<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: DECEMBER 31, 1997 COMMISSION FILE NUMBER: 0-28044
PENSKE MOTORSPORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 51-0369517
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
13400 WEST OUTER DRIVE
DETROIT, MI 48239-4001
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (313) 592-8255
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE NASDAQ STOCK MARKET(SM)
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. [X] YES [ ] NO.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT WAS APPROXIMATELY $201,846,611 BASED UPON THE CLOSING SALES PRICE OF
THE REGISTRANT'S COMMON STOCK ON THE NASDAQ STOCK MARKET(SM) AT MARCH 24, 1998,
OF $32.125 PER SHARE. AS OF MARCH 24, 1998, 14,208,898 SHARES OF REGISTRANT'S
COMMON STOCK, $.01 PAR VALUE PER SHARE, WERE OUTSTANDING. PORTIONS OF THE
REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED FOR ITS 1998 ANNUAL MEETING
OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business......................................................... 2
Item 2. Properties....................................................... 10
Item 3. Legal Proceedings................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.............. 11
Supplementary Item: Executive Officers of Registrant............. 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.............................................. 12
Item 6. Selected Financial Data.......................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 14
Item 8. Financial Statements and Supplementary Data...................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 33
PART III
Item 10. Directors and Executive Officers of the Registrant............... 33
Item 11. Executive Compensation........................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and
Management....................................................... 33
Item 13. Certain Relationships and Related Transactions................... 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 33
Signatures................................................................. 37
</TABLE>
1
<PAGE> 3
PART I
ITEM 1: BUSINESS
Penske Motorsports, Inc. ("PMI") is a leading promoter and marketer of
professional motorsports in the United States. PMI owns and operates speedways
through its subsidiaries, Michigan International Speedway, Inc. ("Michigan
Speedway") in Brooklyn, Michigan, Pennsylvania International Raceway, Inc.
("Nazareth Speedway") in Nazareth, Pennsylvania, California Speedway Corporation
("California Speedway") in Fontana, California, and North Carolina Motor
Speedway, Inc. ("North Carolina Speedway") in Rockingham, North Carolina. In
addition, PMI owns 45% of the ownership interests in Homestead-Miami Speedway,
LLC, which owns and operates the Miami-Dade Homestead Motorsports Complex in
Homestead, Florida ("Homestead-Miami Speedway"). PMI also produces and markets
motorsports-related merchandise such as apparel, souvenirs and collectibles
through its wholly-owned subsidiary, Motorsports International Corp. ("MIC"). In
addition, through its wholly-owned subsidiaries, Competition Tire West, Inc.
("Competition Tire West") and Competition Tire South, Inc. ("Competition Tire
South" and, together with Competition Tire West, "Competition Tire"), PMI
distributes and sells Goodyear brand racing tires in the midwest and southern
regions of the United States.
Unless the context otherwise requires, references herein to the "Company"
mean Penske Motorsports, Inc. ("PMI") and its subsidiaries considered as one
enterprise. "NASCAR(R)" and "Winston Cup(R)" are registered trademarks and
service marks of the National Association for Stock Car Auto Racing, Inc.
("NASCAR").
PMI, excluding Homestead-Miami Speedway, promoted a total of 17 major
racing events at Michigan Speedway, Nazareth Speedway, California Speedway and
North Carolina Speedway in 1997 and expects to promote a total of 19 major
racing events at these speedways in 1998. Of the 17 1997 events, 11 were stock
car races, 9 of which were sanctioned by NASCAR, 4 (including an Indy Lights
Series event) were Indy car races sanctioned by Championship Auto Racing Teams,
Inc. ("CART"), and 2 were Craftsman Truck Series races sanctioned by NASCAR.
NASCAR events promoted by PMI in 1997 included 4 NASCAR races associated with
the Winston Cup Series, 4 races associated with the NASCAR Busch Grand National
Series, 1 race associated with NASCAR Winston West Series and 2 races associated
with the NASCAR Craftsman Truck Series.
Management believes that spectator demand for its Winston Cup events at
California Speedway, Michigan Speedway and North Carolina Speedway will exceed
existing permanent seating capacity. At December 31, 1997, permanent seating
capacity, excluding infield capacity, at California Speedway was 70,644, at
Michigan Speedway was 106,775 and at North Carolina Speedway was 50,219. In
1998, PMI expects to add approximately 5,000 grandstand seats at Michigan
Speedway, 15,000 grandstand seats at California Speedway and 14,000 grandstand
seats at North Carolina Speedway. In addition, PMI expects to add 21,000 new
grandstand seats at California Speedway prior to the year 2002. PMI has received
the necessary government approvals for these additional seats as well as
approval for a total capacity of 107,000 spectators at California Speedway.
Also, in 1997, PMI added approximately 11,000 grandstand seats at Nazareth
Speedway which now has permanent seating capacity, excluding infield capacity,
of 46,288, and also added 8,500 seats at Michigan Speedway.
In addition to permanent seating capacity, California Speedway has 71
terrace suites and 55 chalets and Michigan Speedway has 37 suites, 40 chalets
and 10 grandstand pavilions for corporate hospitality. North Carolina Speedway
has 34 suites. Nazareth Speedway has 39 hospitality chalets and additional space
for large corporate gatherings which can accommodate up to 5,000 people.
PMI owns 45% of the outstanding ownership interests in Homestead-Miami
Speedway. Homestead-Miami Speedway has permanent seating capacity of 35,924
seats, excluding infield capacity, and temporary seating of 5,730. In addition,
Homestead-Miami Speedway has 30 terrace suites, 20 skybox lounges and 30
chalets.
2
<PAGE> 4
COMPANY STRATEGY
The Company's strategy is to continue to increase revenue and profitability
by hosting premier weekend events, expanding its existing seating capacity and
otherwise improving its facilities, increasing its sales of racing-related
merchandise and pursuing opportunities to expand into other markets. The key
elements of this strategy are as follows:
- Hosting Premier Weekend Events. The Company plans its racing events, and
designs and maintains its facilities, to create an environment which
maximizes the spectators' entertainment experience. Management believes
that associating supporting race events with a Winston Cup event
sanctioned by NASCAR or FedEx Championship Series event sanctioned by
CART, helps to increase overall weekend attendance at the Company's
facilities, in part by attracting spectators traveling longer distances,
and makes the overall experience more satisfying. For example, in 1997,
the Company hosted an ARCA-sanctioned race on the Saturday preceding the
Miller 400, which is a Winston Cup event, and on the Saturday preceding
the Marlboro 500, which is a CART-sanctioned event. As a result of this
strategy, the Company generated virtually all of its 1997 speedway
revenue in 10 weekends.
To maximize the spectators' entertainment experience, the Company
designs and maintains its facilities to maximize the comfort, view and
amenities offered to the spectators. To that end, upon acquiring
Michigan Speedway in 1973, management embarked upon a series of capital
improvements, including the construction of additional permanent
grandstand seating, new hospitality suites, improvements to the
concession stands and innovative corporate entertainment facilities. At
Michigan Speedway, most spectators can see the entire track from the
grandstands due to the banking of the track and the absence of
obstruction in the infield. Following the purchase of Nazareth Speedway
in 1986, PMI implemented a similar strategy by converting Nazareth
Speedway from a dirt track to a one-mile asphalt speedway and
constructing grandstands and corporate entertainment facilities. In
addition, in 1996 PMI constructed new concession and restroom facilities
at Michigan Speedway and Nazareth Speedway to increase the comfort of
race spectators and also upgraded the seating in the main grandstands at
Nazareth Speedway. Capitalizing on its successful experience at Michigan
Speedway and Nazareth Speedway, PMI designed the California Speedway
with state-of-the-art seating, concessions and amenities. Upon
completion of its acquisition of North Carolina Speedway in 1997, PMI
improved the grandstand seating by repainting and sealing the tiered
cement bleachers and adding aluminum seats with backs on the front
stretch, improved landscaping and cleared additional property to
increase camping and parking availability.
Expanding corporate entertainment at racing events also offers the
opportunity for increased revenue. PMI improved its corporate
entertainment facilities by expanding its corporate concourses, and
expanded and upgraded the chalet village at Michigan Speedway for the
1997 season. PMI currently has 10 full-time employees who spend the
majority of their time marketing events at PMI's facilities to corporate
customers.
No speedway currently promotes more than two Winston Cup races per year.
In 1998, PMI will promote two Winston Cup events at Michigan Speedway,
one Winston Cup event at the California Speedway and two Winston Cup
events at North Carolina Speedway. In addition, PMI will promote one
CART FedEx Championship Series event at each of Michigan Speedway,
California Speedway, and Nazareth Speedway in 1998. Homestead-Miami
Speedway will also have one CART FedEx Championship Series event.
Management of the Company intends to seek additional racing events for
its facilities.
- Sales of Merchandise, Tires and Accessories. The Company sells
merchandise, such as apparel, souvenirs and collectibles, directly to
spectators at its facilities, to retail customers through catalogue
sales and through direct sales to dealers. The Company also rents "show
cars" for promotional events to corporate customers. The Company expects
to increase revenue derived from third party merchandisers as the number
of merchandisers at the Company's races increase. The Company is also
exploring additional distribution channels, such as the Internet.
3
<PAGE> 5
Additionally, the Company engages in the wholesale and retail sale and
distribution of Goodyear brand racing tires for various types of racing
events. The Company's strategy is to continue to increase sales of racing
tires through the favorable reputation of the Goodyear tire, as well as
capitalizing on the growing popularity of motorsports in the United
States.
- Continued Expansion of California Speedway, Michigan Speedway, North
Carolina Speedway, and Nazareth Speedway. Since the acquisition of
Michigan Speedway and Nazareth Speedway, PMI has constructed more than
109,000 grandstand seats at the two facilities. Management believes that
spectator demand for its Winston Cup events at Michigan Speedway,
California Speedway and North Carolina Speedway will exceed the Company's
existing permanent grandstand seating capacity at these facilities. PMI
plans to continue to expand by adding permanent grandstand seating and
luxury suites at Michigan Speedway, California Speedway, North Carolina
Speedway and Nazareth Speedway. Prior to the 1997 season, PMI added
approximately 8,500 grandstand seats at Michigan Speedway and
approximately 11,000 grandstand seats at Nazareth Speedway. Prior to the
commencement of the 1998 racing season, PMI expects to add approximately
5,000 grandstand seats at Michigan Speedway and approximately 15,000
grandstand seats at California Speedway. In addition, prior to the October
race at North Carolina Speedway, PMI expects to add approximately 14,000
grandstand seats.
- Pursuing Expansion Opportunities. The Company intends to consider
expansion opportunities as they become available, including growth by
acquisition. For example, in 1997 the Company acquired all of the issued
and outstanding common stock of North Carolina Speedway (of which it owned
approximately five percent at the beginning of 1997) and in 1997 and 1998
45% of the ownership interests of Homestead-Miami Speedway.
EVENTS AND FACILITIES
Events
PMI's operations in 1997 consisted principally of promoting racing and
related events at its Michigan Speedway, Nazareth Speedway, and California
Speedway. In addition, PMI acquired 70% of the outstanding common stock of North
Carolina Speedway in May 1997 and the remaining common stock in December 1997.
In 1997, North Carolina Speedway hosted two Winston Cup events, one in February
(while PMI owned approximately 5%) and the other in October (when PMI owned
approximately 70%).
PMI's 1998 scheduled racing events at all of its facilities are as follows:
<TABLE>
<CAPTION>
DATE RACE CIRCUIT FACILITY
---- ---- ------- --------
<S> <C> <C> <C>
February 21 GM Goodwrench Service Plus 200 NASCAR Busch Grand National North Carolina Speedway
February 22 GM Goodwrench Service Plus 400 NASCAR Winston Cup North Carolina Speedway
March 15
PPG-Dayton Indy Lights Homestead-Miami Speedway
March 15 Marlboro Grand Prix of Miami CART/FedEx Championship Homestead-Miami Speedway
Presented by Toyota
April 4
NASCAR Slim Jim All-Pro Homestead-Miami Speedway
April 4 Florida Dodge Dealers 400 NASCAR Craftsman Truck Homestead-Miami Speedway
April 25
KOOL Toyota Atlantic Nazareth Speedway
Championship
April 26
PPG-Dayton Indy Lights Nazareth Speedway
April 26 Bosch Spark Plug Grand Prix CART/FedEx Championship Nazareth Speedway
Presented by Toyota
May 2 Auto Club 200 NASCAR Winston West California Speedway
May 2 IROC Round II IROC California Speedway
May 3 California 500 Presented by NAPA NASCAR Winston Cup California Speedway
May 16
USRRC/F2000 Homestead-Miami Speedway
May 17
USRRC NTB Trans Am Homestead-Miami Speedway
May 17
USRRC Can-Am GT Homestead-Miami Speedway
May 17 First Union 200 NASCAR Busch Grand National Nazareth Speedway
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
DATE RACE CIRCUIT FACILITY
---- ---- ------- --------
<S> <C> <C> <C>
May 17
NASCAR Featherlite Modified Nazareth Speedway
Tour
June 13 ARCA 200 ARCA Michigan Speedway
June 13 IROC Round III IROC Michigan Speedway
June 14 Miller Lite 400 NASCAR Winston Cup Michigan Speedway
July 12
NASCAR Slim Jim All-Pro Nazareth Speedway
July 12 NAPA AutoCare 200 NASCAR Craftsman Truck Nazareth Speedway
July 18 No Fear Challenge NASCAR Craftsman Truck California Speedway
July 18
NASCAR Winston West California Speedway
July 19 Kenwood Home & Car Audio 300 NASCAR Busch Grand National California Speedway
July 25 Detroit News 100 PPG-Dayton Indy Lights Michigan Speedway
July 26 US 500 Presented by Toyota CART/FedEx Championship Michigan Speedway
August 15 Pepsi 200 Presented by DeVilbiss NASCAR Busch Grand National Michigan Speedway
August 16 Pepsi 400 Presented by DeVilbiss NASCAR Winston Cup Michigan Speedway
October 17
FIA GT Championship Homestead-Miami Speedway
October 31
PPG-Dayton Indy Lights California Speedway
October 31 ACDelco 200 NASCAR Busch Grand National North Carolina Speedway
November 1 Marlboro 500 Presented by Toyota CART/FedEx Championship California Speedway
November 1 ACDelco 400 NASCAR Winston Cup North Carolina Speedway
November 14
NASCAR Goody's Dash Homestead-Miami Speedway
November 15
NASCAR Slim Jim All-Pro Homestead-Miami Speedway
November 15 Jiffy Lube Miami 300 NASCAR Busch Grand National Homestead-Miami Speedway
</TABLE>
NASCAR grants sanctioning agreements on an annual basis for the next
succeeding year, while CART grants multiple year sanctioning agreements. Each
CART FedEx Championship Series race at PMI's facilities is scheduled through
1998, other than Homestead-Miami Speedway, which is scheduled through the year
2000. At Michigan Speedway, the Company has hosted two Winston Cup races
annually since 1973 and North Carolina Speedway has hosted two Winston Cup races
annually since 1966. In addition, the Company has hosted at least one CART FedEx
Championship Series event annually since 1979.
Facilities
MICHIGAN SPEEDWAY. Michigan Speedway is located in Brooklyn, Michigan,
approximately 70 miles southwest of Detroit and 18 miles southeast of Jackson.
Michigan Speedway has 106,775 grandstand seats, 37 suites, a chalet village
containing 40 hospitality chalets and 10 grandstand pavilions. In 1997, PMI
added approximately 8,500 grandstand seats.
The speedway and all adjacent parking areas consist of approximately 977
acres, all of which is owned by PMI. Michigan Speedway is a premier
superspeedway with a full view of the track from most of the grandstand seats.
Michigan Speedway is the home of the fastest 500 mile auto race (the 1990
Marlboro 500 at an average winning speed of 189.727 mph) and, prior to 1997, was
the home of the world Indy car speed record (Jimmy Vassar's 234.665 mph
qualifying lap at the 1996 Marlboro 500), which record was broken in 1997 at
California Speedway. Michigan Speedway is a two-mile, tri-oval with 18 degree
banking in the corners, 12 degrees on the front straightaway and five degrees on
the back straightaway. The track is 73 feet wide with a 10-foot apron in the
turns and 45 feet wide with a 12-foot apron on the straightaways. The
backstretch is 2,242 feet in length. The pit road is 2,299 feet long, 50 feet
wide and contains space for 44 individual pit areas. The free parking areas can
accommodate 50,000 cars. The Michigan Speedway oval was resurfaced in the spring
of 1995. PMI acquired Michigan Speedway in 1973.
NAZARETH SPEEDWAY. Nazareth Speedway is located in Lower Nazareth Township,
Pennsylvania, approximately 12 miles from Allentown, 50 miles from Philadelphia
and 80 miles from New York City. Nazareth Speedway sits on approximately 107
acres and on race days uses more than 183 acres of land, some of which is
leased. Nazareth Speedway has permanent seating capacity of 46,288 including
approximately 11,000 grandstand seats which were added in 1997. The track is a
one-mile speedway. Turn one is banked
5
<PAGE> 7
three degrees, turn two is banked four degrees and turns three and four are
banked six degrees. The track width varies from 50 feet on the front stretch to
60 feet on the back stretch. Nazareth Speedway has an elevation change of 34
feet and an 18-foot wide warm up lane encompassing the entire inside of the
track. This provides a racing surface for drivers, traveling slower than race
speeds, to warm up their engines and tires without interfering with faster cars.
PMI acquired Nazareth Speedway in 1986.
NORTH CAROLINA SPEEDWAY. North Carolina Speedway is located in Rockingham,
North Carolina, approximately 90 miles south of Raleigh, North Carolina. North
Carolina Speedway, which was formed and began operations in 1965, has 48,229
reserved grandstand seats and 34 suites with seating for 1,990 guests.
The speedway consists of approximately 248 acres, all of which are owned by
North Carolina Speedway, and the speedway leases an additional 52 acres for
parking on race days. North Carolina Speedway is a 1.017-mile oval with 22
degree to 25 degree banking in the turns and 8 degree banking on the front and
back straightaway. The track is 55 feet wide with a 50-foot apron on the turns
and 50 feet wide with a 20-foot apron on the straightaways. The backstretch is
1,367 feet in length. The front pit road is 1,013 feet long, 25 feet wide and
contains space for 31 individual pit areas. The back pit road is 841 feet long,
15 feet wide and contains space for 22 individual pit areas. The oval was
resurfaced in 1994. In 1998, PMI intends to rebuild the grandstands along the
backstretch, which will add approximately 14,000 seats. PMI acquired North
Carolina Speedway in 1997.
CALIFORNIA SPEEDWAY. California Speedway is located on approximately 529
acres, 40 miles east of Los Angeles in San Bernadino county and consists of a
two-mile, tri-oval track banked in a fashion similar to the Michigan Speedway
facility. In 1997, California Speedway became the home of the world Indy car
speed record (Mauricio Gugelmin's 240.942 mph qualifying lap at the 1997
Marlboro 500 Presented by Toyota) surpassing the previous record held at PMI's
Michigan Speedway. California Speedway has 70,644 grandstand seats to which PMI
expects to add 21,000 grandstand seats by the year 2002 (15,000 in 1998). PMI
has received the necessary governmental approvals for these additional seats as
well as approval for a total capacity of 107,000 spectators. In addition to its
grandstand seats, California Speedway has 71 terrace suites and 55 chalets.
Adjacent to the pit area at California Speedway, there is a two-story
structure housing infield suites on the upper level and work areas on the lower
level. The upper level includes 71 terrace suites, each capable of accommodating
up to 40 persons to view races. Rooftop viewing areas are also provided for the
suiteholders. The lower level of the infield suite building houses 54 units
designed for various functions.
A total of 32,000 free parking spaces surround California Speedway for
those seated within the grandstand areas. Additionally, 125 spaces have been
designated for bus parking. This equates to a ratio of slightly more than one
parking space for each three grandstand seats. California Speedway also
accommodates a Metrolink station in the northeastern portion of the parking
area, along the Atkinson Topeka & Santa Fe rail line adjacent to the California
Speedway, which is a passenger rail line connecting the area with downtown Los
Angeles, as well as to Oceanside/San Diego, Oxnard/Camarillo and Lancaster.
OTHER FACILITIES. During the third quarter, the Company established its
presence in South Florida through its investment in Homestead-Miami Speedway. In
July of 1997, the Company invested $11.8 million (plus related acquisition
costs) for a 40% interest in Homestead-Miami Speedway. In March, 1998, PMI
increased its interest in Homestead-Miami Speedway to 45% by purchasing an
additional 5% of Homestead-Miami Speedway for $2.85 million payable on December
31, 2001. During the year, the Company continued to explore a new venue for
motorsports in Denver, Colorado. In 1997, the Company acquired approximately
7.3% of the outstanding common stock of Grand Prix of Long Beach, Inc. ("GPLB")
all of which stock was sold by the Company in March 1998.
COMPETITION TIRE
Two of PMI's subsidiaries, Competition Tire West (located in Brooklyn,
Michigan) and Competition Tire South (located in Daytona Beach, Florida), engage
in the wholesale and retail sale and distribution of Goodyear brand racing tires
for various types of racing events, excluding CART-sanctioned events.
Competition Tire West is a dealer of Goodyear brand racing tires. Competition
Tire West's area of primary
6
<PAGE> 8
responsibility includes Ohio, Indiana, Michigan, Illinois, Wisconsin, Minnesota,
North Dakota, South Dakota, Iowa, Missouri and Kentucky. Competition Tire South
is a dealer of Goodyear brand sports car, dirt car and drag racing tires.
Competition Tire South's area of primary responsibility includes Florida,
Georgia, Alabama, Tennessee, North Carolina and South Carolina. Competition Tire
South is also a dealer of Goodyear brand sports car racing tires in Tennessee
and North Carolina. Competition Tire sells racing tires directly to end users of
the tires and to retailers of the tires and provides supplies of tires for use
at racing events. Competition Tire West and Competition Tire South distribute
Goodyear brand tires pursuant to Dealership Agreements with Goodyear which
expire on December 31, 2000.
The material terms of the Dealership Agreements between Goodyear and
Competition Tire include payment terms (all payments are due on the 10th of each
month) and late payments entitle Goodyear to cancel the Agreement. Goodyear
disclaims any warranty as to merchantability, fitness for a particular purpose,
or otherwise and Goodyear further disclaims any liability for special or
consequential damages arising out of the use of Goodyear products sold under the
Dealership Agreements. Finally, notwithstanding the terms set forth above,
either Goodyear or Competition Tire may cancel the Dealership Agreements at the
end of any calendar year upon 30 days prior written notice.
COMPETITION
Racing events compete not only with other sports and other recreational
events scheduled on the same dates, but with other racing events sanctioned by
various racing bodies such as NASCAR, CART, the United States Auto Club
("USAC"), the National Hot Rod Association ("NHRA"), Sports Car Club of America
("SCCA"), the Automobile Racing Club of America ("ARCA"), the Indy Racing League
("IRL") and others. Racing events sanctioned by different organizations are
often held on the same dates at separate tracks, in competition with the NASCAR
and CART event dates. In addition, motorsports facilities compete with one
another for the patronage of motor racing spectators, with other track owners
and with other sports and entertainment businesses, many of which have resources
that exceed those of the Company. The quality of the competition, type of racing
event, caliber of events, sight lines, ticket pricing, location and customer
conveniences, among others, distinguish the motorsports facilities.
MIC's principal competitors include other authorized (as well as
unauthorized) distributors and retailers of Penske Racing merchandise and
merchandise relating to its drivers, as well as merchandise relating to other
drivers. Competition Tire's principal competitors are distributors and retailers
of racing tires manufactured by companies other than Goodyear, such as Hoosier
and Firestone.
EMPLOYEES
As of December 31, 1997, the Company had 163 full-time and part-time
employees. The Company engages a small number of temporary employees to assist
during the racing season and a large number of temporary personnel to assist
during periods of peak attendance at its events. For example, Michigan Speedway
may engage up to 4,000 persons for a race weekend at Michigan Speedway, some of
whom are volunteers. None of PMI's employees are represented by a labor union.
Management believes that PMI enjoys a good relationship with its employees.
ENVIRONMENTAL MATTERS
Prior to the commencement of construction of California Speedway, portions
of the site of California Speedway were identified by Kaiser Ventures Inc.
("Kaiser") and the applicable governmental agency as requiring remediation by
Kaiser to comply with applicable environmental laws. Property owned by Kaiser
adjacent to the site has also been identified as requiring remediation by
Kaiser. Remediation activities at the site, a former steel production facility,
were carried out by Kaiser under a Consent Order between Kaiser and the
California Environmental Protection Agency, Department of Toxic Substances
Control ("DTSC"), dated August 22, 1988. The primary area of potential
environmental concern at the site is an approximately 13 acre area which was the
location of Kaiser's former by-products plant and underground storage tanks.
Under the supervision of the DTSC, Kaiser was able to undertake successful
remedial action at the site through a
7
<PAGE> 9
combination of remedial action alternatives selected for implementation. Such
remedial efforts by Kaiser at the site include the installation of a
low-permeability membrane and cap (and long-term maintenance of this cap) in the
13 acre by-products and underground storage tank area by Kaiser, installation of
a vapor extraction system for impacted soils in that area, excavation, treatment
and off-site removal and disposal of impacted soils and residual waste
materials. Such efforts also include containment on the site of potentially
impacted soils after the DTSC considered the public health, environmental
protection, benefits derived from implementation of alternatives and decreased
levels of exposure over time.
The DTSC has determined that the combination of remedial action
alternatives presented by Kaiser meets the DTSC's remedial action objectives for
the site because they significantly reduce or eliminate the potential migration
of contaminants to ground water, surface water and air, result in removal, as
necessary, of residual waste materials and impacted soil from the site, meet
regulatory standards, and are consistent with site development plans.
Effective January 1, 1995, California Speedway and Michigan Speedway were
released by the DTSC from various liabilities under California environmental
protection laws which might otherwise arise out of their ownership of real
estate or operations at California Speedway site. In addition, Kaiser has agreed
to indemnify California Speedway and Michigan Speedway from environmental
liabilities associated with the condition of the site and the Company obtained
environmental liability insurance coverage to protect the Company during the
construction of California Speedway and for subsequent periods deemed to be
necessary by the Company.
Nevertheless, if damage to persons or property or contamination of the
environment is determined to have been caused or exacerbated by the conduct of
the Company's business, or by pollutants, substances, contaminants or wastes
used, generated or disposed of by the Company or which may be found on the
property of the Company, or should Kaiser fail to remediate properly or not be
able to honor its indemnification of the Company for such remediation
activities, there may be liability to various parties for such damage and the
Company or its subsidiaries may be required to pay the cost of investigation or
remediation, or both, of such contamination or damage caused thereby. The amount
of such liability, as to which the Company may be self-insured or which is not
subject to indemnification by Kaiser or to which Kaiser does not financially
respond, could also be material.
Changes in federal, state or local laws, regulations or requirements, or
claims asserting liabilities under federal environmental protection laws and any
other laws outside the scope of the January 1, 1995 DTSC Release, or the
discovery of theretofore unknown conditions, could require material expenditures
by the Company.
Kaiser has agreed to provide sanitary wastewater treatment services to
California Speedway from a nearby treatment facility owned by Kaiser. The
Company has the option to purchase the facility at the fair market value at any
time. Kaiser has agreed not to voluntarily sell, lease or transfer the facility
to a third party without the Company's consent.
Treated effluent from the site of California Speedway has been historically
utilized by an unrelated party, California Steel Industries ("CSI"), in its
industrial processes under an arrangement with Kaiser. The Company believes that
this utilization will continue into the future, but there can be no assurance in
this regard. Should CSI's utilization cease and a replacement not be found, or
should federal, state or local laws or regulations change, it might be
impracticable for the sewerage treatment facility serving the site of California
Speedway to continue in operation. The Company would then be required to connect
to the public sewerage system. This could require material expenditures by the
Company either to acquire and/or upgrade the treatment facility or to obtain
other sanitary wastewater treatment services from a public utility.
REGULATION
The motorsports industry generates significant revenue each year from the
promotion, sponsorship, and advertising of various companies and their products.
Government regulation can adversely impact the availability to motorsports of
this promotion, sponsorship and advertising revenue. Advertising by the tobacco
and liquor industries is generally subject to greater governmental regulation
than advertising by other sponsors
8
<PAGE> 10
of PMI's events. During the past year, various state attorney generals and
certain plaintiffs' attorneys announced settlement arrangements with the tobacco
industry that if approved and, if implemented, could potentially restrict
tobacco industry sponsorship of, and advertising at, sporting events.
Advertising revenue from the tobacco and liquor industry accounted for less than
2% of the Company's total revenue in the year ended December 31, 1997.
INSURANCE
The Company maintains insurance with insurance companies against such risks
and in such amounts, with such deductibles, as are customarily maintained by
similar businesses. The Company presently maintains a $25 million contractor's
pollution liability policy and a pollution legal liability policy, on a shared
limits basis. The policy has a $500,000 per occurrence deductible and generally
covers the Company's legal liability for bodily injury, property damage and
clean-up costs caused by pollution conditions (i) resulting from construction
activities at the California Speedway site and which are not covered by the
construction contractors' policies, and (ii) which emanate from the covered
sites and damage to third parties as a result of existing conditions or on-going
operations. There can be no assurances that such policy will be sufficient to
cover any potential liability resulting from the environmental condition of
existing facilities or from the construction of the California Speedway or that
such policy will be available in the future for the Company to purchase.
PATENTS AND TRADEMARKS
PMI has various registered and common law trademark rights to "Michigan
Speedway", "Nazareth Speedway" "North Carolina Speedway" and "California
Speedway" and related logos and has a license from a subsidiary of Penske
Corporation to use the name "Penske" in its trade name. MIC has licenses from
various drivers and businesses to use names and logos for merchandising programs
and product sales. Management's policy is to protect its intellectual property
rights zealously, through litigation if necessary, chiefly because of their
proprietary value in merchandise and promotional sales.
9
<PAGE> 11
ITEM 2: PROPERTIES
The following table sets forth the location, track name, approximate
acreage and track length for each of the Company's speedway facilities.
<TABLE>
<CAPTION>
APPROXIMATE LENGTH OF
LOCATION TRACK NAME ACREAGE* TRACK
-------- ---------- ----------- ---------
<S> <C> <C> <C>
Brooklyn, Michigan Michigan Speedway 977 2 miles
Nazareth, Pennsylvania Nazareth Speedway 183 1 mile
Rockingham, North Carolina North Carolina Speedway 300 1.017 miles
Fontana, California California Speedway 529 2 miles
Homestead, Florida** Homestead-Miami Speedway** 344 1.5 miles
</TABLE>
- - -------------------------
* The Company owns all of the acreage listed in the table except for 77 acres
of property located near Nazareth Speedway which is leased from others to
supply additional parking space and 52 acres of property located near North
Carolina Speedway which is leased from others to supply additional parking
space. In addition, all of the acreage with respect to the Homestead-Miami
Speedway is leased from the City of Homestead, Florida.
** PMI owns 45% of the outstanding ownership interests in Homestead-Miami
Speedway.
Additional information concerning the Company's facilities is set forth in
"Item 1: Business", under the caption "Events and Facilities -- Facilities."
ITEM 3: LEGAL PROCEEDINGS
In March 1997, two purported class action companion lawsuits were filed in
the United States District Court, Northern District of Georgia, against
approximately 28 businesses, including PMI and MIC, many of which are involved
in the sale of souvenirs and merchandise at NASCAR Winston Cup races. The
lawsuits allege, in substance, that the defendants unlawfully conspired to fix
the prices of souvenirs and merchandise at these races in violation of federal
antitrust laws, for which the plaintiffs are seeking treble damages. In March
1998, the plaintiffs agreed to dismiss PMI from the lawsuit without prejudice,
although PMI's subsidiary MIC continues as a defendant. The Company disputes the
claims and expects to vigorously defend itself. The lawsuit does not state the
amount of damages being sought by the claimants.
In August 1997, a purported class action was commenced against North
Carolina Speedway in the U.S. District Court for the Middle District of North
Carolina at Greensboro seeking treble damages under the United States and North
Carolina anti-trust laws. The suit alleges, in substance, that North Carolina
Speedway conspired with various persons to fix the prices of souvenirs sold at
the track during the Winston Cup and Busch Series Grand National Division stock
car races from 1988 until January 1997. The suit names various persons as
alleged co-conspirators, but does not name them (or others) as defendants, at
this time. The suit alleges similar conduct that appeared in the purported
national class actions pending in the U.S. District Court, Northern District of
Georgia, filed against approximately 28 other business and which is discussed
above. The suit against North Carolina Speedway has been transferred for
consolidated pre-trial proceedings with the Georgia case upon the motion of
North Carolina Speedway. North Carolina Speedway disputes the claims and expects
to vigorously defend itself. The lawsuit does not state the amount of damages
being sought by the claimants.
On August 5, 1997, O. Bruton Smith, a shareholder of North Carolina
Speedway and the majority shareholder and chairman of Speedway Motorsports,
Inc., filed a lawsuit in North Carolina Superior Court, Mecklenburg County,
against North Carolina Speedway, PMI, Penske Acquisition, Inc. (a wholly owned
subsidiary of PMI), PSH Corp., a shareholder of PMI, and Walter P. Czarnecki,
Richard J. Peters, Robert H. Kurnick, Jr., Carrie B. DeWitt, Nancy DeWitt
Daugherty and Jo DeWitt Wilson, each a director of North Carolina Speedway,
seeking to enjoin the consummation of the merger of North Carolina Speedway with
and into Penske Acquisition, Inc., a wholly-owned subsidiary of PMI (the
"Merger"). Ms. DeWitt Wilson and Messrs. Czarnecki and Peters are directors of
PMI and Mr. Kurnick is an executive officer of PMI. PMI and
10
<PAGE> 12
the other defendants in the lawsuit filed a motion to dismiss Mr. Smith's
lawsuit, and Mr. Smith filed a motion to obtain a preliminary injunction to
prohibit the Merger. On September 15, 1997, Mr. Smith filed a motion to add 12
other shareholders of North Carolina Speedway as additional plaintiffs. In his
lawsuit, Mr. Smith alleged that Ms. Carrie DeWitt, as a majority shareholder,
owed a duty to the minority shareholders of North Carolina Speedway to sell her
shares of common stock of North Carolina Speedway in a transaction that would
result in the minority shareholders receiving the "highest price" for their
shares and that she breached this duty by selling her shares to PMI. In
addition, Mr. Smith alleged that the defendant directors breached their
fiduciary duties to North Carolina Speedway and its shareholders by approving
the proposed Merger with PMI. Finally, Mr. Smith alleged that PMI's negotiation
and purchase of Ms. DeWitt's common stock in North Carolina Speedway and the
negotiation and execution of the Merger Agreement constituted an unfair and
deceptive trade practice under North Carolina law.
On November 12, 1997, the defendants' Motion to Dismiss Mr. Smith's lawsuit
was granted, and Mr. Smith's Motion for a preliminary injunction to enjoin the
Merger was denied. Mr. Smith then petitioned the North Carolina Court of Appeals
to stay the Merger pending his appeal. The Appeals Court denied Mr. Smith's
stay, and the Merger was completed on December 2, 1997. Mr. Smith has appealed
and continues to seek injunctive or other equitable relief concerning completion
of the Merger.
In addition, certain of the North Carolina Speedway shareholders
(constituting more than 5% of the NCMS shares outstanding prior to the Merger)
exercised their right to dissent to the price paid for the common stock of NCMS
pursuant to North Carolina law. These dissenting shareholders were paid $16.77
per share, the middle point of the range of fair value of North Carolina
Speedway as determined by an independent investment banking firm hired by North
Carolina Speedway. These dissenters have requested $55.00 per share and have
sued PMI, Penske Acquisition, Inc., and North Carolina Speedway in North
Carolina Superior Court, Mecklenberg County, North Carolina. Under its agreement
with Mrs. DeWitt, at the time of the Merger, if a dissenting shareholder, which
represents more than five percent of the North Carolina Speedway stock, receives
more consideration in a dissenters action than PMI paid in connection with the
Merger, all shareholders at the time of the Merger, other than PMI and its
affiliates, would receive a per share amount equal to the award in dissenter's
court less the per share amount paid in the Merger ($19.61 per share to
shareholders other than dissenting shareholders). There were 673,227 shares
issued and outstanding at the time of the Merger, excluding shares held by PMI
and its affiliates. Mrs. DeWitt is not entitled to any additional payment for
her shares. The Company will vigorously defend the lawsuit.
An adverse decision by the North Carolina courts with respect to Mr.
Smith's appeal or the dissenters proceeding could materially increase the
purchase price paid for North Carolina Speedway by PMI.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matters were submitted to a vote of
security holders.
SUPPLEMENTARY ITEM: EXECUTIVE OFFICERS OF MANAGEMENT (PURSUANT TO INSTRUCTION 3
TO ITEM 401(B) OF REGULATION S-K).
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
James H. Harris.................... 46 Senior Vice President and Treasurer
Gene Haskett....................... 54 Executive Vice President
Robert H. Kurnick, Jr. ............ 36 Senior Vice President, General
Counsel and Secretary
Les Richter........................ 67 Executive Vice President
</TABLE>
James H. Harris has been Senior Vice President and Treasurer of PMI since
January 1996 and, prior thereto, served as Controller of PMI. Mr. Harris was the
Controller for Penske Corporation from 1990 until 1997 and currently serves as
Vice President -- Finance of Penske Corporation.
Gene Haskett has been Executive Vice President of PMI since January 1996
and, prior thereto, was a Vice President of PMI. Mr. Haskett is the President of
Michigan Speedway and Nazareth Speedway. Prior to
11
<PAGE> 13
January 1996, he served as Vice President and General Manager of Michigan
Speedway and has served in such capacity since 1987. Mr. Haskett also served as
Vice President and General Manager of Indy Car Grand Prix, Inc. from 1985 until
1993.
Robert H. Kurnick, Jr. has been Senior Vice President, General Counsel and
Secretary of PMI since January 1996. Mr. Kurnick has also served as Assistant
General Counsel of Penske Corporation since January 1995 and Senior Vice
President, General Counsel and Secretary of Penske Auto Centers, Inc. since
October 1995. Prior to January 1995, Mr. Kurnick was a partner in the Detroit
law firm of Honigman Miller Schwartz and Cohn.
Les Richter has been Executive Vice President of PMI since July 1994. Since
1988, Mr. Richter has served as Chairman of the Board of the International Race
of Champions, Inc. and from 1992 to 1996 Mr. Richter served as Senior Vice
President -- Operations of NASCAR.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of PMI, $.01 per share (the "Common Stock"), is currently
traded on the Nasdaq Stock Market(SM) ("Nasdaq") under the symbol "SPWY". As of
March 19, 1998, 14,208,898 shares of Common Stock were outstanding and there
were approximately 11,883 record holders of Common Stock.
The following table sets forth the high and low closing sales prices for
the Company's Common Stock, as reported by Nasdaq for each calendar quarter
during the periods indicated.
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter (March 31).................... 32 25 40 3/4 28 1/2
Second Quarter (June 30).................... 33 3/4 27 1/4 38 1/4 24 3/4
Third Quarter (September 30)................ 35 3/4 32 1/8 35 1/2 23
Fourth Quarter (December 31)................ 34 3/8 24 3/8 35 1/2 24 1/8
</TABLE>
The Company may consider the payment of cash dividends from time to time.
However, any declaration and payment of dividends will be (i) dependent upon the
Company's results of operations, financial condition, cash requirements, capital
improvements and other relevant factors, (ii) subject to the discretion of the
Board of Directors of the Company and (iii) payable only out of the Company's
surplus or current net profits in accordance with the General Corporation Law of
the State of Delaware. No assurance can be given that the Company will pay
dividends at any time in the future.
12
<PAGE> 14
ITEM 6: SELECTED FINANCIAL DATA
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Total revenues..................... $ 109,816 $ 55,175 $ 42,005 $ 40,518 $33,216
----------- ----------- ---------- -------- -------
Expenses:
Operating expenses.............. 40,399 18,067 14,060 13,322 11,026
Cost of sales................... 16,954 12,834 9,672 10,169 7,573
Depreciation and amortization... 7,212 3,167 2,563 2,018 1,601
Selling, general and
administrative................ 16,379 6,185 4,631 4,632 4,420
----------- ----------- ---------- -------- -------
Operating income................... 28,872 14,922 11,079 10,377 8,596
Income before income taxes......... 26,454 16,872 10,184 9,372 7,721
Net income......................... $ 16,445 $ 10,880 $ 6,774 $ 6,340 $ 5,193
=========== =========== ========== ======== =======
Basic net income per share......... $ 1.19
===========
Pro forma basic net income per
share........................... $ 0.90 $ 0.84
=========== ==========
Diluted net income per share....... $ 1.19
===========
Pro forma diluted net income per
share........................... $ 0.90 $ 0.84
=========== ==========
Weighted average shares
outstanding..................... 13,810,570
Pro forma weighted average shares
outstanding..................... 12,128,920 8,077,245
SELECTED OPERATING DATA:
Operating margin................... 26.3% 27.0% 26.4% 25.6% 25.9%
Number of seats:
Michigan Speedway............... 106,775 98,276 88,141 77,991 72,906
Nazareth Speedway............... 46,288 35,654 30,534 30,534 26,668
California Speedway............. 70,644
North Carolina Speedway......... 50,219
Total attendance................... 1,083,206 599,480 518,396 448,168 414,937
Number of events:
Winston Cup..................... 4 2 2 2 2
CART............................ 3 2 2 2 2
Other........................... 10 5 4 5 4
DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ---------- -------- -------
BALANCE SHEET DATA:
Total assets....................... $ 291,772 $ 183,997 $ 73,255 $ 34,510 $36,407
Total debt......................... 48,295 5,563 350 12,515 12,035
Total stockholders' equity......... 190,694 145,402 45,812 10,187 13,467
</TABLE>
13
<PAGE> 15
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a leading promoter and marketer of professional motorsports
in the United States. The Company owns and operates, through its subsidiaries,
Michigan Speedway in Brooklyn, Michigan, Nazareth Speedway in Nazareth,
Pennsylvania, California Speedway in Fontana, California and North Carolina
Speedway in Rockingham, North Carolina. The Company also owns 40% of the
ownership interests in Homestead-Miami Speedway, LLC. In March 1998, the Company
increased its ownership interest of Homestead-Miami Speedway to 45%. In
addition, the Company sells motorsports-related merchandise such as apparel,
souvenirs and collectibles through its subsidiary Motorsports International
Corp. and Goodyear brand racing tires and accessories through its subsidiaries
Competition Tire West, Inc. and Competition Tire South, Inc. in the midwest and
southeastern regions of the United States.
The Company classifies its revenues as speedway admissions, other speedway
revenues, and merchandise, tires and accessories revenues. Speedway admissions
includes ticket sales for racing events held at the Company's wholly-owned
speedways. Other speedway revenues include revenues from concession sales,
corporate hospitality and sponsorship, broadcast rights, billboard and program
advertising and other promotional activities. Speedway admissions and other
speedway revenues are generally collected in advance and recorded as deferred
revenues until the completion of the related event. Merchandise, tires and
accessories revenues include sales of motorsports-related merchandise and
revenues from showcar appearance fees by MIC and sales of racing tires and
accessories by Competition Tire. Revenues from sales of merchandise, tires and
accessories are recorded as income at the time of the sale.
The Company classifies its expenses as operating, cost of sales,
depreciation and amortization, and selling, general and administrative expenses.
Operating expenses consist primarily of costs associated with conducting race
events, such as sanction fees and wages. Cost of sales relates entirely to sales
of merchandise, tires and accessories.
The Company's major racing events are sanctioned by CART and NASCAR.
Revenues for the year ended December 31, 1997 were $109.8 million, compared
to $55.2 million and $42.0 million, respectively, for the years ended December
31, 1996 and 1995. The increase in revenues resulted primarily from the opening
of California Speedway. In addition, speedway admissions revenues increased due
to additional seating at Michigan and Nazareth Speedways and the inclusion in
the financial statements of one event weekend at North Carolina Speedway.
Net income for the year ended December 31, 1997 was $16.4 million, or $1.19
per share, compared to $10.9 million, or $.90 per share, and $6.8 million, or
$.84 per share, for the years ended December 31, 1996 and 1995, respectively.
Net income increased due to higher revenues as explained above, net of
additional costs associated with opening California Speedway, losses on equity
investments, increased interest expense and a higher effective tax rate.
The Company completed construction of California Speedway during 1997, at a
cost of approximately $117 million, and held its inaugural event weekend June
20-22, 1997. Additional events were also held at California Speedway in
September and October.
During 1997, the Company acquired the outstanding shares of North Carolina
Motor Speedway, Inc. ("NCMS"), which owns and operates North Carolina Speedway,
a 1.017-mile oval speedway in Rockingham, North Carolina. North Carolina
Speedway hosts NASCAR Winston Cup and Busch Series events in the first and
fourth quarters of each year. On May 19, 1997, the Company purchased the shares
of NCMS held by its former majority shareholder in exchange for 906,542 shares
of the Company's stock. On December 2, 1997, the shareholders of NCMS approved a
merger with the Company, whereby shareholders of NCMS would receive cash of
$19.61 per share or an equivalent amount of the Company's stock. In connection
with the merger, 60,558 shares of the Company's common stock were issued. The
merger was completed on December 2, 1997.
14
<PAGE> 16
Certain NCMS shareholders dissented to the merger of the Company and NCMS.
These shareholders were paid $16.77 per share, the median fair value of NCMS
shares as determined by an independent investment banking firm retained by NCMS
to evaluate the Company's merger offer. These dissenters have requested
additional compensation and, if they are successful in court, the cost of the
NCMS acquisition may increase.
In July 1997, the Company acquired 40% of Homestead-Miami Speedway for
$11.8 million. Homestead-Miami Speedway operates Miami-Dade Homestead
Motorsports Complex, a 1.5-mile oval speedway in Homestead, Florida.
Homestead-Miami Speedway hosted three event weekends in 1997, including the
inaugural event of the CART season, the Marlboro Grand Prix of Miami, and NASCAR
Craftsman Truck and Busch Series events. The Company has joint right of first
refusal agreements with the other investors on the remaining ownership interests
of Homestead-Miami Speedway. This investment is accounted for using the equity
method of accounting. In March 1998, the Company acquired an additional 5% of
the ownership interest of Homestead-Miami Speedway for $2.85 million, payable on
December 31, 2001.
During 1997, the Company acquired approximately 7.3% of the outstanding
common stock of GPLB for approximately $4.2 million, including acquisition
costs. In March 1998, the Company entered into an agreement to sell this stock
for $5.3 million.
In March 1996, the Company completed its initial public offering ("IPO") of
3,737,500 shares of common stock with an initial offering price of $24.00 per
share. The net proceeds of $82.7 million were used to repay outstanding debt of
$10.6 million and to fund completion of California Speedway.
During 1996, the Company acquired the stock held by the minority
shareholder of Nazareth Speedway in exchange for 92,500 shares of the Company's
common stock. The Company also purchased all of the outstanding common stock of
Competition Tire West and Competition Tire South during 1996. Competition Tire
West was purchased for $7.4 million, of which $4.3 million was paid in cash with
the balance payable over a term of five years with interest at 8% per annum. The
Company acquired the remaining two-thirds of Competition Tire South (Competition
Tire West owned one-third) for $2.2 million, paying $1.4 million in cash and
issuing notes payable over a term of five years at 8% interest per annum for the
remaining $830,000.
The Company does not believe that its financial performance has been
materially affected by inflation. The Company has been able to mitigate the
effects of inflation without adversely affecting attendance.
SEASONALITY AND QUARTERLY RESULTS
The Company's weekend events usually include one premier Sunday event, such
as a NASCAR Winston Cup, NASCAR Busch Series Grand National Division or CART
event, coupled with a supporting event. The Company believes that combining
races creates a more attractive weekend racing experience than an isolated race
event.
Prior to 1997, the Company's weekend events were held between April and
August. As a result, the Company's business was highly seasonal. In 1997, along
with weekend events in April through August, California Speedway hosted its
inaugural season events in June, September and October and North Carolina
Speedway hosted an event weekend in October. NCMS also hosts an annual event
weekend in February.
Set forth below is certain information with respect to the Company's
operations for the most recent eight quarters.
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- --------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $5,375 $46,296 $43,974 $14,171 $3,642 $24,614 $23,962 $2,957
Net income (loss)...... (1,511) 10,929 8,845 (1,818) (990) 6,717 6,499 (1,346)
Number of weekends..... 5 3 2 4 2
</TABLE>
15
<PAGE> 17
RESULTS OF OPERATIONS
The table below presents the percentage relationships between revenues and
other elements of the Company's consolidated statements of income for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Speedway admissions....................................... 41.5% 36.7% 41.4%
Other speedway revenues................................... 30.9 23.6 18.2
Merchandise, tires and accessories........................ 27.6 39.7 40.4
----- ----- -----
TOTAL REVENUES....................................... 100.0 100.0 100.0
----- ----- -----
EXPENSES:
Operating................................................. 36.8 32.8 33.5
Cost of sales............................................. 15.4 23.3 23.0
Depreciation and amortization............................. 6.6 5.7 6.1
Selling, general and administrative....................... 14.9 11.2 11.0
----- ----- -----
TOTAL EXPENSES....................................... 73.7 73.0 73.6
----- ----- -----
OPERATING INCOME............................................ 26.3% 27.0% 26.4%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues -- Revenues for the year ended December 31, 1997 were $109.8
million, an increase of $54.6 million, or 99.0%, compared to the year ended
December 31, 1996 due to increases in speedway admissions of $25.3 million,
other speedway revenues of $20.9 million and merchandise, tires and accessories
revenues of $8.4 million. The increase in speedway admissions resulted primarily
from the opening of California Speedway, which held three weekend events during
1997, and also from the acquisition of North Carolina Speedway, which held one
event subsequent to the acquisition of the controlling interest of NCMS by the
Company, and additional seating at Michigan Speedway (8,500 new seats) and
Nazareth Speedway (11,000 new seats). Other speedway revenues increased
primarily due to the opening of California Speedway, as well as from increases
in corporate sponsorship, hospitality and broadcast revenues at existing
speedways, and the addition of North Carolina Speedway. Merchandise, tires and
accessories revenues increased primarily due to strong demand for California
Speedway inaugural season merchandise. For the 1998 racing season, the Company
will add approximately 5,000 seats at Michigan Speedway, 15,000 seats at
California Speedway and 14,000 seats at North Carolina Speedway. Merchandise,
tires and accessories revenues will be impacted in 1998 by the December 1997
sale of licensing rights for the distribution of Rusty Wallace merchandise.
Sales of this merchandise approximated $7.3 million in 1997.
Operating Expenses -- Operating expenses increased from $18.1 million for
the year ended December 31, 1996 to $40.4 million in 1997, an increase of $22.3
million, primarily due to the addition of California Speedway and North Carolina
Speedway. As a percentage of total revenues, operating expenses increased from
32.8% to 36.8% due to higher incremental costs of operating California Speedway.
Cost of Sales -- Cost of sales, which relates entirely to sales of
merchandise, tires and accessories, was $17.0 million for the year ended
December 31, 1997, or 55.9% of merchandise, tires and accessories revenues,
compared to $12.8 million, or 58.6% of those same revenues, for 1996. The
decrease in cost of sales as a percentage of merchandise, tires and accessories
revenues reflects the addition of trackside sales at California Speedway, which
have a higher margin than wholesale and other retail sales. Cost of sales will
be impacted in 1998 as a result of the sale of the Rusty Wallace licensing
rights.
Depreciation and Amortization -- Depreciation and amortization increased
$4.0 million, from $3.2 million in the year ended December 31, 1996 to $7.2
million in 1997 due to depreciation at the newly-constructed California
Speedway, depreciation and goodwill amortization resulting from the acquisition
of NCMS and increased depreciation at Michigan and Nazareth Speedways from
capital improvements.
16
<PAGE> 18
Selling, General and Administrative -- Selling, general and administrative
expenses of $16.4 million for the year ended December 31, 1997 increased $10.2
million from $6.2 million in 1996 primarily due to the addition of California
Speedway, which incurred significant promotional costs associated with its
inaugural season, and the addition of North Carolina Speedway.
Operating Income -- Operating income for the year ended December 31, 1997
was $28.9 million, an increase of $14.0 million, or 93.5%, from $14.9 million
for the year ended December 31, 1996. This increase is due primarily to the
opening of California Speedway and the addition of North Carolina Speedway, net
of increased costs from operating those speedways.
Interest -- The Company recorded net interest expense of $1.6 million for
the year ended December 31, 1997, compared to net interest income of $2.0
million in 1996. Net interest income resulted from temporarily investing the
proceeds of the IPO, which were fully utilized during 1997, at which time the
Company obtained financing to fund completion of construction at California
Speedway and to make the investments in Homestead-Miami Speedway and GPLB.
During 1997, the Company had average debt outstanding of approximately $28.7
million with an average interest rate of 7.1%. As of December 31, 1997,
outstanding debt totaled $48.3 million. The Company expects interest expense to
increase in 1998.
Income Tax Expense -- The Company's effective tax rate for 1997 was 37.8%
compared to 35.5% in 1996. The increase reflects the increased revenues from
California Speedway, which operates in a state with a high tax rate, as well as
an increase in nondeductible goodwill amortization from the acquisition of NCMS.
Net Income -- Net income for the year ended December 31, 1997 was $16.4
million, an increase of $5.6 million, or 51.1%, over 1996. The increase is due
primarily to the opening of California Speedway, which resulted in increases in
speedway admissions, other speedway revenues and merchandise, tires and
accessories revenues, net of increased expenses from new speedways, equity in
losses of affiliates and interest expense from borrowings.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues -- Revenues for the year ended December 31, 1996 were $55.2
million, an increase of $13.2 million, or 31.4%, compared to the same period in
1995. This improvement was due to increases in all revenue components.
Admissions revenues for the year of $20.2 million increased $2.9 million, or
16.5%, from the same period in 1995 and reflects increased attendance at the
Company's existing events and the addition of an event at Nazareth Speedway.
Other speedway revenues of $13.0 million increased $5.4 million, or 70.4%,
primarily due to incremental television broadcast revenues, increases in
concessions, hospitality and sponsorship revenues and revenues from hosting the
U.S. 500, an event CART promoted, for which the Company received reimbursement
for the use of Michigan Speedway and its staff. Merchandise, tires and
accessories revenues of $21.9 million increased $4.9 million, or 28.9%, from the
same period in 1995, reflecting the acquisition of Competition Tire South as
well as increases in sales of race-related apparel and tires and accessories.
Operating Expenses -- Operating expenses of $18.1 million for the year
ended December 31, 1996 increased $4.0 million, or 28.5%, from the year ended
December 31, 1995 as a result of higher sanction fees, costs associated with
hosting the U.S. 500, the new event at Nazareth Speedway and the impact of the
acquisition of Competition Tire South. As a percentage of total revenues,
operating expenses were 32.8% for the year ended December 31, 1996 as compared
to 33.5% for the year ended December 31, 1995. The decrease in operating
expenses as a percentage of total revenues for 1996 reflects the ability of the
Company to add incremental revenue without a corresponding increase in operating
expenses.
Cost of Sales -- Cost of sales, which relates entirely to sales of
merchandise, tires and accessories, was $12.8 million for the year ended
December 31, 1996, or 58.6% of merchandise, tires and accessories revenues,
compared to $9.7 million, or 57.0% of those same revenues, for 1995. The
increase in cost of sales as a percentage of merchandise, tires and accessories
revenues reflects an increase in wholesale merchandise sales, which have a lower
gross profit margin.
17
<PAGE> 19
Depreciation and Amortization -- Depreciation and amortization expense of
$3.2 million for the year ended December 31, 1996 increased $.6 million, or
23.6%, compared to the year ended December 31, 1995. The increase reflects
capital improvements, primarily additional seating and repaving at the race
tracks for the 1996 racing season, and the acquisition of Competition Tire
South.
Selling, General and Administrative -- Selling, general and administrative
expenses of $6.2 million for the year ended December 31, 1996 increased $1.6
million, or 33.6%, from $4.6 million in 1995 due to expenses incurred to host
the U.S. 500 and the new race at Nazareth Speedway. As a percentage of revenues,
selling, general and administrative expenses were comparable in each year at
11.2% in 1996 and 11.0% in 1995.
Operating Income -- Operating income for the year ended December 31, 1996
was $14.9 million, an increase of $3.8 million, or 34.7%, from $11.1 million for
the year ended December 31, 1995. This resulted from increased speedway
admissions and incremental broadcast and sponsorship revenues for speedway
events, offset in part by increased operating costs associated with hosting
racing events.
Interest -- The Company recorded net interest income for the year ended
December 31, 1996 of $2.0 million, compared to net interest expense of $.9
million in 1995. The interest income resulted from temporarily investing the
proceeds of the IPO while the reduced interest expense reflects the repayment of
existing debt with the IPO proceeds.
Income Tax Expense -- The Company's effective tax rate for 1996 was 35.5%
compared to 33.5% in 1995. The increase primarily reflects the inclusion of
Competition Tire West in taxable income in 1996. Prior to 1996, Competition Tire
West was treated as a subchapter S corporation, whereby its shareholders were
taxed for their proportionate share of the company's taxable income.
Net Income -- Net income for the year ended December 31, 1996 was $10.9
million, an increase of $4.1 million, or 60.6%, over 1995. The increase reflects
increases in speedway admissions and other speedway revenues, higher sales of
merchandise, tires and accessories and the benefit of interest earned on
invested IPO proceeds.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has relied on cash flows from operating
activities supplemented, as necessary, by bank borrowings to finance working
capital, investments and capital expenditures. The Company used the proceeds of
its IPO to repay debt and to fund construction of California Speedway.
The Company obtained new financing during 1997, replacing the previous
lines of credit with a $100 million unsecured revolving line of credit that
matures in the year 2002. Borrowings under this agreement bear interest at
LIBOR-based rates and at the prime borrowing rate. As of December 31, 1997, the
Company had available credit under this agreement of $54.6 million.
For the year ended December 31, 1997, the Company generated $26.2 million
in cash flows from operating activities, an increase of $7.6 million from 1996,
primarily reflecting an increase in net income of $5.6 million and an increase
in depreciation and amortization expense of $4.0 million.
During the year ended December 31, 1997, the Company used $92.4 million for
investing activities, consisting of $73.3 million in capital expenditures and
$19.1 million related primarily to the acquisitions of Homestead-Miami Speedway
and GPLB. Cash of $38.6 million was provided by financing activities in 1997,
reflecting increased borrowings to fund final construction costs of California
Speedway and the investments in Homestead-Miami Speedway and GPLB.
The Company believes it has sufficient resources from cash flows from
operating activities and, if necessary, from additional borrowings under its
line of credit to satisfy ongoing cash requirements for the next twelve months.
18
<PAGE> 20
YEAR 2000
The Company is in the process of evaluating the potential impact to its
computer systems and computerized equipment from the change from the year 1999
to the year 2000. This will involve a comprehensive assessment of the Company's
computer and equipment vendors to determine whether there are significant year
2000 issues regarding the Company's management information systems. Recent
additions to the Company's management information systems are year 2000
compliant. Although this evaluation has not yet been completed, based upon
preliminary information the Company does not expect the cost of potential
changes to be material.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards No. 130, "Comprehensive Income", and No. 131, "Disclosures
about Segments of an Enterprise and Related Information." These statements are
effective for fiscal years beginning after December 15, 1997. The Company
expects the adoption of these accounting standards will not materially impact
its results of operations or financial position.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, certain matters
discussed in this report are forward-looking statements which involve risks and
uncertainties including, but not limited to, the Company's ability to maintain
good working relationships with the sanctioning bodies for its events, as well
as other risks and uncertainties affecting the Company's operations, such as
competition, environmental, industry sponsorships, governmental regulation,
dependence on key personnel, the Company's ability to control construction and
operational costs, the impact of bad weather at the Company's events and those
other factors discussed in the Company's filings with the Securities and
Exchange Commission.
19
<PAGE> 21
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 249 $ 27,862
Receivables............................................... 4,787 2,365
Inventories............................................... 2,433 2,060
Prepaid expenses.......................................... 1,769 1,272
Deferred taxes............................................ 313
-------- --------
Total Current Assets................................... 9,551 33,559
Property and Equipment, net................................. 224,666 140,402
Investments................................................. 15,366
Goodwill, net............................................... 40,112 6,918
Other Assets................................................ 2,077 3,118
-------- --------
Total....................................................... $291,772 $183,997
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 1,017 $ 1,738
Accounts payable.......................................... 3,868 8,223
Accrued expenses.......................................... 2,343 1,715
Other payables (Note 3)................................... 9,956
Deferred revenues, net.................................... 22,529 14,125
-------- --------
Total Current Liabilities.............................. 39,713 25,801
Long Term Debt, less current portion........................ 47,278 3,825
Deferred Revenues, net...................................... 738
Deferred Taxes.............................................. 13,349 8,969
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Common stock, par value $.01 share:
Authorized 50,000,000 shares
Issued and outstanding 14,208,898 shares in 1997 and
13,241,798 shares in 1996............................. 142 132
Additional paid-in-capital................................ 159,371 130,534
Retained earnings......................................... 31,181 14,736
-------- --------
Total Stockholders' Equity............................. 190,694 145,402
-------- --------
Total....................................................... $291,772 $183,997
======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 22
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS EXCEPT FOR PER
SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Speedway admissions....................................... $ 45,550 $20,248 $17,375
Other speedway revenues................................... 33,926 13,041 7,654
Merchandise, tires and accessories........................ 30,340 21,886 16,976
-------- ------- -------
Total Revenues......................................... 109,816 55,175 42,005
EXPENSES:
Operating expenses........................................ 40,399 18,067 14,060
Cost of sales............................................. 16,954 12,834 9,672
Depreciation and amortization............................. 7,212 3,167 2,563
Selling, general and administrative....................... 16,379 6,185 4,631
-------- ------- -------
Total Expenses......................................... 80,944 40,253 30,926
Operating Income............................................ 28,872 14,922 11,079
Equity in Loss of Affiliates................................ (860)
Interest Income (Expense), net.............................. (1,558) 1,950 (895)
-------- ------- -------
Income Before Income Taxes.................................. 26,454 16,872 10,184
Income Taxes................................................ 10,009 5,992 3,410
-------- ------- -------
Net Income.................................................. $ 16,445 $10,880 $ 6,774
======== ======= =======
Basic Net Income Per Share.................................. $ 1.19
========
Pro Forma Basic Net Income Per Share........................ $ .90 $ .84
======= =======
Diluted Net Income Per Share................................ $ 1.19
========
Pro Forma Diluted Net Income Per Share...................... $ .90 $ .84
======= =======
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 23
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -----
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, January 1, 1995.............................. $ 78 $ 2,485 $ 7,624 $ 10,187
Net income.......................................... 6,774 6,774
Dividends........................................... (6,125) (6,125)
Capital contribution (Note 9)....................... 19,976 19,976
Stock issuance...................................... 15 14,985 15,000
---- -------- ------- --------
Balance, December 31, 1995............................ 93 37,446 8,273 45,812
Net income.......................................... 10,880 10,880
Sale of Common Stock................................ 37 82,703 82,740
Competition Tire West, Inc. transaction (Note 4).... (28) (4,417) (4,445)
Acquisition of minority interest (Note 4)........... 2,063 2,063
Stock issuance (Note 5)............................. 2 8,350 8,352
---- -------- ------- --------
Balance, December 31, 1996............................ 132 130,534 14,736 145,402
Net income.......................................... 16,445 16,445
North Carolina Motor Speedway, Inc. acquisition
(Note 3)......................................... 10 28,837 28,847
---- -------- ------- --------
Balance, December 31, 1997............................ $142 $159,371 $31,181 $190,694
==== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 24
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 16,445 $ 10,880 $ 6,774
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 7,212 3,167 2,563
Equity in loss of affiliates........................... 860
Changes in assets and liabilities which provided (used)
cash:
Receivables.......................................... (2,110) (431) (75)
Inventories, prepaid expenses and other assets....... (821) (2,784) 323
Accounts payable and accrued liabilities............. (5,082) 2,668 4,461
Deferred taxes....................................... 3,750 (146)
Deferred revenue..................................... 5,952 5,259 275
-------- -------- --------
Net cash provided by operating activities.............. 26,206 18,613 14,321
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment, net.................. (73,349) (73,812) (14,205)
Acquisition of Competition Tire South, Inc. (Note 4)...... (758)
Competition Tire West, Inc. transaction (Note 4).......... (3,326)
Acquisition of equity interests in affiliates and
subsidiary............................................. (19,050) (622) (520)
-------- -------- --------
Net cash used in investing activities.................. (92,399) (78,518) (14,725)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock........................ 82,740
Capital contribution...................................... 19,976
Proceeds from issuance of debt............................ 45,400 14,016 4,672
Principal payments on long-term debt...................... (5,000) (12,540) (16,837)
Distribution to Parent.................................... (3,600)
Dividends................................................. (385)
Repayment of related party debt........................... (1,820) (1,254)
-------- -------- --------
Net cash provided by financing activities.............. 38,580 82,962 3,826
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........ (27,613) 23,057 3,422
Cash and Cash Equivalents at Beginning of Year.............. 27,862 4,805 1,383
-------- -------- --------
Cash and Cash Equivalents at End of Year.................... $ 249 $ 27,862 $ 4,805
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 1,834 $ 133 $ 1,041
======== ======== ========
Cash paid during the year for taxes....................... $ 8,089 $ 9,279 $ 1,168
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 25
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Penske
Motorsports, Inc. (the "Company") and its wholly-owned subsidiaries Michigan
International Speedway, Inc., Pennsylvania International Raceway, Inc. ("PIR"),
California Speedway Corporation, North Carolina Motor Speedway, Inc. ("NCMS"),
Motorsports International Corp., Competition Tire West, Inc. ("CTW") and
Competition Tire South, Inc. ("CTS"). As of December 31, 1997, the Company also
owned 40% of the ownership interests of Homestead-Miami Speedway, LLC ("HMS")
and 7.3% of Grand Prix Association of Long Beach, Inc. ("GPLB") (Note 3). These
investments have been recorded using the equity method of accounting. The
Company is an indirect majority-owned subsidiary of Penske Corporation (the
"Parent"). All material intercompany balances and transactions have been
eliminated.
Nature of Operations -- The Company generates a predominant portion of its
revenues from operating Michigan Speedway, Nazareth Speedway, California
Speedway and North Carolina Speedway. The Company also sells motorsports-related
merchandise and apparel and racing tires and accessories.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents -- The Company considers all short-term
investments with a maturity of three months or less, at purchase, as cash
equivalents.
Inventories -- Inventories are stated at the lower of cost or market, with
cost determined by the first in, first out (FIFO) method.
Property and Equipment and Goodwill -- Property and equipment is carried at
cost less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the respective assets as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and Improvements.................................. 10 - 40
Equipment................................................... 2 - 15
</TABLE>
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized primarily over a period of 40 years.
Accumulated amortization was $872,000 and $326,000 at December 31, 1997 and
1996, respectively.
The carrying values of property and equipment and goodwill are evaluated
for impairment based upon expected future undiscounted cash flows. If events or
circumstances indicate that the carrying value of an asset may not be
recoverable, an impairment loss would be recognized equal to the difference
between the carrying value of the asset and its fair value.
Revenue Recognition -- Race-related revenues and expenses are recognized
upon completion of an event. Deferred revenues represent advance race-related
revenues, net of expenses, on future races. Revenues from the sale of
merchandise, tires and accessories are recognized at the time of sale. Operating
expenses include race-related expenses and other operating costs. Cost of sales
relates entirely to merchandise, tires and accessories sales.
Income Taxes -- Deferred taxes reflect the impact of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Prior to the purchase of CTW by the Company in March 1996, CTW was a
subchapter S corporation under the Internal Revenue Code whereby the
shareholders are taxed on the proportionate share of the
24
<PAGE> 26
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
company's federal taxable income. Therefore, no provision or liability for
federal income taxes was included in the consolidated financial statements prior
to 1996 for CTW.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results will likely differ from those which are estimated, however such
differences are not expected to be material.
3. 1997 ACQUISITIONS AND INVESTMENTS
North Carolina Motor Speedway, Inc. Acquisition -- During 1997, the Company
acquired the outstanding shares of NCMS, which owns and operates North Carolina
Speedway in Rockingham, North Carolina. On May 19, 1997, the Company purchased
the shares of NCMS held by its former majority shareholder in exchange for
906,542 shares of the Company's stock. On December 2, 1997, the shareholders of
NCMS approved a merger with the Company, whereby shareholders of NCMS would
receive cash of $19.61 per share or an equivalent amount of the Company's stock.
In connection with the merger, 60,558 shares of the Company's stock were issued.
The merger was completed December 2, 1997.
Certain NCMS shareholders dissented to the merger of the Company and NCMS.
These shareholders were paid $16.77 per share, the median fair value of NCMS
shares as determined by an independent investment banking firm retained by NCMS
to evaluate the Company's merger offer. These dissenters have requested
additional compensation and, if they are successful in court, the cost of the
NCMS acquisition may increase.
The acquisition, which totaled $41.7 million, was accounted for using the
purchase method of accounting and resulted in goodwill of $33.7 million and an
increase in stockholders' equity of $28.8 million. The fair market value of the
assets acquired and liabilities assumed was as follows: current assets of
$507,000, fixed assets of $17.6 million, current liabilities of $5.1 million and
debt of $4.2 million. The Company has recorded a liability of $10.0 million to
recognize amounts due to NCMS shareholders. NCMS has been included in the
consolidated financial statements since the date of acquisition of the
controlling interest. The pro forma effect of the acquisition for the years
ended December 31, 1997 and 1996, assuming the transactions occurred at the
beginning of each year, would be to increase revenues by $4.8 million and $9.6
million, respectively, with no material impact on net income or basic net income
per share.
Investments -- In July 1997, the Company acquired a 40% ownership interest
in HMS, which operates Miami-Dade Homestead Motorsports Complex in Homestead,
Florida, for $11.8 million. The Company has joint right of first refusal
agreements with the other investors in HMS for each to acquire additional shares
of HMS proportionate to their current ownership interest should a sale occur.
This investment is accounted for using the equity method of accounting. In March
1998, the Company acquired an additional 5% of the ownership interest of HMS for
$2.85 million, payable on December 31, 2001 (unaudited).
During 1997, the Company acquired approximately 7.3% of the outstanding
common stock of GPLB for approximately $4.2 million, including acquisition
costs. In March 1998, the Company entered into an agreement to sell this stock
for approximately $5.3 million (unaudited).
4. INITIAL PUBLIC OFFERING AND RELATED ACQUISITIONS
Initial Public Offering -- On March 27, 1996, the Company completed its
initial public offering ("IPO") of 3,737,500 shares of common stock. The initial
offering price was $24.00 per share. The net proceeds to the Company of $82.7
million were used to repay outstanding debt of $10.6 million and to fund
construction of California Speedway.
25
<PAGE> 27
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Acquisition of Minority Interest in PIR -- Immediately prior to the
effective date of the IPO, an investor in PIR exchanged 2,557 shares of PIR for
92,500 shares of common stock of the Company. This transaction resulted in
goodwill of approximately $2.0 million and reduced the minority interest in PIR
by $1.2 million.
Acquisition of Minority Interest in CTW and Capital Distribution -- On
March 21, 1996, the Company acquired CTW for $7.4 million, of which $4.3 million
was paid to the two selling shareholders in cash with the balance of $3.1
million payable over five years with interest at 8% per annum. The acquisition
of the shares of the former 40% CTW shareholder was accounted for as an
acquisition of a minority interest and resulted in recording goodwill of
approximately $1.9 million. The former controlling shareholder of CTW (60%) is
also the controlling shareholder of the Company. Therefore, the excess of the
amount paid for such shares over the net book value of assets acquired
(approximately $2.9 million) was recorded as a capital distribution. The note
payable to the former controlling shareholder of CTW, which had a balance of
$1.8 million, was repaid in April 1997.
Acquisition of CTS Common Stock -- On March 21, 1996, the Company acquired
the common shares of CTS not owned by CTW (approximately 67%) for cash and notes
totaling approximately $2.2 million. The notes had an original balance of
$830,000 and a term of five years with interest at 8%. This acquisition was
accounted for using the purchase method of accounting and resulted in recording
$1.7 million of goodwill. CTS has been included in the consolidated financial
statements from the date acquired.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land and improvements.................................... $100,653 $ 85,469
Buildings and improvements............................... 124,622 63,685
Equipment................................................ 21,360 6,929
-------- --------
246,635 156,083
Less accumulated depreciation............................ 21,969 15,681
-------- --------
$224,666 $140,402
======== ========
</TABLE>
In December 1996, the Company acquired 54 acres of commercial property
located adjacent to California Speedway from a noncontrolling shareholder of the
Company for $13.4 million, which the Company paid in cash of $5 million and by
the issuance of 254,298 shares of the Company's common stock. The issuance of
stock was recorded as an $8.4 million increase in stockholders' equity.
26
<PAGE> 28
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
$100 million unsecured revolving line of credit, bearing
interest at LIBOR-based and prime rates ranging from 6.5%
to 8.5% due in 2002....................................... $45,400
Notes payable through 2006, bearing interest at 8.0%........ 2,895 $5,563
------- ------
48,295 5,563
Less current portion........................................ 1,017 1,738
------- ------
$47,278 $3,825
======= ======
</TABLE>
The following table presents the expected repayment of the long-term debt
(in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 1,017
1999........................................................ 512
2000........................................................ 520
2001........................................................ 117
2002........................................................ 45,526
2003 and thereafter......................................... 603
-------
$48,295
=======
</TABLE>
Long-term debt at December 31, 1997 and 1996 includes $1.3 million and $3.1
million, respectively, which are due to related parties as a result of the
purchase of CTW and CTS in March 1996 and $1.2 million and $1.7 million,
respectively, which are secured by certain parcels of land included in property
and equipment.
At December 31, 1997 the carrying value of the debt approximates fair
value.
7. EMPLOYEE BENEFIT PLANS
The Company participates in a non-contributory profit sharing plan which
covers employees who meet certain length of service requirements. Contributions
of approximately $185,000 in 1997 and $100,000 in each of 1996 and 1995 were
made to the plan.
The Company also sponsors a defined contribution plan under Section 401(k)
of the Internal Revenue Code. The expense related to this plan was $150,000,
$80,000 and $66,000 in 1997, 1996 and 1995, respectively.
8. TAXES
The provision for income taxes consists of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current.............................................. $ 6,259 $5,753 $3,466
Deferred............................................. 3,750 239 (56)
------- ------ ------
Total................................................ $10,009 $5,992 $3,410
======= ====== ======
</TABLE>
27
<PAGE> 29
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
A reconciliation of taxes computed at the federal statutory rate and the
consolidated effective rate is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes......................... $26,454 $16,872 $10,184
------- ------- -------
Taxes computed at statutory rate................... $ 9,259 $ 5,905 $ 3,463
State and local taxes, net of federal benefit...... 616 37 102
Amortization of goodwill........................... 190 60
Other.............................................. (56) (10) (155)
------- ------- -------
Total income tax expense........................... $10,009 $ 5,992 $ 3,410
======= ======= =======
Effective tax rate................................. 37.8% 35.5% 33.5%
======= ======= =======
</TABLE>
Temporary differences which give rise to deferred tax (assets) and
liabilities are as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Property, non-current....................................... $13,349 $8,969
Other, current.............................................. (313) 3
------- ------
Total....................................................... $13,036 $8,972
======= ======
</TABLE>
9. RELATED PARTY TRANSACTIONS
The following is a summary of significant related party balances and
transactions as of and for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balances included in assets and liabilities:
Accounts receivable - affiliates................... $ 388 $ 339 $ 158
====== ====== =======
Accounts payable - affiliates...................... $1,038 $1,702 $ 1,658
====== ====== =======
Accrued expenses payable to affiliates............. $ 424 $ 405
====== ======
Other transactions:
Dividends.......................................... $ 6,125
Advances to affiliates............................. (2,525)
-------
Net distribution to Parent......................... $ 3,600
=======
Sales to affiliates................................ $3,149 $2,005 $ 1,786
====== ====== =======
Purchases from affiliates.......................... $1,078 $ 587 $ 223
====== ====== =======
</TABLE>
In addition, the Parent bills the Company for services rendered and
expenses incurred by the Parent for the benefit of the Company. During the years
ended December 31, 1997, 1996 and 1995, the Company paid the Parent $511,000,
$478,000 and $1,100,000, respectively, for general and operating expenses. Prior
to the IPO, the Company was charged for its allocated share of income taxes on
the basis of the Company as a separate tax group. The Company paid the Parent
$1.5 million and $3.4 million for its portion of taxes relating to the period in
1996 prior to the IPO and for 1995, respectively.
28
<PAGE> 30
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The Company has a five-year agreement with a shareholder of the Company to
provide sanitary wastewater treatment services to California Speedway, for which
the Company paid $92,000 and $89,000 during the years ended December 31, 1997
and 1996, respectively. The agreement, which is adjusted annually by increases
in the Consumer Price Index, also grants an option to the Company to purchase
such shareholder's wastewater treatment facility.
The Company pays fees to the sanctioning bodies which conduct racing events
at its speedways, including the National Association for Stock Car Auto Racing,
Inc. ("NASCAR"). NASCAR is an affiliate of a significant shareholder. The
Company, through its subsidiaries, paid NASCAR sanction fees, prize money and
point funds of $9.9 million, $3.8 million and $2.8 million for the years ended
December 31, 1997, 1996 and 1995, respectively.
During 1995, the Company received a capital contribution of $19,976,000
from PSH Corp., an affiliate.
10. COMMON STOCK AND STOCK OPTIONS
Prior to the completion of the IPO in March 1996, the Company effected a
recapitalization pursuant to which the Company (i) increased its authorized
shares of common stock to 50,000,000 shares, (ii) effected a 91.575-to-one share
split, and (iii) converted 15,000 shares of outstanding preferred stock to
1,373,625 shares of common stock.
The basic net income per share for the year ended December 31, 1997
reflects the weighted average number of shares outstanding of 13,810,570. The
pro forma basic net income per share for the years ended December 31, 1996 and
1995 reflects the weighted average number of post-split shares outstanding of
12,128,920 and 8,077,245, including the dilutive effect of the number of shares
issued equivalent to the $2.9 million capital distribution of 121,667 shares,
based on the offering price of $24.00 per share, from the March 1996 acquisition
of CTW.
The diluted net income per share for the year ended December 31, 1997 and
the pro forma diluted net income per share for the year ended December 31, 1996
reflect the weighted average number of shares outstanding plus the dilutive
effect of outstanding options of 19,534 and 12,621, respectively. There were no
dilutive securities outstanding prior to 1996. The dilutive effect was
calculated using the treasury stock method.
In March 1996, the stockholders of the Company approved a stock incentive
plan whereby key employees and certain outside consultants and advisors of the
Company and its subsidiaries may receive awards of stock options, stock
appreciation rights or restricted stock. A maximum of 400,000 shares of common
stock may be
29
<PAGE> 31
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
issued under this plan. The following table summarizes stock option activity
during the years ended December 31, 1997 and 1996. There were no stock options
issued prior to 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Options, beginning of year............................ 75,000 $24.00
Granted............................................... 115,000 27.75 75,000 $24.00
Forfeited............................................. (35,000) 27.75
------- ------ ------ ------
Options, end of year.................................. 155,000 $26.06 75,000 $24.00
======= ====== ====== ======
Options exercisable at end of year.................... 34,100 $25.26 7,500 $24.00
======= ====== ====== ======
Weighted average fair value of options granted during
the year............................................ $10.91 $ 9.90
====== ======
</TABLE>
The 155,000 stock options outstanding as of December 31, 1997 had exercise
prices ranging from $24.00 to $27.75 per share and a weighted average remaining
contractual life of 7.7 years.
The Company applies APB Opinion 25 and related Interpretations in
accounting for stock options. Accordingly, no compensation cost has been
recognized in the consolidated statements of income. If the Company had
recognized compensation cost, the Company would have reported net income of
$16.2 million and $10.8 million and basic net income per share of $1.17 and $.89
for the years ended December 31, 1997 and 1996, respectively. The Black-Sholes
valuation model was used, assuming an average life of the options of five years,
a discount rate of 5.53% and 6.15% in 1997 and 1996, respectively, no dividend
payout and a volatility of 35%.
11. COMMITMENTS AND CONTINGENCIES
The Company is party to certain claims and contingencies arising in the
normal course of business. In the opinion of management, the Company has
meritorious defenses on all such claims, or they are of such kind, or involve
such amounts, as would not have a materially adverse effect on the financial
position or results of operations of the Company if disposed of unfavorably.
12. SELECTED QUARTERLY DATA (UNAUDITED)
The following table presents the Company's quarterly results for the most
recent eight quarters (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------------- ----------------- ----------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 5,375 $ 3,642 $46,296 $24,614 $43,974 $23,962 $14,171 $ 2,957
Operating income (loss)....... (2,606) (1,521) 17,965 9,829 15,295 9,321 (1,782) (2,707)
Net income (loss)............. (1,511) (990) 10,929 6,717 8,845 6,499 (1,818) (1,346)
Basic net income (loss) per
share....................... $ (.11) $ (.10) $ .80 $ .52 $ .63 $ .50 $ (.13) $ (.10)
</TABLE>
Net income per share for the first quarter of 1996 is pro forma to reflect
the dilutive effect of the number of shares issued equivalent to the $2.9
million capital distribution of 121,667 shares based on the offering price of
$24 per share (see Notes 4 and 10).
30
<PAGE> 32
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
REPORT OF MANAGEMENT
The consolidated financial statements of Penske Motorsports, Inc. and
subsidiaries (the "Company") have been prepared by management and have been
audited by the Company's independents auditors, Deloitte & Touche LLP.
Management is responsible for the consolidated financial statements, which have
been prepared in conformity with generally accepted accounting principles and
include amounts based on management's judgments.
Management is also responsible for maintaining internal accounting control
systems designed to provide reasonable assurance, at appropriate cost, that
assets are recorded in accordance with established policies and procedures. The
Company's systems are under continuing review and are supported by, among other
things, business conduct and other written guidelines and the selection and
training of qualified personnel.
The Board of Directors is responsible for the Company's financial and
accounting policies, practices and reports. Its Audit Committee meets annually
with the independent auditors and representatives of management to discuss and
make inquiries into their activities. The independent auditors have free access
to the Audit Committee, with and without management representatives in
attendance, to discuss the results of the audit, the adequacy of internal
accounting controls, and the quality of the financial reporting.
It is management's conclusion that the system of internal accounting
controls at December 31, 1997 provides reasonable assurance that the books and
records reflect the transactions of the Company and that the Company has
complied with its established policies and procedures.
ROGER S. PENSKE GREGORY W. PENSKE
Roger S. Penske Gregory W. Penske
Chairman of the Board President and Chief Executive Officer
January 30, 1998
31
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Penske Motorsports, Inc.
We have audited the accompanying consolidated balance sheets of Penske
Motorsports, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LOGO
Detroit, Michigan
January 30, 1998
32
<PAGE> 34
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers required by this Item is set forth
as a Supplementary Item at the end of Part I hereof (pursuant to Instruction 3
to Item 401(b) of Regulation S-K). Other information required by this Item will
be contained in the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders, to be filed on or before April 30, 1998, and such
information is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders to be
filed on or before April 30, 1998, and such information is incorporated herein
by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders to be
filed on or before April 30, 1998, and such information is incorporated herein
by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders to be
filed on or before April 30, 1998, and such information is incorporated herein
by reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Listing of Documents:
(1) Financial Statements. The Company's consolidated Financial Statements
included in Item 8 hereof, as required at December 31, 1997 and 1996,
and for the years ended December 31, 1997, 1996, and 1995, consist of
the following:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules for 1997, 1996, and 1995.
None. These schedules are omitted because the information required to be
contained therein is disclosed elsewhere in the financial statements or
the amounts involved are not sufficient to require submission or the
schedule is otherwise not required to be submitted.
(b) Reports on Form 8-K
During the fourth quarter the Company filed one current report on Form 8-K
on December 16, 1997, reporting the completion of the Merger of North
Carolina Motor Speedway, Inc. with and into Penske
33
<PAGE> 35
Acquisition, Inc., a wholly owned subsidiary of Penske Motorsports, Inc.
The Form 8-K included the following financial statements:
(1) Balance Sheets of North Carolina Motor Speedway, Inc., as of August 31,
1997 and 1996 and the related statements of income and retained
earnings and of cash flow for the years then ended and for the seven
months ended August 31, 1995 and the year ended January 31, 1995.
(2) Unaudited pro forma financial data of Penske Motorsports, Inc. and
subsidiaries as of June 30, 1997 and for the six months ended June 30,
1997 and the year ended December 31, 1996.
34
<PAGE> 36
(c) Exhibits.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - -------
DOCUMENT
- - ------------------------------------------------------------------------
<S> <C>
(B)3.1 Amended and Restated Certificate of Incorporation of Penske
Motorsports, Inc.
(A)3.2 Amended and Restated Bylaws of Penske Motorsports, Inc.
(B)4.1 Form of Common Stock Certificate
(F)10.1 Credit Agreement dated as of September 30, 1997 among Penske
Motorsports, Inc., and certain of its U.S. subsidiaries, as
Borrowers, and each of the financial institutions initially
a signatory thereto, as Lenders, and First Union National
Bank, as Agent, and NationsBank, N.A., as Co-Agent
(C)10.2 Purchase Agreement and Escrow Instructions dated October 8,
1996 among Kaiser Ventures, Inc., The California Speedway
Corporation and Penske Motorsports, Inc.
(C)10.3 Conditional Demand Registration Rights Agreement dated
December 12, 1996 between Penske Motorsports, Inc., and
Kaiser Ventures, Inc.
(C)10.4 Water Rights Agreement Extension dated December 11, 1996
between Kaiser Ventures Inc., and The California Speedway
Corporation
(B)10.5 Organization Agreement, dated November 22, 1995 by and among
PSH Corp., Kaiser Ventures, Inc., and Penske Motorsports,
Inc. (f/k/a Penske Speedway Holdings Corp.)
(B)10.6 Shareholders Agreement, dated November 22, 1995 by and among
PSH Corp., Kaiser Ventures, Inc., and Penske Motorsports,
Inc. (f/k/a Penske Speedway Holdings Corp.)
(B)10.7 Water Rights Agreement, dated November 21, 1995 by and
between Kaiser Ventures, Inc., and The California Speedway
Corporation (successor by merger to Speedway Development
Corporation).
(B)10.8 Access Agreement, dated as of November 22, 1995 by and among
Kaiser Ventures, Inc., Kaiser Land Development, Inc., and
The California Speedway Corporation.
(B)10.9 Sewer Services Agreement, dated as of November 21, 1995
between Kaiser Ventures, Inc., and The California Speedway
Corporation (successor by merger to Speedway Development
Corporation).
(B)10.10 Registration Rights Agreement, dated March 21, 1996 between
Penske Motorsports, Inc., and Kaiser Ventures, Inc.
(B)10.11 First Amendment to Shareholders Agreement, dated March 21,
1996 by and among PSH Corp., Kaiser Ventures, Inc., and
Penske Motorsports, Inc. (f/k/a Penske Speedways Holding
Corp.)
(B)10.12 Agreement, dated March 21, 1996 among PSH Corp., Penske
Motorsports, Inc., and Kaiser Ventures, Inc., amending the
Organization Agreement
(D)10.13 Amended and Restated Stockholder Option and Voting Agreement
among Carrie B. DeWitt, Penske Acquisition, Inc., and Penske
Motorsports, Inc. dated April 1, 1997
(G)10.14 First Amendment to Amended and Restated Stockholder Option
and Voting Agreement dated May 15, 1997 among Carrie B.
DeWitt, Penske Motorsports, Inc. and Penske Acquisition,
Inc.
(H)10.15 Second Amendment to Amended and Restated Stockholder Option
and Voting Agreement dated as of April 1, 1997, between PMI
and Carrie B. DeWitt
(H)10.16 Employment Agreement, dated August 5, 1997, between PMI and
Carrie B. DeWitt
(H)10.17 Employment Agreement, dated August 5, 1997, between PMI and
Jo DeWitt Wilson
(H)10.18 Employment Agreement dated August 5, 1997, between Nancy
DeWitt Daugherty
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- - ------- --------
<S> <C>
(H)10.19 Agreement and Plan of Merger dated August 5, 1997 by and
among North Carolina Motor Speedway, Inc., Penske
Motorsports, Inc., and Penske Acquisition, Inc.
(E)10.20 Purchase Agreement dated July 23, 1997 among Homestead-Miami
Speedway, LLC, International Speedway Corporation, Penske
Motorsports, Inc., Homestead Motorsports Joint Venture,
Miami Motorsports Joint Venture, Rafael A. Sanchez and Wayne
Huizenga
(B)10.21* 1996 Penske Motorsports Stock Incentive Plan
(B)10.22 Lease Agreement, dated December 1, 1994 between Michigan
Speedway, Inc. (f/k/a Penske Speedway Inc.) and Motorsports
International Corp.
(B)10.23 Trade Name and Trademark Agreement dated October 18, 1995
between Penske Speedway, Inc., Penske Speedways Holding
Corp., and Penske System, Inc.
(A)10.24 Stock Purchase Agreement, dated March 26, 1998, by and
between Penske Motorsports, Inc. and Dover Downs
Entertainment, Inc.
(A)21.1 Subsidiaries of Penske Motorsports, Inc.
(A)23.1 Consent of Deloitte & Touche, LLP
(A)27 Financial Data Schedule
</TABLE>
- - -------------------------
LEGEND FOR EXHIBITS
(A) Filed herewith.
(B) Incorporated by reference to the exhibits filed with the Company's
Registration Statement No. 333-692 on Form S-1, filed with the Securities
and Exchange Commission on January 29, 1996, as amended.
(C) Incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 filed with the
Securities and Exchange Commission.
(D) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed
with the Securities and Exchange Commission.
(E) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended on June 30, 1997 filed
with the Securities and Exchange Commission.
(F) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997
filed with the Securities and Exchange Commission.
(G) Incorporated by reference to the exhibits filed with the Company's current
report on Form 8-K dated May 15, 1997 filed with the Securities and
Exchange Commission.
(H) Incorporated by reference to the exhibits filed with the Company's
Registration Statement No. 333-34923 on Form S-4 filed with the Securities
and Exchange Commission on September 4, 1997 as amended.
* Denotes a compensatory plan, contract or arrangement.
The Company will furnish to any stockholder a copy of the above exhibits
upon the written request of such stockholder and the payment to the Company of
the reasonable expenses incurred by the Company in furnishing such copy.
(e) Excluded Financial Statements. None.
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Detroit, State of Michigan, on the 25th day of March, 1998.
PENSKE MOTORSPORTS, INC.
By: /s/ GREGORY W. PENSKE
------------------------------------
GREGORY W. PENSKE
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATES
---------- ----- -----
<S> <C> <C>
/s/ H. LEE COMBS Director March 25, 1998
- - ---------------------------------------------------
H. LEE COMBS
/s/ WALTER P. CZARNECKI Vice Chairman of the Board March 25, 1998
- - ---------------------------------------------------
WALTER P. CZARNECKI
/s/ GARY W. DICKINSON Director March 25, 1998
- - ---------------------------------------------------
GARY W. DICKINSON
/s/ WILLIAM C. FRANCE Director March 25, 1998
- - ---------------------------------------------------
WILLIAM C. FRANCE
/s/ GREGORY W. PENSKE President, Chief Executive March 25, 1998
- - --------------------------------------------------- Officer, (Principal Executive
GREGORY W. PENSKE Officer)
/s/ ROGER S. PENSKE Chairman of the Board March 25, 1998
- - ---------------------------------------------------
ROGER S. PENSKE
/s/ RICHARD J. PETERS Director March 25, 1998
- - ---------------------------------------------------
RICHARD J. PETERS
/s/ RICHARD E. STODDARD Director March 25, 1998
- - ---------------------------------------------------
RICHARD E. STODDARD
/s/ JAMES E. WILLIAMS Director March 25, 1998
- - ---------------------------------------------------
JAMES E. WILLIAMS
/s/ JO DEWITT WILSON Director March 25, 1998
- - ---------------------------------------------------
JO DEWITT WILSON
/s/ JAMES H. HARRIS Principal Financial and March 25, 1998
- - --------------------------------------------------- Accounting Officer
JAMES H. HARRIS
</TABLE>
37
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - -------
DOCUMENT
- - ------------------------------------------------------------------------
<S> <C>
(B)3.1 Amended and Restated Certificate of Incorporation of Penske
Motorsports, Inc.
(A)3.2 Amended and Restated Bylaws of Penske Motorsports, Inc.
(B)4.1 Form of Common Stock Certificate
(F)10.1 Credit Agreement dated as of September 30, 1997 among Penske
Motorsports, Inc., and certain of its U.S. subsidiaries, as
Borrowers, and each of the financial institutions initially
a signatory thereto, as Lenders, and First Union National
Bank, as Agent, and NationsBank, N.A., as Co-Agent
(C)10.2 Purchase Agreement and Escrow Instructions dated October 8,
1996 among Kaiser Ventures, Inc., The California Speedway
Corporation and Penske Motorsports, Inc.
(C)10.3 Conditional Demand Registration Rights Agreement dated
December 12, 1996 between Penske Motorsports, Inc., and
Kaiser Ventures, Inc.
(C)10.4 Water Rights Agreement Extension dated December 11, 1996
between Kaiser Ventures Inc., and The California Speedway
Corporation
(B)10.5 Organization Agreement, dated November 22, 1995 by and among
PSH Corp., Kaiser Ventures, Inc., and Penske Motorsports,
Inc. (f/k/a Penske Speedway Holdings Corp.)
(B)10.6 Shareholders Agreement, dated November 22, 1995 by and among
PSH Corp., Kaiser Ventures, Inc., and Penske Motorsports,
Inc. (f/k/a Penske Speedway Holdings Corp.)
(B)10.7 Water Rights Agreement, dated November 21, 1995 by and
between Kaiser Ventures, Inc., and The California Speedway
Corporation (successor by merger to Speedway Development
Corporation).
(B)10.8 Access Agreement, dated as of November 22, 1995 by and among
Kaiser Ventures, Inc., Kaiser Land Development, Inc., and
The California Speedway Corporation.
(B)10.9 Sewer Services Agreement, dated as of November 21, 1995
between Kaiser Ventures, Inc., and The California Speedway
Corporation (successor by merger to Speedway Development
Corporation).
(B)10.10 Registration Rights Agreement, dated March 21, 1996 between
Penske Motorsports, Inc., and Kaiser Ventures, Inc.
(B)10.11 First Amendment to Shareholders Agreement, dated March 21,
1996 by and among PSH Corp., Kaiser Ventures, Inc., and
Penske Motorsports, Inc. (f/k/a Penske Speedways Holding
Corp.)
(B)10.12 Agreement, dated March 21, 1996 among PSH Corp., Penske
Motorsports, Inc., and Kaiser Ventures, Inc., amending the
Organization Agreement
(D)10.13 Amended and Restated Stockholder Option and Voting Agreement
among Carrie B. DeWitt, Penske Acquisition, Inc., and Penske
Motorsports, Inc. dated April 1, 1997
(G)10.14 First Amendment to Amended and Restated Stockholder Option
and Voting Agreement dated May 15, 1997 among Carrie B.
DeWitt, Penske Motorsports, Inc. and Penske Acquisition,
Inc.
(H)10.15 Second Amendment to Amended and Restated Stockholder Option
and Voting Agreement dated as of April 1, 1997, between PMI
and Carrie B. DeWitt
(H)10.16 Employment Agreement, dated August 5, 1997, between PMI and
Carrie B. DeWitt
(H)10.17 Employment Agreement, dated August 5, 1997, between PMI and
Jo DeWitt Wilson
(H)10.18 Employment Agreement dated August 5, 1997, between Nancy
DeWitt Daugherty
(H)10.19 Agreement and Plan of Merger dated August 5, 1997 by and
among North Carolina Motor Speedway, Inc., Penske
Motorsports, Inc., and Penske Acquisition, Inc.
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - -------
DOCUMENT
- - ------------------------------------------------------------------------
<S> <C>
(E)10.20 Purchase Agreement dated July 23, 1997 among Homestead-Miami
Speedway, LLC, International Speedway Corporation, Penske
Motorsports, Inc., Homestead Motorsports Joint Venture,
Miami Motorsports Joint Venture, Rafael A. Sanchez and Wayne
Huizenga
(B)10.21* 1996 Penske Motorsports Stock Incentive Plan
(B)10.22 Lease Agreement, dated December 1, 1994 between Michigan
Speedway, Inc. (f/k/a Penske Speedway Inc.) and Motorsports
International Corp.
(B)10.23 Trade Name and Trademark Agreement dated October 18, 1995
between Penske Speedway, Inc., Penske Speedways Holding
Corp., and Penske System, Inc.
(A)10.24 Stock Purchase Agreement, dated March 26, 1998, by and
between Penske Motorsports, Inc. and Dover Downs
Entertainment, Inc.
(A)21.1 Subsidiaries of Penske Motorsports, Inc.
(A)23.1 Consent of Deloitte & Touche, LLP
(A)27 Financial Data Schedule
</TABLE>
- - -------------------------
LEGEND FOR EXHIBITS
(A) Filed herewith.
(B) Incorporated by reference to the exhibits filed with the Company's
Registration Statement No. 333-692 on Form S-1, filed with the Securities
and Exchange Commission on January 29, 1996, as amended.
(C) Incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 filed with the
Securities and Exchange Commission.
(D) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed
with the Securities and Exchange Commission.
(E) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended on June 30, 1997 filed
with the Securities and Exchange Commission.
(F) Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997
filed with the Securities and Exchange Commission.
(G) Incorporated by reference to the exhibits filed with the Company's current
report on Form 8-K dated May 15, 1997 filed with the Securities and
Exchange Commission.
(H) Incorporated by reference to the exhibits filed with the Company's
Registration Statement No. 333-34923 on Form S-4 filed with the Securities
and Exchange Commission on September 4, 1997 as amended.
* Denotes a compensatory plan, contract or arrangement.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
PENSKE MOTORSPORTS, INC.,
Adopted by the
Board of Directors
on November 3, 1997
<PAGE> 2
BYLAWS
OF
PENSKE MOTORSPORTS, INC.,
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - OFFICES 1
1.1 Registered Office 1
1.2 Other Offices 1
ARTICLE II - MEETINGS OF STOCKHOLDERS 1
2.1 Time and Place 1
2.2 Annual Meetings 1
2.3 Special Meetings 1
2.4 Notice of Meetings 1
2.5 Advance Notice Requirements for
Stockholder Proposals and Director Nominations 1
2.6 List of Stockholders 2
2.7 Quorum; Adjournment 2
2.8 Voting 3
2.9 Proxies 3
2.10 Questions Concerning Elections 3
ARTICLE III - DIRECTORS 4
3.1 Number and Residence 4
3.2 Election and Term 4
3.3 Resignation 4
3.4 Removal 4
3.5 Vacancies 4
3.6 Place of Meetings 5
3.7 Annual Meetings 5
3.8 Regular Meetings 5
3.9 Special Meetings 5
3.10 Quorum 5
3.11 Voting 5
3.12 Telephonic Participation 5
3.13 Action By Written Consent 5
3.14 Committees 6
3.15 Compensation 6
</TABLE>
(2)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - OFFICERS 7
4.1 Officers and Agents 7
4.2 Compensation 7
4.3 Term 7
4.4 Removal 7
4.5 Resignation 7
4.6 Vacancies 7
4.7 Chairman of the Board 7
4.8 Chief Executive Officer 7
4.9 President 8
4.10 Executive Vice Presidents and Vice Presidents 8
4.11 Secretary 8
4.12 Treasurer 8
4.13 Assistant Vice Presidents, Secretaries
and Treasurers 9
4.14 Execution of Contracts and Instruments 9
4.15 Voting of Shares and Securities of
Other Corporations and Entities 9
ARTICLE V - NOTICES AND WAIVERS OF NOTICE 9
5.1 Delivery of Notices 9
5.2 Waiver of Notice 10
ARTICLE VI - SHARE CERTIFICATES AND STOCKHOLDERS OF RECORD 10
6.1 Certificates 10
6.2 Lost or Destroyed Certificates 10
6.3 Transfer of Shares 10
6.4 Record Date 10
6.5 Registered Stockholders 11
ARTICLE VII - INDEMNIFICATION 11
7.1 Indemnification 11
7.2 Claims 12
7.3 Non-Exclusivity of Rights 12
</TABLE>
(3)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII - GENERAL PROVISIONS 12
8.1 Checks and Funds 12
8.2 Fiscal Year 12
8.3 Corporate Seal 12
8.4 Form of Records 12
8.5 Interested Directors; Quorum 12
ARTICLE IX - AMENDMENTS 13
ARTICLE X - SCOPE OF BYLAWS 13
</TABLE>
(4)
<PAGE> 5
PENSKE MOTORSPORTS, INC.
ARTICLE I
OFFICES
1.1 Registered Office. The registered office of the Corporation shall
be located at such place in Delaware as the Board of Directors from time to time
determines.
1.2 Other Offices. The Corporation may also have offices or branches at
such other places as the Board of Directors from time to time determines or the
business of the Corporation requires.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Time and Place. All meetings of the stockholders shall be held at
such place and time as the Board of Directors determines.
2.2 Annual Meetings. An annual meeting of stockholders shall be held
for the election of directors at such date, time and place, either within or
without the State of Delaware, as may be designated by resolution of the Board
of Directors from time to time. Any other proper business may be transacted at
the annual meeting.
2.3 Special Meetings. Special meetings of the stockholders, for any
purpose, may be called by the Corporation's Chairman of the Board and shall be
called by the Secretary or any Assistant Secretary upon written request (stating
the purpose for which the meeting is to be called) of a majority of the Board of
Directors.
2.4 Notice of Meetings. Except as provided in Section 2.5 below,
written notice of each stockholders' meeting, stating the place, date and time
of the meeting and, in the case of a special meeting, the purposes for which the
meeting is called, shall be given (in the manner described in Section 5.1 below)
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder of record entitled to vote at the meeting. Notice of adjourned
meetings is governed by Section 2.7 below.
2.5 Advance Notice Requirements for Stockholder Proposals and Director
Nominations. At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors in accordance with Section 2.4 above, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, or for a stockholder to nominate candidates for
<PAGE> 6
election as directors at an annual or special meeting of the stockholders, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered, mailed
and received at the principal executive offices of the Corporation, (a) in the
case of an annual meeting that is called for a date that is within 30 days
before or after the anniversary date of the immediately preceding annual meeting
of stockholders, not less than 60 days nor more than 90 days prior to such
anniversary date, and (b) in the case of an annual meeting that is not called
for a date that is not within 30 days before or after the anniversary date of
the immediately preceding annual meeting, or in the case of a special meeting of
the stockholders called for the purpose of electing directors, not later than
the close of business on the tenth day on which notice of the date of the
meeting was mailed or public disclosure of the date of the meeting was made,
whichever occurs first. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at any annual
meeting or special meeting called for the purpose of electing directors except
in accordance with the procedures set forth in this Section 2.5. The Chairman of
the annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 2.5, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
2.6 List of Stockholders. The officer or agent who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting or any adjournment of the meeting. The list shall be
arranged alphabetically within each class and series and shall show the address
of, and the number of shares registered in the name of, each stockholder. Such
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholders or the books of the Corporation, or to vote in person
or by proxy at any meeting of stockholders.
2.7 Quorum; Adjournment. Except as otherwise provided by law, at all
stockholders' meetings, the stockholders present in person or represented by
proxy who, as of the record date for
-2-
<PAGE> 7
the meeting, were holders of shares entitled to cast a majority of the votes at
the meeting, shall constitute a quorum. Once a quorum is present at a meeting,
all stockholders present in person or represented by proxy at the meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum. Regardless of whether a quorum
is present, a stockholders' meeting may be adjourned to another time and place
by a vote of the shares present in person or by proxy without notice other than
announcement at the meeting; provided, that (a) only such business may be
transacted at the adjourned meeting as might have been transacted at the
original meeting and (b) if the adjournment is for more than thirty days or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting must be given to each stockholder of record
entitled to vote at the meeting.
2.8 Voting. Except as otherwise provided by the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share having voting power
held by such stockholder and on each matter submitted to a vote. Voting at
meetings of stockholders need not be by written ballot. When an action, other
than the election of directors, is to be taken by vote of the stockholders, it
shall be authorized by a majority of the votes cast by the holders of shares
entitled to vote on such action, unless a greater vote is required by the
Certificate of Incorporation, these Bylaws or by law. Except as otherwise
provided by the Certificate of Incorporation, directors shall be elected by a
plurality of the votes cast at any election.
2.9 Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary
of the corporation.
2.10 Questions Concerning Elections. The Board of Directors may, in
advance of the meeting, or the presiding officer may, at the meeting, appoint
one or more inspectors to act at a stockholders' meeting or any adjournment. If
appointed, the inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine challenges and questions arising in
connection with the right to vote, count and tabulate votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders.
-3-
<PAGE> 8
ARTICLE III
DIRECTORS
3.1 Number and Residence. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors consisting
of not less than three nor more than ten directors, the number thereof to be
determined from time to time by resolution of the Board of Directors; provided,
however, that the number of directors shall not be reduced so as to shorten the
term of any director at the time in office, and provided further, that the
number of directors constituting the entire Board shall be ten until otherwise
fixed by a majority of the entire Board of Directors. Directors need not be
stockholders. The Board of Directors shall be divided into three classes, as
nearly equal in numbers as the total number of directors constituting the entire
Board permits.
3.2 Election and Term. The term of office of the Directors of the first
class shall end on the first annual stockholders' meeting after their election;
the term of office of the second class shall end on the second annual
stockholders' meeting after their election; and the term of the office of the
third class shall end on the third annual stockholders' meeting after their
election. At each annual meeting after the first annual stockholders' meeting, a
number of Directors equal to the number of the class whose term expires at the
time of meeting shall be elected to hold office until the third succeeding
annual stockholders' meeting after their election. Each Director elected shall
hold office for the term for which he or she is elected and until his or her
successor is elected and qualified or until his or her resignation or removal.
3.3 Resignation. A Director may resign by written notice to the
Corporation. A Director's resignation is effective upon its receipt by the
Corporation or a later time set forth in the notice of resignation.
3.4 Removal. One or more Directors may be removed with cause by vote of
the holders of a majority of the shares entitled to vote at an election of
Directors cast at a meeting of the stockholders called for that purpose.
3.5 Vacancies. During the intervals between annual meetings of
stockholders, any vacancy occurring in the Board of Directors caused by
resignation, death or other incapacity and any newly created directorships
resulting from an increase in the number of Directors may be filled by a
majority vote of the Directors then in office, whether or not a quorum. Each
Director chosen to fill a vacancy shall hold office for the unexpired term in
respect of which such vacancy occurred. Each Director chosen to fill a newly
created directorship shall hold office until the next election of the class for
which such Director shall have been chosen. When the number of Directors is
changed, any newly created directorships or any decrease in directorships shall
be apportioned among the classes as to make all classes as nearly equal in
number as possible.
-4-
<PAGE> 9
3.6 Place of Meetings. The Board of Directors may hold meetings at any
location. The location of annual and regular Board of Directors' meetings shall
be determined by the Board and the location of special meetings shall be
determined by the person calling the meeting.
3.7 Annual Meetings. Each newly elected Board of Directors may meet
promptly after the annual stockholders' meeting for the purposes of electing
officers and transacting such other business as may properly come before the
meeting. No notice of the annual Directors' meeting shall be necessary to the
newly elected Directors in order to legally constitute the meeting, provided a
quorum is present.
3.8 Regular Meetings. Regular meetings of the Board of Directors or
Board committees may be held without notice at such places and times as the
Board or committee determines at least 30 days before the date of the meeting.
3.9 Special Meetings. Special meetings of the Board of Directors may be
called by the chief executive officer, and shall be called by the President or
Secretary upon the written request of two Directors, on two days notice to each
Director or committee member by mail or 24 hours notice by any other means
provided in Section 5.1. The notice must specify the place, date and time of the
special meeting, but need not specify the business to be transacted at, nor the
purpose of, the meeting. Special meetings of Board committees may be called by
the Chairperson of the committee or a majority of committee members pursuant to
this Section 3.9.
3.10 Quorum. At all meetings of the Board or a Board committee, a
majority of the Directors then in office, or of members of such committee,
constitutes a quorum for transaction of business, unless a higher number is
otherwise required. If a quorum is not present at any Board or Board committee
meeting, a majority of the Directors present at the meeting may adjourn the
meeting to another time and place without notice other than announcement at the
meeting. Any business may be transacted at the adjourned meeting which might
have been transacted at the original meeting, provided a quorum is present.
3.11 Voting. The vote of a majority of the members present at any Board
or Board committee meeting at which a quorum is present constitutes the action
of the Board of Directors or of the Board committee, unless a higher vote is
otherwise required.
3.12 Telephonic Participation. Members of the Board of Directors or any
Board committee may participate in a Board or Board committee meeting by means
of conference telephone or similar communications equipment through which all
persons participating in the meeting can communicate with each other.
Participation in a meeting pursuant to this Section 3.12 constitutes presence in
person at such meeting.
3.13 Action by Written Consent. Any action required or permitted to be
taken under authorization voted at a Board or Board committee meeting may be
taken without a meeting if, before or after the action, all members of the Board
then in office or of the Board committee consent to the action in writing. Such
consents shall be filed with the minutes of the proceedings of the
-5-
<PAGE> 10
Board or committee and shall have the same effect as a vote of the Board or
committee for all purposes.
3.14 Committees. The Board of Directors may, by resolution passed by a
majority of the entire Board, designate one or more committees, each consisting
of one or more Directors. The Board may designate one or more Directors as
alternate members of a committee, who may replace an absent or disqualified
member at a committee meeting. In the absence or disqualification of a member of
a committee, the committee members present and not disqualified from voting,
regardless of whether they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in place of such absent
or disqualified member. Any committee, to the extent provided in the resolution
of the Board, may exercise all powers and authority of the Board of Directors in
management of the business and affairs of the Corporation, except a committee
does not have power or authority to:
(a) Amend the Certificate of Incorporation.
(b) Adopt an agreement of merger or consolidation.
(c) Recommend to stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets.
(d) Recommend to stockholders a dissolution of the Corporation
or a revocation of a dissolution.
(e) Amend the Bylaws of the Corporation.
(f) Fill vacancies in the Board.
(g) Unless the resolution designating the committee or a later
Board of Director's resolution expressly so provides, declare a
distribution or dividend or authorize the issuance of stock.
Each committee and its members shall serve at the pleasure of the Board, which
may at any time change the members and powers of, or discharge, the committee.
Each committee shall keep regular minutes of its meetings and report them to the
Board of Directors when required.
3.15 Compensation. The Board, by affirmative vote of a majority of
Directors in office and irrespective of any personal interest of any of them,
may establish reasonable compensation of Directors for services to the
Corporation as directors, officers or members of a Board committee. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation for such service.
-6-
<PAGE> 11
ARTICLE IV
OFFICERS
4.1 Officers and Agents. The Board of Directors, at its first meeting
after each annual meeting of stockholders, shall elect a President, a Secretary
and a Treasurer, and may also elect and designate as officers a Chairman of the
Board, a Vice Chairman of the Board and one or more Executive Vice Presidents,
Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers. The Board of Directors may also from time to time appoint, or
delegate authority to the Corporation's chief executive officer to appoint, such
other officers and agents as it deems advisable. Any number of offices may be
held by the same person, but an officer shall not execute, acknowledge or verify
an instrument in more than one capacity if the instrument is required by law to
be executed, acknowledged or verified by two or more officers. An officer has
such authority and shall perform such duties in the management of the
Corporation as provided in these Bylaws, or as may be determined by resolution
of the Board of Directors not inconsistent with these Bylaws, and as generally
pertain to their offices, subject to the control of the Board of Directors.
4.2 Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors.
4.3 Term. Each officer of the Corporation shall hold office for the
term for which he or she is elected or appointed and until his or her successor
is elected or appointed and qualified, or until his or her resignation or
removal. The election or appointment of an officer does not, by itself, create
contract rights.
4.4 Removal. An officer elected or appointed by the Board of Directors
may be removed by the Board of Directors with or without cause. The removal of
an officer shall be without prejudice to his or her contract rights, if any.
4.5 Resignation. An officer may resign by written notice to the
Corporation. The resignation is effective upon its receipt by the Corporation or
at a subsequent time specified in the notice of resignation.
4.6 Vacancies. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors.
4.7 Chairman of the Board. The Chairman of the Board, if such office is
filled, shall be a Director and shall preside at all stockholders' and Board of
Directors' meetings.
4.8 Chief Executive Officer. The Chairman of the Board, if any, or the
President, as designated by the Board, shall be the chief executive officer of
the Corporation and shall have the general powers of supervision and management
of the business and affairs of the Corporation usually vested in the chief
executive officer of a corporation and shall see that all orders and resolutions
of
-7-
<PAGE> 12
the Board of Directors are carried into effect. If no designation of chief
executive officer is made, or if there is no Chairman of the Board, the
President shall be the chief executive officer. The chief executive officer may
delegate to the other officers such of his or her authority and duties at such
time and in such manner as he or she deems advisable.
4.9 President. If the office of Chairman of the Board is not filled,
the President shall perform the duties and execute the authority of the Chairman
of the Board. If the Chairman of the Board is designated by the Board as the
Corporation's chief executive officer, the President shall be the chief
operating officer of the Corporation, shall assist the Chairman of the Board in
the supervision and management of the business and affairs of the Corporation
and, in the absence of the Chairman of the Board, shall preside at all
stockholders' and Board of Directors' meetings. The President may delegate to
the officers other than the Chairman of the Board, if any, such of his or her
authority and duties at such time and in such manner as he or she deems
appropriate.
4.10 Executive Vice Presidents and Vice Presidents. The Executive Vice
Presidents and Vice Presidents shall assist and act under the direction of the
Chairman of the Board and President. The Board of Directors may designate one or
more Executive Vice Presidents and may grant other Vice Presidents titles which
describe their functions or specify their order of seniority. In the absence or
disability of the President, the authority of the President shall descend to the
Executive Vice Presidents or, if there are none, to the Vice Presidents in the
order of seniority indicated by their titles or otherwise specified by the
Board. If not specified by their titles or the Board, the authority of the
President shall descend to the Executive Vice Presidents or, if there are none,
to the Vice Presidents, in the order of their seniority in such office.
4.11 Secretary. The Secretary shall act under the direction of the
Corporation's chief executive officer and President. The Secretary shall attend
all stockholders' and Board of Directors' meetings, record minutes of the
proceedings and maintain the minutes and all documents evidencing corporate
action taken by written consent of the stockholders and Board of Directors in
the Corporation's minute book. The Secretary shall perform these duties for
Board committees when required. The Secretary shall see to it that all notices
of stockholders' meetings and special Board of Directors' meetings are duly
given in accordance with applicable law, the Certificate of Incorporation and
these Bylaws. The Secretary shall have custody of the Corporation's seal and,
when authorized by the Corporation's chief executive officer, President or the
Board of Directors, shall affix the seal to any instrument requiring it and
attest such instrument.
4.12 Treasurer. The Treasurer shall act under the direction of the
Corporation's chief executive officer and President. The Treasurer shall have
custody of the corporate funds and securities and shall keep full and accurate
accounts of the Corporation's assets, liabilities, receipts and disbursements in
books belonging to the Corporation. The Treasurer shall deposit all moneys and
other valuables in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Corporation's
chief executive
-8-
<PAGE> 13
officer, the President or the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Corporation's chief
executive officer, the President and the Board of Directors (at its regular
meetings or whenever they request it) an account of all his or her transactions
as Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, the Treasurer shall give the Corporation a bond for the
faithful discharge of his or her duties in such amount and with such surety as
the Board prescribes.
4.13 Assistant Vice Presidents, Secretaries and Treasurers. The
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, if
any, shall act under the direction of the Corporation's chief executive officer,
the President and the officer they assist. In the order of their seniority, the
Assistant Secretaries shall, in the absence or disability of the Secretary,
perform the duties and exercise the authority of the Secretary. The Assistant
Treasurers, in the order of their seniority, shall, in the absence or disability
of the Treasurer, perform the duties and exercise the authority of the
Treasurer.
4.14 Execution of Contracts and Instruments. The Board of Directors may
designate an officer or agent with authority to execute any contract or other
instrument on the Corporation's behalf; the Board may also ratify or confirm any
such execution. If the Board authorizes, ratifies or confirms the execution of a
contract or instrument without specifying the authorized executing officer or
agent, the Corporation's chief executive officer, the President, any Executive
Vice President or Vice President or the Treasurer may execute the contract or
instrument in the name and on behalf of the Corporation and may affix the
corporate seal to such document or instrument.
4.15 Voting of Shares and Securities of Other Corporations and
Entities. Unless the Board of Directors otherwise directs, the Corporation's
chief executive officer shall be entitled to vote or designate a proxy to vote
all shares and other securities which the Corporation owns in any other
corporation or entity.
ARTICLE V
NOTICES AND WAIVERS OF NOTICE
5.1 Delivery of Notices. All written notices to stockholders, Directors
and Board committee members shall be given personally or by mail (registered,
certified or other first class mail, with postage pre-paid), addressed to such
person at the address designated by him or her for that purpose or, if none is
designated, at his or her last known address. Written notices to Directors or
Board committee members may also be delivered at his or her office on the
Corporation's premises, if any, or by overnight carrier, telegram, telex,
telecopy, radiogram, cablegram, facsimile, computer transmission or similar form
of communication, addressed to the address referred to in the preceding
sentence. Notices given pursuant to this Section 5.1 shall be deemed to be given
when dispatched, or, if mailed, when deposited in a post office or official
depository under the exclusive care and custody of the United States postal
service. Notices given by overnight carrier shall be deemed "dispatched" at 9:00
a.m. on the day the overnight carrier is reasonably requested to deliver
-9-
<PAGE> 14
the notice. The Corporation shall have no duty to change the written address of
any Director, Board committee member or stockholder unless the Secretary
receives written notice of such address change.
5.2 Waiver of Notice. Whenever notice is required to be given under the
Certificate of Incorporation, these Bylaws or applicable law, a written waiver,
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except where the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE VI
SHARE CERTIFICATES AND STOCKHOLDERS OF RECORD
6.1 Certificates. The shares of the Corporation shall be represented by
certificates signed by the Chairman of the Board, Vice Chairman of the Board, or
the President or a Vice President and by the Treasurer or an Assistant
Treasurer, or by the Secretary or an Assistant Secretary representing the number
of shares registered in certificate form. Any of or all the signatures on the
certificate may be by facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
6.2 Lost or Destroyed Certificates. The Corporation may issue a new
certificate of stock in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
6.3 Transfer of Shares. Shares of the Corporation are transferable only
on the Corporation's stock ledger upon surrender to the Corporation or its
transfer agent of a certificate for the shares, duly endorsed for transfer, and
the presentation of such evidence of ownership and validity of the transfer as
the Corporation requires.
6.4 Record Date. The Board of Directors may fix, in advance, a date as
the record date for determining stockholders for any purpose, including
determining stockholders entitled to (a) notice of, and to vote at, any
stockholders' meeting or any adjournment of such meeting; or (b) receive payment
of a share dividend or distribution or allotment of a right. The record date
shall not be more than 60 nor less than 10 days before the date of the meeting,
nor more than 60 days before any other action.
-10-
<PAGE> 15
If a record date is not fixed:
(a) the record date for determining the stockholders entitled
to notice of, or to vote at, a stockholders' meeting shall be the close
of business on the day next preceding the day on which notice of the
meeting is given, or, if no notice is given, the close of business on
the day next preceding the day on which the meeting is held; and
(b) the record date for determining stockholders for any other
purpose shall be the close of business on the day on which the
resolution of the Board of Directors relating to the action is adopted.
A determination of stockholders of record entitled to notice of, or to vote at,
a stockholders' meeting shall apply to any adjournment of the meeting, unless
the Board of Directors fixes a new record date for the adjourned meeting.
Only stockholders of record on the record date shall be entitled to
notice of, or to participate in, the action relating to the record date,
notwithstanding any transfer of shares on the Corporation's books after the
record date. This Section 6.4 shall not affect the rights of a stockholder and
the stockholder's transferor or transferee as between themselves.
6.5 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of a share for all purposes, including notices, voting, consents, dividends and
distributions, and shall not be bound to recognize any other person's equitable
or other claim to interest in such share, regardless of whether it has actual or
constructive notice of such claim or interest.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification. The Corporation shall, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
(a) indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a Director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (collectively, "Covered Matters") against all liability and
loss suffered and expenses (including attorneys' fees) reasonably incurred by
such person; and (b) pay or reimburse such expenses incurred by such person in
connection with any Covered Matter in advance of final disposition of such
Covered Matter. The Corporation may provide such other indemnification to
Directors, officers, employees and agents by insurance, contract or otherwise as
is permitted by law and authorized by the Board of Directors.
-11-
<PAGE> 16
7.2 Claims. If a claim for indemnification or payment of expenses under
this Article VII is not paid in full within sixty days after a written claim
therefor has been received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
7.3 Non-Exclusivity of Rights. The rights conferred on any person by
this Article VII shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Checks and Funds. All checks, drafts or demands for money and notes
of the Corporation must be signed by such officer or officers or such other
person or persons as the Board of Directors from time to time designates. All
funds of the Corporation not otherwise employed shall be deposited or used as
the Board of Directors from time to time designates.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on such
date as the Board of Directors from time to time determines.
8.3 Corporate Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
8.4 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time.
8.5 Interested Directors; Quorum. No contract or transaction between
the Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its Directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (a) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or
-12-
<PAGE> 17
transaction by the affirmative votes of a majority of the disinterested
Directors, even though the disinterested Directors be less than a quorum; or (b)
the material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (c) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, of the stockholders. Common or
interested Directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IX
AMENDMENTS
These Bylaws may be amended or repealed, or new Bylaws may be adopted,
by the Board of Directors at any meeting the notice of which shall have stated
the amendment of the Bylaws as one of the purposes of the meeting, but the
stockholders may make additional Bylaws and may amend and repeal any Bylaws
whether adopted by them or otherwise.
ARTICLE X
SCOPE OF BYLAWS
These Bylaws govern the regulation and management of the affairs of the
Corporation to the extent that they are consistent with applicable law and the
Certificate of Incorporation; to the extent they are not consistent, applicable
law and the Certificate of Incorporation shall govern.
-13-
<PAGE> 1
EXHIBIT 10.24
EXECUTION COPY
STOCK PURCHASE AGREEMENT
AGREEMENT, dated March 25, 1998, between DOVER DOWNS ENTERTAINMENT,
INC., a Delaware corporation ("Purchaser"), and PENSKE MOTORSPORTS, INC., a
Delaware corporation ("Seller").
WHEREAS, Seller desires to sell to Purchaser Three Hundred Forty
Thousand (340,000) shares (the "Shares"), no par value, of Grand Prix
Association of Long Beach, Inc. (the "Company"); and
WHEREAS, Purchaser desires to acquire the Shares pursuant to the terms
and conditions hereof;
NOW, THEREFORE, in consideration of the premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
1. SALE OF SHARES; CLOSING
1.1. Issuance and Delivery of Shares. At the Closing referred to in
Section 1.3, Seller shall sell the Shares to Purchaser, free and clear of all
liens and encumbrances, by delivering to Purchaser a certificate or certificates
registered in the name of Seller representing the Shares (the "Certificates"),
duly endorsed for transfer to Purchaser.
1.2. Consideration. In consideration for the aforesaid sale and
delivery of Shares, Purchaser will pay (the "Purchase Price") to Seller at the
Closing by wire transfer the amount of Five Million Two Hundred Seventy Thousand
and 00/100 Dollars ($5,270,000.00), representing Fifteen and 50/100 Dollars
($15.50) per Share, representing the closing price of the common stock of
Company on NASDAQ on March 19, 1998.
1.3. Closing. The closing of the transaction provided for in this
Section 1 (the "Closing") shall take place at the offices of Purchaser, 2200
Concord Pike, Wilmington, Delaware 19803, or such other place as the parties may
agree, on or before the tenth business day following execution hereof or such
other later date as the parties may agree. Purchaser's attorney, Klaus M.
Belohoubek, Esquire, has agreed to hold the Certificates in escrow and not to
release them to Purchaser until the conditions to Closing are satisfied or
waived and the wire transfer of the Purchase Price is confirmed by Seller. As a
condition to Closing for either party, Purchaser shall, on the date of Closing,
enter into an Agreement and Plan of Merger with Company (the "Merger
Agreement"). Seller is a party to a certain right of first refusal agreement
dated August 8, 1997 between and among various shareholders of the Company (the
"ROFR
-1-
<PAGE> 2
Agreement"). As a further condition to Closing for either party, the
rights of such other shareholders under the ROFR Agreement shall have expired,
been terminated or waived in a manner reasonably acceptable to Seller.
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants as follows:
2.1. Organization and Good Standing. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Delaware.
2.2. Authority. Purchaser has the legal right and power to enter
into this Agreement and to carry out the transactions herein contemplated.
2.3. Authorization, Execution and Delivery. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by Purchaser, and this Agreement
has been duly executed and delivered by Purchaser.
2.4. Legal, Valid and Binding Obligations. This Agreement
constitutes the legal, valid and binding obligation of Purchaser.
2.5. No Violation of Other Agreements. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by Purchaser does not violate any provisions of the
organizational documents of Purchaser and does not violate any provision of, or
constitute a default under, or constitute a default upon notice or lapse of time
or both under, or result in the acceleration of any obligation under, or cause a
termination under, any contract, agreement, guaranty, lease, lien, indenture,
loan or credit agreement, promissory note, obligation, statute, rule, regulation
or judgment to which Purchaser is a party or by which Purchaser or the property
or business of Purchaser is bound or affected or to which it is subject.
2.6. Governmental Approvals. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby by
Purchaser does not require any governmental approval other than filing Form 3
and Schedule 13-D under the Exchange Act.
2.7. Investment Representation. The Shares being acquired by Purchaser
pursuant to this Agreement are being acquired for its own account for investment
and not with a view toward the distribution thereof in violation of the
Securities Act, and any future dispositions of such Shares by Purchaser will be
made in accordance with said Securities Act and the applicable rules and
regulations promulgated thereunder.
-2-
<PAGE> 3
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants as follows:
3.1. Organization and Good Standing. Seller is a corporation duly
organized and validly existing under the laws of the State of Delaware.
3.2. Authority. Seller has the legal right and power to enter into
this Agreement and to carry out the transactions herein contemplated.
3.3. Authorization, Execution and Delivery. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by Seller, and this Agreement has
been duly executed and delivered by Seller.
3.4. Legal, Valid and Binding Obligations. This Agreement
constitutes the legal, valid and binding obligation of Seller.
3.5. No Violation of Other Agreements. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by Seller does not violate any provisions of the
organizational documents of Seller and does not violate any provision of, or
constitute a default under, or constitute a default upon notice or lapse of time
or both under, or result in the acceleration of any obligation under, or cause a
termination under, any contract, agreement, guaranty, lease, lien, indenture,
loan or credit agreement, promissory note, obligation, statute, rule, regulation
or judgment to which Seller is a party or by which Seller or the property or
business of Seller is bound or affected or to which it is subject, excluding
only the ROFR Agreement referred to in Section 1.3 hereto.
3.6. Governmental Approvals. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby by
Seller does not require any governmental approval.
4. BROKERS
Purchaser and Seller represent to each other that all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on by Purchaser and Seller and their respective representatives without
the intervention of any person in such manner as to give rise to any valid claim
against any of the parties hereto for a brokerage commission, finder's fee or
other like payment to any person.
-3-
<PAGE> 4
5. PUBLICITY
Except as required by law, neither of the parties hereto nor any of
their affiliates shall issue or make any public release or announcement
concerning this Agreement or the transactions contemplated hereby prior to the
announcement by Company and Purchaser of the execution and delivery of the
Merger Agreement. In addition, each party shall use its reasonable best efforts
to first consult in advance with the other party concerning the content of any
required public release or announcement relating to this Agreement.
6. INDEMNITY
Each of the Purchaser and the Seller hereby agrees to indemnify and
hold harmless the other and the other's officers, directors and agents, and
their respective successors and assigns, from against, and in respect of any and
all demands, claims, actions or causes of action, assessments, liabilities,
losses, costs, damages, penalties, charges, fines or expenses, including without
limitation attorney's fees and expenses, arising out of or relating to any
breach by such indemnifying party of any representation, warranty, covenant or
agreement made in this Agreement. The party (the "Indemnitor") indemnifying the
other (the "Indemnitee") shall give the Indemnitee prompt notice of a claim
which is the subject of indemnification and the Indemnitee shall not settle any
claim without the prior approval of the Indemnitor, which shall not be
unreasonably withheld. The Indemnitee shall have the right, at its sole cost and
expense, to designate counsel of its own choice to join in the defense of any
action. Such right to indemnification shall be in addition to any and all other
rights of the parties under this Agreement or otherwise, at law or in equity.
7. STANDSTILL
While the Agreement and Plan of Merger referenced in Section 1.3
remains in effect and while Purchaser retains ownership of at least eighty
percent (80%) of the Shares purchased from Seller pursuant to this Agreement,
for a one (1) year period from the date hereof, Seller will not directly or
indirectly, without the express permission of Purchaser's Board of Directors,
(A) purchase or offer to purchase any of the Company's equity securities (or
securities convertible into the Company's equity securities), or (B) conduct a
"proxy contest" to obtain control of the Company's Board. This provision shall
expire and terminate upon consummation of the Merger contemplated in the
Agreement and Plan of Merger referenced in Section 1.3.
8. BOARD RESIGNATION
On the date of Closing, Seller shall deliver the resignation of Gregory
W. Penske from the Board of Directors of Company.
-4-
<PAGE> 5
9. MISCELLANEOUS
9.1. Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of Delaware (without reference to the conflict of laws provisions or principles
thereof).
9.2. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; but neither this Agreement nor any of the rights, benefits or
obligations hereunder shall be assigned, by operation of law or otherwise, by
either party hereto without the prior written consent of the other party.
Nothing in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto and their respective permitted successors
and assigns, any rights, benefits or obligations hereunder.
9.3. Amendment; Waiver. This Agreement shall not be changed, modified
or amended in any respect except by the mutual written agreement of the parties
hereto. Any provision of this Agreement may be waived in writing by the party
which is entitled to the benefits thereof. No waiver of any provision of this
Agreement shall be deemed to or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall any such waiver constitute a
continuing waiver.
9. 4. Notices. Any notices, requests, demands and other communications
required or permitted to be given hereunder must be in writing and, except as
otherwise specified in writing, will be deemed to have been duly given when
personally delivered or facsimile transmitted, or three (3) days after deposit
in the United States mail, by certified mail, postage prepaid, return receipt
requested, as follows:
IF TO PURCHASER: Dover Downs Entertainment, Inc.
1131 N. DuPont Highway
Dover, DE 19901
Attn: Denis McGlynn
President and Chief Executive Officer
With a copy to: Klaus M. Belohoubek, Esquire
Assistant General Counsel
Dover Downs Entertainment, Inc.
2200 Concord Pike
Wilmington, DE 19803
IF TO SELLER: Robert H. Kurnick, Jr.
Senior Vice President and General Counsel
Penske Motorsports, Inc.
13400 West Outer Drive
Detroit, MI 48239
-5-
<PAGE> 6
Any party may change its address for the purposes of this Agreement by
giving notice of such change of address to the other parties in the manner
herein provided for giving notice.
9.5. Survival. The representations and warranties of the parties set
forth in this Agreement shall survive the Closing; provided, that all such
representations and warranties shall expire, terminate and be of no force and
effect (or provide the basis for any claim) and no party hereto shall have any
obligation to indemnify any other party with respect thereto unless written
notice of any claim with respect thereto is received prior to the first
anniversary of this Agreement.
9.6. Severability. Any term or provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
9.7. Headings. The captions, heading and titles herein are for
convenience of reference only and shall not effect the construction, meaning or
interpretation of this Agreement or any term or provision hereof.
9.8. Counterparts. This Agreement may be executed through the use of
one or more counterparts, each of which shall be deemed an original and all of
which shall be considered one and the same agreement, notwithstanding that all
parties are not signatories to the same counterpart.
9.9. Expenses. Each party to this Agreement shall bear their own fees,
costs and expenses incurred in connection with the negotiation, execution and
consummation of this Agreement and the transactions contemplated hereby.
9.10. Entire Agreement. Except for written agreements executed on or
about the date hereof in connection with the transactions contemplated hereby,
this Agreement merges and supersedes any and all prior agreements,
understandings, discussions, assurances, promises, representations or warranties
among the parties with respect to the subject matter hereof, and contains the
entire agreement among the parties with respect to the subject matter hereof.
9.11. Remedies. The Shares are unique chattels and each party to this
Agreement shall have the remedies which are available to it for the violation of
any of the terms of this Agreement, including, but not limited to, the equitable
remedy of specific performance.
-6-
<PAGE> 7
IN WITNESS WHEREOF, Purchaser and Seller have each duly executed this
Agreement as of the date first above written.
DOVER DOWNS ENTERTAINMENT, INC.
By: /s/ Denis McGlynn
------------------------------
Denis McGlynn
President & Chief Executive Officer
Officer
PENSKE MOTORSPORTS, INC.
By: /s/ Robert H. Kurnick, Jr
-----------------------------
Robert H. Kurnick, Jr
Senior Vice President and
General Counsel
General Counsel
-7-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF
PENSKE MOTORSPORTS, INC.
Wholly-Owned
- - -------------
California Speedway Corporation, a Delaware Corporation, d/b/a California
Speedway
Competition Tire South, Inc., a Delaware corporation, d/b/a CompTire and
CompTire-Daytona Beach
Competition Tire West, Inc., a Michigan Corporation, d/b/a CompTire and
CompTire-Brooklyn
Michigan International Speedway, Inc., a Michigan Corporation, d/b/a Michigan
Speedway Corporation
Motorsports International, Corp. a Pennsylvania Corporation, d/b/a Motorsports
Services
North Carolina Motor Speedway, Inc., a North Carolina Corporation, d/b/a North
Carolina Speedway
Pennsylvania International Raceway, Inc., a Pennsylvania Corporation, d/b/a
Nazareth Speedway and Pennsylvania Speedway Corporation
45% Owned
- - ----------
Homestead-Miami Speedway, LLC, a Delaware limited liability company, d/b/a
Miami-Dade Homestead Motorsports Complex and Homestead-Miami Speedway
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-692 of Penske Motorsports, Inc. on Form S-8 of our report dated January 30,
1998 appearing in this Annual Report on Form 10-K of Penske Motorsports, Inc.
for the year ended December 31, 1997.
Detroit, Michigan
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF PENSKE MOTORSPORTS, INC. AS OF
DECEMBER 31, 1997 AND 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME
FORTHE YEARS ENDED DECEMER 31, 1997, 1996 AND 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> OCT-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 249 249
<SECURITIES> 0 0
<RECEIVABLES> 4,787 4,787
<ALLOWANCES> 0 0
<INVENTORY> 2,433 2,433
<CURRENT-ASSETS> 9,551 9,551
<PP&E> 246,635 246,635
<DEPRECIATION> 21,969 21,969
<TOTAL-ASSETS> 291,772 291,772
<CURRENT-LIABILITIES> 38,696 38,696
<BONDS> 48,295 48,295
0 0
0 0
<COMMON> 142 142
<OTHER-SE> 190,552 190,552
<TOTAL-LIABILITY-AND-EQUITY> 291,772 291,772
<SALES> 3,865 30,340
<TOTAL-REVENUES> 14,171 109,816
<CGS> 1,543 16,954
<TOTAL-COSTS> 15,953 80,944
<OTHER-EXPENSES> 133 860
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 869 1,558
<INCOME-PRETAX> (2,784) 26,454
<INCOME-TAX> (966) 10,009
<INCOME-CONTINUING> (1,818) 16,445
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,818) 16,445
<EPS-PRIMARY> (.13) 1.19
<EPS-DILUTED> (.13) 1.19
</TABLE>
