the independent auditor, with the understanding that the independent auditor shall report directly to the Committee and shall be ultimately accountable to the Committee and to the Board, as representatives of the shareholders of the Company.

•

Pre-approve the retention of the independent auditor for all audit and such non-audit services as the independent auditor is permitted to provide the Company and approve the fees for such services. Pre-approval of audit services shall not be delegated to management, but may be delegated to one or more independent members of the Committee so long as that member or members report their decisions to the Committee at all regularly scheduled meetings. Pre-approval of non-audit services with an expected cost less than $10,000 individually and $30,000 in the aggregate may be delegated to management. In considering whether to pre-approve any non-audit services, the Committee or its delegees shall consider whether the provision of such services is compatible with maintaining the independence of the auditor.

•

Ensure that the Committee’s approval of any non-audit services is publicly disclosed pursuant to applicable laws, rules and regulations.

Evaluate Independent Auditor’s Qualifications, Performance and Independence

•

At least annually, evaluate the independent auditor’s qualifications, performance and independence, including that of the lead partner.

•

At least annually, obtain and review a report by the independent auditor describing the firm’s internal quality control procedures; any material issues raised by the most recent internal quality control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, relating to one or more audits carried out by the firm and any steps taken to deal with any such issues.

•

At least annually, obtain and review the letter and written disclosures from the independent auditor consistent with Independence Standards Board Standard No. 1, including a formal written statement by the independent auditor delineating all relationships between the auditor and the Company; actively engage in a dialogue with the auditor with respect to that firm’s independence and any disclosed relationships or services that may impact the objectivity and independence of the auditor; and take, or recommend that the Board take, appropriate action to satisfy itself of the independence of the outside auditor.

•

Discuss with the independent auditor the matters required to be discussed by Statement of Auditing Standards (“SAS”) No. 61, Communications with Audit Committee, SAS No. 89, Audit Adjustments, and SAS No. 90, Audit Committee Communications, all as amended from time to time, together with any other matters as may be required for public disclosure or otherwise under applicable laws, rules and regulations.

•

Ensure that the independent auditor’s lead partner and reviewing partner are replaced every five years. Consider, from time to time, whether a rotation of the independent auditing firm would be in the best interests of the Company and its shareholders.

•

Present the Committee’s conclusions regarding the performance, qualifications and independence of the independent auditor to the full Board.

Review Financial Statements and Financial Disclosure

•

Meet with management and the independent auditor to review and discuss the annual audited financial statements and quarterly financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the report of the independent auditor thereon and to discuss any significant issues encountered in the course of the audit work, including any restrictions on the scope of activities, access to required information or the adequacy of internal controls.

•

Review with the independent auditor any audit problems or difficulties and management’s response, including significant disagreements with management, adjustments noted by the independent auditor but not taken by management, communications between the audit team and the AICPA or SEC, and any management or internal control letters issued or proposed to be issued. Review and discuss with the independent auditor the responsibilities, budget and staffing of the Company’s internal audit function.

•

If so determined by the Committee, based on its review and discussion of the audited financial statements with management and the independent auditor, its discussions with the independent auditor regarding the matters required to be discussed by SAS 61, and its discussions regarding the auditor’s independence, recommend to the Board that the audited financial statements be included in the Company’s annual report on Form 10-K.

•

Discuss earnings press releases, as well as the financial information and earnings guidance provided to analysts and rating agencies. This may be done generally and does not require the Committee to discuss in advance each earnings release or each instance in which the Company may provide earnings guidance.

Periodic Assessment of Accounting Practices and Policies and Risk Management

•

Obtain and review timely reports from the independent auditor regarding (1) all critical accounting policies to be used, (2) all alternative treatments of financial information within GAAP that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor, and (3) other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.

•

Review with management and the independent auditor the effect of regulatory and accounting initiatives, as well as off-balance sheet structures on the financial statements of the Company.

•

Review changes in promulgated accounting and auditing standards that may materially affect the Company’s financial reporting practices.

•

Discuss policies with respect to risk assessment and risk management, including the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.

•

Review any reports by management regarding the effectiveness of, or any deficiencies in, the design or operation of internal controls and any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. Review any report issued by the Company’s independent auditor regarding management’s assessment of the Company’s internal controls. Inquire of independent auditor their assessment of the Company’s process for identifying, assessing, and responding to the risk of fraud.

•

Review any report issued by the Company’s independent auditor regarding management’s assessment of the Company’s internal controls.

•

Inquire of independent auditor their assessment of the Company’s process for identifying, assessing, and responding to the risk of fraud.

Related-Party Transactions

•

Review and approve all related-party transactions, including transactions between the Company and its officers or directors or affiliates of officers or directors.

Internal Audit Review

•

Review the responsibilities, functions and performance of the Company’s internal audit department, including internal audit plans, budget, and the scope and results of internal audits.

•

Periodically review with management, the internal audit department and the independent auditor the scope and adequacy of the internal accounting controls implemented to comply with the Foreign Corrupt Practices Act (“FCPA”).

•

Periodically review with management, the internal audit department and the independent auditor, and report to the Board regarding, the Company’s compliance with the recordkeeping provisions of the FCPA and SEC rules.

Proxy Statement Report of Audit Committee

•

Prepare the report required by the rules of the SEC to be included in the Company’s annual proxy statement.

Hiring Policies

•

Set clear hiring policies for the Company’s hiring of employees or former employees of the independent auditor who were engaged on the Company’s account, and ensure that such policies comply with any regulations applicable to the Company from time to time.

Ethics Compliance and Complaint Procedures

•

Develop and monitor compliance with a code of conduct for all Company employees, officers and directors pursuant to and to the extent required by regulations applicable to the Company from time to time.

•

Establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters.

•

Establish procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

Reports to Board

•

Report regularly to the Board any issues that arise with respect to the quality and integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements and the performance and independence of the internal and independent auditors.

•

Provide minutes of Committee meetings to the Board and report to the Board on any significant matters arising from the Committee’s work.

Duties Exclusive to the Audit Committee:

The following duties, previously set forth in this Charter, shall be the exclusive responsibility of this Committee:

•

Pre-approve the retention of the independent auditor for all audit and such non-audit services as the independent auditor is permitted to provide to the Company and approve the fees for such services.

•

(Pre-approval of audit and non-audit services may be delegated to one or more independent members of the Committee so long as that member or members report their decisions to the Committee at all regularly scheduled meetings.)

•

Establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters.

•

Establish procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

Meetings:

The Committee shall establish a meeting calendar annually. The Committee may hold such other meetings as are necessary or appropriate in order for the Committee to fulfill its responsibilities. In the absence of a member designated by the Board to serve as chair, the members of the Committee may appoint from among their number a person to preside at their meetings.

The Committee shall meet at least quarterly in separate executive sessions with management, internal audit personnel and the independent auditor to discuss matters that the Committee or the other groups believe warrant Committee attention.

Evaluation:

The Committee shall review and reassess this Charter at least annually and, if appropriate, propose changes to the Board.

The Committee shall obtain or perform an annual evaluation of the Committee’s performance and make applicable recommendations for improvement.

It is not the responsibility of the Committee to plan or conduct audits or to determine whether the Company’s financial statements are complete and accurate or in accordance with generally accepted accounting principles.

Appendix II

NOMINATING COMMITTEE CHARTER

THE BOARD OF DIRECTORS

ACTION PRODUCTS INTERNATIONAL, INC.

Purpose

The purpose of the Nominating Committee is to:

•

Identify individuals qualified to become Board members;

•

Recommend to the Board the persons to be nominated by the Board for election as directors at the annual meeting of shareholders; and

•

Oversee the evaluation of the Board.

Structure and Membership

•

Number. The Nominating Committee shall consist of such number of directors as the Board shall from time to time determine.

•

Independence. Except as otherwise permitted by the applicable rules of the Nasdaq Stock Market, each member of the Nominating Committee shall be “independent” as defined by such rules.

•

Chair. Unless the Board elects a Chair of the Nominating Committee, the Committee may elect a Chair by majority vote.

•

Compensation. The compensation of Nominating Committee members shall be as determined by the Board.

•

Selection and Removal. Members of the Nominating Committee shall be initially appointed by the Board, and thereafter upon the recommendation of the Committee. The Board may remove members of the Nominating Committee from such Committee, with or without cause.

Authority and Responsibilities

•

Selection of Director Nominees. Except where the Company is legally required by contract or otherwise to provide third parties with the ability to nominate directors, the Nominating Committee shall be responsible for (i) identifying individuals qualified to become Board members and (ii) recommending to the Board the persons to be nominated by the Board for election as directors at the annual meeting of stockholders and the persons to be elected by the Board to fill any vacancies on the Board.

•

Criteria for Selecting Directors. The Nominating Committee’s criteria for selecting directors are as set forth in the “Criteria for Nomination as a Director” set forth below .The Nominating Committee shall use such criteria and the principles set forth therein, and such other criteria that the Nominating Committee determines appropriate, to guide its director selection process. The Nominating Committee shall be responsible for reviewing with the Board, on an annual

basis, the requisite skills and criteria for new Board members as well as the composition of the Board as a whole.

•

Selection of Committee Members. The Nominating Committee shall be responsible for recommending to the Board the directors to be appointed to each committee of the Board.

•

Evaluation of the Board. The Nominating Committee shall be responsible for overseeing an annual self-evaluation of the Board to determine whether it and its committees are functioning effectively. The Nominating Committee shall determine the nature of the evaluation, supervise the conduct of the evaluation and prepare an assessment of the Board’s performance, to be discussed with the Board.

Procedures and Administration

•

Meetings. The Nominating Committee shall meet as often as it deems necessary in order to perform its responsibilities. The Committee shall keep such records of its meetings as it shall deem appropriate.

•

Subcommittees. The Nominating Committee may form and delegate authority to one or more subcommittees (including a subcommittee consisting of a single member), as it deems appropriate from time to time under the circumstances.

•

Reports to the Board. The Nominating Committee shall report regularly to the Board.

•

Charter. The Nominating Committee shall, from time to time as it deems appropriate, review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.

•

Annual Self-Evaluation. At least annually, the Nominating Committee shall evaluate its own performance.

Criteria for Nomination as a Director

General Criteria

•

Nominees should have a reputation for integrity, honesty and adherence to high ethical standards.

•

Nominees should have demonstrated business acumen, experience and ability to exercise sound judgments in matters that relate to the current and long-term objectives of the Company and should be willing and able to contribute positively to the decision-making process of the Company.

•

Nominees should have a commitment to understand the Company and its industry and to regularly attend and participate in meetings of the Board and its committees.

•

Nominees should not have, nor appear to have, a conflict of interest that would impair the nominee’s ability to represent the interests of all the Company’s stockholders and to fulfill the responsibilities of a director.

Application of Criteria to Existing Directors

The renomination of existing directors should not be viewed as automatic, but should be based on continuing qualification under the criteria set forth above. In addition, the Nominating Committee shall consider the existing directors’ performance on the Board and any committee.

Criteria for Composition of the Board

The backgrounds and qualifications of the directors considered as a group should provide a significant breadth of experience, knowledge and abilities that shall assist the Board in fulfilling its responsibilities.

Appendix III

Proposed Amended Article Sixth of Amended and Restated Articles of Incorporation

“Article Sixth is hereby amended to read as follows:

SIXTH: [Omitted].”

Proposed Amended Article III, Section 2 of Amended and Restated Bylaws

“Section2. NUMBER, TENURE AND QUALIFICATIONS. The corporation shall have five (5) director(s) initially. The number of directors may be increased or decreased from time to time by (a) a majority vote of the entire board of directors, or (b) a vote of the holders of a majority of the outstanding sharers of the corporation at any regular or special meeting of the shareholders; however, no decrease shall have the effect of shortening the term of an incumbent director (unless the shareholders remove the director pursuant to Section 15 hereof. Effective immediately after the 2004 Annual Meeting of Shareholders, the term of each director shall be until the next succeeding annual meeting of shareholders and such director’s successor is elected and qualified, unless such director is earlier removed or resigns as provided in these Bylaws.”

ACTION PRODUCTS INTERNATIONAL, INC.

PROXY FOR ANNUAL MEETING OF SHAREHOLDERS

June 3, 2004

The undersigned hereby constitutes and appoints Judith H. Kaplan and Robert L. Burrows the undersigned’s true and lawful attorneys and proxies (with full power of substitution in each) (the “Proxy Agents”), to vote all of the shares of Action Products International, Inc. owned by the undersigned on April 16, 2004, at the Annual Meeting of Shareholders of Action Products International, Inc. to be held at the offices of the Company located at 1101 North Keller Road, Suite E, Orlando, Florida 32810 on 3^rd day, June, 2004, at 10:00_a.m., local time (including adjournments), with all powers that the undersigned would possess if personally present.

Proposal 1.

Election of Directors

To elect three directors as follows: Warren Kaplan, Ronald S. Kaplan and Neil Swartz as Class II Directors for a (i) one year term to expire at the 2005 Annual Meeting, if Proposal 2 is accepted, or (ii) the 2006 Annual Meeting if Proposal 2 is not accepted.

The Board recommends a vote FOR each nominee

¨ FOR ALL Nominees

¨ WITHHOLD ALL Nominees

¨ FOR ALL EXCEPT:

(To withhold authority to vote for an individual

nominee, write that nominee’s name in the space

provided above.)

Proposal 2

Amendment to the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws to declassify the organization of the Board of Directors.

The Board recommends a vote FOR this proposal

¨ FOR

¨ AGAINST

¨ ABSTAIN

Should any other matter requiring a vote of the Shareholders arise, the above-named Proxy agents, and each of them, are authorized to vote the shares represented by this Proxy as their judgment indicates is in the best interest of Action Products International, Inc.

This Proxy is solicited on behalf of the Board of Directors of Action Products International, Inc. This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned Shareholder. If no direction is made, this Proxy will be voted FOR the proposal described above.

IMPORTANT: Please date this Proxy and sign exactly as your name or names appear hereon. If shares are held jointly, both owners must sign. Executors, administrators, trustees, guardians and others signing in a representative capacity should give their full titles.


		Dated: , 2004
Signature of Shareholder


		Dated: , 2004
Signature of Joint Shareholder

PLEASE RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.

Check this box if you plan to attend the Annual Meeting ¨

To Shareholders of Action Products International, Inc.:

Whether or not you are able to attend our 2004 Annual Meeting of Shareholders, it is important that your shares be represented, no matter how many shares you own. Accordingly, please complete and sign the Proxy provided above and mail it in the enclosed postage paid envelope. We look forward to receiving your voted Proxy at your earliest convenience.