<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1999
REGISTRATION NO. 333-82315
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
goracing.com, inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7375 86-0956244
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
4707 EAST BASELINE ROAD
PHOENIX, ARIZONA 85040
(602) 337-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHRISTOPHER S. BESING
CHIEF EXECUTIVE OFFICER
4707 EAST BASELINE ROAD
PHOENIX, ARIZONA 85040
(602) 337-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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ROBERT S. KANT, ESQ. JAMES P. CLOUGH, ESQ.
JERE M. FRIEDMAN, ESQ. PATRICK J. DEVINE, ESQ.
SCOTT K. WEISS, ESQ. JAMES J. MASETTI, ESQ.
GREENBERG TRAURIG, P.A. PILLSBURY MADISON & SUTRO LLP
ONE EAST CAMELBACK 2550 HANOVER STREET
PHOENIX, ARIZONA 85012-1656 PALO ALTO, CALIFORNIA 94304-1115
(602) 263-2400 (650) 233-4500
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT
NOTICE. GORACING.COM MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND GORACING.COM IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY JURISDICTION WHERE THE OFFER
OR SALE OF THESE SECURITIES IS NOT PERMITTED.
Prospectus (Not Complete)
Issued September 3, 1999
6,250,000 SHARES
[GORACING.COM LOGO]
goracing.com, inc.
CLASS A COMMON STOCK
------------------------
goracing.com, inc. is offering shares of its class A common stock. This is
our initial public offering, and no public market currently exists for our
shares. We estimate that the initial public offering price for our shares will
be between $7.00 and $9.00.
------------------------
We will apply to have our class A common stock quoted on the Nasdaq
National Market under the symbol "GRCN."
------------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6.
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<CAPTION>
Per Share Total
---------------------- ----------------------
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Public Offering Price............................. $ $
Discounts and Commissions to Underwriters......... $ $
Proceeds to goracing.com, inc. ................... $ $
</TABLE>
We intend to use $4 million of the net proceeds from this offering to repay
intercompany payables to Action Performance Companies, Inc., our parent.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
goracing.com, inc. has granted the underwriters the right to purchase up to
an additional 937,500 shares of class A common stock to cover any
over-allotments. The underwriters can exercise this right at any time within 30
days after the offering. Banc of America Securities LLC expects to deliver the
shares of class A common stock to investors on , 1999.
BANC OF AMERICA SECURITIES LLC
WILLIAM BLAIR & COMPANY
U.S. BANCORP PIPER JAFFRAY
J.C. BRADFORD & CO.
------------------------
The date of this prospectus is , 1999
<PAGE> 3
[INSIDE FRONT COVER]
This page will contain a montage of pictures of various motorsports drivers,
vehicles, and fans, together with the "goracing.com" logo.
The inside cover folds out to display three representative samples of
"screen shots" from our network. The first depicts a representative sample
of motorsports news and information. The second depicts the variety
of community features available on our network. The third depicts an
e-commerce page where our visitors can purchase licensed motorsports products.
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Use of Proceeds............................................. 25
Dividend Policy............................................. 25
Capitalization.............................................. 26
Dilution.................................................... 27
Selected Combined Financial Data............................ 28
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................... 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 31
Business.................................................... 37
Management.................................................. 54
Transactions With Action Performance Companies, Inc. ....... 60
Certain Relationships and Transactions...................... 66
Principal Stockholders...................................... 67
Description of Capital Stock................................ 69
Shares Eligible for Future Sale............................. 75
Underwriting................................................ 77
Legal Matters............................................... 79
Experts..................................................... 79
Where You Can Find Additional Information................... 79
Index to Financial Statements............................... F-1
</TABLE>
------------------------
The "goracing.com," "SpeedMall," and "RCCA SelectNet" names are our trademarks.
This prospectus also includes trade names and trademarks of Action Performance
Companies, Inc. and of other companies.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read this entire prospectus carefully. Unless otherwise indicated,
all information contained in this prospectus assumes that the underwriters will
not exercise their over-allotment option. This prospectus contains
forward-looking statements, which involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this prospectus.
goracing.com, inc.
goracing.com, inc. is a leading online provider of worldwide
motorsports-related news and information, a global online meeting place and
community for motorsports fans, and a leading e-commerce marketplace for
motorsports-related die-cast collectibles, apparel, and souvenirs. In addition
to providing comprehensive motorsports information coverage, our network also
enables visitors to participate in chat groups, contests, and online auctions;
to listen to audio files or view video files; and to participate in other
interactive activities related to motorsports. Through SpeedMall, our virtual
online shopping mall, our visitors can shop for motorsports and automotive
products and services, including motorsports merchandise licensed by many of the
leading race car drivers, team owners, and motorsports sanctioning bodies. Our
SpeedMall tenants include our Racing Collectables Club of America, or
Collectors' Club. We offer on an exclusive basis limited edition lines of
die-cast replicas of racing vehicles and other licensed motorsports products to
the more than 166,000 members of the Collectors' Club. Our network had
approximately 16.8 million page views and approximately 993,000 unique visitors
during July 1999. From the early February 1999 launch of SpeedMall through June
30, 1999, our company-owned online stores received approximately 70,000 orders
representing approximately $9.0 million, an average of $129 per order.
More than 17 million fans attended racing events in North America during
1998, with an additional aggregate 287 million estimated viewers tuning into
NASCAR events alone last year. Internationally, Formula One events are broadcast
worldwide to approximately 130 countries. Corporate sponsors are expected to
spend more than $1.2 billion, or 24% of all sports sponsorship dollars, on
motorsports marketing programs in the United States in 1999. We believe our
network provides merchants and advertisers targeted access to the substantial
and growing base of motorsports fans throughout the world.
We have a unique relationship with our parent, Action Performance
Companies, Inc., a worldwide leader in the design and sale of licensed
motorsports merchandise. Through our parent, we have endorsement and marketing
relationships with many of the most popular race car drivers, team owners, and
crew chiefs who have agreed to endorse our network. Leading personalities with
whom we have endorsement and marketing relationships include Dale Earnhardt,
Jeff Gordon, Dale Jarrett, Rusty Wallace, Dario Franchitti, Mark Martin, Don
Prudhomme, Bobby Labonte, and Tony Stewart. We have similar relationships with
more than 30 other personalities, each of whom has agreed to grant interviews,
make personal appearances, participate in online chats, and provide items he
used in races for our online auctions and promotions. Our motorsports network
also hosts the Web sites of popular race car drivers and serves as the online
home to several influential racing associations.
We benefit from Action Performance's extensive portfolio of license
arrangements with popular race car drivers, many team owners and sponsors, and
various sanctioning bodies. We offer for sale online Action Performance's wide
variety of licensed motorsports merchandise. This licensed motorsports
merchandise features many of the leading racing series from around the world
including NASCAR, the Formula One World Championship, the National Hot Rod
Association, or NHRA, Championship Auto Racing Teams, or CART, and World
Superbike.
1
<PAGE> 6
Our goal is to be the leading destination on the Internet for motorsports
fans and automotive enthusiasts around the world. The key elements of our
strategy are as follows:
- capitalize on Action Performance's product offerings, licensing and
endorsement arrangements, and motorsports relationships,
- take advantage of our existing relationships with drivers, team owners,
and sponsors to attract and increase traffic on our network and to
attract and develop new relationships with third-party providers of
motorsports content, community features, and products and services,
- increase our online motorsports content, community, and commerce
offerings to drive traffic to our network and increase revenue,
- expand our offerings to include products, parts, accessories, and
services that appeal to automotive enthusiasts,
- develop sponsorship and other advertising programs that benefit from our
audience demographics,
- expand our network internationally, and
- increase worldwide brand recognition.
THE OFFERING
Class A common stock 6,250,000 shares
offered
Common stock to be 41,250,000 shares
outstanding after
this offering:
Class A common stock 6,250,000 shares. This amount does not include (1)
up to an aggregate of 937,500 shares subject to
over-allotment options granted by us to the
underwriters, or (2) any shares that may be issued
after the offering upon the exercise of stock
options, as discussed below.
Class B common stock 35,000,000 shares. Action Performance owns all of
the class B common stock.
Relative rights of class A The class A common stock and the class B common
common stock and class B stock have identical rights other than with respect
common stock to voting, conversion, and transfer. The class A
common stock is entitled to one vote per share
while the class B common stock is entitled to ten
votes per share. In most cases, the class A common
stock and class B common stock vote together as one
class. The shares of class B common stock are
convertible at any time at the option of the holder
into shares of class A common stock on a
share-for-share basis. In addition, shares of class
B common stock will be automatically converted into
the same number of shares of class A common stock
if the shares are held by someone other than Action
Performance or one of its affiliates.
Use of Proceeds We intend to use the proceeds of this offering to
fund advertising and marketing programs; to add
online content, community features, and e-commerce
offerings on our network; to hire management and
other personnel; to enhance our technology,
software, and basic infrastructure; to facilitate
relationships and acquisitions; to repay $4.0
million of intercompany payables to Action
Performance; and to provide funds for working
capital and general corporate purposes.
Listing We have applied to have our class A common stock
quoted on the Nasdaq National Market under the
symbol "GRCN."
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OUR RELATIONSHIP WITH ACTION PERFORMANCE
We are a wholly owned subsidiary of Action Performance. Under various
contractual arrangements, Action Performance will make available its products to
us and will provide us with various management, administrative, and fulfillment
services. After this offering, Action Performance will retain 98.2% of the total
voting power of our company and will continue to control our company. As a
result, our relationship with Action Performance will not always be on an
arm's-length basis. All references to Action Performance refer to our parent
company, Action Performance Companies, Inc., and its predecessors, operating
divisions, and subsidiaries other than goracing.com, inc. and its subsidiaries
and operating divisions.
OUR HISTORY
Action Performance incorporated our company in Delaware on May 5, 1999 and
contributed our business operations to us on July 1, 1999. All references to our
business operations include the operations of predecessor subsidiaries and
operating divisions that were operated under the control of Action Performance
prior to July 1, 1999, as well as the operations of goracing.com, inc. and our
subsidiaries on and after July 1, 1999.
Our executive offices are located at 4707 E. Baseline Road, Phoenix,
Arizona 85040, and our telephone number is (602) 337-3700. Our Web site is
located at http://www.goracing.com. Information contained on that Web site and
any of the Web sites in our network does not constitute a part of this
prospectus.
3
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SUMMARY FINANCIAL DATA
The following table sets forth our summary combined historical and summary
consolidated pro forma financial data. You should read this information in
conjunction with the Combined Financial Statements and related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The historical financial
statements include allocations for administrative services, corporate overhead,
and other expenses incurred by Action Performance for resources it provides to
us. While we believe that these allocations are reasonable, they are not
necessarily indicative of, and it is not practical for us to estimate, the
amounts of expenses that would have resulted if we had operated as an
independent company.
The accompanying combined historical financial data includes
- the historical Internet operations of goracing Interactive Services, Inc.
(formerly Action Interactive, Inc.), a wholly owned subsidiary of Action
Performance, as restated for the acquisition of Tech 2000 Worldwide,
Inc., which was accounted for as a pooling of interests,
- the operations of the Collectors' Club, a wholly owned subsidiary of
Action Performance, since June 1, 1998 (prior to that date, it operated
as a division of Action Performance), and
- goracing Direct Sales, LLC (formerly Action Direct Marketing, LLC), a
wholly owned subsidiary of Action Performance since December 31, 1998.
On July 1, 1999, Action Performance contributed to us all of its interest
in goracing Interactive Services, Action Racing Collectables Club of America,
and goracing Direct Sales. We and Action Performance intend to enter into a
number of intercompany agreements governing the relationship between our
companies. The accompanying consolidated pro forma financial data is derived
from our historical financial statements and reflect
- the effect of the various intercompany agreements as if those agreements
were in place from the beginning of the periods presented,
- Action Performance's contribution to our company of its interest in
goracing Interactive, Racing Collectables Club of America, and goracing
Direct Sales as if it had occurred as of June 30, 1999,
- the conversion of a portion of the intercompany payables to our capital,
and
- the recapitalization of our company.
The accompanying consolidated pro forma financial data is derived from our
historical financial statements and should be read in conjunction with the
"Introduction to Financial Statements" and the audited combined financial
statements and notes thereto, which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
----------------------------- -------------------
PRO FORMA PRO FORMA
1997 1998 1998(2) 1999 1999(2)
------- ------- --------- ------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue............................................. $22,948 $38,666 $38,666 $35,417 $35,417
Gross profit 12,708 20,118 12,563 18,568 11,379
Income (loss) before income taxes................... 4,127 6,537 (252) 3,696 (2,996)
Net income (loss)................................... $ 2,467 $ 3,737 $ (151) $ 2,115 $(1,798)
Basic and diluted net income (loss) per share(1).... -- -- $ 0.00 -- $ (0.05)
Basic and diluted weighted average shares
outstanding(1).................................... -- -- 35,000 -- 35,000
</TABLE>
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<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------------
COMBINED PRO FORMA PRO FORMA
ACTUAL CONSOLIDATED(2) AS ADJUSTED(3)
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(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 12 $ 12 $41,612
Working capital (deficit)............................ (4,895) 4,010 49,610
Total assets......................................... 10,928 10,928 52,528
Long-term debt, net of current maturities............ -- -- --
Total equity (deficit)............................... (3,086) 5,819 51,419
</TABLE>
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(1) We did not exist as a separate company during the historical periods
presented. Therefore, no earnings per share data is presented for the
historical periods. We computed earnings per share on a pro forma basis
based on the shares outstanding following our recapitalization on July 2,
1999, as if such shares were outstanding from the beginning of the periods
presented.
(2) Reflects (a) the consolidation of the contributed entities; (b) the
conversion of a portion of amounts due to Action Performance to our capital;
and (c) the effect of various intercompany agreements.
(3) Adjusted to give effect to the sale of 6,250,000 shares of class A common
stock offered by this prospectus at our assumed initial public offering
price of $8.00 per share, less the underwriting discounts and commissions
and estimated offering expenses, and the application of the estimated net
proceeds therefrom, which includes a $4,000,000 repayment of intercompany
payables to Action Performance.
We expect losses from operations and negative cash flows for the
foreseeable future because we plan to incur significant expenses as we enhance
the goracing network, build brand awareness, and expand our Internet business.
5
<PAGE> 10
RISK FACTORS
An investment in our class A common stock involves a high degree of risk.
You should consider carefully the following risk factors, in addition to the
other information contained in this prospectus, before purchasing any of our
class A common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AS AN INTERNET COMPANY UPON WHICH YOU CAN
EVALUATE OUR POTENTIAL FOR FUTURE SUCCESS.
We have a limited operating history on the Internet upon which you can
evaluate our existing business and our potential for future success. Action
Performance incorporated our company in May 1999 and contributed the capital
stock of our operating subsidiaries to us on July 1, 1999. Action Performance
contributed the operations of the Collectors' Club to us along with the other
Internet operations because of the increasing migration of Club members to use
of the Internet to order our product and the importance of providing seamless
order fulfillment services to them. Because of this contribution our historical
financial statements primarily reflect the "traditional" mail and telephone
sales operations of the Collectors' Club from 1991 until February 1999.
Accordingly, the historical combined financial statements included in this
prospectus include periods prior to our launch of SpeedMall and the conduct of
our current Internet business.
We face numerous risks and uncertainties as an early-stage company in the
new and rapidly evolving Internet market. Some of these risks and uncertainties
relate to our ability to
- develop brand awareness and brand loyalty to attract a larger audience to
our network of Web sites,
- increase customer acceptance of the online purchase of motorsports,
automotive, and related merchandise and services,
- develop an internal sales and marketing force to implement our
advertising and marketing strategies,
- develop and renew industry relationships,
- offer up-to-date news, information, and other features that are
attractive to our visitors,
- anticipate and adapt to the changing market for Internet services and
electronic commerce,
- continue to upgrade and enhance our systems to accommodate expanded
service offerings and increased consumer traffic, and
- provide or contract for satisfactory customer service and order
fulfillment.
We may not be successful in addressing these risks and uncertainties. The
failure to do so would materially and adversely affect our business.
WE DO NOT OPERATE AS AN INDEPENDENT COMPANY, AND WE MAY FAIL TO DEVELOP OUR OWN
INFRASTRUCTURE.
We currently are a wholly owned subsidiary of Action Performance. Although
we intend to develop the operational, administrative, and other systems and
infrastructure necessary to support our business on an independent basis in the
future, we may not be successful in these efforts. We rely on Action Performance
to develop new products and to provide core business services, computer hardware
and software systems, technical and marketing resources, and other
administrative services. After this offering, we will continue to obtain many of
these services pursuant to intercompany agreements between us and Action
Performance, which have 25-year terms. Our business could be adversely affected
if we fail to develop our own infrastructure prior to the expiration or earlier
termination of the intercompany agreements.
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THE FINANCIAL STATEMENTS CONTAINED IN THIS PROSPECTUS MAY NOT REFLECT RESULTS
THAT WE WOULD HAVE ACHIEVED AS A STAND-ALONE COMPANY.
The historical financial statements contained in this prospectus include
allocations for administrative services, corporate overhead, and other expenses
that Action Performance incurred for services rendered to us or on our behalf.
While we believe that these allocations are reasonable, they do not necessarily
reflect the actual expenses that we would have incurred if we had operated as a
separate, stand-alone company during the periods presented. We also have relied
on Action Performance to finance our operations. Upon completion of this
offering, Action Performance will not be required to finance our operations and
we may not have access to the capital or financing resources available to our
parent. The historical financial information included in this prospectus does
not reflect the significant changes that will occur in our capital structure,
sources of financing, and operations following this offering and any subsequent
separation from our parent. See "Unaudited Pro Forma Condensed Consolidated
Financial Information" for a description of these changes. Therefore, investors
should not rely on our cash flows to date or our current financial position as
indicative of the cash flows or financial position that would have resulted if
we had operated as an independent company during the periods presented.
WE MAY INCUR SIGNIFICANT EXPENSES IN AN ATTEMPT TO PROMOTE AND MAINTAIN
RECOGNITION OF THE GORACING.COM BRAND THAT MAY BE UNSUCCESSFUL.
Our success depends on our ability to build the brand identity of
goracing.com and increase traffic to our network. We believe that the importance
of brand recognition will increase due to the growing number of Internet sites
and the relatively low barriers to entering this market. Although we cannot
quantify them at this time, we believe that we will incur significant marketing
costs in our effort to create and maintain a strong brand identity among
motorsports fans and automotive enthusiasts. Other companies currently use the
"goracing" name. Our business could be adversely affected if motorsports fans
identify the "goracing" name with any company other than ours. We must use the
proceeds of this offering effectively to build our brand identity, distinguish
the goracing network, and successfully grow our business. Our business,
operating results, and financial condition could be materially and adversely
affected if we incur excessive expenses in an unsuccessful attempt to promote
and maintain recognition of the goracing.com brand. See "Risk Factors -- We have
limited protection of our intellectual property and others could infringe on or
misappropriate our rights," and "Risk Factors -- We may be unable to acquire or
maintain the necessary Web domain names."
WE EXPECT TO INCUR LOSSES FROM OPERATIONS AND OUR FUTURE PROFITABILITY REMAINS
UNCERTAIN.
Our ability to generate significant revenue is uncertain. We have incurred
substantial costs to create, launch, and enhance the goracing network; to build
brand awareness; and to expand our Internet business. As of June 30, 1999, we
had an accumulated deficit of $3.1 million. We had a pro forma net loss of
$151,000 for the year ended September 30, 1998 and a pro forma net loss of $1.8
million for the nine months ended June 30, 1999. We expect losses from
operations and negative cash flows for the foreseeable future because we plan to
incur significant expenses as we
- expand our sales and marketing efforts,
- develop our online community,
- hire additional management, sales, and other personnel,
- expand our online offerings,
- expand our infrastructure and customer support services, and
- seek to acquire complementary businesses and technologies.
Our expected losses may exceed our historical pro forma losses from
operations. If our revenue does not increase and if our spending levels are not
adjusted accordingly, we may not generate sufficient revenue to achieve
profitability in the future. Even if we do achieve profitability, we may not
sustain or increase profitability on a quarterly or annual basis in the future.
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WE MAY NOT BE COMPETITIVE IF WE FAIL TO ENHANCE OUR ONLINE OFFERINGS.
The failure to develop and introduce effectively new or enhanced online
features, functions, products, or services could have a material adverse effect
on our business. To remain competitive, we must continue to
- enhance our offerings of news, information, and features,
- expand our product and service offerings,
- enhance the ease of use, responsiveness, functionality, and features of
our network,
- attract and retain desirable tenants in SpeedMall, and
- improve the consumer purchasing experience on our network of Web sites.
These efforts may require us to develop or license increasingly complex
technologies. We may not be successful in developing or introducing new
features, functions, products, and services, and the features, functions,
products, and services that we develop may not result in increased traffic or
revenue. We also may not be able to develop, acquire, or enter into alliances
for Web sites designed to attract automotive enthusiasts and suppliers of
automotive-related products and services to our network.
Developing, launching, and promoting new online offerings or expanding into
new markets will require us to make significant investments of financial,
management, and operational resources. These efforts also could strain our
ability to support existing online offerings and provide an enjoyable online
experience to visitors to our network. Our business could be materially and
adversely affected if we fail to achieve these goals.
WE DEPEND ON SALES OF LICENSED PRODUCTS FOR SUBSTANTIALLY ALL OF OUR REVENUE.
Sales of Action Performance's products currently account for substantially
all of our revenue. We expect to continue to generate a significant portion of
our revenue from the sale of Action Performance's products. Action Performance
markets its products under licensing arrangements with race car drivers, team
owners, sponsors, automobile and truck manufacturers, NASCAR, NHRA, CART, and
other entities. The licensing arrangements vary in scope and duration, but
generally authorize Action Performance to sell specified licensed products for
short periods of time. The success of licensing arrangements depends on many
factors, including the popularity, performance, image, and health of the
individual drivers. A driver's popularity could be adversely affected if the
driver fails to maintain a successful racing career or engages in behavior that
the general public considers objectionable.
In addition, Action Performance's ability to enforce its rights under
licensing agreements may be limited by the interpretation and enforcement of
those agreements. Some license agreements contain provisions that allow the
licensor to terminate the agreement upon the occurrence of events that are
outside of Action Performance's control, including a change in the driver's team
owner or sponsor. Our business would be materially and adversely affected if we
were unable to obtain licensed products from Action Performance or if Action
Performance becomes unable to develop, enter into, renew, or enforce material
licensing arrangements.
ANY DOWNTURN IN THE POPULARITY OF THE MOTORSPORTS INDUSTRY IN GENERAL, AND
NASCAR RACING IN PARTICULAR, WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
Substantially all of our current business relates to the motorsports
industry. Motorsports competes for television viewership, attendance,
merchandise sales, and sponsorship funding with other sports, entertainment, and
recreational events. The competition in the sports, entertainment, and
recreation industries is intense. Any downturn in the popularity of the
motorsports industry, or its appeal to consumers, could reduce sales of
motorsports merchandise or corporate sponsorships, which would materially and
adversely affect our business.
Sales of die-cast replicas and other licensed merchandise related to NASCAR
racing currently represent 91% of our revenue. Although Action Performance has
expanded its product lines to include vehicles from other segments of
motorsports, we expect that products related to NASCAR racing will continue to
account
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<PAGE> 13
for a significant percentage of our revenue for the foreseeable future. Any
downturn in the popularity of NASCAR-sanctioned racing could have a material and
adverse effect on our business.
WE DEPEND ON THIRD-PARTY MANUFACTURERS AND VENDORS.
We do not manufacture any of the products that we sell. Action Performance
and various SpeedMall tenants depend upon third parties to manufacture their
products. Any difficulties encountered by the third-party manufacturers that
result in product defects, production delays, cost overruns, or the inability to
fulfill orders on a timely basis could have a material adverse effect on us.
Our suppliers, including Action Performance, and many SpeedMall tenants
generally do not have long-term contracts with their third-party manufacturers.
In particular, Action Performance obtains most of its die-cast products from its
primary manufacturer in China under an agreement that has been in place since
1994 and that automatically renews for successive one-year terms unless
terminated by either party giving written notice to the other at least 90 days
prior to the end of the then-current term. We may not meet the demands and
expectations of our customers and our operations may be adversely affected by
any one or more of the following:
- the loss of these relationships,
- significant damage to the facilities of one or more of our suppliers or
their third-party manufacturers,
- the disruption or termination of one or more of the operations of our
suppliers or their third-party manufacturers, or
- the disruption or termination of transportation of products from one or
more of our suppliers or their manufacturers, even for a relatively short
period of time.
Neither we nor any of our suppliers maintain an inventory of sufficient
size to protect us against an interruption of supply for any significant period.
We also may be subject to variations in the prices that we or our suppliers pay
to third-party manufacturers for products if their raw materials, labor, and
other costs increase. We may not be able to pass along price increases to our
customers.
Action Performance engages one third-party manufacturer in China to
manufacture most of its die-cast collectible products. Action Performance's
reliance on a single manufacturer for a substantial portion of its products
increases those risks listed above.
We also depend upon a number of third-party shippers, such as the U.S.
Postal Service, United Parcel Service, and Federal Express, to deliver goods to
us and our customers. Strikes or other service interruptions affecting our
shippers would have a material adverse effect on our ability to deliver
merchandise on a timely basis.
WE DEPEND ON THIRD-PARTY MANUFACTURERS IN CHINA FOR MOST OF OUR PRODUCTS.
Action Performance obtains most of its products from overseas
manufacturers, particularly one third-party manufacturer of die-cast products in
China. During the nine months ended June 30, 1999, we derived 95% of our revenue
from products obtained from Action Performance that were manufactured by this
third-party manufacturer. As a result, we face risks in addition to the risks
generally created by obtaining our products from third parties. Our suppliers'
reliance on those third-party manufacturers to provide personnel and facilities
in China and their maintenance of personnel, equipment, and inventories abroad
expose them to a variety of economic and political risks commonly encountered in
international operations, international trade, currency exchange, and financing
matters. In particular, current tensions between the United States and China
could adversely affect trade relations with China and impact Action
Performance's ability to obtain die-cast collectible products from its
manufacturers.
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OUR FAILURE TO DEVELOP AND MAINTAIN AN EFFECTIVE ADVERTISING SALES FORCE COULD
ADVERSELY AFFECT OUR BUSINESS.
Advertising on the goracing network generated less than 1% of our revenue
during fiscal 1998 and during the nine months ended June 30, 1999. We intend to
develop a sales team to stimulate sales of advertising on our network of Web
sites. Establishing our sales team involves a number of risks, including the
following:
- we have not previously employed dedicated sales personnel,
- we may be unable to hire, retain, integrate, and motivate sales and sales
support personnel, and
- new sales personnel may require a substantial period of time to become
productive.
FAILURE OF THE SPEEDMALL CONCEPT TO DEVELOP AS AN E-COMMERCE SOLUTION COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Visitors to SpeedMall may decide not to make online purchases in the future
if we do not provide a convenient, economical, and secure shopping experience or
do not offer the products and services that they seek. Our existing tenants may
not renew their leases in SpeedMall, and we may not be able to attract new
tenants if online sales are lower than anticipated. The failure of SpeedMall to
develop as a viable e-commerce solution could have a material adverse effect on
our business.
OUR EFFORTS TO EXPAND INTO INTERNATIONAL MARKETS COULD COST MORE THAN WE EXPECT
AND WILL SUBJECT US TO LOGISTICAL AND REGULATORY UNCERTAINTIES.
We plan to further expand our network to include additional Web sites
serving international markets. We have not yet determined the cost of expanding
our overseas operations. We also may be unsuccessful in expanding our presence
in international markets, and we might lose all or part of our investment in
those operations. As we expand into international operations, we will be
increasingly subject to various risks associated with international operations
in addition to the other business risks described in this prospectus. These
risks include the following:
- management of a multi-national organization,
- compliance with local laws and regulatory requirements, as well as
changes in those laws and requirements,
- restrictions on the repatriation of funds,
- employment and severance issues,
- overlap of tax issues,
- the business and financial condition of any overseas business partners,
- political and economic conditions abroad, and
- the possibility of
-- expropriation or nationalization of assets,
-- supply disruptions,
-- currency controls,
-- exchange rate fluctuations, or
-- changes in tax laws, tariffs, and freight rates.
Our inability to effectively manage these and other risks could have a material
adverse effect on our business.
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<PAGE> 15
OUR BUSINESS DEPENDS ON OUR ABILITY TO RESPOND TO RAPID MARKET CHANGES.
The markets for products and services that the goracing network offers are
subject to rapidly changing customer tastes, a high level of competition,
seasonality, and a constant need to identify and market new products and
services. Demand for motorsports and automotive products and services depends
upon a wide variety of factors, including the following:
- the popularity of drivers, teams, and other licensors,
- the popularity of current product and service concepts or themes,
- cultural and demographic trends,
- marketing and advertising expenditures, and
- general economic conditions.
Because these factors can change rapidly, customer demand also can shift
quickly. New products or services frequently can be successfully marketed for
only a limited time.
We could experience a material adverse effect on our business, operating
results, and financial condition if we are unable to respond quickly to market
changes or a slowdown in demand for the products we sell and services we
provide.
MARKETS FOR MOTORSPORTS AND AUTOMOTIVE-RELATED PRODUCTS AND SERVICES ARE
EXTREMELY COMPETITIVE, AND WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO COMPETE
SUCCESSFULLY IN THE FUTURE.
Markets for motorsports and automotive-related products and services are
extremely competitive. We currently or potentially compete with several types of
companies, many of which have greater market recognition and substantially
greater financial, technical, marketing, distribution, and other resources than
we possess. We also compete for product sales with companies outside of the
e-commerce environment, including distributors to which Action Performance sells
its products and the retailers that ultimately sell those products to consumers.
Users may visit the sites on our network once or twice and then use other Web
sites or traditional news sources and sales channels to obtain motorsports news
and information and products.
We currently or potentially compete with several types of companies,
including the following:
- general integrated entertainment companies, such as the Walt Disney Co.
and its ESPN affiliate, Time Warner, and TNN,
- Web sites targeted to sports enthusiasts generally, such as ESPN.com,
Sportsline.com, CNNSI.com, and Foxsports.com,
- NASCAR, which has an agreement with Action Performance under which NASCAR
has a right to buy some of Action Performance's products for its
NASCAR.com e-commerce channel or, alternatively at NASCAR's option, we
will sell Action Performance's NASCAR-licensed products on the NASCAR.com
e-commerce channel under the same terms as on SpeedMall under a revenue
sharing agreement.
- other motorsports and automotive-related Web sites, such as
Speedvision.com, Jayski.com, Hemmings Motor News Online, and Ecklers.com,
- traditional forms of media that cover motorsports, such as magazines,
newspapers, radio, and television,
- online and offline retailers of motorsports merchandise, including
various distributors of Action Performance, and
- Action Performance itself upon any termination of our contracts with it.
We cannot assure you that we will be able to compete successfully in the future.
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<PAGE> 16
WE WILL REQUIRE ADDITIONAL CAPITAL TO SUPPORT GROWTH, AND WE HAVE LIMITED
EXTERNAL SOURCES OF FINANCING.
Continued rapid growth could require us to make substantial capital
investments in excess of resources provided by the proceeds of this offering,
cash generated by operations, funds available to us through our parent company,
and our ability to obtain financing under capital leases. We cannot predict the
timing and amount of any such capital requirements at this time. Upon completion
of this offering, we will not be able to obtain funds available to Action
Performance under its credit facility. We currently do not have arrangements for
a credit facility of our own. We may not be able to obtain additional financing
in sufficient amounts or on acceptable terms when needed. As a result, we may
not be able to expand our business at the rate desired, which may adversely
affect our operating results.
WE MAY BE UNABLE TO IDENTIFY OR SUCCESSFULLY INTEGRATE POTENTIAL ACQUISITIONS.
We may wish to acquire complementary businesses, products, services, or
technologies in the future. We may not be able to identify suitable acquisition
candidates or make acquisitions on commercially acceptable terms. We may have
difficulty integrating an acquired company's personnel, operations, products,
services, or technologies into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses, and materially and adversely affect our business.
WE DEPEND ON MANAGEMENT AND OTHER KEY PERSONNEL.
The development of our operations and those of Action Performance depend
upon the efforts and abilities of our respective senior managements. Fred W.
Wagenhals, Christopher S. Besing, Lonnie P. Boutte, and Roger J. Falcione
currently represent the key officers and directors upon whom our success
depends. The loss of services of one or more of our or Action Performance's key
employees could have a material adverse effect on our business.
WE MUST BE ABLE TO ATTRACT AND RETAIN SKILLED EMPLOYEES.
Our success depends on our ability to continue to attract, retain, and
motivate skilled employees. Competition for employees in the Internet industry
is intense. We may be unable to retain our key employees or attract, motivate,
or retain other qualified employees in the future. Any failure to attract and
retain key employees will materially and adversely affect our business.
OUR FAILURE TO EFFECTIVELY MANAGE OUR GROWTH COULD IMPAIR OUR BUSINESS
Our failure to manage our growth effectively could have a material adverse
effect on our business, operating results, and financial condition. In order to
manage our growth, we must take various steps, including the following:
- arrange necessary capital to expand our facilities and equipment,
- obtain products and services from suppliers, including Action
Performance, on a timely basis, and
- successfully hire, train, retain, and motivate additional employees.
Our growth has placed, and our anticipated future growth in our operations
will continue to place, a significant strain on our management systems and
resources. We will be required to increase staffing and other expenses as well
as make expenditures on capital equipment to attempt to meet the anticipated
demand of our customers. Sales of motorsports and automotive products are
subject to changing consumer tastes. We may increase our expenditures in
anticipation of future orders that do not materialize, which would adversely
affect our profitability. Demand for popular products or services may increase
orders on short notice, which would place and excessive short-term burden on our
resources.
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<PAGE> 17
SEASONAL FLUCTUATIONS IN SALES MAY AFFECT OUR EARNINGS AND THE TRADING PRICE OF
OUR CLASS A COMMON STOCK.
We may experience seasonality in our business, which could result in
unfavorable quarterly earnings comparisons and affect the trading price of our
class A common stock. Our limited Internet operating history and the new and
rapidly evolving Internet markets make it difficult to predict the effects of
seasonality on our business. Because the auto racing season is concentrated
between the months of February and November, the second and third calendar
quarters of each calendar year generally are characterized by higher sales of
motorsports products. Similarly, advertising sales in traditional media, such as
television and radio, generally are lower in the first calendar quarter of each
year. Seasonal fluctuations in quarterly sales may require us to take temporary
measures, including changes in personnel levels, borrowing amounts, and
marketing activities. These factors and any seasonal and cyclical patterns that
emerge in Internet consumer purchasing or in Internet advertising spending could
result in unfavorable quarterly earnings comparisons. As a result, it is
difficult to predict our future revenue. Any shortfall in revenue may have a
material adverse effect on our business and stock price. You should not rely on
quarter-to-quarter comparisons of our operating results as an indication of
future performance.
WE MAY BE UNABLE TO SUPPORT RAPID INCREASES IN VOLUME ON OUR NETWORK.
Rapid growth in the number of users accessing our network of Web sites that
exceeds our expectations may strain or exceed the capacity of our computer
systems and lead to impaired performance or system failures. Our current systems
may be inadequate to accommodate rapid traffic growth on our network. If this
occurs, customer service and satisfaction may suffer, which could lead to
dissatisfied users, reduced traffic, and an adverse impact on our business. We
plan to upgrade and add to our existing technology and network infrastructure
and to implement new systems so that our network can perform better and handle
increased traffic. Failure to implement these systems effectively or within a
reasonable period of time could have a material adverse effect on our business,
operating results, and financial condition.
SERVICE FAILURES OR INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Any sustained or repeated failure or interruption in our computer systems
or equipment would reduce the appeal of our network of Web sites to customers,
advertisers, and SpeedMall tenants. Unanticipated problems affecting our systems
may cause interruptions in our services. Interruptions or failures could result
if we fail to maintain our computer systems and equipment in effective working
order or if our telecommunications providers fail to provide the capacity we
require. We also must protect our computer systems against damage from fire,
power loss, water, vandalism and other malicious acts, and similar unexpected
adverse events. In addition, our users depend on telecommunications providers,
Internet service providers, and network administrators for access to our Web
sites. Our systems and equipment could experience outages, delays, and other
difficulties as a result of system failures unrelated to our systems. Prior to
implementing our current operating infrastructure in February 1999, our network
experienced outages and malfunctions on two separate occasions, neither of which
had a material impact on our business. Any damage, interruption, or failure that
interrupts or delays our operations in the future could cause users to stop
using our services and have a material adverse effect on our business.
WE HAVE LIMITED PROTECTION OF OUR INTELLECTUAL PROPERTY, AND OTHERS COULD
INFRINGE ON OR MISAPPROPRIATE OUR RIGHTS.
Our performance and ability to compete depend on consumer recognition of
the "goracing" brand, the quality of our internally developed content, and
software technology. We rely upon all facets of intellectual property and
related law to protect our intellectual property. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
services or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our proprietary rights is difficult. Our failure to
adequately protect our intellectual property could materially and adversely
affect our business, operating results, and financial position.
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We regard our copyright, trademarks, trade dress, and similar intellectual
property as critical to our success. We own and license a variety of trademarks,
copyrights, and other intellectual property rights. These rights are primarily
in two areas: the names, art, and content of our Web sites and the software
technology that operates our Web sites. We have copyright protection for all
original design and arrangement of the Web sites on the goracing network, as
well as any original material that we produce to promote the goracing network.
We have unregistered trademarks for "goracing.com," "RCCA SelectNet," and
"SpeedMall," for which we are seeking federal registration in the United States.
The U.S. Patent and Trademark Office has suspended our "goracing.com"
application, pending review of other possibly conflicting trademark
applications/registrations for marks that include variations of the word
"goracing." We believe that our use of the "goracing.com" mark was first in time
with respect to the business in which we engage, and that our acquisition of a
potentially conflicting trademark gives our "goracing.com" application priority
over all such other possibly conflicting applications or registrations. As a
result, we do not believe that anyone else can obtain trademark protection for
the "goracing.com" mark in the United States for the business in which we
operate. However, we cannot assure you we will be successful in obtaining a
federal registration for the "goracing.com" mark. Our ability to prevent others
from using similar trademarks may be adversely impacted if our "goracing.com"
mark is regarded as a descriptive or weak trademark. Our inability to obtain
trademark protection for our "goracing.com" mark could have a material adverse
effect on our business.
We may not be able to obtain effective trademark, service mark, copyright,
and trade secret protection in every country in which our products and services
are made available online. We may find it necessary to take legal action in the
future to enforce or protect our intellectual property rights or to defend
against claims of infringement. Litigation can be very expensive and can
distract management's time and attention, which could adversely affect our
business. In addition, we may not be able to obtain a favorable outcome in any
intellectual property litigation.
As part of our confidentiality procedures, we generally enter into
agreements with our employees and consultants. These agreements may be
ineffective in preventing misappropriation of technology and could be
unenforceable. Misappropriation of our intellectual property or the litigation
costs associated with our intellectual property could have a material adverse
effect on us.
WE MAY BE UNABLE TO ACQUIRE OR MAINTAIN THE NECESSARY WEB DOMAIN NAMES.
We currently hold several Web domain names, including "goracing.com" and
"SpeedMall.com." Third parties own various similar domains that could create
confusion and direct traffic away from our network. Further, third parties could
acquire similar domain names, which could create confusion that diverts traffic
to other Web sites, which could adversely affect our business. The regulation of
domain names in the United States and in foreign countries is subject to change
in the near future. Internet regulatory bodies may establish additional
top-level domains, appoint new or additional domain name registrars, or modify
the requirements for holding domain names. As a result, we may be unable to
acquire or maintain relevant domain names in all countries in which we conduct
business. Furthermore, the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon, or otherwise decrease the value of our
proprietary rights.
REGULATION OF CORPORATE SPONSORSHIP MAY ADVERSELY AFFECT THE MOTORSPORTS
INDUSTRY.
Tobacco and alcohol companies provide a significant amount of advertising
and promotional support of racing events, drivers, and car owners. In 1996, the
U.S. Food and Drug Administration published regulations that would substantially
restrict tobacco industry sponsorship of sporting events, including motorsports.
The legality of these regulations has been challenged in court. The U.S. Supreme
Court will review these regulations on appeal, and we expect the Court to issue
its decision sometime during 2000. The FDA regulations, if ultimately approved,
and any other legislation, regulations, or other initiatives that limit or
prohibit advertisements of tobacco or alcohol products at racing events could
adversely affect the popularity of motorsports, which could have a material
adverse effect on our business and operating results.
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In November 1998, certain major manufacturers of cigarettes and smokeless
tobacco products and the attorneys general of 46 states agreed to settle certain
lawsuits filed by more than 40 of the settling states and potential claims that
could be brought by the remaining settling states. The terms of the settlement,
among other things, limit sponsorship of racing events by the participating
manufacturers and substantially eliminate outdoor advertising of tobacco
products and any marketing or distribution of tobacco brand name merchandise.
The settlement, however, permits the participating manufacturers to engage in
limited sponsorships of racing events, drivers, or teams. The participating
manufacturers may not refer to any sponsored event, driver, or team in its other
advertisements of tobacco products. The terms of the settlement will limit or
prohibit our ability to sell licensed motorsports collectible and consumer
products that include a tobacco brand name and our ability to sell online
advertising to tobacco companies. Domestic and international tobacco advertisers
heavily subsidize certain NASCAR, NHRA, CART, Formula One, and other racing
series and teams, and those series and teams may not find similar sponsorships.
The limitations on tobacco company sponsorship imposed by the settlement and any
further limitations imposed on tobacco or alcohol sponsorship of racing events
also could ultimately affect the popularity of motorsports, which could have a
material adverse effect on our business and operating results.
OUR BUSINESS COULD BE SEVERELY DISRUPTED IF OUR COMPUTER SYSTEMS OR THE COMPUTER
SYSTEMS OF ACTION PERFORMANCE OR OTHER PARTIES ON WHICH WE RELY FAIL BECAUSE
THEY ARE NOT "YEAR 2000" COMPLIANT.
We depend upon complex computer software and systems, including our
parent's computer systems, for all phases of our operations. The failure of any
of our software or systems or the software or systems of our parent to be Year
2000 compliant could disrupt the operation of our network, our financial and
management controls, and reporting systems, or could prevent us from being able
to process or fulfill orders from our customers.
In addition to the systems and software that we use directly, our
operations also depend on the performance of software and systems of our
third-party vendors and service providers. These include providers of financial,
telecommunications, and parcel delivery services. We cannot assure you that our
service providers have, or will have, operating software and systems that are
Year 2000 compliant.
We have begun conducting an analysis of our material operating software and
systems to assess and assure Year 2000 compliance. We also have been
communicating with our third-party vendors and service providers and others with
whom we do business to coordinate Year 2000 readiness. The responses we have
received to date have indicated that steps are currently being undertaken by our
third-party vendors and service providers to address this concern. However, any
failure of our computer software and systems, Action Performance's computer
software and systems, or the systems of third parties to achieve timely Year
2000 compliance could have a material adverse effect on our business, operating
results, and financial position.
If widespread failures occur, we believe the worst case scenario would
include
- the failure of our servers hosting the goracing network, resulting in the
inability of our users to connect to our network or purchase products
from us,
- the failure of Action Performance's operating system, from which we
obtain our inventory records, accounts payable, accounts receivable,
order fulfillment, and other information vital to the operation of our
business, and
- the failure of third-party credit card systems, resulting in the
inability of our customers to use their credit cards to purchase products
on our network.
Any such worst case scenario, if not quickly remedied, would have a
material adverse effect on our business. We currently have no specific
contingency plan to address the failure of our software or systems as a result
of Year 2000 issues, which could magnify the adverse effect on our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
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OUR NETWORK MAY BE ADVERSELY AFFECTED BY UNKNOWN SOFTWARE DEFECTS.
Our network depends on complex software, both internally developed and
licensed from third parties. Complex software often contains defects,
particularly when first introduced or when new versions are released. Although
we conduct extensive testing, we may not discover software defects that affect
our new or current services or enhancements until after they are deployed.
Although we have not experienced any material software defects to date, it is
possible that, despite testing by us, defects may occur in the software. These
defects could cause service interruptions, which could damage our reputation or
increase our service costs, cause us to lose revenue, delay market acceptance,
or divert our development resources, any of which could materially and adversely
affect our business.
RISKS ASSOCIATED WITH OUR RELATIONSHIP WITH ACTION PERFORMANCE
WE DEPEND ON ACTION PERFORMANCE TO OBTAIN FAVORABLE LICENSE ARRANGEMENTS AND
DEVELOP NEW PRODUCTS.
We depend upon Action Performance to supply us with all of the licensed
motorsports merchandise that we sell. We also depend upon Action Performance to
supply us with licensing arrangements with popular motorsports personalities. We
believe that these arrangements are important to the success of our business.
Our earnings and growth prospects could be adversely affected if Action
Performance is unable or unwilling to develop and maintain favorable licensing
arrangements with popular motorsports personalities, to introduce new and
creative product offerings and marketing opportunities on which we can
capitalize, or to supply us with sufficient quantities of products for sale. Our
inability to obtain products and favorable license arrangements from Action
Performance could have a material adverse effect on our business, operating
results, and financial condition.
Our operating results depend to a significant extent on the ability of
Action Performance to develop and introduce on a timely basis new products and
services that compete effectively in terms of price and that address customer
tastes, preferences, and requirements.
WE DEPEND ON ACTION PERFORMANCE FOR SERVICES.
We depend upon Action Performance for various management, financial, tax,
human resource, and other functions that typically are performed by in-house
personnel of public companies. We have entered into long-term agreements that
require Action Performance to provide these services. Action Performance will
have the right to terminate or decline to renew these agreements in some
circumstances. We will need to renew or extend these agreements, engage other
entities to perform these services or provide us with products, or perform these
services ourselves if our agreements with Action Performance expire or are
terminated. The cost of obtaining other services from third parties or devoting
resources to provide them internally may exceed the cost under our agreements
with Action Performance.
ACTION PERFORMANCE WILL CONTROL OUR COMPANY AFTER THIS OFFERING.
Immediately after this offering, Action Performance will own all of our
outstanding class B common stock, representing approximately 98.2% of the
combined voting power of our outstanding common stock. As a result of this
ownership, Action Performance will be able to exercise a controlling influence
over our business and affairs and to determine unilaterally the outcome of any
matter submitted to a vote of our stockholders.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A CHANGE IN CONTROL OF ACTION
PERFORMANCE.
Action Performance is a public company. As long as Action Performance owns
shares representing a majority of our voting power, if another person or entity
gains control of Action Performance that person or entity would also be able to
control us. A new owner may change our operating strategy or may enter into new
markets that are different from those that appeal to motorsports fans or
automotive enthusiasts. Fred W. Wagenhals may cease to serve with Action
Performance following a change of control. Action Performance
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depends on Mr. Wagenhals to develop and maintain relationships with many of the
most popular motorsports personalities. In addition, many of Action
Performance's license agreements contain a provision that gives the licensor the
right to terminate the agreement if Mr. Wagenhals no longer serves with Action
Performance. The loss of the services of Mr. Wagenhals might impair Action
Performance's ability to enter into license arrangements with motorsports
personalities and sanctioning bodies and might impair our ability to obtain
favorable endorsement arrangements with motorsports personalities. We believe
these relationships are important to our success. Any loss of these
relationships would have a material adverse effect on our business.
WE AND ACTION PERFORMANCE HAVE CONFLICTS OF INTEREST.
Because our business to a great extent depends on sales of Action
Performance's licensed motorsports merchandise and its ability to provide us
with valuable licensing arrangements, there exist numerous actual and potential
conflicts of interest between us and Action Performance. We and Action
Performance to some extent will compete with each other when offering products
and services to potential customers. Our certificate of incorporation contains
provisions addressing potential conflicts of interest between us and Action
Performance and the allocation between us and Action Performance of transactions
that could otherwise constitute corporate opportunities of both companies. These
provisions provide that, except as we and Action Performance may otherwise
agree,
- Action Performance will have no duty to refrain from competing with us,
- Action Performance and its officers, directors, and employees will not be
liable to us or to you for breach of fiduciary duty if they compete with
us,
- Action Performance will have no duty to communicate or offer corporate
opportunities to us and will not be liable for breach of any fiduciary
duty as a stockholder in connection with corporate opportunities,
- if one of our directors or officers who is also a director or officer of
Action Performance learns of a potential transaction or matter that may
be a corporate opportunity for us or for Action Performance, that
director or officer may offer the corporate opportunity to either us or
Action Performance as he or she deems appropriate, and
- a director or officer will not be liable to us or to you for breach of
fiduciary duty if he or she first offers the corporate opportunity to
Action Performance or Action Performance pursues the corporate
opportunity for itself or does not communicate information about the
opportunity to us.
These provisions eliminate rights that our stockholders would otherwise
have under Delaware law and, to a large extent, eliminate our directors'
fiduciary duty of loyalty under Delaware law. While these provisions do not
prohibit us from competing with Action Performance for business opportunities,
to the extent that our officers or directors are also officers or directors of
Action Performance, and unless we have entered into agreements with Action
Performance that govern the allocation of various corporate opportunities as
they arise, Action Performance could take advantage of corporate opportunities
instead of us and could compete with us for sales or market share.
Prior to the completion of this offering, we will enter into various
agreements with Action Performance. Among other things, these agreements will
govern the terms on which the parties will allocate certain corporate
opportunities, refrain from competing with each other, and jointly market
products and services and provide products and services to each other. See
"Transactions with Action Performance Companies, Inc." The agreements generally
contemplate that the parties will maintain their relationships in a manner
consistent with their past practice. However, neither these agreements nor any
future agreements between us and Action Performance will necessarily result from
arm's-length negotiations. Therefore, these agreements may be less favorable to
us than those we could obtain from unaffiliated third parties. Moreover, many of
the transactions between us and Action Performance are informal and do not lend
themselves to formulaic allocations of costs and benefits. Thus, there
inevitably will be some discretion left to the parties, which are subject to the
potentially conflicting interests described above. Action Performance is not
obligated to engage in any future
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business transactions with us or jointly pursue opportunities, except for those
expressly provided for in the intercompany agreements.
SOME OF OUR DIRECTORS WILL HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO
DIRECTORS OR OFFICERS OF ACTION PERFORMANCE.
As long as Action Performance owns shares representing a majority of the
voting power of our stock, it will have the right to designate all of the
members of our board of directors. In addition, as long as Action Performance
owns shares representing at least 10% of the voting power of our stock, Action
Performance will have the right to designate at least one person to serve as a
member of our board of directors. We expect that some or all of the persons that
Action Performance designates to serve on our board of directors also will be
directors or officers of Action Performance. Persons designated by Action
Performance to serve on our board of directors will have fiduciary duties of
loyalty to us as well as to Action Performance. They therefore may have
conflicts of interest when matters arise that actually or potentially involve
both companies, such as deciding which company should pursue a potential
corporate opportunity or how to resolve an issue that could have a negative
impact on either company. Our restated certificate of incorporation includes
provisions that are intended to eliminate the liability of our officers and
directors for breach of fiduciary duty if they or Action Performance competes
with us. Our directors may allocate corporate opportunities or resolve other
conflicts of interest between us and Action Performance in a manner that you
would consider to be fair to our company.
THE SAME INDIVIDUALS WILL MANAGE US AND ACTION PERFORMANCE
Following this offering, Fred W. Wagenhals, our Chairman of the Board, will
continue to serve as a director and officer of Action Performance and
Christopher S. Besing, our Chief Executive Officer, will continue to serve as a
director of Action Performance. In many instances, their efforts for Action
Performance will relate to activities that are unrelated and, in some
circumstances adverse, to our interests. In addition, Messrs. Wagenhals, Besing,
Lonnie P. Boutte, our President, Roger J. Falcione, our Chief Technology
Officer, and some of our other employees will continue to hold shares and
options to purchase shares of Action Performance common stock or will continue
to participate in Action Performance's stock option plans. These circumstances
may present these officers and employees with incentives different from those of
our stockholders and may magnify the conflicts of interests described above.
In addition to Messrs. Wagenhals, Besing, and Boutte, our board of
directors currently includes two directors who are also directors and officers
of Action Performance. After this offering, a majority of our directors will be
individuals who are directors or officers of Action Performance. For as long as
Action Performance maintains voting control of our company, Action Performance
will have the ability to change the size or composition of our board of
directors.
BECAUSE WE ARE PART OF ACTION PERFORMANCE'S CONSOLIDATED GROUP FOR INCOME TAX
PURPOSES, WE MAY BE LIABLE FOR TAX AND OTHER OBLIGATIONS THAT WE WOULD NOT HAVE
IF WE WERE AN INDEPENDENT COMPANY.
For as long as Action Performance continues to own at least 80% of the
voting rights and value of our capital stock, we will be included in Action
Performance's consolidated group for federal income tax purposes. Upon
completion of this offering, we will enter into a tax allocation agreement with
Action Performance. We will agree to pay to Action Performance the amount of
federal, state, and local income taxes that we would be required to pay to the
relevant taxing authorities if we were a separate taxpayer not included in
Action Performance's consolidated or combined returns. In addition, by virtue of
its controlling ownership of our company and the tax allocation agreement,
Action Performance will effectively control all of our tax decisions. Under the
tax allocation agreement, Action Performance will have sole authority to respond
to and conduct all tax proceedings, including tax audits relating to us, to file
all income tax returns on our behalf, and to determine the amount of our
liability to or entitlement to payment from Action Performance. Despite the tax
allocation agreement, federal law provides that each member of a consolidated
group is liable for the group's entire tax obligation. Thus, to the extent
Action Performance or other members
18
<PAGE> 23
of the group fail to make any federal income tax payments required of them by
law, we would be liable for the shortfall. Similar principles apply for state
income tax purposes in many states.
For as long as Action Performance continues to own at least 80% of the
voting rights and value of our capital stock, we will be liable for pension
funding, termination and excise taxes, and other pension-related matters in the
event that Action Performance fails to satisfy fully its legally required
pension obligations.
Our intercompany agreements with Action Performance provide that Action
Performance will indemnify us for some tax liabilities resulting from our
relationship with it, including the costs of defending against any claims
asserted against us. Action Performance may not be able to fulfill its
obligations under the intercompany agreements, in which case we may be liable
for those payments.
OUR AGREEMENTS WITH ACTION PERFORMANCE MAY REQUIRE US TO INDEMNIFY ACTION
PERFORMANCE FOLLOWING A DISTRIBUTION OF OUR SHARES.
Following this offering, Action Performance may distribute to its
shareholders all or a portion of the class B common stock that it owns. If
Action Performance distributes shares to its stockholders, we will indemnify
Action Performance if it incurs any tax liability as a result of any action on
our behalf or failure to act that makes the distribution taxable to Action
Performance. We will indemnify Action Performance for any tax liability incurred
as the result of the failure of the distribution to qualify as a tax-free
transaction due to a takeover of our company or any other transaction involving
our capital stock, assets, or business regardless of whether such transaction is
within our control. If we become obligated to indemnify Action Performance for
any tax liabilities that it incurs, our business, operating results, and
financial condition, would be adversely affected.
19
<PAGE> 24
RISKS RELATED TO THIS OFFERING
ACTION PERFORMANCE'S ABILITY TO DISTRIBUTE OR SELL SHARES OF OUR CLASS B COMMON
STOCK MAY HAVE AN ADVERSE IMPACT ON THE VALUE OF OUR CLASS A COMMON STOCK.
Following this offering Action Performance may distribute to its
shareholders all or a portion of our common stock that it owns. Action
Performance is under no obligation to distribute any of our stock and has the
sole discretion to determine the timing and the terms of any such distribution.
We cannot assure you as to whether, when, or if Action Performance will
distribute any shares of our common stock or as to the terms of any
distribution. We also cannot predict the effect that a distribution, or any
delay or inability to make a distribution, might have on the market price of our
class A common stock.
Sales of substantial amounts of common stock following this offering, or
even the potential for such sales, may have a depressive effect on the market
price of our class A common stock. Action Performance also will have the right
to require us to register its shares of our common stock under the securities
laws so that it can sell our common stock in the public market if it does not
complete a distribution or other similar transaction. Sales by Action
Performance or others of substantial amounts of our common stock in the public
market following this offering, or the perception that sales might occur, could
have a material adverse effect on the market price of our class A common stock.
Action Performance will have registration rights that will enable it to
sell its shares of our common stock in the public market following this
offering. In addition, Action Performance may sell or distribute our common
stock, which may adversely affect our stock price.
DIFFERENCES IN VOTING RIGHTS MAY LOWER THE MARKET VALUE OF CLASS A COMMON STOCK.
Shares of class A common stock are entitled to one vote per share while
shares of class B common stock are entitled to ten votes per share on all
matters to be voted on by stockholders. See "Description of Capital
Stock -- Common Stock." The difference in the voting rights of the class A
common stock and class B common stock could adversely affect the price of the
class A common stock to the extent that investors or any potential future
purchaser of our common stock assign value to the superior voting rights or
other rights of the class B common stock.
OUR STOCK HAS NOT BEEN PUBLICLY TRADED BEFORE THIS OFFERING AND OUR STOCK PRICE
MAY BE VOLATILE.
Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. We and the underwriters
will determine the initial public offering price. The price at which our common
stock will trade after this offering will likely be highly volatile and may
fluctuate due to factors such as the following:
- quarterly variations in our operating results or the operating results of
Action Performance,
- actual or anticipated announcements of new products or services by us,
Action Performance, or other business partners or competitors,
- announcements of technological innovations by us or our competitors,
- investor perception of our business prospects or the Internet industry in
general,
- changes in analysts' estimates of our financial performance,
- general conditions in the markets in which we compete, and
- worldwide economic and financial conditions.
The stock market also has experienced extreme price and volume fluctuations
that have affected the market prices for many rapidly expanding companies,
particularly Internet-related companies. These fluctuations often have been
unrelated to the operating performance of those companies. Broad market
fluctuations and other factors may adversely affect the market price of our
class A common stock. If the
20
<PAGE> 25
market price of our class A common stock experiences significant market
volatility, some stockholders may file a class action lawsuit. We could incur
substantial legal costs and our management's attention could be diverted to
defend this type of litigation, even if we are ultimately successful in our
defense. Declines in the market price of our common stock also could adversely
affect employee morale, our ability to attract and retain qualified employees,
and our access to additional capital. All of these factors could materially and
adversely affect our business, operating results, and financial condition.
WE DO NOT ANTICIPATE THAT WE WILL PAY ANY DIVIDENDS.
For the foreseeable future, we intend to retain future earnings, if any, to
finance our business operations and do not anticipate paying any cash dividends
with respect to our common stock.
INVESTORS WILL SUFFER IMMEDIATE DILUTION.
The initial public offering price per share will exceed our net tangible
book value per share. Accordingly, investors purchasing shares in this offering
will incur immediate and substantial dilution of approximately $6.75 in the book
value per share of the class A common stock from the assumed offering price of
$8.00 per share. Any exercises of outstanding options to purchase class A common
stock will further dilute existing stockholders. See "Dilution."
OUR MANAGEMENT WILL HAVE SIGNIFICANT DISCRETION IN APPLYING THE NET PROCEEDS OF
THIS OFFERING.
Our management will have significant flexibility in applying the net
proceeds of this offering. We have not yet determined the actual expenditures
and cannot estimate the amounts we will use for the purposes specified under
"Use of Proceeds." The actual amounts and timing of these expenditures may vary
significantly depending on a number of factors, including the amount of cash
generated by our operations and the market response to the introduction of new
product or service offerings. If we do not use the proceeds in a manner
beneficial to us, our business could suffer and our stock price could decline.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US, EVEN IF THE ACQUISITION
WOULD BE IN THE BEST INTERESTS OF STOCKHOLDERS.
Our restated certificate of incorporation, bylaws, and Delaware law contain
provisions that may have the effect of making more difficult or delaying
attempts by others to obtain control over us, even if those attempts would be in
the best interests of our stockholders. See "Description of Capital Stock." Our
restated certificate of incorporation gives the class B common stock
super-voting rights, provides for a classified board of directors, and
authorizes the board of directors, without stockholder approval, to issue one or
more series of preferred stock that could have voting, liquidation, dividend,
conversion, or other rights that adversely affect or dilute the voting power of
the holders of our common stock.
Our intercompany agreements with Action Performance permit Action
Performance to terminate those agreements in the event of a change of control.
These provisions could make it more difficult or impractical for others to
obtain control over us.
RIGHTS TO ACQUIRE SHARES OF COMMON STOCK WILL RESULT IN DILUTION TO OTHER
HOLDERS OF COMMON STOCK.
As of , 1999, options to acquire a total of approximately
shares of class A common stock were outstanding under our 1999
Incentive Stock Plan. We also have issued options to acquire
shares of class A common stock to race car drivers, team owners, and other
motorsports participants in connection with various endorsement and other
arrangements. Holders of these options will have the opportunity to profit from
an increase in the market price of the class A common stock, with resulting
dilution in the interests of holders of all classes of common stock. The
existence of these stock options could adversely affect the terms on which we
can obtain additional financing, and the option holders can be expected to
exercise these options at a time when we, in all likelihood, would be able to
obtain additional capital by offering shares of our common stock on terms more
favorable to us than those provided by the exercise of these options.
21
<PAGE> 26
RISKS RELATED TO THE INTERNET INDUSTRY
INCREASED USE OF THE INTERNET WILL BE CRITICAL TO OUR SUCCESS.
Our future success depends to a significant extent on the continued growth
in Internet use. Use of the Internet as a commercial marketplace is relatively
new and is rapidly evolving. Demand for and market acceptance of products and
services offered over the Internet remain uncertain. We cannot predict whether a
large enough number of motorsports fans and automotive enthusiasts will shift
from traditional to online activities. For example, our target market may not
prefer to obtain their motorsports news and information online or make online
purchases. Many factors may inhibit Internet usage, including poor access,
unreliable performance, and security and privacy concerns. Our business would be
adversely affected if Internet usage does not continue to grow.
FAILURE OF THE INTERNET TO DEVELOP AS AN ADVERTISING MEDIUM MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
We expect to generate a significant portion of our revenue in the future
from sponsorship and advertising on our network. The Internet advertising market
is new and rapidly evolving, and we cannot gauge its effectiveness as compared
with traditional advertising media. Most of our current or potential advertising
and e-commerce partners have limited experience using the Internet for
advertising purposes and have allocated only a limited portion of their
advertising budgets to Internet advertising. Advertisers and merchants may find
Internet advertising to be less effective than traditional advertising media for
promoting their products and services. Industry researchers continue to develop
standards to measure the effectiveness of Internet advertising or the
demographics of a company's user base. If such standards do not develop,
advertisers may not advertise on the Internet.
We currently are implementing additional systems designed to track and
analyze usage patterns of visitors to the goracing network. Our ability to
implement these systems may be affected by concerns about Internet privacy. If
we do not implement these systems successfully, we may not be able to accurately
evaluate usage patterns. Advertisers and e-commerce marketers may choose not to
advertise on goracing.com or may pay less for advertising on the goracing
network if they do not perceive our measurements to be reliable or if the market
for Internet advertising fails to develop or develops more slowly than expected.
Any of these factors could have a material adverse effect on us.
WE MAY NOT BE ABLE TO ADAPT TO RAPIDLY CHANGING TECHNOLOGIES OR WE MAY INCUR
SIGNIFICANT COSTS IN DOING SO.
The Internet is characterized by rapidly changing technologies, evolving
industry standards, frequent new service introductions, and changing customer
demands. As a result of the rapidly changing nature of the Internet environment,
we may be subject to risks, now and in the future, of which we are not currently
aware. To be successful, we must adapt to our rapidly evolving market by
continually enhancing our network of Web sites and introducing new products and
services to address our users' changing demands. We may use new technologies
ineffectively or we may fail to adapt our network, transaction-processing
systems, and infrastructure to meet customer requirements, competitive
pressures, or emerging industry standards. We could incur substantial costs if
we need to modify our services or infrastructure. Our business could be
materially and adversely affected if we incur significant costs to adapt, or
cannot adapt, to these changes.
FAILURE OF OUR ONLINE SECURITY MEASURES WOULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS.
Like any computer network, our network is vulnerable to computer viruses,
physical or electronic break-ins, and similar disruptions. We expect that these
problems will occur from time to time. Security breaches and inadvertent
transmissions of computer viruses could expose us to litigation or to a material
risk of loss, which could have a material adverse effect on our business.
We rely on technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of confidential
information, such as consumer credit card numbers. Unauthorized persons may be
able to compromise or breach the algorithms that we use to protect our
consumers,
22
<PAGE> 27
transaction data, or software, to misappropriate proprietary information, or to
cause interruptions in our operations. We may be required to invest a
significant amount of money and other resources to protect against security
breaches or to alleviate problems caused by any breaches that do occur. Any
well-publicized compromise of security could deter use of the Internet in
general or use of our network to conduct commercial transactions.
LEGAL UNCERTAINTIES SURROUND THE DEVELOPMENT OF THE INTERNET.
There currently are few laws or regulations that specifically regulate
communications or commerce on the Internet. However, federal, state, or foreign
governments may adopt laws and regulations in the future to address issues such
as
- user privacy,
- pricing issues,
- the characteristics and quality of products and services,
- access charges and connection fees,
- consumer protection issues,
- cross-border commerce, and
- transmission of certain types of information over the Internet.
Regulation of these and other issues could increase the cost of transmitting
data over the Internet. We cannot be certain how existing laws governing issues
such as property ownership, copyrights, encryption and other intellectual
property issues, taxation, libel, obscenity, personal privacy, and export or
import matters will apply to the Internet. The vast majority of these laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues presented by the
Internet and related technologies. Those laws that do reference the Internet
have not yet been interpreted by the courts and their applicability and reach
are therefore uncertain. Any new laws or regulations relating to the Internet
could adversely affect our business.
OUR SALES COULD DECREASE IF WE BECOME SUBJECT TO ADDITIONAL SALES OR OTHER
TAXES.
Our sales and operating results could be adversely affected if one or more
states or foreign countries successfully assert that we should collect sales or
other taxes on the sale of our products. We currently do not collect sales or
other similar taxes for physical shipments of goods into states other than those
in which we operate. One or more local, state, or foreign jurisdictions may seek
to impose sales tax collection obligations on us. In addition, any new
operations in other states or countries outside those in which we operate could
subject us to sales taxes under current or future laws. Several proposals have
been made at the state and local level that would impose additional taxes on the
sale of goods and services through the Internet. In 1998, the U.S. federal
government enacted legislation prohibiting states or other local authorities
from imposing new taxes on Internet commerce until October 21, 2001. This tax
moratorium does not prohibit states or the Internal Revenue Service from
collecting taxes on our income, if any, or from collecting existing taxes that
are due under existing tax rules. A successful assertion by one or more states
or any foreign country that we should collect sales or other taxes on the
exchange of merchandise on our sites could harm our business. In addition, a
number of trade groups and government entities have publicly stated their
objections to this tax moratorium and have argued for its repeal. The Federal
Advisory Commission on electronic commerce is in the process of evaluating these
issues and is expected to make its recommendations to Congress in April 2000.
Future laws may impose taxes or other regulations on Internet commerce. The
three-year moratorium may be repealed, or the moratorium may not be renewed when
it expires. Any of these events could substantially impair the growth of
electronic commerce.
If we become obligated to collect sales taxes, we will need to update our
system that processes customers' orders to calculate the appropriate sales tax
for each customer order and to remit the collected sales taxes to the
appropriate authorities. These upgrades would increase our operating expenses.
In addition,
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<PAGE> 28
our customers may be discouraged from purchasing products from us if they have
to pay sales tax. As a result, we may need to lower prices to retain these
customers.
WE COULD BE SUBJECT TO LIABILITY FOR INFORMATION DISPLAYED ON OUR NETWORK OF WEB
SITES.
We may be subjected to claims for defamation, negligence, copyright, or
trademark infringement or claims based on other theories relating to the
information we publish on our network of Web sites. These types of claims have
been brought, sometimes successfully, against online services as well as other
print publications in the past. We also could be subjected to claims based upon
the content that is accessible from our network through links to other Web
sites. Our insurance may not adequately protect us against these types of
claims.
24
<PAGE> 29
USE OF PROCEEDS
We intend to sell 6,250,000 shares of class A common stock in this
offering. Assuming an initial offering price of $8.00 per share, we estimate
that we will receive net proceeds of $45.6 million ($52.6 million if the
underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us. We intend to use the net proceeds from this offering
- to promote the goracing network and expand sales and marketing
activities,
- to add online content, community features, and e-commerce opportunities
on our network,
- to hire management and other personnel,
- to enhance our technology, software, and basic infrastructure,
- for strategic relationships and acquisitions,
- to repay $4,000,000 of non-interest bearing intercompany payables to
Action Performance due upon the closing of this offering.
- for working capital and general corporate purposes.
We have not yet determined the exact amounts that we will spend for any of
these uses other than the repayment to Action Performance. The amounts and
purposes for which we allocate the net proceeds of this offering may vary
significantly depending upon a number of factors, including future revenue and
the amount of cash generated by our operations. As a result, we will retain
broad discretion in the allocation of the net proceeds from this offering.
Pending the uses described above, the net proceeds will be invested in interest-
bearing, investment-grade securities.
DIVIDEND POLICY
We currently plan to retain any earnings to finance the growth of our
business rather than to pay cash dividends. Payments of any cash dividends in
the future will depend on our financial condition, results of operations, and
capital requirements as well as other factors deemed relevant by our board of
directors.
25
<PAGE> 30
CAPITALIZATION
The following table sets forth as of June 30, 1999 (a) our actual combined
capitalization, (b) our pro forma consolidated capitalization, and (c) our pro
forma consolidated capitalization as adjusted to reflect the sale of the
6,250,000 shares of class A common stock in this offering (assuming an offering
price of $8.00 per share) and the application of the estimated net proceeds from
this offering, after deducting estimated underwriting discounts and offering
expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................ $ 12 $ 12 $41,612
======= ======= =======
Due to Action Performance Companies, Inc................. $12,905 $ 4,000 $ --
======= ======= =======
Long-term debt........................................... $ -- $ -- $
Equity (deficit).........................................
Serial preferred stock, $.0001 par value, 10,000,000
shares authorized, no shares issued or outstanding
on a historical, pro forma, or pro forma as adjusted
basis............................................... -- -- --
Class A common stock $.0001 par value, 100,000,000
shares authorized, no shares issued or outstanding
on a historical or pro forma basis, 6,250,000 shares
issued and outstanding on a pro forma as adjusted
basis(2)............................................ -- -- 1
Class B common stock $.0001 par value, 100,000,000
shares authorized, no shares issued or outstanding
on a historical basis, 35,000,000 shares issued and
outstanding on a pro forma and pro forma as adjusted
basis............................................... -- 4 4
Capital accounts of contributed subsidiaries(1)(3)..... 1 -- --
Additional paid-in capital............................. 2 8,904 54,503
Accumulated deficit.................................... (3,089) (3,089) (3,089)
------- ------- -------
Total equity (deficit).............................. (3,086) 5,819 51,419
------- ------- -------
Total capitalization..................................... $(3,086) $ 5,819 $51,419
======= ======= =======
</TABLE>
- ------------------------
(1) Pro forma consolidated capitalization reflects (a) the consolidation of the
contributed entities; and (b) the conversion of a portion of amounts due to
Action Performance to our capital.
(2) The number of shares of class A common stock excludes (a) an aggregate
of additional shares reserved for issuance under our 1999 Stock
Incentive Plan, of which we plan to grant to management at an
exercise price equal to the initial public offering price; and (b) an
aggregate of additional shares reserved for issuance pursuant to
stock option agreements with racing personalities and teams, of
which we plan to grant at an exercise price equal to the initial public
offering price. The pro forma consolidated as adjusted capitalization
assumes no exercise of the underwriters' over-allotment option. If the
underwriters exercise their over-allotment option in full, we will have
7,187,500 shares of class A common stock issued and outstanding, total
equity of $58.4 million, and total capitalization of $58.4 million.
(3) Capital accounts of contributed subsidiaries includes (a) goracing
Interactive Services, Inc. common stock, $.01 par value, 4,000 shares
authorized, 1,000 shares issued and outstanding; (b) goracing Direct Sales,
LLC membership interest; and (c) Racing Collectables Club of America, Inc.
common stock, $.01 par value, 4,000 shares authorized, 1,000 shares issued
and outstanding. All capital accounts of contributed subsidiaries eliminate
in the pro forma consolidated presentations.
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<PAGE> 31
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$5.8 million, or $0.17 per share of class B common stock. Pro forma net tangible
book value per share represents the amount of total tangible assets less total
liabilities, divided by the shares of class B common stock assumed to be
outstanding as of June 30, 1999. Our pro forma net tangible book value as of
June 30, 1999, after giving effect to the issuance and sale of the 6,250,000
shares of class A common stock in this offering, and after deducting
underwriting discounts and commissions and estimated offering expenses would
have been $51.4 million, or $1.25 per share. This represents an immediate
increase in pro forma net tangible book value of $1.08 per share to Action
Performance and an immediate dilution of $6.75 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 8.00
Pro forma net tangible book value per share before this
offering............................................... $0.17
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.08
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.25
------
Dilution per share to new investors......................... $ 6.75
======
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1999,
the number of shares of class A common stock purchased in this offering; and the
aggregate cash consideration paid and average price per share paid by Action
Performance for class B common stock and by new investors purchasing shares of
class A common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Action Performance.................. 35,000,000 84.9% $ 8,908,000 15.1% $ 0.25
New investors....................... 6,250,000 15.1 50,000,000 84.9 $ 8.00
---------- ----- ----------- -----
Total.......................... 41,250,000 100.0% $58,908,000 100.0%
========== ===== =========== =====
</TABLE>
27
<PAGE> 32
SELECTED COMBINED FINANCIAL DATA
The selected combined balance sheet data set forth below as of September
30, 1998 and June 30, 1999 and the selected combined statements of operations
data for the years ended September 30, 1997 and 1998 and the nine months ended
June 30, 1999 have been derived from our combined financial statements, which
have been audited by Arthur Andersen LLP, independent public accountants, and
which appear elsewhere in this prospectus. The selected statement of operations
data for the nine months ended June 30, 1998 has been derived from our unaudited
financial statements that, in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments, that management
considers necessary for a fair presentation of the information set forth below.
The results of operations for the nine months ended June 30, 1999 are not
necessarily indicative of the results for the full year. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our historical combined
financial statements and notes thereto included elsewhere in this prospectus.
The accompanying combined financial data includes the following:
- goracing Interactive Services, Inc., a wholly owned subsidiary of Action
Performance, as restated for the acquisition of Tech 2000 Worldwide,
Inc., which was accounted for as a pooling of interests;
- the operations of the Collectors' Club, a wholly owned subsidiary of
Action Performance since June 1, 1998 (prior to that date, it operated as
a division of Action Performance), and
- goracing Direct Sales, L.L.C., a wholly owned subsidiary of Action
Performance since December 31, 1998.
On July 1, 1999, Action Performance contributed to us all of its interest
in goracing Interactive Services, Inc., Racing Collectables Club of America, and
goracing Direct Sales.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------------------- -----------------
1995 1996 1997 1998 1998 1999
------- -------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue...................................... $ 9,409 $ 13,042 $22,948 $38,666 $26,973 $35,417
Cost of product sales........................ 4,368 5,884 10,240 18,548 13,256 16,849
------- -------- ------- ------- ------- -------
Gross profit................................. 5,041 7,158 12,708 20,118 13,717 18,568
Selling, general, and administrative
expenses................................... 3,575 5,741 8,581 13,581 9,603 14,872
------- -------- ------- ------- ------- -------
Income before income taxes................... 1,466 1,417 4,127 6,537 4,114 3,696
Provision for income taxes................... 586 750 1,660 2,800 1,646 1,581
------- -------- ------- ------- ------- -------
Net income................................... $ 880 $ 667 2,467 $ 3,737 $ 2,468 $ 2,115
======= ======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------- JUNE 30,
1995 1996 1997 1998(1) 1999
------ ------ ----- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5 $ 3 $ 17 $ 1 $ 12
Working capital (deficit)................................... (10) (16) (621) (1,637) (4,895)
Total assets................................................ 18 275 318 9,829 10,928
Long-term debt, net of current maturities................... 5 617 -- -- --
Total equity (deficit)...................................... (1) (451) (464) (917) (3,086)
</TABLE>
- ---------------
(1) The increase in working capital (deficit), total assets, and total equity
(deficit) as of September 30, 1998 is due to (a) the formation of Racing
Collectables Club of America, Inc. on June 1, 1998 and the simultaneous
transfer of Collectors' Club assets and liabilities, including inventory of
$8.6 million, fixed assets of $676,000, and liabilities of $1.2 million to
the Collectors' Club by Action Performance at historical cost; and (b) the
continued funding of our operations by Action Performance. For financial
reporting purposes, the Collectors' Club was treated as an operating
division of Action Performance prior to its formation as a subsidiary of
Action Performance through the creation of Racing Collectables Club of
America, Inc. As such, the financial position of the Collectors' Club was
not included in the historical balance sheets prior to its formation as the
Collectors' Club did not have specific title to assets nor was it
specifically obligated for liabilities prior to its existence as a
subsidiary on June 1, 1998.
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<PAGE> 33
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
INTRODUCTION
The following unaudited pro forma condensed consolidated statements of
operations for the fiscal year ended September 30, 1998 and the nine months
ended June 30, 1999 give effect to the various intercompany agreements that we
and Action Performance intend to execute upon completion of this offering,
assuming that those intercompany agreements were in effect on October 1, 1997.
The unaudited pro forma condensed consolidated statements presented herein do
not purport to represent what our actual results of operations would have been
had those intercompany agreements been in effect on that date or to project our
results of operations for any future period.
The pro forma statements are derived from our historical combined financial
statements. Therefore, the pro forma statements, including the notes thereto,
are qualified in their entirety by reference to and should be read in
conjunction with the introduction to financial statements and, our audited
combined financial statements, including the notes thereto, which are included
elsewhere in this prospectus.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Net product sales...................................... $37,277 $ -- $37,277
Advertising and other.................................. 1,389 -- 1,389
------- ------- -------
Total revenue............................................ 38,666 -- 38,666
Cost of product sales.................................... 18,548 7,555(1) 26,103
------- ------- -------
Gross profit............................................. 20,118 (7,555) 12,563
Operating expenses....................................... 13,581 (766)(2) 12,815
------- ------- -------
Income (loss) before income taxes........................ 6,537 (6,789) (252)
Provision for (benefit from) income taxes................ 2,800 (2,901)(3) (101)
------- ------- -------
Net income (loss)........................................ $ 3,737 $(3,888) $ (151)
======= ======= =======
Basic and diluted net income (loss) per share(4)......... $ 0.00
=======
Basic and diluted weighted average shares
outstanding(4)......................................... 35,000
=======
</TABLE>
- ---------------
(1) Reflects the effects of the intercompany distributor agreements under which
we will purchase products from Action Performance at its established
wholesale selling price plus a markup of 20% to 30% depending upon the type
of product sold and the third-party royalty obligation of Action Performance
for such products.
(2) Reflects the provisions of the intercompany services agreement as follows:
(a) elimination of goodwill amortization, marketing, and indirect product
design and development costs. Those costs totaled $1,188,000 for the
fiscal year ended September 30, 1998; and
(b) a markup of 4% on the cost of services provided to us by Action
Performance totaling $422,000 for the fiscal year ended September 30,
1998.
(3) Reflects the recognition of income tax expense (benefit) in accordance with
the intercompany tax sharing agreement. Our effective income tax rate is
estimated to be approximately 40%.
(4) We did not exist as a separate company during the historical periods
presented. Therefore, no earnings per share data is presented for the
historical periods. We computed earnings per share on a pro forma
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<PAGE> 34
basis based on the shares outstanding following our recapitalization on July
2, 1999, as if such shares were outstanding from the beginning of the
periods presented.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS CONSOLIDATED
----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Net product sales...................................... $34,340 $ -- $34,340
Advertising and other.................................. 1,077 -- 1,077
------- ------- -------
Total revenue............................................ 35,417 -- 35,417
Cost of product sales.................................... 16,849 7,189(1) 24,038
------- ------- -------
Gross profit............................................. 18,568 (7,189) 11,379
Operating expenses....................................... 14,872 (497)(2) 14,375
------- ------- -------
Income (loss) before income taxes........................ 3,696 (6,692) (2,996)
Provision for (benefit from) income taxes................ 1,581 (2,779)(3) (1,198)
------- ------- -------
Net income (loss)........................................ $ 2,115 $(3,913) $(1,798)
======= ======= =======
Basic and diluted net income (loss) per share(4)......... $ (0.05)
=======
Basic and diluted weighted average shares
outstanding(4)......................................... 35,000
=======
</TABLE>
- ---------------
(1) Reflects the effects of the intercompany distributor agreements under which
we will purchase products from Action Performance at its established
wholesale selling price plus a markup of 20% to 30% depending upon the type
of product sold and the third-party royalty obligation of Action Performance
for such products.
(2) Reflects the effects of the intercompany services agreement as follows:
(a) elimination of goodwill amortization, marketing, and indirect product
design and development costs. Those costs totaled $1,034,000 for the
nine-month period ended June 30, 1999; and
(b) a markup of 4% on the cost of services provided to us by Action
Performance totaling $537,000 for the nine-month period ended June 30,
1999.
(3) Reflects the recognition of income tax expense (benefit) in accordance with
the intercompany tax sharing agreement. Our effective income tax rate is
estimated to be approximately 40%.
(4) We did not exist as a separate company during the historical periods
presented. Therefore, no earnings per share data is presented for the
historical periods. We computed earnings per share on a pro forma basis
based on the shares outstanding following our recapitalization on July 2,
1999, as if such shares were outstanding from the beginning of the periods
presented.
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<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial
statements including the related notes, which appear elsewhere in this
prospectus.
OVERVIEW
We are a leading online provider of worldwide motorsports-related news and
information, a global meeting place and community for motorsports fans, and a
leading e-commerce marketplace for motorsports-related die-cast collectibles,
apparel, and souvenirs. We operate the Collectors' Club, which offers on an
exclusive basis limited edition lines of die-cast replicas of racing vehicles
and other licensed products to the more than 166,000 members as of June 30,
1999.
We were incorporated in the state of Delaware on May 5, 1999 as a wholly
owned subsidiary of Action Performance. Our combined results of operations
include the following:
- the Internet operations of goracing Interactive Services, Inc. (formerly
Action Interactive, Inc.), which Action Performance formed in October
1998 for the purpose of merging with Tech 2000 Worldwide, Inc. Tech 2000
was a privately held Internet company that provided motorsports and
automotive-related content through its Web site at www.goracing.com. The
merger was consummated on November 23, 1998 and was accounted for as a
pooling-of-interests. Accordingly, the financial statements of goracing
Interactive include the historical operating results and financial
position of Tech 2000;
- the operations of the Collector's Club, a wholly owned subsidiary of
Action Performance since June 1, 1998 (prior to that date, it operated as
a division of Action Performance); and
- the operations of goracing Direct Sales, LLC (formerly Action Direct
Marketing, LLC) since its inception on December 31, 1998.
We generate revenue from four primary sources:
- sales of licensed motorsports merchandise, including die-cast scaled
replicas of racing vehicles, apparel, and souvenirs through SpeedMall and
through our inbound telemarketing center, which represents more than 95%
of our total revenue,
- fees paid for advertising on our network, which represents less than 1%
of our total revenue,
- fees paid for third-party tenants in SpeedMall which represents less than
1% of our total revenue, and
- fees paid for Web development and hosting services which accounts for
approximately 1% to 2% of our total revenue.
Sales of licensed motorsports merchandise to our Collectors' Club members
accounted for a substantial majority of our revenue to date, and we anticipate
that such sales will continue to account for a majority of our revenue for the
foreseeable future. In May 1999, online Collectors' Club orders represented
approximately 43% of total Collectors' Club orders for products introduced to
club members in May. While we anticipate that sales of licensed motorsports
merchandise to our Collectors' Club members will continue to grow, we anticipate
that sales of licensed motorsports merchandise to non-club members will grow at
a faster rate in the future. We currently expect that fees paid for advertising
and participation in SpeedMall also will grow in relation to increased traffic
on our network.
We are subject to seasonal fluctuations in our product sales and results of
operations. Because the auto racing season is concentrated between the months of
February and November, our results of operations during the second and third
calendar quarters generally are characterized by higher sales of motorsports
products. Similarly, advertising sales in traditional media, such as television
and radio, generally are lower in the first calendar quarter of each year.
Seasonal fluctuations in quarterly sales may require us to take temporary
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<PAGE> 36
measures, including changes in personnel levels and marketing activities that
could result in unfavorable quarterly earnings comparisons.
The combined financial statements presented elsewhere in this prospectus
include expenses that Action Performance has allocated to us on a specific
identification basis, plus our allocated portion of the costs associated with
resources we share with Action Performance. Our parent has allocated such shared
resources primarily on a proportional cost method based on a number of factors,
including headcount, square footage, related revenue, and CPU usage. Our
selling, general, and administrative expenses consist of salaries and wages,
advertising, information technology, marketing expenses, art and graphics,
accounting, and other expenses allocated to us by Action Performance.
In addition, we purchased all of the products that we sold from or through
Action Performance or one of its subsidiaries or operating divisions at an
amount equal to Action Performance's costs plus the costs associated with such
purchases, including freight, handling, and tooling depreciation. We also bore
the expenses associated with third-party royalties related to the licensed
motorsports merchandise that we sold. Therefore, our combined financial
statements do not necessarily reflect the results of operations or the financial
position that would have existed had we operated as an independent company.
We and Action Performance plan to enter into a number of intercompany
agreements that will govern all transactions between us, including services that
Action Performance will provide to us and the pricing of merchandise that we
purchase from Action Performance. Had the intercompany agreements been in effect
during the historical periods, our results of operations would have been
materially different from those presented in our combined financial statements.
Additionally, we have relied on Action Performance to provide financing for our
operations. Therefore, our cash flows to date do not necessarily reflect the
cash flows that would have resulted had we operated as an independent company.
In view of the changes that will result upon completion of this offering,
we believe that an analysis of the historical operating results is not
necessarily meaningful. You should not rely on this information as an indication
of our future performance.
PRO FORMA RESULTS OF OPERATIONS
Historically, all transactions between us and Action Performance did not
consider a profit motive, which is more typical in arm's-length transactions.
The following table sets forth, for the periods indicated, the percentage of
total revenue represented by pro forma revenue and expense, which reflects the
effects of various intercompany agreements we plan to enter into with Action
Performance.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
-------------- ------------------
1997 1998 1998 1999
----- ----- ------ ------
<S> <C> <C> <C> <C>
Revenue:
Net product sales....................................... 94.4% 96.4% 96.1% 97.0%
Advertising and other................................... 5.6 3.6 3.9 3.0
----- ----- ----- -----
Total revenue............................................. 100.0 100.0 100.0 100.0
Cost of product sales..................................... 66.1 67.5 67.3 67.9
----- ----- ----- -----
Gross profit.............................................. 33.9 32.5 32.7 32.1
Selling, general, and administrative expenses............. 31.9 33.1 33.3 40.6
----- ----- ----- -----
Income (loss) before income taxes......................... 2.0 (0.6) (0.6) (8.5)
Provision for (benefit from) income taxes................. 0.8 (0.3) (0.2) (3.4)
----- ----- ----- -----
Net income (loss)......................................... 1.2% (0.3)% (0.4)% (5.1)%
===== ===== ===== =====
</TABLE>
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<PAGE> 37
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total revenue represented by certain line items included in our historical
combined statements of operations data.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
-------------- --------------
1997 1998 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
Net product sales......................................... 94.4% 96.4% 96.1% 97.0%
Advertising and other..................................... 5.6 3.6 3.9 3.0
----- ----- ----- -----
Total revenue............................................... 100.0 100.0 100.0 100.0
Cost of product sales....................................... 44.6 48.0 49.1 47.6
----- ----- ----- -----
Gross profit................................................ 55.4 52.0 50.9 52.4
Selling, general and administrative expenses................ 37.4 35.1 35.6 42.0
----- ----- ----- -----
Income before income taxes.................................. 18.0 16.9 15.3 10.4
Provision for income taxes.................................. 7.2 7.2 6.1 4.4
----- ----- ----- -----
Net income.................................................. 10.8% 9.7% 9.2% 6.0%
===== ===== ===== =====
</TABLE>
Nine Months Ended June 30, 1999 Compared with Nine Months Ended June 30, 1998
Revenue increased 31.1% to $35.4 million for the nine months ended June 30,
1999 from $27.0 million for the comparable period of fiscal 1998. We attribute
the increase in revenue during the fiscal 1999 period to (a) an increase in
membership in the Collectors' Club to approximately 166,000 members at June 30,
1999 from approximately 138,000 members at June 30, 1998, which has provided a
larger customer base to sell our products; (b) Action Performance's ability to
add popular motorsports personalities to its extensive portfolio of licenses;
(c) new product offerings by Action Performance under to cross-promotional
marketing programs; (d) an increase in sales of Action Performance's "Elite"
brand die-cast vehicles, which carry a higher retail selling price than its
other die-cast products; and (e) our ability to capitalize on the continued
strong growth in the base of motorsports fans and to sell increased quantities
of die-cast vehicles, apparel, and souvenirs.
Gross profit increased to $18.6 million in the first nine months of fiscal
1999 from $13.7 million in the first nine months of fiscal 1998, representing
52.4% and 50.9% of total revenue, respectively. The increase in gross profit as
a percentage of total revenue resulted primarily from a price increase effective
January 1999 and additional sales of Action Performance's "Elite" brand of
die-cast vehicles, which typically carry higher gross margins than sales of its
other products.
Selling, general, and administrative expenses increased to $14.9 million in
the nine-month period ended June 30, 1999 from $9.6 million in the nine-month
period ended June 30, 1998, representing 42.0% and 35.6% of total revenue,
respectively. The increase in such expenses as a percentage of total revenue
resulted primarily from (1) increased advertising of the goracing.com brand; (2)
design and development expenses associated with SpeedMall, the community center,
and a redesign of the content section of goracing.com; and (3) additional
investment in personnel and technology to manage e-commerce transactions and
increased traffic to our network.
Fiscal Year Ended September 30, 1998 Compared with Fiscal Year Ended September
30, 1997
Revenue increased 69.0% to $38.7 million for the fiscal year ended
September 30, 1998 from $22.9 million for the fiscal year ended September 30,
1997. We attribute the increase in revenue during fiscal year 1998 to (a) an
increase in membership in our Collectors' Club to approximately 148,000 members
at September 30, 1998 from approximately 100,000 members at September 30, 1997,
which has provided a larger customer base to sell our products; (b) Action
Performance's ability to add popular motorsports personalities to its extensive
portfolio of licenses; (c) new product offerings by Action Performance under
cross-promotional marketing programs; (d) an increase in sales of Action
Performance's "Elite" brand die-cast vehicles, which carry a higher retail
selling price than its other die-cast products; and (e) our ability to
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<PAGE> 38
capitalize on the continued strong growth in the base of motorsports fans and to
produce and sell increased quantities of die-cast vehicles, apparel, and
souvenirs.
Gross profit increased to $20.1 million in fiscal 1998 from $12.7 million
in fiscal 1997, representing 52.0% and 55.4% of total revenue, respectively. The
decrease in gross profit as a percentage of total revenue resulted primarily
from an increase in the effective royalty rate associated with (1) licenses with
popular personalities in motorsports; (2) cross-promotional marketing programs;
and (3) NASCAR.
Selling, general, and administrative expenses increased to $13.6 million in
fiscal 1998 from $8.6 million in fiscal 1997, representing 35.1% and 37.4% of
total revenue, respectively. The decrease in such expenses as a percentage of
total revenue resulted primarily from an increase in revenue over a fixed base
of expenses, which was partially offset by an increase in expenses associated
with a new facility in Phoenix, Arizona, and an investment in personnel and
technology to handle continued expansion of our Collectors' Club.
LIQUIDITY AND CAPITAL RESOURCES
On June 1, 1998, Action Performance established a separate legal entity for
the Collectors' Club at which time it contributed certain assets to the
Collectors' Club and established a corresponding liability payable to Action
Performance. Prior to June 1, 1998, the Collectors' Club operated as a division
of Action Performance. Therefore, the combined financial statements prior to
June 1, 1998 do not reflect the financial position of the Collectors' Club. As a
result, our combined working capital position and cash flows for certain
historical periods are not necessarily meaningful. You should not rely on this
information as an indication of future liquidity or sources and uses of cash.
Our working capital position as of June 30, 1999 was $(4,895) compared to
$(1,637) as of September 30, 1998. The reduction in working capital from
September 30, 1998 resulted primarily from the increase in payables due to
Action Performance and repayment of a $600,000 note payable during the nine-
month period ended June 30, 1999.
We generated cash flows from operations of $2.5 million during fiscal 1997
and $3.5 million during fiscal 1998. We also generated cash flows from
operations of $1.9 million during the nine-month period ended June 30, 1999. The
primary factor that influences our cash flows from operations is net income
generated during the period.
Our cash flows from investing activities consist of purchases of property
and equipment. We invested in property and equipment approximately $16,000 in
fiscal 1997 and approximately $878,000 during the nine-month period ended June
30, 1999. There were no cash flows from investing activities during fiscal 1998.
For the nine-month period ended June 30, 1999, cash flows used in financing
activities approximated $678,000. For the fiscal years ended September 30, 1997
and 1998, cash flows used in financing activities approximated $2.5 million and
$3.5 million, respectively. Cash flows from financing activities consist
principally of borrowings under note agreements with related parties and
transfers of profits to our parent company associated with our revenue
generating activities.
Our future capital requirements will depend on a number of factors,
including (a) acceptance of the goracing network; (b) our ability to expand
product offerings and advertising fees; (c) the level of expenditures for sales
and marketing; (d) the level of expenditures to upgrade technology and
infrastructure; and (e) possible acquisitions of and formation of strategic
alliances with other businesses.
In August 1999, we entered into an agreement with a financial institution
whereby we have available to us up to $7.0 million for the purposes of acquiring
capital equipment under operating leases. Our commitment related to any future
operating leases under this agreement is guaranteed by Action Performance. As of
the date of this prospectus, there have been no operating leases executed under
this agreement. Currently, there are no other sources of third-party financing
available to us.
We cannot predict accurately the timing and amount of future capital
expenditures. However, we believe that the proceeds from this offering, together
with cash flows from operations, and financing provided by operating leases will
be sufficient to fund our capital needs for the next 12 months excluding capital
requirements that may arise related to potential acquisitions. Beyond the next
12 months, we may require additional financing, which may come from equity or
debt offerings that could result in further dilution to our
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<PAGE> 39
stockholders. Adequate capital may not be available from these or other
potential sources, and the lack of such capital could have a material adverse
effect on our business.
We currently participate under Action Performance's credit facility, which
prohibits dividends other than to Action Performance. Upon completion of this
offering, our participation under the credit facility will terminate.
YEAR 2000 COMPLIANCE
We are heavily dependent upon complex computer software and systems for our
operations, including, to a significant extent, our parent's computer systems.
Many existing computer programs and systems use only two digits to identify a
year in the date field. These programs and systems were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the January 1, 2000.
State of Readiness
All of our material operating software and our information technology
systems and other systems, including telecommunications and warehouse systems,
were developed or are supported by third-party vendors and Action Performance.
During 1997, Action Performance engaged Computer Associates International,
Inc. to commence a program to install new information technology ("IT") and
non-IT systems including hardware and software programs that are intended to
integrate management information systems throughout its organizational
structure, as well as to comply with Year 2000 requirements. As of the date of
this prospectus, the installation is approximately 95% complete which includes
the installation of software programs, testing those programs, and converting
existing data to the new systems. Action Performance currently anticipates that
the new systems will be fully installed and tested in the third quarter of
calendar 1999 and intends to commence using the new systems at the beginning of
the fourth calendar quarter of 1999. We believe that Action Performance's new
software systems will comply with the Year 2000 requirements, and do not
anticipate any material disruption to our operations as a result of any failure
of any of the systems of our parent on which we rely to function properly beyond
December 31, 1999. To date, we have not incurred material costs for remediation
of Year 2000 compliance, and we do not believe we will incur material costs of
remediation in the future.
Action Performance is coordinating the management of the delivery, receipt
and summary of results of Year 2000 surveys sent for the purpose of determining
Year 2000 readiness of significant vendors and suppliers for both Action
Performance and us. We have determined, in conjunction with our Parent, that
there are 80 significant vendors and suppliers for both Action Performance and
us. Of the 80 surveys sent to significant vendors and suppliers, approximately
25% have provided written affirmation that they are Year 2000 compliant.
Approximately 50% have indicated, through written response, that their
compliance programs are ongoing. These vendors and suppliers have indicated that
their compliance programs will be complete by the end of the fourth quarter of
1999. We and Action Performance continue to monitor the status of all our
significant vendors and suppliers to minimize the risk of any material adverse
effect on our operations resulting from Year 2000 failures of any of our or
Action Performance's significant vendors or suppliers. However, we cannot assure
you that our vendors or service providers or those of our parent have or will
have operating software and systems that are Year 2000 compliant.
Risks
The failure of either Action Performance's or our software or systems to be
Year 2000 compliant could prevent us from being able to process or fulfill
orders from our customers, could cause users of our Web sites to consider
alternative Web community and content providers, or could disrupt our financial
and management controls and reporting systems. We believe the most reasonably
likely worst-case scenario resulting from a Year 2000 problem affecting the
systems of our parent would be a short-term inability to process orders,
billings, payables and payroll in a timely manner, as we would have to resort to
alternative manual
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<PAGE> 40
procedures. However, in view of Action Performance's Year 2000 readiness efforts
to date, we believe significant disruptions are unlikely.
In addition, a significant portion of purchases of merchandise from us will
be made with credit cards, and our operations may be materially and adversely
affected to the extent our customers are unable to use their credit cards due to
Year 2000 issues that are not rectified by the end of calendar year 1999.
To date, we have not identified any significant exposure to Year 2000
problems outside of the information technology issues identified above.
Contingency plans for Year 2000 related interruptions are being developed
jointly by Action Performance and us and will include, but not be limited to,
the development of alternative manual procedures, identification of alternative
vendors, development of emergency backup and recovery procedures for lost data,
and development of plans as a result of our assessment of customer Year 2000
issues, as noted above. We expect the contingency plans for Action Performance
and ourselves to be completed by the end of the third calendar quarter of 1999.
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<PAGE> 41
BUSINESS
OVERVIEW
We are a leading online provider of worldwide motorsports-related news and
information, a global online meeting place and community for motorsports fans,
and a leading e-commerce marketplace for motorsports-related die-cast
collectibles, apparel, and souvenirs. Our parent, Action Performance, is a
worldwide leader in the design and sale of licensed motorsports merchandise. We
benefit from Action Performance's extensive portfolio of license arrangements
with popular race car drivers, many team owners and sponsors, and various
sanctioning bodies.
INDUSTRY BACKGROUND
Worldwide Growth and Popularity of the Motorsports Industry
Motorsports racing consists of several distinct segments, each with its own
organizing bodies and events. The largest segment in the United States, in terms
of attendance and media exposure, is stock car racing, which is dominated by
NASCAR. The other principal segments in the United States are
- drag racing, with NHRA the most prominent body,
- open wheel racing, controlled by CART and the Indy Racing League, or IRL,
- dirt track racing, which includes the World of Outlaws,
- sports car racing, which includes the United States Road Racing
Championship and the American Le Mans Series, and
- motorcycle racing, which includes the American Motorcycle Association.
Internationally, the Federation Internationale de l'Automobile governs the
Formula One World Championship as well as the Formula 3000, GT, and World Rally
Championships and other popular motorsports series.
More than 17 million fans attended racing events in North America during
1998, according to the Goodyear Racing Attendance Report, compared with 1998
attendance for the National Football League at 15.4 million fans and the
National Basketball Association at 20.4 million fans. Television reach is also
substantial. According to Nielson Media Research reports, NASCAR's televised
events alone attracted an aggregate of 287 million estimated viewers in 115
million households in 1998. Nielsen also reports household viewership of
NASCAR's televised Winston Cup events in the first six months of 1999 increased
15% from the first six months of 1998. Motorsports coverage currently is
provided by broadcast and cable television networks, including NBC, ABC, CBS,
ESPN, TBS, TNN, and Speedvision, a motorsports cable network, in addition to
regional sports networks. Internationally, Formula One events are broadcast
worldwide to approximately 130 countries.
Since 1996, new speedways have been opened in the Los Angeles, Dallas/Ft.
Worth, and Las Vegas metropolitan areas. Additional speedways have been
announced for the New York, Chicago, Kansas City, and Denver metropolitan areas.
These new speedways are bringing NASCAR, CART, and other major motorsports
events to new geographic markets with much larger population bases than many of
the traditional NASCAR venues located in the southeastern United States. We
believe that the expansion of major motorsports events into these previously
untapped markets will stimulate continued growth in the motorsports industry,
exposing the sport to new racing fans who will seek information, products, and
services related to their favorite drivers, teams, and racing series.
The increasing popularity of motorsports in the United States and abroad
has created significant fan demand for a variety of race-related merchandise and
souvenirs. For example, NASCAR reports that total NASCAR-licensed product retail
sales, which includes various product categories in addition to the types of
products we sell, increased from approximately $80 million in 1990 to
approximately $950 million in 1998. This report estimates that total
NASCAR-licensed product retail sales will increase to approximately $1.1 billion
in 1999. We believe that the worldwide market for motorsports-related
merchandise is substantially
37
<PAGE> 42
larger than NASCAR-licensed product retail sales, and that there has been a lack
of availability of merchandise related to other popular racing series, such as
Formula One and CART.
Large corporate advertisers have recognized the growing popularity of
motorsports. The IEG Sponsorship Report indicates that corporate sponsors are
expected to spend an estimated $1.2 billion, or 24% of all sports sponsorship
dollars, on motorsports marketing programs in the United States in 1999.
The Growth of the Internet and Electronic Commerce
The Web is an increasingly significant global medium for information,
communications, and commerce. International Data Corporation, or IDC, estimates
there were 97 million domestic and international Web users at the end of 1998
and anticipates that there will be approximately 320 million Web users by the
end of 2002. IDC estimates that the percentage of Web users buying goods and
services on the Web will grow from approximately 28% in 1998 to 40% in 2002.
Forrester Research, Inc. estimates that advertising dollars spent on the
Internet will increase from approximately $1.5 billion in 1998 to $11 billion by
2002, a compound annual growth rate of 65%. The Internet contains features and
functions that are unavailable in traditional media. These advantages permit
online retailers and advertisers to target customers by capturing valuable data
about customer tastes, preferences, and shopping and buying patterns.
THE NEED FOR A MOTORSPORTS AND AUTOMOTIVE ONLINE NETWORK
We believe there is a need among motorsports fans and automotive
enthusiasts for a convenient, efficient, and centralized gathering place to
obtain and share news and information and to purchase motorsports and
automotive-related merchandise. We also believe that corporate advertisers and
merchants of motorsports and automotive-related products desire new ways to
maximize the impact of their sponsorship and advertising programs and the
opportunity to market their goods directly to a focused community of potential
customers.
Motorsports Fans. The ESPN CHILTON'S Sports Poll indicates that
approximately 87 million people in the United States have an interest in
motorsports and approximately 27 million people in the United States consider
themselves "avid" NASCAR fans. According to this poll, 57% of auto racing fans
have access to a personal computer, which is comparable to the national average.
We believe that many motorsports fans are passionate about the sport and
demand timely, in-depth, and accurate news and information about the world of
motorsports that is more comprehensive than newspapers, magazines, television
coverage, or other sports-related Web sites typically deliver. We also believe
these fans desire licensed motorsports merchandise to further connect them with
the sport. Motorsports-related products and services, however, are often
difficult to buy due to the lack of reliable information about the availability
and value of sought-after items or the limited number of convenient retail
sources with wide product selection. Collectors who want to purchase, sell, or
trade their collectibles also may have difficulty locating other collectors or
may not find collectors with the particular items they seek.
Automotive Enthusiasts. Automotive enthusiasts include individuals
interested in classic cars and car restoration, aftermarket performance parts,
car shows and events, and vintage and historical car racing and restoration.
Automotive enthusiasts desire a central location to share information with
fellow enthusiasts and to obtain parts and accessories. For example, these
enthusiasts may want to obtain information about restoration tips, an automotive
trade show or event, advice about the best performance parts to install in their
vehicles, or the value of classic vehicles they would like to purchase. Without
a centralized source, these individuals must resort to the time-consuming task
of finding this information from highly fragmented sources, such as trade
catalogs, classified advertisements, or through word-of-mouth referrals from
fellow enthusiasts.
Corporate Advertisers and Merchants. Motorsports fans and automotive
enthusiasts represent attractive target audiences for corporate advertisers and
merchants. Performance Research reports that NASCAR fans are more brand-loyal
purchasers than other sports fans. These reports indicate that NASCAR fans will
purchase brands from companies that sponsor NASCAR drivers, teams, and events
approximately 72% of the
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time. In addition, 42% of polled NASCAR fans switched from one brand to another
because a company began a NASCAR sponsorship. In order to take advantage of the
brand loyalty of this audience, corporate advertisers and merchants currently
must promote their products or services at motorsports events or on television
broadcasts of these events. We believe corporate advertisers and merchants want
a more targeted way to reach these brand-loyal motorsports fans.
THE GORACING.COM SOLUTION
Our solution is an integrated online information source, meeting place and
community, and shopping mall for motorsports fans and automotive enthusiasts.
This allows us to provide merchants and advertisers targeted access to the
growing base of motorsports fans and automotive enthusiasts. Our solution
involves the following key elements:
Content. The content on our network consists of timely, comprehensive, and
integrated worldwide motorsports race coverage, news, and information. Our
endorsement and marketing relationships with popular race car drivers, team
owners and sponsors, race tracks, automobile manufacturers, and sanctioning
bodies will help to promote our network. These personalities will participate in
online chats on our network, and will provide us with race-used items for online
auctions and promotions, thereby enhancing our original and unique content.
Community Features. We create community at goracing.com by uniting
- our offerings of proprietary news and information,
- the growing base of members of our Collectors' Club,
- the fan clubs of popular drivers and the Web sites of many of the most
influential organizations in motorsports located on our network, many of
which are developed and hosted by us, and
- the fan and celebrity chat rooms, bulletin boards, online auctions,
contests, and entertainment features, such as audio files, video files,
and fantasy racing.
We believe the community features of goracing.com attract visitors to our
network; increase the number, duration, and frequency of repeat visits; and
position the goracing network as the primary Internet destination for
motorsports fans.
Commerce. We believe the growing number of motorsports fans and automotive
enthusiasts interested in the news, information, and community features offered
by the goracing network provide an attractive target audience for merchants
seeking to sell motorsports and automotive merchandise and services as well as
advertisers seeking to reach these consumers. Our e-commerce offerings include a
wide variety of licensed products from Action Performance, as well as the
products and services of other motorsports and automotive-related SpeedMall
tenants and our online sponsors and advertisers.
We believe the Internet provides a powerful communications tool that
enables motorsports fans and automotive enthusiasts to share information and
that allows for a convenient and efficient shopping experience. We believe our
solution provides an entertaining environment that encourages users to visit our
network more frequently and for longer periods of time, which in turn results in
additional e-commerce, advertising, and sponsorship activity on our network.
GROWTH STRATEGY
Our goal is to be the leading destination on the Internet for motorsports
fans and automotive enthusiasts around the world. We believe achieving this goal
will maximize our e-commerce, advertising, and sponsorship opportunities. Our
strategy to achieve this goal involves the following elements:
Capitalize on Our Unique Relationship With Action Performance
We intend to take advantage of our unique relationship with Action
Performance, a worldwide leader in the design and sale of licensed motorsports
collectibles, apparel, and souvenirs. We believe this relationship
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gives us a competitive advantage as a result of our ability to offer online our
parent's popular products, many of which are exclusive to us. We also are able
to take advantage of the licensing arrangements, relationships, production
sources, marketing expertise, warehouse, order fulfillment, shipping, and other
resources of our parent.
Take Advantage of Our Relationships with Drivers, Team Owners, and Sponsors
We intend to take advantage of our relationships with drivers, team owners,
and sponsors to attract and increase traffic on our network. We have
arrangements with some of the most popular drivers and successful team owners to
endorse and promote the goracing network to increase fan awareness. We plan to
further develop our network through associations with third-party providers of
content and other products and services. Examples of the programs we plan to
pursue may include:
- promotions with traditional media companies, such as television, radio,
and print publications, to generate traffic on our network,
- promotions with racing companies to outsource our content to their Web
sites to further their initiatives, and
- programs with automotive parts suppliers to provide merchandising
opportunities to automotive enthusiasts that could enhance the
performance of their vehicle.
Increase Our Online Motorsports Content, Community, and Commerce Offerings
We plan to enhance our network's features through internal development,
industry relationships, and acquisitions to generate additional revenue from
product sales, tenant fees, sponsorships, and advertising. We plan to expand the
breadth and depth of our content, take advantage of new Internet technologies
and capabilities, and add to our community features. We will continue to offer
new products of Action Performance and plan to expand our e-commerce offerings
to include a growing number of third-party suppliers of products and services
that appeal to our focused audience of motorsports fans.
Expand Offerings to Automotive Enthusiast Market
We intend to expand our network features to attract additional automotive
enthusiasts to our network and suppliers of automotive parts, accessories, and
other products and services as tenants of SpeedMall and as advertisers on our
network. We plan to expand our content and online community to appeal to and
attract automotive enthusiasts. We also plan to explore strategic alliances and
acquisitions to expand offerings that appeal to the automotive enthusiast
market.
Develop Sponsorship and Advertising Programs That Benefit From Our Audience
Demographics
We intend to increase revenue by developing sponsorship and advertising
programs with new and existing sponsors of motorsports events. By providing
targeted access to the growing base of motorsports fans, we believe the goracing
network enables a broad range of advertisers and merchants to take advantage of
the brand loyalty of our visitors. We believe these sponsorship and advertising
programs are more effective than non-targeted banner advertising in supporting
broad marketing objectives, including brand promotion and awareness, product
introductions, and the integration of advertising with editorial content. We
believe that these sponsorship and advertising arrangements will have
longer-term contracts and higher dollar values than banner advertising
arrangements as a result of their targeted nature and the strong brand loyalty
of our motorsports visitors.
Expand Internationally
We believe that the international market for motorsports news, information,
products, and services is significantly underserved. To expand our network
internationally, we intend to leverage our experience in the U.S. motorsports
industry. We believe that our right to offer online Action Performance's Formula
One and other international motorsports products gives us an advantage in the
international market, where we believe
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motorsports-related merchandise is scarce and fan demand for products is high.
We intend to expand our international presence by
- taking advantage of growing international interest in U.S. motorsports by
providing our comprehensive domestic racing news, information, features,
and products to the international market,
- developing relationships with additional international drivers, teams,
sponsors, and racing series in order to offer additional products and
services that appeal to the international market,
- entering into additional international strategic alliances and
acquisitions and expanding our coverage of international racing news,
events, and information,
- developing innovative community features that appeal to motorsports fans
and automotive enthusiasts outside the United States, and
- creating regional Web sites for European, Asian, and Latin American
markets.
Increase Worldwide Brand Recognition
We intend to continue to build the goracing.com brand worldwide through
increased spending for traditional advertising media, which may include print,
radio, television, and event-based promotions. We also intend to advertise on
popular Web search engines and other third-party Web sites that attract our
target audience. In addition, we plan to develop strategic relationships with
traditional and Internet providers of news, information, and entertainment. We
believe these relationships will enable us to reach a wider audience, increase
awareness, and attract more visitors to our network.
THE GORACING NETWORK
We believe the world of motorsports recognizes the goracing network as a
leading provider of motorsports news and information on the Web. In July 1999,
the goracing network attracted approximately 993,000 unique visitors who
generated approximately 16.8 million page views. Page views are the total number
of complete pages retrieved and viewed by visitors to the goracing network. A
unique visitor is an individual visitor who retrieves a page from one of the Web
sites in our network.
Our network offers a broad range of news, information, and features and
serves as the online home to SpeedMall, racing associations, driver fan clubs,
race tracks, and other motorsports related Web sites. Our network currently
includes the following motorsports and automotive-related Web sites, all of
which are developed, maintained, and hosted by us:
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THE GORACING NETWORK
<TABLE>
<CAPTION>
WEB SITE URL DESCRIPTION
- --------------------------------- --------------------------- ---------------------------------------
<S> <C> <C>
goracing goracing.com goracing.com is a comprehensive online
source for worldwide motorsports news
and information and is the gateway to
our network. We have created an online
community that positions this Web site
as the primary Internet destination of
motorsports fans and automotive
enthusiasts.
SpeedMall speedmall.com SpeedMall is our online shopping mall
and is the online home of our
Collectors' Club. Through SpeedMall, we
sell the products of Action Performance
and enable other motorsports and
automotive-related companies to utilize
the traffic generated by the goracing
network to sell their products and
services.
Racing Associations
National Hot Rod Association nhraonline.com Each of these Web sites serves as the
International Hot Rod ihra.com online home of the respective
Association goracing.com/outlaws sanctioning body or racing series,
World of Outlaws goracing.com/ardc providing comprehensive news,
American Racing Drivers Club havatamparacing.com information, and multimedia offerings.
Hav-A-Tampa Racing Series americanracetrucks.com Each site provides schedules, race
American Race Truck Series dragracing.com results, driver profiles, photos, and
Svensk Racing other information regarding the
particular association.
Fan Clubs
NASCAR speedmall.com/nascarfanclub Each of these Web sites serves as the
Dale Earnhardt earnhardtfan.com home for the respective racing
Dale Earnhardt, Jr. dalejr.com association's or driver's fan club.
Bobby Labonte bobbylabontefan.com Each site contains membership
Darrell Gwynn darrellgwynn.com information, news about the driver or
The Dodge Boys thedodgeboys.com series, autograph information,
Rusty Wallace rustywallace.com interactive materials, message forums,
Dario Franchitti franchitti.com games, and other features.
Race Tracks
Old Bridge Township Each of these Web sites serves as the
Raceway Park etownraceway.com online home for the respective raceway.
Norwalk Raceway Park norwalkraceway.com Each site contains race track
Moroso Motorsports Park moroso.com calendars, race results, information
regarding hotel or camping
accommodations near the race track, and
other features, such as chat rooms and
multimedia offerings.
Performance Professor performanceprofessor.com This Web site educates automotive
enthusiasts regarding theoretical and
practical aspects of high-performance
components. A respected columnist with
over 30 years of experience in
automotive performance posts lectures
regarding topics such as engine cycle
analysis, basic air flow, and
performance parts.
</TABLE>
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We intend to increase the number of racing associations, fan clubs, race
tracks, and other Web site participants in the goracing network through our
unique relationship with Action Performance and our relationships with other
motorsports and automotive personalities and entities.
MOTORSPORTS NEWS AND INFORMATION
We provide a comprehensive online source for news and information about the
world of motorsports. The goracing network is the official online home to some
of the most influential organizations in motorsports. We believe that our
up-to-date news and other information encourage visitors to return regularly to
our network. Our unique coverage of motorsports events includes the following:
Race Coverage. Our field reporters cover races and events throughout the
motorsports community. These reporters produce original stories and
comprehensive event coverage that are exclusive to the goracing network. Our
reporters electronically transmit to us from remote locations the news, photos,
audio interviews, and video that we use to report motorsports news on a timely
basis. We also obtain news and information from editorial staffs of other Web
sites in the goracing network. These staff and other resources help us to
produce timely, comprehensive, and worldwide coverage of motorsports. We
supplement our motorsports news with stories from the news wire services. In
addition to our in-depth event coverage, we deliver comprehensive information
about dates, times, and locations of upcoming races. We plan to increase the
size of our reporting and editorial staff to enhance the news coverage and
unique content on our network.
Race of the Week. In addition to our comprehensive race coverage, we
highlight one racing event each week. Our reporters provide stories regarding
developments leading up to the race; conduct interviews with drivers, crew
chiefs, and other celebrities; obtain behind-the-scene insights from racing
personalities; and create other unique content regarding the featured race.
Daily Diary. We arrange for popular race car drivers and crew chiefs to
produce a daily diary of a race weekend. Our staff follows the driver or crew
chief during the race weekend and reports events as they occur. This diary
allows the viewer to see how the driver or crew chief practices during the week,
prepares for the race day, and spends time before, during, and after the race.
We believe this feature gives our users a unique perspective into the daily
lives of drivers or other motorsports personalities that is unavailable from
other sources.
Live Race Webcasts. We plan to Webcast races and other motorsports events
live on our network. In May 1999, we produced the first live Webcast of a World
of Outlaws event. We intend to Webcast additional races and events in the
future. We also intend to utilize state-of-the-art technology to enhance our
users' viewing experiences.
Driver Database and Track Locator. Through our driver database, users may
search for information regarding their favorite race car driver. The database
provides each driver's personal information, career statistics, race
performance, and fan club information. Through our track locator, users may
search our database to obtain information about specific race tracks, including
local weather conditions, contact information, and personalized directions to
the race track.
THE GORACING COMMUNITY
The Internet provides an opportunity for people with similar interests to
share information easily and quickly. Our network offers an online community
where motorsports fans and automotive enthusiasts can
- interact in chat rooms with others that have similar interests,
- participate in chats with their favorite motorsports celebrities,
- share information on topic-specific bulletin boards,
- track the value of and trade their collectibles,
- participate in online auctions,
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- play games related to motorsports, and
- find links to other Web sites for motorsports and automotive-related
products, services, and information.
We believe the traffic generated by these unique features and services will lead
to increased sales on our network and makes our network an attractive
advertising medium for providers of motorsports and automotive products and
services.
Chat Rooms. Our chat rooms enable visitors to communicate with other
motorsports fans and automotive enthusiasts who share similar interests. Chat
room visitors can discuss topics that include the issues of the week in racing,
participate in a weekly chat with editors covering the various racing circuits,
and chat with special guests who discuss timely issues in motorsports. We offer
the Collectors' Chat, which allows visitors to discuss the latest developments
in the market for motorsports collectibles. We sponsor celebrity chats that
allow visitors to ask questions directly of and receive answers directly from
motorsports celebrities. Since February 1999, we have hosted over 30 celebrity
chats with popular race car drivers, including leading motorsports personalities
Dale Earnhardt, Jeff Gordon, Rusty Wallace, Dale Jarrett, and Dario Franchitti.
Bulletin Boards. In addition to chat rooms, we provide bulletin boards on
which users can share information about a variety of topics. We designate
particular discussion topics for the bulletin boards and enable users to create
new bulletin board topics. Users ask or answer questions by posting information
on various bulletin boards for others to read. The bulletin boards encourage
users to return to goracing.com frequently and for longer periods to view
responses to their questions or to comment about a particular subject.
Fan Clubs. In order to capture advertising revenue opportunities, we
operate fan clubs for several popular race car drivers and for NASCAR. These
clubs include "Club E," which is the Dale Earnhardt fan club; the Dale Jarrett
Fan Club; the Rusty Wallace Fan Club; the Bobby Labonte Fan Club; the John Force
Fan Club; and the NASCAR Fan Club. These fan clubs had a total of approximately
83,000 members as of June 30, 1999. We host and operate the Web sites of most of
these fan clubs and provide space to those Web sites in SpeedMall. Membership
packages typically include a quarterly newsletter, personalized membership card,
and exclusive benefits and discounts that are provided only to club members.
Through our alliance with Action Performance, we provide to fan club members
unique product offerings and other benefits that are not available through any
other distribution channel.
Collectors' Database. Our Collectors' Database application provides a
method by which avid collectors can record information about their own
motorsports collections. The database generates a listing of a collector's
motorsports items in a user-friendly format that helps the user to determine the
market value of the collection and encourages the user to return to goracing.com
on a regular basis to update that information. The database also helps us track
information about individual collectors so that we can directly market special
promotions of motorsports collectibles to them.
Online Auctions. We provide our users with the ability to buy, sell, and
trade their collectibles through weekly auctions on our network. The auction
environment creates a convenient and attractive secondary marketplace in which
motorsports collectors can buy or sell their collectibles or gauge the value of
their collections. We believe that this service will create increased demand for
the collectible products that we sell. We have an arrangement under which
Beckett Auction organizes, conducts, and services the auctions and charges
sellers a posting fee and a commission on their product sales. We pay Beckett
Auction 50% of all revenue generated from posting fees and commissions. This
revenue has not been material to date. We plan to expand our online auction
services to offer popular items, such as autographed memorabilia and items used
in races, including drivers' gloves, helmets and race car parts.
Personalized Services. We are developing personalized services that will
enable users to tailor their visits to our network by indicating their
geographic location, favorite drivers and racing events, and news they would
like to receive. Once we determine a user's interests, we can target news and
information, banner advertising, and product offerings to the individual to
maximize the utility of our network for that user. We
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believe that tailoring our Web sites to the interests of our individual users
encourages them to visit our network for longer periods of time, generates
strong brand loyalty, and results in higher revenue to us in the form of
"click-through" revenue on banner advertisements and increased product sales.
Promotions. We provide our visitors with a variety of contests and
promotions, including trivia contests, scavenger hunts, and "collection of the
week" contests. We award various prizes for these contests, such as cash awards
or tickets to racing events. We believe that these contests and promotions
generate a sense of community and, in turn, generate traffic to our network.
Other Community Activities. We provide other features and services to our
users that help to develop strong brand loyalty and generate additional traffic.
These features include the following:
- multimedia files displaying the latest photos, video clips, and audio
clips in motorsports,
- a fantasy racing game that enables participants to compete against each
other by assembling a fictional race team consisting of NASCAR drivers,
and
- the ability to send friends online greeting cards with
motorsports-related photos.
OUR COLLECTORS' CLUB AND MOTORSPORTS AND AUTOMOTIVE E-COMMERCE
We currently generate revenue primarily through the operation of our
Collectors' Club, which offers exclusive lines of licensed motorsports products
online as well as through a print catalog. We also generate revenue through
online sales of other licensed motorsports products and by operating SpeedMall.
Racing Collectables Club of America
We sell Action Performance's products through our Collectors' Club. We
offer on an exclusive basis limited edition lines of die-cast replicas of racing
vehicles and other licensed motorsports products. We also offer licensed
motorsports apparel and souvenirs through our Collectors' Club.
Members of our Collectors' Club pay a lifetime membership fee that entitles
them to receive a membership kit, a quarterly magazine, catalogs, and other
special sales materials highlighting Action Performance's collectibles and other
products. Membership in the Collectors' Club increased from approximately 22,000
members in September 1994 to approximately 166,000 members in June 1999, a
compound annual growth rate of approximately 53%. We advertise our Collectors'
Club in publications that focus on motorsports or the collectibles industry,
through banner advertisements on the Internet, and through limited radio and
television advertisements. We strive to increase collector interest in
Collectors' Club products and to enhance the value of these products as
collectibles by
- offering many items exclusively through our Collectors' Club,
- offering a limited number of each collectible, and
- limiting the number of a particular item that each member may purchase.
Until recently, members of our Collectors' Club purchased products through
our catalog by calling our customer service representatives. Since the February
1999 launch of SpeedMall, users can join the Collectors' Club and view and
purchase products online. In May 1999, online Collectors' Club orders
represented approximately 43% of total Collectors' Club orders for products
introduced to club members in May.
Each month, we send e-mail to our online club members notifying them of new
product offerings. We attempt to notify all of our club members of new products
either by e-mail, catalog, or on SpeedMall before we begin accepting orders to
assure all of our club members have an equal opportunity to purchase collectible
products. Items that we offer exclusively to our club members are made available
to non-club members after a period of time.
We also employ customer service representatives and an automated call
distribution telephone system to accept membership applications, take customer
orders, and handle customer inquiries. We utilize an advanced
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telephone and computer system that combines telemarketing functions,
computerized order processing, and automated warehouse operations to process
telephone orders to our Collectors' Club.
In order to enhance the user's online experience, increase customer
acceptance of the online shopping alternative, and lower the cost of customer
service, we plan to implement "click to call" technology on our online store.
This technology will enable our customer service representatives to assist
customers in finding the products they need by enabling the customer to view a
particular Web page at the same time that the customer service representative is
viewing the same Web page. In performing this task, the customer service
representative effectively is able to suggest purchasing opportunities by
operating the customer's Web browser from a remote location.
SpeedMall
Online Product Sales. Motorsports fans and automotive enthusiasts who
visit goracing.com can access SpeedMall, our online shopping mall that is
dedicated to motorsports and automotive products and services. Our Action
Collectibles Store, Action Apparel Store, Racing Collectables Club of America
Store, and SelectNet, serve as "anchor" tenants of SpeedMall. These stores sell
selected licensed motorsports collectible and consumer products, including
die-cast scaled replicas of motorsports vehicles, apparel, and souvenirs, that
we obtain from Action Performance. As of June 30, 1999, we had 36 tenants in
SpeedMall. These stores enable other motorsports and automotive-related entities
to utilize the traffic generated by the goracing network to sell their products
and services online. SpeedMall's diverse tenant base includes the following,
which are representative of the tenants in our mall:
<TABLE>
<CAPTION>
TENANTS PRODUCT OR SERVICE OFFERINGS
- ------- ----------------------------
<S> <C>
Action Collectibles.............................. licensed die-cast collectibles
Action Apparel................................... motorsports apparel and accessories
Racing Collectables Club of America.............. licensed die-cast collectibles for
Collectors' Club members
Action SelectNet................................. licensed die-cast collectibles for
SelectNet members
Hasbro's "Winner's Circle" Brand Toys............ toy cars and trucks, games, and puzzles
Dura Lube........................................ automotive lubricants, products, paints,
and polishes
Carparts.com..................................... automotive parts and accessories
Beckett Auction.................................. online auction to buy, sell, or trade
collectibles
The Perfect Curve................................ hat apparel and accessories
Sun Time......................................... NASCAR licensed sports watches and golf
accessories
Buck Baker Racing School......................... race car driving school
NASCAR Silicon Motor Speedway.................... driving games and entertainment
Lynch Tours...................................... group race tours and travel
</TABLE>
Tenant Fees. Third-party SpeedMall tenants pay us fees under a variety of
arrangements, including fees based on the amount of traffic the tenant receives
on a per click-through basis, a percentage of revenue that the tenant receives
from sales generated by traffic from SpeedMall, or a flat monthly rate. We plan
to convert our traffic into additional revenue by broadening our base of tenants
and creating opportunities to collect increased tenant fees.
Target Marketing. We intend to capitalize on the unique capabilities of
the Internet to maximize the buying potential of our audience. Our operating
infrastructure and technology can track the usage patterns for each visitor to
SpeedMall, allowing us to target promotions and cross-sell products to repeat
SpeedMall visitors. This highly personalized approach to selling takes advantage
of the Internet's unique capabilities to structure the presentation of products
and information around the characteristics of a specific audience. We believe
this use of technology will provide a much more personalized shopping experience
than more
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traditional distribution channels, such as catalogs. Personalized selling also
will allow the merchandiser to suggest products and potentially create sales
that might not otherwise take place.
OTHER REVENUE SOURCES
Online Advertising and Sponsorships
Advertising on the goracing network generated less than 1% of our revenue
during the nine months ended June 30, 1999. We believe that selling sponsorships
and advertisements on our network represents a significant opportunity for
future revenue growth. As a result, we intend to use a portion of the proceeds
from this offering to hire our own sales personnel to sell various advertising
and sponsorship packages on our network. To date, we have engaged a third-party
advertising agency to sell advertising on the goracing network. This agency
currently provides us with our primary source of advertising revenue and charges
us commissions for advertisements that it places. Advertisers may choose from
three different methods to advertise on our network.
Impression Advertising. We sell "generally available" advertising space on
all of the sites on our network. Advertisers pay us a fixed rate in exchange for
a guaranteed number of impressions on our Web sites. Although we guarantee a
fixed number of impressions under this model, we do not guarantee that the
advertisement will appear on any particular Web site on our network.
Reserved Internet Space. We sell "reserved" advertising space on each of
the sites on our network. Advertisers pay us a fixed rate in exchange for a
guaranteed number of impressions on a particular Web page. This advertising
method appeals to some advertisers because it enables them to target advertising
to users with a particular interest. Reserved Internet space advertising
generally bears higher rates than impression advertising.
Sponsorships. We enable advertisers to sponsor certain areas on the
goracing network. We are developing various sponsorship packages for advertisers
and plan to offer opportunities to sponsor celebrity chats, live Webcasts, and
special areas of SpeedMall. We believe these sponsorship packages are more
effective than traditional banner advertising in supporting broad marketing
objectives, including brand promotion, product introductions and awareness, and
the integration of advertising with editorial content. We plan to seek
sponsorship arrangements that have longer-term contracts and higher dollar
values than typical banner advertising arrangements. We believe these
sponsorship packages offer advertisers a unique opportunity to promote their
products to a focused group of users and represent an attractive method of
advertising.
We believe that a thorough understanding of the demographic profiles and
purchasing habits of our users is critical to effective and successful
advertising and merchandising. Our users must register for some of our features,
which gives us an opportunity to collect information relating to the demographic
makeup and purchasing and browsing behavior of our user base. We plan to share
this information with advertisers on our network. Collecting such demographic
consumer data permits us and our advertisers to target advertising and
promotional e-mail campaigns directly to specific customers.
Web Site Development
We provide Web site development and hosting services on a fee basis to
other entities in the motorsports and automotive industries. Our services
include the design of fully customized sites for current and potential long-term
SpeedMall tenants that desire larger sites or more advanced features.
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STRATEGIC RELATIONSHIPS
We pursue strategic alliances and relationships to increase our access to
online customers, build brand recognition, and expand our online presence. Our
principal strategic relationships include the following:
Action Performance
Upon completion of this offering, we will enter into a comprehensive
relationship with Action Performance that covers licensing, sales, and
promotional arrangements for the Internet and other interactive electronic
media. Under this alliance, Action Performance will have a right of first
refusal to procure licensing arrangements with motorsports personalities for
many of the products that we sell online as well as for endorsements and
promotion of the goracing network. We will retain the right to procure licensing
rights for our use if Action Performance is unable to do so.
Our alliance with Action Performance also will designate us as Action
Performance's primary e-commerce distribution channel for sales of its products.
Except for (1) online sales by Action Performance's other wholesale
distributors, (2) sales of products to NASCAR including its NASCAR.com online
channel, (3) online sales of corporate promotional products by the corporate
sponsors, (4) online sales of licensed products by the licensors of those
products, and (5) online sales by manufacturers or suppliers that retain the
right to sell their products online, Action Performance will not directly or
indirectly sell its products through any electronic media other than
goracing.com. This arrangement will include comprehensive distribution and
supply agreements with Action Performance. We also will have the right of first
refusal to design, operate, host, and control Action Performance's Web sites,
other than its corporate Web site, and any new Internet or interactive
electronic opportunities that Action Performance develops or that third parties
bring to its attention. Action Performance also will use its best efforts to put
our "goracing.com" name or logo on its product packaging and to advertise and
promote our network. We believe that our strategic alliance with Action
Performance will provide us with access to unique motorsports and automotive
news, information, and e-commerce opportunities that will not be available from
any other online source.
Motorsports Personalities
Through Action Performance, we have non-exclusive endorsement and marketing
relationships with many of the leading motorsports drivers, team owners, and
crew chiefs, including the following:
<TABLE>
<S> <C>
Dale Earnhardt Rusty Wallace
Jeff Gordon Bobby Labonte
Dario Franchitti Steve Kinser
Mark Martin Tony Stewart
Don Prudhomme Dale Earnhardt, Jr.
Joe Gibbs Racing Richard Childress Racing
Ray Evernham
</TABLE>
Each of these personalities has agreed to endorse the goracing network for
motorsports and automotive-related products, services, and information. These
endorsements include publicly acknowledging goracing.com when appropriate,
making personal appearances and commercials on our behalf, granting interviews
and participating in on-line chats on our network, providing us with race-used
items for online auctions and promotions, and permitting us to use the
endorser's name, signature, and likeness for advertising, marketing, and
promotional purposes. Through Action Performance, each of these drivers, team
owners, and crew chiefs will either add the endorser's Web site to the goracing
network or grant us the right to design, operate, host, and control the
endorser's motorsports or automotive-related Web sites. We will grant options to
acquire our class A common stock in connection with these arrangements.
LICENSES
Our relationship with Action Performance enables us to market licensed
motorsports products that Action Performance designs and sells. Action
Performance focuses on developing long-term relationships with and
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<PAGE> 53
engages in comprehensive efforts to license the most popular drivers, team
owners, and other personalities in each top racing category, their sponsors,
various sanctioning bodies, and others in the motorsports industry. Action
Performance continually strives to strengthen its relationships with licensors
and to develop opportunities to market innovative collectible and consumer
products that appeal to motorsports fans. We believe that Action Performance's
license agreements with top race car drivers and other licensors significantly
enhance the consumer appeal and marketability of the Action Performance-branded
products that we sell.
Action Performance maintains an extensive portfolio of license arrangements
with various drivers, team owners, sponsors, and sanctioning bodies, including
the following:
- NASCAR champions Dale Earnhardt, Jeff Gordon, and Rusty Wallace, as well
as NASCAR drivers Bobby Labonte, Dale Jarrett, Mark Martin, Tony Stewart,
and Dale Earnhardt, Jr.;
- NASCAR team owners Robert Yates Racing, Richard Childress Racing
Enterprises, Joe Gibbs Racing, and Dale Earnhardt, Inc.;
- NHRA champions John Force and Kenny Bernstein;
- Formula One teams McLaren International Ltd, Williams Grand Prix,
Benetton Formula Ltd, and Jordan Grand Prix Ltd; and
- NASCAR, CART, and the World of Outlaws.
These licenses are either exclusive or grant Action Performance a right of
first refusal to make products bearing the driver's name and likeness or the
likeness and number of each owner's racing vehicles. To the extent that Action
Performance exercises its right of first refusal, the licensor generally is
prohibited from personally marketing or permitting others to market, through the
distribution channels used by Action Performance, any of the licensed products.
Under these licenses, Action may make various die-cast collectibles, apparel,
and souvenir products bearing the licensors' name and likeness, car number and
colors, or logo, as applicable. In addition, Action Performance has licenses
with various car and truck manufacturers, which permit Action Performance to
reproduce the manufacturers' vehicles.
Action Performance also has a license agreement with Hasbro, Inc. that
covers the sale by Hasbro of motorsports-related products in the
mass-merchandise market. Action Performance secures and maintains for Hasbro
exclusive or non-exclusive licenses from race car drivers, owners,
manufacturers, and sponsors. The licensed products consist of die-cast replicas
of motorsports vehicles, 1:18th-scale plastic toy cars, radio-controlled cars,
slot car sets, games (including electronic and CD-ROM interactive games), plush
toys, figurines, play sets, and other products. Hasbro manufactures,
distributes, and markets these products under the "Winner's Circle" brand name.
The Hasbro Winner's Circle Toy Store is a tenant of SpeedMall.
PRODUCT SOURCING
We currently obtain most of the licensed motorsports products that we sell
from Action Performance. Action Performance has exclusive licenses to make and
sell many of its products, and those products are not available from any source
other than Action Performance. Upon completion of this offering, we will
purchase products from Action Performance under the terms of several
intercompany agreements. See "Transactions With Action Performance Companies,
Inc. -- Intercompany Agreements." We believe that our arrangement to serve as
the primary online distribution channel for Action Performance's unique lines of
high-quality die-cast collectibles, apparel, and other products provide us with
a competitive advantage in the e-commerce motorsports marketplace.
Action Performance designs each die-cast collectible that it markets and
devotes a significant amount of time and effort to the production of those
collectibles to assure that the resulting products display a level of quality
and detail that is superior to competing products. Action Performance engages
one third-party manufacturer in the People's Republic of China to manufacture
most of its die-cast collectible products. Action Performance owns a significant
portion of the tooling that the third-party manufacturer uses and has partial
control over the production of its die-cast collectibles. Action Performance
obtains its other die-cast
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collectibles from three other manufacturers in China. Although Action
Performance has advised us that it believes that there are alternative
manufacturing arrangements available if needed, there are significant risks
inherent in relying on a single manufacturer for a substantial portion of its
die-cast products.
Action Performance obtains substantially all of its licensed motorsports
apparel, souvenirs, and other consumer products on a purchase order basis from
third-party manufacturers and suppliers located primarily in the United States.
Action Performance screen prints and embroiders a portion of the licensed
motorsports apparel that it sells. Action Performance also purchases and resells
certain finished items, such as tote bags and coolers, from companies that have
licenses for those items. Action Performance works closely with third-party
apparel and souvenir manufacturers to ensure that the products conform to its
design specifications and meet or exceed its quality requirements. Action
Performance has advised us that it believes that a number of alternative
manufacturers for each of these products are readily available in the event that
it is unable to obtain products from any particular manufacturer.
MARKETING AND PROMOTION
We have achieved our current level of success with a limited amount of
marketing and promotion of our brand. We plan to increase our brand recognition
through increased use of strategic alliances, personal endorsements, and
traditional and Internet advertising media.
Strategic Alliances. We plan to establish strategic alliances to obtain
content and community features for our network, provide marketing and
cross-promotional opportunities, increase worldwide brand recognition of the
goracing network, and build traffic on our network. We will carefully evaluate
each potential alliance and will analyze whether any fees associated with it are
cost effective in terms of the potential new customers, potential revenue, level
of exclusivity, and brand exposure.
Personal Endorsements. Through existing relationships with Action
Performance, popular race car drivers such as Dale Earnhardt, Jeff Gordon, Dario
Franchitti, Rusty Wallace, Don Prudhomme, and 33 other motorsports personalities
have agreed to endorse the goracing network as a leading Web site for
motorsports fans. We have agreed to grant options to purchase shares of class A
common stock at the initial public offering price for the endorsements of the
goracing network. We believe that our relationships with these drivers and other
notable motorsports participants helps position the goracing network as a
leading network for motorsports fans.
Traditional and Internet Advertising. We plan to utilize numerous
marketing techniques, including both traditional and online advertising, to
increase brand recognition and traffic. We intend to use a portion of the
proceeds of this offering to increase our marketing efforts. We have obtained a
limited amount of our advertising through barter arrangements in which we
provide space for motorsports and automotive-related companies in exchange for
advertising in other publications. Upon completion of this offering, we intend
to
- increase our cash payments for promotion of the goracing network in print
publications,
- utilize outdoor media, radio, and television promotions, and
- purchase preferred search terms and banner advertisements on various Web
search engines to promote our network when users perform searches
utilizing particular search terms.
INFRASTRUCTURE, OPERATIONS, AND TECHNOLOGY
A large array of high-availability, high-performance servers located at
Exodus Communications, Inc. in Waltham, Massachusetts hosts our network. Exodus
has an extensive data center with servers that run a sophisticated suite of
content management and deployment software, enterprise-class clustered
databases, and specialty Internet applications, such as chat rooms, message
boards, and streaming multimedia. We continually monitor our network of Web
sites for performance and availability.
We deliver the goracing network to the Internet via multiple redundant
high-bandwidth Internet connections through Exodus. High-speed connections to
network peering points and to other Internet backbone providers help to obtain
adequate download times even during peak use periods.
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We consider security and reliability to be of paramount importance for a
successful network. Exodus provides 24-hour security personnel, gas-based fire
suppression systems, and fully redundant power with multiple backup generators.
When customers use credit cards to execute an online purchase, our systems
encrypt this sensitive information with Secure Sockets Layer, or SSL,
technology, which protects the data from being read while in transit. We protect
sensitive data with multiple "firewalls" and strict server- and
application-level security policies. SSL provides data encryption, server
authentication, message integrity, and client authentication for Internet
connections. All of our production data is copied to backup tapes each night and
stored at a third-party, off-site storage facility. We are in the process of
developing a comprehensive disaster recovery plan to respond to system failures.
We keep all of our production servers behind firewalls for security purposes and
do not allow outside access, at the operating systems level, except via special
secure channels. We follow strict password management and physical security
measures.
Like other Internet sites, sites on our network from time to time have
experienced interruption and overload. Our business requires the uninterrupted
operation of our network of sites on the Internet and transaction processing
system. Our site operators attempt to maintain, to the greatest extent possible,
the reliability of these systems.
COMPETITION
Markets for motorsports and automotive-related products and services are
extremely competitive. Many of our competitors have greater market recognition
and substantially greater financial, technical, marketing, distribution, and
other resources than we possess. In addition, online retailers may be acquired
by, receive investments from, or enter into other commercial relationships with
larger, well-established, and well-financed companies as use of the Internet and
other online services increases. Certain of our competitors may be able to
secure merchandise from manufacturers exclusively or on more favorable terms,
devote greater resources to marketing and promotional campaigns, adopt more
aggressive pricing or inventory availability policies, and devote substantially
more resources to Web site and systems development than we can. Increased
competition may result in reduced operating margins, loss of market share, and a
diminished brand franchise. New technologies and the expansion of existing
technologies may increase the competitive pressures on us.
The e-commerce market is new, rapidly evolving, and intensely competitive;
and we expect competition to intensify in the future. Barriers to entry are
minimal and competitors may develop and offer similar services in the future. We
currently or potentially compete with several types of companies, including the
following:
- general integrated entertainment companies, such as the Walt Disney Co.
and its ESPN affiliate, Time Warner, and TNN,
- Web sites targeted to sports enthusiasts generally, such as ESPN.com,
Sportsline.com, CNNSI.com, and Foxsports.com,
- NASCAR, which has an agreement with Action Performance under which NASCAR
has a right to buy some of Action Performance's products for its
NASCAR.com e-commerce channel, or alternatively at NASCAR's option, we
will sell Action Performance's NASCAR-licensed products on the NASCAR.com
e-commerce channel under the same terms as on SpeedMall under a revenue
sharing agreement.
- other motorsports and automotive-related Web sites, such as
Speedvision.com, Jayski.com, Hemmings Motor News Online, and Ecklers.com,
- traditional forms of media that cover motorsports, such as magazines,
newspapers, radio, and television,
- online and offline retailers of motorsports merchandise, including
various distributors of Action Performance, and
- Action Performance itself upon any termination of our contracts with it.
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Our competitive position depends on a number of factors, both within and
outside our control, including the following:
- our ability to generate traffic on our network and to develop
successfully an online community that attracts motorsports fans and
automotive enthusiasts,
- the quality, features, pricing, and diversity of the products offered on
our network of Web sites,
- our ability to recognize industry trends, anticipate shifts in consumer
demands, and identify and market new products,
- our relationships with and the popularity of the race car drivers, teams,
and other licensors of the products we sell,
- our ability to develop and maintain effective marketing programs that
enable us to sell products and services to motorsports fans and
automotive enthusiasts,
- product and service offerings by our competitors.
We cannot assure you that we will be able to compete successfully in the future.
We believe that Action Performance's relationships and licenses with top
race car drivers, car owners, sanctioning bodies, and other popular licensors
provide us with a significant advantage over competitors that may attempt to
develop a motorsports Web site or offer motorsports collectible and consumer
products online. Through Action Performance, we plan to expand and strengthen
these relationships and to develop opportunities to market innovative licensed
collectible and consumer products that appeal to motorsports fans and automotive
enthusiasts.
INTELLECTUAL PROPERTY
Our performance and ability to compete depend to a significant degree on
our proprietary technology and other rights. We rely on a combination of
trademark, copyright, and trade secret laws, confidentiality agreements with
employees and non-compete agreements executed by certain of our executive
officers; and technical measures to establish and protect our proprietary
rights.
We are seeking protection of the "goracing.com," "RCCA SelectNet," and
"SpeedMall" trademarks in the United States. We may not be able to secure
protection for our service marks or trademarks. Our competitors or others may
adopt product or service names similar to "goracing.com," or other of our
service marks or trademarks, which could impede our ability to build brand
identity and lead to customer confusion. Our inability to protect the name
"goracing.com" adequately could have a material adverse effect on our business,
operating results and financial condition.
Our proprietary software is protected by copyright laws. The source code
for our proprietary software also is protected under applicable trade secret
laws. As part of our confidentiality procedures, we generally enter into
agreements with our employees and consultants and limit access to and
distribution of our software, documentation, and other proprietary information.
The steps we take may not prevent misappropriation of our technology, and the
agreements we enter into for that purpose may not be enforceable. Despite our
precautions, third parties could copy or otherwise obtain and use our software
or other proprietary information without our authorization. These third parties
also may independently develop similar software. Policing unauthorized use of
our technology is difficult, particularly because the global nature of the
Internet makes it difficult for us to control the ultimate destination or
security of transmitted software or other data. The laws of other countries may
afford us little or no effective protection of our intellectual property.
We may receive notices from third parties that claim our software or other
aspects of our business infringe their rights. While we are not currently
subject to any such claim, any future claim, with or without merit, could result
in significant litigation costs and diversion of resources, including the
attention of management, and could require us to enter into royalty and
licensing agreements, all of which could have a material adverse effect on our
business, financial condition, and results of operations. These royalty and
licensing agreements, if required, may not be available on terms acceptable to
us or at all. In the future, we
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also may need to file lawsuits to enforce our intellectual property rights, to
protect our trade secrets, or to determine the validity and scope of the
proprietary rights of others. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of resources,
which could have a material adverse effect on our business, financial condition,
and results of operations.
We also rely on a variety of technologies that we license from third
parties, including our database and Internet server software, which perform key
functions. These third-party technology licenses may not continue to be
available to us on commercially reasonable terms. Our loss or inability to
maintain or obtain upgrades to any of these technology licenses could result in
delays in completing our proprietary software enhancements and new developments
until we identify, license, develop, and integrate equivalent technology. Any
such delays could have a material adverse effect on our business, financial
condition, and results of operations.
GOVERNMENTAL REGULATION
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally and laws or regulations directly applicable to access to online
commerce. As a result of the increasing popularity and use of the Internet and
other online services, however, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online
services. These laws and regulations could cover issues such as user privacy,
pricing, content, copyrights, distribution, and the characteristics and quality
of products and services. The growth and development of the market for online
commerce may prompt more stringent consumer protection laws that may impose
additional burdens on companies that conduct business online. The adoption of
any additional laws or regulations may decrease the growth of the Internet or
other online services, which in turn could decrease the demand for the products
and services we offer, increase our cost of doing business, or otherwise have an
adverse effect on us. We are uncertain as to how existing laws that govern
issues such as property ownership, sales and other taxes, and personal privacy
will apply to the Internet and other online services. Any such developments may
take years to resolve.
Because our network is available over the Internet in multiple states and
foreign countries and we sell to numerous consumers residing in multiple states
and foreign countries, these jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each such state and foreign
country. Our failure to qualify as a foreign corporation in a jurisdiction where
we are required to do so could subject us to taxes and penalties for the failure
to qualify. Any such new legislation or regulation, the application of laws and
regulations of jurisdictions whose laws we believe do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services, could have a material adverse effect on our business.
EMPLOYEES
As of September 2, 1999, we had 105 full-time employees. We have
experienced no work stoppages and are not a party to a collective bargaining
agreement. We believe that we maintain good relations with our employees.
FACILITIES
Our corporate headquarters are located in Phoenix, Arizona. We share these
offices with Action Performance, which leases the property under a lease with an
initial term that expires in August 2007. The lease includes two five-year
renewal options. Following this offering, we expect to continue to use a portion
of this property pursuant to a space-sharing arrangement with Action
Performance. As we expand, we plan to lease that additional space on prevailing
terms.
We also lease approximately 6,000 square feet of office space in Canton,
Massachusetts under a lease expiring in March 2000. Our Web site developers use
this office space to develop the goracing network.
LEGAL PROCEEDINGS
We currently are not involved in any legal proceeding that we believe would
have a material adverse effect on our business, results of operations, or
financial position.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our directors
and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Fred W. Wagenhals............................ 57 Chairman of the Board
Christopher S. Besing........................ 38 Chief Executive Officer and Director
Lonnie P. Boutte............................. 48 President and Director
David A. Husband............................. 30 Acting Chief Accounting Officer and
Director
Roger J. Falcione............................ 49 Chief Technology Officer
Tod J. Wagenhals............................. 34 Director
</TABLE>
Fred W. Wagenhals has served as our Chairman of the Board since May 1999.
Mr. Wagenhals founded Action Performance in May 1992 and has served as its
Chairman of the Board, President, and Chief Executive Officer since November
1993.
Christopher S. Besing has served as our Chief Executive Officer and as a
director since May 1999. Mr. Besing has served as Vice President and Chief
Financial Officer of Action Performance since January 1994 and as a director of
Action Performance since May 1995. Mr. Besing will resign as an officer of
Action Performance upon completion of this offering, but will continue to serve
as a director of Action Performance. Prior to joining Action Performance, Mr.
Besing held several financial and accounting positions with Orbital Sciences
Corporation ("OSC") from September 1986 to December 1993, most recently as
Director of Accounting and Controller of OSC's Launch Systems Group in Chandler,
Arizona. Prior to joining OSC, Mr. Besing was employed as an accountant with
Arthur Andersen LLP from January 1985 to August 1986. Mr. Besing also serves as
a director of LBE Technologies, Inc., a privately held corporation that operates
"NASCAR Silicon Motor Speedway" entertainment centers that feature real-time
interactive racing simulators. Mr. Besing is a Certified Public Accountant.
Lonnie P. Boutte has served as our President since May 1999 and as a
director since July 2, 1999. Mr. Boutte served as the General Manager of our
Collectors' Club from June 1995 until February 1999, and has served as President
of our wholly owned subsidiary Action Interactive, Inc., since February 1999.
Prior to joining Action Performance, Mr. Boutte served as the Vice President of
Operations for SkyMall, Inc., a public in-flight shopping catalog company, from
February 1992 until June 1995.
David A. Husband has served as a director since July 2, 1999. Mr. Husband
also is serving as our Acting Chief Accounting Officer until we engage his
successor. Mr. Husband has served as Vice President -- Finance and Accounting
and as the Chief Accounting Officer of Action Performance since May 1998 and
will assume the role of Action Performance's Chief Financial Officer upon the
completion of this offering. Mr. Husband was employed as an accountant with
Arthur Andersen LLP from July 1992 to May 1998, where he was primarily engaged
in auditing publicly-held companies. Mr. Husband is a Certified Public
Accountant.
Roger J. Falcione has served as the Vice President of New Media for
goracing Interactive Services, Inc. since November 1998, and as our Chief
Technology Officer since March 1999. Mr. Falcione was the President, Chief
Executive Officer, and a founder of Tech 2000 Worldwide, Inc., a full-service
Internet development company from September 1995 until its acquisition by Action
Performance in November 1998. Prior to forming Tech 2000, Mr. Falcione served in
a variety of positions during an 18-year career at Bay State Gas Company, most
recently as Manager of Network Services.
Tod J. Wagenhals has served as a director since July 2, 1999. Mr. Wagenhals
has served as Executive Vice President of Action Performance since July 1995, as
a director of Action Performance since December 1993, and as Secretary of Action
Performance since November 1993. Mr. Wagenhals served as a Vice President of
Action Performance from September 1993 to July 1995. Mr. Wagenhals served in
various marketing capacities with Action Performance from May 1992 until
September 1993. Mr. Wagenhals was
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National Accounts Manager of Action Products, Inc. from January 1989 to October
1991. Mr. Wagenhals is the son of Fred W. Wagenhals.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Our bylaws authorize the board of directors to appoint among its members
one or more committees consisting of one or more directors. Immediately
following this offering, our board of directors will establish an audit
committee and a compensation committee. The audit committee and the compensation
committee will each consist of at least two independent directors who are not
directors, officers, employees, or significant stockholders of Action
Performance. The audit committee will review the annual financial statements,
any significant accounting issues, and the scope of the audit with our
independent auditors and will discuss with the auditors any other audit-related
matters that may arise. The compensation committee will review and act on
matters relating to compensation levels and benefit plans for our key
executives.
DIRECTOR COMPENSATION AND OTHER INFORMATION
Directors who are employees of our company or Action Performance do not
receive any additional compensation for serving as members of our board of
directors. Each non-employee director will receive $10,000 cash compensation per
year and reimbursement of expenses for their service as a member of the board of
directors. Under our 1999 Incentive Stock Plan, non-employee directors will
receive options to purchase 10,000 shares of common stock upon their appointment
or election to the board of directors, and will receive options to purchase
5,000 shares of common stock annually. Our directors also will be eligible to
receive other grants of stock options or awards pursuant to the discretionary
program of the 1999 Incentive Stock Plan. See "Executive Compensation -- 1999
Stock Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, our board of directors has not had a compensation
committee. All compensation decisions relating to our executive officers have
been made by the compensation committee of the board of directors of Action
Performance, which compensated these individuals in their capacity as executive
officers of Action Performance. Once formed, the compensation committee of our
board of directors will make all compensation decisions regarding our executive
officers. We currently anticipate that none of the members of our compensation
committee will be directors, officers, or employees of either goracing or Action
Performance.
EXECUTIVE COMPENSATION
During 1996, 1997, and 1998, Messrs. Wagenhals, Besing, and Boutte were
compensated by Action Performance for services rendered to Action Performance,
participated in executive benefit plans sponsored by Action Performance, and did
not receive compensation from our company. During those periods, Mr. Falcione
received compensation as the President and Chief Executive Officer of Tech 2000.
During the periods presented, the compensation committee of the board of
directors of Action Performance determined the base salaries and bonuses of
Messrs. Wagenhals, Besing, and Boutte. After this offering, the compensation
committee of the board of directors of our company will determine the base
salaries and bonuses of our executive officers.
The following table sets forth certain information concerning the
compensation for the fiscal years ended September 30, 1996, 1997, and 1998
earned by our Chief Executive Officer and by our other executive officers whose
cash salary and bonus exceeded $100,000 during fiscal 1998. All amounts listed
represent compensation paid by Action Performance or Tech 2000, as applicable,
to the officers listed for services rendered in all capacities to those
companies for the periods presented.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
AWARDS
-------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) OPTIONS(#)(2) ($)(3)
- --------------------------- ---- ------------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Fred W. Wagenhals...................... 1998 $459,676 $100,000 60,000(4) $3,200
Chairman of the Board 1997 276,923 50,000 16,000 1,952
1996 250,000 75,000 -- 4,854
Christopher S. Besing.................. 1998 $160,962 $ 40,000 40,000(5) $3,200
Chief Executive Officer and Director 1997 113,462 21,000 15,000 2,535
1996 75,000 26,000 20,000 1,572
Lonnie P. Boutte....................... 1998 $100,000 $ 10,000 10,000(6) $1,000
President and Director 1997 80,192 10,500 10,000 --
1996 70,000 4,000 2,000 --
Roger J. Falcione...................... 1998 $101,000 -- -- --
Chief Technology Officer 1997 101,000 -- -- --
1996 89,885 -- -- --
</TABLE>
- ---------------
(1) Messrs. Wagenhals, Besing, Boutte, and Falcione also received certain
perquisites, the value of which did not exceed the lesser of $50,000 or 10%
of their salary and bonus during fiscal 1998.
(2) The securities listed represent options to purchase Action Performance
common stock.
(3) Amounts shown for fiscal 1998 represent matching contributions made by
Action Performance to its 401(k) Plan.
(4) Includes 30,000 options that were cancelled and reissued in June 1998.
(5) Includes 20,000 options that were cancelled and reissued in June 1998.
(6) Includes 5,000 options that were cancelled and reissued in June 1998.
We currently plan to pay annual base salaries of $250,000 to Mr. Besing,
$200,000 to Mr. Boutte, and $175,000 to Mr. Falcione. See
"Management -- Employment Agreement." Our board of directors may grant
performance-based bonuses to our executive officers.
Option Grants
The following table provides information on options to purchase Action
Performance common stock granted to the officers listed during the fiscal year
ended September 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE 5% 10%
---- ------------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fred W. Wagenhals........ 30,000(3) 6.0% $30.75 1/29/04(3) -- --
30,000 6.0% $25.91 6/02/04 $264,316 $599,642
Christopher S. Besing.... 20,000(3) 4.0% $30.75 1/29/04(3) -- --
20,000 4.0% $25.91 6/02/04 $176,210 $399,761
Lonnie P. Boutte......... 5,000(3) 1.0% $30.75 1/29/04(3) -- --
5,000 1.0% $25.91 6/02/04 $ 44,053 $ 99,940
Roger J. Falcione........ -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options were granted at the fair value of the shares on the date of
grant and have six-year terms. One-third of the options vest and become
exercisable on each of the first, second, and third anniversaries of the
date of grant.
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(2) Potential gains are net of the exercise price, but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the SEC and do not represent our estimate or
projection of the future price of Action Performance's common stock. Actual
gains, if any, on stock option exercises will depend upon the future market
prices of Action Performance's common stock.
(3) These options were cancelled and reissued in June 1998.
Recent Grants of Stock Options
During November 1998, Action Performance granted options to acquire 50,000
shares of its common stock granted to Mr. Fred Wagenhals, and options to acquire
20,000 shares of its common stock granted to each of Mr. Besing and Mr. Boutte.
All of the options have an exercise price of $26.38 per share.
Option Exercises and Year-end Option Values
The following table provides information on options to purchase Action
Performance common stock that were exercised in the last fiscal year by the
officers listed and the value of each such officer's unexercised options at
September 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE MONEY OPTIONS
FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fred W. Wagenhals............ 200,000 $4,375,000 95,333 40,667 $2,109,497 $116,823
Christopher S. Besing........ 26,472 $ 818,978 18,333 36,667 $ 255,828 $206,052
Lonnie P. Boutte............. -- -- 4,999 6,668 $ 28,063 $ 29,889
Roger J. Falcione............ -- -- -- -- -- --
</TABLE>
- ---------------
(1) Calculated based upon the closing price of Action Performance common stock
as reported on the Nasdaq National Market on September 30, 1998 of $27.00
per share.
EMPLOYMENT AGREEMENT
In connection with the November 1998 acquisition of Tech 2000, our
subsidiary goracing Interactive Services, Inc. entered into an employment
agreement with Mr. Falcione to serve as its Vice President of New Media for a
three-year term ending November 2001. Mr. Falcione became the Chief Technology
Officer of goracing.com, inc in March 1999. The agreement provides that Mr.
Falcione will receive a base salary of $150,000 per year and will be eligible to
receive an annual bonus in an amount up to 30% of his base salary. In addition,
under the terms of the agreement, Action Performance granted Mr. Falcione
options to purchase 20,000 shares of its common stock at an exercise price of
$31.00, which was the fair market value of Action Performance's common stock on
the date of the agreement. Either party may terminate the employment agreement
upon written notice to the other party. If we terminate the employment
agreement, however, Mr. Falcione will be entitled to receive his base salary
through the remainder of the three-year term. The agreement will also terminate
in the event of Mr. Falcione's death and we may terminate the agreement in the
event of Mr. Falcione's permanent disability. If we terminate the agreement due
to death or disability, Mr. Falcione or his estate will continue to receive his
base salary for a period of six months. During the term of the employment
agreement and for a two-year term after its termination, Mr. Falcione may not
compete with us and may not take actions intended to solicit our employees to
terminate his or her employment relationship with us. Mr. Falcione may not at
any time make unauthorized use or disclosure of our confidential information.
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1999 STOCK INCENTIVE PLAN
On July 2, 1999, our board of directors adopted and our sole stockholder
approved the 1999 Incentive Stock Plan. The incentive plan provides for the
grant of incentive and nonqualified stock options to acquire class A common
stock, the direct grant of class A common stock, the grant of stock appreciation
rights, or SARs, and the grant of other cash awards to key personnel, directors,
consultants, independent contractors, and others providing valuable services to
us. We believe that the incentive plan represents an important factor in
attracting and retaining executive officers and other key employees, directors,
and consultants and constitutes a significant part of our compensation program.
The incentive plan provides these individuals with an opportunity to acquire a
proprietary interest in our company and thereby align their interests with the
interests of our other stockholders and to give them an additional incentive to
use their best efforts for our long-term success.
The maximum number of shares of our class A common stock that we may issue
under the incentive plan initially will be equal to 10% of our outstanding class
A common stock and class B common stock. As we issue additional shares of stock
in the future, the number of shares issuable under the incentive plan will
automatically increase by 10% of the additional shares outstanding, up to a
maximum of 10,000,000 shares of class A common stock. The maximum number of
shares of stock with respect to which options or other awards may be granted to
any individual employee (including officers) during the term of the incentive
plan may not exceed 50% of the shares of class A common stock covered by the
incentive plan. We plan to grant stock options to purchase shares of
class A common stock at an exercise price equal to the initial per share
offering price to various persons, including directors, officers, and employees
of our company. Of these options, it is anticipated that options will be granted
to purchase shares to Mr. Wagenhals, to Mr. Besing,
to Mr. Boutte, and to Mr. Falcione.
The power to administer the incentive plan with respect to our executive
officers and directors and all persons who own 10% or more of our issued and
outstanding stock rests exclusively with the board of directors or a committee
consisting of two or more non-employee directors. The power to administer the
incentive plan with respect to other persons rests with the board of directors
or a committee of the board of directors.
The incentive plan will terminate in July 2009, and options may be granted
at any time during the life of the incentive plan. The plan administrator will
determine when options become exercisable, as well as the exercise prices of
options. If an option is intended to be an incentive stock option, the exercise
price may not be less than 100% (110% if the option is granted to a stockholder
who at the time of the grant of the option owns stock possessing more than 10%
of the total combined voting power of all classes of our stock) of the fair
market value of the class A common stock at the time of the grant. We may not
reprice any stock options granted to executive officers, directors, or 10%
stockholders under the incentive plan unless our stockholders approve the
repricing within 12 months.
The incentive plan also includes an automatic grant program that
automatically grants options to our non-employee directors. Under the automatic
grant program, each non-employee whose election to the board of directors is
proposed as of date of this prospectus will receive an option to acquire 10,000
shares of class A common stock on that date. Each subsequent newly elected
non-employee member of the board of directors will receive as an initial grant
an option to acquire 10,000 shares of class A common stock on the date of his or
her first appointment or election to the board of directors. In addition, an
option to acquire 5,000 shares of class A common stock will be granted to each
non-employee director at the meeting of the board of directors held immediately
after each annual meeting of stockholders. A non-employee member of the board of
directors will not be eligible to receive this annual grant if the option grant
date of such annual grant would be within 90 days of such non-employee member
receiving his or her initial grant. Each initial grant will vest and become
exercisable in a series of three equal and successive installments, with the
first installment vested on the date of grant (or the date of election to the
board of directors, if later) and the next two installments 12 months and 24
months after the date of grant. Each annual grant will vest and become
exercisable on the earlier of (a) the day prior to the date of the next annual
meeting of stockholders, or
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(b) 12 months after the date of grant. Each automatic option will vest and
become exercisable, however, only if the optionholder has not ceased serving as
a director as of such vesting date.
The exercise price per share of class A common stock subject to an initial
grant of automatic options on date of this prospectus will be equal to the
initial public offering price per share. The exercise price per share of class A
common stock subject to other automatic options will be equal to 100% of the
fair market value of our class A common stock on the date, such option is
granted. Each automatic option will expire on the tenth anniversary of the date
of grant. In the event the non-employee director ceases to serve as a member of
the board of directors or dies while serving as a director, the optionholder or
the optionholder's estate or successor by bequest or inheritance may exercise
any automatic options that have vested by the time of cessation of service until
the earlier of (1) 90 days after the cessation of service, or (2) the expiration
of the term of the automatic option. We believe that the grant of automatic
options to non-employee directors is necessary to attract, retain, and motivate
independent directors.
The incentive plan is not intended to be the exclusive means by which we
may issue options or warrants to acquire our class A common stock, stock awards,
or any other type of award. To the extent permitted by applicable law and the
requirements of Nasdaq, we may issue additional options, warrants, or
stock-based awards other than pursuant to the incentive plan without stockholder
approval.
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TRANSACTIONS WITH ACTION PERFORMANCE COMPANIES, INC.
The following paragraphs provide a summary description of the material
agreements between Action Performance and us. These agreements relate to this
offering and define the mutual rights and obligations between Action Performance
and us after this offering. These descriptions summarize the material terms of
the agreements, but they are not complete. We will file the actual agreements
with the SEC as exhibits to the registration statement of which this prospectus
is a part. You should refer to those exhibits for the complete text of these
agreements.
HISTORICAL INTERCOMPANY RELATIONSHIPS
Prior to this offering, we have been a wholly owned subsidiary of Action
Performance. As our parent, Action Performance has provided a variety of
services to us, including
- administrative services, such as accounting, human resources, and legal,
- order fulfillment, warehouse operations, and inventory management,
- information technology,
- creative, advertising, and public relations, and
- the services of a number of its executives and employees.
Our historical financial statements contained in this prospectus include
allocations for these services. Although we believe that the amounts allocated
are reasonable, those amounts do not necessarily reflect the actual expenses
that we would have incurred if we had operated as a separate, stand-alone
company during the periods presented.
We purchased all of our inventory from Action Performance during fiscal
1998 and the nine months ended June 30, 1999. We also have relied on Action
Performance to provide us with financing for our cash flows. As a result, our
cash flows to date do not necessarily indicate the cash flows that we would have
experienced if we had operated as an independent company prior to this offering.
INTERCOMPANY AGREEMENTS
Upon completion of this offering, our relationship with Action Performance
will be governed by several intercompany agreements. In general, the terms of
these agreements will begin on the closing date of this offering and will
continue for 25 years. Any amendments to these agreements must be approved by a
majority of directors on our board who are not officers, directors, or 5%
stockholders of Action Performance. We may terminate any of the agreements by
mutual agreement and either party may terminate any of the agreements under the
following circumstances:
- if the other party is in material breach that is not cured within 30
days' written notice from the other party,
- if the other party is the subject of a petition in bankruptcy or relating
to insolvency, receivership, liquidation, or composition for the benefit
of creditors,
- if the business of the other is liquidated or terminated, or
- if the other party becomes insolvent, unable to pay its debts as they
mature, or makes an assignment for the benefit of creditors.
In addition, Action Performance generally may terminate any or all of these
agreements if there is a "change of control" of our company. Under the
intercompany agreements, a change of control will occur if
- any person other than Action Performance or one of its affiliates
directly or indirectly acquires securities representing 50% or more of
our voting power, except that this provision will not apply to any public
or private offering of our common stock; or
- during the term of the agreements, the individuals who serve as members
of our board of directors as of the closing date of this offering cease
to constitute a majority of our board of directors, unless the
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election or nomination for election of each new director was approved by
unanimous vote of the original directors and/or previously approved
directors; or
- a tender offer or exchange offer is consummated and the effect of the
offer is the change in beneficial ownership of 50% or more of our stock;
or
- we are merged, consolidated, or reorganized and as a result of the
transaction less than 50% of our equity securities are owned by our
former stockholders; or
- we transfer all or substantially all of our assets to a person that is
not one of our wholly owned subsidiaries.
Sales or other transfers of our common stock by Action Performance or its
affiliates, including a distribution of our common stock by Action Performance
to its stockholders, will not be considered in determining whether a change of
control has occurred.
Master Intercompany Agreement
We will enter into a master intercompany agreement with Action Performance
that governs our relationship. The following paragraphs describe the significant
terms that will govern our relationship.
Product Sales. Generally, we will act as the primary online distributor of
Action Performance's lines of die-cast merchandise, apparel, and souvenirs.
Action Performance will not sell its products online. Action Performance,
however, may permit distributors of its products to sell those products online.
The licensors of products that Action Performance sells and corporate sponsors
of promotional products that Action Performance sells will be able to retain the
right to sell those products online. Action Performance buys some of its
licensed products from third-party suppliers and resells those products to us
and others. Those third-party suppliers may retain the right to sell those
products online. Action Performance, however, will use commercially reasonable
efforts to obtain those suppliers' agreements not to sell their products online.
Action Performance will be prohibited from
- developing a collectors' club or similar organization that competes with
the Collectors' Club, or
- selling our exclusive Collectors' Club products through any other
distribution channels.
We will have the right to sell Action Performance's products through catalog or
direct mail channels. Action Performance will retain the right to sell its
products in catalogs, by direct mail, or otherwise, so long as it does not
conduct those activities online.
We will agree to maintain the high standards of operation, quality,
integrity, and goodwill associated with Action Performance's products and the
Collectors' Club. We and Action Performance will jointly own the Collectors'
Club membership database as it exists on the date of this prospectus. We will
own and have all rights to any additions to that database after completion of
this offering. If Action Performance terminates our intercompany agreements
because we discontinue the Collectors' Club or stop selling Action Performance's
products, or because a change of control of our company has occurred, Action
Performance will have the right to a one-time print-out of the information in
the database at the time of termination.
We will purchase products from Action Performance pursuant to our
intercompany agreements. We must offer and sell Action Performance's products
directly to retail consumers and we may not offer or sell these products to
other resellers. These restrictions will not prohibit sales to collectors who
may ultimately resell their collectibles.
We will agree to actively promote and sell the products of Action
Performance. Action Performance will agree to use commercially reasonable
efforts to maintain favorable license arrangements and the production and other
operations that may be reasonably necessary to produce and supply products to
us. If we desire to have new products or product lines made for us, Action
Performance will have a right of first refusal to make those products or product
lines. If Action Performance does not exercise its right of first refusal, we
will be permitted to produce those products or product lines ourselves or to
have a third party produce them for us.
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Internet Services. Action Performance will grant us a right of first
refusal to control all of its current and future Internet sites and electronic
media-based interactive ventures and opportunities and any such opportunities
that it develops or that a third party brings to its attention in the future. We
will not, however, control Action Performance's corporate Web site. Action
Performance will be permitted to pursue online ventures and opportunities only
if we are unable or unwilling to pursue them.
Advertising. Action Performance will use its best efforts to include our
name or logo on its product packaging and to include our name or logo in its
advertisements. Except for its existing obligations to include the Nascar.com
logo on its product packaging, Action Performance will not advertise or promote
other online motorsports networks. We will provide banner advertising to Action
Performance in an amount of at least 5% of available unsold advertising
inventory on our network. Each party will provide the other with the right to
use the other party's tradenames and trademarks for advertising, endorsements,
and promotional purposes.
Cooperation with Transactions. Under the master intercompany agreement, we
will cooperate with Action Performance to complete this offering and any
offerings of our securities prior to the time, if ever, that Action Performance
distributes our shares to its stockholders. If Action Performance decides to
distribute our class B common stock to its stockholders in the future, we will
cooperate with Action Performance to complete any transactions necessary to
distribute those shares. We will pay the expenses related to this offering and
any future offerings of our securities. Action Performance will pay any expenses
related to a tax-free distribution of our common stock.
Access to Information. Generally, we and Action Performance will provide
each other with access to information relating to the assets, business, and
operations of the requesting party. We and Action Performance will keep our
books and records for a period of time. Also, we and Action Performance will
cooperate with the other party with respect to any claims brought against the
other relating to the conduct of our business prior to completion of any
spin-off or similar transaction.
Covenants. For so long as Action Performance is required to consolidate
our results of operations and financial position, we will:
- provide Action Performance certain financial information regarding our
company and our subsidiaries,
- provide Action Performance copies of all quarterly and annual financial
information and other reports and documents we intend to file with the
SEC prior to such filings, as well as final copies upon filing,
- provide Action Performance with copies of our budgets and financial
projections, as well as the opportunity to meet with our management to
discuss such budgets and projections,
- consult with Action Performance regarding the timing and content of
earnings releases and cooperate fully and cause our accountants to
cooperate fully with Action Performance in connection with any of its
public filings,
- not change our auditors without Action Performance's prior written
consent, which will not be unreasonably withheld, and use our reasonable
best efforts to enable our auditors to complete their audit of our
financial statements such that they will date their opinion the same date
that they date their opinion on Action Performance's financial
statements,
- provide to Action Performance and its auditors all information required
for Action Performance to meet its schedule for the filing and
distribution of its financial statements,
- make our books and records available to Action Performance and its
auditors, so that they may conduct reasonable audits relating to our
financial statements,
- adhere to certain specified accounting standards,
- agree with Action Performance on any changes to our accounting policies,
and
- agree with Action Performance regarding our accounting estimates and
principles.
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Maintenance Right. In order for our company to be included in Action
Performance's consolidated group for federal income tax purposes, Action
Performance must own 80% of the vote and value of our capital stock. For so long
as we are included in Action Performance's consolidated group for income tax
reporting purposes, at any time that we sell or otherwise issue additional
shares of our capital stock, Action Performance will have the right to maintain
its percentage of ownership by acquiring shares of our voting or non-voting
stock on the same terms that we sell or otherwise issue those securities to
third-parties. This will allow Action Performance to continue to include us in
its consolidated group for income tax reporting purposes.
Corporate Governance. For so long as Action Performance owns shares
representing 50% or more of the voting power of our company, Action Performance
will have the right to designate a majority of our board of directors. For so
long as Action Performance owns shares representing at least 10% but less than
50% of our voting power, Action Performance will have the right to designate a
proportionate number of directors to our board of directors. For so long as
Action Performance owns shares representing at least 10% of the voting power of
our company, Action Performance will have the right to designate at least one
member to each committee of our board of directors.
Indemnification and Release. We will give to Action Performance, and
Action Performance will give us, a full and complete release and discharge as of
the closing date of this offering of all liabilities between us and Action
Performance on or before the closing date of this offering, except as expressly
set forth in the master intercompany agreement.
Except as provided in the master intercompany agreement, we will indemnify
Action Performance and its affiliates for all liabilities from
- our failure of or the failure of any other person to pay, perform or
otherwise promptly discharge any of our liabilities in accordance with
their respective terms;
- any breach by us of any of the intercompany agreements; and
- any untrue statement or alleged untrue statement of a material fact or
omission with respect to the information contained in this prospectus or
documents filed in connection with future offerings of our securities,
unless provided by Action Performance for that express purpose.
Except as provided in the master intercompany agreement, Action Performance
will indemnify us and each of our affiliates for all liabilities from
- the failure of Action Performance or any other person to pay any
liabilities of Action Performance other than our liabilities;
- any breach by Action Performance of the intercompany agreements; and
- to the extent we rely on information provided by Action Performance, any
untrue statement or alleged untrue statement of a material fact or
omission with respect to the information contained in this prospectus or
documents filed in connection with future offerings of our securities.
Neither we nor Action Performance will be obligated to indemnify the other
for
- any liability assumed, transferred, assigned or allocated to the other
under any of the intercompany agreements;
- any liability for the sale, lease, construction or receipt of goods,
property or services purchased, obtained or used in the ordinary course
of business between the parties prior to the closing date of this
offering;
- any liability for unpaid amounts for products or services or refunds
owing on products or services due on a value-received basis for work done
by one party at the request or on behalf of the other;
- any liability that either party may have with respect to indemnification
or contribution for claims brought against the other party by third
persons; or
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- generally, any liability the release of which would result in the release
of any person other than a person released pursuant to the master
intercompany agreement.
Talent Agreement
Action Performance has relationships with many of the popular race car
drivers, team owners and sponsors, and other motorsports personalities. Action
Performance has agreements with many of these personalities to provide
endorsements for the goracing network. We will enter into a talent agreement
with Action Performance that will provide us with the use of the services of
these personalities to endorse, promote, or advertise our network or motorsports
or automotive-related online opportunities on our network.
If we wish to obtain endorsements from or enter into online opportunities
with new or additional motorsports personalities in the future, we will notify
Action Performance of the identity of the person and the proposed terms of the
agreement that we seek. Action Performance will then have the responsibility to
negotiate with the motorsports personalities on our behalf, although our
representatives will be able to accompany Action Performance's representatives
and participate in the negotiations.
Action Performance generally will enter into contracts for the services of
these personalities on our behalf. If Action Performance enters into any new or
additional agreements on our behalf for online endorsements by or online
opportunities with motorsports personalities, Action Performance will
immediately assign its rights to us. In exchange, we will pay Action Performance
100% of its direct costs and 104% of its indirect costs and expenses to provide
these services.
We may enter into contracts directly with the motorsports personalities
that we designate only if Action Performance is unable or unwilling to enter
into an agreement with these personalities, provided that any agreement that we
enter into directly must be on substantially the same terms that we requested
Action Performance to enter into on our behalf. We may pay these personalities
cash, options to purchase shares of our class A common stock, royalties, or
other consideration in exchange for their endorsements.
Intercompany Services Agreement
After this offering, Action Performance will continue to provide services
to us, including accounting, human resources, information technology, creative
and advertising, order fulfillment and warehouse operations, and public
relations. In exchange, we will pay Action Performance 104% of its direct and
indirect costs and expenses to provide these services. Under this agreement, we
will pay for all expenses incurred by Action Performance for our benefit for
upgrades or expansion to the computer systems, telephone systems, warehouse
space or equipment, and any other furniture or equipment.
Distributor Agreements; Processing and Fulfillment Agreement
We will have the exclusive right to purchase Collectors' Club products from
Action Performance. We also will act as the primary online retail distributor
for Action Performance's non-club die-cast, apparel, and other merchandise. We
generally will commit to purchase a percentage of all non-club die-cast items
produced by Action Performance. We may not commit to purchase, however, more
than 30% of these products during the first year following this offering or more
than 50% of all products during the second year following this offering. We will
have the right to decrease, but not increase this percentage commitment for
individual products.
Action Performance will fulfill all orders for products that we purchase
from it either through our intercompany services agreement or a processing and
fulfillment agreement. Action Performance will provide the labor and materials,
warehouse space, inventory receiving, storage, and handling, invoicing, credit
card processing, and returns receiving and processing. We will pay Action
Performance either
- a fixed price per fulfilled order, plus costs for materials and shipping,
or
- 104% of Action Performance's direct and indirect costs and expenses to
provide these services. We will provide customer services for all of our
product sales.
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Registration Rights Agreement
We will enter into a registration rights agreement with Action Performance
prior to the closing of this offering that will cover the shares of our class B
common stock owned by Action Performance. Under that agreement, at any time
beginning 180 days after the date of this prospectus, but not more than once in
any 12-month period, Action Performance may demand that we file a registration
statement under the securities laws covering all or a portion of our securities
held by Action Performance. The securities to be registered, however, either
must have a reasonably anticipated aggregate public offering price of at least
$5.0 million or represent all of the remaining registrable securities. In some
circumstances, we will have the right to delay the filing of a registration
statement or we can require the holders of registrable securities to suspend
sales of those securities.
Action Performance also will have registration rights that apply if we
propose to register any class A common stock or other securities under the
securities laws. In that case, Action Performance may require us to include all
or a portion of our securities that it owns in such registration. The managing
underwriter of the offering, however, will have the right to restrict the number
of registrable securities proposed to be included in the registration.
We will bear all registration expenses incurred in connection with the
first two demand registrations and all piggyback registrations. Action
Performance will pay all underwriting discounts, selling commissions, and stock
transfer taxes applicable to the sale of our securities owned by it. The
registration rights of Action Performance under the registration rights
agreement will terminate when Action Performance may sell all of its shares in a
three-month period under Rule 144 under the securities laws, or when all of the
registrable securities have been sold under a registration statement.
Tax Allocation Agreement
For so long as Action Performance continues to own at least 80% of the
voting rights and value of our capital stock, we will be included in Action
Performance's consolidated group for federal income tax purposes. We will enter
into a tax allocation agreement with Action Performance. Under that agreement,
we will pay to Action Performance the amount of federal, state, and local income
taxes that we would be required to pay to the relevant taxing authorities if we
were a separate taxpayer not included in Action Performance's consolidated or
combined returns. If we incur a net operating loss, Action Performance may use
it to reduce its tax liability. To the extent that it uses our tax benefit,
Action Performance will be required to establish a receivable for our benefit.
Action Performance will offset the amount of the receivable to the extent we owe
any amounts to Action Performance for income taxes in the future. When we are no
longer included in Action Performance's consolidated tax group, Action
Performance will be required to pay us cash for any amount remaining in the
receivable established for our benefit, less any amount that we are required to
pay our parent under the tax allocation agreement.
By virtue of its controlling ownership of our company and the tax
allocation agreement, Action Performance will effectively control all of our tax
decisions. Under the tax allocation agreement, Action Performance will have sole
authority to respond to and conduct all tax proceedings relating to us,
including tax audits, to file all income tax returns on our behalf, and to
determine the amount of our liability to or entitlement to payment from Action
Performance. Under the tax allocation agreement, we have agreed to indemnify
Action Performance, and Action Performance has agreed to indemnify us, for any
tax or loss attributable to
- failure of the indemnifying party to make any payment required under the
agreement, or
- negligence of the indemnifying party in supplying the other party with
inaccurate or incomplete information in connection with the preparation
of a tax return or an audit.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
Action Performance acquired all of the outstanding stock of goracing
Interactive Services, Inc. (formerly Tech 2000 Worldwide, Inc.), now currently
an indirect wholly owned subsidiary of our company, in November 1998. Prior to
the acquisition, Tech 2000 operated the goracing.com Web site. In connection
with the acquisition, Action Performance issued 137,923 shares of its common
stock to the former shareholders of Tech 2000, valued at approximately $4.7
million. Roger J. Falcione, our Chief Technology Officer, was a principal
stockholder of Tech 2000.
We and Action Performance also plan to enter into a series of intercompany
agreements in connection with this offering, which are discussed under
"Transactions with Action Performance Companies, Inc." We would have paid Action
Performance fees of approximately $422,000 had these agreements been in place
during the year ended September 30, 1998.
In August 1999, we entered into an agreement with a financial institution
whereby we have available to us up to $7.0 million for the purposes of acquiring
capital equipment under operating leases. Our commitment related to any future
operating leases under this agreement is guaranteed by Action Performance. As of
the date of this prospectus, there have been no operating leases executed under
this agreement. Currently, there are no other sources of third-party financing
available to us.
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PRINCIPAL STOCKHOLDERS
Action Performance beneficially owns all of the shares of our class B
common stock outstanding as of the date of this prospectus. Immediately after
this offering, Action Performance will continue to own all of our outstanding
class B common stock, which will represent approximately 98.2% of the combined
voting power of our outstanding common stock. If the underwriters exercise their
over-allotment option in full, Action Performance's ownership will represent
approximately 97.9% of the combined voting power of our outstanding common
stock.
The following table sets forth certain information regarding the shares of
our outstanding common stock and the common stock of Action Performance
beneficially owned as of June 30, 1999 by each of our directors and executive
officers, all directors and executive officers of Action Performance as a group,
and each person who is known by us to be the beneficial owner of more than 5% of
the common stock of Action Performance. Other than Action Performance, no other
person beneficially owns or exercises voting or dispositive control over more
than 5% of our common stock.
<TABLE>
<CAPTION>
SHARES OF GORACING.COM SHARES OF ACTION PERFORMANCE
COMMON STOCK BENEFICIALLY OWNED COMMON STOCK BENEFICIALLY OWNED
--------------------------------------------------- --------------------------------
NUMBER OF SHARES VOTING POWER(3) NUMBER OF SHARES
AND NATURE OF ------------------- AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE BEFORE AFTER BENEFICIAL PERCENTAGE
BENEFICIAL OWNER(1) OWNERSHIP OWNED OFFERING OFFERING OWNERSHIP(2) OWNED(2)
- ------------------- ---------------- ---------- -------- -------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Fred W. Wagenhals........... -- -- -- -- 2,014,266(4) 11.8%
Christopher S. Besing....... -- -- -- -- 29,998(5) *
Lonnie P. Boutte............ -- -- -- -- 4,999(6) *
David A. Husband............ -- -- -- -- 6,666(7) *
Roger J. Falcione........... -- -- -- -- 86,107(8) *
Tod J. Wagenhals............ -- -- -- -- 40,321(9) *
All directors and executive
officers as a group (13
persons)(10).............. -- -- -- -- 2,305,812 13.4%
5% STOCKHOLDERS
Action Performance
Companies, Inc............ -- 100.0% 100.0% 98.2% -- --
FMR Corp.................... -- -- -- -- 2,018,301(11) 11.9%
Pilgrim Baxter &
Associates................ -- -- -- -- 1,189,700(12) 7.0%
Rainier Investment
Management, Inc........... -- -- -- -- 1,087,350(13) 6.4%
AMVESCAP PLC................ -- -- -- -- 971,780(14) 5.7%
</TABLE>
- ---------------
* Less than 1%
(1) Except as otherwise indicated, each person named in the table has sole
voting and investment power with respect to all common stock beneficially
owned, subject to applicable community property law. Except as otherwise
indicated, each person may be reached at 4707 East Baseline Road, Phoenix,
Arizona 85040.
(2) The percentages shown are calculated based on 16,924,752 shares of common
stock of Action Performance outstanding on June 30, 1999. The numbers and
percentages shown include the shares of common stock actually owned as of
June 30, 1999 and the shares of common stock that the identified person or
group had the right to acquire within 60 days of such date. In calculating
the percentage of ownership, all shares of common stock that the identified
person or group had the right to acquire within 60 days of June 30, 1999
upon the exercise of options are deemed to be outstanding for the purpose
of computing the percentage of the shares of common stock owned by such
person or group,
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but are not deemed to be outstanding for the purpose of computing the
percentage of the shares of common stock owned by any other person.
(3) The percentages shown are calculated based upon 6,250,000 shares of class A
common stock and 35,000,000 shares of class B common stock of goracing.com
after this offering, and reflect that holders of class A common stock are
entitled to one vote per share while holders of class B common stock are
entitled to ten votes per share on all matters to be voted on by
stockholders. See "Description of Securities -- Common Stock."
(4) Represents 1,903,600 shares of Action Performance common stock and vested
options to acquire 110,666 shares of Action Performance Common Stock. The
shares beneficially owned by Mr. Wagenhals includes 300,000 shares over
which Mr. Wagenhals has shared voting power and shared dispositive power
with his spouse.
(5) Represents vested options to acquire 29,998 shares of Action Performance
common stock.
(6) Represents vested options to acquire 4,999 shares of Action Performance
common stock.
(7) Represents vested options to acquire 6,666 shares of Action Performance
common stock.
(8) Represents shares of Action Performance common stock including 11,724
shares held in escrow to secure Mr. Falcione's representations, warranties,
and covenants made in connection with Action Performance's acquisition of
Tech 2000.
(9) Represents 1,456 shares of Action Performance common stock and vested
options to acquire 38,865 shares of Action Performance common stock.
(10) All directors and executive officers as a group includes seven additional
executive officers and/or directors of Action Performance who are not
directors or executive officers of goracing.com, inc., and are not listed
individually in the table. All of these directors and executive officers
may be reached at Action Performance at 4707 East Baseline Road, Phoenix,
Arizona 85040.
(11) Represents 2,018,301 shares of Action Performance common stock beneficially
owned by FMR Corp., Edward C. Johnson 3d, Chairman of FMR Corp., and
Abigail Johnson, Director of FMR Corp. FMR Corp., Mr. Johnson, and Ms.
Johnson have sole voting power with respect to 135,900 shares and sole
dispositive power with respect to 2,018,301 shares of common stock. All
shares of the common stock are held by various subsidiaries or entities
either wholly owned or controlled by FMR Corp., Mr. Johnson, or Ms. Johnson
that serve as investment advisers to various investment companies. The
address of FMR Corp., Mr. Johnson, and Ms. Johnson is 82 Devonshire Street,
Boston, Massachusetts 02109.
(12) Represents 1,189,700 shares of Acton Performance common stock beneficially
owned by Pilgrim Baxter & Associates, Ltd. ("Pilgrim"). Pilgrim has sole
voting power with respect to 1,189,700 shares and sole dispositive power
with respect to 1,013,400 shares of common stock. The address of Pilgrim is
825 Duportail Road, Wayne, Pennsylvania 19087.
(13) Represents 1,087,350 shares of Action Performance common stock beneficially
owned by Rainier Investment Management, Inc. ("Rainier"). Rainier has sole
voting power with respect to 969,500 shares and sole dispositive power with
respect to 1,087,350 shares of common stock. All shares of the common stock
are held by individual and institutional clients for which Rainier serves
as investment adviser. Rainier is the owner of record and disclaims
beneficial ownership of such shares. The address of Rainier is 601 Union
Street, Suite 2801, Seattle, Washington 98101.
(14) Represents 971,780 shares of Action Performance common stock beneficially
owned by AMVESCAP PLC. AMVESCAP PLC and six of its subsidiaries have shared
voting power and shared dispositive power with respect to 971,780 shares of
common stock. Such shares of common stock are held by the six subsidiaries
of AMVESCAP PLC on behalf of other persons who have the right to receive or
the power to direct the receipt of dividends from such shares or the
proceeds from the sale of such shares. The interest of any of such persons
does not exceed 5% of the outstanding shares of common stock. AMVESCAP PLC
and its subsidiaries may disclaim beneficial ownership of such shares. The
address of AMVESCAP PLC is 1315 Peachtree St. NE, Atlanta, Georgia 30309.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of class A
common stock, par value $.0001 per share, 100,000,000 shares of class B common
stock, par value $.0001 per share and 10,000,000 shares of serial preferred
stock, par value $.0001 per share. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval. We may use these additional shares for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions, and employee benefit plans. Upon the closing of this
offering, all outstanding shares of class A common stock and class B common
stock will be legally issued, fully paid and nonassessable.
The following descriptions of our capital stock and material provisions of
our restated certificate of incorporation and bylaws are summaries. Complete
copies of our restated certificate of incorporation and bylaws are filed with
the Securities and Exchange Commission as exhibits to the registration statement
containing this prospectus.
COMMON STOCK
We are offering 6,250,000 shares of class A common stock under this
prospectus. Action Performance holds 35,000,000 shares of class B common stock,
which represents all of the outstanding shares of class B common stock. We
reserved 35,000,000 shares of class A common stock for issuance upon conversion
of the outstanding shares of class B common stock.
Voting Rights. Holders of our class A common stock are entitled to one
vote per share, while holders of our class B common stock are entitled to ten
votes per share on all matters to be voted on by stockholders. Except with
respect to the election of directors, amendments to our restated certificate of
incorporation, and the other matters described below, or as required by law, all
matters to be voted on by stockholders must be approved by a majority of the
votes entitled to be cast by all shares of class A common stock and class B
common stock present in person or represented by proxy, voting together as a
single class. Holders of our preferred stock might in the future be granted the
right to vote alongside holders of our common stock or to separately elect
members to our board of directors.
With respect to the election of directors, for so long as the "Action
Performance group" (as that term is described below) owns class B common stock
representing at least 10% of the voting power of our outstanding voting stock,
the holders of class A common stock, and the holders of class B common stock
will vote as separate classes, as follows:
- For so long as the Action Performance group owns class B common stock
representing more than 50% of the voting power of our outstanding voting
stock, the holders of class B common stock, voting separately as a single
class, will be entitled to elect the smallest number of directors that
will constitute a majority of our board of directors. Subject to the
rights of the holders of any preferred stock to elect directors, the
holders of our class A common stock, voting as a separate class, will be
entitled to elect the remaining directors.
- For so long as the Action Performance group owns class B common stock
representing 10% or more but not more than 50% of the voting power of our
outstanding voting stock, the holders of class B common stock, voting
separately as a single class, will be entitled to elect a proportionate
number of directors equal to the Action Performance group's then-existing
percentage of voting stock (or the nearest percentage, rounded up, as is
reasonably practicable). Subject to the rights of the holders of any
preferred stock to elect directors, the holders of our class A common
stock, voting as a separate class, will be entitled to elect the
remaining directors.
The "Action Performance group" means Action Performance and any person or
entity that controls, is controlled by, or is under common control with Action
Performance.
When electing directors, those candidates receiving the most votes of class
A common stock or class B common stock, as the case may be, even if not a
majority of the votes cast, will be elected directors. Holders
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of shares of class A common stock and class B common stock are not entitled to
cumulate their votes in the election of directors.
Except as otherwise provided by law, and after honoring any voting rights
granted to holders of any outstanding preferred stock, amendments to our
restated certificate of incorporation to increase or decrease the authorized
shares of any class of stock, must be approved by a majority of the combined
voting power of all of the class A common stock and class B common stock, voting
together as a single class. However, amendments to our restated certificate of
incorporation that would alter the powers, preferences or special rights of
either the class A common stock or class B common stock so as to affect them
adversely also must be approved by a majority of the votes entitled to be cast
by the holders of the shares affected by the amendment, voting as a separate
class.
Dividends and Stock Splits. Holders of class A common stock and class B
common stock will share equally on a per-share basis in any dividend declared by
the board of directors, after honoring any preferential rights of outstanding
preferred stock. If we pay a stock dividend in shares of common stock, holders
of class A common stock will only receive shares of class A common stock and
holders of class B common stock will only receive shares of class B common
stock. We may not subdivide or combine shares of either class A common stock or
class B common stock without at the same time proportionally subdividing or
combining shares of the other class.
Conversion. At any time prior to a tax-free spin-off of our company by
Action Performance, a member of the Action Performance group may, at its option,
convert each share of class B common stock that it holds into one share of class
A common stock. If, prior to a tax-free distribution, a member of the Action
Performance group transfers shares of class B common stock to a person that is
not a member of the Action Performance group, the transferred shares will
automatically be converted into class A common stock on a one-for-one basis at
the time of the transfer.
Shares of class B common stock distributed by Action Performance to its
stockholders in a transfer intended to be a tax-free distribution will not be
converted into shares of class A common stock upon the occurrence of a tax-free
distribution. Following a tax-free distribution, shares of class B common stock
will no longer be convertible into shares of class A common stock and generally
will be transferable as class B common stock to the extent allowed under
applicable laws. We believe that Action Performance has no current plans with
respect to a tax-free distribution of goracing.com.
Other Rights. In the event of any merger or consolidation of goracing.com
with or into another company in which shares of our common stock are converted
into or exchangeable for shares of stock, other securities or property,
including cash, of the other company, all holders of class A common stock and
class B common stock will be entitled to receive the same kind and amount of
interest in the other company. On liquidation, dissolution, or winding-up of
goracing.com, all holders of class A common stock and class B common stock will
be entitled to share ratably in any of our assets available for distribution to
holders of shares of common stock, after payment in full of the amounts required
to be paid to creditors and holders of our preferred stock, if any.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of 10,000,000 shares of preferred stock in one or
more series. The board also is able to fix or alter the designations,
preferences, rights, and any qualifications, limitations, or restrictions of the
shares of each series of preferred stock, including the following:
- dividend rates,
- redemption rights and prices,
- conversion rights and prices,
- voting rights and preferences, and
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- preferences on liquidation or dissolution of our company.
There are no shares of preferred stock outstanding. We have no present
plans to issue any shares of preferred stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW
Upon completion of this offering, we will be subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, this statute
prohibits a publicly held Delaware corporation from engaging, under certain
circumstances, in a "business combination" with an "interested stockholder" (as
these terms are described below) for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
- the transaction in which such stockholder became an interested
stockholder is approved by the board of directors prior to the date the
interested stockholder attained that status;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers; or
- on or subsequent to such time the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
"Business combinations" include mergers, asset sales, and other transactions
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with his, her, or its
affiliates and associates, owns, or within the prior three years did own, 15% or
more of the corporation's voting stock. The restrictions in this statute would
not apply to a "business combination" with Action Performance or any of its
subsidiaries, but they could prohibit or delay the accomplishment of mergers or
other takeover or change-in-control attempts with respect to goracing.com and
could therefore discourage attempts to acquire goracing.com.
ANTI-TAKEOVER EFFECTS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
Various provisions in our restated certificate of incorporation and bylaws
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider to be in his or her best interest, including those
attempts that might result in a premium over the market price for the class A
common stock.
Corporate Governance and Rights of Stockholders
Our restated certificate of incorporation and bylaws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
These provisions include the following:
- Our board of directors will have the authority to increase the size of
the board of directors and to fill vacancies on the board. If a vacancy
occurs among the directors elected by the holders of class A common
stock, the remaining class A directors (or the holders of class A common
stock, if there are no remaining class A directors) will elect a
successor to fill the vacancy. Likewise if a vacancy occurs among the
directors elected by the holders of class B common stock, the remaining
class B directors (or the holders of class B common stock, if there are
no remaining class B directors) will elect a successor to fill the
vacancy.
- For so long as the Action Performance group holds stock representing 80%
or more of the voting power and equity of our company, a director can be
removed from office, with or without cause, only by the affirmative vote
of a majority of the votes entitled to be cast by all shares of class A
common stock and class B common stock, voting together as a single class.
When the Action Performance group no longer holds stock representing 80%
or more of our voting power and equity, for so long as class B common
stock representing at least 10% of our voting power remains outstanding,
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- class A directors may be removed only for cause and only by the
affirmative vote of at least 66 2/3% of the class A common stock,
voting together as a single class, and
- class B directors may be removed only for cause and only by the
affirmative vote of at least 66 2/3% of the class B common stock,
voting together as a single class, and
- Except for changes to our corporate name and matters related to our
capital structure and except as required by law, amendments to our
restated certificate of incorporation must be approved by a majority of
our directors and by the affirmative vote of at least 66 2/3% of all
shares of stock entitled to vote, voting together as a single class.
Furthermore, for so long as the Action Performance group owns shares
representing at least 10% of our voting stock, any of the following will
require approval either (a) by the holders of a majority of the
outstanding shares of class B common stock, if any remains outstanding,
or (b) if no shares of class B common stock remain outstanding, then by
the holders of at least 66 2/3% of our voting stock, voting together as a
single class:
- amendments that would impose limitations on the legal rights of the
Action Performance group as a stockholder other than those imposed
under our restated certificate of incorporation, or
- amendments that would deny to the Action Performance group, as a
holder of any class of voting securities, any benefit that is made
available to holders of any class of voting securities generally or
- amendments that would alter the voting or other rights of the holders
of any class of voting securities so that such rights, or the vote
required with respect to any matter, are determined by reference to
the amount of voting securities held by the Action Performance group.
- Our restated certificate of incorporation and bylaws provide that, in
addition to any requirements of applicable law, amendments to our bylaws
may be made either (a) by our board of directors, or (b) by the
affirmative vote of the holders of at least 66 2/3% of our outstanding
voting stock, voting together as a single class.
- Our board of directors will have the authority to take into account all
factors that the board deems relevant when evaluating tender offers,
merger proposals, proposals to sell our company or all or a substantial
portion of our assets, or proposals to recapitalize, reorganize,
liquidate or dissolve our company or to declare an extraordinary
dividend. The relevant factors that our board of directors may consider
include
-- the potential impact on our employees, customers, suppliers, joint
ventures, and other constituents, and
-- the potential impact on the communities in which we operate.
Following this offering, Action Performance, as the beneficial owner of
approximately 98.2% of the voting power of our outstanding common stock, will,
on its own, be able to cause us to amend our restated certificate of
incorporation and bylaws.
Classified Board of Directors
Our board of directors will be divided into three classes of directors
serving staggered, three-year terms. As a result, approximately one-third of the
members of our board of directors will be elected each year. When coupled with
the provision of our Restated Certificate of Incorporation authorizing the board
of directors to fill vacant directorships and increase the size of the board of
directors, these provisions may prevent stockholders from removing incumbent
directors and simultaneously gaining control of the board of directors by
filling the vacancies created by such removals with their own nominees. As a
result, a classified board of directors will make it difficult for third parties
to control our company by gaining control of our board of directors.
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Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws require that timely notice in writing be provided by
stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. To be timely, a
stockholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 90 days nor more than 120 days prior
to the first anniversary of the date of our notice of annual meeting provided
with respect to the previous year's annual meeting of stockholders.
If no annual meeting of stockholders was held in the previous year or the
date of the annual meeting of stockholders has been changed to be more than 30
days earlier than or 70 days after that anniversary, notice will be timely if
received not more than 120 days prior to the meeting and not later than the
later of the close of business on
- 90 days prior to the meeting, or
- the tenth day following the date on which notice of the date of the
meeting is given to stockholders or made public, whichever first occurs.
Our bylaws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from timely
bringing matters before, or from making nominations for directors at, an annual
meeting of stockholders.
Fair Price Provisions
Our restated certificate of incorporation includes provisions that require
approval by the affirmative vote of holders of at least 66 2/3% of our
outstanding voting stock, voting together as a single class, before we can
engage in a business combination with an interested stockholder.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breaches of directors' fiduciary duty of
care. Our restated certificate of incorporation includes a provision that
eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to goracing.com or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws generally provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
- we may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our restated certificate of incorporation, our bylaws, or other
agreements; and
- we must advance expenses, as incurred, to our directors and executive
officers in defending any legal proceedings to the fullest extent
permitted by Delaware law.
Prior to the closing of this offering, we intend to obtain directors' and
officers' insurance providing indemnification for our directors, officers, and
certain employees. We believe that these indemnification provisions and
insurance are necessary to attract and retain qualified directors and executive
officers.
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The limitation of liability and indemnification provisions in our restated
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
Such provisions may also reduce the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. Furthermore, a stockholder's
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers in connection with
these indemnification provisions.
There is no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is sought. We are
unaware of any threatened litigation that may result in claims for
indemnification.
NO DUTY OF ACTION PERFORMANCE TO REFRAIN FROM COMPETING WITH US
Our restated certificate of incorporation provides that, except as we and
Action Performance may otherwise agree,
- Action Performance will have no duty to refrain from engaging in the same
or similar or lines of business of goracing.com, thereby competing with
goracing.com;
- Action Performance, its officers, directors, and employees will not be
liable to goracing.com or its stockholders for breach of any fiduciary
duty by reason of any activities of Action Performance or its officers,
directors, or employees in competition with goracing.com;
- Action Performance will have no duty to communicate or offer corporate
opportunities to goracing.com and will not be liable for breach of any
fiduciary duty as a stockholder of goracing.com in connection with
corporate opportunities;
- if a director or officer of goracing.com who is also a director or
officer of Action Performance learns of a potential transaction or matter
that may be a corporate opportunity for goracing.com or Action
Performance, that director or officer may offer the corporate opportunity
to goracing.com or Action Performance as such director or officer deems
appropriate under the circumstances; and
- a director of officer will not be liable to goracing.com or its
stockholders for breach of any fiduciary duty or duty of loyalty for
failure to act in the best interests of goracing.com if:
-- the director or officer first offers the corporate opportunity to
Action Performance; or
-- Action Performance pursues the corporate opportunity for itself or
does not communicate information regarding the corporate opportunity
to goracing.com.
These provisions of our restated certificate of incorporation eliminate rights
that might have been available to stockholders under Delaware law had such
provisions not been included in our restated certificate of incorporation. The
enforceability of these provisions under Delaware law has not, however been
established. Our intercompany agreements with Action Performance will control
our respective rights and obligations with respect to online opportunities and
sales of products that we purchase from Action Performance. See "Transactions
with Action Performance Companies, Inc."
LISTING
We have applied for listing of our class A common stock on the Nasdaq
National Market under the trading symbol "GRCN."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the class A common stock will be
American Stock Transfer & Trust, New York, New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our class A common
stock. We cannot predict the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price of our class A
common stock. Sales of substantial amounts of our class A common stock in the
public market, or the perception that sales might occur, could adversely affect
the market price of our class A common stock. Sales of substantial amounts of
class A common stock in the public market after the restrictions on resale
described below lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 6,250,000 shares
of class A common stock and 35,000,000 shares of class B common stock. All of
the 6,250,000 shares to be sold in this offering will be freely tradable without
restriction or further registration under the securities laws unless held by one
or more of our "affiliates." Under Rule 144, an "affiliate" of an issuer is a
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the issuer.
Shares of class A common stock purchased by our affiliates may be sold in the
public market only if they are registered for resale, if they are sold pursuant
to Rule 144, or if they qualify for an exemption from registration under the
securities laws.
LOCK-UP AGREEMENTS
We, Action Performance, and our respective directors and officers have
agreed, subject to certain exceptions, not to sell or otherwise dispose of any
shares of class A common stock in the public market for a period of 180 days
after the date of this prospectus, without the prior written consent of Banc of
America Securities LLC. These restrictions also apply to shares of our class B
common stock held by Action Performance. The shares could be available for
resale immediately upon the expiration of the 180-day period, subject to the
limitations of Rule 144.
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our class A common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
- 1% of the number of shares of class A common stock then outstanding,
which will equal approximately shares after the closing of
this offering, or
- the average weekly trading volume of the class A common stock on the
Nasdaq National Market during the four calendar weeks preceding the
filing of a notice of Form 144 with respect to the sale.
Sales under Rule 144 also are subject to manner-of-sale provisions, notice
requirements, and the availability of current public information about our
company. Certain persons are entitled to sell such shares without regard to any
of the volume limitations or other requirements described above if:
- such person is not an affiliate or has not been an affiliate within three
months prior to sale, and
- such person has beneficially owned the shares proposed to be sold for at
least two years.
STOCK OPTIONS
We have reserved 10,000,000 shares of class A common stock for issuance
under the 1999 Incentive Stock Plan. After this offering, we intend to register
these shares under the securities laws by filing a registration statement with
the SEC. After the effective date of such registration statement, shares issued
under the 1999 Incentive Stock Plan will be freely tradable without restriction
or further registration under the securities laws unless acquired by one or more
of our affiliates, who will be subject to the volume and other limitations of
Rule 144.
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<PAGE> 80
We have reserved shares of class A common stock for issuance upon
exercise of options that we have agreed to issue to the motorsports drivers,
team owners, and crew chiefs that have agreed to endorse the goracing network.
The options will have an exercise price per share equal to the initial public
offering price of our class A common stock. The exercise price and number of
shares of common stock issuable upon the exercise of each of the options may be
adjusted upon the occurrence of certain events, including stock splits, stock
dividends, reorganization, recapitalization, or merger.
REGISTRATION RIGHTS
Prior to the closing of this offering, we will enter into an agreement with
Action Performance providing Action Performance with specific registration
rights applicable to shares of our class B common stock held by it. See
"Transactions with Action Performance -- Intercompany Agreements -- Registration
Rights Agreement."
ADDITIONAL SHARES
We may issue additional shares of common stock to raise additional capital
or as part of any acquisition we may complete in the future. We may decide to
register such securities under the securities laws before we offer and issue
them. Registered shares generally will be freely tradable after their issuance
by persons not affiliated with us. However, sales of these shares during the
lock-up period would require the prior written consent of Banc of America
Securities LLC.
76
<PAGE> 81
UNDERWRITING
We are offering the shares of class A common stock described in this
prospectus through a number of underwriters. Banc of America Securities LLC,
William Blair & Company L.L.C., U.S. Bancorp Piper Jaffray Inc., and J.C.
Bradford & Co., are the representatives of the underwriters. We have entered
into an underwriting agreement with the representatives. Subject to the terms
and conditions of the underwriting agreement, we have agreed to sell to the
underwriters, and each of the underwriters has agreed to purchase, the number of
shares of class A common stock listed next to its name in the following table.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Banc of America Securities LLC..............................
William Blair & Company, L.L.C. ............................
U.S. Bancorp Piper Jaffray Inc..............................
J.C. Bradford & Co. ........................................
---------
Total.................................................. 6,250,000
=========
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
also may allow, and any other dealers may reallow, a concession of not more than
$ per share to some other dealers. If all the shares are not sold at the
initial public offering price, the underwriters may change the offering price
and the other selling terms. The class A common stock is offered subject to a
number of conditions, including:
- receipt and acceptance of our class A common stock by the underwriters,
and
- the right to reject orders in whole or in part.
We have granted an option to the underwriters to buy up to 937,500
additional shares of class A common stock. These additional shares would cover
sales of shares by the underwriters which exceed the number of shares specified
in the table above. The underwriters have 30 days to exercise this option. If
the underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.
goracing.com will pay the expenses associated with the exercise of the
over-allotment option.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by goracing.com. These amounts
are shown assuming no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
PAID BY GORACING.COM
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share........................................... $ $
Total............................................... $ $
</TABLE>
The expenses of the offering are estimated at $900,000 and are paid entirely by
us.
We, Action Performance, our respective officers and directors, and
substantially all holders of stock options prior to this offering have entered
into lock-up agreements with the underwriters. Under those agreements, we and
those holders of stock and options may not dispose of or hedge any class A
common stock or securities convertible into or exchangeable for shares of class
A common stock. These restrictions will be in effect for a period of 180 days
after the date of this prospectus. At any time and without notice, Banc of
America Securities LLC may, in its sole discretion, release all or some of the
securities from these lock-up agreements.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be required
to make in respect of those liabilities.
77
<PAGE> 82
In connection with this offering, the underwriters may purchase and sell
shares of class A common stock in the open market, and engage in the following
activities in accordance with applicable securities rules:
- over-allotment,
- short sales,
- stabilizing transactions,
- purchases to cover positions created by short sales,
- syndicate covering transactions, and
- imposition of penalty bids.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the class A common stock while this
offering is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
As a result of these activities, the price of the class A common stock may
be higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of class A common stock offered by this
prospectus.
Prior to this offering, there has been no public market for our class A
common stock. The initial public offering price will be negotiated between us
and the underwriters. The primary factors to be considered in such negotiations
are:
- our history and prospects, and the history and prospectus of the industry
in which we compete,
- our past and present financial performance,
- an assessment of our management,
- the present state of our development,
- our prospects for future earnings,
- market valuations of publicly traded companies that we and the
representatives believe to be comparable to us, and
- the prevailing market conditions of the applicable U.S. securities market
at the time of this offering.
At our request, the underwriters have reserved up to 5% of the class A
common stock offered hereby for sale to our employees, directors, officers,
business associates, and strategic partners at the initial public offering price
set forth on the cover page of this prospectus. Such persons must commit to
purchase no later than the close of business on the day following the date of
this prospectus. The number of shares available for sale to the general public
will be reduced to the extent such persons purchase these reserved shares.
Shares purchased by any of our employees, officers, directors or major
stockholders will be subject to a 180-day lockup.
78
<PAGE> 83
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
goracing.com, inc. by Greenberg Traurig, P.A., Phoenix, Arizona. Selected legal
matters in connection with this offering will be passed upon for the
underwriters by Pillsbury Madison & Sutro LLP, Palo Alto, California.
EXPERTS
The audited financial statements included in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed a registration statement on Form S-1 with the Securities and
Exchange Commission relating to the class A common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance we refer
you to the copy of such contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference. For further information with respect to goracing.com, inc. and
the class A common stock offered by this prospectus, we refer you to the
registration statement, exhibits, and schedules.
Anyone may inspect a copy of the registration statement without charge at
the public reference facilities maintained by the Securities Exchange and
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; the
Chicago Regional Office, Suite 1400, 500 West Madison Street, Citicorp Center,
Chicago, Illinois 60661; and the New York Regional Office, Suite 1300, 7 World
Trade Center, New York, New York 10048. Copies of all or any part of the
registration statement may be obtained from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the prescribed fees. The public may obtain information on
the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The registration statement is also
available through the Securities and Exchange Commission's Web site at the
following address: http://www.sec.gov.
This prospectus includes statistical data regarding Internet usage and
growth of the motorsports industry that were obtained from industry
publications, including reports generated by International Data Corporation,
Forrester Research, Inc., IEG, NASCAR, and ESPN CHILTON. These industry
publications generally obtain information from sources believed to be reliable.
We have not sought the consent of any of these organizations to refer to their
reports in this prospectus.
79
<PAGE> 84
GORACING.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION TO FINANCIAL STATEMENTS........................ F-2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Unaudited Pro Forma Condensed Consolidated Balance
Sheet.................................................. F-5
Unaudited Pro Forma Condensed Consolidated Statements of
Operations............................................. F-6
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements................................... F-8
COMBINED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................. F-9
Combined Balance Sheets................................... F-10
Combined Statements of Operations......................... F-11
Combined Statements of Equity............................. F-12
Combined Statements of Cash Flows......................... F-13
Notes to Combined Financial Statements.................... F-14
</TABLE>
F-1
<PAGE> 85
goracing.com, inc.
INTRODUCTION TO FINANCIAL STATEMENTS
goracing.com, inc., a Delaware corporation incorporated on May 5, 1999, is
a wholly-owned subsidiary of Action Performance Companies, Inc. (the "Parent").
The combined financial statements of goracing.com, inc., include the historical
operating results of goracing Interactive Services, Inc. (formerly Action
Interactive, Inc.), goracing Direct Sales, LLC (formerly Action Direct
Marketing, LLC), and Racing Collectables Club of America, Inc. (formerly Action
Racing Collectables Club of America, Inc.), each of which was either a
wholly-owned subsidiary or operating division of the Parent. The entities and
divisions described above, including goracing.com, inc., are hereinafter
collectively referred to as the "Company" unless specifically referred to
otherwise.
GORACING INTERACTIVE SERVICES, INC.
goracing Interactive Services, Inc. ("goracing Interactive") was formed in
October 1998, for the purpose of merging with Tech 2000 Worldwide, Inc. ("Tech
2000"), a privately-held Internet company that provides motorsports and
automotive-related content through its Web site at http://www.goracing.com.
Under the terms of the merger agreement, the Parent issued 137,923 shares of its
common stock in exchange for all of the issued and outstanding common stock of
Tech 2000, and Tech 2000 was merged into goracing Interactive. The transaction
was consummated on November 23, 1998 and was accounted for as a
pooling-of-interests. Accordingly, the financial statements of goracing
Interactive include the historical operating results and financial position of
Tech 2000.
RACING COLLECTABLES CLUB OF AMERICA, INC.
Racing Collectables Club of America, Inc. ("RCCA") was formed on June 1,
1998, as a wholly-owned subsidiary of the Parent that operates the Racing
Collectables Club of America (the "Club"). At that time, specific assets and
liabilities, including inventory of $8.6 million, fixed assets of $676,000 and
liabilities of $1.2 million were transferred to RCCA by the Parent at historical
cost basis. Prior to that date, the Club operated as a division of the Parent.
The Club markets die-cast scaled replica vehicles and other licensed motorsports
merchandise exclusively to its member base of approximately 166,000 members as
of June 30, 1999. The Club also operates fan clubs for several popular race car
drivers and for the National Association for Stock Car Auto Racing ("NASCAR"),
with a combined member base of approximately 80,000 members as of June 30, 1999.
Club members are notified of new product offerings through a monthly publication
and through advertisements on the http://www.goracing.com Web site.
Historically, orders have been received via telephone by a live agent or through
an interactive voice response system. Beginning February 1999, with the launch
of the Company's e-commerce solution, SpeedMall at http://www.goracing.com, Club
members also began placing orders online through the Company's Web site. For
financial reporting purposes, the Club has been treated as an operating division
of the Parent prior to its formation as a subsidiary of the Parent through the
creation of RCCA. As such, specific assets and liabilities of the Club are not
included in the September 30, 1997 historical balance sheet, as the Club did not
have specific title to assets nor was it specifically obligated for liabilities
prior to its existence as a subsidiary on June 1, 1998.
GORACING DIRECT SALES, LLC
goracing Direct Sales, LLC ("gDS"), was formed on December 31, 1998 to
serve as the Internet distribution arm for all of the Parent's operating
subsidiaries and divisions, other than RCCA. gDS began operations in February
1999, when the Company commenced its e-commerce solution at
http://www.goracing.com. gDS's products consist of licensed motorsports
merchandise, including die-cast scaled replica vehicles, hats, t-shirts,
jackets, souvenirs, and related products. The accompanying combined financial
statements include the historical operations and financial position of gDS since
its inception.
F-2
<PAGE> 86
PRESENTATION OF HISTORICAL COMBINED FINANCIAL STATEMENTS
The accompanying historical combined financial statements include expenses,
which have been allocated to the Company by the Parent on a specific
identification basis, plus its allocated portion of the costs associated with
resources it shares with the Parent. Allocations from the Parent for such shared
resources have been made primarily on a proportional cost method based on a
number of factors, including headcount, square footage, related revenue, and CPU
usage. In addition, all of the products sold by the Company were purchased from
or through the Parent or one of its subsidiaries or operating divisions at an
amount equal to the Parent's costs plus the costs associated with such
purchases, including freight, handling, and tooling depreciation. The Company
also bore the expenses associated with third-party royalties related to the
licensed motorsports merchandise that it sold. Therefore, the historical
combined financial statements of the Company do not necessarily reflect the
results of operations or the financial position that would have existed had the
Company been an independent company.
RECAPITALIZATION OF goracing.com, inc.
On July 2, 1999, the Company amended its certificate of incorporation such
that the authorized capital stock consists of 100 million shares of Class A
Common Stock, par value $.0001 per share, 100 million shares of Class B Common
Stock, par value $.0001 per share, and 10 million shares of Serial Preferred
Stock, par value $.0001 per share. In connection therewith, all of the
previously issued and outstanding capital stock of the Company was exchanged for
35 million shares of Class B Common Stock. There are currently no shares of
Serial Preferred Stock or Class A Common Stock issued or outstanding.
INITIAL PUBLIC OFFERING AND REORGANIZATION
The Company has filed a registration statement with the Securities and
Exchange Commission for the proposed initial public offering ("IPO") of its
Class A Common Stock. In connection therewith, the Parent contributed to the
Company, on July 1, 1999, all of its interest in goracing Interactive, RCCA, and
gDS, and converted $6.2 million of intercompany payables to capital of the
Company. The Parent also intends to convert an additional $2.7 million to
capital of the Company upon completion of the Company's IPO. In addition, the
Company and the Parent intend to enter into a number of intercompany agreements,
as more fully described below, that more closely reflect an arms-length
relationship between the Company and the Parent.
MASTER INTERCOMPANY AGREEMENT AND DISTRIBUTOR AGREEMENTS
The Master Intercompany Agreement and Distributor Agreements establish
general guidelines by which the Company and the Parent will conduct business in
the future, including inventory pricing, exclusivity, non-competition, purchase
order requirements, rights of return, and other general provisions. Under the
terms of the agreements, the Company will purchase products from the Parent at
the Parent's established wholesale selling price plus a markup of 20% to 30%
depending upon the type of product sold and the third-party royalty obligation
of the Parent for such products. All royalties for products purchased by the
Company will be paid by the Parent. The agreements also establish the Company as
the exclusive Internet distributor of the Parent, subject only to contractual
obligations of the Parent with respect to, or certain rights retained by,
certain distributors, third-party licensors, suppliers, and NASCAR.
INTERCOMPANY SERVICES AGREEMENT
Under the terms of the Intercompany Services Agreement, the Parent will
continue to provide substantially all of the services it currently provides to
the Company at 104% of its costs. These services include warehousing,
fulfillment, marketing, art and graphics, information technology, human
resources,
F-3
<PAGE> 87
accounting, and other administrative services. The costs for such services will
be determined based on a specific identification basis plus the Company's
allocated portion of the costs associated with resources it shares with the
Parent. Allocations from the Parent for such shared resources will be made
primarily on a proportional cost method based on a number of factors, including
headcount, square footage, related revenues, and CPU usage.
TAX ALLOCATION AGREEMENT
Following the IPO, the Company will be part of the Parent's combined group
for federal and state income tax reporting purposes. Until such time that the
Company no longer belongs to the Parent's taxpayer group, the Tax Allocation
Agreement generally provides that the Company will pay its proportionate share
of the Parent's tax liability computed as if the Company were filing a separate
return. However, any tax benefits attributable to the Company will be used by
the Parent to the extent the Company is unable to use such benefits at that
time. The Parent will be required to establish a liability in favor of the
Company to the extent it uses the Company's tax benefits.
TALENT AGREEMENT
The Talent Agreement generally provides that the Parent will use its best
efforts in securing and maintaining, on behalf of the Company, agreements with
racing celebrities, teams, crew chiefs, and motorsports personalities or
organizations for endorsements as well as internet and other interactive
electronic ventures. All costs associated with such efforts, including licensing
fees, signing bonuses, appearance fees, and administrative services, will be
paid by the Company. The agreement prevents the Company from directly entering
into the endorsement agreements without using the Parent as its agent, except
that the Company can enter into an agreement with a particular individual or
organization if the Parent is unwilling or unable to do so.
PRO FORMA FINANCIAL STATEMENTS
Historically, all transactions between the Company and the Parent were
effectuated without taking into consideration a profit motive, which is more
typical in arms-length transactions. Had the agreements described above been in
effect during the historical periods presented in the financial statements, the
operating results would have been materially different from those presented. The
unaudited condensed consolidated pro forma financial statements (the "Pro Forma
Statements") reflect (i) the provisions of the various intercompany agreements
as if those agreements were in place from the earliest period presented; (ii)
the contribution by the Parent to the Company of its interest in goracing
Interactive, RCCA, and gDS as of June 30, 1999; (iii) the conversion of a
portion of the intercompany payables to capital of the Company; and (iv) the
recapitalization of goracing.com as of June 30, 1999.
The Pro Forma Statements are derived from the historical financial
statements of the Company. Therefore, the Pro Forma Statements, including the
notes thereto, are qualified in their entirety by reference to and should be
read in conjunction with, the audited combined financial statements of
goracing.com, including the notes thereto, which are included elsewhere in this
prospectus.
F-4
<PAGE> 88
goracing.com, inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 12 $ -- $ 12
Accounts receivable, net............................... 340 -- 340
Inventory.............................................. 8,699 -- 8,699
Prepaid expenses and other............................. 68 -- 68
------- ------- -------
Total current assets........................... 9,119 -- 9,119
PROPERTY AND EQUIPMENT, net.............................. 1,489 -- 1,489
OTHER ASSETS............................................. 320 -- 320
------- ------- -------
Total assets................................... $10,928 $ -- $10,928
======= ======= =======
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable, deferred revenue, accrued expenses
and other........................................... $ 1,109 $ -- $ 1,109
Due to Action Performance Companies, Inc., net......... 12,905 (8,905)(a) 4,000
------- ------- -------
Total current liabilities...................... 14,014 (8,905) 5,109
------- ------- -------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Serial preferred stock $.0001 par value, 10,000,000
shares authorized, no shares issued or outstanding
on a historical or pro forma basis.................. -- --(b) --
Class A common stock, $.0001 par value, 100,000,000
shares authorized, no shares issued or outstanding
on a historical or pro forma basis.................. -- --(b) --
Class B common stock, $.0001 par value, 100,000,000
shares authorized, 35,000,000 shares issued and
outstanding on a pro forma basis, no shares issued
or outstanding on a historical basis................ -- 4(b) 4
goracing Interactive Services, Inc. common stock, $.01
par value, 4,000 shares authorized, 1,000 shares
issued and outstanding on a historical and a pro
forma basis......................................... -- --(b) --
goracing Direct Sales, LLC membership interest on a
historical and a pro forma basis.................... 1 (1)(b) --
Racing Collectables Club of America, Inc. common stock,
$.01 par value, 4,000 shares authorized, 1,000
shares issued and outstanding on a historical and a
pro forma basis..................................... -- --(b) --
Additional paid-in capital............................. 2 8,902(c) 8,904
Accumulated deficit.................................... (3,089) -- (3,089)
------- ------- -------
Total equity (deficit)......................... (3,086) 8,905 5,819
------- ------- -------
Total liabilities and equity................... $10,928 $ -- $10,928
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this
unaudited pro forma condensed consolidated balance sheet.
F-5
<PAGE> 89
GORACING.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Net product sales.................................. $34,340 $ -- $34,340
Advertising and other.............................. 1,077 -- 1,077
------- ------- -------
Total revenue.............................. 35,417 -- 35,417
Cost of product sales................................ 16,849 7,189(d) 24,038
------- ------- -------
Gross profit............................... 18,568 (7,189) 11,379
Operating expenses................................... 14,872 (497)(e) 14,375
------- ------- -------
Income (loss) before income taxes.......... 3,696 (6,692) (2,996)
Provision for (benefit from) income taxes............ 1,581 (2,779)(f) (1,198)
------- ------- -------
Net income (loss).......................... $ 2,115 $(3,913) $(1,798)
======= ======= =======
Basic and diluted net loss per share................. $ (0.05)
=======
Basic and diluted weighted average shares
outstanding........................................ 35,000(g)
=======
</TABLE>
The accompanying notes are an integral part of this
unaudited pro forma condensed consolidated financial statement.
F-6
<PAGE> 90
GORACING.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Net product sales...................................... $37,277 $ -- $37,277
Advertising and other.................................. 1,389 -- 1,389
------- -------- -------
Total revenue.................................. 38,666 -- 38,666
Cost of product sales.................................... 18,548 7,555(d) 26,103
------- -------- -------
Gross profit................................... 20,118 (7,555) 12,563
Operating expenses....................................... 13,581 (766)(e) 12,815
------- -------- -------
Income (loss) before income taxes.............. 6,537 (6,789) (252)
Provision for (benefit from) income taxes................ 2,800 (2,901)(f) (101)
------- -------- -------
Net income (loss).............................. $ 3,737 $ (3,888) $ (151)
======= ======== =======
Basic and diluted net income (loss) per share............ $ 0.00
=======
Basic and diluted weighted average shares outstanding.... 35,000(g)
=======
</TABLE>
The accompanying notes are an integral part of this
unaudited pro forma condensed consolidated financial statement.
F-7
<PAGE> 91
GORACING.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
For additional information regarding the nature, timing, substance, and
terms of the events and transactions to which the pro forma financial statements
relate, please see "Introduction to Financial Statements".
BALANCE SHEET
(a) Reflects the Parent's contribution of (i) $6.2 million of intercompany
payables to equity of the Company on July 1, 1999; and (ii) an additional
contribution of $2.7 million Action Performance intends to make upon completion
of this offering.
(b) Reflects the recapitalization of goracing.com on July 2, 1999 such that
the authorized capital stock consists of 100 million shares of Class A common
stock, par value $.0001 per share, 100 million shares of Class B common stock,
par value $.0001 per share, and 10 million shares of serial preferred stock, par
value $.0001 per share. In connection therewith, all of the issued and
outstanding capital stock was exchanged for 35 million shares of Class B common
stock. These pro forma adjustments also reflect the Parent's contribution of all
of its interest in goracing Interactive, RCCA, and gDS to the Company and the
consolidation of these entities into goracing.com.
(c) Reflects the net contribution to capital from the transactions
described above.
STATEMENTS OF OPERATIONS
(d) Reflects the provisions of the intercompany Distributor Agreements
whereby the Company will purchase products from the Parent at the Parent's
established wholesale selling price plus a markup of 20% to 30% depending upon
the type of product sold and the third-party royalty obligation of the Parent
for such products.
(e) Reflects the provisions of the intercompany Services Agreement as
follows:
(1) elimination of goodwill amortization, marketing, and indirect
product design and development costs, as these costs will be included as a
component of the price of the product purchased from the Parent pursuant to
the intercompany Distributor Agreements discussed in (d) above. Those costs
totaled $1,188,000 and $1,034,000 for the fiscal year ended September 30,
1998 and for the nine-month period ended June 30, 1999, respectively; and
(2) a markup of 4% on the cost of services provided to the Company by
the Parent. These amounts totaled $422,000 and $537,000 for the fiscal year
ended September 30, 1998 and for the nine-month period ended June 30, 1999,
respectively.
(f) Reflects the recognition of income tax expense (benefit) in accordance
with the intercompany Tax Sharing Agreement. The Company's effective income tax
rate is estimated to be approximately 40%.
(g) We did not exist as a separate company during the historical periods
presented. Therefore, no earnings per share data is presented for the historical
periods. We computed earnings per share on a pro forma basis based on the shares
outstanding following our recapitalization on July 2, 1999, as if such shares
were outstanding from the beginning of the periods presented.
F-8
<PAGE> 92
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To goracing.com, inc.:
We have audited the accompanying combined balance sheets of goracing.com,
inc. (a Delaware Corporation and a wholly owned subsidiary of Action Performance
Companies, Inc. incorporated in May 1999) and the subsidiaries and divisions
identified in Note 1 (collectively, the Company) as of June 30, 1999 and
September 30, 1998, and the related combined statements of operations, equity
and cash flows for the nine months ended June 30, 1999 and the years ended
September 30, 1998 and 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these 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 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1999 and September 30, 1998, and the results of its operations and its cash
flows for the nine months ended June 30, 1999 and the years ended September 30,
1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
September 2, 1999.
F-9
<PAGE> 93
GORACING.COM, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
------------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1 $ 12
Accounts receivable, net of allowance for doubtful
accounts of $76 and $75, respectively.................. 153 340
Inventory................................................. 8,954 8,699
Prepaid expenses and other................................ 1 68
------ -------
Total current assets.............................. 9,109 9,119
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$374 and $484, respectively............................... 720 1,489
OTHER ASSETS................................................ -- 320
------ -------
Total assets...................................... $9,829 $10,928
====== =======
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and deferred revenue... $1,448 $ 1,109
Notes payable............................................. 750 --
Due to Action Performance Companies, Inc., net............ 8,548 12,905
------ -------
Total current liabilities......................... 10,746 14,014
------ -------
COMMITMENTS AND CONTINGENCIES
EQUITY:
goracing Interactive Services, Inc. common stock, $.01 par
value, 4,000 shares authorized, 1,000 issued and
outstanding............................................ -- --
goracing Direct Sales, LLC membership interest............ -- 1
Racing Collectables Club of America, Inc. common stock,
$.01 par value, 4,000 shares authorized, 1,000 issued
and outstanding........................................ -- --
Additional paid-in capital................................ 2 2
Accumulated deficit....................................... (919) (3,089)
------ -------
Total equity (deficit)............................ (917) (3,086)
------ -------
Total liabilities and equity...................... $9,829 $10,928
====== =======
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-10
<PAGE> 94
GORACING.COM, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
------------------ -----------
1997 1998 1999
------- ------- -----------
<S> <C> <C> <C>
Revenue:
Net product sales......................................... $21,659 $37,277 $34,340
Advertising and other..................................... 1,289 1,389 1,077
------- ------- -------
Total revenue..................................... 22,948 38,666 35,417
Cost of product sales....................................... 10,240 18,548 16,849
------- ------- -------
Gross profit...................................... 12,708 20,118 18,568
Selling, general and administrative expenses................ 8,581 13,581 14,872
------- ------- -------
Income before income taxes.................................. 4,127 6,537 3,696
Provision for income taxes.................................. 1,660 2,800 1,581
------- ------- -------
Net income........................................ $ 2,467 $ 3,737 $ 2,115
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-11
<PAGE> 95
GORACING.COM, INC.
COMBINED STATEMENTS OF EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
GORACING RACING COLLECTIBLES
INTERACTIVE CLUB OF AMERICA,
SERVICES, INC. GDS, LLC INC. ADDITIONAL COMBINED COMBINED
------------------ MEMBERSHIP -------------------- PAID-IN ACCUMULATED EQUITY
SHARES PAR VALUE INTEREST SHARES PAR VALUE CAPITAL DEFICIT (DEFICIT)
------ --------- ---------- ------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1996..................... 1,000 -- -- -- -- 1 (452) (451)
Net income (loss)........ -- -- -- -- -- 2,480 (13) 2,467
Transfer of operating
division profit to
Parent................. -- -- -- -- -- (2,480) -- (2,480)
----- -- --- ----- -- ------- ------- -------
Balance, September 30,
1997..................... 1,000 -- -- -- -- 1 (465) (464)
Formation of RCCA on June
1, 1998................ -- -- -- 1,000 -- 1 -- 1
Net income............... -- -- -- -- -- 880 2,857 3,737
Transfer of operating
division profit to
Parent................. -- -- -- -- -- (880) -- (880)
Transfer of subsidiary
profit to Parent....... -- -- -- -- -- -- (3,311) (3,311)
----- -- --- ----- -- ------- ------- -------
Balance, September 30,
1998..................... 1,000 -- -- 1,000 -- 2 (919) (917)
Formation of gDS on
December 31, 1998...... -- -- 1 -- -- -- -- 1
Net income .............. -- -- -- -- -- -- 2,115 2,115
Transfer of subsidiary
profit to
Parent ................ -- -- -- -- -- -- (4,285) (4,285)
----- -- --- ----- -- ------- ------- -------
Balance, June 30, 1999..... 1,000 $-- $ 1 1,000 $-- $ 2 $(3,089) $(3,086)
===== == === ===== == ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-12
<PAGE> 96
GORACING.COM, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
FOR THE YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
------------------ -----------
1997 1998 1999
------- ------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,467 $ 3,737 $ 2,115
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization............................. 42 112 110
Change in assets and liabilities:
Accounts receivable, net............................... (53) (10) (187)
Inventory.............................................. -- (376) 255
Other assets........................................... -- -- (67)
Accounts payable, accrued expenses and deferred
revenue.............................................. 72 37 (339)
------- ------- -------
Net cash provided by operating activities............ 2,528 3,500 1,887
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net................... (16) -- (878)
Investment in license agreements.......................... -- -- (320)
------- ------- -------
Net cash used in investing activities................ (16) -- (1,198)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable................... -- 150 --
Payments on notes payable................................. (18) -- (600)
Transfer of operating division profit to Parent........... (2,480) (880) --
Transfer of subsidiary profit to Parent................... -- (3,311) (4,285)
Borrowings from Parent, net............................... -- 525 4,207
------- ------- -------
Net cash used in financing activities................ (2,498) (3,516) (678)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 14 (16) 11
CASH AND CASH EQUIVALENTS, beginning of period.............. 3 17 1
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 17 $ 1 $ 12
======= ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In June 1998, in conjunction with the formation of RCCA (see Note 1),
assets and liabilities, including inventory of $8.6 million, fixed assets of
$676,000 and liabilities of $1.2 million were transferred to the Company by the
Parent.
The accompanying notes are an integral part of these combined financial
statements.
F-13
<PAGE> 97
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) THE BUSINESS:
goracing.com, inc., a Delaware corporation incorporated on May 5, 1999, is
a wholly-owned subsidiary of Action Performance Companies, Inc. (the "Parent").
The combined financial statements of goracing.com, inc., include the historical
operating results of goracing Interactive Services, Inc. (formerly Action
Interactive, Inc.), goracing Direct Sales, LLC (formerly Action Direct
Marketing, LLC), Racing Collectables Club of America, Inc. (formerly Action
Racing Collectables Club of America, Inc.), each of which was either a
wholly-owned subsidiary or operating division of the Parent. The entities
described above, including goracing.com, inc., are hereinafter collectively
referred to as the "Company" unless specifically referred to otherwise. The
Company has utilized the Parent's business relationships, infrastructure, and
brand names and has relied on the Parent to provide financing to fund its
operations (see Notes 2 and 3). The Company intends to file a registration
statement with the Securities and Exchange Commission for the proposed initial
public offering ("IPO") of its common stock. If the proposed IPO is not
consummated, the Company will be dependent on the continued financial support of
the Parent.
goracing Interactive Services, Inc.
goracing Interactive Services, Inc. ("goracing Interactive") was formed in
October 1998, for the purpose of merging with Tech 2000 Worldwide, Inc. ("Tech
2000"), a privately-held Internet company that provides motorsports and
automotive-related content through its Web site at http://www.goracing.com.
Under the terms of the merger agreement, the Parent issued 137,923 shares of its
common stock in exchange for all of the issued and outstanding common stock of
Tech 2000, and Tech 2000 was merged into goracing Interactive. The merger was
consummated on November 23, 1998 and was accounted for as a
pooling-of-interests. Accordingly, the financial statements of goracing
Interactive include the historical operating results and financial position of
Tech 2000.
Tech 2000 reported the following results of operations for the periods
before the combination was consummated:
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD FROM
SEPTEMBER 30, OCTOBER 1, 1998
-------------- THROUGH
1997 1998 NOVEMBER 23, 1998
----- ----- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue................................... 1,289 1,389 154
Net loss.................................. (13) (454) (255)
</TABLE>
Racing Collectables Club of America, Inc.
Racing Collectables Club of America, Inc. ("RCCA") was formed on June 1,
1998, as a wholly-owned subsidiary of the Parent that operates the Racing
Collectables Club of America (the "Club"). At that time, specific assets and
liabilities, including inventory of $8.6 million, fixed assets of $676,000 and
liabilities of $1.2 million were transferred to RCCA by the Parent at historical
cost basis. Prior to that date, the Club operated as a division of the Parent.
The Club markets die-cast scaled replica vehicles and other licensed motorsports
merchandise exclusively to its member base of approximately 166,000 members as
of June 30, 1999. The Club also operates fan clubs for several popular race car
drivers and for the National Association for Stock Car Auto Racing ("NASCAR"),
with a combined member base of approximately 80,000 members as of June 30, 1999.
Club members are notified of new product offerings through a monthly publication
and through advertisements on the http://www.goracing.com Web site.
Historically, orders have been received via telephone by a live agent or through
an interactive voice response system. Beginning February 1999, with the launch
of the Company's e-commerce solution at http://www.goracing.com, Club members
also began placing orders online through the Company's Web site. For financial
reporting purposes, the Club has been treated as an operating division of the
Parent prior to its formation as a subsidiary of the Parent through the creation
of
F-14
<PAGE> 98
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
RCCA. Accordingly, specific assets and liabilities of the Club are not included
in the Company's combined balance sheet prior to June 1, 1998, as the Club did
not have specific title to assets nor was it specifically obligated for
liabilities prior to its existence as a subsidiary on June 1, 1998.
goracing Direct Sales, LLC
goracing Direct Sales, LLC ("gDS"), was formed on December 31, 1998 to
serve as the Internet distribution arm for all of the Parent's operating
subsidiaries and divisions other than RCCA. gDS began operations in February
1999, when the Company commenced its e-commerce solution at
http://www.goracing.com. gDS's products consist of licensed motorsports
merchandise, including die-cast scaled replica vehicles, hats, t-shirts,
jackets, souvenirs, and related products.
Reorganization
In connection with the proposed IPO, the Parent contributed to the Company
on July 1, 1999, all of its interest in goracing Interactive, RCCA, and gDS, and
converted $6.2 million of intercompany indebtedness owed to the Parent to
capital of the Company.
Seasonality
The Company is subject to seasonal fluctuations in its product sales and
results of operations. Because the auto racing season is concentrated between
the months of February and November, the Company's results of operations during
the second and third calendar quarters generally are characterized by higher
sales of motorsports products. Seasonal fluctuations in quarterly sales may
require the Company to take temporary measures, including changes in its
personnel levels and marketing activities that could result in unfavorable
quarterly earnings comparisons.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying combined financial statements of the Company include the
historical operating results of goracing Interactive (as restated for the
acquisition of Tech 2000, which was accounted for as a pooling-of-interests) and
the Club for all periods presented. The combined financial statements also
include the operations of gDS and RCCA since their inception dates. The
operating results attributable to the Club have been recorded as Additional Paid
in Capital in the accompanying Combined Statements of Equity as these results
were derived from an operating division as opposed to a subsidiary of the
Company. The operating results attributable to goracing Interactive, gDS and
RCCA have been recorded as additions or reductions to Combined Accumulated
Deficit in the accompanying Combined Statements of Equity as these results were
derived from subsidiaries of the Company.
F-15
<PAGE> 99
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Additional Paid in Capital and Combined Accumulated Deficit balances in the
accompanying financial statements consist of the following:
<TABLE>
<CAPTION>
ADDITIONAL PAID-IN CAPITAL ACCUMULATED DEFICIT
--------------------------------- -------------------------------------------------
RACING RACING
GORACING COLLECTABLES GORACING GORACING COLLECTABLES
INTERACTIVE CLUB OF AMERICA, INTERACTIVE DIRECT SALES, CLUB OF AMERICA,
SERVICES, INC. INC. SERVICES, INC. LLC INC.
-------------- ---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1996.............. 1 -- (452) -- --
Net income (loss)...................... -- 2,480 (13)
Transfer of operating division profit
to Parent............................ -- (2,480) -- -- --
------- ------- ------- ------- -------
Balance, September 30, 1997.............. 1 -- (465) -- --
Formation of RCCA on June 1, 1998...... -- 1 -- -- --
Net income (loss)...................... -- 880 (454) -- 3,311
Transfer of operating division profit
to Parent............................ -- (880) -- -- --
Transfer of subsidiary profit to
parent................................. -- -- -- -- (3,311)
------- ------- ------- ------- -------
Balance, September 30, 1998.............. 1 1 (919) -- --
Formation of gDS on December 31,
1998................................. -- -- -- -- --
Net income (loss)...................... -- -- (2,175) 5 4,285
Transfer of subsidiary profit to
parent................................. -- -- -- -- (4,285)
------- ------- ------- ------- -------
Balance, June 30, 1999................... $ 1 $ 1 ($3,094) $ 5 $ --
======= ======= ======= ======= =======
</TABLE>
The combined financial statements include expenses, which have been
allocated to the Company by the Parent on a specific identification basis, plus
its allocated portion of the costs associated with resources it shares with the
Parent. Allocations from the Parent for such shared resources have been made
primarily on a proportional cost method based on a number of factors, including
headcount, square footage, related revenues, and CPU usage. Management believes
these allocations are reasonable.
The combined financial statements of the Company do not necessarily reflect
the results of operations or the financial position that would have existed had
the Company been an independent company.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less from the date of purchase to be cash equivalents. The
Company places its deposits with high-quality-credit financial institutions.
Inventory
Inventory consists entirely of finished goods and is stated at the lower of
cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment is stated at historical cost and is depreciated
using the straight-line method over five to ten years, the estimated useful
lives of the assets.
F-16
<PAGE> 100
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
------------- --------
<S> <C> <C>
Furniture, fixtures and equipment........................... $ 948 $1,831
Leasehold improvements...................................... 146 142
------ ------
1,094 1,973
Less -- accumulated depreciation............................ (374) (484)
------ ------
$ 720 $1,489
====== ======
</TABLE>
Stock-Based Compensation
The Company accounts for its stock-based employee compensation in
accordance with Accounting Principles Board Opinion ("APB") No. 25 "Accounting
for Stock Issued to Employees" and complies with the disclosure requirements of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock Based Compensation." For non-employee stock-based compensation, the
Company applies the accounting requirements of SFAS No. 123. Accordingly, the
fair value of stock-based compensation is deferred and amortized as related
services are performed generally utilizing the straight-line method over the
term of the service agreement. See Note 7.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts in the financial statements and
footnotes thereto. The accompanying combined financial statements include
significant estimates of expenses associated with the costs of resources shared
with the Parent. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial instruments, which consist principally of cash
and cash equivalents and accounts receivable, approximate their carrying value.
Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of," the Company
periodically reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized if the sum of the expected
long-term undiscounted cash flows is less than the carrying value of the
long-lived assets being evaluated. Impairment losses are measured as the amount
by which the carrying amount of the impaired asset exceeds its fair value. The
Company estimates fair values primarily by considering market prices for similar
assets. There have been no impairment losses recorded to date.
Due to Action Performance Companies, Inc.
Amounts due to the Parent represent expenses and capital expenditures of
the Company which have been funded by the Parent, net of cash collected by the
Parent from the revenue-generating activities of the Company. The amounts due to
the Parent also include assets and liabilities associated with income taxes paid
or benefits used by the Parent, as well as deferred tax assets and liabilities
as if the Company was independent of the Parent. The net advances are unsecured,
non-interest bearing and due on demand.
F-17
<PAGE> 101
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Sales of the Company's products are recognized at the time the products are
shipped to customers. Advertising revenue is recognized on a straight-line basis
over the period during which the advertising is provided. Revenue generated from
new membership fees is recognized when all significant obligations have been
met, which is upon shipment of membership kits. Revenue generated from Web
development and related services is recognized ratably as the services are
performed.
Advertising Costs
The Company expenses the cost of advertising as incurred.
Income Taxes
Historically, the Company's results have been included in the Parent's
combined federal and state income tax returns. The income tax provision in the
accompanying combined financial statements is calculated as if the Company was
independent of the Parent. Deferred tax assets and liabilities are recorded
based upon temporary differences between the financial statement carrying values
and the tax bases of the assets and liabilities. Additionally, deferred tax
assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The Company is reimbursed for any tax
benefits which the Parent receives on the Company's behalf and is liable to the
Parent for any tax liability incurred by the Company. The Parent pays all taxes
relative to the Company. Accordingly, income taxes receivable and payable and
deferred tax assets and liabilities have been included in the amounts due to the
Parent.
Earnings Per Share
goracing.com did not exist as a separate company during the periods
presented in the historical combined financial statements. Therefore, no
earnings per share data has been presented. The Company has not had any stock
issuances or grants for nominal consideration.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 requires that public companies
report certain information about operating segments in their annual financial
statements and in subsequent condensed financial statements of interim periods
issued to shareholders. This statement also requires that public companies
report certain information about their products and services, the geographic
areas in which they operate and their major customers. In management's opinion,
the adoption of the provisions of SFAS No. 131 will not have a significant
impact on the disclosures in the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended, is effective for
fiscal years beginning after June 15, 2000. SFAS No. 133 requires the Company to
recognize all derivatives on the balance sheet at fair value. The adoption of
this new standard is not expected to have a material effect on the Company's
financial position or results of operations.
(3) RELATED PARTY TRANSACTIONS:
Historically, all of the products sold by the Company were purchased from
or through the Parent or one of its subsidiaries or operating divisions at an
amount equal to the Parent's costs plus the costs associated with such
purchases, including freight, handling, and tooling depreciation. The Company
also bore the
F-18
<PAGE> 102
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
expenses associated with third-party royalties related to the licensed
motorsports merchandise that it sold. For the years ended September 30, 1997 and
1998 and for the nine-month period ended June 30, 1999, such purchases and
related costs (excluding third-party royalties) totaled $6.8 million, $12.6
million, and $11.7, respectively.
Additionally, the Company received, and was charged its proportionate share
of, various services from the Parent, including administrative, facilities,
warehousing, fulfillment, information technology, and other services. Such
charges totaled $4.8 million, $7.3 million, and $7.1 million for the years ended
September 30, 1997 and 1998 and for the nine-month period ended June 30, 1999,
respectively. Management believes all allocations for such charges are
reasonable and have been made on a consistent basis; however, they are not
necessarily indicative of, nor is it practical for management to estimate, the
level of expenses which might have been incurred had the Company operated
independent from the Parent (see Note 2).
Pursuant to note agreements dated August 1996, Tech 2000 borrowed
approximately $600,000 from a then-current shareholder. The notes bore interest
at prime plus 2% and were payable 60 days after demand. The notes, plus accrued
interest, were paid in full in conjunction with the merger with Tech 2000 in
November 1998. Prior to the merger, in September 1998, Tech 2000 also borrowed
$150,000 from the Parent. This note was converted to an intercompany payable to
the Parent upon consummation of the merger.
(4) CREDIT FACILITY:
The Company is currently a participant and a guarantor under the Parent's
$20 million bank line of credit and $30 million letter of credit facility
(collectively the "Credit Facility"). Obligations under the Credit Facility are
subject to certain conditions including the maintenance of financial ratios and
covenants by the Parent. The Credit Facility also limits the payment of
dividends by the Parent. There were no outstanding borrowings under the Parent's
Credit Facility at September 30, 1998 or June 30, 1999. The Company's
participation in the Credit Facility will be terminated concurrent with the
closing of the IPO (see Note 7).
(5) COMMITMENTS AND CONTINGENCIES:
The Company utilizes certain equipment and facilities under non-cancelable
operating leases of the Parent. As discussed in Note 3, the Company is charged
its proportionate share of expenses for facilities and equipment provided by the
Parent.
In the ordinary course of business, the Company may become a party to
pending or threatened lawsuits. In the opinion of management, upon consultation
with legal counsel, there are no currently pending or threatened lawsuits that
will have a material effect on the combined financial position or operations of
the Company.
F-19
<PAGE> 103
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
---------------- -----------
1997 1998 1999
------ ------ -----------
<S> <C> <C> <C>
Current:
Federal............................................. $1,411 $2,388 $1,344
State............................................... 249 422 237
Deferred:
Federal............................................. -- (8) --
State............................................... -- (2) --
------ ------ ------
Total....................................... $1,660 $2,800 $1,581
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance has
been established for the net deferred tax assets recorded for pre-acquisition
net operating losses incurred by Tech 2000. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
------------- --------
<S> <C> <C>
Deferred tax asset -- net operating losses.................. $ 369 $ 369
Other, net.................................................. 13 13
Valuation allowance......................................... (372) (372)
----- -----
$ 10 $ 10
===== =====
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
-------------- -----------
1997 1998 1999
----- ----- -----------
<S> <C> <C> <C>
Statutory federal income tax expense.................... 34% 34% 34%
State income tax expense, net of federal tax
provision............................................. 6 6 6
Change in valuation allowance and other................. -- 3 3
-- -- --
40% 43% 43%
== == ==
</TABLE>
(7) SUBSEQUENT EVENTS:
Lease commitments
In June 1999, the Parent entered into certain non-cancelable operating
lease agreements for the benefit of the Company. The expenses associated with
these and any future leases under similar terms, will be allocated to the
Company by the Parent at 104% of cost determined on a specific identification
basis.
In August 1999, the Company entered into an agreement with a financial
institution whereby the Company has available to it up to $7.0 million for the
purposes of acquiring capital equipment under operating leases. The Company's
commitment related to any future operating leases under this agreement is
F-20
<PAGE> 104
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
guaranteed by Action Performance. Through September 2, 1999, there have been no
operating leases executed under this agreement. Currently, there are no other
sources of third-party financing available to the Company.
Recapitalization
On July 2, 1999, the Company amended its certificate of incorporation such
that the authorized capital stock of the Company consisted of 100 million shares
of Class A Common Stock, par value $.0001 per share, 100 million shares of Class
B Common Stock, par value $.0001 per share, and 10 million shares of Serial
Preferred Stock, par value $.0001 per share. In connection therewith, all of the
previously issued and outstanding capital stock of the Company was exchanged for
35 million shares of Class B Common Stock. The Company's articles of
incorporation provide that the Company's Board of Directors may at any time in
the future establish rights and preferences under the Serial Preferred Stock.
Initial Public Offering
In the proposed IPO, the Company plans to issue shares of its Class A
Common Stock to the public while the Parent will retain ownership of all of the
issued and outstanding Class B Common Stock. Holders of Class A Common Stock
will have identical rights to the holder of the Class B Common Stock, except
with respect to voting, conversion, and transfer. The Class A Common Stock is
entitled to one vote per share while the Class B Common Stock is entitled to ten
votes per share on all matters submitted to a vote of the stockholders. The
shares of Class B Common Stock are convertible at any time at the option of the
holder into shares of Class A Common Stock on a share-for-share basis. In
addition, the shares of Class B Common Stock will be automatically converted
into a like number of shares of Class A Common Stock upon a transfer to any
person or entity other than the Parent or an affiliate of the Parent. If the
Parent distributes the Class B Common Stock to its stockholders, the shares will
no longer be convertible into Class A Common Stock and will retain their status
as Class B Common Stock.
Intercompany Agreements
In connection with the proposed IPO, the Company and the Parent will enter
into a number of intercompany agreements, as more fully described below, that
more closely reflect an arms-length relationship between the Company and the
Parent.
MASTER INTERCOMPANY AGREEMENT AND DISTRIBUTOR AGREEMENTS -- The Master
Intercompany Agreement and Distributor Agreements establish the general
guidelines by which the Company and the Parent will conduct business in the
future, including pricing, exclusivity, non-competition, purchase order
requirements, rights of return, and other general provisions. Under the
terms of the agreements, the Company will purchase products from the Parent
at the Parent's established wholesale selling price plus a markup of 20% to
30% depending upon the type of product sold and the third-party royalty
obligation of the Parent for such products. All royalties for products
purchased by the Company will be paid by the Parent. The agreements also
establish the Company as the exclusive internet distributor of the Parent,
subject only to contractual obligations of the Parent with respect to, or
certain rights retained by, certain distributors, third-party licensors,
suppliers, and NASCAR.
INTERCOMPANY SERVICES AGREEMENT -- Under the terms of the Intercompany
Services Agreement, the Parent will continue to provide substantially all
of the services it currently provides to the Company at 104% of its costs.
These services include warehousing, fulfillment, marketing, art and
graphics, information technology, human resources, accounting, and other
administrative services. The costs for such services will be determined
based on a specific identification basis plus the Company's allocated
portion of the costs associated with resources it shares with the Parent.
Allocations from the Parent for such shared resources will be made
primarily on a proportional cost method based on a number of factors
including, headcount, square footage, related revenues, and CPU usage.
TAX ALLOCATION AGREEMENT -- Immediately following the proposed IPO,
the Company will be part of the Parent's combined group for federal and
state income tax reporting purposes. Until such time that
F-21
<PAGE> 105
GORACING.COM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the Company no longer belongs to the Parent's taxpayer group, the Tax
Allocation Agreement generally provides that the Company will pay its
proportionate share of the Parent's tax liability computed as if the
Company were filing a separate return. However, any tax benefits
attributable to the Company will be used by the Parent to the extent the
Company is unable to use such benefits at that time. The Parent will be
required to establish a liability in favor of the Company to the extent it
uses the Company's tax benefits.
TALENT AGREEMENT -- The Talent Agreement generally provides that the
Parent will use its best efforts in securing and maintaining, on behalf of
the Company, agreements with racing celebrities, teams, crew chiefs, and
motorsports personalities or organizations for endorsements as well as
Internet and other interactive electronic ventures. All costs associated
with such efforts, including licensing fees, signing bonuses, appearance
fees, and administrative services will be paid by the Company. The
agreement prevents the Company from directly entering into the endorsement
agreements without using the Parent as its agent, except that the Company
can enter into an agreement with a particular individual or organization if
the Parent is unwilling or unable to do so.
Had the intercompany agreements described above been in effect from the
earliest period presented, the operating results would have been materially
different than those presented in the accompanying historical combined financial
statements.
Stock Option Compensation -- Employees and Directors
In conjunction with the proposed IPO, the Company has adopted the 1999
Stock Incentive Plan (the "Incentive Plan") for officers, employees, directors
and other persons providing services to the Company. The Incentive Plan provides
for the grant of stock options, including incentive stock options and
non-qualified stock options, stock appreciation rights and restricted stock.
Upon completion of the IPO, approximately 4,200,000 shares of Class A Common
Stock will be reserved for grant. Either the Board of Directors or the
Compensation Committee of the Board of Directors may determine the type of
award, when and to whom awards are granted, the number of shares and terms of
the awards and the exercise prices. No options have currently been granted under
the Incentive Plan. The Company intends to issue options to employees and
directors at the IPO date.
The Company applies APB No. 25 and related interpretations in accounting
for the Incentive Plan. The Company does not anticipate issuing options with
exercise prices less than fair value at the date of issuance. Accordingly, no
compensation expense will be recognized for employee and director options
granted under the plan. The estimated fair market value of options granted will
be estimated using the Black-Scholes option-pricing model with weighted average
assumptions appropriate for such grants.
Stock Option Compensation -- Celebrity and Non-Employee Options
The Board of Directors has authorized the issuance of options to purchase
common stock in conjunction with the proposed IPO to racing celebrities, teams,
and crew chiefs as compensation and inducement to enter into Internet
endorsement and service agreements between these celebrities and the Parent. The
agreements generally provide for the endorsement of the Company's Web site at
http://www.goracing.com, sponsorship rights, and a certain number of personal
appearances and live chats on the Web site. No options have currently been
granted.
The estimated fair value of the options granted will be estimated using the
Black-Scholes option-pricing model with weighted average assumptions appropriate
for the options to be granted. The fair value of the options to be granted will
be recorded in the financial statements as deferred stock option compensation
and will be amortized using the straight-line method over the term of the
service agreements, generally five years.
F-22
<PAGE> 106
[INSIDE BACK COVER]
This page will contain pictures of various motorsports
personalities who have agreed to endorse the goracing network.
<PAGE> 107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,250,000 Shares
[GORACING.COM LOGO]
------------------------
Prospectus
, 1999
------------------------
BANC OF AMERICA SECURITIES LLC
WILLIAM BLAIR & COMPANY
U.S. BANCORP PIPER JAFFRAY
J.C. BRADFORD & CO.
Until , 1999, all dealers that buy, sell or trade the common
stock may be required to deliver a prospectus, regardless of whether they are
participating in the offering. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 108
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in the Registration Statement. All such expenses are estimates except
for the SEC registration fee and NASD and Nasdaq National Market filing fees.
<TABLE>
<S> <C>
SEC registration fee........................................ $
NASD filing fee.............................................
Blue Sky fees and expenses..................................
Nasdaq National Market......................................
Transfer agent and registrar fees...........................
Accountants' fees and expenses..............................
Legal fees and expenses.....................................
Printing and engraving expenses.............................
Miscellaneous fees..........................................
----------
Total.................................................. $
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation and Bylaws of the Registrant
provide that the Registrant will indemnify and advance expenses, to the fullest
extent permitted by the Delaware General Corporation Law, to each person who is
or was a director or officer of the Registrant, or who serves or served any
other enterprise or organization at the request of the Registrant (and
"Indemnitee").
Under Delaware law, to the extent that an Indemnitee is successful on the
merits in defense of a suit or proceeding brought against him or her by reason
of the fact that he or she is or was a director, officer, or agent of the
Registrant, or serves or served any other enterprise or organization at the
request of the Registrant, the Registrant shall indemnify him or her against
expenses (including attorneys' fees) actually and reasonably incurred in
connection with such action.
If unsuccessful in defense of a third-party civil suit or a criminal suit,
or if such a suit is settled, an Indemnitee may be indemnified under Delaware
law against both (i) expenses, including attorneys' fees, and (ii) judgments,
fines, and amounts paid in settlement if he or she acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and, with respect to any criminal action, had no
reasonable cause to believe his or her conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Registrant, where the suit is settled, an Indemnitee may be indemnified under
Delaware law only against expenses (including attorneys' fees) actually and
reasonably incurred in the defense or settlement of the suit if he or she acted
in good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Registrant except that if the Indemnitee
is adjudged to be liable for negligence or misconduct in the performance of his
or her duty to the Registrant, he or she cannot be made whole even for expenses
unless a court determines that he or she is fully and reasonably entitled to
indemnification for such expenses.
Also under Delaware law, expenses incurred by an officer or director in
defending a civil or criminal action, suit, or proceeding may be paid by the
Registrant in advance of the final disposition of the suit, action, or
proceeding upon receipt of an undertaking by or on behalf of the officer or
director to repay such amount if it is ultimately determined that he or she is
not entitled to be indemnified by the Registrant. The Registrant may also
advance expenses incurred by other employees and agents of the Registrant upon
such terms and conditions, if any, that the Board of Directors of the Registrant
deems appropriate.
II-1
<PAGE> 109
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has not sold any securities since its inception on October
, 1998 which were not registered under the Securities Act.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S>
1 Form of Underwriting Agreement+
2.1 Agreement and Plan of Reorganization dated November 19, 1998
among Action Performance Companies, Inc., Action
Interactive, Inc., Tech 2000 Worldwide, Inc., Roger J.
Falcione, and Patricia I. Barletta, Executrix of The
Estate of Vincent D. Barletta.
2.2 Stock Contribution Agreement dated July 1, 1999 by and
between Action Performance Companies, Inc., goracing.com,
inc., and Action Racing Collectables Club of America,
Inc.*
3.1 Restated Certificate of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Specimen of Class A Common Stock Certificate*
5 Opinion of Greenberg Traurig, P.A.
10.1(a) Form of Master Intercompany Agreement between Action
Performance Companies, Inc. and goracing.com, inc. dated
as of September , 1999*
10.1(b) Form of Talent Agreement between Action Performance
Companies, Inc. and goracing.com, inc. dated as of
September , 1999*
10.1(c) Form of Tax Allocation Agreement by and among Action
Performance Companies, Inc. and goracing.com, inc. dated
as of September , 1999*
10.1(d) Form of Registration Rights Agreement between goracing.com,
inc. and Action Performance Companies, Inc. dated as of
September , 1999*
10.1(e) Form of Intercompany Services Agreement between
goracing.com, inc. and Action Corporate Services, Inc.
dated as of September , 1999*
10.1(f) Form of Distributor Agreement between Action Sports Image,
LLC and Action Racing Collectables Club of America, Inc.
dated as of September , 1999*
10.1(g) Form of Processing and Fulfillment Agreement between Action
Sports Image, LLC and Action Racing Collectables Club of
America, Inc. dated as of September , 1999*
10.1(h) Form of Distributor Agreement between Action Racing
Collectables, Inc. and Action Racing Collectables Club of
America, Inc. dated as of September , 1999*
10.2 1999 Incentive Stock Plan*
10.3 Employment Agreement dated as of November 24, 1998 between
Action Interactive, Inc. and Roger J. Falcione.
21 List of Subsidiaries+
23.1 Consent of Greenberg Traurig, P.A. (included in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney of Directors and Executive Officers
(included on the Signature Page of the Registration
Statement)+
27.1 Financial Data Schedule for Fiscal Year Ended September 30,
1996+
27.2 Financial Data Schedule for Fiscal Year Ended September 30,
1997+
27.3 Financial Data Schedule for Six Months Ended March 31, 1998+
27.4 Financial Data Schedule for Fiscal Year Ended September 30,
1998+
27.5 Financial Data Schedule for Nine Months Ended June 30, 1999
</TABLE>
- ---------------
+ Previously filed
* To be filed by amendment
II-2
<PAGE> 110
(b) Financial Statement Schedules
The Registrant has not provided any financial statement schedules, because
the information called for is not required, or is shown either in the financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) to provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser;
(2) that for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1), or (4), or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(3) that for purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on September 3, 1999.
GORACING.COM, INC.
By: /s/ CHRISTOPHER S. BESING
------------------------------------
Christopher S. Besing
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board September 3, 1999
- ---------------------------------------------
Fred W. Wagenhals
/s/ CHRISTOPHER S. BESING Chief Executive Officer and Director September 3, 1999
- --------------------------------------------- (Principal Executive Officer)
Christopher S. Besing
* President and Director September 3, 1999
- ---------------------------------------------
Lonnie P. Boutte
* Acting Chief Accounting Officer and September 3, 1999
- --------------------------------------------- Director (Principal Financial and
David A. Husband Accounting Officer)
* Director September 3, 1999
- ---------------------------------------------
Tod J. Wagenhals
*By: /s/ CHRISTOPHER S. BESING
---------------------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 112
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S>
1 Form of Underwriting Agreement+
2.1 Agreement and Plan of Reorganization dated November 19, 1998
among Action Performance Companies, Inc., Action
Interactive, Inc., Tech 2000 Worldwide, Inc., Roger J.
Falcione, and Patricia I. Barletta, Executrix of The
Estate of Vincent D. Barletta.
2.2 Stock Contribution Agreement dated July 1, 1999 by and
between Action Performance Companies, Inc., goracing.com,
inc., and Action Racing Collectables Club of America,
Inc.*
3.1 Restated Certificate of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Specimen of Class A Common Stock Certificate*
5 Opinion of Greenberg Traurig, P.A.
10.1(a) Form of Master Intercompany Agreement between Action
Performance Companies, Inc. and goracing.com, inc. dated
as of September , 1999*
10.1(b) Form of Talent Agreement between Action Performance
Companies, Inc. and goracing.com, inc. dated as of
September , 1999*
10.1(c) Form of Tax Allocation Agreement by and among Action
Performance Companies, Inc. and goracing.com, inc. dated
as of September , 1999*
10.1(d) Form of Registration Rights Agreement between goracing.com,
inc. and Action Performance Companies, Inc. dated as of
September , 1999*
10.1(e) Form of Intercompany Services Agreement between
goracing.com, inc. and Action Corporate Services, Inc.
dated as of September , 1999*
10.1(f) Form of Distributor Agreement between Action Sports Image,
LLC and Action Racing Collectables Club of America, Inc.
dated as of September , 1999*
10.1(g) Form of Processing and Fulfillment Agreement between Action
Sports Image, LLC and Action Racing Collectables Club of
America, Inc. dated as of September , 1999*
10.1(h) Form of Distributor Agreement between Action Racing
Collectables, Inc. and Action Racing Collectables Club of
America, Inc. dated as of September , 1999*
10.2 1999 Incentive Stock Plan*
10.3 Employment Agreement dated as of November 24, 1998 between
Action Interactive, Inc. and Roger J. Falcione.
21 List of Subsidiaries+
23.1 Consent of Greenberg Traurig, P.A. (included in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney of Directors and Executive Officers
(included on the Signature Page of the Registration
Statement)+
27.1 Financial Data Schedule for Fiscal Year Ended September 30,
1996+
27.2 Financial Data Schedule for Fiscal Year Ended September 30,
1997+
27.3 Financial Data Schedule for Six Months Ended March 31, 1998+
27.4 Financial Data Schedule for Fiscal Year Ended September 30,
1998+
27.5 Financial Data Schedule for Nine Months Ended June 30, 1999
</TABLE>
- ---------------
+ Previously filed
* To be filed by amendment
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
DATED NOVEMBER 19, 1998
AMONG
ACTION PERFORMANCE COMPANIES, INC.,
ACTION INTERACTIVE, INC.,
TECH 2000 WORLDWIDE, INC.,
ROGER J. FALCIONE,
AND
PATRICIA I. BARLETTA, EXECUTRIX OF
THE ESTATE OF VINCENT D. BARLETTA
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 MERGER OF THE COMPANY AND MERGER SUBSIDIARY................... 1
1.1 Merger........................................................... 1
1.2 Effect of the Merger............................................. 1
1.3 Name of Merger Subsidiary........................................ 1
1.4 Articles of Incorporation and Bylaws............................. 1
1.5 Status and Conversion of Securities.............................. 1
(a) Conversion of Company Stock into Action Stock.............. 1
(b) Exchange of Certificates................................... 1
(c) Hold-back of Action Common Stock .......................... 2
(d) Common Stock of Merger Subsidiary ......................... 2
1.6 Accounting Treatment............................................. 2
1.7 Pooling Letter................................................... 2
1.8 Rights in Action Common Stock.................................... 2
1.9 Further Documents................................................ 2
1.10 Effective Date................................................... 2
1.11 The Closing...................................................... 2
SECTION 2 REPRESENTATIONS AND WARRANTIES................................ 3
2.1 Representations and Warranties of Shareholders................... 3
(a) Due Incorporation, Good Standing, and Qualification........ 3
(b) Power to Execute Agreement; Enforceability................. 3
(c) Capital Stock.............................................. 3
(d) Options, Warrants, and Rights; Mergers in Capital
Stock; Organization Accounting............................. 4
(e) No Bonus Shares............................................ 4
(f) Predecessor Status......................................... 4
(g) Spin-Off by Company........................................ 4
(h) Subsidiaries............................................... 4
(i) Financial Statements....................................... 4
(j) Books and Records.......................................... 4
(k) No Material Change......................................... 4
(l) Actions in the Ordinary Course of Business................. 4
(m) Title to Properties........................................ 5
(n) Litigation................................................. 5
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
(o) Licenses and Permits....................................... 5
(p) No Violation............................................... 5
(q) Taxes...................................................... 5
(r) Accounts Receivable........................................ 6
(s) Contracts.................................................. 6
(t) Intellectual Property...................................... 6
(u) Compliance with Law and Other Regulations.................. 6
(v) Insurance.................................................. 7
(w) Articles, Bylaws, and Minute Books......................... 7
(x) Employee Benefit and Employment Matters.................... 7
(y) No Dividends or Other Payments to Directors,
Officers, Shareholders or Others........................... 7
2.2 Further Representations and Warranties of Shareholders........... 7
(a) Ownership of Capital Stock of the Company.................. 7
(b) Rights to Acquire Shares................................... 8
(c) Power to Execute Agreement; Enforceability................. 8
(d) Agreement Not in Breach of Other Instruments............... 8
(e) Reliance Upon Shareholder's Advisors....................... 8
(f) Intent and Access.......................................... 8
(g) No Binding Commitment to Dispose of Action Common
Stock...................................................... 8
(h) Accuracy of Statements..................................... 9
2.3 Representations and Warranties of Action and Merger
Subsidiary....................................................... 9
(a) Due Incorporation, Good Standing, and Qualification........ 9
(b) Corporate Authority........................................ 9
(c) Capital Stock.............................................. 9
(d) Options, Warrants, and Rights.............................. 9
(e) Subsidiaries............................................... 9
(f) Financial Statements....................................... 10
(g) No Material Change......................................... 10
(h) Title to Assets and Properties............................. 10
(i) Litigation................................................. 10
(j) Rights and Licenses........................................ 10
(k) No Violation............................................... 11
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
(l) Taxes...................................................... 11
(m) Accounts Receivable........................................ 11
(n) Contracts.................................................. 11
(o) Compliance with Law and Other Regulations.................. 11
(p) Insurance.................................................. 11
(q) Employees.................................................. 11
(r) SEC Reports................................................ 12
(s) Status of Action Common Stock Being Issued................. 12
(t) Accuracy of Statements..................................... 12
2.4 Survival of Representations and Warranties....................... 12
SECTION 3 PRE-CLOSING COVENANTS......................................... 12
3.1 Covenants of Shareholders and the Company........................ 12
(a) Preservation of Business................................... 12
(b) Ordinary Course............................................ 12
(c) Books and Records.......................................... 13
(d) No Organic Change.......................................... 13
(e) No Issuance of Shares, Options, or Other Securities........ 13
(f) Compensation............................................... 13
(g) Dividends.................................................. 13
(h) Confidentiality............................................ 13
(i) Obligation to Update Information........................... 13
(j) Consents and Approvals..................................... 13
3.2 Covenants of Action and Merger Subsidiary........................ 13
(a) Preservation of Business................................... 13
(b) Ordinary Course............................................ 14
(c) Books and Records.......................................... 14
(d) No Organic Change.......................................... 14
(e) Dividends.................................................. 14
(f) Obligation to Update Information........................... 14
(g) Consents and Approvals..................................... 14
SECTION 4 CONDITIONS PRECEDENT TO OBLIGATIONS........................... 14
4.1 Conditions Precedent to the Obligations of Action and
Merger Subsidiary................................................ 14
(a) Accuracy of Representations and Warranties................. 14
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
<S> <C>
(b) Performance of Agreements.................................. 14
(c) Corporate Approvals........................................ 14
(d) No Material Adverse Change................................. 14
(e) Litigation................................................. 14
(f) Pooling Letter............................................. 15
(g) Employment Agreement....................................... 15
(h) Registration Rights Agreement.............................. 15
(i) Opinion of Counsel......................................... 15
(j) Execution of Escrow Agreement.............................. 15
(k) Cancellation of Promissory Notes........................... 15
(l) Acquisition of Trademark Rights............................ 15
(m) Proceedings Satisfactory to Counsel........................ 15
4.2 Conditions Precedent to the Obligations of the Company and
Shareholders..................................................... 15
(a) Accuracy of Representations and Warranties................. 15
(b) Performance of Agreements.................................. 15
(c) Corporate Approval......................................... 15
(d) Opinion of Counsel......................................... 15
(e) No Material Adverse Change................................. 16
(f) Litigation................................................. 16
(g) Execution of Employment Agreement.......................... 16
(h) Execution of Registration Rights Agreement................. 16
(i) Execution of Escrow Agreement.............................. 16
(j) Payment of Promissory Notes................................ 16
(k) Proceedings Satisfactory to Counsel........................ 16
SECTION 5 WAIVER, MODIFICATION, ABANDONMENT............................. 16
SECTION 6 POST-CLOSING COVENANTS........................................ 17
6.1 Filing of Tax Returns and Payment of Taxes....................... 17
6.2 Non-Competition, Non-Disclosure, and Non-Solicitation............ 17
(a) Non-competition............................................ 17
(b) Confidential Information................................... 17
(c) Nonsolicitation............................................ 18
(d) Reasonableness and Remedies................................ 18
(e) Severability; Reformation.................................. 18
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
<S> <C>
6.3 Tax and Accounting Treatment..................................... 18
6.4 Further Assurances............................................... 19
SECTION 7 INDEMNIFICATION............................................... 19
7.1 Indemnification by Shareholders.................................. 19
7.2 Indemnification By Action........................................ 19
7.3 Notice and Right to Defend Third-Party Claims.................... 19
7.4 Limitations on Indemnification; Security for the
Shareholders' Indemnification and Other Obligations.............. 20
7.5 Further Limitations on Indemnification........................... 20
7.6 Certain Claims by Shareholders................................... 20
7.7 Indemnification to be Sole Remedy................................ 21
SECTION 8 GENERAL....................................................... 21
8.1 Costs and Indemnity Against Finders.............................. 21
8.2 Controlling Law.................................................. 21
8.3 Notices.......................................................... 21
8.4 Binding Nature of Agreement; No Assignment....................... 22
8.5 Entire Agreement................................................. 22
8.6 Paragraph Headings............................................... 22
8.7 Counterparts..................................................... 22
</TABLE>
-v-
<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of
November 19, 1998, by and among ACTION PERFORMANCE COMPANIES, INC., an
Arizona corporation ("Action"); ACTION INTERACTIVE, INC., an Arizona
corporation and a wholly owned subsidiary of Action ("Merger Subsidiary");
TECH 2000 WORLDWIDE, INC., a Massachusetts corporation (the "Company"); and
ROGER J. FALCIONE ("Falcione") and PATRICIA I. BARLETTA, EXECUTRIX OF THE
ESTATE OF VINCENT D. BARLETTA (the "Estate"). Falcione and the Estate are
each referred to herein as a "Shareholder" and, together, as "Shareholders."
Shareholders own all of the issued and outstanding capital stock of the
Company. The parties hereto desire that the Company be merged with and into
Merger Subsidiary on the terms and conditions set forth in this Agreement
(the "Merger"). For federal income tax purposes, it is intended by the
parties that the Merger shall qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). Specifically, it is intended that the Merger
qualify as a forward triangular reorganization under Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Internal Revenue Code.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth herein, the parties hereby approve and adopt this
Agreement as a "Plan of Reorganization" and agree as follows:
SECTION 1
MERGER OF THE COMPANY AND MERGER SUBSIDIARY
1.1 MERGER. On the Effective Date (as defined in Section 1.10), the
Company shall be merged with and into Merger Subsidiary, which shall be the
surviving corporation, pursuant to the Agreement and Plan of Merger attached as
Exhibit A hereto (the "Agreement and Plan of Merger"). At the time of Closing
(as defined below), Action shall cause the Articles of Merger to be filed with
the Secretary of State of Arizona, and Shareholders shall cause Articles of
Merger to be filed with the Secretary of State of Massachusetts.
1.2 EFFECT OF THE MERGER. Upon the Merger becoming effective, the separate
existence of the Company shall cease, and Merger Subsidiary shall succeed to and
possess all the properties, rights, privileges, powers, franchises, and
immunities, of a public as well as of a private nature, and be subject to all
the debts, liabilities, obligations, restrictions, disabilities and duties of
the Company, all without further act or deed, as provided in Section 10-1106 of
the Arizona Business Corporation Act.
1.3 NAME OF MERGER SUBSIDIARY. The name of Merger Subsidiary shall remain
"Action Interactive, Inc."
1.4 ARTICLES OF INCORPORATION AND BYLAWS. The Articles of Incorporation
and the Bylaws of Merger Subsidiary as in effect on the Effective Date shall be,
from and after the Effective Date, the Articles of Incorporation and Bylaws of
Merger Subsidiary until they are amended.
1.5 STATUS AND CONVERSION OF SECURITIES.
(a) CONVERSION OF COMPANY STOCK INTO ACTION STOCK. Upon the Merger
becoming effective, the shares of common stock, no par value per share, of the
Company issued and outstanding on the Effective Date (the "Shares"), by reason
of the Merger and upon surrender to Action by the holders thereof, shall be
converted into 137,923 shares of Action's common stock, par value $.01 per share
(the "Common Stock"). The 137,923 shares of Common Stock issuable pursuant to
this Section 1.5(a), including the "Held Back Shares" (as defined below), are
collectively referred to herein as the "Action Common Stock." The shares of
Action Common Stock shall be issued, delivered, and held pursuant to Section
1.5(b), Section 1.5(c), and Section 7 of this Agreement.
(b) EXCHANGE OF CERTIFICATES. Subject to Section 1.5(c), after the
Effective Date each holder (other than Action) of an outstanding certificate or
certificates representing the Shares, upon surrender thereof to Action, shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of Action Common Stock into which the Shares
theretofore represented by such surrendered certificate or
<PAGE> 8
certificates shall have been converted as illustrated and provided for on
Schedule 1.5(b) hereto. Until so surrendered, each outstanding certificate
representing Shares shall be deemed for all purposes to represent the number of
shares of Action Common Stock into which the Shares theretofore represented
thereby shall have been converted. As promptly as practicable after the
Effective Date, Action shall make available, by transferring to Merger
Subsidiary or by transferring directly to its independent transfer agent (in
such capacity the "Exchange Agent"), for the benefit of Shareholders, the number
of shares of Action Common Stock required for conversion in accordance with this
Agreement.
(c) HOLD-BACK OF ACTION COMMON STOCK.
(i) As security for Shareholders' agreement in Section 7 to
indemnify and hold Action harmless, Action shall set aside and deliver to the
Escrow Agent under the Escrow Agreement (as defined below), in accordance with
Section 7, stock certificates representing 10% of the shares of Common Stock
issuable pursuant to Section 1.5(a) (the "Held Back Shares").
(ii) Action shall deliver stock certificates representing the
balance of the shares of Common Stock issuable in accordance with Section 1.5(a)
to Shareholders in the respective amounts to which they are entitled.
(d) COMMON STOCK OF MERGER SUBSIDIARY. All authorized shares of
Merger Subsidiary common stock, par value $.01 per share ("Merger Subsidiary
Common Stock"), whether issued or unissued, outstanding or reacquired, shall
continue unchanged as shares of Merger Subsidiary Common Stock.
1.6 ACCOUNTING TREATMENT. It is intended by the parties that the Merger
shall be treated for accounting purposes as a pooling-of-interests business
combination in accordance with generally accepted accounting principles in the
United States ("GAAP") and the rules and regulations of the Securities and
Exchange Commission (the "SEC").
1.7 POOLING LETTER. At or prior to the Closing, Shareholders shall execute
and deliver a letter agreement in favor of Action, in form and content as set
forth on Exhibit B attached hereto (the "Pooling Letter"), pursuant to which
Shareholders shall agree to hold the Action Common Stock received by
Shareholders for such period of time as is necessary to allow the Merger to be
accounted for as a pooling-of-interests under GAAP and the rules and regulations
of the SEC.
1.8 RIGHTS IN ACTION COMMON STOCK. Except as described in Section 2.3(s)
and except for the restrictions on resale or transfer described in the Escrow
Agreement and in the Pooling Letter, all Action Common Stock received by
Shareholders pursuant to this Agreement shall have the same rights as all of the
other shares of Action's outstanding Common Stock. Upon the surrender and
delivery of the Shares to Action by Shareholders, all voting rights of such
Action Common Stock received by Shareholders shall be fully exercisable by
Shareholders and Shareholders shall not be deprived or restricted in exercising
those rights.
1.9 FURTHER DOCUMENTS. From time to time, on and after the Effective Date,
as and when requested by Merger Subsidiary, Action, or their respective
successors or assigns, the appropriate officers and directors of the Company as
of the Effective Date shall, at the expense of Action, for and on behalf and in
the name of the Company or otherwise, execute and deliver all such deeds, bills
of sale, assignments, and other instruments and shall take or cause to be taken
such further or other actions as Merger Subsidiary, Action or their respective
successors or assigns may deem necessary or desirable in order to confirm of
record or otherwise to Merger Subsidiary title to and possession of all of the
properties, rights, privileges, powers, franchises, and immunities of the
Company and otherwise to carry out fully the provisions and purposes of this
Agreement.
1.10 EFFECTIVE DATE. The Merger shall become effective on the later to
occur of (a) the filing of Articles of Merger with the State of Arizona, and (b)
the filing of Articles of Merger with the Secretary of Commonwealth of
Massachusetts (the "Effective Date").
1.11 THE CLOSING. Subject to the terms and conditions of this Agreement,
the consummation of the Merger and the other transactions contemplated by this
Agreement (the "Closing") shall take place as promptly as
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<PAGE> 9
practicable (and in any event within three business days after the satisfaction
or waiver of the conditions set forth in Section 4 of this Agreement), at the
offices of O'Connor, Cavanagh, Andersen, Killingsworth & Beshears, One East
Camelback Road, Phoenix, Arizona 85012, or such other time and place as the
parties may otherwise agree. The date of the Closing is sometimes referred to
herein as the "Closing Date." The parties agree that the following shall occur
at the Closing:
(a) The Company and Shareholders shall have satisfied each of the
conditions set forth in Section 4.1 and shall deliver to Action and Merger
Subsidiary the documents, certificates, opinions, consents, and letters required
by Section 4.1.
(b) Action and Merger Subsidiary shall have satisfied each of the
conditions set forth in Section 4.2 and shall deliver to the Company and
Shareholders the documents, certificates, opinions, consents, and letters
required by Section 4.2.
(c) The parties shall cause the Merger to be consummated by filing
Articles of Merger as set forth in Section 1.1.
(d) At the Closing, Action shall issue and deliver the certificates
representing the Action Common Stock, including the Held Back Shares, as set
forth in Section 1.5.
SECTION 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Except as otherwise
set forth in the Shareholders' Disclosure Schedule heretofore delivered by
Shareholders to and acknowledged as received by Action, each of Shareholders,
severally, but not jointly, represent and warrant to Action and Merger
Subsidiary as follows:
(a) DUE INCORPORATION, GOOD STANDING, AND QUALIFICATION. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of Massachusetts, with all requisite corporate power and authority to
own, operate, and lease its assets and properties and to carry on its business
as now being conducted. The Company is not subject to any material disability by
reason of the failure to be duly qualified as a foreign corporation for the
transaction of business or to be in good standing under the laws of any
jurisdiction. Shareholders have heretofore delivered to Action a list setting
forth, as of the date of this Agreement, each jurisdiction in which the Company
is qualified to do business.
(b) POWER TO EXECUTE AGREEMENT; ENFORCEABILITY. The Company has the
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The Shareholders and the Board of Directors of Company have taken all
action necessary to authorize and approve the execution and delivery of this
Agreement, the performance of their respective obligations hereunder, and the
consummation of the transactions contemplated hereby. No other corporate
proceedings on the part of the Company, including a meeting of shareholders, are
necessary to authorize the execution and delivery by the Company of this
Agreement or the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by, and constitutes
the legal, valid and binding obligation of, the Company, enforceable against it
in accordance with its terms, except that (i) such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefore may be brought.
(c) CAPITAL STOCK. As of the date hereof, the Company has an
authorized capital stock consisting of 20,000 shares of common stock, no par
value, of which 11,765 shares are issued and outstanding, all of which are owned
by the Shareholders, free and clear of all claims, liens, charges, and
encumbrances. All of the issued and outstanding shares of capital stock of the
Company have been validly authorized and issued and are fully paid and
nonassessable.
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<PAGE> 10
(d) OPTIONS, WARRANTS, AND RIGHTS; MERGERS IN CAPITAL STOCK;
ORGANIZATION ACCOUNTING. The Company does not have outstanding any options,
warrants, or other rights to purchase, or securities or other obligations
convertible into or exchangeable for, or contracts, commitments, agreements,
arrangements, or understandings to issue, any shares of its capital stock or
other securities. The Company has not acquired or redeemed any Company Shares
during the two-year period immediately preceding the date of this Agreement and
has no obligation (contingent or otherwise) to purchase, redeem, or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Neither the voting stock
structure of the Company nor the relative ownership of shares among any of its
shareholders has been altered or changed in contemplation of the Merger.
(e) NO BONUS SHARES. None of the Shares was issued pursuant to
awards, grants, or bonuses in contemplation of the Merger.
(f) PREDECESSOR STATUS. Set forth on the Shareholders' Disclosure
Schedule is a listing of all names of all predecessor companies of the Company,
including the names of any entities acquired by the Company (by stock purchase,
merger or otherwise) as owned by the Company or from which the Company
previously acquired material assets, in any case from the earliest date upon
which Shareholders acquired stock in the Company. Within such period of time,
the Company has not been a subsidiary or division of another corporation or part
of any acquisition that was later rescinded.
(g) SPIN-OFF BY COMPANY. During the two-year period immediately
preceding the date of this Agreement, there has not been any sale, spin-off, or
split-up of material assets of either the Company or any other person or entity
that directly, or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, the Company.
(h) SUBSIDIARIES. The Company has no subsidiaries. The Company does
not own, directly or indirectly, any capital stock or other equity securities of
any corporation or have any direct or indirect equity or ownership interest in
any corporation or other business.
(i) FINANCIAL STATEMENTS. The Balance Sheet of the Company as of
October 31, 1998 (the "Company's Base Balance Sheet") and the Statements of
Operations, and the Statements of Shareholders' Equity of the Company for the
three years ended October 31, 1998, and all related schedules and notes to the
foregoing, have been prepared by the Company without audit. All of the foregoing
financial statements have been prepared in accordance with GAAP, which were
applied on a consistent basis (except as described therein), and present fairly,
in all material respects, the financial position, results of operations, and
changes of financial position of the Company as of their respective dates and
for the periods indicated. The Company does not have any material liabilities or
obligations of a type that would be included in a balance sheet prepared in
accordance with GAAP, whether related to tax or non-tax matters, accrued or
contingent, due or not yet due, liquidated or unliquidated or otherwise, except
as and to the extent disclosed or reflected in the Company's Base Balance Sheet
or incurred since October 31, 1998, in the ordinary course of business or as
contemplated by this Agreement.
(j) BOOKS AND RECORDS. The books of account and other corporate
records of the Company are complete and accurate, have been maintained in
accordance with reasonable business practices, and the matters contained therein
are appropriately reflected in the Company's financial statements.
(k) NO MATERIAL CHANGE. Since October 31, 1998, there has not been
and there is not threatened (i) any material adverse change in the business,
assets, properties, financial condition, or operating results of the Company,
(ii) any loss or damage (whether or not covered by insurance) to any of the
assets or properties of the Company, which materially affects or impairs its
ability to conduct its business, or (iii) any mortgage or pledge of any assets
or properties of the Company, or any indebtedness incurred by the Company other
than indebtedness, not material in the aggregate, incurred in the ordinary
course of business.
(l) ACTIONS IN THE ORDINARY COURSE OF BUSINESS. Since October 31,
1998, the Company has not (i) taken any action outside of the ordinary and usual
course of business; (ii) borrowed any money or become contingently liable for
any obligation or liability of another; (iii) failed to pay any of its debts and
obligations as they became due; (iv) incurred any debt, liability, or obligation
of any nature to any party except for obligations arising
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<PAGE> 11
from the purchase of goods or the rendition of services in the ordinary course
of business, none of which aggregate more than $25,000 with respect to the same
supplier or customer; (v) knowingly waived any right of substantial value; (vi)
failed to use its reasonable efforts to preserve its business organization
intact, to keep available the services of its employees, or to preserve its
relationships with its customers, suppliers, and others with which it deals; or
(vii) increased or committed to increase the salary, fee, or compensation of any
officer, employee, independent contractor, agent, firm, or person performing
services for it.
(m) TITLE TO PROPERTIES. The Company has good and marketable title
to all of its real and personal assets and properties, including all assets and
properties reflected in the Company's Base Balance Sheet or acquired subsequent
to October 31, 1998, except assets or properties disposed of subsequent to that
date in the ordinary course of business. Such assets and properties are subject
to no mortgage, indenture, pledge, lien, claim, encumbrance, charge, security
interest, or title retention or other security arrangement, except for liens for
the payment of federal, state, and other taxes, the payment of which is neither
delinquent nor subject to penalties, and except for other liens and encumbrances
incidental to the conduct of the business of the Company or the ownership of its
assets or properties, which were not incurred in connection with the borrowing
of money or the obtaining of advances and which do not in the aggregate
materially detract from the value of the assets or properties of the Company or
materially impair the use thereof in the operation of its business, except in
each case as disclosed in the Company's Base Balance Sheet. All leases pursuant
to which the Company leases any substantial amount of real or personal property
are valid and effective in accordance with their respective terms. The Company
owns or has the right to use all assets and properties necessary to conduct its
business as currently conducted.
(n) LITIGATION. There are no actions, suits, proceedings, or other
litigation pending or, to the knowledge of Shareholders, threatened against the
Company, at law or in equity, or before or by any federal, state, municipal, or
other governmental department, commission, board, bureau, agency, or
instrumentality that, if determined adversely to the Company, would individually
or in the aggregate have an adverse effect on the business, assets, properties,
operating results, prospects, or condition, financial or otherwise, of the
Company.
(o) LICENSES AND PERMITS. The Company is not subject to any material
disability or liability by reason of its failure to possess any license, permit,
franchise, certificate, consent, approval, or authorization. The Company has all
licenses, permits, franchises, consents, approvals, and authorizations of
whatever kind and type, governmental or private, necessary for the business
conducted by it and the ownership or use of all assets and properties and the
premises occupied by it. The Shareholders' Disclosure Schedule contains a true,
correct, and complete list of all licenses, permits, franchises, consents,
approvals, and authorizations necessary for the conduct of the Company's
business.
(p) NO VIOLATION. The execution and delivery of this Agreement by
the Company and the consummation of the transactions contemplated hereby will
not violate or result in a breach by the Company of, or constitute a default
under, or conflict with, or cause any acceleration of any obligation with
respect to, (i) any provision or restriction of any charter, bylaw, loan,
indenture, or mortgage of the Company, or (ii) any provision or restriction of
any lien, lease agreement, contract, instrument, order, judgment, award, decree,
ordinance, or regulation or any other restriction of any kind or character to
which any assets or properties of the Company is subject or by which the Company
is bound.
(q) TAXES. The Company has duly filed in correct form all Tax
Returns (as defined below) relating to the activities of the Company required or
due to be filed (with regard to applicable extensions) on or prior to the date
of this Agreement. All such Tax Returns are accurate and complete in all
material respects, and the Company has paid or made provision for the payment of
all Taxes (as defined below) that have been incurred or are due or claimed to be
due from it by federal, state, or local taxing authorities for all periods
ending on or before the date of this Agreement, other than Taxes or other
charges that are not delinquent or are being contested in good faith and have
not been finally determined and have been disclosed to Action. The amounts set
up as reserves for Taxes on the books of the Company are sufficient in the
aggregate for the payment of all unpaid Taxes (including any interest or
penalties thereon), whether or not disputed, accrued, or applicable. No claims
for taxes or assessments are being asserted or threatened against the Company.
For purposes of this Agreement, the term "Taxes" shall mean all taxes, charges,
fees, levies, or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, transfer, license, payroll, and franchise
taxes, imposed by the United States, or any state, local or foreign government
or subdivision or agency thereof and any interest, penalties or additions
attributable thereto, and
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the term "Tax Return" shall mean any report, return, or other information
required to be supplied to a taxing authority or required by a taxing authority
to be supplied to any other person. The Company has duly and validly filed
elections for C corporation status under the Internal Revenue Code; none of such
elections have been revoked or terminated; and neither the Company nor any
shareholder of the Company has taken any action that would cause a termination
of such election.
(r) ACCOUNTS RECEIVABLE. The accounts receivable of the Company have
been acquired in the ordinary course of business, are valid and enforceable, and
are fully collectible, subject to no known defenses, set-offs, or counterclaims,
except to the extent of the reserve reflected in the books of the Company or in
such other amount that is not material in the aggregate.
(s) CONTRACTS. The Company is not a party to (i) any plan or
contract providing for bonuses, pensions, options, stock purchases, deferred
compensation, retirement payments, or profit sharing, (ii) any collective
bargaining or other contract or agreement with any labor union, (iii) any lease,
installment purchase agreement, or other contract with respect to any real or
personal property used or proposed to be used in its operations, excepting, in
each case, items included within aggregate amounts disclosed or reflected in the
Company's Base Balance Sheet, (iv) any employment agreement or other similar
arrangement not terminable by it upon 30 days or less notice without penalty to
it, (v) any contract or agreement for the purchase of any commodity, material,
fixed asset, or equipment in excess of $25,000, (vi) any contract or agreement
creating an obligation of $25,000 or more, (vii) any contract or agreement that
by its terms does not terminate or is not terminable by it upon 30 days or less
notice without penalty to it, (viii) any loan agreement, indenture, promissory
note, conditional sales agreement, or other similar type of arrangement, (ix)
any material license agreement, or (x) any contract that may result in a
material loss or obligation to it. All material contracts, agreements, and other
arrangements to which the Company is a party are valid and enforceable in
accordance with their terms; the Company and all other parties to each of the
foregoing have performed all obligations required to be performed to date;
neither the Company nor any such other party is in default or in arrears under
the terms of any of the foregoing; and no condition exists or event has occurred
that, with the giving of notice or lapse of time or both, would constitute a
default under any of them.
(t) INTELLECTUAL PROPERTY. The Company owns or holds all of the
rights to use all logos, trademarks, trade names, trade secrets, fictitious
names, service marks, patents, and copyrights that are used in or necessary to
the operation of its business (collectively, "Intellectual Property"). The
Shareholders' Disclosure Schedule sets forth a true, complete, and correct list
of all of the Intellectual Property owned or used by the Company, including but
not limited to all "domain names" used by the Company, the names of all software
programs used by the Company, and a list of all trademark and copyright
registrations applied for and/or issued with respect to the Intellectual
Property. The Company has applied for trademark or copyright registrations for
all software, "screens," and other Intellectual Property that it owns and uses
or intends to use in connection with its business operations. Shareholders are
not aware of any facts, claims, or circumstances that would enable any person or
entity to challenge the Company's ownership of or right to use any of the
Intellectual Property, including the Company's copyrights or trademarks, its
rights to register such copyrights or trademarks, and the right to seek all
available protections and remedies against any party that infringes such
copyrights or trademarks. None of the matters covered by the Intellectual
Property, nor any of the products or services sold or provided by the Company,
nor any of the processes used or the business practices followed by the Company,
infringes or has infringed upon any logo, trademark, trade name, trade secret,
fictitious name, service mark, patent, or copyright owned by any person or
entity (or any application with respect thereto), or constitutes unfair
competition. The Company is not and, following the Merger, Action and Merger
Subsidiary will not be, obligated to pay any royalty or other payment with
respect to any of the Intellectual Property. No person or entity is producing,
providing, selling, or using products or services that would constitute an
infringement of any of the Intellectual Property. The Company has taken all
actions reasonably necessary under applicable law to protect all trade secrets
and confidential information used or contained in the Intellectual Property
including, but not limited to, limitation of access to such information,
confidentiality agreements with employees, and advising its employees with
access to such trade secrets or confidential information regarding the status of
such trade secrets or confidential information.
(u) COMPLIANCE WITH LAW AND OTHER REGULATIONS. The Company is not
subject to and has not been threatened with any material fine, penalty,
liability, or disability as the result of its failure to comply with any
requirement of federal, state, local, or foreign law or regulation or any
requirement of any governmental body or
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agency having jurisdiction over it, the conduct of its business, the use of its
assets and properties, or any premises occupied by it.
(v) INSURANCE. The Company maintains in full force and effect
insurance coverage on its assets, properties, premises, operations, and
personnel in such amounts as the Company deems appropriate, all as set forth on
the Shareholders' Disclosure Schedule.
(w) ARTICLES, BYLAWS, AND MINUTE BOOKS. Shareholders have heretofore
delivered to Action true and complete copies of the Articles of Incorporation
and Bylaws of the Company as currently in effect. The minute books of the
Company contain complete and accurate records of all meetings and other
corporate actions held or taken by the Boards of Directors (or committees of the
Boards of Directors) and shareholders of the Company since its incorporation.
(x) EMPLOYEE BENEFIT AND EMPLOYMENT MATTERS. The Company has
fulfilled its obligations, if any, under the minimum funding standards of
Section 302 of the United States Employee Retirement Income Security Act of 1974
("ERISA") and the regulations and published interpretations thereunder with
respect to each "plan" (as defined in Section 3(3) of ERISA and such regulations
and published interpretations) in which employees of the Company are eligible to
participate and each such plan is in compliance in all material respects with
the presently applicable provisions of ERISA and such regulations and published
interpretations. The Company has not incurred any unpaid liability to the
Pension Benefit Guaranty Corporation (other than for the payment of premiums in
the ordinary course) or to any such plan under Title IV of ERISA. The
Shareholders' Disclosure Schedule includes true and complete copies of each
pension plan, welfare plan, and employment benefit plan applicable to the
Company and related trust agreements or annuity contracts, Internal Revenue
Service determination letters and summary plan descriptions; all of the
foregoing plans, agreements, and commitments are valid, binding, in full force
and effect, and there are no defaults thereunder; and none of the rights of the
Company or any of its ERISA Affiliates thereunder will be impaired by this
Agreement or the consummation of the transactions contemplated by this
Agreement. The Company is not a party to any collective bargaining agreement
and, to the best of Shareholders' knowledge, there is no material request for
union representation pending or threatened against the Company. The employment
of each employee of the Company is terminable at will without cost to the
Company. The Company has complied with all other applicable federal, state, and
local laws relating to the employment of labor, including, but not limited to,
the provisions thereof relative to wages, hours, collective bargaining, working
conditions, and payment of taxes of any kind, and the Company is not liable for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing or has any obligations for any vacation, sick leave, or other
compensatory time. All officers and independent contractors of the Company are
paid salaries or other compensation in accordance with the amounts set forth in
the Shareholders' Disclosure Schedule, which correctly and accurately sets forth
all salaries, expenses, and personal benefits paid to or accrued for all
directors, officers, and principal shareholders of the Company as of the date of
this Agreement, all of which are reflected as appropriate in the Company's Base
Balance Sheet.
(y) NO DIVIDENDS OR OTHER PAYMENTS TO DIRECTORS, OFFICERS,
SHAREHOLDERS OR OTHERS. Except as set forth on the Shareholder's Disclosure
Schedule, during the two-year period immediately preceding the date of this
Agreement, the Company has not declared or paid any dividends or distributions
to its shareholders or made any purchase or redemption of any shares of capital
stock of the Company or any transfer, distribution, or payment, directly or
indirectly, of any money or other assets or properties to any director, officer,
shareholder, or any of their affiliates or other person other than the payment
of compensation for services actually rendered, payments in the ordinary course
of business, or payments for goods or services in arm's length Mergers.
2.2 FURTHER REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Except as set
forth in the Shareholder's Disclosure Schedule, each Shareholder makes the
following further representations and warranties as to himself or itself:
(a) OWNERSHIP OF CAPITAL STOCK OF THE COMPANY. Such Shareholder owns
the number of Shares of common stock of the Company set forth beside such
Shareholder's name on Schedule 1.5(b) attached hereto. Such Shareholder has
good, marketable, and unencumbered title to such Shares, and there are no
restrictions on his or its right to transfer such Shares to Action pursuant to
this Agreement. Such Shareholder has at all times
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<PAGE> 14
during the two-year period immediately preceding the date of this Agreement
owned or maintained the sole equitable and beneficial interest in all of such
Shareholder's Shares.
(b) RIGHTS TO ACQUIRE SHARES. Such Shareholder does not have any
outstanding options, warrants, or other rights to purchase or subscribe for or
contracts or commitments to sell, or any interests, instruments, evidences of
indebtedness or other securities convertible in any manner into, shares of
Company's capital stock.
(c) POWER TO EXECUTE AGREEMENT; ENFORCEABILITY. Such Shareholder has
full power and authority to execute, deliver and perform this Agreement. No
other proceedings on the part of the Shareholders, including a meeting of
shareholders, are necessary to authorize the execution and delivery by the
Shareholders of this Agreement or the consummation by the Shareholders of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by, and constitutes a legal, valid, and binding agreement of, such
Shareholder, enforceable against such Shareholder in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
(d) AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby, and the fulfillment of the terms hereof, will not result in the breach
of any term or provision of, or constitute a default under, or conflict with, or
cause the acceleration of any obligation under, any agreement or other
instrument of any description to which such Shareholder is a party or by which
such Shareholder is bound, or any judgment, decree, order or award of any court,
governmental body or arbitrator, or any law, rule or regulation applicable to
such Shareholder.
(e) RELIANCE UPON SHAREHOLDER'S ADVISORS. Such Shareholder
acknowledges that he or it has been encouraged to rely upon the advice of his or
its legal counsel and accountants or other financial advisers with respect to
the financial, tax, and other considerations relating to the acquisition of the
Action Common Stock. Such Shareholder represents and warrants that he or it has
reviewed with his or its own tax advisors the federal, state, local, and foreign
tax consequences of the investment in Action Common Stock. Such Shareholder is
relying solely on such advisors and not on any statements or representations of
Action or any of its officers, directors, employees, or agents and understands
that such Shareholder (and not Action) shall be responsible for his or its own
tax liability, if any, that may arise as a result of the acquisition of Action
Common Stock or the transactions contemplated by this Agreement.
(f) INTENT AND ACCESS. Such Shareholder is acquiring the shares of
Action Common Stock without a view to the public distribution or resale in
violation of any applicable federal or state securities laws. Such Shareholder
acknowledges that the shares of Action Common Stock are not registered under the
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws and cannot be sold publicly without registration thereunder or
an exemption from such registration. Such Shareholder understands that
certificates for such shares will contain a legend with respect to the
restrictions on transfer under federal and applicable state securities laws as
well as the fact that the shares are "restricted securities" under such federal
and state laws. Such Shareholder has been furnished with such information, both
financial and non-financial, with respect to the operations, business, capital
structure, and financial position of Action and its subsidiaries as they believe
necessary and have been given the opportunity to ask questions of and receive
answers from Action and its subsidiaries and their officers concerning Action
and its subsidiaries. Without limiting the foregoing, such Shareholder
specifically acknowledges the receipt of Action's Form 10-K Report for the
fiscal year ended September 30, 1997, as amended on Form 10-K/A; Action's Form
10-Q for the nine months ended June 30, 1998; Action's Proxy Statement dated
January 28, 1998; Action's 1997 Annual Report to Shareholders; and Action's
Prospectus dated July 21, 1998.
(g) NO BINDING COMMITMENT TO DISPOSE OF ACTION COMMON STOCK. Such
Shareholder is not under any binding commitment or contract to sell, exchange,
or otherwise dispose of any shares of Action Common Stock to be received by such
Shareholder pursuant to this Agreement.
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(h) ACCURACY OF STATEMENTS. Neither this Agreement nor any
statement, list, certificate, or other information furnished by the Company or
such Shareholder to Action in connection with this Agreement or any of the
Mergers contemplated hereby contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein, in light of circumstances in which they are made, not misleading.
2.3 REPRESENTATIONS AND WARRANTIES OF ACTION AND MERGER SUBSIDIARY. Except
as otherwise set forth in the Action's Disclosure Schedule heretofore delivered
by Action to Shareholders, and except as disclosed in any document heretofore
filed by Action with the Securities and Exchange Commission ("SEC"), each of
Action and Merger Subsidiary represents and warrants to Shareholders as follows:
(a) DUE INCORPORATION, GOOD STANDING, AND QUALIFICATION. Action and
each of its subsidiaries (including Merger Subsidiary) are corporations duly
organized, validly existing, and in good standing under the laws of their
jurisdictions of incorporation with all requisite corporate power and authority
to own, operate, and lease their assets and properties and to carry on their
business as now being conducted. Neither Action nor any of its subsidiaries
(including Merger Subsidiary) is subject to any material disability by reason of
the failure to be duly qualified as a foreign corporation for the transaction of
business or to be in good standing under the laws of any jurisdiction. As used
in this Agreement with reference to Action, the term "subsidiaries" shall
include all direct or indirect subsidiaries of Action other than the Company. No
representation or warranty relating to Action, Action's consolidated financial
position, or Action and its subsidiaries taken as a whole shall be deemed to be
breached as a result of any circumstances that would constitute a breach of a
representation or warranty by the Company.
(b) CORPORATE AUTHORITY. Each of Action and Merger Subsidiary has
the corporate power and authority to enter into this Agreement and carry out the
transactions contemplated hereby. The Boards of Directors of each of Action and
Merger Subsidiary have duly authorized the execution, delivery, and performance
of this Agreement. No other corporate proceedings on the part of Action or
Merger Subsidiary, including a meeting of Action's or Merger Subsidiary's
shareholders, are necessary to authorize the execution and delivery by Action of
this Agreement or the consummation by Action of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by, and constitutes
a legal, valid, and binding agreement of, each of Action and Merger Subsidiary,
enforceable against Action and Merger Subsidiary in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
(c) CAPITAL STOCK. As of the date hereof, Action has authorized
capital stock, consisting of 25,000,000 shares of Common Stock, of which
16,423,238 shares are issued and outstanding, and 5,000,000 shares of preferred
stock, no par value, of which no shares are issued and outstanding. As of such
date, 964,146 shares of Common Stock were reserved for issuance upon the
exercise of outstanding stock options and warrants and 2,074,688 shares of
Common Stock were reserved for issuance upon conversion of Action's 4-3/4%
Convertible Subordinated Notes due 2005. All of the issued and outstanding
shares of capital stock of Action and each of its subsidiaries (including Merger
Subsidiary) have been validly authorized and issued and are fully paid and
nonassessable. Action has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof. As
of the date hereof, Merger Subsidiary has authorized capital stock, consisting
of 4,000 shares of common stock, of which 1,000 shares are issued and
outstanding, and 1,000 shares of preferred stock, no par value, of which no
shares are issued and outstanding.
(d) OPTIONS, WARRANTS, AND RIGHTS. Neither Action nor any of its
subsidiaries has outstanding any options, warrants, or other rights to purchase,
or securities or other obligations convertible into or exchangeable for, or
contracts, commitments, agreements, arrangements or understandings to issue, any
shares of their capital stock or other securities, other than those referred to
in Section 3.2(c).
(e) SUBSIDIARIES. The outstanding shares of capital stock of the
subsidiaries of Action owned by Action or any of its subsidiaries are owned free
and clear of all claims, liens, charges, and encumbrances.
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Action does not own, directly or indirectly, any capital stock or other equity
securities of any corporation or have any direct or indirect equity or ownership
interest in any corporation or other business.
(f) FINANCIAL STATEMENTS. The Consolidated Balance Sheets of Action
and its subsidiaries as of September 30, 1996 and September 30, 1997 and the
Consolidated Statements of Operations, the Consolidated Statements of
Shareholders' Equity, and the Consolidated Statements of Cash Flows of Action
and its subsidiaries for the three years ended September 30, 1997, and all
related schedules and notes to the foregoing, have been reported on by Arthur
Andersen LLP, independent public accountants, and the Consolidated Balance Sheet
of Action and its subsidiaries as of June 30, 1998 and the Consolidated
Statement of Operations, the Consolidated Statement of Shareholders' Equity, and
the Consolidated Statement of Cash Flows of Action and its subsidiaries for the
nine months ended June 30, 1998 have been prepared by Action without audit. All
of the foregoing financial statements have been prepared in accordance with
GAAP, which were applied on a consistent basis (except as described therein),
and present fairly, in all material respects, the financial position, results of
operations, and changes of financial position of Action and its subsidiaries as
of their respective dates and for the periods indicated. Neither Action nor any
of its subsidiaries has any material liabilities or obligations of a type that
would be included in a balance sheet prepared in accordance with GAAP, whether
related to tax or non-tax matters, accrued or contingent, due or not yet due,
liquidated or unliquidated or otherwise, except as and to the extent disclosed
or reflected in the Consolidated Balance Sheet of Action and its subsidiaries as
of June 30, 1998 ("Action's Base Balance Sheet"), or incurred since the date of
Action's Base Balance Sheet, in the ordinary course of business or as
contemplated by this Agreement.
(g) NO MATERIAL CHANGE. Since the date of Action's Base Balance
Sheet, there has not been and there is not threatened (i) any material adverse
change in the business, assets, properties, financial condition, or operating
results of Action or its subsidiaries taken as a whole, (ii) any loss or damage
(whether or not covered by insurance) to any of the assets or properties of
Action or its subsidiaries, which materially affects or impairs their ability to
conduct their business, or (iii) any mortgage or pledge of any material amount
of the assets or properties of Action or any of its subsidiaries, or any
indebtedness incurred by Action or any of its subsidiaries, other than
indebtedness, not material in the aggregate, incurred in the ordinary course of
business.
(h) TITLE TO ASSETS AND PROPERTIES. Action and its subsidiaries have
good and marketable title to all of their respective real and personal assets
and properties, including all assets and properties reflected in Action's Base
Balance Sheet, or acquired subsequent to the date of Action's Base Balance
Sheet, except assets or properties disposed of subsequent to that date in the
ordinary course of business. Such assets and properties are subject to no
mortgage, indenture, pledge, lien, claim, encumbrance, charge, security
interest, or title retention or other security arrangement, except for liens for
the payment of federal, state, and other taxes, the payment of which is neither
delinquent nor subject to penalties, and except for other liens and encumbrances
incidental to the conduct of the business of Action and its subsidiaries or the
ownership of their assets or properties, which were not incurred in connection
with the borrowing of money or the obtaining of advances, and which do not in
the aggregate materially detract from the value of the assets or properties of
Action and its subsidiaries taken as a whole or materially impair the use
thereof in the operation of their respective businesses, except in each case as
disclosed in Action's Base Balance Sheet. All leases pursuant to which Action or
any of its subsidiaries lease any substantial amount of real or personal
property are valid and effective in accordance with their respective terms.
Action and each of its subsidiaries own or have the right to use all assets and
properties necessary to conduct their business as currently conducted.
(i) LITIGATION. There are no actions, suits, proceedings, or other
litigation pending or, to the knowledge of Action, threatened against Action or
any of its subsidiaries, at law or in equity, or before or by any federal,
state, municipal, or other governmental department, commission, board, bureau,
agency, or instrumentality that, if determined adversely to Action or its
subsidiaries, would individually or in the aggregate have an adverse effect on
the business, assets, properties, operating results, prospects, or condition,
financial or otherwise, of Action and its subsidiaries taken as a whole.
(j) RIGHTS AND LICENSES. Neither Action nor any of its subsidiaries
is subject to any material disability or liability by reason of its failure to
possess any trademark, trademark right, trade name, trade name right, or
license.
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(k) NO VIOLATION. The execution and delivery of this Agreement and
the consummation of the Mergers contemplated hereby will not violate or result
in a breach by Action or any of its subsidiaries (including Merger Subsidiary)
of, or constitute a default under, or conflict with, or cause any acceleration
of any obligation with respect to, (i) any provision or restriction of any
charter, bylaw, loan, indenture, or mortgage of Action or any of its
subsidiaries (including Merger Subsidiary), or (ii) any provision or restriction
of any lien, lease agreement, contract, instrument, order, judgment, award,
decree, ordinance, or regulation or any other restriction of any kind or
character to which any assets or properties of Action or any of its subsidiaries
(including Merger Subsidiary) is subject or by which Action or any of its
subsidiaries is bound.
(l) TAXES. Action has duly filed in correct form all Tax Returns
relating to the activities of Action and its subsidiaries required or due to be
filed (with regard to applicable extensions) on or prior to the date of this
Agreement. All such Tax Returns are accurate and complete in all material
respects, and Action has paid or made provision for the payment of all Taxes
that have been incurred or are due or claimed to be due from it by federal,
state, or local taxing authorities for all periods ending on or before the date
of this Agreement, other than Taxes or other charges that are not delinquent or
are being contested in good faith and have not been finally determined and have
been disclosed to Shareholder. The amounts set up as reserves for Taxes on the
books of Action and its subsidiaries are sufficient in the aggregate for the
payment of all unpaid Taxes (including any interest or penalties thereon),
whether or not disputed, accrued, or applicable. No claims for taxes or
assessments are being asserted or threatened against Action or any of its
subsidiaries.
(m) ACCOUNTS RECEIVABLE. The accounts receivable of Action and its
subsidiaries have been acquired in the ordinary course of business, are valid
and enforceable, and are fully collectible, subject to no known defenses,
setoffs, or counterclaims, except to the extent of the reserve reflected in the
books of Action and its subsidiaries or in such other amount that is not
material in the aggregate.
(n) CONTRACTS. Neither Action nor any of its subsidiaries is a party
to (i) any plan or contract providing for bonuses, pensions, options, stock
purchases, deferred compensation, retirement payments, or profit sharing, (ii)
any collective bargaining or other contract or agreement with any labor union,
(iii) any lease, installment purchase agreement, or other contract with respect
to any real or personal property used or proposed to be used in its operations
excepting, in each case, items included within aggregate amounts disclosed or
reflected in Action's Base Balance Sheet, (iv) any employment agreement or other
similar arrangement not terminable by it upon 30 days or less notice without
penalty to it, (v) any contract or agreement for the purchase of any commodity,
material, fixed asset, or equipment in excess of $100,000, (vi) any contract or
agreement creating an obligation of $100,000 or more, (vii) any contract or
agreement that by its terms does not terminate or is not terminable by it upon
30 days or less notice without penalty to it, (viii) any loan agreement,
indenture, promissory note, conditional sales agreement, or other similar type
of arrangement, (ix) any material license agreement, or (x) any contract that
may result in a material loss or obligation to it. All material contracts,
agreements, and other arrangements to which Action or any of its subsidiaries is
a party are valid and enforceable in accordance with their terms; Action, its
subsidiaries, and all other parties to each of the foregoing have performed all
obligations required to be performed to date; neither Action, nor any of its
subsidiaries, nor any such other party is in default or in arrears under the
terms of any of the foregoing; and no condition exists or event has occurred
that, with the giving of notice or lapse of time or both, would constitute a
default under any of them.
(o) COMPLIANCE WITH LAW AND OTHER REGULATIONS. Neither Action nor
any of its subsidiaries is subject to or has been threatened with any material
fine, penalty, liability, or disability as the result of its failure to comply
with any requirement of federal, state, local, or foreign law or regulation or
any requirement of any governmental body or agency having jurisdiction over it,
the conduct of its business, the use of its assets and properties, or any
premises occupied by it.
(p) INSURANCE. Action and each of its subsidiaries maintains in full
force and effect insurance coverage on their assets, properties, premises,
operations, and personnel in such amounts as Action deems appropriate.
(q) EMPLOYEES. Neither Action nor any of its subsidiaries has ever
maintained or contributed to any "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, without limitation, any stock
option plan, stock purchase plan, deferred compensation plan, or other similar
employee benefit plan, other
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than Action's Stock Option Plans. Neither Action nor any of its subsidiaries has
ever contributed to any "multi-employer pension plan," as such term is defined
in Section 3(37)(A) of ERISA.
(r) SEC REPORTS. Action's report on Form 10-K for the fiscal year
ended September 30, 1997, as amended by Form 10-K/A, filed with the SEC and all
reports and proxy statements filed by Action thereafter pursuant to Section
13(a) or 14(a) of the Securities Exchange Act of 1934, including Action's Form
10-Q Report for the quarter ended June 30, 1998, do not contain a misstatement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading as of the
time the document was filed. Since the filing of such report on Form 10-K, as
amended by Form 10-K/A, no other report, proxy statement, or other document has
been required to be filed by Action pursuant to Section 13(a) or 14(a) of the
Securities Exchange Act of 1934 that has not been filed.
(s) STATUS OF ACTION COMMON STOCK BEING ISSUED. The shares of Action
Common Stock issued in exchange for the Shares are validly authorized and
issued, fully paid, nonassessable, free of preemptive or other similar rights,
and will be authorized for trading on the Nasdaq National Market. Subject to
restrictions upon resale set forth in the Escrow Agreement and in the Pooling
Letter, the shares of Action Common Stock are identical in all respects to the
Action Common Stock issued and outstanding as of the date hereof by reason of
the provisions of the Arizona Business Corporation Act; provided, however, that
the shares of Action Common Stock will not be registered under the Securities
Act and are issued to Shareholders pursuant to a valid exemption from
registration under the Securities Act and applicable state securities laws.
(t) ACCURACY OF STATEMENTS. Neither this Agreement nor any
statement, list, certificate, or other information furnished by Action or Merger
Subsidiary to Shareholder in connection with this Agreement or any of the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading.
2.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Shareholders, Action, or Merger
Subsidiary in this Agreement shall survive the consummation of the transactions
contemplated by this Agreement for a period of three years from the date of this
Agreement (the "Expiration Date"), irrespective of any investigations or
inquiries made by any party or any knowledge that any party may possess, and
each party shall be entitled to rely upon such representations and warranties
irrespective of any investigations, inquiries, or knowledge. No claim for
recovery pursuant to Section 7 of this Agreement may be asserted after such
representations and warranties have expired; provided, however, that claims
first asserted pursuant to Section 7 of this Agreement prior to the expiration
of such representations and warranties shall not thereafter be barred.
SECTION 3
PRE-CLOSING COVENANTS
3.1 COVENANTS OF SHAREHOLDERS AND THE COMPANY. Shareholders and the
Company agree that, unless Action otherwise agrees in writing and except as set
forth in the Shareholders' Disclosure Schedule, between the date of this
Agreement and the Effective Date:
(a) PRESERVATION OF BUSINESS. Shareholders and the Company shall (i)
preserve intact the present business organization of the Company, (ii) preserve
the present goodwill and advantageous relationships of the Company with all
persons having business dealings with the Company, (iii) preserve and maintain
in force all licenses, registrations, franchises, patents, trademarks,
copyrights, bonds and other similar rights of the Company that are material to
its business, and (iv) keep intact its relationships with its employees,
representatives, and agents that are material to its business. The Company shall
not enter into any employment agreements with any of its officers or management
personnel which may not be cancelled without penalty upon notice not exceeding
30 days. The Company shall maintain in force all property, casualty, fiduciary,
directors and officers and other forms of insurance which it is presently
carrying.
(b) ORDINARY COURSE. The Company shall operate its business only in
the usual, regular and ordinary course and manner. Without limiting the
foregoing, the Company shall not (i) encumber or mortgage any
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property or assets, (ii) incur any obligation (contingent or otherwise) or
purchase or acquire, or transfer or convey, any material assets or properties or
enter into any transaction or make or enter into any contract or commitment
except in the ordinary course of business, (iii) acquire any stock or other
equity interest in any corporation, trust or other entity, (iv) waive any
material rights, or (v) pay any consulting or management fees in any material
amount.
(c) BOOKS AND RECORDS. The Company shall maintain its books,
accounts, and records in the usual, regular and ordinary manner, and on a basis
consistent with prior years, and shall comply with all laws applicable to them
or to the conduct of its business.
(d) NO ORGANIC CHANGE. Except as contemplated by this Agreement, the
Company shall not (i) amend its Articles of Incorporation or bylaws, (ii) make
any change in its capital stock by reclassification, subdivision, reorganization
or otherwise, or (iii) merge or consolidate with any other corporation, trust or
entity or change the character of its business.
(e) NO ISSUANCE OF SHARES, OPTIONS, OR OTHER SECURITIES. The Company
shall not (i) issue any shares of capital stock, or (ii) grant any option,
warrant or other right to purchase or to convert any obligation into shares of
capital stock.
(f) COMPENSATION. The Company shall not (i) increase the
compensation payable to any elected officer or to other management personnel
from the amount payable as of October 31, 1998 except in accordance with normal
and customary practice, or (ii) introduce or change any pension or profit
sharing plan, or any other employee benefit arrangement.
(g) DIVIDENDS. The Company shall not declare, make or pay any
dividend or other distribution with respect to its capital stock or otherwise or
purchase, redeem or otherwise acquire any shares of its capital stock.
(h) CONFIDENTIALITY. Until the Effective Date, the Company and
Shareholders will maintain as confidential the discussions with Action and/or
Merger Subsidiary and the terms and conditions of this Agreement and the other
agreements to be executed in connection herewith and, except as required by law,
will not make any trade, press or other announcement or disclosure in relation
to such discussions, whether before or after the Effective Date, without the
prior written consent of Action.
(i) OBLIGATION TO UPDATE INFORMATION. The Company and Shareholders
shall promptly give Action and Merger Subsidiary written notice of the existence
or occurrence of any condition which would make any representation or warranty
of the Company or Shareholders untrue or result in the breach of any agreement
or covenant by the Company or Shareholders, or which might reasonably be
expected to prevent the consummation of the transactions herein contemplated.
(j) CONSENTS AND APPROVALS. The Company and Shareholders shall use
its best efforts to obtain all necessary consents and approvals of other persons
and governmental authorities to the performance by the Company of the
transactions contemplated by this Agreement. The Company and Shareholders shall
make all filings, applications, statements, and reports to all federal and state
government agencies or entities which are required to be made prior to the
Effective Date by or on behalf of the Company pursuant to any statute, rule or
regulation in connection with the transactions contemplated by this Agreement.
3.2 COVENANTS OF ACTION AND MERGER SUBSIDIARY. Each of Action and Merger
Subsidiary agrees that, unless the Company otherwise agrees in writing and
except as set forth in the Action's Disclosure Schedule, between the date of
this Agreement and the Effective Date:
(a) PRESERVATION OF BUSINESS. Action shall use its best efforts to
(i) preserve intact the present business organization of Action and its
subsidiaries, (ii) preserve the present goodwill and advantageous relationships
of Action and its subsidiaries with investors and all other persons having
business dealings with Action and its subsidiaries, (iii) preserve and maintain
in force all licenses, registrations, franchises, patents, trademarks,
copyrights, bonds, and other similar rights of Action and its subsidiaries that
are material to its business, and (iv) keep intact its relationships with its
employees, representatives, and agents that are material to its business.
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<PAGE> 20
(b) ORDINARY COURSE. Action and its subsidiaries shall operate their
businesses only in the usual, regular, and ordinary course and manner.
(c) BOOKS AND RECORDS. Action and its subsidiaries shall maintain
their books, accounts and records in the usual, regular, and ordinary manner,
and on a basis consistent with prior years, and shall comply with all laws
applicable to them or to the conduct of their business.
(d) NO ORGANIC CHANGE. Except as contemplated by this Agreement,
Action shall not (i) amend its Articles of Incorporation or bylaws, (ii) make
any change in its capital stock by reclassification, subdivision, reorganization
or otherwise, or (iii) merge or consolidate with any other corporation, trust or
entity or change the character of its business.
(e) DIVIDENDS. Action shall not declare, make or pay any dividend or
other distribution with respect to its capital stock or otherwise or purchase,
redeem or otherwise acquire any shares of its capital stock.
(f) OBLIGATION TO UPDATE INFORMATION. Action and Merger Subsidiary
shall promptly give the Company and Shareholders written notice of the existence
or occurrence of any condition which would make any representation or warranty
of Action and Merger Subsidiary untrue or result in the breach of any agreement
or covenant by Action or Merger Subsidiary, or which might reasonably be
expected to prevent the consummation of the transactions herein contemplated.
(g) CONSENTS AND APPROVALS. Action and Merger Subsidiary shall use
their best efforts to obtain all necessary consents and approvals of other
persons and governmental authorities to the performance by Action of the
transactions contemplated by this Agreement. Action and Merger Subsidiary shall
make all filings, applications, statements and reports to all federal and state
government agencies and entities which are required to be made prior to the
Effective Date by or on behalf of Action or its subsidiaries pursuant to any
statute, rule or regulation in connection with the transactions contemplated by
this Agreement.
SECTION 4
CONDITIONS PRECEDENT TO OBLIGATIONS
4.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACTION AND MERGER
Subsidiary. The obligations of Action and Merger Subsidiary under this Agreement
are, at the option of Action and Merger Subsidiary, subject to the satisfaction
of the following conditions on or before the Effective Date:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company and Shareholders herein contained shall have been
true and correct in all material respects when made, and, in addition, shall be
true and correct in all material respects on and as of the Effective Date with
the same force and effect as though made on and as of the Effective Date, except
as affected by the transactions contemplated hereby.
(b) PERFORMANCE OF AGREEMENTS. The Company and Shareholders shall
have in all material respects performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement to be
performed and complied with by them on or prior to the Effective Date.
(c) CORPORATE APPROVALS. All necessary corporate action on the part
of the directors and shareholders of the Company adopting this Agreement and
approving the transactions contemplated hereby shall have been taken by the
Effective Date.
(d) NO MATERIAL ADVERSE CHANGE. There shall be no material adverse
change in the business, properties or financial condition of the Company.
(e) LITIGATION. No action or proceeding by any governmental agency
shall have been instituted or threatened which would enjoin, restrain or
prohibit, or might result in substantial damages in respect of this Agreement or
the consummation of the transactions contemplated by this Agreement, and would
in the reasonable judgment of Action or Merger Subsidiary make it inadvisable to
consummate such transactions, and no
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court order shall have been entered in any action or proceeding instituted by
any other party which enjoins, restrains or prohibits this Agreement or
consummation of the transactions contemplated by this Agreement.
(f) POOLING LETTER. At or prior to the Closing, Shareholders shall
have executed and delivered the pooling letter in the form as set forth on
Exhibit B hereto (the "Pooling Letter").
(g) EMPLOYMENT AGREEMENT. At or prior to the Closing, Falcione shall
have executed and delivered an employment agreement in the form attached as
Exhibit C hereto (the "Employment Agreement").
(h) REGISTRATION RIGHTS AGREEMENT. At or prior to the Closing,
Shareholders shall have executed and delivered a registration rights agreement
in the form attached as Exhibit D hereto (the "Registration Rights Agreement")
with respect to the registration for resale of the Action Common Stock to be
issued to the Shareholders in exchange for the Shares.
(i) OPINION OF COUNSEL. At or prior to the Closing, Shareholders
shall have delivered to Action an opinion of counsel substantially to the effect
as set forth in Exhibit E hereto.
(j) EXECUTION OF ESCROW AGREEMENT. At or prior to the Closing,
Shareholders shall have executed and delivered an escrow and security agreement
in the form attached as Exhibit F hereto (the "Escrow Agreement").
(k) CANCELLATION OF PROMISSORY NOTES. At the Closing, Shareholders
shall have delivered to Action the Notes (as defined below), marked "Cancelled."
(l) ACQUISITION OF TRADEMARK RIGHTS. The Company shall have acquired
all right, title, and interest in and to that certain trademark registration for
the name "Go Racing!" identified by Registration No. 2,145,010 issued March 17,
1998 by the U.S. Patent and Trademark Office.
(m) PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings taken by
the Company and Shareholders and all instruments executed and delivered by the
Company or Shareholders on or prior to the Effective Date in connection with the
transactions herein contemplated shall be satisfactory in form and substance to
counsel for Action.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND
Shareholders. The obligations of the Company and Shareholders under this
Agreement are, at the option of the Company and Shareholders, subject to the
satisfaction of the following conditions on or before the Effective Date.
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Action and Merger Subsidiary herein contained shall have been
true and correct in all material respects when made and, in addition, shall be
true and correct in all material respects on and as of the Effective Date with
the same force and effect as though made on and as of the Effective Date, except
as affected by the transactions contemplated hereby.
(b) PERFORMANCE OF AGREEMENTS. Action and Merger Subsidiary shall
have in all material respects performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement to be
performed and complied with by Action and Merger Subsidiary on or prior to the
Effective Date.
(c) CORPORATE APPROVAL. All necessary corporation action on the part
of the directors and shareholders of Action and Merger Subsidiary approving and
adopting this Agreement and approving the transactions contemplated hereby shall
have been taken by the Effective Date.
(d) OPINION OF COUNSEL. At or prior to the Closing, Action shall
have delivered to Shareholders an opinion of counsel substantially to the effect
as set forth in Exhibit G hereto.
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<PAGE> 22
(e) NO MATERIAL ADVERSE CHANGE. There shall be no material adverse
change in the business, properties or financial condition of Action or Merger
Subsidiary.
(f) LITIGATION. No action or proceeding by any governmental agency
shall have been instituted or threatened which would enjoin, restrain or
prohibit, or might result in substantial damages in respect of this Agreement or
the consummation of the transactions contemplated by this Agreement, and would
in the reasonable judgment of the Company or Shareholders make it inadvisable to
consummate such transactions, and no court order shall have been entered in any
action or proceeding instituted by any other party which enjoins, restrains or
prohibits this Agreement or consummation of the transactions contemplated by
this Agreement.
(g) EXECUTION OF EMPLOYMENT AGREEMENT. At or prior to the Closing,
Merger Subsidiary shall have executed and delivered the Employment Agreement.
(h) EXECUTION OF REGISTRATION RIGHTS AGREEMENT. At or prior to the
Closing, Action shall have executed and delivered the Registration Rights
Agreement.
(i) EXECUTION OF ESCROW AGREEMENT. At or prior to the Closing,
Action shall have executed and delivered the Escrow Agreement.
(j) PAYMENT OF PROMISSORY NOTES. At the Closing, Action shall pay to
the Estate, as holder of that certain Promissory Note dated August __, 1996, and
that certain Revolving Credit Promissory Note dated August __, 1996, each
between the Company, as maker, and Vincent D. Barletta, as payee and each as
modified by that certain Note Modification Letter Agreement dated November 19,
1998 between the Company and the Estate (collectively and as modified, the
"Notes"), the outstanding principal amount of $600,000.00 together with accrued
and unpaid interest in the amount of $60,000.00.
(k) PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings taken by
Action and Merger Subsidiary and all instruments executed and delivered by and
on or prior to the Closing Date in connection with the transactions herein
contemplated shall be satisfactory in form and substance to counsel for the
Company and Shareholders.
SECTION 5
WAIVER, MODIFICATION, ABANDONMENT
5.1 WAIVERS. The failure of the Company or Shareholders to comply with any
of their obligations, agreements or conditions as set forth herein may be waived
expressly in writing by Action and Merger Subsidiary, without the requirement
for a vote of stockholders. The failure of Action and Merger Subsidiary to
comply with any of their obligations, agreements or conditions as set forth
herein may be waived expressly in writing by the Company and Shareholders
without the vote of Shareholders.
5.2 MODIFICATION. This Agreement may be modified at any time in any
respect by the mutual consent of Action, Merger Subsidiary, the Company, and
Shareholders. Any such modification may be approved by any such party, without
further shareholder approval, except that the number of shares of Common Stock
to be issued in exchange for the Shares may not be decreased without the consent
of the Company's shareholders given by the same vote as is required under
applicable state law for approval of this Agreement.
5.3 ABANDONMENT PRIOR TO CLOSING DATE. The Merger may be abandoned on or
before the Closing Date:
(a) By the mutual agreement of Action, Merger Subsidiary, the
Company, and the Shareholders;
(b) By Action or Merger Subsidiary, if any of the conditions
provided in Section 4.1 shall not have been satisfied, complied with or
performed in any material respect, and Action and Merger Subsidiary shall not
have waived such failure of satisfaction, noncompliance or nonperformance;
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<PAGE> 23
(c) By the Company and Shareholders, if any of the conditions
provided in Section 4.2 shall not have been satisfied, complied with or
performed in any material respect, and the Company and Shareholders shall not
have waived such failure of satisfaction, noncompliance or nonperformance; or
(d) At the option of Action, Merger Subsidiary, the Company or
Shareholders, if there shall have been instituted and be pending or threatened
any legal proceeding before any court or governmental agency seeking to restrain
or prohibit or to obtain damages in respect of this Agreement or the
consummation of the Merger contemplated by this Agreement, or if any order
restraining or prohibiting the Merger shall have been issued by any court or
governmental agency and shall be in effect.
(e) In the event of any termination pursuant to this Section 5.3
(other than pursuant to Section 5.3(a), written notice setting forth the reasons
thereof shall forthwith be given by Shareholders if the Company or Shareholders
is the terminating party, to Action and Merger Subsidiary, or by Action and
Merger Subsidiary, if they are the terminating parties, to the Company and
Shareholders. This Agreement shall terminate automatically if the Effective Date
shall not have occurred on or before December 15, 1998, or such later date as
shall have been agreed to by Action, Merger Subsidiary, the Company, and the
Shareholders under Section 5.2.
5.4 EFFECT OF ABANDONMENT. If the Merger is abandoned prior to the Closing
Date, (a) this Agreement shall forthwith become wholly void and of no effect
without liability to any party to this Agreement or to the directors, officers,
representatives, and agents of any such party, and (b) Action and Merger
Subsidiary on the one hand and the Company and on the other hand shall each pay
their own fees and expenses incident to the negotiation, preparation, and
execution of this Agreement and the obtaining of the necessary approvals
thereof, including fees and expenses of their counsel, accountants, investment
bankers, and other experts. If the Merger does not take place as a result of the
fault of any party, that party shall reimburse all fees, costs, expenses, and
damages incurred or suffered by the other parties.
SECTION 6
POST-CLOSING COVENANTS
6.1 FILING OF TAX RETURNS AND PAYMENT OF TAXES. Shareholders shall, at
their cost and expense, provide all information or other assistance as may
reasonably be requested by Action to enable Action or the Company to prepare or
cause to be prepared all federal, state, and local Tax Returns with respect to
the Company for all periods prior to the Effective Date that have not as yet
been filed as required. Each Shareholder agrees that Shareholders shall be
jointly and severally responsible for any and all tax obligations of the Company
or Shareholders arising as a result of the Company's status as either a C
corporation or an S corporation prior to the Effective Date. Each Shareholder
agrees that Shareholders shall promptly pay any and all Taxes determined to be
owed by the Company or Shareholders as a result of the Company's status as
either a C corporation or S corporation prior to the Effective Date.
6.2 NON-COMPETITION, NON-DISCLOSURE, AND NON-SOLICITATION. Action is
unwilling to enter into and perform this Agreement unless Falcione enters into
the non-competition, non-disclosure, and non-solicitation agreements contained
in this Section 6.2. To induce Action to enter into this Agreement, Falcione
agrees as follows:
(a) NON-COMPETITION. Neither Falcione nor any person or entity
directly or indirectly in control of or controlled by Falcione (each, a
"Falcione's Affiliate") shall for a period of five years after the Effective
Date (or such lesser period to the maximum extent provided by applicable law),
directly or indirectly, for itself or himself or on behalf of any other person,
firm, partnership, corporation, or other entity, anywhere in the world, engage
in any business relating to the design, creation, development, implementation,
maintenance, or distribution of, or consulting services related to, Internet
web-sites and related content relating to or associated with motorsports or
automobile racing. The five-year period referred to in this Section 6.2(a) shall
be stayed during any violation or breach of the terms of this Section 6.2(a).
(b) CONFIDENTIAL INFORMATION. Falcione recognizes that the Company
is engaged in a highly competitive business, the success of which is dependent
upon confidential and proprietary information. Falcione agrees that Falcione and
each of Falcione's Affiliates will maintain in strict secrecy and confidence all
confidential, proprietary, or other information relating to the Company's,
Merger Subsidiary's, or Action's business, which
17
<PAGE> 24
information is obtained by or comes into the knowledge or possession of Falcione
or Falcione's Affiliates. Furthermore, neither Falcione nor any of Falcione's
Affiliates will, unless first authorized in writing by Action, disclose to any
person, firm, or other entity, or use for the benefit of Falcione, Falcione's
Affiliates or for the benefit of any person, firm, or other entity, at any time,
after the Effective Date, any confidential information, relating to the
Company's or Action's business. For purposes of this Agreement, confidential
information will include, without limitation, any trade secrets, knowledge or
information with respect to processes, techniques, procedures, or know-how
unique to the Company or Action, or to which the Company or Action has been
given access in confidence by a third party pursuant to any agreement with that
third party; the names of any of the Company's or Action's customers or vendors;
the prices at which the Company or the Action obtains or has obtained or at
which the Company or Action sells or has sold the Company's or Action's products
or services or at which the Company or Action has bought materials, supplies or
services; or any other information of, about or concerning the business of the
Company or Action. Falcione understands and agrees that all confidential
information is a valuable and special asset of the Company and Action and is
important, material, and confidential, that such confidential information
gravely affects the effective and successful conduct of the business of the
Company and Action and the Company's and Action's goodwill, and that any breach
of the terms of this Section 6.2(b) would be a material breach of this
Agreement.
(c) NONSOLICITATION. Neither Falcione nor any of Falcione's
Affiliates shall, for a period of five years after the Effective Date (or such
lesser period to the maximum extent provided by applicable law), directly or
indirectly, for Falcione, Falcione's Affiliates, or on behalf of, or in
connection with any person, firm, or other entity other than Action, request any
past, present, or future suppliers or customers of the Company or Action to
curtail or cancel their business with the Company or Action; solicit, canvas,
accept, encourage or authorize any other person to solicit, canvas, accept,
authorize or encourage, from any past or present supplier or customer of the
Company or Action, any business for any other person, firm, or corporation
engaged in a business the same as, similar to or in general competition with the
business of the Company or Action; or induce or attempt to influence any
employee, independent contractor, or agent of the Company or Action to terminate
that person's employment with or engagement by the Company or Action. The
five-year period referred to in this Section 6.2(c) shall be stayed during any
violation or breach of the terms of this Section 6.2(c).
(d) REASONABLENESS AND REMEDIES. Falcione specifically acknowledges
that because its business involves services related to the "World Wide Web," the
Company currently operates its business throughout the world and the geographic
and time restrictions in this Section 6.2 are necessary and reasonable. Falcione
hereby acknowledges and agrees that the restrictions set forth in this Section
6.2 are reasonable and necessary, that any violation thereof would result in
substantial and irreparable injury to Action, and that Action may not have an
adequate remedy at law with respect to any such violation. Accordingly, Falcione
agrees that, in the event of any actual or threatened violation of this Section
6.2, Action shall have the right and privilege to obtain, in addition to any
other remedies that may be available, equitable relief, including temporary and
permanent injunctive relief, to cease or prevent any actual or threatened
violation of any provision hereof.
(e) SEVERABILITY; REFORMATION. Each and every provision set forth in
this Section 6.2 is independent and severable from the others, and no
restriction will be rendered unenforceable by virtue of the fact that, for any
reason, any other or others of them may be unenforceable in whole or in part. If
any provision of this Section 6.2 is unenforceable for any reason whatsoever,
that provision will be appropriately limited and reformed to the maximum extent
provided by applicable law. If the scope of any restriction contained herein is
too broad to permit enforcement to its full extent, then such restriction shall
be enforced to the maximum extent permitted by law so as to be judged reasonable
and enforceable, and Falcione agrees that such scope may be modified by an
arbitrator or judge in any proceeding to enforce this Section 6.2. This
includes, without limitation, altering or enforcing only portions of the limits
on activity restrictions, the geographic scope, and the duration of this Section
6.2 unless to do so would be contrary to law or public policy.
6.3 TAX AND ACCOUNTING TREATMENT. Action and each of the Shareholders
shall use their respective reasonable best efforts to cause the Merger to
qualify as a reorganization under the provisions of Section 368 of the Internal
Revenue Code. Except as disclosed on the Shareholders' Disclosure Schedule or as
otherwise consented to in writing by Action, neither Action nor any of the
Shareholders shall take any action (including, but not limited to, sales of the
Action Common Stock prior to any applicable time periods required for
pooling-of-interests treatment) after the Effective Date to cause the Merger not
to be accounted for as a pooling-of-interests business combination.
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<PAGE> 25
6.4 FURTHER ASSURANCES. On and after the Effective Date, Shareholders and
Action shall execute and deliver all such deeds, bills of sale, assignments, and
other instruments and shall take or cause to be taken such further or other
actions as any party may reasonably request from time to time in order to
effectuate the transactions provided for herein. The parties shall cooperate
with each other and with their respective counsel and accountants in connection
with any steps to be taken as a part of their respective obligations under this
Agreement.
SECTION 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY SHAREHOLDERS. If at any time after the Effective
Date until the Expiration Date it is discovered that any representation or
warranty of Shareholders contained or referred to in this Agreement or in any
certificate, schedule, exhibit, or document delivered pursuant hereto was
incomplete, incorrect or untrue, or that the Company or Shareholders breached
any covenant or agreement contained in this Agreement, Shareholders shall
promptly pay Action the amount of the loss, expense, or damage suffered or
incurred by Action that would not have been suffered or incurred if the facts
set forth in those representations or warranties had been correct or those
covenants and agreements had not been breached. Without in any way limiting any
of the rights of Action, Shareholders severally (up to their respective
percentage ownership of the Company immediately prior to the Merger), but not
jointly, shall indemnify and hold Action, Merger Subsidiary, the Company, and
their respective employees, agents, representatives, and all other persons or
entities charged or chargeable with responsibility or liability therefor,
harmless for, from, and against all liabilities, suits, actions, proceedings,
claims, demands, losses, damages, fees, costs, taxes, penalties, and expenses
(including, but not limited to, reasonable attorneys' and accountants' fees)
caused by, arising out of, or otherwise related to the operation of the
Company's business prior to the Effective Date.
7.2 INDEMNIFICATION BY ACTION. If at any time after the Effective Date
until the Expiration Date it is discovered that any representation or warranty,
of Action contained or referred to in this Agreement or in any certificate,
schedule, exhibit, or document delivered pursuant hereto was incomplete,
incorrect or untrue, or that Action breached any covenant or agreement contained
in this Agreement, Action shall promptly pay Shareholders the amount of the
loss, expense, or damage suffered or incurred by Shareholders that would not
have been suffered or incurred if the facts set forth in those representations
or warranties had been correct or those covenants and agreements had not been
breached. Without in any way limiting any of the rights of Shareholders, Action
shall indemnify and hold Shareholders and their employees, agents,
representatives, and all other persons or entities charged or chargeable with
responsibility or liability therefor, harmless for, from, and against all
liabilities, suits, actions, proceedings, claims, demands, losses, damages,
fees, costs, taxes, penalties and expenses (including, but not limited to,
reasonable attorneys' and accountants' fees) caused by, arising out of or
otherwise related to the operation of the Company's business subsequent to the
Effective Date.
7.3 NOTICE AND RIGHT TO DEFEND THIRD-PARTY CLAIMS. Promptly upon receipt
of notice of any claim, demand, or assessment or the commencement of any suit,
action, or proceeding with respect to which indemnity may be sought pursuant to
this Agreement (a "Third Party Claim"), Action or Shareholders, as the case may
be, (the "Indemnitee") shall notify in writing, if possible, within sufficient
time to respond to such Third Party Claim or to answer or otherwise plead in
such action (but in any event within 30 days), the party from whom
indemnification is sought (the "Indemnitor"). In case any Third Party Claim
shall be asserted, or any suit, action, or proceeding commenced against the
Indemnitee, the Indemnitor shall be entitled, at the Indemnitor's expense, to
participate therein, and, to the extent that the Indemnitor may wish, to assume
the defense, conduct, or settlement thereof, at the Indemnitor's own expense,
with counsel satisfactory to the Indemnitee, whose consent to the selection of
counsel shall not be unreasonably withheld or delayed, provided that the
Indemnitor confirms to the Indemnitee that it is a claim to which its rights of
indemnification apply. The assumption of the defense, compromise, and settlement
of such Third Party Claim by the Indemnitor shall be an acknowledgement of the
obligation of the Indemnitor to indemnify the Indemnitee with respect to such
claim hereunder. The Indemnitor shall have the right to settle or compromise
monetary claims. As to any settlement or compromise of any other claim, however,
the Indemnitor shall first obtain the prior written consent from the Indemnitee,
which consent shall be exercised in the sole discretion of the Indemnitee. If
the Indemnitor decides not to participate, the Indemnitee shall be entitled, at
the Indemnitor's expense, to defend, conduct, settle, or compromise such matter
with counsel satisfactory to the Indemnitor, whose consent to the selection of
counsel shall not be unreasonably withheld or delayed. Notwithstanding the
above, if, in the reasonable opinion of the Indemnitee, any Third Party Claim or
the litigation or
19
<PAGE> 26
resolution thereof involves an issue or matter that could have a material
adverse effect on the business, operations, assets, properties, or prospects of
the Indemnitee (including, without limitation, the administration of the tax
returns and responsibilities of the Indemnitee under applicable tax laws), the
Indemnitee shall have the right to control the defense, compromise, and
settlement of such Third Party Claim undertaken by the Indemnitor, and the costs
and expenses of the Indemnitee in connection therewith shall be included as part
of the indemnification obligation of the Indemnitor hereunder. If the Indemnitee
shall elect to exercise such right, the Indemnitor shall have the right to
participate in, but not to control, the defense, compromise, and settlement of
such Third Party Claim at its sole cost and expense.
7.4 LIMITATIONS ON INDEMNIFICATION; SECURITY FOR THE SHAREHOLDERS'
INDEMNIFICATION AND OTHER OBLIGATIONS. Action may recover for indemnification
under this Section 7 only from the Action Common Stock paid to Shareholders
pursuant to this Agreement, valued at the average of the per-share closing sale
prices of the Common Stock on the Nasdaq National Market on each trading day
from (and including) the date on which the existence of this Agreement is
publicly announced through (and including) the Effective Date (the "Per Share
Value"), provided, however, that to the extent Shareholders have sold shares of
Action Common Stock and the number of shares they continue to hold is not
sufficient to satisfy such indemnification obligation, then Action may recover
from Shareholders' other assets. Except as may otherwise be permitted and still
preserve pooling-of-interests accounting treatment, it is hereby understood and
agreed that Action may only satisfy an indemnification obligation arising under
this Agreement through payment of additional shares of its Common Stock, valued
at the Per Share Value. At the Closing, Action and each of the Shareholders
shall enter into the Escrow Agreement with respect to the Held Back Shares. As
security for the Agreement by the Shareholders to indemnify and hold Action
harmless as described in this Section 7, Action shall deliver certificates
representing the Held Back Shares to the "Escrow Agent" (as defined in the
Escrow Agreement), to be held pursuant to the terms of the Escrow Agreement.
Action may set off against the Held Back Shares any loss, damage, cost, or
expense for which Shareholders may be responsible pursuant to this Agreement
whether or not indemnified pursuant to this Section 7, subject, however, to the
terms and conditions of the Escrow Agreement. Action and Shareholders agree that
any shares remaining in escrow upon expiration of the Escrow Agreement shall be
returned to Shareholders, subject to Action's rights to recover from
Shareholders for any claims that remain pending but unresolved at the time the
Escrow Agreement expires or any further claims that arise prior to the
Expiration Date. Notwithstanding any term of this Agreement to the contrary, no
provision of this Agreement shall limit or be deemed to limit any liability that
one party may have against any other parties hereto (i) that arises by statute
or any applicable federal, state, or local law, or (ii) with respect to a claim
of fraud.
7.5 FURTHER LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything to
the contrary in this Agreement, no Indemnitor shall have any obligation to
indemnify any Indemnitee pursuant to this Section 7 for individual claims of
less than $25,000 ("Small Claims"). Furthermore, no Indemnitor shall have any
obligation to indemnify any Indemnitee pursuant to this Section 7 unless and
until such Indemnitee has suffered indemnifiable loss, expense, or damage in
excess of an aggregate $150,000 deductible for all losses, expenses, or damages
suffered or incurred, including Small Claims, (i.e., a cumulative deductible
amount for all occurrences, including Small Claims, and not on a per-occurrence
basis), after which point the Indemnitor will be obligated to indemnify the
Indemnitee for, from, and against the amount of losses, expenses, or damages
suffered or incurred by the Indemnitee in excess of such aggregate $150,000
deductible amount. Notwithstanding anything to the contrary in this Agreement,
Shareholders shall have no obligation to indemnify Buyer and Merger Subsidiary,
and Buyer and Merger Subsidiary shall have no obligation to indemnify
Shareholders, for, from and against losses, expenses, or damages suffered or
incurred to the extent that such losses, expenses, or damages in the aggregate
(i.e., not on a per-occurrence basis) exceed the product of (A) 137,923 shares
times (B) the Per Share Value.
7.6 CERTAIN CLAIMS BY SHAREHOLDERS. As of the Effective Date, each of the
Shareholders hereby releases and forever discharges the Company of and from any
and all obligations, defaults, acts, actions, causes of action, suits,
proceedings, disputes, rights, claims, and demands, at law or in equity (whether
real or contingent, known or unknown), that such Shareholder ever had or now has
relating to or arising from the actions or omissions of the Company or any of
its other shareholders, officers, directors, employees, agents, representatives,
or any of their respective family members, heirs, successors and assigns;
provided, however, that nothing set forth in this Section 7.6 shall release any
of the parties hereto from any breach of the covenants, representations or
warranties set forth in this Agreement or from the performance of any of the
obligations set forth in this Agreement or any documents or instrument delivered
pursuant hereto. With respect to any action, lawsuit, proceeding, complaint,
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<PAGE> 27
claim or demand brought by the Action or the Company against any of the
Shareholders pursuant to or arising under this Agreement, each Shareholder
hereby agrees that he or it will not make any claim for indemnification against
Action or the Company by reason of the fact that he or it is or was a director,
officer, employee or agent of the Company or was serving at the request of the
Company as a director, officer, employee or agent of another entity, whether
such claim is for judgment, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses or otherwise or whether such claim is made pursuant
to any statute, charter document, bylaw, agreement or otherwise.
7.7 INDEMNIFICATION TO BE SOLE REMEDY. The rights of indemnification
provided for in this Section 7 shall be the sole or exclusive remedy of any
party hereto for any breach of any representation, warranty, or any other matter
governed by this Agreement.
SECTION 8
GENERAL
8.1 COSTS AND INDEMNITY AGAINST FINDERS. Each party hereto shall be
responsible for its own costs and expenses in negotiating and performing this
Agreement and hereby indemnifies and holds the other parties harmless against
any claim for finders' fees based on alleged retention of a finder by it.
8.2 CONTROLLING LAW. This Agreement and all questions relating to its
validity, interpretation, performance, and enforcement shall be governed by and
construed in accordance with the laws of the state of Arizona, notwithstanding
any Arizona or other conflict-of-law provisions to the contrary.
8.3 NOTICES. All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made, and received (i) if personally delivered,
on the date of delivery, (ii) if by facsimile transmission, upon receipt, (iii)
if mailed, three days after deposit in the United States mail, registered or
certified, return receipt requested, postage prepaid, and addressed as provided
below, or (iv) if by a courier delivery service providing overnight or
"next-day" delivery, on the next business day after deposit with such service
addressed as follows:
If to Action or Merger Subsidiary: If to the Company or Shareholders:
Action Performance Companies, Inc. 1095 Turnpike Street
4707 E. Baseline Road Canton, MA 02021
Phoenix, AZ 85040 Attention: Roger J. Falcione
Attention: President Fax: (781) 828-1538
Fax: (602) 337-3780
with a copy given in the manner with a copy given in
the manner prescribed above, to: prescribed above, to:
O'Connor, Cavanagh, Anderson, Goodwin, Procter & Hoar LLP
Killingsworth & Beshears, P.A. Exchange Place
One East Camelback Road 53 State Street
Phoenix, Arizona 85012 Boston, MA 02109
Attention: Robert S. Kant, Esq. Attention: Stuart M. Cable, Esq.
Fax: (602) 263-2900 Fax: (607) 305-6550
with an additional copy given
in the manner described above to:
John G. Bulman, Esq.
72 Old Forge Road
Scituate, MA 02071
Fax: (781) 544-1391
Any party may alter the address to which communications or copies are to be
sent by giving notice to such other parties of change of address in
conformity with the provisions of this paragraph for the giving of notice.
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<PAGE> 28
8.4 BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors, and assigns, except that no party may assign, delegate, or
transfer its rights or obligations under this Agreement without the prior
written consent of the other parties hereto. Any assignment, delegation, or
transfer made in violation of this Section 8.4 shall be null and void.
8.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits attached hereto, contains the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, inducements, and conditions, express
or implied, oral or written, except as herein contained. The express terms
hereof control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
8.6 PARAGRAPH HEADINGS. The paragraph headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
8.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ACTION PERFORMANCE COMPANIES, INC.
/s/ CHRISTOPHER S. BESING
By:_______________________________________
Its: Chief Financial Officer
______________________________________
/s/ DAVID HUSBAND
By:__________________________________________
Its: David Husband, Chief Accounting Officer
_________________________________________
ACTION INTERACTIVE, INC.
/s/ CHRISTOPHER S. BESING
By:__________________________________________
Its: Chief Financial Officer
_________________________________________
TECH 2000 WORLDWIDE, INC.
/s/ ROGER J. FALCIONE
By:__________________________________________
Its: President
_________________________________________
/s/ ROGER J. FALCIONE
_____________________________________________
ROGER J. FALCIONE
THE ESTATE OF VINCENT D. BARLETTA
/s/ PATRICIA I. BARLETTA
By:__________________________________________
Its: Executrix
_________________________________________
<PAGE> 30
SCHEDULE 1.5(b)
<TABLE>
<CAPTION>
TOTAL NUMBER
OF SHARES OF NUMBER OF
NUMBER OF SHARES ACTION NUMBER OF SHARES TO BE
COMPANY TO COMMON STOCK HELD-BACK ISSUED DIRECTLY
SHAREHOLDER BE TRANSFERRED TO BE ACQUIRED SHARES TO SHAREHOLDERS
----------- -------------- -------------- ------ ---------------
<S> <C> <C> <C> <C>
ROGER J. FALCIONE 10,000 117,235 11,724 105,511
THE ESTATE OF
VINCENT D. BARLETTA 1,765 20,688 2,069 18,619
------ ------- ------ -------
TOTAL 11,765 137,923 13,793 124,130
</TABLE>
<PAGE> 1
EXHIBIT 5
[GREENBERG TRAURIG, P.A. letterhead]
September 3, 1999
goracing.com, inc.
4707 East Baseline Road
Phoenix, Arizona 85040
RE: REGISTRATION STATEMENT ON FORM S-1
goracing.com, inc.
Ladies and Gentlemen:
As legal counsel to goracing.com, inc., a Delaware corporation
(the "Company"), we have assisted in the preparation of the Company's
Registration Statement on Form S-1 (the "Registration Statement"), as filed with
the Securities and Exchange Commission in connection with the registration under
the Securities Act of 1933, as amended, of shares of common stock of the Company
covered by the Registration Statement (the "Shares"). The facts, as we
understand them, are set forth in the Registration Statement.
With respect to the opinion set forth below, we have examined
originals, certified copies, or copies otherwise identified to our satisfaction
as being true copies, only of the following:
A. The Certificate of Incorporation of the Company, as
amended to date;
B. The Bylaws of the Company;
C. The Registration Statement; and
D. The resolutions of the Board of Directors of the
Company relating to the approval of the filing of the
Registration Statement and the transactions in
connection therewith.
Subject to the assumptions that (i) the documents and
signatures examined by us are genuine and authentic and (ii) the persons
executing the documents examined by us have the legal capacity to execute such
documents, and subject to the further limitations and qualifications set forth
below, it is our opinion that, when (a) the Registration Statement as then
amended shall have been declared effective by the Commission, (b) the
Underwriting Agreement shall have
<PAGE> 2
goracing.com, inc.
September 3, 1999
been duly executed and delivered, and (c) the Shares have been duly issued,
authenticated, paid for, sold, and delivered, by the Company as described in the
Registration Statement and in accordance with the provisions of the Underwriting
Agreement, the Shares will be duly authorized, validly issued, fully paid, and
nonassessable.
Our opinion is limited to the legality of matters under
federal securities laws and the General Corporation Laws of the State of
Delaware. Further, our opinion is based solely upon existing laws, rules, and
regulations and we undertake no obligation to advise you of any changes that may
be brought to our attention after the date hereof.
We hereby expressly consent to any reference to our firm in
the Registration Statement and in any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 for this same offering, the
inclusion of this opinion as an exhibit to the Registration Statement and the
incorporation by reference into any such additional registration statement, and
to the filing of this opinion with any other appropriate governmental agency.
Very truly yours,
/s/ Greenberg Traurig, P.A.
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
DATED AS OF NOVEMBER _____, 1998
BETWEEN
TECH 2000 WORLDWIDE, INC.
AND
ROGER J. FALCIONE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
1. EMPLOYMENT.............................................................................................. 1
2. FULL TIME OCCUPATION.................................................................................... 1
3. COMPENSATION AND OTHER BENEFITS......................................................................... 1
(a) Salary......................................................................................... 1
(b) Bonus.......................................................................................... 1
(c) Stock Options.................................................................................. 1
(d) Fringe Benefits................................................................................ 2
(e) Reimbursement.................................................................................. 2
4. TERM OF EMPLOYMENT...................................................................................... 2
(a) Employment Term................................................................................ 2
(b) Termination Under Certain Circumstances........................................................ 2
(i) Death................................................................................. 2
(ii) Disability............................................................................ 2
(iii) Unilateral Decision of Employer....................................................... 2
(iv) Unilateral Decision by Employee....................................................... 2
(v) For "Cause\........................................................................... 2
(c) Result of Termination.......................................................................... 3
5. COMPETITION AND CONFIDENTIAL INFORMATION................................................................ 3
(a) Interests to be Protected...................................................................... 3
(b) Non-Competition................................................................................ 3
(c) Non-Solicitation of Employees.................................................................. 3
(d) Confidential Information....................................................................... 3
(e) Return of Books and Papers..................................................................... 4
(f) Disclosure of Information...................................................................... 4
(g) Assignment..................................................................................... 4
(h) Equitable Relief............................................................................... 4
(i) Restrictions Separable......................................................................... 4
6. MISCELLANEOUS........................................................................................... 4
(a) Notices........................................................................................ 4
(b) Indulgences; Waivers........................................................................... 5
(c) Controlling Law................................................................................ 5
(d) Binding Nature of Agreement.................................................................... 5
(e) Execution in Counterpart....................................................................... 5
(f) Provisions Separable........................................................................... 5
(g) Entire Agreement............................................................................... 5
(h) Paragraph Headings............................................................................. 5
(i) Number of Days................................................................................. 5
7. SUCCESSORS AND ASSIGNS.................................................................................. 6
</TABLE>
-i-
<PAGE> 3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the _____ day of November, 1998, by and between ACTION INTERACTIVE,
INC., an Arizona corporation ("Employer"), and ROGER J. FALCIONE ("Employee").
RECITALS
WHEREAS, Employee currently serves as President and Chief
Executive Officer of Tech 2000 Worldwide, Inc., a Massachusetts corporation
("Tech 2000"); and
WHEREAS, Employer is a wholly owned subsidiary of Action
Performance Companies, Inc., an Arizona Corporation ("Action"); and
WHEREAS, Tech 2000 is to be merged with and into Employer
pursuant to an Agreement and Plan of Reorganization of even date herewith by and
among Action, Employer, Tech 2000, and the shareholders of Tech 2000; and
WHEREAS, Employer desires to employ Employee, and Employee
desires to accept such employment, upon the terms and conditions contained
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants set forth in this Agreement, the parties hereto agree as
follows:
1. EMPLOYMENT.
Employer hereby employs Employee, and Employee hereby accepts
such employment, as its Vice President of New Media and in such other capacities
and for such other duties and services as shall from time to time be mutually
agreed upon by Employer and Employee.
2. FULL TIME OCCUPATION.
Employee shall devote Employee's entire business time,
attention, and efforts to the performance of Employee's duties under this
Agreement, shall serve Employer faithfully and diligently, and shall not engage
in any other employment while employed by Employer.
3. COMPENSATION AND OTHER BENEFITS.
(a) SALARY. Employer shall pay to Employee, as full
compensation for the services rendered by Employee during Employee's employment
under this Agreement, a salary at a rate of $150,000 per annum (the "Base
Salary") to be paid in equal weekly installments, or in such other periodic
installments upon which Employer and Employee shall mutually agree. The Base
Salary shall be reviewed annually and may be increased by Employer in the sole
discretion of Employer's management authorized to make such decisions or
Employer's Board of Directors.
(b) BONUS. Employee shall be eligible to receive an
annual bonus in an amount up to 30% of the Base Salary determined in accordance
with Employer's management bonus plan.
(c) STOCK OPTIONS. Employee shall be granted
qualified stock options under one of Action's stock option plans to purchase a
total of 20,000 shares of Action's Common Stock at any time or from time to time
within six years of the date of grant, such options to vest one-third on each of
the first, second, and third anniversaries of the date of grant, provided,
however, that such options shall vest and become exercisable on the foregoing
dates only if Employee's employment with Employer, Action, or any other wholly
owned subsidiary of Action has not terminated prior to such dates. The exercise
price for such options shall equal the closing sales price of Action's Common
Stock on the Nasdaq National Market as of the date of this Agreement. Any
options granted
<PAGE> 4
pursuant to this Section 3(c) that have not vested prior to the termination of
Employee's employment with Employer will be forfeited immediately upon the
termination of employment for any reason.
(d) FRINGE BENEFITS. Employee shall be entitled to
participate in any group insurance, pension, retirement, vacation, expense
reimbursement or other plans, programs, or benefits approved by Employer's Board
of Directors and made available from time to time to employees of Employer with
similar responsibilities during the term of Employee's employment hereunder. The
foregoing shall not obligate Employer to adopt or maintain any particular plan,
program, or benefit.
(e) REIMBURSEMENT. Employer shall reimburse Employee
for all travel and entertainment expenses and other ordinary and necessary
business expenses incurred by Employee in connection with the business of
Employer and Employee's duties under this Agreement pursuant to Employer's
reimbursement policy, a copy of which is attached as Exhibit A hereto.
4. TERM OF EMPLOYMENT.
(a) EMPLOYMENT TERM. The term of this Agreement shall
be for a period of three years commencing as of the date hereof.
(b) TERMINATION UNDER CERTAIN CIRCUMSTANCES.
Notwithstanding anything to the contrary herein contained:
(i) DEATH. Employee's employment shall be automatically terminated, without
notice, effective upon the date of Employee's death.
(ii) DISABILITY. Employer may, at its option
and upon written notice to Employee, terminate Employee's employment as a result
of "Total and Permanent Disability" (as defined below) effective on the date of
that notice. For purposes of this Agreement, the term "Total and Permanent
Disability" shall mean such physical or mental condition of Employee that
renders Employee incapable of performing Employee's duties for a period of more
than 90 consecutive days or for 90 days within any 180-day period; provided,
however, that Employee shall not be terminated for Total and Permanent
Disability until a qualified and independent (i.e., having no prior affiliations
with Employer, or Employee, Action or any Action affiliate) medical specialist
provides written confirmation, after examination, that Employee is totally and
permanently incapacitated such that Employee can no longer perform Employee's
duties hereunder. In the event that Employee is a "qualified individual with a
disability," as defined in the Americans With Disabilities Act, Employer shall
not terminate Employee's employment hereunder if Employee is able to perform the
essential functions of Employee's job with reasonable accommodation from
Employer.
(iii) UNILATERAL DECISION OF EMPLOYER.
Employer may, at its option, upon written notice to Employee, terminate
Employee's employment effective on the date of that notice.
(iv) UNILATERAL DECISION BY EMPLOYEE.
Employee may, at his option and upon written notice to Employer, terminate
Employee's employment effective on the date of that notice.
(v) FOR "CAUSE". Employer may, at its option
and upon written notice to Employee, terminate Employee's employment for "Cause"
(as defined below) effective on the date of that notice. For purposes of this
Agreement, the term "Cause" shall mean (i) the failure or inability (other than
as a consequence of any illness, accident or other disability, as confirmed by
competent medical evidence) of Employee to perform Employee's duties hereunder
for a period in excess of 60 days in a manner reasonably satisfactory to
Employer's Board of Directors, provided the decision of the Board of Directors
is not arbitrary or capricious and is not made in bad faith; or (ii) "Serious
Misconduct" of Employee (as defined below). For purposes of this Agreement, the
term "Serious Misconduct" shall mean embezzlement or misappropriation of
corporate funds; acts of Dishonesty (as defined below); activities harmful to
the reputation of Employer (other than as a consequence of good faith decisions
made by Employee in the normal performance of Employee's duties hereunder); the
conviction of or the plea by Employee to any criminal felony offense (other than
those arising within the scope of Employee's employment hereunder, of which
offenses Employee was not personally aware or did not personally and knowingly
order in violation of the law, and other than a traffic or other offense that in
the sole discretion of the Board of Directors of
2
<PAGE> 5
Employer does not affect Employee's position as an Employee of Employer) or any
criminal felony offense involving dishonesty or moral turpitude; the refusal to
perform the duties assigned to Employee pursuant to this Agreement (unless such
duties shall be unlawful); or the breach of any of the terms or conditions
contained in this Agreement. For purposes of this Agreement, the term
"Dishonesty" shall mean the varnishing of any information, reports, documents or
certificates by Employee to Employer which Employee knew or reasonably should
have known to be false or misleading.
(c) RESULT OF TERMINATION. In the event of the
termination of Employee's employment pursuant to Sections 4(b)(i) or (ii) above,
Employee's estate or Employee, as the case may be, shall be entitled to receive
an amount equal to Employee's Base Salary as provided in Section 3(a) above for
a period of six months after such termination. In the event of the termination
of Employee's employment pursuant to Section 4(b)(iii) above, Employee shall
continue to receive Employee's Base Salary for the remainder of the term of this
Agreement. In the event of the termination of Employee pursuant to Section
4(b)(iv) or (v) above, Employee shall receive no further compensation under this
Agreement.
5. COMPETITION AND CONFIDENTIAL INFORMATION.
(a) INTERESTS TO BE PROTECTED. As used in this
Section 5, the term "Employer" shall include Employer, Action, and any of
Action's other wholly or partially owned subsidiaries as of the date of this
Agreement or formed or acquired after the date of this Agreement. The parties
acknowledge that Employee will perform essential services for Employer, its
employees, and its stockholders during the term of Employee's employment with
Employer. Employee will be exposed to, have access to, and work with, a
considerable amount of Confidential Information (as defined below). The parties
also expressly recognize and acknowledge that the personnel of Employer have
been trained by, and are valuable to, Employer and that Employer will incur
substantial recruiting and training expenses if Employer must hire new personnel
or retrain existing personnel to fill vacancies. The parties expressly recognize
that it could seriously impair the goodwill and diminish the value of Employer's
business should Employee compete with Employer in any manner whatsoever. The
parties acknowledge that this covenant has an extended duration; however, they
agree that this covenant is reasonable and it is necessary for the protection of
Employer, its stockholders, and employees. For these and other reasons, and the
fact that there are many other employment opportunities available to Employee if
he should terminate his employment, the parties are in full and complete
agreement that the following restrictive covenants are fair and reasonable and
are entered into freely, voluntarily, and knowingly. Furthermore, each party was
given the opportunity to consult with independent legal counsel before entering
into this Agreement.
(b) NON-COMPETITION. During the term of Employee's
employment with Employer and for the period ending two years after the
termination of Employee's employment with Employer, regardless of the reason
therefor, Employee shall not (whether directly or indirectly, as owner,
principal, agent, stockholder, director, officer, manager, employee, partner,
participant, or in any other capacity) engage or become financially interested
in any "Competitive Business" (as defined below) conducted within the Restricted
Territory (as defined below). As used herein, the term "Competitive Business"
shall mean any business relating to the design, creation, development,
implementation, maintenance, or distribution of, or consulting services related
to, Internet web-sites and related content relating to or associated with
motorsports or automobile racing. Because Employee's duties involve services
related to the "World Wide Web," as used herein the term "Restricted Territory"
shall mean the world.
(c) NON-SOLICITATION OF EMPLOYEES. During the term of
Employee's employment and for a period of two years after the termination of
Employee's employment with Employee, regardless of the reason therefor, Employee
shall not directly or indirectly, for himself, or on behalf of, or in
conjunction with, any other person, company, partnership, corporation, or
governmental entity, seek to hire or hire any of Employer's personnel or
employees for the purpose of having any such employee engage in services that
are the same as or similar or related to the services that such employee
provided for Employer.
(d) CONFIDENTIAL INFORMATION. Employee shall maintain
in strict secrecy all confidential or trade secret information relating to the
business of Employer (the "Confidential Information") obtained by Employee in
the course of Employee's employment, and Employee shall not, unless first
authorized in writing by Employer, disclose to, or use for Employee's benefit or
for the benefit of, any person, firm, or entity at any time either during or
subsequent to the term of Employee's employment, any Confidential Information,
except
3
<PAGE> 6
as required in the performance of Employee's duties on behalf of Employer. For
purposes hereof, Confidential Information shall include without limitation any
materials, trade secrets, knowledge, or information with respect to management,
operational, or investment policies and practices of Employer; any business
methods or forms; any names or addresses of customers or suppliers or data on
customers or suppliers; and any business policies or other information relating
to or dealing with the management, operational, or investment policies or
practices of Employer.
(e) RETURN OF BOOKS AND PAPERS. Upon the termination
of Employee's employment with Employer for any reason, Employee shall deliver
promptly to Employer all files, lists, books, records, manuals, memoranda,
drawings, and specifications; all cost, pricing, and other financial data; all
other written or printed materials that are the property of Employer (and any
copies of them); and all other materials that may contain Confidential
Information relating to the business of Employer, which Employee may then have
in Employee's possession, whether prepared by Employee or not.
(f) DISCLOSURE OF INFORMATION. Employee shall
disclose promptly to Employer, or its nominee, any and all ideas, designs,
processes, and improvements of any kind relating to the business of Employer,
whether patentable or not, conceived or made by Employee, either alone or
jointly with others, during working hours or otherwise, during the entire period
of Employee's employment with Employer or within six months thereafter.
(g) ASSIGNMENT. Employee hereby assigns to Employer
or its nominee, the entire right, title, and interest in and to all inventions,
discoveries, and improvements, whether patentable or not, that Employee may
conceive or make during Employee's employment with Employer, or within six
months thereafter, and which relate to the business of Employer.
(h) EQUITABLE RELIEF. In the event a violation of any
of the restrictions contained in this Section 5 is established, Employer shall
be entitled to preliminary and permanent injunctive relief as well as damages
and an equitable accounting of all earnings, profits, and other benefits arising
from such violation, which right shall be cumulative and in addition to any
other rights or remedies to which Employer may be entitled. In the event of a
violation of any provision of subsection (b), (c), (f), or (g) of this Section,
the period for which those provisions would remain in effect shall be extended
for a period of time equal to that period beginning when such violation
commenced and ending when the activities constituting such violation shall have
been finally terminated in good faith.
(i) RESTRICTIONS SEPARABLE. If the scope of any
provision of this Agreement (whether in this Section 5 or otherwise) is found by
a Court to be too broad to permit enforcement to its full extent, then such
provision shall be enforced to the maximum extent permitted by law. The parties
agree that the scope of any provision of this Agreement may be modified by a
judge in any proceeding to enforce this Agreement, so that such provision can be
enforced to the maximum extent permitted by law. Each and every restriction set
forth in this Section 5 is independent and severable from the others, and no
such restriction shall be rendered unenforceable by virtue of the fact that, for
any reason, any other or others of them may be unenforceable in whole or in
part.
6. MISCELLANEOUS.
(a) NOTICES. All notices, requests, demands, and
other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given, made, and received (i) if
personally delivered, on the date of delivery, (ii) if by facsimile
transmission, upon receipt, (iii) if mailed, three days after deposit in the
United States mail, registered or certified, return receipt requested, postage
prepaid, and addressed as provided below, or (iv) if by a courier delivery
service providing overnight or "next-day" delivery, on the next business day
after deposit with such service addressed as follows:
(1) If to Employer:
4707 E. Baseline Road
Phoenix, Arizona 85040
Attention: President
4
<PAGE> 7
with a copy given in the manner
prescribed above, to:
O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears, P.A.
One East Camelback Road
Phoenix, Arizona 85012
Attention: Robert S. Kant, Esq.
(2) If to Employee:
1095 Turnpike Street
Canton, Massachusetts 02021
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 6 for the giving of notice.
(b) INDULGENCES; WAIVERS. Neither any failure nor any
delay on the part of either party to exercise any right, remedy, power, or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power, or privilege preclude
any other or further exercise of the same or of any other right, remedy, power,
or privilege, nor shall any waiver of any right, remedy, power, or privilege
with respect to any occurrence be construed as a waiver of such right, remedy,
power, or privilege with respect to any other occurrence. No waiver shall be
binding unless executed in writing by the party making the waiver.
(c) CONTROLLING LAW. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement, shall be
governed by and construed in accordance with the laws of the state of Arizona,
notwithstanding any Arizona or other conflict-of-interest provisions to the
contrary.
(d) BINDING NATURE OF AGREEMENT. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors, and assigns, except that
no party may assign or transfer such party's rights or obligations under this
Agreement without the prior written consent of the other party.
(e) EXECUTION IN COUNTERPART. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as the
signatories.
(f) PROVISIONS SEPARABLE. The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(g) ENTIRE AGREEMENT. This Agreement contains the
entire understanding between the parties hereto with respect to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings, inducements and conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(h) PARAGRAPH HEADINGS. The paragraph headings in
this Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
(i) NUMBER OF DAYS. In computing the number of days
for purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays, and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday, or holiday, then the final day shall be
deemed to be the next day that is not a Saturday, Sunday, or holiday.
5
<PAGE> 8
7. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the parties hereto; provided that because the
obligations of Employee hereunder involve the performance of personal services,
such obligations shall not be delegated by Employee. For purposes of this
Agreement, successors and assigns of Employer shall be limited to any
individual, corporation, trust, partnership, or other entity that acquires a
majority of the stock or assets of Employer by sale, merger, consolidation,
liquidation, or other form of transfer. Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of Employer to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that Employer would be required to perform it if no such
succession had taken place. Without limiting the foregoing, unless the context
otherwise requires, the term "Employer" includes all subsidiaries of Employer.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
6
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
ACTION INTERACTIVE, INC.
By: /s/ Lonnie P. Boutte
--------------------------------
Its: President
---------------------------------
/s/ Roger J. Falcione
-------------------------------------
ROGER J. FALCIONE
7
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated September 2, 1999, and to all references to our firm included in or
made a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
September 2, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
COMBINED FINANCIAL STATEMENTS OF GORACING.COM, INC. FOR THE PERIOD ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THIS EXHIBIT SHALL NOT BE DEEMED FILED FOR THE PURPOSE OF SECTION 11
OF THE SECURITIES ACT OF 1933 AND SECTION 18 OF THE SECURITIES EXCHANGE ACT OF
1934, OR OTHERWISE SUBJECT TO THE LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE
DEEMED A PART OF ANY OTHER FILING WHICH INCORPORATES THIS REGISTRATION STATEMENT
BY REFERENCE, UNLESS SUCH OTHER FILING EXPRESSLY INCORPORATES THIS EXHIBIT BY
REFERENCE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 415
<ALLOWANCES> 75
<INVENTORY> 8,699
<CURRENT-ASSETS> 9,119
<PP&E> 1,489
<DEPRECIATION> 484
<TOTAL-ASSETS> 10,928
<CURRENT-LIABILITIES> 14,014
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3
<TOTAL-LIABILITY-AND-EQUITY> 10,928
<SALES> 34,340
<TOTAL-REVENUES> 35,417
<CGS> 16,849
<TOTAL-COSTS> 16,849
<OTHER-EXPENSES> 14,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,696
<INCOME-TAX> 1,581
<INCOME-CONTINUING> 2,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,115
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
