-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AqkZS4EurJ2ANloL1g2YVnowLv6lGYlaDM/2erChvNKY7Wbjj1D22pb158TdzxbC gWmriRm/95g5FTpnR8He4Q== 0000944209-97-000465.txt : 19970409 0000944209-97-000465.hdr.sgml : 19970409 ACCESSION NUMBER: 0000944209-97-000465 CONFORMED SUBMISSION TYPE: 10KSB40/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970408 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND PRIX ASSOCIATION OF LONG BEACH INC CENTRAL INDEX KEY: 0001014957 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 952945353 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB40/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28594 FILM NUMBER: 97576700 BUSINESS ADDRESS: STREET 1: 3000 PACIFIC AVE CITY: LONG BEACH STATE: CA ZIP: 90806 BUSINESS PHONE: 5629812600 MAIL ADDRESS: STREET 1: 3000 PACIFIC AVE CITY: LONG BEACH STATE: CA ZIP: 90806 10KSB40/A 1 FORM 10-KSB40/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________ FORM 10-KSB/A (MARK ONE) [_] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) OR [X] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM JULY 1, 1996 TO NOVEMBER 30, 1996 COMMISSION FILE NO. 1-11837 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. (Name of small business issuer in its charter) CALIFORNIA 95-2945353 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 3000 PACIFIC AVENUE 90806 ------------------- ----- LONG BEACH, CA (Zip Code) -------------- (Address of principal executive offices) (562) 981-2600 -------------- (Issuer's telephone number, including area code) Securities registered pursuant to Section 12 (b) of the Act: NONE N/A ------------------------ (Name of exchange on which registered) Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, NO PAR VALUE -------------------------- (Title of each class) ____________________________ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No______ ---- Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [X]. The issuer's revenues for the five month transition period ended November 30, 1996, were $1,960,000. As of January 31, 1997 there were 3,640,565 outstanding shares of Common stock, no par value. The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on January 31, 1997 based on the average bid and asked price on such date was $22,081,922. DOCUMENTS INCORPORATED BY REFERENCE: The Exhibit List attached hereto and Prospectus filed pursuant to Rule 424(b). Transitional Small Business Disclosure Format: Yes _______ No X ----- INTRODUCTION At the last Annual Meeting of Shareholders of Grand Prix Association of Long Beach, Inc., a California corporation (the "Company"), which was held on December 9, 1996, the Shareholders ratified a Board of Directors' resolution changing the Company's fiscal year end from June 30 to November 30. As a result of the change in fiscal year, this report for the five month transition period from July 1, 1996 through November 30, 1996, is necessary. Definitions There are numerous acronyms used in the motorsports industry and - ----------- otherwise, several of which are used herein. For the facility of the reader, acronyms used herein are defined below: ARCA - Automobile Racing Club of America. CART - Championship Auto Racing Teams, Inc. Grand Prix - The Grand Prix of Long Beach, an annual temporary circuit professional motorsports event held in Long Beach, California. IPO - Initial public offering. NASCAR - The National Association for Stock Car Auto Racing, Inc. NHRA - The National Hot Rod Association. SEC - Securities Exchange Commission. SWIDA - Southwestern Illinois Development Authority. USAC - United States Auto Club. PART I ITEM 1. BUSINESS -------- For the past twenty-three years, the Company has been engaged in the business of organizing and promoting automobile racing events. The Company was the first to operate a temporary street circuit race in the United States and has held twenty-two Grand Prix of Long Beach events. The 1996 Grand Prix had the second highest paid attendance of any Indy car race, second only to the Indianapolis 500. In addition to operating temporary circuit events, the Company owns two permanent racing facilities. The Company is in the process of extensively reconfiguring Gateway International Raceway, the permanent motorsports facility in Madison, Illinois (near St. Louis) which the Company acquired in November 1994, into a major regional multipurpose motorsports facility. The reconfigured facility will feature an oval track with an initial seating capacity of 45,000 and which can be expanded to over 85,000 in the future, a road course, and a national caliber 1/4 mile drag strip with initial seating for 20,000 and eventually 35,000, at which the Company held the facility's first special event in September 1996. The Company is currently engaged in making modifications and improvements necessary to bring Memphis Motorsports Park, in Millington, Tennessee, the permanent facility which it acquired in June 1996, up to current professional motorsports standards. Memphis Motorsports Park has a national caliber 1/4 mile drag strip, which hosted the NHRA Mid-South Nationals in June 1996, and when improvements are completed will have two oval tracks as well as a road course. Initially the Company anticipated it would complete improvements to the permanent facilities in stages, as major event sanctions were obtained. However, improvements to both facilities have been accelerated because the Company has been able to secure several major event sanctions for the 1997 season, thereby requiring the improvements to be completed sooner than initially anticipated. When completed, both facilities will also have the capacity to host major stock car and Indy car races. -2- In 1997, Gateway International Raceway will host the Motorola 300 PPG CART World Series for Indy cars on May 22-24, the NHRA Craftsman Nationals Presented by PartsAmerica on June 26-29, and a NASCAR Busch Series, Grand National Division event for stock cars on July 24-26. Gateway International Raceway also plans to host special events, as well as local and regional weekly events during the months of March through October. Memphis Motorsports Park will host an ARCA Super Car and USAC Silver Crown event on September 12-14, 1997 and the NHRA Pennzoil Nationals Presented by AutoZone on October 2-5, 1997. Additionally, Memphis Motorsports Park will host special events, as well as local and regional events on a weekly basis during the months of March through November. Although in prior years the Company has derived the majority of its revenues from the Grand Prix, when planned construction is completed and the calendar of events is finalized at the two new permanent facilities, its reliance on the Grand Prix as its primary revenue producer will diminish. A major business strategy of the Company has been, and will continue to be, the maximization of its workforce and the race related operating equipment which has been acquired over the years to meet the annual requirements of hosting in excess of 200,000 spectators at the Grand Prix. The Company accomplishes this by renting its temporary structures and electrical equipment to other event operators and providing consulting and marketing services to other entities. While both Gateway International Raceway and Memphis Motorsports Park will need a relatively limited amount of temporary equipment to meet peak demands, the Company intends to enter the equipment rental business in those markets as it has done in California. In addition to rental of temporary structures and electrical services for other special events, the Company will continue to provide marketing and promotional services for other entities, as well as media production services and merchandise/souvenirs for all three of its venues - Long Beach, Gateway International Raceway and Memphis Motorsports Park. The Company is increasing its staff at the corporate offices to support national activities, as well as increasing regional staff at its permanent facilities. The Company, now employs 59 full time and 8 year-round part-time employees. The Company plans to hire seasonal employees as required to supplement its permanent staff at all locations. The Company is a party to collective bargaining agreements with the Construction Laborers, Local 507 for seasonal employees only in connection with construction related to the Grand Prix, and with the International Brotherhood of Electrical Workers, Local 831 for its electrical services division. Employees subject to collective bargaining agreements have had good relationships with the Company. No work stoppages have occurred and none are expected. -3- Recent Developments - ------------------- Subsequent to November 30, 1996, the Company entered into a letter of intent for a three year agreement with CBS to broadcast the NASCAR Busch Series Grand National event to be held at Gateway International Raceway. In addition to the payment of a rights fee, CBS has agreed that the Company's teleproductions division, Grand Prix Teleproductions, will be responsible for providing below- the-line production facilities for CBS at the site. The Company has also recently entered into a letter of intent for a one year sponsorship agreement with renewal options, for Motorola to be the event title sponsor of the PPG CART World Series event to be held at Gateway International Raceway May 22-24, 1997. On January 27, 1997, the Company entered into a ten year lease (with four five-year renewals) of twenty acres for the purpose of providing overflow parking for major events on a neighboring golf course, and on February 7, 1997 entered into a five year lease with a neighboring landowner commencing March 1, 1997 covering 14.285 acres for major event parking. On December 17, 1997, the Company entered into a one year contract with NASCAR for a 300 mile Busch Series Grand National event to be held at Gateway International Raceway on July 24-26, 1997. RISK FACTORS The Company's future results may be affected by risks and uncertainties, which include but are not necessarily limited to the following. Factors Affecting Earnings and Stock Price - ------------------------------------------ The statements contained in this report on Form 10-KSB which are not purely historical, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. The risk factors set forth in the Company's previous reports on Forms 10-KSB, 10-QSB and Annual Reports to shareholders should be consulted. Among the factors which could cause actual results to differ materially are weather and construction delays, failure to obtain or the loss of sanctioning, sponsorship agreements and/or government approvals, competition, manpower overload, and seasonality. Weather and Construction Delays - ------------------------------- Adverse weather conditions could cause delays in construction at both Gateway International Raceway and Memphis Motorsports Park which could ultimately affect the ability of those facilities to host one or more of the major events currently scheduled to be held in 1997. Weather conditions could also cause the cancellation or postponement of one or more events. Construction delays resulting from various other factors could also adversely effect the Company's ability to meet the completion deadlines necessary to host the major events scheduled in 1997 at Gateway International Raceway and Memphis Motorsports Park. The Company's inability to -4- host those events as scheduled could have a material adverse effect on its business, revenues and financial condition. Importance of Sanctioning Contracts - ----------------------------------- The success of the Company depends in large part on its ability to attract and retain national racing events sanctioned by motorsports' principal governing bodies, particularly at its two new permanent facilities, Gateway International Raceway and Memphis Motorsports Park. To date, the Company has been able to secure three such events for Gateway International Raceway and two for Memphis Motorsports Park. For Gateway International Raceway, the Company has agreed to enter into a four year contract with CART for annual events, a three year lease with the NHRA for national events with options for an additional 10 years, and a one year agreement with NASCAR for one event. For Memphis Motorsports Park, the Company has two years remaining on its agreement with the NHRA for annual national events, and had entered into a one year agreement with ARCA for a national championship stock car event, and a three year agreement with USAC for Silver Crown Championship series annual events. The Company has two years remaining on its sanction agreement with CART for the Grand Prix at Long Beach with options through the year 2000. The inability of the Company to maintain sanction agreements at this level would likely result in lower than anticipated revenues for the Company from admissions, promotions, sponsorships, hospitality, concessions, and merchandise, which could have a material adverse effect on the Company's business, financial condition, and results of operations. Competition - ----------- The Company's racing events compete with other sports and recreational events scheduled on the same dates, as well as with motorsports racing events sanctioned by various other racing bodies. Racing events sanctioned by different organizations are often held on the same dates at different tracks. The Company will be competing with other track owners for the patronage of motor racing spectators as well as for promotions and sponsorships. The Company's Long Beach agreement with CART grants it the exclusive right to conduct a CART sanctioned Indy car race in Southern California; however, the agreement further provides that California Speedway, a new oval superspeedway currently being constructed in Fontana in Southern California, may be granted a CART sanctioned Indy car race so long as such race is not held within a period of several months before or after the Grand Prix, which is traditionally held in April. The California Speedway has recently secured a CART sanctioned Indy car event for September 1997 and a NASCAR sanctioned event to be held in June 1997. The conduct of such competing events by California Speedway could have a material impact on attendance, sponsorships and other revenues from the Grand Prix. -5- Manpower Overload - ----------------- Despite the addition of several new full time people to the corporate and regional staff, it should be noted that the Company has never before faced the challenge of organizing and promoting six major events in one year. Although the Company believes that the local staff assembled at Gateway International Raceway and Memphis Motorsports Park is comprised of capable, experienced individuals, those staff members have never worked together as a team on a major event such as those currently scheduled to take place at Gateway International Raceway and Memphis Motorsports Park in 1997. Furthermore, the Long Beach staff has never undertaken the promotion and operation of more than three major events in one year. Commencing with the 1997 racing season, the Company's staff will be expected to utilize its experience and expertise in promoting and operating six major events. The inability of the current staff to meet the deadlines and budgets involved in each of the events could have a material adverse effect on the business and revenues of the Company. Seasonality - ----------- Historically, most of the Company's revenues have been derived from the annual Grand Prix held each April. The Company has traditionally reported operating losses during each of its other three fiscal quarters. It is anticipated that as Gateway International Raceway and Memphis Motorsports Park increase their operations, the Company's new second, third and fourth quarters will produce operating profits, however, it is still anticipated that the Company's revenues will remain substantially seasonal for at least the next several years. Further, the Company anticipates that Gateway International Raceway and Memphis Motorsports Park will have very limited, if any, racing during the winter season and, accordingly, it is anticipated that during the period from November through February the Company will continue to have minimal revenues resulting in an operating loss during its first fiscal quarter. Government Approvals - -------------------- Operation of the Grand Prix is dependent upon obtaining a permit from the City of Long Beach to hold the race on city streets. The Company has such a permit through the year 2010. Traditionally, the city has been cooperative in working with the Company with respect to the terms of the permit and in extending the term thereof; however there is no assurance that the City of Long Beach will extend the permit after the year 2010. -6- Sponsorship Contracts - --------------------- The Company derives a substantial portion of its annual revenues from sponsorship agreements, including title sponsorship of its various events, sponsorship of its permanent venues, and "official product" sponsorships. The Company's title sponsorship agreements include a contract with Toyota Motor Sales U.S.A. for title sponsorship of the Grand Prix through the year 2000; an understanding for a one year agreement with Motorola for title sponsorship of Gateway International Raceway's CART Indy car race in May 1997, with renewal options; a three year agreement with Sears Craftsman to be the sponsor for the NHRA event at Gateway International Raceway; and an agreement with the NHRA for Pennzoil to be the sponsor of the NHRA event at Memphis Motorsports Park through the 1998 event. Loss of these title sponsorship or other major sponsorship agreements or failure to secure such sponsorship agreements in the future could have a material adverse affect on the Company's revenues. Government Regulation of Sponsors - --------------------------------- The Company derives a significant portion of its revenue each year from sponsorship and advertising by various companies. Tobacco and liquor companies have traditionally sponsored motorsports events. In August 1995, the U.S. Food and Drug Administration announced proposed regulations which, if implemented, could potentially restrict tobacco industry sponsorship of sporting events. Revenue from tobacco company sponsorships amounted to approximately 7% of the Company's total sponsorship revenue in the fiscal year ended June 30, 1996. Government regulations restricting advertising by tobacco, liquor and other potential sponsors could adversely impact the Company's revenues, as well as the motorsports industry as a whole, and there is no assurance that alternate sponsors could be obtained. Reliance on the Grand Prix of Long Beach - ---------------------------------------- Traditionally, the Company has obtained in excess of 80% of its annual revenues from the Grand Prix. In fiscal year ended June 30, 1996, the Grand Prix accounted for 72% of the Company's revenues. Once Gateway International Raceway and Memphis Motorsports Park are fully operational and have completed one racing season with major events, the impact of those facilities on the Company's revenue could be significant. Until that time, although the Company is diversifying its operations, the Company expects that the Grand Prix will continue to account for a significant portion of its revenues and operating income. Although the Company has operated a racing event on the streets of Long Beach for 22 years, there can be no assurance that the Grand Prix will continue to be successful. Although the Company has an agreement with the City of Long Beach to operate the Grand Prix through 2010, and with CART to sanction the Grand Prix Indy car race through 1998, which may be extended to 2000 at the option of the Company, the loss or cancellation of either of these agreements could have a material adverse effect on the financial viability of the Company. -7- Insurance - --------- The Company maintains insurance policies that provide coverage within limits that are sufficient, in the opinion of management, to protect the Company from material financial loss incurred in the ordinary course of business. The Company also purchases special event insurance for motorsports events to protect against race related liability. The Company maintains "key man" insurance on its key corporate executives. However, there can be no assurance that such insurance will be adequate at all times and in all circumstances. If the Company is held liable for damages beyond the scope of its insurance coverage, its business, financial condition and results of operations could be materially and adversely affected. Patents, Trademarks, Copyrights - ------------------------------- The Company has registered the following trademarks: "Long Beach Grand Prix", "U.S. Grand Prix West", "200 MPH Beach Party", "LBGP" and others and regularly copyrights its artwork, including poster art and artwork for tee shirts sold at the Grand Prix and at Gateway International Raceway and Memphis Motorsports Park. The Company recently patented a safety barrier. Although the Company takes care to protect its intellectual property, the loss of any of these trademarks or copyrights would not, in the opinion of management, have a material adverse effect on the revenues of the Company. ITEM 2. PROPERTIES ---------- Long Beach Properties - --------------------- The Company owns its principal executive offices at 3000 Pacific Avenue, Long Beach, California, which consists of approximately 82,000 square feet of land and a building with approximately 50,000 square feet of office and warehouse space. The executive offices are encumbered with a first trust deed loan from Harbor Bank and a second trust deed loan from the U.S. Small Business Administration, which were used to acquire and improve the property in 1992 (See Note 5 of Notes to Consolidated Financial Statements included elsewhere herein). The Company leases a 750 square foot ticket office in downtown Long Beach for the sale of Grand Prix tickets and souvenirs and also leases storage facilities in Long Beach for its equipment and structures when not in use. In the opinion of the Company's management, these facilities are adequately covered by insurance. Gateway International Raceway Property - --------------------------------------- Gateway International Raceway is located on approximately 194 acres of land in Madison, Illinois, five miles from the St. Louis Arch. The Company owns approximately 49 acres of those 194 acres and has three long term leases (expiring in 2025, 2026, and 2070) for the remaining 145 acres, with purchase options. -8- Subsequent to November 30, 1996, the Company entered into a ten year lease (with four five-year renewals) of twenty acres for the purpose of providing overflow parking for major events on a neighboring golf course, and a five year lease commencing March 1, 1997 covering 14.285 acres for major event parking. The Company is in the process of negotiating relationships with neighboring land owners to fulfill its major event parking needs. The Company has granted a first mortgage lien on all the real property owned and a security interest in all property leased by the Company at Gateway International Raceway to SWIDA as security for the repayment of principal and interest on its $21.5 million loan from SWIDA (See Note 5 of Notes to Consolidated Financial Statements included elsewhere herein). Using the SWIDA loan proceeds and certain proceeds from the IPO, the Company is in the process of extensively reconfiguring and developing Gateway International Raceway into a major regional multipurpose motorsports facility capable of hosting the motorsports industry's top-tier events, a law enforcement training program, as well as continuing to host a variety of local and regional events. The redevelopment includes replacing most of the existing facility and putting in place a new infrastructure, including electrical service, a sanitation system, a ground water drainage system, and ingress and egress roads for new parking facilities, as well as four new tracks, a drag strip tower, an oval suite tower, administrative offices, walkways, concession stands and grandstands capable of initially hosting 45,000 spectators per event at the oval and 20,000 per event at the drag strip and eventually 85,000 per event at the oval and 35,000 per event at the drag strip. Construction of the first phase which includes the drag strip, was originally scheduled for completion at the end of September, 1996; this was accelerated to the end of August, 1996 and the facility ran its first event on the weekend of September 7- 8, 1996. The second phase of the facility, the oval and the road courses, is currently ahead of the original construction completion date and is now scheduled for completion in early May, 1997. Management believes that the insurance coverage it maintains on this property is adequate. Memphis Motorsports Park Property - --------------------------------- On June 28, 1996, the Company acquired Memphis Motorsports Park, 374 acres of land approximately ten miles northeast of downtown Memphis Motorsports Park, Tennessee with part of the proceeds from its IPO. Memphis Motorsports Park is located in the southwest corner of Tennessee which is one of the fastest growing national distribution centers in the United States. The facility, which was constructed in 1987, currently has a regulation NHRA drag strip, a road course and two oval tracks, eighteen corporate suites, 5,500 permanent grandstand seats and 14,238 portable grandstand seats. The Company has started making needed improvements and expansions to Memphis Motorsports Park, including converting the existing combination 3/8 mile clay oval to a 7/8 mile paved oval (although originally planned as a 9/10 paved oval, recent engineering surveys indicate that it would not be economically sound to convert to a 9/10 paved oval), modifying the road course and -9- increasing the seating capacity to enable this regional facility to be eligible to acquire additional nationally sanctioned motorsports events as well as to continue to host local and regional events. Engineering plans are underway for the design of the expanded oval, and the addition of a 1/4 mile dirt oval for the purpose of preserving the ongoing dirt racing activities for which there is a considerable market. In the opinion of the Company's management, the property is adequately covered by insurance. Prior to the acquisition of each of its major properties, the Company obtained Phase I Preliminary Site Assessment environmental reports. None of these reports indicated any material environmental contamination. Because Phase I reports do not include testing of soil, water or air samples, it is possible that there may be undetected environmental contamination at one or more of the Company's properties. The seller of Memphis Motorsports Park facility has agreed to undertake the removal and clean up of any contamination related to the underground fuel storage tanks located on the property which might be found, as well as other items mentioned on the Phase I report at no expense to the Company. To date, the underground fuel storage tanks have been removed and no contamination has been found. ITEM 3. LEGAL PROCEEDINGS ----------------- The Company is not currently involved in any legal proceedings that it believes could have, either individually or in the aggregate, a material adverse effect on its business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- During the five month transition period ending November 30, 1996 there were no matters voted upon by the shareholders. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS -------------------------------------------------------- The Common stock of the Company began trading on June 25, 1996 (subsequent to the initial public offering) on the Nasdaq National Market under the symbol GPLB. Prior to the offering in June 1996, no established public trading market existed. The following table sets forth the high and low quotations from Nasdaq during the five month transition period. Common Stock Price ------------------ HIGH LOW Transition period ended November 30, 1996 10-1/8 8 -10- The number of record holders of the Company's Common stock as of January 31, 1997 was 3,640,565. The Company has not paid a dividend with respect to its Common stock since the IPO, and the Company does not anticipate paying dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --------------------------------------------------------- The following discussion and analysis should be read in conjunction with Item 1. Business, with the Company's Consolidated Financial Statements and the notes thereto and other financial information included elsewhere herein. BASIS OF PRESENTATION MAJOR EVENT REVENUES. Major event revenues for periods prior to 1996 only include revenues from the Grand Prix. In 1996, major event revenues include revenues earned from the Grand Prix and the nationally sanctioned NHRA event held in June 1996 at Memphis Motorsports Park. ADMISSIONS. The Company's admissions revenue represents ticket sales in connection with the major events. Ticket sales revenue, whenever collected, is considered earned upon completion of the related event. A substantial portion of the Company's ticket sales revenue is collected in advance of the event to which it relates. SPONSORSHIPS. The Company's sponsorship revenue includes corporate sponsorships for major events received in accordance with negotiated contracts with a diverse group of sponsoring companies and print advertisers. The terms of the contracts change from time to time. ANCILLARY. Ancillary revenues for major events include, in declining order of contribution, hospitality, broadcast services, merchandising, lifestyle/auto expo and concessions. OTHER OPERATING REVENUES. The Company generates other operating revenues from promotion, marketing and public relations consulting services, and rentals of grandstands, structures and related equipment services. The Company also generated revenues from special, local and regional motorsports events and related concessions, as well as venue sponsorships at Gateway International Raceway starting in November 1994 and at Memphis Motorsports Park starting in June 1996. EXPENSES. The Company classifies its expenses to include major event expenses, other operating expenses, general and administrative expenses, and depreciation. Major event expenses principally include sanction fees, circuit construction costs, operational direct expenses, marketing, advertising and public relations, costs of souvenir sales, ticket sales expenses and city service fees. Sanction agreements require race promoters to pay fees and provide services to the relevant sanctioning -11- body during the event. Other operating expenses include expenses directly related to marketing and public relations consulting services, structures and electrical services. Direct expenses of operating Gateway International Raceway are included starting in November 1994 and Memphis Motorsports Park in June 1996. General and administrative expenses include wages and other general expenses. RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996 The table below sets forth revenues and expenses as a percentage of total revenue for the years ended June 30, 1995 and 1996 and the five month transition period ended November 30, 1996.
5 months Year ended Year ended ended June 30, 1995 June 30, 1996 Nov 30, 1996 -------------- -------------- -------------- Revenues: Major event revenues Admissions........................... 36.7% 36.4% 0.0% Sponsorships......................... 21.7 19.9 0.0 Ancillary............................ 25.7 25.5 0.0 ----- ----- ------ Total major event revenues........... 84.1 81.8 0.0 Other operating revenues............... 15.9 18.2 100.0 ----- ----- ------ Total revenues....................... 100.0 100.0 100.0 ----- ----- ------ Expenses: Major event expenses................. 48.5 47.3 0.0 Other operating expenses............. 12.5 12.9 51.5 General and administrative expenses.. 19.3 21.1 117.1 Depreciation......................... 3.2 3.0 34.1 ----- ----- ------ Total operating expenses............. 83.5 84.3 202.7 ----- ----- ------ Operating income (loss)................ 16.5 15.7 (102.7) Other expense.......................... (1.2) (0.7) (6.5) (Provision) benefit for income taxes... (6.3) (6.3) 40.7 Extraordinary expense.................. (0.3) 0.0 0.0 ----- ----- ------ Net income (loss)...................... 8.7% 8.7% (68.5)% ===== ===== ======
FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996 COMPARED TO THE FIVE MONTH PERIOD ENDED NOVEMBER 30, 1995 (UNAUDITED) MAJOR EVENTS. The Company did not hold any major events July through November 1995 or 1996. All revenues collected during these months related to major events are deferred until completion of the related event. All direct major event expenses incurred during July through November are deferred until completion of the related event. -12- OTHER OPERATING REVENUES. Other operating revenues increased by $364,000 or 22.8%, primarily as a result of five months of revenues at Memphis Motorsports Park in 1996 not operated by the Company in 1995 and increases in revenues from grandstand rentals. While the Company anticipates that the dollar amount of other operating revenues and expenses will increase in 1997, with the redevelopment of Gateway International Raceway and the expansion of Memphis Motorsports Park, other operating expenses as a percentage of other operating revenues is anticipated to remain relatively constant. OTHER OPERATING EXPENSES. Other operating expenses increased by 30.2% from 1995 to 1996, or 2.9% as a percentage of other operating revenues from 48.6% in 1995 to 51.5% in 1996, primarily due to the change in other operating revenues as described above. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased by $975,000 from 1995 to 1996, and as a percentage of total revenues, increased from 82.7% in 1995 to 117.1% in 1996. This increase is due to several factors including five months of expenditures related to Memphis Motorsports Park ($254,000), administrative costs related to operating Gateway International Raceway ($136,000), increases in the number of employees over the prior period and increases in professional fees pertaining mainly to reporting requirements of a public company. DEPRECIATION. Depreciation expense of $668,000 for the five months ended November 30, 1996 increased $503,000 or 304.8%, from the five months ended November 30, 1995. This increase is attributable to five months of depreciation expense on Memphis Motorsports Park capital assets in 1996, depreciation on the completed drag strip at Gateway International Raceway for three months, other Gateway International Raceway construction and corporate capital assets purchased during the current period. YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995 MAJOR EVENT REVENUES. The Company's total major event revenues of $12,477,000 for the year ended June 30, 1996 increased by $2,696,000, or 27.6%, from the year ended June 30, 1995 as discussed below. Grand Prix - ---------- Since 1991, the Company's Grand Prix reserved seating has been sold out prior to the event. The Company has increased paid attendance over the past several years by adding to and/or reconfiguring grandstand seating and other viewing areas. With Grand Prix attendance at or near capacity, the Company has focused on increasing corporate sponsorships and ancillary revenue sources, specifically corporate hospitality and merchandising. -13- The Company's current contract with Toyota Motor Sales, U.S.A., Inc., which has been the title sponsor of the Grand Prix since 1980, expires in 2000. Other contracts extend from one year to five years with various renewal options. Of the 27 sponsorship contracts in 1996, 13 contracts (which accounted for gross aggregate sponsorship revenues of approximately $694,300) expired after the 1996 event. The Company has renewed 10 contracts representing gross revenues of $803,000 and expects to renew or replace the remaining expired contracts prior to the 1997 Grand Prix; however, no assurance can be made that these agreements will continue to be renewed. Grand Prix revenues of $11,041,000 for the year ended June 30, 1996 increased by $1,260,000 or 12.9%, from the year ended June 30, 1995. Grand Prix admission revenues increased by $415,000 or 9.7%, due to paid attendance in 1996 increasing by 6,500 or 3.2% from 1995 and a more favorable mix of ticket packages. Sponsorships increased by $317,000 or 12.6%, from 1995 to 1996, as a result of increases in certain existing sponsorship contracts, as well as an increase in the number of event sponsors. Ancillary revenues increased by $528,000 or approximately 17.7%, primarily as a result of increases in hospitality, teleproductions, lifestyle/auto expo, race program sales and concessions revenues. Memphis Motorsports Park - ------------------------ The Company hosted its first major event at its newly acquired Memphis Motorsports Park in June 1996. The NHRA event revenues of $1,436,000 for the year ended June 30, 1996 consist of admission revenues of $866,000, sponsorships revenues of $194,000 and ancillary revenues of $376,000. OTHER OPERATING REVENUES. Other operating revenues increased by $927,000 or 50.2%, primarily as a result of a full season of revenues at Gateway International Raceway of $1,263,000 in 1996 ($345,000 in 1995), the inclusion of one month of other operating revenues of $34,000 from Memphis Motorsports Park and increases in revenues from grandstand rentals. While the Company anticipates that the dollar amount of other operating revenues and expenses will increase in 1997, with the redevelopment of Gateway International Raceway and the expansion of Memphis Motorsports Park, other operating expenses as a percentage of other operating revenues are anticipated to remain relatively constant. MAJOR EVENT EXPENSES. The Company's major event expenses increased in total by 27.8% from 1995 to 1996 but decreased slightly as a percentage of revenues, primarily as a result of the inclusion of the NHRA event at Memphis Motorsports Park, as further discussed below. -14- Grand Prix - ---------- Grand Prix major event expenses increased by 7.1% from 1995 to 1996, primarily as a result of increased sanctioning fees payable to CART, increases for additional spectator related expenses, insurance premiums and possessory interest property taxes. It can be expected that major event expenses will continue to increase from year to year. Memphis Motorsports Park - ------------------------ NHRA major event expenses of $1,169,000 are primarily comprised of sanctioning body related expenses, hospitality costs and advertising expenses. OTHER OPERATING EXPENSES. The dollar amount of other operating expenses increased by 35.3% from 1995 to 1996, but decreased as a percentage of other operating revenues from 79.0% in 1995 to 71.1% in 1996, primarily as the result of the increase in other operating revenues described above. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased by 43.7% from 1995 to 1996, and as a percentage of total revenues, increased from 19.3% in 1995 to 21.2% in 1996, primarily as a result of the full year inclusion of Gateway International Raceway and one month of Memphis Motorsports Park. DEPRECIATION. Depreciation expense of $451,000 for the year ended June 30, 1996 increased $80,000 or 21.6%, from the year ended June 30, 1995. This increase is attributable to depreciation on corporate capital assets purchased during the current year and one month of depreciation expense on Memphis Motorsports Park capital assets in 1996. PROVISION FOR INCOME TAXES. The Company's effective tax rate was 42% for the years ended June 30, 1996 and 1995. LIQUIDITY AND CAPITAL RESOURCES Prior to June 1996, the Company relied on cash flows generated from operations, predominantly from the Grand Prix, supplemented by bank borrowings to finance working capital, acquisitions and capital improvements. In June 1996, as further discussed below, the Company expanded its sources of capital through equity and debt transactions. The Company's bank borrowings consist of short and long term obligations incurred in connection with specific capital improvements and expenditures. The Company's long term debt for Gateway International Raceway includes a first trust deed note to -15- SWIDA, secured by the Gateway International Raceway property, with an outstanding principal balance of $21,500,000 on November 30, 1996. Long term debt also includes first and second trust deed notes, secured by the Company's corporate office, which together had an outstanding principal balance of approximately $1,448,000 on November 30, 1996. Other long and short term debt, totaling in the aggregate $97,000 on November 30, 1996, consisted of various secured and unsecured borrowings (See Note 5 of Notes to Consolidated Financial Statements). The Company's cash balance at November 30, 1996 was $10,214,000 compared to $12,308,000 at June 30, 1996, a net decrease of $2,094,0000, primarily attributable to funding operating losses for the five month transition period. The Company's restricted cash of $11,546,000 at November 30, 1996 included the funds restricted by the terms of the SWIDA loan to fund the Gateway International Raceway expansion project. The Company's deficit operating cash flows was $1,164,000 for the five months ended November 30, 1996, compared to positive operating cash flows of $2,630,000 for the year ended June 30, 1996. The negative operating cash flow is the result of no major event being held during the transition period. Net cash used by the Company in capital investments totaled $11,774,000 for the five month transition period ended November 30, 1996 as compared to $5,004,000 for the year ended June 30, 1996, an increase of $6,770,000, used primarily for the construction at Gateway International Raceway. Repayment of debt included in net financing activities was $158,000 for the five month transition period ended November 30, 1996 and $217,000 for the year ended June 30, 1996. The Company anticipates that total expenditures related to the redevelopment of Gateway International Raceway will be approximately $24,000,000; $18,500,000 to be funded from the net SWIDA loan proceeds and $5,500,000 from the net initial public offering proceeds. Projected costs of the redevelopment assume that subcontractors adhere to the terms of their budgets, that adverse factors, such as labor problems and weather, are kept to a minimum and that significant design changes are not required. Any adverse changes in these items could materially increase redevelopment costs. As more fully described in Note 5 of Notes to the Consolidated Financial Statements, the SWIDA loan bears interest at varying rates ranging from 8.35% to 9.25% with an effective rate of approximately 9.1%. Additionally, the Company is required to impose a 5% ticket surcharge on all nationally sanctioned motorsports events at Gateway International Raceway to establish an additional debt service reserve fund. Once $2,000,000 has been accumulated in this fund, excess funds then accumulating will be used to repay debt service annually, estimated to commence February 1, 2002. The Company received net proceeds of $11,934,000 from the sale of Common stock in the initial public offering, of which the Company used $2,500,000 to fund a portion of the purchase price of Memphis Motorsports Park. The Company intends to use the balance of the proceeds to make $2,500,000 in improvements to Memphis Motorsports Park, to spend $1,500,000 to furnish and equip the Gateway International -16- Raceway Law Enforcement Driving School, $1,500,000 to construct an oval suite tower and administrative offices at Gateway International Raceway, $2,000,000 to accelerate additional improvements at Gateway International Raceway due to the three sanctioned major events awarded for 1997, to make $500,000 in additional improvements at Gateway International Raceway, with the remaining $1,434,000 for working capital and other general corporate purposes. The allocation of these proceeds to be used for the construction of improvements to Gateway International Raceway and Memphis Motorsports Park are based upon the Company's current best estimates of the cost thereof, and actual costs may vary depending on factors outside the control of the Company. On June 28, 1996, the Company acquired substantially all of the assets of Memphis Motorsports Park, including approximately 374 acres of land. As consideration for the assets, the Company assumed certain debt totaling $2,500,000, which was repaid by the Company with a portion of the proceeds from the IPO and issued shares of its Series B Convertible Preferred stock valued at $2,500,000, as further described in Notes 2 and 7 of Notes to the Consolidated Financial Statements. The Company's capital requirements will depend on numerous factors, including the rate at which the Company redevelops and improves Gateway International Raceway and Memphis Motorsports Park, establishes such facilities as profitable operations and acquires other motorsports facilities. In addition, the Company will have various ongoing needs for capital, including: (i) working capital for operations; (ii) routine capital expenditures to maintain and expand its Long Beach temporary circuit; and (iii) funds required to service corporate obligations, including the $21,500,000 obligation under the SWIDA loan. The Company believes the proceeds from its IPO together with proceeds from the SWIDA loan and earnings from the Grand Prix as well as the Gateway International Raceway and Memphis Motorsports Park major events will be sufficient to meet the Company's anticipated needs for working capital and capital expenditures through at least the next 12 months. Thereafter, the Company anticipates that, assuming the Company is successful in continuing to obtain additional nationally sanctioned events at Gateway International Raceway and Memphis Motorsports Park, revenues from Gateway International Raceway and Memphis Motorsports Park supplementing the Grand Prix revenue should be sufficient to provide the necessary working capital for the Company. However, there can be no assurance that the Company will not require additional financing or, if required, that equity or debt financing will be available on acceptable terms or at all. OUTLOOK FOR 1997 Gateway International Raceway - ----------------------------- The Company has agreed with Motorola that it will be the title sponsor for its inaugural PPG CART Indy car race at Gateway International Raceway. The parties have agreed that the sponsorship contract will have a term -17- of one year with renewal options. The Company has signed a letter of understanding with NHRA for Sears Craftsman to be the title sponsor of the annual NHRA national events at Gateway International Raceway. Other sponsorship contracts per major event have been signed for one year with various renewal options. Additional sponsorship contracts are expected to be signed prior to each major event. Memphis Motorsports Park - ------------------------ The Company continues its agreement with NHRA that Pennzoil will be the title sponsor of the National NHRA event through 1998. Additional sponsorship negotiations are expected for the three major (ARCA, USAC and NHRA) events to be held in 1997. INFLATION The effects of inflation on the Company's operations were not significant during the periods presented herein. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS For the five month transition period ended November 30, 1996, the Company adopted SFAS 121 and the pro forma disclosure provisions of SFAS 123 (the Company will continue to account for stock based compensation in accordance with APB Opinion No. 25). The adoption of SFAS 121 did not have a material impact on the financial statements and no pro forma disclosures were required for the adoption of SFAS 123 as no stock options have been granted for fiscal years beginning after December 15, 1995. ITEM 7. FINANCIAL STATEMENTS -------------------- For a list of financial statements filed as part of this report, see Index to Financial Statements at F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- Not applicable. -18- PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; ------------------------------------------------------------- COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ------------------------------------------------- DIRECTORS The following persons are currently directors of the Company, having been elected at the last Annual Meeting of Shareholders which was held on December 9, 1996, for the term set forth above their names. Three-year term: Daniel S. Gurney, 65, was one of the founders of the Company and has served as a Director of the Company since 1975. Since 1964, Mr. Gurney has been the owner and Chief Executive Officer of All American Racers Incorporated of Santa Ana, California, a company which has designed and manufactured race cars known as "Eagles" for over thirty years. Mr. Gurney is an internationally known former Grand Prix, Sports Car, NASCAR and Indy car driver. Mr. Gurney graduated from Menlo College. George S. Pellin, 56, has been a Director of the Company since 1988. Since 1984, Mr. Pellin has been the owner and General Manager of Pellin Automotive Products Company, Inc. which manufactures automotive parts in Los Angeles, California. Mr. Pellin is also the owner of George Pellin & Associates, a company involved in the sale of automotive electrical equipment and parts. Mr. Pellin earned a BS in Business from the University of Southern California in Los Angeles. James Sullivan, 63, is one of the original shareholders of the Company and has served as a Director of the Company since 1980. Since 1983, Mr. Sullivan has been the owner of S.R.E. Industries, Burbank, California, a company which manufactures souvenir and promotional items with a large presence in the racing community. Mr. Sullivan was educated at the University of Arizona. He has been interested in racing since childhood and ran a Championship USAC Midget team in the late 1970's and early 1980's. Two-Year Term: Neil Matlins, 50, became a Director of the Company in August 1996. For the past five years, Mr. Matlins has been President of Matlins Financial Consulting, Inc. Mr. Matlins has managed funds for individuals and pension plans for 13 years. Mr. Matlins served three Illinois governors in appointed positions in budgeting, evaluation and economic analysis. Mr. Matlins earned an MA in Managerial Economics and Demography from Cornell University. He graduated from the University of -19- Virginia in 1968 with honors. He was elected to Phi Beta Kappa and became a Danforth Fellow. James P. Michaelian, 53, has been employed by the Company since its inception in 1974 in various executive capacities and has been the Executive Vice President of the Company since 1988, Chief Operating Officer ("COO") since May 1996 and a Director since 1975. Mr. Michaelian also serves as the Executive Producer of Grand Prix Teleproductions, a division of the Company which is responsible for providing television broadcast services for the Grand Prix on ABC and ESPN. Mr. Michaelian holds an MBA from University of California, Los Angeles. Christopher R. Pook, 55, founded the Company in 1974 and has since been the Chairman of the Board of Directors, Chief Executive Officer ("CEO") and President of the Company. In addition, Mr. Pook currently serves as a member of the Board of Governors of the California State University, Long Beach, is a California delegate appointed by President Clinton to the White House Conference on Travel and Tourism and is immediate past Chairman of the Greater Los Angeles World Trade Center Association. Mr. Pook is one of the original developers of the concept of modern-day racing through city streets in the United States. One-Year Term: Joseph F. Ainge, 67, is one of the Company's original shareholders and has served as a Director of the Company since 1975. Mr. Ainge has been Vice President of the Prime Electro Products Company, a distributor of electronic components, since 1990. Mr. Ainge earned a BS in Business Management and Marketing from the University of Utah in Salt Lake City. Wayne Kees, 73, an original shareholder of the Company, has served as a Director of the Company since 1975. Mr. Kees has been retired for more than five years. Mr. Kees also serves as a member of the Board of Directors of Goodrich Petroleum Corporation and Sizzler International. John R. Queen, III, 31, has served as a Director of the Company since April, 1996. Since 1991, Mr. Queen has been employed as a trader and analyst for Capital Research and Management Company, a money management firm based in Los Angeles, California. Mr. Queen holds a BS in Industrial Management from Purdue University. COMPENSATION OF DIRECTORS Non-employee directors receive compensation of $500 per board meeting attended and $500 per committee meeting attended. Prior to June 1996, they also received stock options. In December 1993, 149,395 shares of Common stock from the 1993 -20- Stock Option Plan (See Note 8 to Notes to Consolidated Financial Statements) were set aside to be granted to the ten then existing non-employee directors in consideration of their past service to the Company. Each of those directors was granted an option to purchase one-tenth of the shares held in the pool, contingent upon their attendance at a minimum of four board meetings a year. Options granted to the directors were granted at an exercise price of $1.09 per share and were to vest over the subsequent five year period at a rate of 20% per year, the first 20% to vest in December 1994. None of the options has been exercised by existing or retired directors. Stock Option Agreements under the 1993 Stock Option Plan further provided that if any director were asked to resign, his or her options would become immediately vested. The Company further agreed to compensate the directors who have granted options by paying them the consideration necessary to exercise the 20% of the options which vested in December 1995. Of the ten then-existing non-employee directors, five are still board members and each has 60% of his options vested. The retired non-employee directors are still eligible to exercise their options, all of which immediately vested upon resignation. Options granted under the 1993 Stock Option Plan will continue to vest 20% per year for those current directors who received them, provided they attend at least four meetings a year. Directors are eligible to participate in the Company's 1996 Stock Option Plan; however to date no options have been granted under that plan. BOARD MEETINGS During the five month transition period ended November 30, 1996, the Board met in person four times. During the twelve months ended November 30, 1996, each of the Directors attended 75% or more of the aggregate of the total number of meetings of the Board of Directors held during the time he was a director, and the total number of meetings held by all committees of the Board on which he served during such period. In the five month transition period, all directors except Daniel Gurney attended 80% or more of the meetings of the Board and of the Committees upon which they served during their term of office. COMMITTEES OF THE BOARD Audit Committee. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews the independent public accountants' plans and results of the audit engagement, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of the Company's internal accounting controls. The Audit Committee currently consists of Messrs. Queen, Pellin and Ainge, all of whom are currently Directors of the Company. Nominating Committee. The Nominating Committee selects and nominates qualified -21- persons to serve as directors of the Company. The Nominating Committee currently consists of Messrs. Pook, Kees, Gurney and Ainge. Mr. Pook is currently an officer and Director of the Company and Messrs. Kees, Gurney and Ainge are currently Directors of the Company. Compensation Committee. The Compensation Committee determines the annual compensation of executive officers and key employees of the Company. The Compensation Committee currently consists of Messrs. Sullivan, Kees and Ainge, none of whom are officers or employees of the Company but all of whom are Directors. Stock Option Committee. The Stock Option Committee administers the Company's 1993 Stock Option Plan and its 1996 Employee and Director Stock Incentive Plan. The Committee determines who are to receive grants under these plans and the terms of all grants subject to the applicable provisions of the plans. The Stock Option Committee currently consists of Messrs. Pook, Michaelian, Kees, Queen, Gurney and Pellin, all of whom are Directors of the Company. Messrs. Pook and Michaelian are also officers of the Company. Executive Committee. The Executive Committee has and exercises all of the powers and authority of the Board in the management of the business and affairs of the Company that may lawfully be delegated to it by the Board. The Executive Committee does not have the power to amend the Certificate of Incorporation or Bylaws of the Company, to adopt an agreement of merger or consolidation, to recommend to the shareholders the sale, lease or exchange of all or substantially all of the property and assets of the Company or the dissolution of the Company, to declare a dividend or authorize the issuance of stock, or to file bankruptcy. The Executive Committee currently consists of Messrs. Pook, Michaelian, Kees, Queen, Gurney and Pellin. Messrs. Pook and Michaelian are the Chief Executive Officer and Chief Operating Officer, respectively, and all of the committee members are Directors of the Company. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent (10%) of a registered class of the Company's securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC and the National Association of Securities Dealers. Such officers, directors and ten percent shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports that they file. Based solely upon a review of copies of such reports received or written representations from certain reporting persons, the Company believes that it complied with all Section 16(a) filing requirements applicable to its officers, directors and ten percent shareholders during the transition period ended November 30, 1996. -22- ITEM 10. EXECUTIVE COMPENSATION ---------------------- EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE COMPANY Christopher R. Pook founded the Company in 1974 and has since been the Chairman of the Board of Directors, Chief Executive Officer and President of the Company. In addition, Mr. Pook currently serves as a member of the Board of Governors of the California State University, Long Beach, is a California delegate appointed by President Clinton to the White House Conference on Travel and Tourism and is immediate past Chairman of the Greater Los Angeles World Trade Center Association. Mr. Pook is one of the original developers of the concept of modern-day racing through city streets in the United States. James P. Michaelian has been employed by the Company since its inception in 1974 in various executive capacities and has been the Executive Vice President of the Company since 1988, Chief Operating Officer since May 1996 and a Director since 1975. Mr. Michaelian also serves as the Executive Producer of Grand Prix Teleproductions, a division of the Company which is responsible for providing television broadcast services for the Grand Prix on ABC and ESPN. Mr. Michaelian holds an MBA from University of California, Los Angeles. Marlene A. Davis has been the Chief Financial Officer of the Company since 1993. During 1992, Ms. Davis served as a financial consultant for Ron Harding Moving & Service Company. From 1989 to 1991, Ms. Davis was the Chief Financial Officer of HemoCue, a medical instrument distribution company. Ms. Davis holds a BS degree in Business Administration from the University of Southern California. Gemma A. Bannon has been with the Company since 1982. She is Director of Administration, primarily responsible for management of human resources for the Company, and since 1990 has served as Corporate Secretary of the Company. She has also served as Executive Assistant to the President of the Company since 1982. Ms. Bannon attended University of Toronto, in Toronto, Canada. Dwight R. Tanaka has been employed by the Company for the past 19 years and has been the Vice President of Operations of the Company since 1984. In addition, Mr. Tanaka is the Chief Operating Officer of the Company's subsidiary responsible for the grandstand rental and installation business. Michael S. Clark has been employed by the Company since 1988 and has served as Vice President of Marketing for the Company since 1991. Mr. Clark also serves as the Director of Marketing for Competitive Promotional Solutions, a division of the Company responsible for providing promotion, marketing and public relations services primarily for organizations involved in the motorsports industry. Mr. Clark holds a BS degree in Communications from the University of Texas. -23- Richard W. Lalor, Jr. has served as Vice President of Communications/Public Relations for the Company since January 1995. From 1992 to 1994, Mr. Lalor was responsible for motorsports public relations for Nissan Motor Corporation USA. From 1987 to 1991, Mr. Lalor was Director of Communications for the National Hot Rod Association. Rodney G. Wolter was retained by the Company in October 1995 to serve as General Manager of Gateway International Raceway and to supervise the planned redevelopment of the Gateway facility. Since June 1996, he has been a Vice President of the Company. From 1987 to 1994, Mr. Wolter served as Manager of the Nebraska Motorplex in Scribner, Nebraska and was responsible for the operations of that motorsports facility. From 1962 to February 1993, Mr. Wolter served as a construction project manager for Kiewit Construction in Omaha, Nebraska. Todd Bridges joined by the Company in June 1996 as General Manager of Memphis Motorsports Park. From 1991 to 1996, Mr. Bridges was the owner of Binex Outsourcing Services which provided management consulting services to various businesses, including Kansas City International Raceway, where he was Marketing/Operations Manager from 1988 to 1991. Mr. Bridges has been involved in motorsports for 20 years. -24- EXECUTIVE COMPENSATION The following table sets forth all compensation awarded to, earned by or paid for services rendered to the Company in all capacities during the last two fiscal years and the five month transition period ending November 30, 1996 by the Company's Chief Executive Officer and the Company's other three most highly compensated executive officers (the "Named Officers") whose total annual salary and bonus exceeded $100,000 during the twelve months preceding November 30, 1996. SUMMARY COMPENSATION TABLE
Long-Term Compensation ----------------------------------------------- Annual Compensation Awards Payouts ---------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) (h) SECURITIES LONG-TERM FISCAL OTHER ANNUAL RESTRICTED STOCK UNDERLYING INCENTIVE YEAR SALARY BONUS COMPENSATION (1) AWARDS (2) OPTIONS/SARS (2) PAYOUTS (2) NAME AND POSITION ENDED ($) ($) ($) ($) (#) ($) - -------------------------------------------------------------------------------------------------------------------------- Christopher R. Pook 5-mos 93,750 - - - - - Chairman, CEO and 6/96 185,390 112,194 - - - - President 6/95 172,620 105,561 - - - - James P. Michaelian 5-mos 72,917 - - - - - COO 6/96 153,586 69,283 - - - - 6/95 141,173 66,127 - - - - Dwight R. Tanaka 5-mos 41,490 - - - - - VP Operations 6/96 100,096 37,074 - - - - 6/95 94,814 31,850 - - - - Michael S. Clark 5-mos 29,291 - - - - - VP Marketing 6/96 72,400 49,680 - - - - 6/95 65,975 40,425 - - - - (i) ALL OTHER COMPEN- SATION (3) NAME AND POSITION ($) - ----------------------------------------- Christopher R. Pook $1,200 Chairman, CEO and 3,510 President - James P. Michaelian 875 COO 3,810 - Dwight R. Tanaka - VP Operations - - Michael S. Clark 1,188 VP Marketing 3,498 - ====================================================================================================================================
Footnotes: (1) The aggregate amount of perquisites and other personal benefits, premiums for health, life and disability insurance, securities or property, given to each of the Named Officers valued on the basis of aggregate incremental cost to the Company was less than either $50,000 or 10% of such officer's total annual salary and bonus during the five month transition period and during fiscal years ended June 30, 1995 and June 30, 1996. (2) There were no grants of stock options, stock appreciation rights, or stock options granted in tandem with stock appreciation rights made by the Company during the five month transition period covered by this report or during its fiscal years ended June 30, 1996 or 1995 to the Named Officers. There were no exercises by any of the Named Officers of any stock options, stock appreciation rights or stock options granted in tandem with stock appreciation rights during the five month transition period ended November 30, 1996, or during fiscal years ended June 30, 1996 or 1995. (3) The amounts reported consist of matching contributions by the Company pursuant to its 401(k) Plan. -25- EMPLOYMENT AGREEMENTS The Company has entered into an Employment Agreement dated as of May 16, 1996 with Christopher R. Pook to serve as the President and Chief Executive Officer of the Company through May 16, 2001 (the "Pook Employment Agreement"). Pursuant to the Pook Employment Agreement, Mr. Pook is to receive an initial base salary of $225,000 per year, which may be increased from time to time by the Board of Directors. Mr. Pook is also entitled to participate in any bonus plan, stock option plan or any other employee benefit or compensation plan that the Company may have in effect from time to time. Therefore, Mr. Pook's compensation involves a large percentage of pay which is "at risk" inasmuch as it is based on the performance of the Company. If Mr. Pook's employment is terminated as a result of a change in control of the Company, or otherwise terminated without cause by the Company, Mr. Pook will be entitled to receive a severance payment equal to 30 months of his full base salary, accelerated vesting of all outstanding stock options and other benefits, continued participation in all benefit plans for a period of 12 months following his termination and legal fees incurred by Mr. Pook with respect to contesting the termination of his employment agreement or securing performance of the terms of his employment agreement. The Pook Employment Agreement provides that the Company will indemnify Mr. Pook against any acts or omissions made by him in good faith while performing services for the Company. The members of the Compensation Committee consulted with Lipis Consulting, an independent compensation and benefits consultant, to draft the Pook Employment Agreement. The agreement was intended to recognize Mr. Pook's importance as the founder of the Company and to bring Mr. Pook's base salary in line with other executives in comparable positions in the industry, while continuing the Company's risk/reward philosophy by linking a significant part of his compensation to the bonus plan described below. The Company has entered into an Employment Agreement dated as of May 16, 1996 with James P. Michaelian to serve as the Chief Operating Officer of the Company through May 16, 2001 (the "Michaelian Employment Agreement"). Pursuant to the Michaelian Employment Agreement, Mr. Michaelian is to receive an initial base salary of $175,000 per year, which may be increased from time to time by the Board of Directors. Mr. Michaelian is also entitled to participate in any bonus plan, stock option plan or any other employee benefit or compensation plan which the Company may have in effect from time to time. A significant portion of Mr. Michaelian's compensation is also "at risk" and based on performance. If Mr. Michaelian's employment is terminated as a result of a change in control of the Company, or otherwise terminated without cause by the Company, Mr. Michaelian will be entitled to receive a severance payment equal to 30 months of his full base salary, accelerated vesting of all outstanding stock options and other benefits, continued participation in all benefit plans for a period of 12 months following his termination and legal fees incurred by Mr. Michaelian with respect to contesting the termination of his employment agreement or securing performance of the terms of his employment agreement. The Michaelian Employment Agreement provides that the Company will -26- indemnify Mr. Michaelian against any acts or omissions made by him in good faith while performing services for the Company. The members of the Compensation Committee consulted with Lipis Consulting, an independent compensation and benefits consultant, prior to drafting the Michaelian Employment Agreement. The agreement was intended to recognize Mr. Michaelian's importance as a one of the original officers and directors of the Company and to bring his base salary in line with other executives in comparable positions in the industry, while continuing the Company's risk/reward philosophy by linking a significant part of his compensation to the bonus plan described below. The Company also has employment agreements with other members of the senior management team, each of which is intended to implement the Company's risk/reward philosophy and each of which provides that in the event the Company terminates the employment of the employee, the Company shall pay 60 days severance to the employee plus all outstanding bonus incentives due to the employee. STOCK OPTION AND STOCK INCENTIVE PLANS 1996 Employee and Director Stock Incentive Plan. In May 1996, the Board of Directors and shareholders of the Company approved the Company's 1996 Employee and Director Stock Incentive Plan (the "1996 Plan"). The 1996 Plan was adopted in order to enable the Company to attract, retain and motivate key employees and directors by providing for or increasing the proprietary interests of such persons in the Company. All directors and non-seasonal salaried employees of the Company are eligible to participate in the 1996 Plan. The 1996 Plan is administered by the Stock Option Committee of the Board of Directors (the "Committee"). Pursuant to the 1996 Plan, the Committee may grant, without limitation, any of the following awards to employees or directors: shares of Common stock or any option, warrant, convertible security, stock appreciation right or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the value of an equity security (an"Award"). Awards are not restricted to any specified form or structure and may include, without limitation, sales or bonuses of stock, restricted stock, stock options, stock purchase warrants, other rights to acquire stock, securities convertible into or redeemable for stock, stock appreciation rights, limited stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares, and an Award may consist of one such security or benefit, or two or more of them in tandem or in the alternative. The Committee, in its sole discretion, determines all of the terms and conditions of each Award granted under the 1996 Plan. An aggregate of 400,000 shares of Common stock have been reserved for issuance in connection with Awards made to employees and directors under the 1996 Plan. The 1996 Plan is effective for a period of 10 years, through May 2006. The Board of Directors of the Company may amend or terminate the 1996 Plan at any time and in any manner; provided, however, that no such amendment or termination may -27- terminate or modify any Award previously granted under the 1996 Plan without the consent of the recipient of the Award. As of November 30, 1996, no grants of Awards have been made under the 1996 Plan. 1993 Stock Option Plan. In December 1993 the Company adopted its 1993 Stock Option Plan (the "1993 Plan"), which was approved and adopted by the Board of Directors and shareholders of the Company. The 1993 Plan is administered by the Stock Option Committee, but no further options will be granted under the 1993 Plan. The 1993 Plan was terminated in early 1996. The exercise price of options granted to optionees under the 1993 Plan had to be equal to the fair market value of a share of Common stock on the date the option was granted (110% with respect to optionees who own at least 10% of the outstanding Common stock). All options granted under the 1993 Plan are non- qualified stock options. Options to purchase an aggregate of 602,451 shares of Common stock have been granted under the 1993 Plan, all of which options (except for options to purchase 31,729 shares of Common stock which were granted in January 1995), were granted in December 1993 at an exercise price of $1.09 per share. None of the options so granted have yet been exercised. AGGREGATED OPTION/SAR EXERCISES IN FIVE MONTH TRANSITION PERIOD AND FIVE MONTH TRANSITION PERIOD END OPTION/SAR VALUES
(a) (b) (c) (d) (e) Value of Unexercised Shares Number of Securities In-the- Acquired on Value Underlying Unexercised Money Options/SARs at Exercise Realized Options/SARs at 11/30/96(#) 11/30/96($) Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable ---- --- --- ----------- ------------- ----------- ------------- Christopher R. Pook 0 $0 104,662 69,774 $906,369 $604,246 Chairman, CEO and President James P. Michaelian 0 0 65,220 43,480 564,817 376,545 COO Dwight R. Tanaka 0 0 31,245 20,830 270,580 180,387 VP Operations Michael S. Clark 0 0 19,037 12,691 164,862 109,908 VP Marketing
-28- 401(K) PLAN On November 1, 1995, the Company adopted a 401(k) plan (the "401(k) Plan") pursuant to which employees who have completed at least one year of service with the Company if hired after November 1, 1995, and meet certain other eligibility requirements, may contribute, on a pre-tax basis, a percentage of the employee's total annual income from the Company, subject to certain Internal Revenue Code limitations. The Company may make matching contributions to the 401(k) Plan in its discretion, and for the first two years the Company has committed to make a matching contribution equal to 25% of employee contributions. All contributions are allocated to the employee's individual account. Contributions made by the Company to the 401(k) Plan vest 100% after the employee has been employed for five years. BONUS PLAN Since 1990, the Company has had in effect a three tier bonus plan in which year- round full-time salaried employees are eligible to participate (the "Bonus Plan") which is geared toward sharing the risk and reward achieved by the Company, as well as compensating personal initiative. In the first tier of the Bonus Plan a bonus is paid based on the Company's marketing department having surpassed its projected earnings for the Grand Prix event. This bonus is allocated among the members of the Company's marketing department as well as among the employees participating in the third tier of the Bonus Plan. The second tier of the Bonus Plan offers incentives to employees for bringing new business into the Company unrelated to the Grand Prix of Long Beach. Salaried employees in all departments of the Company are eligible to participate in the second tier of the Bonus Plan. The third tier of the Bonus Plan is based on the general profitability of the Company overall, and, with the exception of the Company's marketing department employees, all employees are eligible to participate in this third tier of the Bonus Plan; however, the senior executive officers of the Company receive most of the bonus compensation from this third tier of the Bonus Plan. Before any bonus is payable under the third tier of the Bonus Plan, the following financial goal must be met: the Company's pre-tax profits for the year in which the bonus is to be calculated must exceed the average of 75% of the pre-tax profits of the three previous years. In the Company's fiscal year ended June 30, 1996 an aggregate of $421,579 or approximately 18.5% of the Company's pre-tax profits were distributed pursuant to the Company's Bonus Plan. There will be no distributions under the Bonus Plan for the five month transition period ended November 30, 1996. The Bonus Plan may be terminated or modified at any time in the sole discretion of the Company. LIMITATION OF LIABILITY The Company's Articles of Incorporation and Bylaws contain provisions limiting the personal liability of directors to the Company or its shareholders and indemnifying directors, officers, employees and agents of the Company for actions, in their capacity as such, to the fullest extent permitted by law. In August 1994, each of the then- -29- existing non-employee directors of the Company entered into an indemnification agreement with the Company pursuant to which the Company has agreed to indemnify the non-employee directors against expenses incurred by the non-employee director arising out of any act or omission of the director arising out of his or her duties as a director of the Company. The Company anticipates that it will enter into similar agreements with non-employee directors of the Company who became directors of the Company after August 1994. Further, the Pook Employment Agreement and Michaelian Employment Agreement provide that the Company shall indemnify and hold harmless Messrs. Pook and Michaelian against any acts or omissions made by them in good faith while performing services for the Company. The Company has a directors and officers liability insurance policy. At present there is no pending litigation or proceeding involving a director, officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding that may result in a claim for indemnification by any director or officer. -30- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- PRINCIPAL SHAREHOLDERS The following table sets forth ownership of the Company's voting securities as of November 30, 1996 by (i) each person or group who is known by the Company to own beneficially more than 5% of the outstanding shares of each class of voting securities, (ii) each director, nominee director and named executive officer and (iii) all executive officers, significant employees and directors as a group.
AMOUNT AND PERCENTAGE OF ---------- ------------ NATURE OF CLASS --------- ----- NAME OF BENEFICIAL OWNER(3) TITLE BENEFICIAL OUTSTANDING - --------------------------- ----- ---------- ----------- OF CLASS OWNERSHIP (2) -------- --------- (1) Christopher R. Pook(4) Common 480,674 12.83% James P. Michaelian(5) Common 241,720 6.52% Dwight R. Tanaka(6) Common 86,449 2.35% Michael S. Clark(7) Common 51,227 1.40% Marlene A. Davis(7) Common 19,037 0.52% Joseph Ainge(8)(14) Common 54,991 1.51% Daniel S. Gurney(8) Common 91,806 2.52% Wayne Kees(8) Common 54,991 1.51% Neil Matlins (11) Common 107,225 2.95% George Pellin(8) Common 68,160 1.87% John R. Queen, III(9) Common 35,570 0.98% James Sullivan(8)(10) Common 54,991 1.51% Memphis International Motorsports Series B 250,000 100.0% Park, Inc.(12) Preferred Nicholas Company, Inc. (13) Common 246,000 6.76% All executive officers, significant Common 1,404,421 35.49% employees and directors as a group (16 persons)(15)
Footnotes: (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common stock subject to options or warrants held by that person that are currently exercisable, or will become exercisable within 60 days from November 30, 1996, are deemed outstanding. Such shares, however, are not deemed outstanding for purposes of computing the percentage ownership of any other person. -31- Footnotes (continued): (2) Based on 3,640,565 shares of Common stock outstanding, and 250,000 shares of unregistered Series B Convertible Preferred stock outstanding. (3) Unless otherwise noted, the address for each person listed is 3000 Pacific Avenue, Long Beach, California 90806. Unless otherwise noted, each person has sole voting and investment power over the shares of Common stock or Series B Mandatorily Redeemed Convertible Preferred stock listed opposite his or her name, subject to community property laws where applicable. (4) Includes options to purchase 104,662 shares of Common stock exercisable within 60 days. Includes 65,805 shares of Common stock owned by Ellen Pook, the spouse of Mr. Pook. (5) Includes options to purchase 65,221 shares of Common stock exercisable within 60 days. (6) Includes options to purchase 31,245 shares of Common stock exercisable within 60 days. (7) Includes options to purchase 19,037 shares of Common stock exercisable within 60 days. (8) Includes options to purchase 8,964 shares of Common stock exercisable within 60 days. (9) Excludes an aggregate of 212,871 shares and vested options of Common stock owned by Mr. Queen's father, grandmother and brother, of which shares Mr. Queen disclaims beneficial ownership. (10) Includes 7,114 shares of Common stock owned by the spouse of Mr. Sullivan, also includes 41,799 shares of Common stock held by Mr. Sullivan as Trustee of the SRE Industries Pension Trust. (11) Includes 66,600 shares of Common stock held by The Lincoln Fund LP, 18,750 shares of Common stock held by The Lincoln Fund Tax Advantaged LP, 15,625 shares of Common stock held by The Gordon Fund and 6,250 shares of Common stock held by Matlins Financial Consulting Inc. Profit Sharing Plan which are managed by Mr. Matlins. (12) Represents shares transferred to the seller as part of the consideration for the purchase of Memphis Motorsports Park. Series B Mandatorily Redeemable Convertible Preferred shares are entitled to be voted in the same manner as Common stock. Series B shares are not registered. The address of Memphis International Motorsports Park, Inc. is P. O. Box 1651, Cordova, Tennessee 38088-1651. (13) Includes 246,000 shares held by Nicholas Company, Inc., a Wisconsin corporation, an Investment Advisor registered under the Investment Advisor's Act of 1940, which acts as investment advisor to Nicholas Limited Edition, Inc., a Maryland corporation, an open end management investment company registered under the Investment Company Act of 1940, which retains beneficial ownership rights to vote the shares purchased by Nicholas Company, Inc. for its account. Nicholas Company, Inc. has the right to direct the investment of the shares it holds for Nicholas Limited Edition, Inc. Albert O. Nicholas, the president, director and majority shareholder of Nicholas Company, Inc. owns no shares for his individual account. The address of Nicholas Company, Inc, is 700 North Water Street, Milwaukee, Wisconsin 53202. (14) All stock held in the names of Joseph Ainge and Constance Ainge as Trustees of the Ainge Family Revocable Living Trust. (15) Includes all executive officers, significant employees and current directors of the Company. -32- ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The Company has purchased certain merchandise in the normal course of business from a company owned by a member of the Board of Directors and from a company owned by the daughter and son-in-law of one of the executive staff, as described in Note 11 of Notes to Consolidated Financial Statements. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits. Exhibits required to be filed by Item 601 of Regulation S-B are listed in the Exhibit Index attached hereto, which is incorporated herein by reference. (b) Reports on Form 8-K. Two reports on Form 8-K were filed during the transition period covered by this report, one relating to the acquisition of Memphis Motorsports Park which was filed July 10, 1996 and one relating to the appointment of Neil Matlins to fill a vacancy on the Board of Directors filed on September 18, 1996. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 4, 1997 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. By /s/ Christopher R. Pook ----------------------- Christopher R. Pook Chairman of the Board, President, and Chief Executive Officer -33- In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Christopher R. Pook Chairman of the Board, April 4, 1997 - ----------------------- CHRISTOPHER R. POOK President and Chief Executive Officer (Principal Executive Officer) /s/ James P. Michaelian Chief Operating Officer and April 4, 1997 - ----------------------- JAMES P. MICHAELIAN Director /s/ Ronald C. Shirley Chief Financial Officer April 4, 1997 - --------------------- RONALD C. SHIRLEY (Principal Financial and Accounting Officer) /s/ Joseph Ainge Director April 4, 1997 - ---------------- JOSEPH AINGE /s/ Daniel Gurney Director April 4, 1997 - ----------------- DANIEL GURNEY /s/ Wayne Kees Director April 4, 1997 - -------------- WAYNE KEES /s/ George Pellin Director April 4, 1997 - ----------------- GEORGE PELLIN /s/ James Sullivan Director April 4, 1997 - ------------------ JAMES SULLIVAN /s/ John R. Queen, III Director April 4, 1997 - ---------------------- JOHN R. QUEEN, III /s/ Neil Matlins Director April 4, 1997 - ---------------- NEIL MATLINS
-34- INDEX TO FINANCIAL STATEMENTS GRAND PRIX ASSOCIATION OF LONG BEACH, INC. AND SUBSIDIARIES
Page ---- Consolidated Financial Statements: Report of Independent Public Accountants........................................... F-2 Consolidated Balance Sheet as of November 30, 1996................................. F-3 Consolidated Statements of Income for the Years ended June 30, 1995 and 1996 and the Five Month Transition Period ended November 30, 1996................... F-4 Consolidated Statements of Shareholders' Equity for the Years ended June 30, 1995 and 1996 and the Five Month Transition Period ended November 30, 1996.......... F-5 Consolidated Statements of Cash Flows for the Years ended June 30, 1995 and 1996 and the Five Month Transition Period ended November 30, 1996.......... F-6 Notes to Consolidated Financial Statements......................................... F-8
-F-1- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Grand Prix Association of Long Beach, Inc.: We have audited the accompanying consolidated balance sheet of the Grand Prix Association of Long Beach, Inc. (a California corporation) and subsidiaries as of November 30, 1996, and the related consolidated statements of income, shareholders' equity and cash flows for the years ended June 30, 1995 and 1996 and the five month transition period ended November 30, 1996. 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 Grand Prix Association of Long Beach, Inc. and subsidiaries as of November 30, 1996, and the results of their operations and their cash flows for the years ended June 30, 1995 and 1996 and the five month transition period ended November 30, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California February 27, 1997 -F-2- GRAND PRIX ASSOCIATION OF LONG BEACH, INC. CONSOLIDATED BALANCE SHEET NOVEMBER 30, 1996 (DOLLARS IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10,214 Accounts receivable 456 Prepaid expenses and other current assets 245 Deferred major event expenses 194 Deferred income tax asset 860 ---------- Total current assets 11,969 Property and equipment, net 22,279 Restricted cash 11,546 Other assets 1,092 ---------- Total assets 46,886 ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable, current $ 73 Accounts payable 680 Other accrued liabilities 49 Accrued interest 817 Deferred major event revenues 1,424 ---------- Total current liabilities 3,043 Notes and bonds payable, long term 22,932 Deferred income tax liability 928 ---------- Total liabilities 26,903 ---------- Series B Mandatorily Redeemable Convertible Preferred stock; 250,000 shares issued and outstanding 2,500 ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, no par value; 10,000,000 shares authorized - Common stock, no par value; 20,000,000 shares authorized; 3,641,000 shares issued and outstanding 15,544 Paid-in capital 129 Retained earnings 2,193 Shareholders' notes (383) ---------- Total shareholders' equity 17,483 ---------- Total liabilities and shareholders' equity $ 46,886 ==========
The accompanying notes are an integral part of this consolidated balance sheet. -F-3- GRAND PRIX ASSOCIATION OF LONG BEACH, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR YEAR FIVE MONTHS ENDED ENDED ENDED JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996 -------------- ------------- ----------------- Revenues: Major event revenues Admissions $ 4,271 $ 5,552 $ - Sponsorships 2,522 3,033 - Ancillary 2,988 3,892 - -------------- ------------- Total major event revenues 9,781 12,477 - Other operating revenues 1,845 2,774 1,960 -------------- ------------- ----------------- Total revenues 11,626 15,251 1,960 -------------- ------------- ----------------- Expenses: Major event expenses 5,638 7,208 - Other operating expenses 1,457 1,971 1,010 General and administrative 2,249 3,232 2,295 Depreciation 371 451 668 -------------- ------------- ----------------- Total expenses 9,715 12,862 3,973 -------------- ------------- ----------------- Income (loss) from operations 1,911 2,389 (2,013) Other income (expense): Interest income 54 119 647 Interest expense, net of capitalized interest of $186 for November 30, 1996 (183) (174) (764) Other, net (5) (59) (10) -------------- ------------- ----------------- Total other income (expense) (134) (114) (127) -------------- ------------- ----------------- Income (loss) before (provision) benefit for income taxes and extraordinary item 1,777 2,275 (2,140) (Provision) benefit for income taxes (735) (955) 797 -------------- ------------- ----------------- Income (loss) before extraordinary item 1,042 1,320 (1,343) Extraordinary flood related losses (less related income tax benefit of $21 for June 30, 1995) (30) - - -------------- ------------- ----------------- Net income (loss) 1,012 1,320 (1,343) Dividends on Series B Mandatorily Redeemable Convertible Preferred stock - - (44) -------------- ------------- ----------------- Net income (loss) applicable to common stock $ 1,012 $ 1,320 $ (1,387) ============== ============= ================= Income (loss) per share: Continuing operations $ .51 $ .62 $ (.38) Extraordinary item (.01) - - -------------- ============= ================= $ .50 $ .62 $ (.38) ============== ============= ================= Weighted average number of common and common equivalent shares outstanding 2,026,640 2,137,351 3,640,574 ============== ============= =================
The accompanying notes are an integral part of these consolidated financial statements. -F-4- GRAND PRIX ASSOCIATION OF LONG BEACH, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996 (IN THOUSANDS)
COMMON STOCK PREFERRED STOCK PAID-IN RETAINED SHAREHOLDERS' --------------------- ----------------- SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS NOTES TOTAL ------------------------------------------------------------------------------------------------ BALANCE, June 30, 1994 1,960 $ 1,259 - $ - $ 129 $ 1,250 $ (407) $ 2,231 Repurchase of common stock (4) (3) - - - (1) - (4) Cash received on shareholders' notes - - - - - - 8 8 Net income - - - - - 1,012 - 1,012 ------------------------------------------------------------------------------------------------ BALANCE, June 30, 1995 1,956 1,256 - - 129 2,261 (399) 3,247 Issuance of common stock 23 25 - - - - - 25 Repurchase of common stock (1) (1) - - - (1) - (2) Cash received on shareholders' notes - - - - - - 16 16 Issuance of Series A redeemable preferred stock, net of issuance costs of $170 - - 313 2,330 - - - 2,330 Conversion of Series A redeemable preferred stock 313 2,330 (313) (2,330) - - - - Issuance of common stock for cash in connection with the initial public offering, net of issuance costs of $1,566 1,350 11,934 - - - - - 11,934 Net income - - - - - 1,320 - 1,320 ------------------------------------------------------------------------------------------------ BALANCE, June 30, 1996 3,641 15,544 - - 129 3,580 (383) 18,870 Net loss - - - - - (1,343) - (1,343) Dividends - - - - - (44) - (44) ------------------------------------------------------------------------------------------------ BALANCE, November 30, 1996 3,641 $15,544 - $ - $ 129 $ 2,193 $ (383) $ 17,483 ================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. -F-5- GRAND PRIX ASSOCIATION OF LONG BEACH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (DOLLARS IN THOUSANDS)
YEAR YEAR FIVE MONTHS ENDED ENDED ENDED JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996 ------------- ------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,012 $ 1,320 $ (1,343) Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 371 451 668 Minority investor's allocation of loss (27) - - Amortization of deferred financing costs - - 30 Interest earned on restricted cash - - (400) Gain on sale of assets (159) (1) (2) Changes in assets and liabilities: Accounts receivable 14 (249) 421 Notes receivable 2 (3) - Prepaid expenses and other current assets (43) (80) 94 Accounts payable and other accrued liabilities 424 1,323 (1,943) Accrued interest - - 817 Deferred major event revenues - - 1,424 Deferred major event expenses - - (194) Other assets - - 50 Income taxes payable 193 (129) - Deferred income taxes (88) (2) (786) ------ -------- -------- Net cash (used in) provided by operating activities 1,699 2,630 (1,164) ------ -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (506) (2,400) (11,774) Memphis acquisition - (2,604) - Restricted cash - construction fund - (17,124) 11,036 Cash received for sale of assets 298 4 10 Intangible assets (45) - - ------ -------- -------- Net cash used in investing activities (253) (22,124) (728) ------ -------- --------
-F-6- GRAND PRIX ASSOCIATION OF LONG BEACH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (DOLLARS IN THOUSANDS)
YEAR YEAR FIVE MONTHS ENDED ENDED ENDED JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996 ------------- ------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under notes payable $ 91 $ 16 $ - Repayment under notes payable (465) (217) (158) Borrowings under loans payable - 21,460 - Repurchase of Common stock (4) (2) - Restricted cash - debt service reserve fund - (2,504) - Restricted cash - interest fund - (2,554) - Bond issuance costs - (1,048) - Proceeds from Series A Preferred stock sale, net - 2,330 - Proceeds from initial public offering, net - 11,934 - Dividends - - (44) Shareholders' notes 8 16 - ------ ------- ------- Net cash (used in) provided by financing activities (370) 29,431 (202) ------ ------- ------- Net increase (decrease) in cash 1,076 9,937 (2,094) Cash and cash equivalents at beginning of period 1,295 2,371 12,308 ------ ------- ------- Cash and cash equivalents at end of period $2,371 $12,308 $10,214 ====== ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 166 $ 174 $ 60 Income taxes $ 397 $ 960 $ 199 Cash received during the period for: Interest $ 54 $ 119 $ 622 DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: Conversion of accrued liabilities to notes payable $ 150 $ - $ - Intangible recorded on issuance of Common stock for minority interest in subsidiaries $ - $ 25 $ - Series B Preferred stock issued for Memphis acquisition $ - $ 2,500 $ -
The accompanying notes are an integral part of these consolidated financial statements. -F-7- GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1996 NOTE 1 - DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: GENERAL Grand Prix Association of Long Beach, Inc. and its wholly-owned subsidiaries (the "Company") engage primarily in the organization, promotion and management of auto racing events. The Company's wholly-owned subsidiaries are: Del Mar Race Management, Inc. Automotive Safety & Transportation Systems, Inc. Event Construction Services, Inc. Gateway International Motorsports Corporation Gateway International Services Corporation Memphis International Motorsports Corporation Motorsports Services Corporation of Memphis In November 1994, the Company purchased certain operating and other assets of Gateway International Raceway located in Madison, Illinois. See Note 2 for acquisition details. In June 1996, the Company purchased Memphis Motorsports Park located in Millington, Tennessee. See Note 2 for acquisition details. On December 9, 1996, the shareholders of the Company ratified a Board of Directors resolution to change the fiscal year end from June 30 to November 30. Unaudited results of operations for the comparable five month period ended November 30, 1995 are as follows: (Dollars in thousands, except per share data) Revenues $ 1,596 Loss from operations (665) Loss before benefit for income taxes (806) Net income (loss) (467) ========= Income (loss) per share $ (.23) ========= Weighted average number of common shares outstanding 2,018,000 ========= BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. -F-8- USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. STATEMENTS OF CASH FLOWS The Company prepares its statements of cash flows using the indirect method as defined under Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows" (SFAS 95). The Company considers all short term investments with a maturity at the date of purchase of three months or less to be cash equivalents. CONCENTRATION OF RISK Balances on deposits at banks in the United States are insured by the Federal Deposit Insurance Corporation up to $100,000 per institution per corporation. As of November 30, 1996, the uninsured portion of these balances held at banks aggregated $9,659,000. In addition, the Company has established certain restricted cash funds which are held by a trustee. See Note 3. Accounts receivable represent unsecured balances due from its customers and the Company is at risk to the extent such amounts become uncollectible. The Company performs credit evaluations of each of its customers and maintains allowances for potential credit losses. Such losses have generally been within management's expectations. A substantial portion of the Company's revenues (84% and 72% for the years ended June 30, 1995 and 1996, respectively) is earned in connection the annual Grand Prix race (normally in April) in Long Beach, California. In connection with the Grand Prix race, the Company has an agreement with the City of Long Beach to conduct certain open wheel racing one weekend a year through June 30, 2010. The Company has been conducting sanctioned Indy car events since 1984 and Championship Auto Racing Teams, Inc. ("CART") currently has an agreement which (including the option periods) expires in April 2000. Should these contracts be terminated or if the Company is not successful in extending the contracts, this would have a significant impact on the Company. Management is exploring other racing venues and other ancillary revenue sources in order to reduce the Company's reliance on the Grand Prix although there can be no assurance that it will be successful in doing so. INVENTORIES Inventories are stated at the lower of cost (weighted average) or market and consist principally of purchased finished product. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line depreciation method over the estimated useful lives of the various classes of property and equipment, which range from five to thirty-one and a half years. Betterments, renewals and extraordinary repairs that extend the life of an asset are capitalized. Other repairs and maintenance are expensed. -F-9- INTANGIBLE ASSETS Intangible assets, which consist primarily of a non-competition agreement, are amortized using the straight-line method over their estimated useful life of five years. For the years ended June 30, 1995 and 1996 amortization expense amounted to $25,000 and $14,000, respectively, and is included in general and administrative expenses. For the five month transition period ended November 30, 1996, amortization expense amounted to $800. DEBT ISSUANCE COSTS Costs associated with the issuance of the Southwestern Illinois Development Authority ("SWIDA") loan have been capitalized and included in other assets in the accompanying consolidated balance sheet. These costs are being amortized over the life of the loan using the effective interest rate method and are included in interest expense in the accompanying consolidated statements of income. For the five month transition period ended November 30, 1996, amortization expense amounted to $30,000. INCOME TAXES The Company accounts for income taxes using the liability method as required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation reserve, if necessary, so that the net tax benefits are recognized only to the extent that they will be realized. NON-MONETARY TRADE AGREEMENTS The Company enters into agreements to exchange advertising, exhibit space, hospitality or event tickets for goods or services. The recorded value of the goods or services received is based on their fair market value. The recorded value of non-monetary trade agreements included within major event revenues for the years ended June 30, 1995 and 1996 amounted to $137,000 and $176,000, respectively. There were no such agreements recorded during the five month transition period ended November 30, 1996. REVENUE RECOGNITION The Company records race event and related revenues at the date the event is held. Revenues related to public relations and marketing services and other operating revenues are recorded as services are rendered. DEFERRED COSTS Direct costs associated with and incurred prior to major race events primarily consisting of deposits for convention facilities, hospitality facilities, construction of the racing circuit, sanctioning body fees and other direct costs are initially capitalized and then charged to expense at the date of the event. Indirect costs and period costs are charged to expense when incurred. RECLASSIFICATION Certain prior year amounts have been reclassified to conform with the current year presentation. -F-10- NET INCOME PER SHARE Net income per share is calculated using the weighted average number of shares of Common stock outstanding during the period. The calculations are based on the treasury stock method. In accordance with this method, unexercised dilutive options and warrants are assumed to have been exercised at the beginning of the period or at the date of issuance, if later. The assumed proceeds are then used to purchase Common stock at the average market price during the period. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, Common stock issued for consideration below the estimated offering price of $10.00 per share and stock options and warrants issued with exercise prices below the offering price during the twelve month period preceding the initial filing of the initial public offering, have been included in the calculation of Common shares, using the treasury method, as if they were outstanding for all periods presented prior to the initial public offering. The effect of the Series A convertible stock issued at consideration below the initial public offering price was to increase the weighted average shares outstanding for the years ended June 30, 1995 and 1996 and the five month transition period ended November 30, 1995 by 62,500 shares. Stock options and warrants were not included in the weighted average shares for the five month periods ended November 30, 1995 and 1996 as they were anti-dilutive. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS The requirements of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of", ("SFAS 121") issued in March 1995 and Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS 123") issued in October 1995, are effective for financial statements for years that begin after December 15, 1995. The Company adopted SFAS 121 for the five month transition period ended November 30, 1996 and there was no material impact on the current period financial statements. The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for its fixed stock option plans. Accordingly, no compensation cost has been recognized. The Company adopted the disclosure method as permitted under SFAS 123 for the five month transition period ended November 30, 1996. The adoption of SFAS 123 had no impact on the Company as there were no options granted during the period from July 1, 1995 through November 30, 1996. NOTE 2 - ACQUISITIONS: GATEWAY INTERNATIONAL RACEWAY - ----------------------------- On November 8, 1994 the Company purchased specific assets of Gateway International Raceway for $280,000. The purchase price was allocated to track, building and equipment ($230,000), land ($5,000) and other assets ($45,000). Consulting agreements with the two previous owners for a term of one year and covenants not to compete with both individuals for a five year period were part of the purchase. A former shareholder of the seller of the assets of the Gateway International Raceway purchased a minority (10%) interest in two new subsidiaries for $28,000. In February 1996, the Company acquired this 10% minority interest in exchange for 23,121 shares of the -F-11- Company's Common stock valued at approximately $1.09 per share (estimated market price at date of issuance). MEMPHIS MOTORSPORTS PARK - ------------------------ On June 28, 1996, the Company acquired substantially all of the assets of Memphis Motorsports Park for a total acquisition cost of $5,104,000. In connection with the acquisition, the Company paid certain indebtedness of the seller of the Memphis Motorsports Park totaling $2,500,000 and issued 250,000 shares of Series B Mandatorily Redeemable Convertible Preferred stock valued at $2,500,000 which bears a cumulative 4.185% dividend rate (see Note 7). In accordance with the purchase agreement, the results of operations have been included in the June 30, 1996 statement of operations for the period from June 1, 1996 through June 30, 1996. The allocation of the acquisition cost (based upon relative fair value of assets) was as follows: Buildings $ 2,308,000 Land 983,000 Safety systems and materials 1,258,000 Track 887,000 Other 429,000 Equipment 181,000 Vehicles and equipment 98,000 Office furniture and fixtures 14,000 Deferred income taxes (1,054,000) ----------- $ 5,104,000 =========== Deferred income taxes have been recorded for the basis differential of the assets acquired between financial reporting purposes and tax purposes, as this acquisition has been structured as a non-taxable transaction. This transaction has been accounted for using the purchase method. Unaudited pro forma results of operations of the Company assuming this transaction, the private placement as discussed in Note 6, and the SWIDA loan discussed in Note 5 had all taken place effective as of July 1, 1994 are as follows: Year ended June 30, --------------------- 1995 1996 ------ ------ Revenues $14,478,000 $16,416,000 Net loss (181,000) (38,000) Pro forma loss per share (0.05) (0.01) Pro forma weighted average number of common shares outstanding 3,959,000 3,939,000 The pro forma loss per share calculated assuming that the Series B Convertible Preferred stock is not converted and deducting dividends related to the Series B Convertible Preferred stock ($105,000 for the years ended June 30, 1995 and 1996) would be $(0.08) per share and $(0.03) per share for the years ended June 30, 1995 and 1996, respectively. -F-12- NOTE 3 - RESTRICTED CASH: The Company has established certain restricted cash funds as required by the SWIDA loan (see Note 5) which are held by the Trustee (Magna Bank & Trust) and consisted of the following as of November 30, 1996: Debt service reserve fund $ 2,561,000 Interest fund 2,609,000 Construction fund 6,376,000 ----------- $11,546,000 =========== These funds are invested in cash equivalents with a trust company. NOTE 4 - PROPERTY AND EQUIPMENT: Property and equipment as of November 30, 1996 consist of the following: Buildings $ 3,841,000 Safety systems and materials 4,041,000 Land 2,827,000 Vehicles and equipment 1,585,000 Facilities 5,855,000 Office furniture and fixtures 882,000 Equipment 704,000 Construction in process 6,142,000 Other 781,000 ----------- 26,658,000 Less: accumulated depreciation (4,379,000) ----------- $22,279,000 =========== The cost of fully depreciated property included above is $1,465,000. Construction in process relates to the redevelopment of Gateway International Raceway and Memphis Motorsports Park and includes capitalized interest of $186,000. -F-13- NOTE 5 - NOTES AND LOANS PAYABLE: Notes and loans payable as of November 30, 1996 are as follows: SWIDA loan for Gateway redevelopment, net of $40,000 original issue discount $21,460,000 First trust deed on Long Beach office note payable to bank; bearing interest at a variable rate of prime plus 2% per annum (10.25% at November 30, 1996); payable in monthly installments of principal and interest of $7,000 through May 2002; final payment of principal and interest totaling $730,000 due June 2002. 775,000 Second trust deed on Long Beach office note payable to bank; bearing interest at 7.519% per annum; payable in monthly installments of principal and interest of $6,000 through December 2012. 673,000 Other 97,000 ----------- 23,005,000 Less: current portion (73,000) ----------- $22,932,000 =========== The Company entered into an agreement with Southwestern Illinois Development Authority ("SWIDA") to receive the proceeds from a Municipal Bond Offering (the "SWIDA loan") which issued "Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway International Motorsports Corporation Project)" municipal bonds in the aggregate principal amount of $21,500,000. The offering of the Bonds closed on June 21, 1996. The repayment terms and debt service reserve requirements of the Bonds issued in the Municipal Bond Offering correspond to the terms of the SWIDA loan. SWIDA loaned all of the proceeds from the Municipal Bond Offering to the Company for the purpose of the redevelopment, construction and expansion of Gateway International Raceway, and the proceeds of the SWIDA loan are irrevocably committed to complete all planned construction of Gateway International Raceway, to fund interest, to create a debt service reserve fund and to pay for the cost of issuance of the Bonds. The SWIDA loan bears interest at varying rates ranging from 8.35% to 9.25% with an effective rate of approximately 9.1%. The structure of the Bonds permits amortization from February 1997 through February 2017 with debt service beginning in 2000 following interest only payments from February 1997 through August 1999. In addition, a portion of the property tax revenues to be paid by the Company (if any) to the City of Madison Tax Incremental Fund have been pledged to the annual retirement of debt. The Company has a line of credit agreement with a bank which allows the Company to borrow up to $150,000 with all amounts outstanding bearing interest at 9.25% and due and payable in February 1997. Maximum borrowings under this line of credit during the year ended June 30, 1996 were $94,000 with a weighted average balance for the period of $84,000. No amounts were outstanding as of November 30, 1996. -F-14- Aggregate annual maturities of long term debt are as follows: Years ending November 30, ------------------------- 1997 $ 73,000 1998 72,000 1999 40,000 2000 369,000 2001 622,000 2002 - 2007 5,688,000 Thereafter 16,141,000 ----------- $23,005,000 =========== Certain of these notes are secured by the Company's Long Beach office (land and building) with a net book value of $2,183,000. The SWIDA loan is secured by a first mortgage lien on all the real property owned and a security interest in all property leased by the Company at Gateway International Raceway with an approximate net book value of $951,000. The carrying values of long term debt approximates their fair value. NOTE 6 - EQUITY: In May 1996, the Company effected a recapitalization pursuant to which the Company (i) increased its authorized shares of Common stock to 20,000,000 shares, (ii) effected a 1:35.57013 stock split and (iii) authorized 10,000,000 shares of Preferred stock. Share and per share information have been retroactively restated for all periods presented to reflect this recapitalization. In April and May 1996, the Company conducted a private placement of 312,500 shares of its Series A Convertible Preferred stock for $2,500,000. The private placement closed concurrently with the closing of the SWIDA loan to the Company. Effective June 25, 1996, the Series A Convertible Preferred stock automatically converted into Common stock at $8.00 per share. Additionally, the placement agent for the Series A Convertible Preferred stock offering has received warrants to purchase 31,250 shares of Common stock at $10.00 per share. The net proceeds from the private placement of approximately $2,330,000 were used by the Company to establish a portion of the debt service reserve fund required for the SWIDA loan. The Company received net proceeds of $11,934,000 from the sale of 1,350,000 shares of Common stock offered at the initial public offering price of $10.00 per share (aggregate gross proceeds of $13,500,000), with the deduction of offering expenses and underwriting discounts ($1,566,000). The Company applied approximately $2,500,000 of the net proceeds to fund the acquisition of Memphis Motorsports Park, and intends to use the remaining proceeds to make improvements to Memphis Motorsports Park ($2,500,000), furnish and equip the Gateway Law Enforcement Driving School ($1,500,000), construct an oval suite tower and administrative offices at Gateway International Raceway ($1,500,000), accelerate construction of additional improvements at Gateway International Raceway due to the awards of three major sanctioned events in 1997 ($2,000,000), make additional improvements at Gateway -F-15- International Raceway ($500,000) and for working capital and other general corporate purposes ($1,434,000). The allocation of these proceeds to be used for the construction of improvements to Gateway International Raceway and Memphis Motorsports Park have been updated and are based upon the Company's current best estimates of the cost thereof, and actual costs may vary depending on factors outside the control of the Company. NOTE 7 - MANDATORILY REDEEMABLE PREFERRED STOCK: On June 28, 1996, the Company issued 250,000 shares of a new series of Preferred stock designated as Series B Convertible Preferred stock which is mandatorily redeemable (the number of shares of Series B Convertible Preferred stock was based upon the initial public offering price of the Common stock) for the acquisition of Memphis Motorsports Park. The Series B Convertible Preferred stock bears a cumulative 4.185% dividend rate paid quarterly and is convertible on a one-for-one basis at the option of the holders on or after June 30, 1997 into the Company's Common stock. If the Series B Convertible Preferred stock has not been converted into Common stock by December 31, 1998, the Company is obligated to redeem any outstanding Series B Convertible Preferred stock at a nominal consideration plus unpaid dividends and assume specified liabilities of the seller not to exceed $1,500,000. NOTE 8 - STOCK REPURCHASE AND STOCK OPTION PLAN: All options under the Company's 1990 Stock Option Plan were exercised and resulted in the Company receiving notes from employees, officers and board members with the stock received upon exercise of the option being pledged as collateral for these notes. The notes bear interest at 6.5% with interest only payable annually through December 1997 and are included under Shareholders' notes on the Balance Sheet. The Company granted options to purchase 602,451 shares of Common stock pursuant to the Company's 1993 Stock Option Plan at an exercise price of $1.09 per share (estimated fair market value at date of grant) to certain key employees, officers and members of the Board of Directors. All options granted under the 1993 Stock Option Plan vest over a five year period and no stock options have been exercised under the 1993 Stock Option Plan which terminates December 13, 2003. As of November 30, 1996, approximately 391,350 shares have vested and are exercisable. Accelerated vesting was given to retiring board members participating in this plan and amounted to 29,879 additional vested shares included above. -F-16- In May 1996, the 1996 Employee and Director Stock Incentive Plan (the "1996 Plan") was approved with all directors and year-round salaried employees of the Company eligible to participate. Pursuant to the 1996 Plan, the Stock Option Committee may grant, without limitation, any of the following awards to employees or directors: shares of Common stock or any option, warrant, convertible security, stock appreciation right or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the value of an equity security (an "Award"). Awards are not restricted to any specified form or structure and may include, without limitation, sales or bonuses of stock, restricted stock, stock options, stock purchase warrants, other rights to acquire stock, securities convertible into or redeemable for stock, stock appreciation rights, limited stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares, and an Award may consist of one such security or benefit, or two or more of them in tandem or in the alternative. The Committee, in its sole discretion, determines all of the terms and conditions of each Award granted under the 1996 Plan. An aggregate of 400,000 shares of Common stock have been reserved for issuance in connection with Awards made to employees and directors under the 1996 Plan. No stock options have been granted under the 1996 Plan which terminates in May 2006. The Board of Directors of the Company may amend or terminate the 1996 Plan at any time and in any manner; provided, however, that no such amendment or termination may terminate or modify any Award previously granted under the 1996 Plan without the consent of the recipient of the Award. NOTE 9 - INCOME TAXES: The provisions (benefit) for income taxes for the years ended June 30, 1995 and 1996 and the five month transition period ended November 30, 1996 are as follows: YEAR YEAR FIVE MONTHS ENDED ENDED ENDED JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996 ------------- ------------- ----------------- Taxes currently payable (receivable): Federal $620,000 $744,000 $ (22,000) State 182,000 213,000 11,000 -------- -------- --------- 802,000 957,000 (11,000) Taxes applicable to temporary differences (88,000) (2,000) (786,000) -------- -------- --------- Provision (benefit) for income taxes $714,000 $955,000 $(797,000) ======== ======== ========= The provision (benefit) for income taxes for the years ended June 30, 1995 and 1996 and the five month transition period ended November 30, 1996 resulted in an effective tax rate of 42%, 42%, and 37%. YEAR YEAR FIVE MONTHS ENDED ENDED ENDED JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996 ------------- ------------- ----------------- Federal income tax rate 34% 34% (34%) State income tax, net of federal tax effect 6% 6% (4%) Effect of permanent disallowable deductions 2% 2% 1% --- --- --- Effective tax rate 42% 42% (37%) === === === -F-17- Temporary differences which give rise to a significant portion of deferred taxes as of November 30, 1996 are: Deferred tax assets: Net operating losses $ 793 Reserves and other 118 Depreciation on property 152 ------- 1,063 ------- Deferred tax liabilities: Reserves and other (51) Deferred gain on property (1,080) ------- (1,131) ------- Net deferred tax liability $ (68) ======= NOTE 10 - COMMITMENTS AND CONTINGENCIES: The Company leases office space under a non-cancelable operating lease through December 1999 for its box office operations at an annual lease payment of $9,000. This is subject to annual adjustments based on changes in the Los Angeles consumer price index or five percent (5%), whichever is greater. Total rental payments charged to operations amounted to $9,000 in fiscal years ended June 30, 1995 and 1996 and $4,000 in the five month transition period ended November 30, 1996. The Company also leases certain property at Gateway International Raceway with leases expiring at various dates through 2070, subject to annual adjustments based on increases in the consumer price index. Total rental payments charged to operations amounted to $55,000 and $84,000 in the fiscal years ended June 30, 1995 and 1996, respectively, and $50,000 in the five month transition period ended November 30, 1996. In addition, one lease contains a commitment of the Company to pay additional payments aggregating $120,000 payable in $35,000 installments due June 1, 1996, 1997 and 1998 and $15,000 due June 1, 1999 for the option to purchase the property in 2015. If the Company does not exercise its option, these payments will be applied toward reducing the Company's rent payments after 2015 at the rate of $1,000 per month. The minimum lease payments due under the aforementioned leases are as follows: 1997 $ 170,000 1998 184,000 1999 164,000 2000 140,000 2001 138,000 2002 and thereafter 4,453,000 The Company has entered into several sanctioning agreements which allow the Company to conduct various race competitions in Long Beach, at Gateway International Raceway and Memphis Motorsports Park. The Grand Prix in Long Beach hosts a CART Indy car race. Gateway International Raceway will host a CART Indy car race, an NHRA National event and NASCAR Busch Series Grand National Division Championship event with an ARTGO Challenge Series support race in its Inaugural Season. Memphis Motorsports Park will conduct an ARCA Super Car and USAC Silver Crown event followed by its NHRA National event in 1997. These contracts expire between 1997 and 2000 with certain options to extend thereafter. -F-18- In connection with the major events, fixed commitments related to various contracts in place (including city agreement through 2010, convention facilities, temporary seating and hospitality facilities, among others) require the following minimum payments as of November 30: Years ending November 30, - ------------------------- 1997 $5,345,000 1998 4,556,000 1999 2,381,000 2000 2,184,000 2001 185,000 2002 and thereafter 1,270,000 in addition to these fixed commitments, certain of the agreements call for additional payments based upon the profitability (as defined) of the events. In May 1996, the Company entered into employment agreements for two key executive officers. The agreements call for a total base salary of $400,000 and expire in May 2001. Annual increases in base salary are based on increases in the consumer price index. Future minimum payments required under the employment agreements as of November 30 are as follows: Years ending November 30, - ------------------------- 1997 $400,000 1998 400,000 1999 400,000 2000 400,000 2001 183,000 NOTE 11 - RELATED PARTIES: During the years ended June 30,1995 and 1996, the Company purchased approximately $5,000 and $12,000, respectively, worth of merchandise from a company owned by a director. There were no such purchases during the five month transition period ended November 30, 1996. Included in accounts receivable as of November 30, 1996, is $8,500 due from directors. During the year ended June 30,1996 the Company purchased approximately $5,000 worth of merchandise from a company owned by the daughter and son-in-law of a director. There were no such purchases during the five month transition period ended November 30, 1996, however, deposits of $23,000 were made toward purchases of merchandise to be delivered in the fiscal year ending November 30, 1997. -F-19- NOTE 12 - BENEFIT PLANS On November 1, 1995, the Company adopted a 401(k) profit sharing plan (the "Plan") pursuant to which employees who have completed at least one year of service with the Company and meet certain other eligibility requirements, may contribute, on a pre-tax basis, a percentage of the employee's total annual income from the Company subject to certain Internal Revenue Code limitations. The Company may make matching contributions to the 401(k) Plan at its discretion, and for the first two years, the Company has committed to make a matching contribution equal to 25% of employee contributions. Contributions made by the Company to the Plan were $12,000 for the five month transition period ended November 30, 1996 and $23,000 for the year ended June 30, 1996. Since 1990, the Company has had in effect a three tier bonus plan for eligible employees (the "Bonus Plan") which is geared toward sharing the risk and reward achieved by the Company, as well as compensating personal initiative. In the first tier of the Bonus Plan, a bonus is paid based on the Company's marketing department having surpassed its projected earnings for the Grand Prix event. The second tier of the Bonus Plan offers incentives to employees for bringing new business into the Company unrelated to the Grand Prix of Long Beach. The third tier of the Bonus Plan is based on the general profitability of the Company overall. In the fiscal years ended June 30, 1995 and 1996 an aggregate of $316,000 and $422,000, respectively, were distributed pursuant to the Company's Bonus Plan. There will be no distributions under the Bonus Plan for the five month transition period ended November 30, 1996. The Bonus Plan may be terminated or modified at any time at the sole discretion of the Company. Certain Grand Prix employees are covered by union sponsored, collectively bargained multi-employer pension plans. The Company contributed approximately $50,000 and $5,000 for such plans in the year ended June 30, 1996 and the five month transition period ended November 30, 1996 respectively. Information from the plans' administrators is not sufficient to permit the Company to determine its share of unfunded vested benefits, if any. -F-20- EXHIBIT INDEX The following exhibits to this Form 10-KSB/A1 are filed herewith:
EXHIBIT NO. EXHIBIT - ----------- ------------------------------------------------------------- 1.1** Form of Underwriting Agreement 1.2** Form of Warrant to L.H. Friend, Weinress, Frankson & Presson, Inc. 3.1** Restated Articles of Incorporation of the Company 3.2** Certificate of Correction of Restated Articles of Incorporation 3.3** By-laws of the Company 4.1** Form of Stock Certificate 5.1** Opinion letter of Law Offices of Edward S. Gelfand regarding the legality of the securities registered 10.1** Amended and restated Agreement dated September 15, 1996 between the Company and the City of Long Beach 10.2** Official Organizer/Promotor Agreement dated April 5, 1995 between the Company and Championship Auto Racing Teams, Inc. (Certain confidential portions of this agreement have been deleted) 10.3** Agreement dated August 2, 1995 between the Company and Toyota Motor Sales, U.S.A., Inc. (Certain confidential portions of this agreement have been deleted) 10.4** 1993 Stock Option Plan of the Company 10.5** 1996 Employee and Director Stock Incentive Plan 10.6** Employee Agreement dated as of May 16, 1996 between the Company and Christopher R. Pook 10.7** Employment Agreement dated as of May 16, 1996 between the Company and James P. Michaelian 10.8** Agreement dated as of May 6, 1996 between the Company and Memphis International Motorsports Park and amendment thereto 10.9** Moral Obligation of State of Illinois dated May 1, 1996 to the Southwestern Illinois Development Authority regarding Taxable Sports Facility Revenue Bonds, Series 1996 10.10** Redevelopment Agreement between the City of Madison, Illinois and the Company dated February 27, 1996 10.11** U.S. Small Business Administration ("SBA") "504" Note (loan number CDC-L-GP-489638-30-08-LA) in the principal amount of $750,000 made by the Company to Long Beach Local Development Corporation 10.12** Short Form Deed of Trust and Assignment of Rents dated July 20, 1992 (92-2037097) between the Company, as trustor, and Long Beach Local Development Corporation, as beneficiary, and Assignment of said Deed of Trust (92-2037098) to SBA 10.13** Development Company 504 Debenture dated December 16, 1992 in the principal amount of $750,000 made by Long Beach Local Development Corporation to fund the SBA loan to the Company 10.14** Loan Agreement dated June 20, 1992 made between Long Beach Development Corporation and the Company with respect to SBA loan to the Company 10.15** Promissory Note dated June 30, 1992 made by the Company to Harbor Bank in the principal amount of $814,000 10.16** Deed of Trust dated June 30, 1992 (92-1214039) between the Company, as trustor, and Harbor Bank, as beneficiary, securing $814,000 note 10.17** Three Tier Bonus Plan of Company 10.18** Revolving Line of Credit Agreement with West Pointe Bank and Trust Company dated February 24, 1995, as amended by Extension/Modification Agreement dated February 24, 1996 10.19** Memorandum of Understanding dated February 26, 1996 by and between the United States of America, Gateway International Motorsports Corporation and BBJJ Land Trust 10.20** Form of Stock Option Agreement for 1993 Stock Option Plan 10.21** Lease Agreement dated as of June 12, 1996 by and between Helen M. Bergfield, trustee and Gateway International Motorsports Corporation 10.22** Lease Agreement dated as of April 1, 1996 by and between Ruth C. Franke and Gateway International Motorsports Corporation 10.23** Lease Agreement dated as of June 1, 1996 by and between Joseph E. Trover and Gateway International Motorsports Corporation 10.24** Form of Loan Agreement by and between Southwestern Illinois Development Authority and Gateway International Motorsports Corporation dated as of May 1, 1996 10.25** Form of Guaranty Agreement made by the Company and Automotive Safety & Transportation Systems, Inc. to Magna Trust Company, Trustee, dated as of May 1, 1996 10.26** Form of Mortgage and Security Agreement by and between Gateway International Motorsports Corporation, as mortgagor and Southwestern Illinois Development Authority, as mortgagee dated as of May 1, 1996 10.27** Indenture of Trust dated as of May 1, 1996 by Southwestern Illinois Development Authority to Magna Trust Company, as trustee 10.28** Form of Tax Escrow Agreement to be entered into between the City of Madison, Illinois, Magna Trust Company, as escrow agent and Gateway International Motorsports Corporation 10.29*** Sanction Application and Agreement Form - NASCAR Busch Series, Grand National Division between the National Association for Stock Car Racing, Inc. and Applicant, dated December 17, 1996 10.30*** Official Sanction Application Under the Rules and Regulations of USAC, between United States Auto Club and Applicant, dated November 18, 1996 10.31*** Sanction Agreement Application for National Championship Stock Cars between Automobile Racing Club of America and Applicant, dated November 25, 1996 10.32*** Ground Lease between Land Trust No. 898 Magna Bank, Trustee and Gateway International Motorsports Corporation, an Illinois Corporation dated February 7, 1997 10.33*** Lease Agreement between Gateway National Golf Links, LLC and Gateway International Motorsports Corporation, an Illinois Corporation dated January 27, 1997 21** Subsidiaries of Registrant 23.1** Consent of Arthur Andersen LLP 27* Financial Data Schedule at November 30, 1996.
- --------- * Incorporated herein by reference to the Company's Form 10-KSB filed on February 28, 1997. ** Incorporated herein by reference to the Company's Registration Statement on Form SB-2 filed with the Commission on May 17, 1996, as amended on June 24, 1996. *** Confidential Treatment has been requested for certain portions of these exhibits. EX-10.29 2 SANCTION APPLICATION AND AGREEMENT FORM EXHIBIT 10.29 [LOGO OF NASCAR(R)] Date Received 12-17-96 ------------ Sanction No. NB56ND#20 ----------------- NASCAR Official /s/ Ray Hill --------------- GATEWAY "300"--July 26, 1997 SANCTION APPLICATION AND AGREEMENT FORM --------------------------------------- NASCAR BUSCH SERIES, GRAND NATIONAL DIVISION -------------------------------------------- INSTRUCTIONS: (1) All NASCAR Busch Series, Grand National Division Championship Events for which PROMOTER seeks a NASCAR sanction must be listed in a single application form. Please sign the original and forward to NASCAR; upon acceptance and approval by NASCAR, a copy will be returned to the PROMOTER. (2) "PROMOTER" means the individual, partnership, corporation, joint venture or other entity that, in connection with the Event (as defined below), is ultimately responsible (financially and otherwise) for the organization and promotion of the Event and the facility at which the Event is to be run. If two or more entities are acting together in such capacity, all such entities should be listed as "PROMOTER" and the authorized officer of each should sign this form. (3) This form when signed by the PROMOTER is only an application for a NASCAR sanction. NASCAR is under no obligation to accept or approve the application. Upon being accepted and approved in writing by NASCAR, this form becomes an agreement binding on both parties. (4) Application for a NASCAR Busch Series, Grand National Division Championship Event must be received at NASCAR no later than ten business days after the PROMOTER receives this form from NASCAR. * * * * * * * * * * * * * * The undersigned PROMOTER, designated below, applies to the National Association for Stock Car Auto Racing, Inc. ("NASCAR") for a NASCAR sanction to organize and promote a NASCAR-sanctioned NASCAR Busch Series, Grand National Division Championship Event(s) in accordance with the terms and conditions set forth hereafter, as follows: POST OFFICE BOX 2875 . DAYTONA BEACH, FLORIDA 32120-2875 . 904/253-0611 EVENT NUMBER 1 -------------- PROMOTER: Gateway International Motorsports Corporation --------------------------------------------------------------- ADDRESS: P.O. Box 200 Madison IL 62060-0200 --------------------------------------------------------------- (STREET) (CITY) (STATE) (ZIP) NAME OF EVENT: GATEWAY "300" --------------------------------------------------------------- TRACK: Gateway International Raceway --------------------------------------------------------------- (618) 482-2400 -- Office LOCATION: Madison, IL TELEPHONE #: (618) 482-5501 -- Race Info ------------------ (City & State) TRACK LENGTH: 1.25 Mile, Paved EVENT DISTANCE: 300 Miles (240 Laps) ------------------ --------------------------- DATE OF EVENT: July 26, 1997 STARTING TIME: TBD ------------------ --------------------------- POSTPONED DATE: Next Raceable Day ------------------ TIME TRIAL DATE(S) AND HOURS: PRACTICE DATE(S) AND HOURS: Per Entry Blank Per Entry Blank - ----------------------------------- ------------------------------------------- - ----------------------------------- ------------------------------------------- - ----------------------------------- ------------------------------------------- - ----------------------------------- ------------------------------------------- REGISTRATION & INSPECTION: Per Entry Blank - ----------------------------------- ------------------------------------------- MINIMUM PROMOTER'S PURSE AND POINT FUND TOTAL (See Exhibit 2): [*] SANCTION FEE: [*] ---------------- ------------- PAYMENT DATE 12 Noon on INSURANCE NOTIFICATION DATE (See Exhibit 1, Para 19): July 16, 1997 (See Exhibit 1, Para 20): July 16, 1997 ------------- ------------- Sanction Application and Agreement Form Page 2 of 3 * Indicates certain confidential information has been omitted. The confidential information that has been omitted has been filed separately with the SEC and Confidential treatment sought. Upon written acceptance and approval of the above application, in consideration for the mutual promises set forth herein, NASCAR and the PROMOTER agree as follows: (1) NASCAR hereby grants its sanction to PROMOTER for the Event(s) listed, and NASCAR agrees to conduct the Event(s), through its officers and designated officials, in accordance with the NASCAR Busch Series, Grand National Division Rule Book, as it may be amended from time to time, any special rules that may be published by NASCAR specifically for the Event(s), and this agreement. Interpretation and application of the NASCAR Busch Series, Grand National Division Rule Book, as it may be amended from time to time, and any special rules that may be published by NASCAR specifically for the Event(s), are committed to NASCAR's sole discretion, and are final and unreviewable except to the extent provided in the NASCAR Busch Series, Grand National Division Rule Book. (2) Exhibits 1 and 2, attached hereto, are incorporated herein and made a part of this agreement. (3) NASCAR will retain for its own account all inspection fees. (4) Additional Provisions: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Submitted this ______________________ day of ________________________, 19____. Gateway International Motorsports Corporation - ------------------------------------------------------------------------------- (Promoter) By: /s/??????????? President --------------------------------- -------------------------------- (an authorized officer) (title) Witnessed By: /s/????????????? VP for Administration ----------------------- -------------------------------- (title) Accepted and Approved this 17th day of December , 1996. ------- ------------ ---- National Association for Stock Car Auto Racing, Inc. By: /s/??????????? V.P. of Competition --------------------------------- -------------------------------- (an authorized officer) (title) Witnessed By: /s/Dawn K. Brown Asst. Event Coord. ----------------------- -------------------------------- (title) Sanction Application and Agreement Form Page 3 of 3 EXHIBIT 1 --------- To Sanction Application and Agreement Form ------------------------------------------ NASCAR and PROMOTER agree as follows: DEFINITIONS ----------- (1) "Event" means the Event(s) designated in the Sanction Application and Agreement Form, as well as all periods for registration, inspections, time trials, practice runs, post-race inspections and postponed dates related thereto. Whenever the word "Event" appears in the singular, it shall apply to all Events designated on the Sanction Application and Agreement Form, unless the context requires otherwise. All provisions in the Sanction Application and Agreement Form and in Exhibits 1 and 2 apply to the Event(s) designated in the Sanction Application and Agreement Form, unless the context requires otherwise. (2) "Additional Award" as used herein includes any monetary or non- monetary award by, or contracted through, the PROMOTER, for distribution based upon the Event(s), other than (a) purse, (b) point fund, (c) Winner's Circle and Plan awards, (d) television income and (e) the entry award for the current NASCAR Busch Series, Grand National Division Champion. PROMOTER understands and acknowledges that the above-listed awards may or may not be applicable to or available in connection with the Event, and that NASCAR makes no representation as to the availability or amounts of such awards. (3) "Television Income", as used herein, means all monies and things of value received by PROMOTER as a result of and in connection with any television contract(s), including but not limited to payments received from networks, stations, packages, brokers, advertisers, advertising agencies, and the like. In computing all monies and things of value received, it is intended that the gross amount set forth in all television contract(s) as payable by the other contracting entity or entities shall be included and that any applicable commissions, fees or expenses paid to or deducted by sales agents, consultants and other parties shall not be deducted therefrom. (4) "Television Contract", as used herein, means any contract, agreement or understanding, whether oral or written, entered into between PROMOTER and any other entity or entities, whether or not they are broadcasters, for the sale, assignment or other transferral of the rights of PROMOTER in the live or delayed televised broadcast of, rebroadcast of, tape or film production of, and/or any other use of, the Event, whether by cable TV, pay TV, theater TV, video tape cassettes, and/or satellite transmissions, and whether local, regional, national or worldwide. PROMOTER'S GENERAL OBLIGATIONS ------------------------------ (5) PROMOTER warrants to NASCAR that in connection with the Event it has sole control of the racetrack, the premises upon which the racetrack is located and surrounding same, and all facilities thereon, that it has obtained all necessary licenses, permits or other approvals required, and that it has full authority to conduct the Event at the racetrack pursuant to the terms of this agreement. PROMOTER further warrants that it will comply with all local, state and federal laws and regulations in connection with the organization and promotion of the Event. PROMOTER, at its expense, will make all appropriate filings of forms or other documents as required by federal, state or local laws. (6) PROMOTER at its expense assumes sole responsibility for furnishing the racetrack, the premises upon which the racetrack is located and surrounding same, and all facilities thereon in good repair, ready for use by competitors and officials. PROMOTER is solely responsible and liable for the safety of such competitors and officials while on, entering or leaving such racetrack, premises and facilities. PROMOTER warrants that the racetrack, premises and facilities are and will remain in a condition suitable for the conduct of the Event, and that the racing surface of the track will not be altered, resurfaced or otherwise substantially changed during the term of this Agreement without the express written consent of NASCAR. PROMOTER will provide NASCAR or its designated representative full access to the racetrack, premises and facilities as requested by NASCAR during the term of this Agreement. (7) If NASCAR in its sole discretion determines that the racetrack, the premises or any facilities are in an unsatisfactory condition, PROMOTER agrees to repair or resurface the racetrack and to repair the premises or facilities, at PROMOTER's expense and to the satisfaction of NASCAR prior to any NASCAR- sanctioned Event. If NASCAR in its sole discretion determines that it is necessary to resurface the racetrack, such resurfacing shall be completed by PROMOTER with adequate time prior to the Event to allow for tire and private car testing. If NASCAR in its sole discretion determines that there is insufficient time to place the racetrack in a condition suitable for the conduct of the Event, NASCAR in its sole discretion may postpone or cancel the Event. (8) PROMOTER at its expense will furnish adequate facilities, personnel, equipment and services for accommodating and controlling the public during the Event. PROMOTER is solely responsible and liable for the safety of the public during the Event. PROMOTER is solely responsible for the condition, actions and operations of such facilities, personnel, equipment and services before, during and after the Event. (9) PROMOTER at its expense will furnish adequate facilities, support personnel, equipment, and related security, for use by NASCAR in the performance of NASCAR's duties, as they may be requested by NASCAR from time to time, including but not limited to facilities for office administration, registration, timing, scoring, car inspection, race direction, officiating and prize money distribution. Without in any way limiting the foregoing, PROMOTER at its expense will: a. provide one or more television monitors, in locations to be specified by NASCAR, with all related equipment necessary for such monitors to be connected to video and audio equipment used by the television producer under contract for the Event, in order to provide to NASCAR Officials live video on such monitors and the ability to switch instantaneously its view on the monitors among the different camera locations used by the television producer, at all times during the Event when all or a portion of the Event is being videotaped, broadcast, monitored and/or recorded; b. provide NASCAR with two (2) pace vehicles, each with the NASCAR logo (as set forth under paragraph 21 below) displayed on the side in a manner and size which is visible to all persons on the racetrack, in the viewing area and in all locations where NASCAR Officials are visually monitoring the Event; c. provide NASCAR prior to the Event with a list of the track radio frequencies to be used for the Event, including but not limited to frequencies to be used for maintenance, police and security personnel; d. cooperate with NASCAR in pre-race and victory lane ceremonies, awards presentations and photographs; e. have readily available quantities of oil dry acceptable to NASCAR when the track opens for practice and at all other times during the Event, and adequate personnel to spread the oil dry at NASCAR's direction; f. certify and recertify the scales as requested by NASCAR upon arrival for the first day of inspection and at all other times during the Event, and provide written certifications to the NASCAR Busch Series, Grand National Division Director as to the results of the certifications; g. provide personnel to secure the entry into the pits and garage areas during competition periods; h. provide personnel to secure the garage area on a continuous, 24-hour/day basis beginning the first day the track is open for inspection and ending when released by the NASCAR Busch Series, Grand National Division Director; i. deliver to the garage area before the morning of raceday twice the number of chairs as cars starting in the race for use by drivers and crew chiefs at the pre-race meeting; j. line and number each pit with appropriate paint, line and paint traffic lanes in the garage and garage area when and where needed, and repaint all start/finish, scoring, third turn and re-entry cutoff lines; k. place portable toilets along pit road and in the garage area as directed by NASCAR; l. coordinate with NASCAR all tours of the garage areas, including the times, number of participants and other arrangements; m. provide adequate electricity (including without limitation 220 volts 50 amps services with female range outlets for the NASCAR trailers), air conditioning, heat, telephone (including a track phone extension) and water facilities as requested by NASCAR; n. coordinate with NASCAR to ensure that it has a minimum of ten (10) minutes immediately before, during or after driver introductions for NASCAR awards presentations; o. coordinate with NASCAR to ensure that it has a reasonable period of time immediately following the Event for victory lane ceremonies, awards presentations and sponsor recognitions; p. provide a control tower of adequate size with electricity, air conditioning, heat, telephone (including a track phone extension), chairs with cushions, a television monitor (as set forth above), water facilities and other utilities, supplies and equipment as requested by NASCAR; q. provide a registration facility of adequate size outside the track and in the garage area, with electricity, air conditioning, heat, telephone (including a track phone extension), chairs with cushions, water facilities and other utilities, supplies and equipment as requested by NASCAR; r. provide adequate trash receptacles in the garage and pit area and coordinate with the NASCAR Busch Series, Grand National Division Director the times for trash pick up by track personnel; s. provide adequate personnel to sweep and clean-up the garage and pit areas on a daily basis; t. provide adequate parking areas for all competitors (including car owners, drivers and crew members) and NASCAR Officials adjacent to or near the garage area; Exhibit 1 to Sanction Application and Agreement Form Page 2 of 7 u. Provide NASCAR with a track suite, including the customary number of admission tickets for admission to said suite, and 100 grandstand general admission tickets, such tickets to be delivered to NASCAR no later than thirty (30) days prior to the Event. (10) PROMOTER at its expense will provide adequate facilities, personnel, equipment and services for, and assumes sole responsibility to provide, fire protection equipment and on-site medical services for competitors, officials, the public and others, including without limitation cleanup crews, towing and flatbed wreckers. PROMOTER at its expense will make advance arrangements with local hospitals and physicians for the prompt and efficient treatment of any and all injuries occurring during the Event. (11) PROMOTER at its expense will furnish adequate security personnel (in addition to the requirements of paragraph 9) in the pit and garage area, and will limit access to such areas before, during and after the Event to authorized individuals and equipment. PROMOTER is solely responsible and liable for the actions of security personnel. (12) PROMOTER at its expense assumes and will perform all business responsibilities in connection with the Event (except as otherwise provided by this Agreement), including but not limited to business organization, promotional activities, management, general business affairs, ticket sales, track operation and press accommodations. NASCAR does not warrant, either expressly or by implication, nor is it responsible for, the financial or other success of the Event or the number or identity of vehicles or competitors participating in the Event. (13) PROMOTER will not schedule or permit any private race car practice or test runs for the seven days immediately preceding the first day of official practice for the Event without prior written approval by NASCAR. PROMOTER will not schedule any ancillary events or activities on the same day as registration or inspection, or on any days during the Event, without prior written approval by NASCAR. The ancillary events or activities covered by this paragraph include without limitation other motorsports events, thrill shows, live performances and/or helicopter rides. PROMOTER further agrees to notify NASCAR of any private race car testing and/or practice done at the racetrack pursuant to and in accordance with the 1997 NASCAR Busch Series, Grand National Division Private Race Car Testing Policy. OFFICIAL ENTRY BLANK -------------------- (14) An Official Entry Blank for the Event will be composed, printed, published and distributed by NASCAR, and will constitute the sole official statement as to the date, place, schedule and length of the Event, eligibility requirements for competitors, and monetary and non-monetary awards. (15) PROMOTER will notify NASCAR prior to contracting for any Additional Award. NASCAR may reject a proposed Additional Award in its entirety, require different terms for the proposed Additional Award, or require a reallocation of the distribution of such an award among competitors, if the NASCAR's sole judgement the proposed award will not advance the nature of the competition, will have an adverse impact on the Event, or will be detrimental to the sport of automobile racing, NASCAR, any sponsors of the Event, or any sponsors of the NASCAR Busch Series, Grand National Division. NASCAR's determination in that regard will be binding on PROMOTER. PROMOTER assumes full responsibility for, and will indemnify NASCAR against, any liability or costs incurred as a result of NASCAR's determination with respect to any proposed award arranged by or through PROMOTER. All Additional Awards are subject to independent verification by NASCAR. (16) PROMOTER will submit to NASCAR, no later than sixty (60) calendar days before the date of the Event, a list of any and all proposed Additional Awards (as defined above) for the Event not previously included in Exhibit 2 of this Agreement. If either PROMOTER or NASCAR contracts for Additional Awards after publication of the Official Entry Blank, then subject to the provisions of paragraph 15, NASCAR in its sole discretion may publish and distribute a supplement to the Official Entry Blank posting the Additional Awards. (17) PROMOTER will not publish an official or unofficial entry blank or supplement, or any other form setting forth monetary or non-monetary awards, without prior written approval from NASCAR. PROMOTER will not advertise or otherwise disseminate any information as to monetary or non-monetary awards for the Event other than those specified in the Official Entry Blank or NASCAR-approved supplement. (18) NASCAR will use its best efforts to consult with the PROMOTER regarding postponement of an Event, but the decision to postpone an Event and the selection of the postponed date will be made by NASCAR in its sole Exhibit 1 to Sanction Application and Agreement Form Page 3 of 7 discretion and will be binding on PROMOTER. Publication by PROMOTER of a postponement and/or postponed date that has not been approved by NASCAR is not binding upon NASCAR. PROMOTER'S FINANCIAL AND INSURANCE OBLIGATIONS ---------------------------------------------- (19) PROMOTER will pay to NASCAR at Daytona Beach, Florida, not later than the Payment Date set forth in the Sanction Application and Agreement Form, by wire transfer of funds, an amount equal to the sum of the PROMOTER's Purse and Point Fund and the Sanction Fee, plus any other monies due NASCAR for the Event pursuant to this agreement, unless otherwise directed by NASCAR in writing. Time is of the essence. If said monies and fees are not paid to NASCAR in the manner and by the Payment Date, NASCAR at its option may (a) cancel and rescind this Agreement, or (b) enforce collection of said monies and fees by suit or action, in which case PROMOTER will pay all costs incurred by NASCAR in connection therewith, including reasonable attorney's fees. (20) PROMOTER at its expense will obtain and maintain public liability insurance for the Event that is acceptable to NASCAR, with a minimum combined single limit of $ 10,000,000.00 per occurrence, for (i) spectator injury and --------------- property damage and (ii) PROMOTER's legal, pit, track and product liability. In the event that PROMOTER cannot obtain such insurance with $10,000,000.00 per occurrence limits, PROMOTER shall obtain and maintain such insurance at the highest available per occurrence limit, but in no event shall PROMOTER obtain such insurance with a per occurrence limit (for all categories of liability specified above) less than $5,000,000.00. PROMOTER will deliver to NASCAR at Daytona Beach, Florida no later than the Notification Date set forth in the Sanction Application and Agreement Form, a certified true copy of all public liability insurance policies in force for the Event, regardless of the total amount of coverage. In all such policies and in all other public liability policies obtained and maintained by the PROMOTER or PROMOTER'S parent, the following will be named as insured or additional insured: National Association for Stock Car Auto Racing, Inc., its shareholders, directors, officers, employees, agents, officials, and members; all drivers, car owners, car sponsors, mechanics, and all sponsors for the Event or the series of which the Event is a part. All policies shall also contain a cross liability endorsement acceptable to NASCAR. If PROMOTER fails to deliver such policies to NASCAR by the date provided, or if PROMOTER fails to maintain such policies with the required minimum coverage throughout the Event, NASCAR may cancel and rescind this Agreement immediately and without notice to the PROMOTER. If the policy or policies are not acceptable to NASCAR, then NASCAR may obtain the required insurance from an acceptable insurance company, with acceptable terms, at the PROMOTER's expense. ADVERTISING AND USE OF REGISTERED MARK -------------------------------------- (21) Each party authorizes the use of its name and registered mark by the other for publicizing, promoting or advertising the Event. The NASCAR name and registered mark will only be used as follows: [LOGO OF NASCAR(R)] The symbol (R) will appear as indicated with the NASCAR logo. In all publicity, advertising and promotion relating to the Event, including, but not limited to news releases, advertisements and brochures, PROMOTER will display the registered trademark and the phrase "NASCAR-sanctioned NASCAR Busch Series, Grand National Division Championship Event". (22) All competitors, including car owners and drivers, when they execute the NASCAR Official Entry Blank in connection with the Event, grant to NASCAR certain rights to their name(s), picture(s), likeness(es) or performance(s). Subject to the next sentence, NASCAR hereby assigns to PROMOTER the non- exclusive right to use such competitors' name(s), picture(s), likeness(es) or performance(s) for the purpose of publicizing, promoting or advertising the Event, but only to the extent such rights have been released to NASCAR pursuant to the NASCAR Official Entry Blank. Notwithstanding the foregoing, NASCAR retains the right to disapprove and prohibit the PROMOTER's actual or intended use of a competitor's name, picture, likeness or performance if NASCAR determines in its sole discretion that such use is or will be detrimental to NASCAR, to the event, to the series of which the event is a part, or to the sport. (23) PROMOTER will make no misrepresentations of fact in connection with publicizing, promoting or advertising the Event. If such a misrepresentation is made (a) the PROMOTER promptly will correct the misrepresentation through a subsequent PROMOTER publication, (b) NASCAR may correct the misrepresentation itself through NASCAR publication at PROMOTER's expense and/or (c) NASCAR may cancel and rescind this agreement. Exhibit 1 to Sanction Application and Agreement Form Page 4 of 7 (24) PROMOTER acknowledges that the event is part of the NASCAR Busch Series, Grand National Division. PROMOTER will cooperate fully with NASCAR, with the series sponsor(s), and with any other company that has contracted with NASCAR to sponsor awards or programs (including without limitation the Busch Beer Pole Award or the Rookie-of-the-Year Award) that are based in whole or in part on a competitor's performance in the Event or over a number of NASCAR Busch Series, Grand National Division events, in connection with those sponsors' activities, if any, during the Event. PROMOTER, on its own and at the request of NASCAR, will use its best efforts to feature such sponsors prominently in all of PROMOTER's advertising, publicity and promotion in connection with the Event, and no competitor of such a sponsor shall be featured therein as prominently as such sponsor. PROMOTER will take no action that, in NASCAR's sole judgement, will jeopardize the maintenance or continuation of such sponsorships. (25) PROMOTER acknowledges that the sale or use, for advertising purposes, of space at the racetrack, the premises upon which the racetrack is located and surrounding same, the facilities thereon, or in any publications distributed in connection with the Event, is an action that could have an impact upon the existing sponsorships described in paragraph 24 above. Such sale to or use by competitors of such sponsors shall be subject to prior written approval by NASCAR, which NASCAR may provide or withhold in its sole discretion. (26) NASCAR reserves the right to approve or disapprove any advertising, sponsorship or similar agreement in connection with any Event. (27) PROMOTER will use the NASCAR NATIONAL PROGRAM PACKAGE, if provided by NASCAR. TELEVISION AND SIMILAR RIGHTS ----------------------------- (28) PROMOTER will pay to NASCAR at Daytona Beach, Florida not later than the Payment Date set forth in the Sanction Application and Agreement Form, or within twenty-four (24) hours of the consummation or execution of the television contract (whichever occurs later), by wire transfer, ten percent (10%) of all television income received or contracted to be received (whichever is greater) by the PROMOTER in connection with the Event. (29) In addition to the sum to be paid in accordance with paragraph 28, PROMOTER will pay into the NASCAR event purse trust account, not later than the Payment Date set forth in the Sanction Application and Agreement Form, or within twenty-four (24) hours of the consummation or execution of the television contract (whichever occurs later), by wire transfer, twenty-five percent (25%) of all television income received or contracted to be received (whichever is greater) by the PROMOTER in connection with the Event. (30) PROMOTER will maintain for a period of six years from the date of the Event (1) true and complete copies of any written television contract, any document evidencing such contract, and any document relating to such contract, and (2) accurate and complete records of all receipts and disbursements of television income received in connection with the Event. PROMOTER will permit NASCAR or its authorized agent at all reasonable times to request, receive, inspect and audit any or all such records and documents, wherever they may be located or at any other mutually agreeable location. PROMOTER will forward to NASCAR upon its execution true and complete copies of any written television contract. (31) PROMOTER will require, in any new or renewed television contract, the following language (or language having the same legal and practical effect): "The parties hereto agree to defer to the requests of NASCAR or its authorized agent in the placement and use of television cameras, crews, supporting equipment and personnel, and in the establishment of the starting time, for the Event." "Parties hereto agree to permit NASCAR or its authorized agent at all reasonable times, to request, and receive, true and complete copies of any written television contract, any document evidencing such contract, and any document relating to such contract." "Parties hereto agree that NASCAR shall have the non-exclusive right to use any and all sounds, images, pictures, audiotape, videotape, information and other digital data relating to the Event, including without limitation Event standings and results, for the purpose of distribution via the Internet, NASCAR Online or any other NASCAR-authorized public online service." (32) PROMOTER, at no expense to NASCAR, will provide NASCAR in any new or renewed television contract, for NASCAR's exclusive use, two (2) thirty-second (30) commercial advertising segments, not to be resold by NASCAR. Exhibit 1 to Sanction Application and Agreement Form Page 5 of 7 (33) If the television contract, after its publication in any form, becomes or is found to be unenforceable or is not performed by one or all parties thereto for any reason other than those mentioned in paragraph 34 below, the PROMOTER will perform its obligations as set forth herein as if the television contract were fully enforceable and in fact fully performed. (34) If the Event or the performance of the television contract is prevented or postponed due to an act of God, force majeure, inevitable accident, strike or other labor dispute, fire, riot or civil commotion, government action or decree, inclement weather, failure of technical facilities beyond the control of the broadcaster, the recapture of any time period scheduled for the live broadcast of the Event for an event of national importance or emergency, or for any similar reason beyond the control of the parties to this Agreement or to the television contract the PROMOTER will perform its obligations as set forth herein, except that the monies due under paragraphs 28 and 29 shall be the respective percentages of television income actually received. If any monies in excess of those due under this paragraph have been paid before the prevention or postponement of the Event as set forth in this paragraph, NASCAR will refund the excess to the PROMOTER within thirty (30) days of the prevention or the delayed staging of the Event. (35) PROMOTER warrants that it is authorized to grant, and hereby grants, to NASCAR the non-exclusive right to use any and all sounds, images, pictures, audiotape, videotape, information and other digital data relating to the Event, including without limitation Event standings and results, for the purpose of distribution via the Internet, NASCAR Online or any other NASCAR-authorized public online service. GENERAL PROVISIONS ------------------ (36) The Event will be conducted in accordance with the NASCAR Busch Series, Grand National Division Rule Book, as it may be amended from time to time, any special rules that may be published by NASCAR specifically for the Event, and this Agreement. NASCAR may cancel or rescind this Agreement if NASCAR determines in its sole discretion that PROMOTER has failed to abide by the provisions of this Agreement, the NASCAR Busch Series, Grand National Division Rule Book, amendments thereto, or any special rules as set forth herein. Notice to PROMOTER is effective as set forth in paragraph 44. (37) PROMOTER's rights and obligations under this Agreement, and the sanction given pursuant to it, are not transferable or assignable. NASCAR may cancel or rescind this Agreement if (a) there is a change, material or otherwise, in the ownership, control or management of PROMOTER, (b) if the PROMOTER admits that it is not or will not be able to pay its debts as they become due, applies for or agrees to the appointment of a receiver or trustee in liquidation, makes a general assignment for the benefit of creditors, files a voluntary petition in bankruptcy or a petition seeking reorganization or an arrangement of creditors under any bankruptcy law, becomes a party against whom a petition under any bankruptcy law is filed, or is adjudicated a bankrupt under any bankruptcy law, or (c) if the PROMOTER engages in activity of any kind that NASCAR determines in its sole discretion to be detrimental to the sport or to NASCAR. (38) This Agreement and the sanction granted herein relate solely to the Event(s) and the date or dates set forth on the Sanction Application and Agreement Form. Nothing in this Agreement, or in the course of dealing between the parties, will be construed to require the PROMOTER or NASCAR to enter into a sanction agreement or to issue a sanction for this or any other Event in the future. (39) Nothing in this Agreement will be construed to place NASCAR in the relationship of a partner or joint venturer with the PROMOTER. The PROMOTER will not, and has no power to, obligate or bind NASCAR in any manner other than as provided expressly in this AGREEMENT. (40) If an Event is postponed or cancelled for any reason (other than a strike, war, declaration of a state of national emergency, act of God or the public enemy, or any other cause beyond the control of the PROMOTER) without either (1) the prior written approval of NASCAR, or (2) during the Event, the prior oral approval of the NASCAR official in charge of the Event, or if NASCAR cancels and rescinds this agreement pursuant to paragraphs 19, 20, 23, 36 or 37, NASCAR may elect to retain all or any part of the PROMOTER'S Purse and Point Fund, and other fees and monies received by NASCAR pursuant to this Agreement, and to utilize the same to reimburse, in whole or in part, NASCAR as well as the drivers and car owners, and each of them, for expenses incurred in connection with the Event, which include but are not limited to salaries, transportation, lodging, and payments to the pit crew. NASCAR's determination as to what is or is not a proper expense or as to the manner or the amount of disbursement or as to whom Exhibit 1 to Sanction Application and Agreement Form Page 6 of 7 disbursement is made in this regard is binding on the PROMOTER, as well as on all drivers and car owners entered in the event. Nothing in this paragraph or in paragraphs 19, 20, 23, 36 or 37 shall be construed to limit or otherwise affect any right of action by NASCAR for damages, or any other available remedy, for breach of this Agreement. (41) NASCAR may modify, alter, change or replace the name of the series of which the Event is a part, at any time. In that event, PROMOTER shall use the new name in all communications, advertising, publicity and promotion relating to the Event. (42) In the event of litigation arising out of the enforcement of this Agreement, its terms and conditions, attorney's fees and costs shall be awarded to the prevailing party. (43) PROMOTER shall indemnify and hold NASCAR harmless from any and all claims, allegations, demands, obligations, suits, actions, causes of action, proceedings, rights, damages, and costs of any nature arising out of the Event or this Agreement, unless such claim, allegation, demand, obligation, suit, action, cause of action, proceeding, right, damage or cost arises solely out of the act or omission of NASCAR. With respect to any matter falling within the scope of the PROMOTER's obligation to defend and hold NASCAR harmless, NASCAR shall be entitled to select counsel to represent it in such matter at PROMOTER's expense, and that counsel's duties and obligations in all respects shall be to NASCAR. (44) Unless otherwise permitted herein, notice required by the Agreement shall be given by facsimile/telecopy, and by overnight mail or other express service, postage prepaid, addressed as follows: TO NASCAR: National Association for Stock Car Auto Racing, Inc. P.O. Box 2875 Daytona Beach, Florida 32120-2875 TO PROMOTER: The Address set forth immediately below the name of the PROMOTER first listed in the Sanction Application and Agreement Form. (45) This agreement shall be construed according to the laws of Florida and may not be amended except in writing and signed by both parties. Venue shall lie solely in Volusia County, Florida, and all parties hereto consent to service of process by, and the personal and subject matter jurisdiction of, the courts in and for Volusia County, Florida. (46) The Sanction Application and Agreement Form, including Exhibits 1 and 2 thereto, constitutes the entire agreement between NASCAR and the PROMOTER. All previous communications and negotiations between NASCAR and the PROMOTER, whether oral or written, not contained herein are hereby withdrawn and annulled. End of Exhibit 1 ---------------- Exhibit 1 to Sanction Application and Agreement Form Page 7 of 7 EXHIBIT 2 TO SANCTION APPLICATION AND AGREEMENT FORM FOR THE GATEWAY "300"
NASCAR and PROMOTER agree as follows: RACING PURSE................................................... [*] TIME TRIALS.................................................... [*] BONUS AWARDS................................................... [*] NASCAR POINT FUND.............................................. [*] NASCAR BUSCH SERIES, GRAND NATIONAL DIVISION CHAMPION.......... [*] NASCAR BUSCH SERIES, GRAND NATIONAL DIVISION PLAN.............. [*] WINNERS' CIRCLE AWARDS......................................... [*] TELEVISION AWARDS....................................... To Be Determined** --------- MINIMUM PROMOTER'S PURSE AND POINT FUND........................ [*] NASCAR TELEVISION FEE................................... To Be Determined** --------- TOTAL.......................................................... [*]
* Indicates certain confidential information has been omitted. The confidential information that has been omitted has been filed separately with the SEC and confidential treatment sought. ** Upon execution of the Television Contract, this Sanction Application and Agreement Form will be amended to include these amounts. EX-10.30 3 OFFICIAL SANCTION APPLICATION EXHIBIT 10.30 [LOGO OF UNITED STATES AUTO CLUB] [LOGO OF UNITED STATES AUTO CLUB] UNITED STATES AUTO CLUB Official Sanction Application Under the Rules and Regulations of USAC 4910 West 16th Street Speedway, Indiana 46224 Area Code 317/247-5151 - -------------------------------------------------------------------------------- Sanction No. Granted November 18, 1996 ----------------------------- --------------------- (To be issued at USAC Office) (DATE) The undersigned race organizer or organizing corporation does hereby apply for a United States Auto Club Sanction to conduct and organize a USAC Racing Event. If this application is approved by USAC the organizer(s) agree to abide by the conditions stated herein or agreed to in any addendums thereof. Date September 13-14, 1997 Time Day ------------------------------------------ ---------------------------- 9/12-13/98 and 9/11-12/99 Place Memphis, Tennessee --------------------------------------------------------------------------- Name of Track Memphis Speedway Size 7/8 Mile Surface Asphalt --------------------------- -------------- ------------- Type of Event USAC Silver Crown Championship Series Event ------------------------------------------------------------------- Program of Events Practice, Qualifying, Qualifying Race, 100 Mile Feature Event --------------------------------------------------------------- - -------------------------------------------------------------------------------- Guaranteed Purse [*] total plus contingencies as are applicable ---------------------------------------------------------------- - -------------------------------------------------------------------------------- Total Purse to be Posted Above guaranteed amount plus posted accessory and -------------------------------------------------------- lap prizes as are applicable. - -------------------------------------------------------------------------------- Race Organizer Mr. Christopher R. Pook, Memphis Motorsports Park LBGPA, ------------------------------------------------------------------ 3000 Pacific Ave., Long Beach, CA 90806 (310) 981-2000 Fax (310) 981-2616 - -------------------------------------------------------------------------------- Executed Sanction and Sanction Fee Sanction 12/10/96 Sanction Fee [*] Returnable to USAC by 1/2 Fee April 1, 1997 ---------- --------------------------------- 1/2 Fee September 1, 1997 - -------------------------------------------------------------------------------- APPLICATION FOR SANCTION IS NOT COMPLETE UNLESS ACCOMPANIED BY SANCTION FEE AND NO CONTEST SHALL BE ADVERTISED AS A UNITED STATES AUTO CLUB EVENT UNTIL SANCTION HAS BEEN GRANTED BY THE UNITED STATES AUTO CLUB, INC. (HEREIN SOMETIMES REFERRED TO AS USAC OR UNITED STATES AUTO CLUB). - -------------------------------------------------------------------------------- In making application for sanction of this race by the United States Auto Club, the undersigned (herein sometimes referred to as the organizer) hereby agrees to be bound by each of the following terms, conditions and agreements: 1. Special Terms: A. This is a three year agreement as per dates above. Guaranteed purse, payable to USA September 12, 1997 -------------------------------------------- Additional funds to USAC by September 12, 1997 ------------------------------------------------- Divisional Point Fund [*] ----------- Participant Insurance Fee [*] (1996 Quote) ----------- Championship Appearance Money [*] ----------- Official Fees $ Included in sanction fee ----------- Official fees are payable a second time if officials are compelled to return for an uncompleted or rescheduled event. The amount will be negotiated and will be paid prior to the new schedule date. The organizer will furnish USAC true copy of Insurance policy containing minimum requirements specified in paragraph 15 by August 1, 1997. --------------- 2. USAC shall have the exclusive right to contract out or to take or cause to be taken by others, make, broadcast, rebroadcast, use, reproduce, transmit, copyright, sell, license or otherwise dispose of, for any purpose whatsoever, radio, television, pictures, sound, film and tape, motion pictures, still photographs and sound of this racing event. If this race is televised as a part of USAC's television contract, USAC shall divide and apportion the net revenue received from the allocation for this race between USAC, the organizer and the participants in accordance with the then applicable distribution formula. Refer to Addendum "A" for final television agreement between USAC and Memphis Motorsports Park. 3. The track herein named will be put in, and maintained in a suitable condition and will be subject to an inspection and approval by USAC. 4. The organizer shall be responsible for issuing non-USAC restricted area credentials to non-USAC licensed personnel to include press, radio, TV personnel, and for race organizer employees directly involved in the conduct of the race. USAC will issue restricted area credentials to USAC licensed participant members, who possess current membership credentials, including officials, owners, drivers, mechanics, corporate members, manufacturers' representatives and accessory company personnel directly involved in the race; also very important personnel such as prospective sponsors. USAC issued credentials will be acceptable for entrance to restricted areas, including pits. During the conduct of the race, including practice, qualifications, and the race, the USAC chief steward has the authority over and control of all personnel authorized to be on the track, in the pit, and restricted areas, and may require the immediate removal from these areas personnel who are not directly involved in the conduct of the race, regardless of possession of issued credentials. * Indicates certain confidential information has been omitted. The confidential information that has been omitted has been filed separately with the SEC and Confidential treatment sought. 5. The organizer will provide separate facilities for news media personnel and for USAC official scoring personnel. The scoring and timing facility shall be in a restricted area accessible only to authorized USAC officials. Timing and scoring facilities must be approved by the director of timing and scoring. 6. During the five calendar days prior to this racing event, if the organizer permits the race track to be used by any of the cars or drivers entered in this event, the track shall be open to all entrants of this racing event on equal terms. The term "racing event" as used in this agreement shall mean all official USAC sanctioned functions at the track in conjunction with this race, beginning with the first day of USAC sanctioned practice. 7. USAC shall establish the date for close of entries after first conferring with the organizer. Upon signature and return of the sanction agreement with the sanction fee, car entry forms will be mailed by USAC in duplicate with instructions to send both the organizer and USAC completed entry forms. USAC and the organizer will advise each other of number of entries received and when requested, will provide the other with duplicate of entries. Participants shall be limited to those in good standing with USAC. 8. USAC will select the officials for the event herein described. The Chief Steward and other officials are selected, who are not employees of USAC, are Independent Contractors, but all such officials are agents of USAC in the performance of their duties in connection with this racing events, and shall not by reason thereof be excluded from coverage of any insurance secured by the organizer for their benefit. USAC will furnish the race organizer a list of officials for inclusion in the race program. 9. The chief steward named as such by USAC shall have the right to regulate and/or alter the racing event as conditions warrant. 10. The race organizer shall be responsible for the organization of the racing event. He shall provide all physical safety precautions for the race participants at the racing facility and provide adequate track safety equipment and personnel, including on site ambulance service for transportation to local hospitals which complies with federal DOT standards for the current year, emergency medical personnel as prescribed by USAC, fire fighting equipment and rescue personnel as approved by USAC, wreckers, track cleanup personnel and when applicable, push trucks. The decision of the USAC Chief Steward and/or the USAC Director of Competition shall be final as the adequacy of such safety precautions, equipment and personnel. 11. All prize money, sanction fees, point fund contributions and appearance fees that are due in connection with this racing event are payable to USAC, Inc. as described under special terms, Section 1., of this agreement. Unearned or unexpended prize money shall be returned to the race organizer. 12. In addition to the amount prescribed as the race organizer's contribution to the divisional point fund, USAC will withhold additional amounts from the basic purse for deposit into the appropriate owners' and drivers' year-end divisional point fund. 13. If the purse is established on a percentage of gross gate receipts, the organizer will, upon completion of the race, on a form furnished by USAC, provide an audit of all gate receipts (a manifest) to the USAC chief steward, or the USAC director of competition, which will include, in detail, number of tickets printed, category and serial number, gross ticket sales, number of tickets remaining unused or unsold certification of amount of excise taxes applicable. The ticket manifest and purse overage, if any will be provided the USAC chief steward immediately following completion of the race. 14. When applicable, as may be indicated under special terms, Section 1., "Participant Insurance Fee", the race organizer agrees to pay to USAC an assigned fee which will be applied to the premium for the USAC participant accident insurance plan. In consideration therefor, USAC agrees to provide accident insurance covering all properly registered Drivers, Entrants, Crew Members, Officials and other designated personnel, participating in this event including business visitors who are assigned proper non-transferable restricted area credentials. 15. The organizer has secured or will secure liability insurance against any and all liability, including liability resulting from negligence, and all costs and expenses, including attorneys fees, incurred in defense thereof, arising out of or as a result of this or any other event held in conjunction with the USAC sanctioned racing event and such insurance shall include: A minimum of $ 1,000,000.00 , for each -------------------------------------------------- occurrence, combined bodily injury and property damage for each accident, or the limits contained in the race organizer's insurance policy or policies, whichever is greater. USAC, the Automobile Competition Committee for the United States (ACCUS), the Federation Internationale de l'Automobile (FIA), if this event is FIA listed, and their directors, officials, official representatives, employees and executive officers must be named as additional insureds on all such insurance policies. However, nothing herein shall require the organizer to insure participants in this racing event against liability from claims against such participants arising out of or as a result of this racing event. No later than twenty (20) days before the racing event, the organizer shall submit to USAC true copies of insurance showing that insurance policies containing these minimum requirements have been issued. The true copies of insurance should also contain provisions stating that in the event of cancellation of any policy, a reduction in the limits of liability of the policy or a reduction in the coverage of the policy, at least ten (10) days written notice of such changes prior to the racing event will be given to USAC by certified or registered mail, at 4910 West 16th Street, Speedway, Indiana 46224. Copies of insurance policies must be provided, unless covered in the original insurance policy, for rescheduled race dates. 16. The undersigned further agrees to indemnify and hold harmless the United States Auto Club, its directors, officials, official representatives, employees and executive officers from any and all liability, including liability resulting from negligence, and all costs and expenses, including attorney's fees, incurred in defense thereof, asserted or imposed upon the United States Auto Club, its directors, officials, official representatives, employees and executive officers, arising out of or as a result of this racing event. 17. If, at the closing date for entries, official entries specified on the official USAC entry form for the starting field for the feature racing event, the organizer shall have the right to cancel within three (3) days after the date on which entries are closed. If the organizer under these circumstances exercises his cancellation right, he will be entitled to the return of the sanction fee. Cancellation of the sanctioned racing event by the organizer for any other reason, however, will be cause for the organizer to forfeit the sanction fee plus being liable for actual damages. If there is an unexpected cancellation of the racing event due to a "force majeure" or "act of God," as determined exclusively by USAC, then the sanction fee will be returned to the organizer. 18. The undersigned understands and agrees that the connection of USAC with the promotion of this racing event is purely advisory; that its rules and regulations are promulgated for the improvement and stabilization of automotive competition; and that USAC is a non-profit corporation. The undersigned agrees to be bound by the Official Competition Rules of USAC and by any modifications thereof, and, in consideration of the granting of this sanction, releases and discharges USAC and its respective officials and representatives from all liability for personal injuries that may be received, and from all claims and demands for damages to real and personal property or to any person, growing out of or resulting from this racing event, whether caused by any construction or condition of any track or tracks, equipment, cars or devices, or resulting from any act or failure of any official in connection with this racing event, UNLESS SUCH ACT OR FAILURE IS AN INTENTIONAL WRONG ON THE PART OF ANY SUCH OFFICIAL. 19. All announcements, advertising, publicity material, supplemental regulations, programs, and official communications in connection with this racing event, shall be conspicuously marked with the phrase "sanctioned by USAC," or words to that effect, and shall display the registered mark of USAC in the form submitted to the organizer by USAC. 20. Violation of any of the provisions of this sanction agreement or any applicable USAC rules shall be cause for cancellation of the sanctioned racing event by USAC, forfeiture of the sanction fee and all other fees and contributions paid by the organizer to USAC, plus liability of the organizer for damages. SPECIAL TERMS: Race organizer agrees to pay USAC [*] participant insurance fee. USAC will issue all participant credentials and return fees from same to race organizer. Returned fees shall not include entry fees, license or member registration. Under provisions of paragraph 15 of this agreement, the race organizer shall include the United States Auto Club, its Directors, Officers, Official Representatives, Employees, Executive Officers, U.S. Tobacco Company, Canon USA, Inc., Wynn Oil Company, STP Div. First Brands Corp., Hoosier Racing Tire Corp., Race Tire America, Goodyear Tire & Rubber Co., Bridgestone/Firestone, True Value and Stoops Freightliner, Inc. as additional insured parties on all required liability policies. USAC APPROVAL APPLICANT Memphis Speedway ----------------------------------- SANCTION NUMBER GRANTED AUTHORIZED SIGNATURE /s/ Christopher R. Pook ----------- ------------------------- DATE TITLE CEO ------------------------------ ---------------------------------------- AUTHORIZED SIGNATURE DATE 12/16/96 -------------- ----------------------------------------- SANCTION APPLICATIONS SHOULD BE FILLED IN AND SIGNED IN TRIPLICATE, WITH ALL THREE COPIES FORWARDED TO THE UNITED STATES AUTO CLUB, 4910 WEST 16TH STREET, SPEEDWAY, INDIANA 46224. WHEN SANCTION IS APPROVED, ONE COPY WILL BE SIGNED BY AN AUTHORIZED USAC REPRESENTATIVE AND RETURNED TO THE ORGANIZER. ALL SANCTION APPLICATIONS MUST BE ACCOMPANIED BY THE NECESSARY SANCTION FEE. * Indicates certain confidential information has been omitted. The confidential information that has been omitted has been filed separately with the SEC and Confidential treatment sought. EX-10.31 4 SANCTION AGREEMENT APPLICATION EXHIBIT 10.31 [LOGO OF ARCA] Sanction (Please do not write in this space) ------------------------------------------ Agreement Date Received Sanction No. -------- -------- Application Sanction Issued Denied -------- ------------ TO: By P.O. Box 5217 ---------------------------------------- Toledo, Ohio 43611 (Signature and Title) ARCA Chief Steward assigned TYPE OF EVENT: National Championship Stock Cars Separate application required for each event. THE UNDERSIGNED PROMOTER AND OPERATING CORPORATION ("PROMOTER AND OPERATING CORPORATION" AS USED HEREIN MEANS AND INCLUDES ALL UNDERSIGNED (1) PROMOTERS, ACTING INDIVIDUALLY OR IN CONJUNCTION WITH EACH OTHER. (2) OPERATING CORPORATIONS, ACTING INDIVIDUALLY OR IN CONJUNCTION WITH EACH OTHER, AND/OR (3) PROMOTERS AND OPERATING CORPORATIONS, ACTING SOLELY OR IN CONJUNCTION WITH EACH OTHER) HEREBY APPLY FOR A SANCTION TO CONDUCT AND PROMOTE AN ARCA BONDO/MAR-HYDE SERIES EVENT - ----------------------------------------------------------------------- AND, IF THIS APPLICATION IS ACCEPTED AND APPROVED BY ARCA, THE UNDERSIGNED PROMOTER AND OPERATING CORPORATION AGREE, IN CONSIDERATION FOR SUCH ACCEPTANCE AND APPROVAL TO ABIDE BY THE FOLLOWING CONDITIONS: TRACK Memphis Motorsports Park LOCATION Memphis, Tennessee --------------------------------------- -------------------------- PROMOTER and OPERATING CORPORATION Memphis International PHONE 310-981-2600 --------------------------- ---------------- Motorsports Corporation --------------------------- ADDRESS 3000 Pacific Avenue, Long Beach California 90806 ------------------------------------------------------------------------- (street) (city) (state) (zip) EVENT DISTANCE 150 miles TRACK LENGTH .875 mile PAVED OR DIRT Paved -------------- ------------- ---------- EVENT DATE Sept. 14, 1997 STATING TIME TBA POSTPONED DATE Next clear day ------------------ -------- ---------------- (See paragraph N, on the reverse hereof) Time Trial date(s) and hours: Practice date(s) and hours: Proposed schedule: - --------------------------------- ------------------------------------------- Sat. Sept. 13; Sun. Sep. 14 - --------------------------------- ------------------------------------------- 7 a.m. Registration TBA 150-Mile Race - --------------------------------- ------------------------------------------- 12 noon Practice (All scheduled activities to be coordinated - --------------------------------- ------------------------------------------- 3 p.m. Talladega Pole Award with Memphis Motorsports USAC) - --------------------------------- ------------------------------------------- Qualifying - --------------------------------- PROMOTER PURSE and POINT FUND TOTAL [*] SANCTION FEE Included ------------------- 1. Exhibit 1, on the reverse hereof, is made a part hereof. 2. It is understood that this is an application until accepted and approved in writing by ARCA. 3. Deposits are non-refundable once an application is accepted. A. All promotional references to event (including news releases, brochures, - -------------------------------------------------------------------------------- advertisements, PA announcements, etc.) to be as follows: ARCA - -------------------------------------------------------------------------------- Bondo/Mar-Hyde Series. - -------------------------------------------------------------------------------- B. Provide best vantage point for race team spotters/ARCA scoring section. - -------------------------------------------------------------------------------- C. [*] general admission tickets for official ARCA sponsor 30 days prior to - -------------------------------------------------------------------------------- event. - -------------------------------------------------------------------------------- D. Spectator liability insurance policy must name ARCA and ARCA Bondo/Mar-Hyde - -------------------------------------------------------------------------------- Series additional insureds. - -------------------------------------------------------------------------------- E. Payment schedule: 10% at signing; remainder day of race. - -------------------------------------------------------------------------------- F. ARCA retains pit fees for all ARCA race teams/competitors. - -------------------------------------------------------------------------------- G. Other divisions in competition: USAC Silver Crown. - -------------------------------------------------------------------------------- --------------------------------------------------------------------- ARCA reserves broadcast rights to all of its sanctioned events unless otherwise agreed in writing by addendum to this sanction agreement. --------------------------------------------------------------------- 4. ARCA will retain all entry fee and inspection fee money; and provide car inspectors and supply and distribute entry blanks. Submitted this 25 day of November , 19 96 --------- ------------------------ ---- Operating Corporation ( ) Memphis International Promoter ( ) Motorsports Corporation Witness /s/ Gemma A. Bannon By /s/ Christopher R. Pook ------------------------- -------------------------------------------- Promoter and Officer of Operating Corporation Title (Please see reverse) Accepted and approved: AUTOMOBILE RACING CLUB OF AMERICA, INC. Witness /s/ Joe Wells By /s/ Ronald A. Drager Date 12-23-96 ------------------------ --------------------------- ------------- Authorized Signature * Indicates certain confidential information has been omitted. The confidential information that has been omitted has been filed separately with the SEC and Confidential treatment sought. Exhibit 1 --------- In connection with the event provided for herein, the Promotor and Operating Corporation agree as follows: A. The term "event" as used herein shall include the event designated on the reverse hereof, as well as all time trials, practice runs and rain or postponed dates related thereto; and B. To pay to ARCA at P.O. Box 5217, Toledo, Ohio 43611, not later than Sept. ---- 14, 1997, by cashier's check, telegraph money order or by transfer of funds, - -------- any and all purse and point fund monies, sanction fee, officials' fees, and fire truck and scoring clock rentals and any other monies due ARCA for the event, as provided on the reverse hereof. It is expressly understood and agreed that if said monies and fees are not paid to ARCA in the manner and by the time provided above, ARCA shall have the option to (1) declare this sanction agreement cancelled, in which circumstance the parties hereto will be relieved from any further liability or responsibility hereunder, or (2) to enforce collection of the said monies and fees by suit or action, in which circumstance Promoter and Operating Corporation shall pay all costs incurred by ARCA in connection therewith, including reasonable attorney's fees; and C. To obtain and maintain at their expense (1) public liability insurance for spectator liability and property damage with a minimum combined single limit of $5,000,000. per occurrence for the event AND (2) public liability insurance for - ----------- promoter's legal liability, pit and track liability, and product liability insurance with a minimum combined single limit of $5,000,000 per occurrence for the event, with an approved insurance company, and further, to deliver to ARCA at Toledo, Ohio 43611, no later than Aug. 14, 1997 a --------------- certified true copy of any and all public liability and promoter's legal liability insurance policies in force for the event, regardless of total amount of coverage, but not less than the minimum coverage stated above, in which the ARCA, its drivers, car owners, mechanics, officials, officers, directors, shareholders, agents, employees and sponsors are named as insureds or additional insureds on all said policies, including any policies for coverage in excess of the minimum coverage stated above, it being expressly understood that this application and, if accepted and approved, sanction is not valid unless the insurance policies described above with the minimum coverage stated above are delivered to ARCA by the date provided above; and, it being further understood, that, if the Promoter and Operating Corporation fail to maintain said policies described above with the minimum coverage stated above in effect throughout the event, ARCA may cancel this sanction without notice to either the Promoter or Operating Corporation; and D. To post at the track the prize money payoff schedule for the event in advance of the event for the benefit of contestants; and E. That only those individuals approved by ARCA (including but not necessarily limited to drivers and pit crews, necessary fire, wrecker, ambulance and security crews) shall have access to or be allowed in the pit or garage areas during the event, and the Promoter and Operating Corporation shall provide sufficient security personnel in the pit and garage areas to enforce this provision at all times during the event, and F. That all wrecker and ambulance crewman utilized in connection with the event will be of age and will have filed with ARCA a completed ARCA Benefit Plan Registration; and G. To display in all advertising (including, but not limited to, news releases and brochures) relating to the event the phrase "ARCA Sanctioned" and the following registered marks: [LOGO OF ARCO] [LOGO OF BONDO] H. That, while cars are engaged in competition, times trials or practice on the track in connection with the event, there will be a flagman on the starter's stand and adequate fire fighting equipment, ambulance service, wrecker services, emergency crews and cleanup crews, on hand in an operating position, all at the expense of the Promoter and Operating Corporation; and I. That this application and sanction shall be construed according to the laws of Ohio and may not be amended except with the prior written approval of ARCA; and J. To furnish adequate facilities for use of ARCA personnel during the event, including but not limited to facilities for pit gate registration, garage registration, scoring, car inspection, and prize money payoff as well as tower facilities for race director; and K. That the event shall be conduction in accordance with the ARCA Rules as they may be amended from time to time, and that ARCA reserves the right to cancel this sanction, if accepted and approved by ARCA at any time for failure of the Promoter or Operating Corporation to abide by the ARCA Rules, as they may be amended from time to time, and the terms of this sanction, by so notifying Promoter or Operating Corporation in writing; and L. That this sanction is not transferable or assignable; and M. That if the event is postponed or cancelled for any reason (other than a strike, war, declaration of a state of national emergency, acts of God or the public enemy, or any other cause beyond the control of the Promoter and Operating Corporation), without either (1) the prior written approval of ARCA or (2) during the event, the prior oral approval of ARCA official in charge of the event, or if ARCA cancels this sanction, if accepted and approved by ARCA, due to the Promoter or Operating Corporations' failure to comply with the ARCA Rules, ARCA may elect to retain all or any part of the price monies, fees, and rental monies received pursuant to this sanction and to utilize same to reimburse, in whole or in part, ARCA as well as the drivers and the car owners entered in the postponed or cancelled event, and each of them, for "expenses" incurred by ARCA drivers and car owner, and each of them, in connection with the event, which include but are not limited to salaries, transportation, lodging, and payments to pit crew. ARCA's determination as to what is or is not a proper "expense" or as to the manner or the amount of disbursement or as to whom disbursement is made in this regard is binding on the Promoter and Operating Corporation, as well as all drivers and car owner entered in the event "(Nothing in this paragraph shall be construed to limit or otherwise affect any right of action by ARCA or breach of this agreement.)"; and N. That any Postponed Date, except that shown on the reverse hereof, is not binding on ARCA until approved in writing by ARCA in Toledo, Ohio; and O. To assume and perform all business responsibilities except as otherwise provided herein, including but not limited to business organization, promotional activities, management, marketing, general business affairs, selling tickets, track operation, and accommodations of the press; and further agree that ARCA disclaims any warranty, express or implied, as to the potential success of the event or as to the number or identity of automobiles or drivers taking part in the event; and P. That promoter will not schedule any ancillary events or activities on the same day as any registration, inspection, practice, time trial or other event date shown on this Application and Sanction without first obtaining written approval from ARCA. The ancillary events or activities covered by this subparagraph include, but are not limited to, non-ARCA sanctioned races, thrill shows, live performances and/or helicopter rides. Q. Nothing herein contained shall be construed to place ARCA in the relationship of a partner or joint venturer with the Promoter and/or Operating Corporation, and neither Promoter nor Operating Corporation shall have any power to obligate or bind ARCA in any manner whatsoever other than as specifically provided for herein; and R. That any notice shall be given hereunder if duly sent by registered mail, postage prepaid, addressed as follows: To ARCA addressed to P.O. Box 5217, Toledo, Ohio 43611. To Promoter and/or Operating Corporation addressed to the address set forth immediately below the name of the Promoter and Operating Corporation on the reverse hereof; and S. Promoter represents and warrants to ARCA that it has sole control of the track and the premises upon which the track is located, including all facilities thereon, and that promoter has full authority to conduct the event thereon as provided for herein. T. Promoter will at its expense furnish all facilities, personnel, equipment, and services for accommodating and controlling the public during the event, for whose safety and comfort the promoter is solely responsible and liable. U. Promoter will at its expense provide during the event the track, race course, and facilities in good repair and ready for use by competitors and officials, and the promoter shall permit ARCA and its Insurance Broker (or its designated representative) to inspect the track, race course and/or facilities before, during and after the event. V. The foregoing, including the reverse hereof, is the agreement between the parties hereto (ARCA, Promoter and Operating Corporation), and it is agreed and distinctly understood that all previous communications and negotiations between ARCA, Promoter and Operating Corporation, either verbal or written, not herein contained, are hereby withdrawn and annulled. EX-10.32 5 GROUND LEASE EXHIBIT 10.32 GROUND LEASE ------------ THIS LEASE made and entered into as of this 7th day of February, 1997, --- -------- by and between LAND TRUST NO. 898 MAGNA BANK, TRUSTEE, formerly GRANITE CITY NATIONAL BANK, TRUSTEE, hereinafter referred to as "Lessor", and GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, a corporation organized and existing under the laws of Illinois, hereinafter referred to as "Lessee." -------- WITNESSETH: FACTS, Lessor is the owner of certain unimproved real property consisting of approximately 14.285 acres more or less located in the City of Madison, County of St. Clair, State of Illinois. The tract of land lies east of Madison Street and is the crosshatched area as shown on Exhibit A attached hereto and made a part hereof. This unimproved real property is hereinafter referred to as the "Premises." Lessee desires to lease the Premises from Lessor on the following covenants and conditions; NOW, THEREFORE, the parties, in consideration of the mutual covenants contained herein, agree as follows: 1. Lease of Premises. ----------------- Lessor does herewith lease the Premises to the Lessee for the term and on the covenants and conditions and for the rental as set forth in this Lease. 2. Use of Premises. --------------- The Premises may be used by the Lessee only for a parking lot and storage area during the term of the Lease. 3. Term. ---- The term of this Lease shall be for a period of five (5) years starting on the 1st day of March, 1997, and terminating on the last day of February, 2001 ("Initial Term"). 4. Rental. ------ Lessee shall pay to Lessor an annual rental during the term of this Lease in the sum of [*] payable in equal monthly installments of [*] starting on March 1, 1997, and a like sum on the first day of each following month with last monthly payment payable on February 1, 2001. 5. Taxes and Assessments. --------------------- Lessee shall pay when due, or reimburse Owner upon demand, if the same are levied against Owner, before delinquency, any and all taxes, assessments, license fees, and public charges, of whatever kind or nature, levied or assessed by any governmental authority against the Premises or the Lessee's business on the Leased Premises or based upon the Lessee's leasehold improvements or any other personal property on the Premises. In the event the Premises are not separately assessed but are a part of a larger parcel for assessment purposes, then the Lessee shall prorate and pay a fractional amount due on total amount of land in the entire assessed parcel. The numerator of the fraction shall be the square footage of the Premises and the denominator shall be the square footage of the assessed Parcel, for the tax year in which the Lease 2 * Indicates certain confidential information has been omitted. The confidential information that has been omitted has been filed separately with the SEC and Confidential treatment sought. commences or terminates. The tax charge to the Lessee shall be prorated. The real estate taxes assessed in Illinois are payable in the year after the year in which they are assessed. Upon the termination of the Lease the Lessee shall, on the first day of the last month of the Lease, pay the taxes for the short year of termination based upon the previous years assessment. 6. Utilities. Other Services. ------------------------- Lessee shall pay for all utility and other services provided and used in the Premises. All utilities and other services shall be contracted for in the name of Lessee and billed to Lessee. Lessee shall post any required bond or security. 7. Indemnity, Liability Insurance, Casualty Insurance. -------------------------------------------------- 7.1 Lessee will indemnify and save Lessor harmless from and against any and all claims, suits, actions and damages arising during the term of this Lease for any personal injury, loss of life or damage to property, sustained in or about the Premises and any improvements constructed thereon by Lessee, and which results from Lessee's conduct of its business and/or the occupancy of the Premises by Lessee, its agents, guests or invitees. Lessor agrees to give Lessee reasonable notice of any action or claim which has or may be instituted against Lessor by reason of any such claim, and to permit Lessee, if Lessee so elects, at its own cost and expense, to engage counsel of its own choice and participate in the defense of any such action. 7.2 Lessee agrees throughout the term of this Lease to maintain public liability, property damage, and parking lot insurance covering the Premises in limits of not less than One 3 Million Dollars ($1,000,000.00) combined single limited bodily injury insurance and property damage insurance. Further, the Lessee shall maintain during the term of this Lease an umbrella policy in the amount of another One Million Dollars ($1,000,000.00). Lessor shall be named as additional insured on all such liability insurance. Lessee shall furnish to the Lessor a certificate evidencing the parties insured and the type of insurance and the policy limits. 7.3 The insurance policies and certificates shall include a covenant that at least thirty (30) days prior to any cancellation, change, modification or renewal of the insurance policy, the insurance company shall give written notice to Lessor. All insurance required under this paragraph shall be with insurance companies authorized to do business in the State of Illinois, and shall have an equivalent to a Best's financial rating of V or higher and a policyholder's rating of at least A. 8. Development of Premises. ----------------------- 8.1 Lessee shall at its costs develop the Premises so that it may effectively be used as a parking lot. The Lessor agrees that starting January 1, 1997, the Lessee shall have the right to enter upon the Premises to grade, level and lay down surfaces adequate for parking, provided that the indemnity insurance called for in paragraph 7 above is in effect during this period of two months before the start of the Initial Term of this Lease. 8.2 All improvements placed on the Premises shall be subject to the terms of this Lease and title to the improvements 4 shall vest in Lessor and, upon the termination of the Lease, the improvements shall become the property of Lessor. 9. Repairs and Maintenance. ----------------------- Lessee agrees that it will, at its sole cost, keep and maintain the Premises in a good state of repair and in a safe condition. 10. Compliance with Laws. -------------------- Lessee shall, during the term of this Lease, at its own expense, reasonably and promptly observe and comply with all laws, orders, regulations, rules, ordinances and requirements of the Federal, State, County, City and other municipal governments, or any subdivisions thereof, having jurisdiction over the Premises and Lessee's operations. Lessee agrees to pay all costs, expenses, claims, fines, penalties and losses that may arise out of or be imposed because of the failure of Lessee to comply therewith. 11. Subletting and Assignment. ------------------------- This Lease is not assignable by Lessee, nor shall the Premises or any part thereof be sublet, used or permitted to be used for any purpose other than above set forth without the written consent of Lessor. If this Lease is assigned or the Premises or any part thereof sublet without the written consent of Lessor, this Lease may, by such unauthorized act, be canceled at the option of Lessor. Any assignment of this Lease or subletting of the Premises or any part thereof with the written consent of Lessor shall not operate to release Lessee from the fulfillment on Lessee's part of the covenants and agreements herein contained to be performed by 5 said Lessee, nor authorize any subsequent assignment or subletting without the written consent of Lessor. 12. Lessor's Right to Cure Defaults. ------------------------------- If Lessee shall default in the performance of any of the agreements herein contained, Lessor may, but shall not be obligated to, perform the same for the account of Lessee. Any amount paid or expense or liability incurred by Lessor in the performance of any such matter for the account of Lessee shall be deemed to be additional rent and the same (together with interest thereon at the rate of one and one-quarter percent (1-1/4%) per month from the date upon which any such expense shall have been incurred) may, at the option of Lessor, be added to any rent then due or thereafter falling due hereunder. 13. Eminent Domain. -------------- If any part of the Premises shall be taken or condemned for public or quasi-public use, and a part thereof remains which is susceptible of occupation hereunder, the Lease shall, as to the part so taken, terminate as of the date title shall vest in the condemnor, and the rent payable hereunder shall be adjusted so that Lessee shall be required to pay for the remainder of the term only such portion of such rent as the square footage of the part remaining after condemnation bears to the square footage of the entire Premises at the date of condemnation. If all of the Premises be taken or condemned, or such part thereof so that there does not remain a portion susceptible for occupation hereunder, then this Lease shall thereupon terminate. All compensation awarded by reason of a condemnation or taking of the 6 Premises shall belong to Lessor and Lessee shall have no claim thereto, and Lessee hereby irrevocably assigns and transfers to Lessor any right to compensation or damages to which Lessee may become entitled during the term hereof by reason of any condemnation. For special provisions of recoupment of money spent by Lessee for improvements to the Premises, see Paragraph 23.2 14. Quiet Enjoyment. --------------- Lessor hereby covenants that Lessee, upon paying the rent as herein reserved and performing all the covenants and agreements herein contained on the part of Lessee, shall and may peaceably and quietly have, hold and enjoy the Premises hereby demised without hinderance or interruption by Lessor or by anyone claiming lawfully or equitably by, through or under Lessor. 15. Mechanics' Liens. ---------------- Lessee agrees that if mechanics' liens shall attach to the Premises or any part thereof, based upon work performed by Lessee or materials furnished or work done by Lessee during the term of this Lease, Lessee will pay or discharge the same within ten (10) days after Lessee receives notice of said lien by Lessor, if so notified, or by the party filing such lien, or secure Lessor by posting security or an indemnity bond satisfactory to Lessor. 16. No Representation by Lessor. --------------------------- Lessee acknowledges that Lessor has made no representation with respect to the physical condition of the Premises, or that they may be used for any purpose other than as stated herein and Lessee takes the Premises in an "AS IS" condition. 7 17. No Waiver. --------- No waiver of any covenant or condition in this Lease contained or of any breach of any such covenant or condition, shall be taken to constitute a waiver of any subsequent breach of such covenant or condition, or to justify or authorize the nonobservance, on any other occasion, of the same, or of any other covenant or condition hereof, nor shall the acceptance of rent by Lessor at a time when Lessee is in default under any covenant or condition hereof be construed as a waiver of such default, or of Lessor's right to terminate this Lease on account of such existing default. It is the express understanding and agreement of the parties that if at any time Lessee should be in default in any of the covenants and conditions of this Lease, an acceptance by Lessor of rent accruing under this Lease during the continuance of such default shall not be construed as a waiver of such default, but that Lessor may, at any time thereafter, in case such default continues, forfeit and terminate this Lease, on account of such default, or exercise any of its other remedies, in the manner herein provided. 18. Default by Lessee. ----------------- 18.1 In the event that Lessee shall default, (a) in the payment of rent when due, and such default shall continue for a period of ten (10) days after written notice of failure to pay such amount has been given by Lessor to Lessee; (b) in the performance of any of the other terms, conditions, covenants or provisions of this Lease, and any such 8 default shall continue for more than twenty (20) days after written notice of such failure by Lessor to Lessee, or if, by reason of the nature of such default, it cannot with reasonable diligence be corrected within twenty (20) days, then, if Lessee shall not commence to correct such default within said twenty (20) days and thereafter prosecute the work of correcting the same with reasonable diligence; or 18.2 If the Lessee makes an assignment for the benefit of creditors or a receiver or an assignee for its property shall be appointed in any proceeding other than a bankruptcy proceeding, then Lessor may in addition to any other rights or remedies provided by law pursue any one or more of the following remedies: (a) Terminate this Lease by serving upon Lessee a written notice stating that the term hereof shall expire upon a date specified in said notice. The date shall not be less than ten (10) days after the date of the giving of such notice by Lessor to Lessee, and the term of this Lease shall thereupon expire upon the date so specified. Lessor shall be entitled to and may demand immediate possession of the Premises, any other notice or demand being hereby waived. (b) Enter and take possession of the Premises. Lessor may expel or remove Lessee and any other person who may be occupying the Premises or any part thereof, without terminating this Lease and without relieving Lessee from its obligation to pay rent. Lessor may then relet the Premises in the name of Lessor or Lessee at any rental readily obtainable, and if such rent exceeds the rent then paid by Lessee, Lessor may retain the difference. If 9 such rental is less than the rent paid by Lessee, Lessee shall pay to Lessor upon demand the deficiency. 18.3 In the event Lessee seeks relief under Title 11 of the United States Code, then the rights, duties and obligations of Lessee and Lessor shall be governed by 11 U.S.C. (S)(S)365 and 502 or as the same may be amended or modified. 19. Notices. ------- Any notice by Lessor to Lessee or by Lessee to Lessor shall be in writing, and shall be given by depositing said notice in any United States Post Office or Post Office Box for mail and sent postage prepaid, certified mail, return receipt requested, addressed to the respective parties at their address stated below. The notice shall be deemed received by the other party two (2) business days after the postmark date of the notice. If either party changes their address, notice shall be given of such change by the method set forth. After the receipt of such notice, the new address shall be used instead of the address previously given. If to Lessor, addressed to: Mr. Ray Pratt Pratt Partnership c/o Gateway Midstate Truck Plaza 699 State Route 203 East St. Louis, Illinois 62201 (or such other address as may be designated by Seller by like notice); and If to Lessee, addressed to: Gateway International Motorsports Corporation 700 Raceway Boulevard P. O. Box 200 Madison, Illinois 62060-0200 10 20. Return of Premises. ------------------ Upon the termination of this Lease or upon the termination of Lessee's right of possession to the Premises, Lessee shall return the Premises to Lessor in the same condition as when received, together with any improvements placed thereon by the Lessee. Lessee shall not have the right to remove any of said improvements made by Lessee to the Premises without the consent of Lessor. Lessee shall be obligated to remove all equipment, personal property and trade fixtures upon the termination of this Lease when requested to do so by Lessor. 21. Attorney's Fees. --------------- In the event it becomes necessary for either party to employ an attorney because of the default of any provisions of this Lease by the other party, then all costs and expenses, including reasonable attorney's fees, whether or not suit is filed, so incurred by the non-defaulting party shall be paid by the defaulting party. 22. Successors and Assigns. ---------------------- The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Lessor and Lessee and their respective successors, assigns, and representatives. 23. Entrance and Access. ------------------- 23.1 The Lessor shall provide at its cost access to the Premises from Madison Street with a road at least 18 feet wide, surfaced with aggregate. Lessor shall, during the term of the Lease, keep the roadway in a good state of repair and passable. 11 The Lessor shall have the right to select the location of such roadway and may move the roadway, provided that during the term of the Lease there shall be at least one roadway entrance to the Premises leased. 23.2 The Lessee prior to using the Premises contemplates expending an amount not exceeding $49,000.00 for fill, aggregate, labor and fencing to make the Premises fit for parking. The total amount expended by the Lessee for fill, aggregate, labor and fencing during the period from January 1, 1997, through July 1, 1997, shall be accumulated and the copies of bills for such shall be presented to the Lessor. Notwithstanding the provisions of Paragraph 3 hereof, the Lessor reserves the right to terminate the Lease at any time after two years (March 1, 1999). In the event the Lease is terminated after March 1, 1999 by the Lessor or by condemnation at any time during the Lease term, the Lessor agrees to pay the Lessee a sum of money computed on the following basis: The total cost of the fill, aggregate, labor and fencing, but in no event more than $49,000.00, shall be divided by 1825 (365x5) and the resultant figure shall be multiplied by the number of days remaining of the term of the Lease after possession of the Premises is turned over to the Lessor. The amount of money computed as set forth in this paragraph shall be paid to the Lessee by the Lessor within ten days of the delivery of possession of the Premises to the Lessor. In the event that the condemnation is a partial taking, the Lessor shall pay to the Lessee a sum computed as set forth herein but reduced by a fraction, the numerator of which is the square footage taken and the denominator of which is the total 12 square footage of the Premises. No sums of money will be paid by the Lessor to the Lessee if the Lessor terminates the Lease due to the default of the Lessee pursuant to Paragraph 18. 23.3 The Lessor agrees that if the beneficial owner of the Premises (the Pratt Partnership) receives a bona fide offer to purchase the property leased from any person, company, corporation or partnership not affiliated with Gateway Midstate Truck Plaza or the Pratt family, and the Pratt Partnership or owner of the Property is willing to sell the property at that price and on the terms offered, then it shall give written notice to the Lessee and grant to the Lessee the right to purchase the property on the same terms and conditions as the bona fide offer. The Lessee shall have thirty (30) days to give notice to The Pratt Partnership that it is willing to purchase the property on the same terms and conditions as the bona fide offer and shall have another thirty (30) days after giving notice of its intent to purchase the property to close the transaction. 24. Hazardous Materials. ------------------- 24.1 From and after the commencement of this Lease, Lessee shall not cause or permit any Hazardous Material (as hereafter defined) to be brought upon, kept or used in or about the Premises by Lessee, its agents, employees, contractors or invitees, without the prior written consent of Lessor. The Lessor shall indemnify and hold the Lessee harmless from cost or expense incurred by the Lessee caused by hazardous materials found on the Premises which were placed there prior to the term of this Lease. The Lessee, to secure the benefit of this hold harmless provision, agrees that it 13 shall immediately give written notice of any claim made against it due to hazardous material on the Premises. It shall give the Lessor the opportunity to defend the claim at Lessor's cost prior to spending any sums of money in defense of the claim. 24.2 As used herein, the term "Hazardous Material" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of Illinois or the United States Government. The term "Hazardous Material" includes, without limitation, any material or substance which is (i) defined as a "hazardous waste" under Section 260.360 of the Illinois Revised Statutes, (ii) petroleum, (iii) asbestos, (iv) designated as a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1317), (v) defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903), or (vi) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601). 25. Entire Agreement. ---------------- This Lease contains the entire agreement of the parties hereto with respect to the Lease and use of the Premises, and this Lease may not be amended, modified, released or discharged, in whole or in part, except by an instrument in writing signed by the parties hereto. 14 IN WITNESS WHEREOF, the parties here entered into this Lease as of the day and year first above written. LESSOR: LESSEE: LAND TRUST NO. 898 MAGNA TRUST CO, GATEWAY INTERNATIONAL TRUSTEE, formerly FIRST MOTORSPORTS CORPORATION, a GRANITE CITY NATIONAL BANK Illinois corporation TRUSTEE -------- By: /s/ Albert G. Hudzik By: /s/ Christopher R. Pook -------------------------------- ------------------------ Albert G. Hudzik, Vice President Christopher R. Pook CEO 15 EX-10.33 6 LEASE AGREEMENT EXHIBIT 10.33 LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into on this 27th day of January 1997, by and between GATEWAY NATIONAL GOLF, LLC, a Missouri limited liability company having an address at Crowley Financial Corporation, 955 Executive Parkway Drive, Suite 220, St. Louis, Missouri 63141 (hereinafter referred to as "Lessor"), and GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois Corporation, with offices at 558 North Highway 203, Madison (East St. Louis mailing address), Illinois, 62201 (hereinafter referred to as "Lessee"); WITNESSETH that Lessor and Lessee do hereby covenant and agree that Lessor does hereby lease to the Lessee and Lessee does hereby hire and rent from the Lessor, in accordance with the following terms and conditions, a certain portion of land, comprising twenty (20) acres more or less, located in St. Clair and Madison Counties, Illinois, the configuration of which is depicted on the survey segment attached hereto as Exhibit A, together with such additional land, designated by Lessor, as may from time to time be required to provide Lessee with a total of 3,000 parking spaces as described herein (collectively referred to herein as the "leased premises"), all to be acquired by Lessor as set forth in Section l(a) hereof 1. TERM. ---- (a) Term of Lease. The term of this Lease shall commence on the date Lessor ------------- acquires fee simple title to the leased premises, which date shall occur, if at all, not later than April 1, 1997, and terminate at midnight on the thirty-first (31st) day of December, 2007. In the event Lessor fails to acquire such title on or before April 1, 1997, for any reason, this Lease shall be null and void and neither party shall have any further obligation or liability to the other. (b) Renewal. Provided Lessee is not in default at the time of exercise or ------- on the effective date of the extension, Lessee is granted the option to renew this Lease for four (4) additional consecutive terms of five (5) years each, on the same terms and conditions as are contained herein, provided that prior to the expiration of the initial term or each renewal term, as the case may be, lessee shall give to lessor notice in writing of its election to so extend, mailed at least one hundred eighty (180) days before the expiration of the initial term or each renewal term, as the case may be. Once delivered, Lessee's notice of extension shall be irrevocable. Any termination of the Lease or failure to extend the term in accordance with the provisions of this paragraph shall operate to extinguish all remaining renewal options. (c) State of Title. This Lease and Lessee's rights to utilize the leased -------------- premises is subject and subordinate in all respects to all matters and conditions of record affecting the leased premises and to the rights of the Illinois Department of Transportation. (d) Use of Leased Premises During Term. Lessee shall have the right, on a ---------------------------------- guaranteed basis, to use the leased premises for parking for Lessee's business for up to three (3) two-day periods (Friday and Saturday or Saturday and Sunday, sometimes herein referred to as a "weekend") during calendar year 1997 and up to four (4) two-day periods during calendar year 1998 and each subsequent calendar year during the term. Lessee shall have the right, on the basis of Lessor's prior written approval, as set forth below, to utilize the leased premises for parking during any additional day during the term. In order to reserve the leased premises on a guaranteed basis, Lessee shall deliver to Lessor written notice of Lessee's reservation of the leased premises at least one hundred eighty (180) days prior to the requested use date, and Lessee must specify in such notice that the requested use is to be guaranteed. If Lessee fails to specify that the requested use is to be guaranteed by Lessor, Lessor may refuse to reserve the leased premises for such requested date or, if Lessor does so reserve the leased premises, Lessor may count the requested date as one of Lessee's guaranteed weekends. Reservations requested on less than the required one hundred eighty (180) days prior written notice may be granted in the discretion of Lessor. If Lessee fails to utilize Lessee's allotment of guaranteed dates, such guaranteed use will not carry over to the next calendar year. Guaranteed dates may only be reserved on the basis of an entire two-day period. In the event Lessee is unable to use a guaranteed date due to rain or other inclement weather (a "rain date"), Lessee may reserve the next succeeding Monday as a guaranteed use date, provided Lessee has not actually opened the parking lot for customers on the rain date. If Lessee specifies a two-day period as a guaranteed set of dates, then the next succeeding Sunday or Monday, as the case may be, shall be automatically reserved as a guaranteed rain date. 2. RENT. Lessee shall pay to Lessor at the address of Lessor set forth ---- herein, without setoff, deduction or withholding of any kind, the following rent: a. 1997 - In consideration of the right of Lessee to park 3,000 cars per ---- day on the leased premises for three (3) weekends, Lessee guarantees Lessor a minimum of [*] in rent for the year, regardless of whether Lessee utilizes the leased premises for any or all of such guaranteed dates. In addition to the foregoing rent, Lessee shall pay additional rent for any cars parked over and above the 3,000 cars per day at the rate of [*] per car, per day, or fraction thereof, on all parking dates. b. 1998 and thereafter - In consideration of the right of Lessee to park ------------------- 3,000 cars per day on the leased premises for four (4) weekends, Lessee guarantees Lessor a minimum of [*] in rent for the applicable calendar year, regardless of whether Lessee utilizes the leased premises for any or all of such guaranteed dates. In addition to the foregoing rent Lessee shall pay additional rent for any cars parked over and above the 3,000 cars per day, at the rate of [*] per car, per day, or fraction thereof, on all parking dates. c. As consideration for supervising parking on Lessor's premises (for which Lesser will receive fees), Lessee shall receive [*] for each automobile parked and shall remit the balance of collections made for parking to the Lessor within five (5) business days. The charge for parking in 1997 shall be [*] per space, and in the years following, -2- * Indicates certain confidential information has been omitted. The confidential information that has been omitted has been filed separately with the SEC and Confidential treatment sought. shall be as agreed by Lessor and Lessee and as economic conditions permit, but not less than [*] gross per space. Payment of guaranteed annual rent shall be made in equal monthly installments, each on the first day of the month, commencing on the commencement date. Except as noted above, payment of rentals attributable to Lessee's use of the leased premises shall be made within thirty (30) days after each event. Lessee shall maintain accurate books and records detailing its income from parking operations, and a report thereof, certified by an officer of Lessee, shall be provided to Lessor concurrently with each monthly rental payment. Lessor shall have the right to inspect and audit the books and records of Lessee with regard to parking, and in the event the audit discloses underpayment of rent by more than 5%, in addition to reimbursement, the costs of the audit shall be borne by Lessee. 3. ADDITIONAL COSTS. Lessor and Lessee agree that, with the exception of ---------------- real property taxes and assessments, which shall be paid by Lessor, this Lease is an absolutely Net Lease, which means that the Lessee shall pay as additional rent, without defense, offset, or deduction, all expenses connected with Lessee's use or operation of the leased premises. (a) Lessee shall reimburse Lessor for Lessee's proportionate share of all expenses (except for real property taxes and assessments) incurred by Lessor as a result of the use of the leased premises for parking purposes. Lessee's proportionate share shall be the product of the following: (a)/(b) x (c)/365, where (a) = the gross square footage of the leased premises, (b) = the gross square footage of the entire golf course development (including the leased premises), all as determined by Lessor's surveyor, and (c) = the number of days during which the leased premises is used by Lessee during any calendar year. Lessor shall have the right to estimate Lessee's proportionate share of expenses and to bill Lessee for same in equal monthly installments, with reconciliation to be made by Lessor not later than ninety (90) days after the end of each calendar year. Payments due Lessor shall be made within thirty (30) days after receipt of Lessor's statement. Payments due Lessee shall be credited to Lessee's next installment of rent or paid to Lessee within thirty (30) days, at Lessor's option. Lessor shall deliver to Lessee evidence of payment in full of all real estate taxes for which contribution is required by Lessee, and Lessee shall have the right, at Lessee's cost and expense, to examine and audit Lessor's books and records with regard (b) Lessee shall pay, as and when due, all personal property, sales, use, amusement and entertainment taxes attributable to Lessee's use of the leased premises, the cost of Lessee's liability and damage insurance policy premiums, the cost of all labor and materials utilized by Lessee on or about the leased premises, and all other costs or expenses incurred by Lessee in connection with Lessee's activities on or about the leased premises. (c) Lessee shall reimburse Lessor for Lessor's costs to repair any damage caused by Lessee to, on or about the leased premises, the costs of removal of trash and debris after each use of the leased premises by Lessee, and any other costs incurred by Lessor for the benefit of Lessee. All costs and expenses for which Lessee is responsible shall be reimbursed to Lessor within fifteen (15) days after Lessor's demand therefor. Lessee shall have the right to examine and audit Lessor's books and records pertaining to Lessor's costs and expenses for a period of one year after delivery of Lessor's statement of costs and expenses -3- * Indicates certain confidential information has been omitted. The confidential information that has been omitted has been filed separately with the SEC and Confidential treatment sought. Lessee shall cause a policy or policies of insurance to be maintained in force throughout the term of the Lease naming the Lessor as an additional insured party with a reputable insurance company or companies satisfactory to Lessor insuring against loss or damage and claims of any kind or nature. In particular, there shall be comprehensive public liability insurance in a sum not less than One Million Dollars ($1,000,000.00) per person and $1,000,000 per accident for injuries to persons and not less than $1,000,000 for damage to property. Dram shop insurance must be in effect containing coverage to the limit of liability imposed upon a lessor by Illinois statutes. Evidence of the insurance coverage shall be furnished by Lessee to Lessor at such time or time- to-time as Lessor shall demand. Lessee shall obtain any and all endorsements commercially available specifically to parking lot operators, including automobile liability coverage if appropriate. All such insurance shall provide that such insurance may not be terminated, canceled, or nonrenewed, except upon not less than thirty (30) days' prior written notice to Lessor. Lessee shall be solely responsible for carrying such casualty insurance as Lessee deems appropriate insuring any improvements on the leased premises. In addition, if and to the extent that Lessee's activities on or about the leased premises cause an increase in the insurance premiums payable by Lessor (as verified by a letter from Lessor's insurance agent or insurance carrier) with respect to Lessor's other operations, Lessee shall be responsible for the full amount of such increase, not to exceed five percent (5%) per annum on a cumulative basis. 4. PARKING. Lessor agrees that the leased premises may be used for ------- parking, and Lessor and Lessee agree that the right-of-way may be used to facilitate parking on Lessor's premises described in Exhibit "B" attached hereto and made a part hereof. Lessee shall utilize trams (as opposed to busses or other types of vehicles) to transport parking patrons from the parking lot to Lessee's property, and Lessee will not allow other vehicular access across such right-of-way except for emergency vehicles and vehicles transporting or providing goods and services to Lessee's property. Lessee will furnish personnel who will supervise parking on Lessor's premises during events sponsored by the Lessee. Lessor and Lessee acknowledge and stipulate that that portion of the leased premises shown on Exhibit A contains spaces sufficient to accommodate approximately 2,829 vehicles, based on the parking configuration shown on Exhibit A. The Parking capacity of the leased premises shown on Exhibit A, together with additional land to be provided by Lessor to make up any shortfall, shall be sufficient to provide space for Three Thousand (3,000) vehicles, provided those to be parked on the leased premises are properly parked in accordance with the configuration provided for on Exhibit A. Lessee acknowledges that the additional land used to make up the shortfall of parking spaces may be changed from time to time as required by Lessor; provided such land shall be located adjacent to the leased premises depicted on Exhibit A. 5. SIGNAGE. Lessee shall post conspicuous signage identifying Lessee as ------- the operator of the parking lot and containing Lessee's telephone number. Lessee may post additional directional or warning signage (i.e., "park at your own risk"), but no advertising signage shall be placed on the leased premises without Lessor's prior written consent. Lessee shall remove all signage after each event. 6. IMPROVEMENTS. Except as otherwise set forth herein, Lessor makes no ------------ representations or warranties as to the condition or adequacy of any improvements upon the leased premises or the suitability of the leased premises for Lessee's intended uses. Lessee accepts the leased premises "as is" and acknowledges that Lessor has no obligation to perform any work upon or to provide any services in connection with the leased premises except as specifically set forth herein. Notwithstanding the foregoing provisions of this Section 6, Lessor covenants that all areas provided for parking will be topographically suitable for parking as depicted on Exhibit A, that Lessor will plant grass on the leased premises as required, consistent with driving range needs, that -4- Lessor will not construct any improvements on or about the leased premises that would cause the number of parking spaces available on the leased premises to fall below the stipulated number of available spaces or that would otherwise materially hinder or impair Lessee's use of the leased premises for parking purposes unless in either instance Lessor provides substantially equivalent replacement parking elsewhere on Lessor's property in close proximity to the leased premises ("Equivalent Parking"). Lessor will also provide Equivalent Parking if and to the extent required as a result of any title impairment, restriction or defect affecting the leased premises and existing on the date hereof or otherwise caused by Lessor. 7. LESSEE'S INDEMNITY AND RELEASE. Lessee hereby releases Lessor from any ------------------------------ liability for any loss or damage of any kind or for any injury or death of persons or damage to property of Lessee or any other person from any cause whatsoever by reason of the use, occupancy or enjoyment of the leased premises by Lessee or any person therein or holding under Lessee. Lessee agrees to, and hereby does, indemnify, defend and save harmless Lessor, its agents and employees from all claims, actions, demands, damages, costs, expenses and liabilities whatsoever, including reasonable attorneys' fees, on account of any real or claimed loss, damage or liability occurring in or at the leased premises, or arising out of the use, occupancy or enjoyment of the leased premises, or any repairs or alterations which may be made to the leased premises, or occasioned in whole or in part by the act or omission of Lessee, its agents, contractors, employees, invitees or licensees. Lessor shall, at Lessor's election, have the right to retain any or all improvements upon the leased premises upon termination of this Lease or to require at the expense of Lessee the removal of any or all of said improvements and restoration of any part or all of the leased premises to the condition that existed at the time of the commencement of the Lease. 8. HOLDING OVER. Unless otherwise agreed to in writing by Lessor and ------------ Lessee, if Lessee retains possession of the leased premises, or any part thereof, after the termination of the term, Lessee shall be deemed to be in default hereunder, and Lessor shall have any and all remedies provided for in this Lease, and at law or in equity; and in addition thereto, Lessee shall pay Lessor Rent at double the monthly rate in effect immediately prior to the termination of the term for the time Lessee thus remains in possession. The provisions of this Section do not exclude Lessor's right of re-entry or any other right hereunder. No such holding over shall be deemed to constitute a renewal or extension of the term hereof. During the term, Lessee, at Lessee's sole cost and expense, shall be responsible for removing all vehicles from the leased premises after each event for which the leased premises shall have been used by Lessee hereunder. Lessee shall provide parking patrons with notification that all vehicles left on the leased premises after such event will be towed, and Lessor shall have the right, without notice to Lessee, to tow any vehicle which is not timely towed by Lessee as required herein. In the event Lessor causes any vehicle to be towed, Lessor shall have the right to impose an administrative fee on Lessee for each such vehicle. 9. ASSIGNMENT AND SUBLETTING. The Lessee shall not, without Lessor's prior ------------------------- written consent, which consent shall not be unreasonably withheld, delayed or conditioned so long as Lessee remains liable for all terms and conditions of this Lease, (a) assign, convey, mortgage, pledge, encumber or otherwise transfer (whether voluntarily or otherwise) this lease or any interest under it; (b) allow any transfer thereof by operation of law; (c) sublet the leased premises or any part thereof or (d) permit the use of occupancy of the leased premises or any part thereof by anyone other than the Lessee. If Lessee wishes to sublet all or part of the leased premises, Lessee shall give notice in writing (by certified mail or by personal delivery) of such intention to Lessor, and thereupon, Lessor shall have, within thirty (30) days of receipt of such notice, the right to terminate this Lease with respect to the portion of the leased premises Lessee desires to sublet or to approve said subletting by written notice to Lessee. If the subletting is -5- approved and rents under the sublease are greater than the rents provided for herein then Lessor shall have the further option either to (a) convert the sublease into a prime lease and receive all rents, in which case Lessee will be relieved of further liability hereunder with respect to the subleased premises and under the proposed sublease or (b) to require Lessee to remain liable under this Lease, in which event Lessee shall be entitled to retain such excess rents. If this lease be assigned or if the leased premises or any part thereof be sublet or occupied by anybody other than Lessee, Lessor may, after default by Lessee, collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the Rent herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any of Lessee's covenants contained in this lease or the acceptance of such assignee, subtenant or occupant as Lessee, or a release of Lessee from further performance by Lessee of covenants on the part of Lessee herein contained. 10. ESTOPPEL CERTIFICATES. Upon delivery of the leased premises to Lessee, --------------------- and thereafter within ten (10) days following the written request of Lessor, from time to time Lessee shall execute, acknowledge, and deliver to Lessor or to Lessor's mortgagee, proposed mortgagee, land lessor or proposed purchaser of the leased premises or any part thereof, an estoppel certificate, which estoppel certificate shall state whether the Lease is in full force and effect and whether any changes may have been made to the original Lease; whether there are any defaults by Lessor and, if so, the nature of such defaults; whether rent has been paid more than thirty (30) days in advance; disclose any security deposits, if any; and such other matters pertaining to the status of this Lease as Lessor may reasonably request. 11. LESSEE'S INTENT. It is recognized and understood that Lessee shall only --------------- be permitted to use the premises as a right-of-way and for parking and to facilitate the public racing events, private driver training, automotive product testing, and customary activities relating thereto, including spectator events relating to the business carried on by GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, for a specific number of days as set forth herein (Paragraph 2). In the conduct of such activity in and about the leased premises, Lessee agree to observe and promptly, at Lessee's own cost and expense, comply with all rules, laws, ordinances and regulations of public authorities. The Lessee will not make or permit to be made any use of the leased premises or any part thereof which would violate any of the covenants, agreements, terms, provisions and conditions of this lease or which directly or indirectly is forbidden by public law, ordinance or governmental regulation or which may be dangerous to life, limb or property, or which may invalidate or increase the premium cost of any policy of insurance carried on the leased premises or covering its operation, or which will suffer or permit the leased premises or any part thereof to be used in any manner or anything to be brought into or kept therein which, in the judgment of Lessor, shall in any way constitute a public nuisance. 12. MAINTENANCE OF LEASED PREMISES. Lessee agrees to maintain the leased ------------------------------ premises in good, neat, and sanitary conditions and not to materially alter the same without the prior written consent of Lessor. 13. LIENS. Lessee shall not suffer or permit any claim for mechanic's or ----- materialmen's liens to be filed against the leased premises by reason of any work procured thereon by Lessee, and Lessee shall hold harmless Lessor from any claim or demands of parties furnishing work or materials and claiming a mechanic's or materialmen's lien upon the leased premises. 14. SUBORDINATION OF LEASE. This Lease is and shall be subject and ---------------------- subordinate to any and all mortgages, deeds of trust or land leases now existing upon or that may be hereafter placed upon the leased premises, and to all advances made or to be made thereon, and all renewals, modifications, consolidations, replacements or extensions thereof, and the lien of any -6- such mortgages, deeds of trust and land leases shall be superior to all rights hereby or hereunder vested in Lessee, to the full extent of all sums secured thereby; provided, however, that each such mortgage, deed of trust or land lease now or hereafter encumbering the leased premises shall provide by its terms, or the holder of such mortgage or deed of trust, or the lessor under such land lease, shall by a separate agreement agree that, in the event of foreclosure of such mortgage or deed of trust, or the termination of such land lease by reason of default, Lessee shall remain undisturbed under this Lease so long as Lessee complies with all of the terms, obligations and conditions hereunder. This provision shall be self-operative, and no further instrument of subordination shall be necessary to effectuate such subordination; and the recording of any such mortgage, deed of trust or land lease shall have preference and precedence and be superior and prior in lien to this Lease, irrespective of the date of recording. In confirmation of such subordination, Lessee shall upon request of Lessor or the holder of any such mortgage, deed of trust, or land lease, execute and deliver to Lessor within ten (10) days any instrument acknowledging such subordination that Lessor or such holder may reasonably request. Lessee agrees to attorn to any person or entity who may acquire title to the leased premises by way of transfer or foreclosure provided that such transferee or purchaser agrees to recognize Lessee's rights under the Lease so long as Lessee is not in default is any of its obligations hereunder. Lessee shall also, within twenty (20) days after Lessor's request, execute an attornment agreement evidencing the obligations of Lessee herein to attorn to such mortgagee in the event of a future succession of the rights of Lessor herein to any mortgagee, deed of trust holder or land lessor of the leased premises. In the event of any act or omission of Lessor constituting a default by Lessor, Lessee shall not exercise any remedy until Lessee has given Lessor and any mortgagee, deed of trust holder or land lessor of the leased premises a prior thirty (30) day written notice of such act or omission and until a reasonable period of time to allow Lessor or the mortgagee, deed of trust holder or land lessor to remedy such act or omission shall have elapsed following the giving of such notice; provided, however, if such act or omission cannot, with due diligence and in good faith, be remedied within such thirty (30) day period, the Lessor and any mortgagee, deed of trust holder or land lessor shall be allowed such further period of time as may be reasonably necessary provided that it commences remedying the same with due diligence and in good faith within said thirty (30) day period. Nothing herein contained shall be construed or interpreted as requiring any mortgagee, deed of trust holder or land lessor to remedy such act or omission. 15. LESSEE'S DEFAULT. Should default be made by Lessee in the payment of ---------------- any installment of rent or should a default continue for fifteen (15) days after notice from Lessor specifying a default in the performance of any other terms, covenants, and conditions herein contained on the part of Lessee to be kept or performed, Lessor, Lessor's agents, or attorney, may re-enter and take possession of the leased premises, remove all persons and property therefrom, but any re-entry or repossession of the leased premises by Lessor shall not operate to release Lessee from any obligations under this Lease, except with the written consent of Lessor. If Lessee should be in default of any condition, covenant, or agreement herein contained which has not been cured as permitted herein, or shall abandon or vacate said leased premises, besides other remedies or rights which Lessor may have, it shall be optional with Lessor to declare this Lease terminated or to re-let the leased premises or any portion thereof for such rent and upon such terms as Lessor may deem satisfactory, and if a sufficient sum shall not be thus realized, after paying the expense of such re- letting and collecting, including any and all attorneys' fees, costs and commissions, Lessee shall be liable for the deficiency. In the event any suit is brought by Lessor to enforce any of the terms of or provisions of this Lease, it is agreed that the Lessor shall be entitled to recover from Lessee reasonable attorneys' fees and costs to be fixed by the court in such actions. -7- 16. EMINENT DOMAIN. -------------- (a) In the event that title to the whole or any part of the leased premises shall be lawfully condemned or taken in any manner for any public or quasi- public use, this Lease and the term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title and Lessor shall be entitled to receive the entire award, Lessee hereby assigning to Lessor Lessee's interest therein, if any. However, nothing herein shall be deemed to give Lessor any interest in or to require Lessee to assign to Lessor any award made to Lessee for the taking of leasehold improvements to the extent paid for by Lessee, personal property or fixtures belonging to Lessee or for the interruption of or damage to Lessee's business or for Lessee's moving expenses. (b) In the event that title to a part of the leased premises shall be so condemned or taken, and the remainder of the leased premises is not reasonably capable of being restored to a complete parking lot usable by Lessee, Lessor or Lessee may terminate this Lease and the term and estate hereby granted by notifying the other party of such termination within sixty (60) days following the date of vesting of title, and this Lease and the term and estate hereby granted shall expire on the date specified in the notice of termination, not less than sixty (60) days after the giving of such notice, as fully and completely as if such date were the date hereinbefore set for the expiration of the term of this Lease, and the obligation of Lessee to pay Rent hereunder shall terminate as of such date. 17. NOTICES. All notices delivered by Lessor or Lessee pursuant to ------- Section l(b) shall be delivered by first class U.S. mail, postage prepaid, or by facsimile (to the fax number provided by the other party on request) with an original to be mailed in the manner aforesaid on the next succeeding business day. All other notices shall be given in writing addressed to the Lessee's Registered Agent and to a corporate office at 558 North Highway 203, Madison (East St. Louis mailing address), Illinois 62201, and to Christopher R. Pook, President and Chairman of the Board, Grand Prix Association of Long Beach, Inc. 3000 Pacific Avenue, Long Beach, California 90806, by Express, certified, or regular U.S. Mail. All notices shall be likewise given and all payment required to be paid by Lessee to Lessor at 955 Executive Parkway Drive, Suite 220, St. Louis, Missouri 63141 , Attention: Timothy G. Crowley, and to Lessor's Registered Agent, Bryan Cave, 1 Metropolitan Square, 211 North Broadway, St. Louis, MO 63101, Attention: Jay Nouss. Either party may change the address for notices as described herein by giving notice to the other party in the manner set forth in this paragraph. 18. WAIVERS. The waiver by the Lessor of any breach of any term, ------- covenant, or condition herein contained shall not be deemed to constitute a waiver of such term, covenant, or condition upon any subsequent breach of the same or any term, covenant, or condition. 19. BINDING UPON ASSIGNEES. The terms, provisions, conditions, ---------------------- covenants and agreements contained herein are to apply to and be binding upon the parties hereto, their legal heirs, representatives, successors, and assigns. 20. CORPORATE AUTHORITY. Lessee covenants that it is a corporation in ------------------- good standing in the State of Illinois, that Lessee has the authority to enter into and perform all of its obligations under this Lease. The Person signing this Lease on behalf of Lessee represents and warrants that he is duly authorized and empowered to do so and to bind Lessee hereunder. -8- IN WITNESS WHEREOF, the parties hereto have caused this Lease Agreement to be executed on this 27th day of January, 1997. GATEWAY GOLF LINKS, L.L.C. By: /s/ Timothy G. Crowley ---------------------------------- Timothy G. Crowley Managing Member and Partner GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION By: /s/ Christopher R. Pook ----------------------------------- Christopher R. Pook President and Chairman of the Board -9- [MAP OF GATEWAY INTERNATIONAL MOTORSPORTS] -----END PRIVACY-ENHANCED MESSAGE-----