-----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, C0XQ7uW6ddFFsC5nFikl5pAcyvpnXnJlMxJ662zJm/ZtBJNAaoO/gA/EDuhWf7B6 04TFiKdSpISq2qXD9Sr+xw== 0000944209-98-000465.txt : 19980304 0000944209-98-000465.hdr.sgml : 19980304 ACCESSION NUMBER: 0000944209-98-000465 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980302 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: 10KSB SEC ACT: SEC FILE NUMBER: 000-28594 FILM NUMBER: 98554958 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 10KSB 1 FORM 10KSB - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-KSB (MARK ONE) [X]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997 [_]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO 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 (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3000 PACIFIC AVENUE, LONG BEACH, CA 90806 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (562) 981-2600 (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE) --------------- SECURITIES REGISTERED UNDER SECTION 12(b) OF N/A THE ACT: NONE (NAME OF EXCHANGE ON WHICH REGISTERED) (TITLE OF EACH CLASS) SECURITIES REGISTERED UNDER 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. [_] State issuer's revenues for its most recent fiscal year: $30,909,000. As of February 18, 1998, there were 4,665,236 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 February 18, 1998, based on the average bid and asked price on such date was $41,760,000. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of Form 10-KSB is incorporated by reference to the registrant's definitive Proxy Statement relating to its 1998 Annual Meeting of Shareholders, which will be filed with the Commission within 120 days after the end of the registrant's fiscal year. Transitional Small Business Disclosure Format: Yes [_] No [X] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INTRODUCTION 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. DESCRIPTION OF BUSINESS For the past 25 years, the Grand Prix Association of Long Beach, Inc. (the "Company") has been organizing and promoting automobile racing events. The Company developed and, has operated the Grand Prix of Long Beach (the "Grand Prix"), an annual temporary circuit professional motorsports event in Long Beach, California since its formation as a California corporation in 1974. The Grand Prix has the second highest paid attendance of any Indy car race, second only to the Indianapolis 500. The Grand Prix weekend has attracted in excess of 200,000 paid spectators in each of the past six years, and is currently televised to over 125 countries throughout the world. In addition to operating the Grand Prix, the Company owns two permanent motorsports facilities, Gateway International Raceway ("Gateway"), in Madison, Illinois (near St. Louis) and Memphis Motorsports Park ("Memphis") near Memphis, Tennessee. Since it acquired the Gateway facility the Company has put in place a new infrastructure, including electrical service; a sanitation system; a ground water drainage system; ingress and egress roads for new parking facilities; a new drag strip; 1.25 mile oval track and road course; a drag strip tower; an oval suite tower; walkways; concession stands and grandstands capable of presently hosting 55,000 spectators per event and eventually 85,000 per event at the oval and 30,000 at the drag strip. The Company is in the process of adding restrooms and concessions and improving ingress, egress and parking. The Company acquired Memphis in June 1996 with the intention to make modifications and improvements to bring the facility up to "today's" professional motorsports standards. Memphis currently has a regulation NHRA drag strip, a road course, a 1/4 mile dirt track, ten corporate suites, and is capable of seating approximately 16,000 people at the drag strip utilizing permanent grandstands supplemented by the Company's portable grandstands. The Company is in the process of making needed improvements and expansions to Memphis, including converting the old clay oval to a 3/4 mile paved oval, modifying the road course and increasing the seating capacity to enable this regional facility to host nationally sanctioned motorsports events as well as to continue to host local and regional events. Both Gateway and Memphis have the capability of hosting major stock car and Indy car races. Both facilities have national caliber NHRA 1/4 mile drag strips. In 1998, Memphis will host the NHRA Pennzoil Nationals, Presented by AutoZone; a NASCAR Craftsman Series Truck race, and an ARCA and USAC Silver 2 Crown event. Gateway will host the NHRA Sears Craftsman Nationals, the Motorola 300 Fedex Championship Series race sanctioned by CART, the CARQUEST Auto Parts 250 NASCAR Busch Series Grand National Division race, and a NASCAR Craftsman Series Truck race. Prior to June 30, 1996, the Company derived the majority of its revenues from the Grand Prix. The addition of two permanent facilities has reduced its reliance on the Grand Prix as its primary revenue source. The Company will, however, continue to place great emphasis on the Grand Prix and the revenue it generates. The Company's business strategy is to maintain the Grand Prix as one of the motorsports industry's premier events and to maximize its return on assets while using the experience and expertise of its senior management team to locate and develop other motorsports venues. In furtherance of this strategy, the Company seeks to locate, acquire, develop and operate venues which the Company believes are underdeveloped or underutilized; are located in major metropolitan areas; can be acquired, improved and developed at a reasonable cost; and can be operated as multi-purpose motorsports facilities. A further business strategy of the Company has been to maximize the productivity of both its employees and the race-related operating equipment it has acquired, by renting its temporary structures and electrical equipment to other event operators and providing consulting and marketing services to other entities. While both Gateway and Memphis 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 well as to continue in the Southern California market. 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 and Memphis. The Company now employs 56 full time and 3 part time employees. The Company hires seasonal employees as required to supplement its permanent staff at all locations for various events. The Company is party to collective bargaining agreements with the Construction Laborers Union, Local 507 for seasonal employees limited to construction activities related to the Grand Prix, and with the Tradeshow and Sign Crafts Union, Local 831, all in California. Employees subject to collective bargaining agreements have had good relationships with the Company. No work stoppages have occurred and none are expected. Recent Developments On January 23, 1998, Gateway International Motorsports Corporation signed a Reimbursement Agreement with First Tennessee Bank whereby the bank provided an irrevocable standby letter of credit to secure the debt reserve fund established pursuant to Gateway's agreement with SWIDA. In furtherance of the Reimbursement Agreement and concurrent therewith, the Company and each of its subsidiaries signed Guaranty Agreements, and Memphis International Motorsports Corporation signed a Trust Deed on its properties to secure repayment of the letter of credit. (See Cautionary Statement: "Ability to Meet Payment Obligations on SWIDA Loan" and "Encumbrance of Assets".) CAUTIONARY STATEMENT Matters discussed in this annual report on Form 10-KSB contain estimates and forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions, beliefs 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. Among the factors that could cause results to differ materially are the following: WEATHER AND CONSTRUCTION DELAYS Adverse weather conditions have caused construction delays and could cause further delays in construction at the Company's Memphis Motorsports Park facility. Delays in construction of improvements at Memphis have 3 resulted in one event being rescheduled to Gateway. Future construction delays could result in the cancellation of events. Weather conditions could also cause the cancellation or postponement of one or more events. The Company's inability to host scheduled events 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 permanent facilities. To date, the Company has been able to secure four such events for Gateway and three for Memphis. For Gateway, the Company entered into a four year agreement with CART for annual events starting in 1997, a three year lease with NHRA for an annual national event starting in 1997 with options for an additional 10 years, and a one year agreement with NASCAR for a 1998 Craftsman Truck Series and a Busch Series, Grand National Division event. With respect to Memphis, the Company has one year remaining on its agreement with the NHRA for an annual national event (1998) and a one year agreement with NASCAR for a 1998 Craftsman Truck Series event. Memphis has a one year agreement with ARCA for a national championship stock car event, and it also has two years remaining on its agreement with USAC for a Silver Crown Championship series annual event. The Company has one year 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 obtain further sanction agreements and to maintain sanction agreements at this level would likely result in lower than anticipated revenues for the Company from admissions, 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 competes with other track owners for the patronage of motor racing spectators as well as for promotions and sponsorships. The Company's agreement with CART grants it the exclusive right to conduct a CART-sanctioned FedEx Championship Series race in Southern California; however, the agreement allows CART to grant a sanctioned event to California Speedway recently constructed approximately 60 miles from Long Beach in Fontana, California, as 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 scheduled a CART-sanctioned race for November 1, 1998, and is scheduled to host several NASCAR events in 1998. Furthermore, it was recently announced that the Route 66 Raceway, a new track under construction 23 miles southwest of Chicago, Illinois will host a NHRA national event in late May, and an AMA Superbike Tour event in August, 1998. International Speedway Corporation recently announced that it is building a track in Kansas City capable of hosting oval track events which it expects will be completed in two years. The conduct of such competing events could have a material impact on attendance, sponsorships and other revenues from the Grand Prix and events held at Gateway and Memphis. SEASONALITY Historically, most of the Company's revenues have been derived from the Grand Prix held each April, in the Company's second fiscal quarter. The Company anticipates that the addition of revenues from operations at Gateway and Memphis will result in significant revenues in its third and fourth quarters as well; however, because Gateway and Memphis will have very limited, if any, racing during the winter season, it is anticipated that during the period from November through February the Company will continue to have minimal revenues resulting in significant operating losses during its first fiscal quarter. GOVERNMENT APPROVALS Operation of the Grand Prix is dependent upon obtaining a permit from the City of Long Beach allowing the Company to hold the race on city streets. The Company has such a permit through the year 2010. 4 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. 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; a three year agreement with Motorola for title sponsorship of Gateway's CART FedEx Championship Series race; a three year agreement with CARQUEST to act as the title sponsor of the Busch Series Grand National NASCAR event at Gateway; a two year agreement with NHRA for Sears Craftsman to be the sponsor of the NHRA event at Gateway; and an agreement with the NHRA for Pennzoil to be the sponsor of the NHRA event at Memphis through the 1998 event. Loss of these title sponsors 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. Furthermore, recent tobacco litigation and settlements between tobacco companies and several states could have an impact on the tobacco industry's ability and/or desire to engage in motorsports sponsorship and advertising activities. Government regulations and restrictions on advertising by tobacco, liquor and other potential sponsors could adversely impact the Company's revenues, as well as that of 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. This reliance diminished in 1997 and should further diminish as additional races are added at Gateway and Memphis. However, the reliance is still significant with approximately 39% of its revenues in 1997 and 72% of its revenues in 1996 being derived from the Grand Prix. Although the Company has operated a racing event on the streets of Long Beach for 23 years, there can be no assurance that the Grand Prix will continue to be successful. 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. LIABILITY FOR PERSONAL INJURIES Motorsports can be dangerous to participants and to spectators. The Company maintains insurance policies that provide coverage within limits that are sufficient, in the judgment of management, to protect the Company from material financial loss due to liability for personal injuries sustained by persons on the Company's premises in the ordinary course of the Company's business. Throughout the year the Company maintains commercial general and automobile liability insurance with a combined single limit of $5,000,000 per occurrence. During 5 the weekend of the Grand Prix, the Company increases its insurance coverage to $20,000,000 per occurrence to encompass the heightened risks associated with running a race on city streets. Beginning in 1998, the Company will carry $10,000,000-$20,000,000 per occurrence during each NASCAR event at Gateway and Memphis. 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 personal injuries 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 (among others): "Long Beach Grand Prix", "U.S. Grand Prix West", "200 MPH Beach Party", "LBGP" and regularly copyrights its artwork, including poster art and artwork for clothing and souvenirs sold at the Grand Prix, Gateway and Memphis. Although the Company takes care to protect its intellectual property, the loss of any of these trademarks, copyrights or patents would not, in the opinion of management, have a material adverse effect on the revenues of the Company. STATUS OF GATEWAY LAW ENFORCEMENT DRIVING SCHOOL In its IPO Prospectus, the Company disclosed that it expected to apply approximately $1,500,000 of the net proceeds from its IPO to establish and equip the Gateway Law Enforcement Driving School. Because the Company was able to obtain major event sanctions for Gateway earlier than anticipated, it had to accelerate redevelopment of Gateway in order to permit it to host those major events in 1997. The cost of redeveloping and improving Gateway at an accelerated rate has exceeded the initial redevelopment estimates, and the portion of the proceeds used for the redevelopment of Gateway has exceeded the estimate set forth in the Prospectus. Therefore, the Company does not have sufficient proceeds from the IPO remaining after completion of the Gateway redevelopment to enable it to establish and equip the Gateway Law Enforcement Driving School from that source of funds. However, the Company does intend to go forward with the law enforcement driving school, and believes that the cash flow from earnings generated from major events at the redeveloped Gateway facility will be sufficient to complete this goal. POTENTIAL FOR CHANGE IN CONTROL On August 8, 1997, the Company signed Stock Purchase Agreements with Midwest Facility Investments, Inc. ("MFI"), a wholly owned subsidiary of International Speedway Corporation, and Penske Motorsports, Inc. ("PMI") (the "Agreements") for the purchase by each of 315,000 shares of the Company's unregistered Common Stock for a purchase price of $12.34 per share. This purchase resulted in MFI and PMI each owning 7.2% of the Company's outstanding Common Stock. The Agreements provide that the funds received by the Company from the sale of stock to MFI and PMI must be used only for capital expenditures of Board approved improvement projects that are intended to enhance the Company's ability to obtain additional motor racing events at its Gateway and Memphis facilities; and give MFI and PMI certain preemptive rights for up to four years. In connection with the Agreements, the Company agreed to expand its Board of Directors by two and to use its best efforts to cause one nominee of MFI and one nominee of PMI to be elected to the Board to fill the new positions. MFI and PMI also agreed (until the earlier of (i) six years or (ii) the date Christopher R. Pook ceases to serve as Chief Executive Officer unless a successor approved by MFI and PMI has been appointed within 120 days, (iii) there is a tender offer for the Company's shares or (iv) the Company enters into a merger or other agreement pursuant to which the Company's current shareholders would own less than 50% of the surviving corporation's capital stock) not to (a) purchase additional shares of the Company's stock without Board approval, (b) conduct a proxy contest to obtain control of the Board or (c) enter into any non-market transaction to sell the Company's stock to anyone who does not agree to be bound by the same aforementioned stand still provisions, except they may each purchase up to 5% of the Company's outstanding Common Stock, and purchase shares from other shareholders who are subject to a Right of First Refusal Agreement between MFI and PMI and that shareholder (hereinafter the "stand still" provisions). 6 In connection with the Agreements, the bylaws of the Company were amended by written consent of a majority of the shareholders to increase the board of directors to a maximum of eleven and on October 13, 1997, Gregory W. Penske and H. Lee Combs were elected as directors to the Company's board. Concurrent with the signing of the Agreements, the same parties signed Registration Rights Agreements, pursuant to which the Company agreed, for a period of three years, to provide MFI and PMI the right to demand that the Company register the shares acquired by MFI and PMI concurrent with the registration of shares for any other security holder (other than on a form S-4 or S-8 or in connection with the registration of the Common Stock issued upon the conversion of its Series B Convertible Preferred shares if the same was filed prior to September 30, 1997) as long as MFI and PMI own at least 1% of the outstanding shares of the Company's Common Stock. The Company also agreed to the Stock Purchase Agreements by MFI and PMI. Further to the Agreements and Registration Rights Agreements, MFI and PMI entered into a Right of First Refusal Agreement with certain shareholders of the Company, which shareholders collectively controlled 38% of Company's outstanding shares (assuming such shareholders exercise all conversion rights, exercise all options and warrants held by them). Exercise of their rights of first refusal pursuant to these agreements could result in MFI and/or PMI acquiring over 40% of the Company's Common Stock. In December 1997, MFI and PMI exercised their right of first refusal to acquire 22,500 shares each offered by EDMARJON-RONBREWDAVE, LLC. In addition, in September, 1997 MFI and PMI also acquired 2,500 shares each from a former board member. In the Stock Purchase Agreements, MFI and PMI are allowed to each purchase up to 5% of the Company's outstanding Common Stock, and purchase shares from other shareholders who are subject to the Right of First Refusal Agreement. In the event that such purchases bring the total ownership of MFI or PMI to greater than 10%, each has the right to purchase sufficient Common Stock on the open market to bring the ownership interest of each up to 20.5% of the outstanding Common Stock of the Company. If they make such purchases, however, their rights under the Right of First Refusal Agreement are reduced on a share for share basis. Exercise of their rights of first refusal and other rights pursuant to these agreements could result in MFI and/or PMI acquiring over 40% of the Company's Common Stock. Both MFI and PMI are SEC reporting companies. None of the control persons of the Company serve on the boards of directors of MFI, PMI or International Speedway Corporation ("ISC"). H. Lee Combs, a Director and Senior Vice President of ISC, and Gregory W. Penske, a Director and Executive Vice President of PMI are directors of the Company. RESTRICTION ON USE OF FUNDS The Company received a total of $7,615,000, net of issuance costs, as a result of the sale of common stock to MFI & PMI (see "Potential for Change in Control"). The Stock Purchase Agreements provide that the funds received by the Company from the sale of stock to MFI and PMI must be used only for capital expenditures of board approved improvement projects that are intended to enhance the Company's ability to promote additional motor racing events at Gateway and Memphis. The company has expended $3,430,000 of these funds on approved projects as of November 30, 1997. DEPENDENCE ON KEY PERSONNEL The Company's success depends largely on the availability and performance of its senior management team, particularly Christopher R. Pook, the Company's Chairman and Chief Executive Officer. Mr. Pook's reputation and experience within the motorsports industry, including his relationship with the various motorsports sanctioning bodies, will continue to be of considerable importance to the Company. The loss of any of the Company's key personnel or its inability to attract and retain key employees in the future could have a material adverse effect on the Company. In addition, the Company's agreement with Toyota is cancelable at the option of Toyota should Mr. Pook cease to be Chairman or Chief Executive Officer of the Company. The Stock Purchase Agreements contain certain "stand still" provisions which terminate if Christopher R. Pook ceases to serve as 7 Chief Executive Officer, unless a successor approved by MFI and PMI has been appointed within 120 days. The loss of any of its senior management team members could have a material adverse effect on the business of the Company. MANAGEMENT OF GROWTH The acquisition of Gateway and Memphis and associated major events scheduled at each has and will continue to place substantial burdens on the Company's management resources and financial controls. The Company's ability to manage its growth effectively will require it to continue to implement and improve its operational, financial and management information systems and controls, and to train, motivate and manage its employees. The Company's failure to manage its growth effectively could have a material adverse effect on the Company's business, financial condition and results of operations. ABILITY TO MAKE ADVANTAGEOUS ACQUISITIONS The Company's ongoing strategy includes locating, acquiring and developing multi-purpose motorsports facilities. There can be no assurance that the Company will be able to identify suitable acquisition candidates or consummate advantageous acquisitions. The Company intends to review and evaluate acquisition opportunities as they arise, but presently has no commitments with respect to any potential acquisition. If the Company does make one or more future acquisitions, these acquisitions may require substantial additional debt and may not be profitable or otherwise beneficial for the Company. Due to the restriction on use of the remaining $4,340,000 of proceeds from the recent sale of stock to MFI and PMI contained in the Stock Purchase Agreements, the Company would not have those funds available for the acquisition of other facilities (see "Restriction on Use of Funds"). Investors may not have an advance opportunity to evaluate the merits and risks of any acquisitions undertaken by the Company. BLANK CHECK PREFERRED STOCK The Company's Board of Directors has total discretion in the issuance of its Preferred Stock and the determination of the rights and privileges associated with any shares of Preferred Stock which might be issued in the future, which rights and privileges may be detrimental to the holders of the Common Stock. The Company is authorized to issue 10,000,000 shares of Preferred Stock of which only two series, Series A Convertible Preferred Stock, representing 312,500 shares, and Series B Convertible Preferred Stock, representing 250,000 shares, has been designated to date. All Series A and Series B Convertible Preferred shares were previously converted into Common Stock. The issuance of Preferred Stock in the future could discourage or impede a tender offer, proxy contest or other similar transaction involving a potential change in control of the Company, which transaction might be viewed favorably by other shareholders. ANTI-TAKEOVER PROVISIONS In addition to provisions in the Company's Articles of Incorporation which authorize the issuance of "Blank Check" Preferred Stock, the Company's Bylaws provide for a staggered Board of Directors, and provisions in the employment agreements for each of Christopher R. Pook and James P. Michaelian provide for severance payments to these individuals in the event of a change in control of the Company coupled with a change in their job duties. Furthermore, the Company is a party to an agreement with MFI & PMI, each of which currently owns 340,000 shares of the Company's Common Stock, which give these shareholders certain preemptive rights. These provisions and agreements could discourage or impede a tender offer, proxy contest or other similar transaction involving a potential change in control of the Company which transaction might be viewed favorably by minority shareholders. ABILITY TO MEET PAYMENT OBLIGATIONS ON SWIDA LOAN In order to finance the redevelopment of Gateway, the Company entered into a loan agreement with SWIDA, which agreed to fund a loan to the Company by issuing municipal bonds in the aggregate principal amount of $21,500,000 designated as the "Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway 8 International Motorsports Corporation Project)" (the "Bonds"). The Bonds are unconditionally guaranteed by the Company. The closing of the sale of the Bonds occurred on June 21, 1996. The Bonds were offered by SWIDA on a private placement basis in reliance upon an exemption from registration contained in Section 4(2) of the 1933 Act. SWIDA has loaned all of the proceeds from the Municipal Bond Offering to the Company for the purpose of the development, construction and expansion of Gateway, and the funds so obtained were irrevocably committed to complete all planned construction of Gateway. The Bonds are enhanced by the moral obligation of the State of Illinois and have a 20-year maturity. The Company issued a 20-year $21,500,000 promissory note to SWIDA which bears interest at an effective rate of approximately 9.1% per annum (the "SWIDA Loan"). Payments of interest are made semi-annually, and began in February 1997, with interest payments through February 1998 derived from an interest reserve fund described below, and principal payments will begin in February 2000. All proceeds from the SWIDA Loan are required to be dedicated by the Company to the redevelopment of Gateway and debt service obligations with respect to the SWIDA Loan. As required pursuant to the financing arrangement, the Company established a $2,550,000 interest reserve fund (from the proceeds of the SWIDA Loan). In addition, the Company established a $2,300,000 debt service reserve fund from the net proceeds of its $2,500,000 private placement of its Series A Convertible Preferred Stock. In January, 1998, the Company substituted an irrevocable standby letter of credit from First Tennessee Bank National Association for the cash on deposit in the debt service reserve fund. Additionally, the Company is required to impose a 5% ticket surcharge on all nationally sanctioned motorsports events at Gateway to establish an additional debt service reserve fund for the Bonds. Once $2,000,000 has been accumulated in this fund, excess funds then accumulating will be used to redeem Bonds annually commencing February 1, 2002. Although the Company's obligations for interest payments on the SWIDA Loan through February 1998, were reserved out of the proceeds of the SWIDA Loan and were held in an interest reserve fund for the purpose of making those payments, future payments on the SWIDA Loan are intended to be made primarily from the revenues from the operations of Gateway. Although the Company is current on its obligation and expects to meet its future debt payment obligations out of the revenues from Gateway, and although the Company will receive certain assistance from the City of Madison, Illinois in the form of a tax increment finance fund which should assist it in meeting its debt burdens, there can be no assurance that earnings from the future operations of Gateway will be sufficient to meet the Company's debt service obligations. If the Company is unable to meet these obligations, the resulting default could result in the foreclosure on the assets of Gateway, and the acceleration of the Company's obligation to make payment of the full principal amount and all interest due on the SWIDA Loan. ENCUMBRANCE OF ASSETS In January, 1998, the Company and each of its subsidiaries, signed Guaranty Agreements, co-obligating themselves for the $2,501,825 contingent liability of Gateway International Motorsports Corporation, to First Tennessee Bank National Association under a Reimbursement Agreement pursuant to which First Tennessee Bank National Association issued an irrevocable standby Letter of Credit to secure Gateway International Motorsports Corporation's obligation to maintain the debt service reserve fund referred to above in connection with its agreement with SWIDA (see "Ability to Meet Payment Obligations on SWIDA Loan"). As further security for the standby letter of credit, the Company's subsidiary, Memphis International Motorsports Corporation signed a deed of trust covering the Memphis facility. The Guaranty Agreements, Reimbursement Agreement and Deed of Trust contain various covenants limiting the signatory's financial, debt and financing ratios, which could have the effect of limiting the Company's ability to raise capital by asset financing. The Company's default under its agreement to maintain the debt reserve fund, would result in a draw on the letter of 9 credit and could result in foreclosure on Memphis International Motorsports Park and trigger the Company's and each subsidiary's obligation to pay all obligations of Gateway International Motorsports Corporation under the Letter of Credit. YEAR 2000 ISSUES The Company is aware of the issues related to the approach of the year 2000 and has assessed and investigated what steps must be taken to ensure that its critical systems and equipment will function appropriately after the turn of the century. The assessment included a review of what systems and equipment need to be changed or replaced in order to function correctly within the company and with other entities. The company's accounting and ticketing hardware and software have been found to be year 2000 compliant and no corrections will be needed to those systems as a result of the year 2000. The Company does not place substantial reliance on any other systems, and no systems have been found to need substantial correction. 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 storage facilities in Long Beach for its equipment and structures. The Company also leases a 4,000 square foot industrial building in Long Beach to house its clothing manufacturing division (see Note 10 of Notes to Consolidated Financial Statements included elsewhere herein). 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 239 acres of land in Madison, Illinois, five miles from the St. Louis Arch. The Company owns approximately 94 of the 239 acres and has three long term leases (expiring in 2025, 2026, and 2070) for the remaining 145 acres, with purchase options. The Company is also a party to 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 of approximately 14 acres for major event parking (see Note 10 of Notes to Consolidated Financial Statements included elsewhere herein). The Company is in the process of negotiating relationships with the City of Madison and 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 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 extensively reconfigured Gateway into a major regional multipurpose motorsports facility capable of hosting the top-tier events, as well as continuing to host a variety of local and regional events. 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, located on 374 acres of land approximately ten miles northeast of downtown Memphis, Tennessee with part of the proceeds from its IPO (See Note 2 of Notes to Consolidated Financial Statements included elsewhere herein). The facility is being renovated 10 to include a regulation NHRA drag strip, a road course, a 3/4 mile paved oval track, a 1/4 mile dirt oval track, ten corporate suites, 5,500 permanent grandstand seats and the use of approximately 20,000 portable grandstand seats. The facility is encumbered by a first trust deed to First Tennessee Bank for purpose of securing the standby letter of credit issued by First Tennessee Bank to Gateway International Motorsports Corporation to secure its obligation to SWIDA under the Bonds (see "Ability to Meet Payment Obligations on SWIDA Loan"). 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. The Company updated its Phase I report on the Memphis property in 1997, at the request of First Tennessee Bank, as a condition to accepting the property as collateral for the obligation of Gateway International Motorsports Corporation under the standby letter of credit. 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. 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 last quarter of the fiscal year ending November 30, 1997, the following matters were voted upon by the shareholders. By written consent of a majority of the shares then outstanding the company's bylaws were amended to provide for eleven directors in three classes rather than nine directors in three classes as the bylaws previously provided. No proxies were solicited. 11 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 IPO) on the National Association of Securities Dealers Automated Quotation System ("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 for fiscal quarters subsequent to June 25, 1996:
COMMON STOCK PRICE ------------------ HIGH LOW --------- --------- Quarter ended September 30, 1996...................... $ 9.63 $ 8.13 Quarter ended November 30, 1996(1).................... 10.13 8.00 Quarter ended February 28, 1997....................... 10.75 9.13 Quarter ended May 31, 1997............................ 13.63 10.00 Quarter ended August 31, 1997......................... 15.50 11.50 Quarter ended November 30, 1997....................... 17.75 13.25
- -------- (1) The Company changed its fiscal year end from June 30 to November 30 in December 1996. The number of record holders of the Company's Common stock as of February 27, 1997 was 223. The Company has not paid a dividend with respect to its Common stock since prior to 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 are derived from nationally sanctioned events at the Grand Prix, Gateway and Memphis. For the year ended November 30, 1997, major event revenues include revenues earned from the Grand Prix in Long Beach; the Motorola 300, Gateway 300, NHRA Sears Craftsman Nationals and the ARCA/USAC Twin 100's at Gateway; and the NHRA Pennzoil Nationals at Memphis. For the year ended June 30, 1996, major event revenues included the Grand Prix in Long Beach and the NHRA Pennzoil Nationals in Memphis. There were no major event revenues in the five month period ended November 30, 1996. Admissions--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 admissions revenue is collected in advance of the event to which it relates. Sponsorships--Sponsorship revenue includes corporate sponsorships for major events received in accordance with negotiated contracts with a diverse group of companies. Ancillary--Ancillary revenues for major events include hospitality, broadcast services, merchandise and concession sales, expo and program ads. Other Operating Revenues--The company generates other operating revenues from special, local and regional motorsports events and related concessions and venue sponsorships at Gateway and Memphis, along with promotion, marketing and public relations consulting services, and rentals of grandstands, structures and related equipment services. 12 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 body during the event. Other operating expenses include expenses directly related to operating the Gateway and Memphis facilities for the special, local and regional events; marketing and public relations consulting services; structures and electrical services costs. General and administrative expenses include wages and other general expenses, as well as the infrastructure costs of Gateway and Memphis during periods when events do not occur. RESULTS OF OPERATIONS The table below sets forth revenues and expenses as a percentage of total revenue for the year ended November 30, 1997, the five month transition period ended November 30, 1996 and the year ended June 30, 1996.
5 MONTHS YEAR ENDED ENDED YEAR ENDED JUNE 30, 1996 NOV. 30, 1996 NOV. 30, 1997 ------------- ------------- ------------- Revenues: Major event revenues Admissions...................... 36.4% 0.0% 39.4% Sponsorships.................... 19.9 0.0 13.1 Ancillary....................... 25.5 0.0 26.7 ----- ------ ----- Total major event revenues...... 81.8 0.0 79.2 Other operating revenues.......... 18.2 100.0 20.8 ----- ------ ----- Total revenues.................. 100.0 100.0 100.0 ----- ------ ----- Expenses: Major event expenses............ 47.3 0.0 48.8 Other operating expenses........ 12.9 51.5 8.0 General and administrative...... 21.1 117.1 26.1 Depreciation.................... 3.0 34.1 4.8 ----- ------ ----- Total expenses.................. 84.3 202.7 87.7 ----- ------ ----- Operating income (loss)........... 15.7 (102.7) 12.3 Other expense..................... (0.7) (6.5) (2.5) (Provision) benefit for income taxes............................ (6.3) 40.7 (4.1) ----- ------ ----- Net income (loss)................. 8.7% (68.5)% 5.7% ===== ====== =====
Year ended November 30, 1997 compared to the year ended June 30, 1996. The following discussion compares the year ended November 30, 1997 with the Company's previous fiscal year ended June 30, 1996. No discussion of the five months ended November 30, 1996 has been included as it was a transition period with no major racing events occurring during that period. Major event revenues increased by $11,993,000 to $24,470,000 from $12,477,000 in the prior year. The significant increase in revenues was primarily due to the Company operating six major events compared with two in 1996. The Grand Prix of Long Beach and the NHRA Pennzoil Nationals at Memphis were featured in both fiscal years. In 1997 the following additional major events took place: the CART sanctioned Motorola 300, the NHRA sanctioned Sears Craftsman Nationals, the NASCAR sanctioned Gateway 300 and the ARCA/USAC sanctioned Twin 100's. The most significant increases occurred in admissions and ancillary revenue attributed 13 largely to spectator attendance. Major event expenses increased by $7,881,000 to $15,089,000 also as a result of the addition of six major events in 1997 compared to 1996. Other operating revenues increased $3,665,000 to $6,439,000 primarily as a result of experiencing a full year of special, local and regional motorsports events and related concessions and venue sponsorships at Gateway and Memphis. In the prior full fiscal year ended June 30, 1996, there were no such revenues recorded for Memphis because the facility was purchased in June 1996. In addition, at Gateway, due to the redevelopment that was ongoing, there was limited event activity during 1996. Both Gateway and Memphis obtained venue sponsorships in 1997, whereas previously there were event sponsorships only. These sponsorships resulted in additional revenues of approximately $700,000 over prior periods. Other operating expenses increased $520,000 to $2,491,000. The increase was primarily due to the increase in staffing needed to execute a full season of racing activity at Gateway and Memphis in 1997 versus the limited activity included in 1996. General and administrative costs increased by $4,842,000 to $8,074,000 primarily as a result of the overhead costs of two additional permanent racing facilities compared with the overhead costs of operating one temporary circuit race. The addition of overhead costs was required to enable the company to stage the four additional major events in 1997 and to be prepared to add additional major events in the future. Management believes that adding additional major events should not require a substantial increase in overhead as the infrastructure of personnel and facilities is in place. The paved oval at Memphis Motorsports Park is still under construction. Therefore a certain amount of additional overhead costs associated with operating and maintaining that facility is expected. The increase is not expected to be significant. Depreciation expense increased $1,004,000 to $1,455,000 primarily as a result of the completion of the first phase of the redevelopment at Gateway in time for the Motorola 300 race in May 1997. Accordingly depreciation expense on these assets was recognized for the first time in fiscal year 1997. Interest income increased $507,000 to $626,000 primarily as a result of increased cash reserves during the period. Interest expense increased $1,261,000 to $1,435,000 primarily due to the interest on the SWIDA Loan no longer being capitalized following substantial completion of the redevelopment project at Gateway. The Company's effective income tax rate for 1997 and 1996 was 42%. Net income increased by $439,000 due to the inclusion of six major events in 1997 compared with two in 1996, offset by the increase in interest expense related to the SWIDA Loan, additional depreciation and infrastructure costs necessary to be prepared to host major events at Gateway and Memphis. FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996 COMPARED TO THE FIVE MONTH PERIOD ENDED NOVEMBER 30, 1995 (UNAUDITED) 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 were deferred until completion of the related event. Other operating revenues increased by $364,000 primarily as a result of five months of revenues at Memphis in 1996 not operated by the Company in 1995 and increases in revenues from grandstand rentals. 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. 14 General and administrative expenses increased by $975,000 from 1995 to 1996. This increase is due to several factors including five months of expenditures related to Memphis ($254,000), administrative costs related to operating Gateway ($136,000), increases in the number of employees over the prior period and increases in professional fees pertaining mainly to the reporting requirements of a public company. Depreciation expense of $668,000 for the five months ended November 30, 1996 increased $503,000, from the five months ended November 30, 1995. This increase is attributable to five months of depreciation expense on Memphis capital assets in 1996, depreciation on the completed drag strip at Gateway for three months, other Gateway construction and corporate capital assets purchased during the current period. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations for the year ended November 30, 1997 was $2,508,000. The Company relied on cash generated from operating revenues and on the proceeds of its initial public offering for working capital during the year ended November 30, 1997. In addition, the proceeds of its 21-year, $21,500,000 promissory note to SWIDA (the SWIDA Loan), the initial public offering and cash generated from operations were used to fund the redevelopment at Gateway and Memphis. On August 8, 1997 the Company reached an agreement to sell 630,000 shares of common stock for $12.34 per share. There was a requirement to meet certain conditions prior to the effective date of the sale. Those conditions were subsequently met and the stock was issued with an effective date of September 23, 1997 resulting in net proceeds to the Company of $7,615,000. The remaining proceeds of $4,340,000 are available for board approved projects (see "Potential for Change in Control"). The Company's cash and cash equivalents as of November 30, 1997 are $1,520,000, a net decrease of $8,694,000 from November 30, 1996. The decrease in cash is primarily the result of funding redevelopment activities at Gateway and Memphis. Restricted cash pursuant to the terms of the SWIDA Loan as of November 30, 1997 was $3,305,000. Cash used by the Company from restricted and non- restricted cash in capital improvements totaled $23,762,000 for the year ended November 30, 1997, primarily for the redevelopment at Gateway and Memphis. The Company expects to make capital expenditures of approximately $5,400,000 which will include completion of the paved oval at Memphis and construction of additional grandstands, concession facilities and other improvements at Gateway. The Company anticipates funding the costs of additional capital improvements primarily through cash generated from the sale of common stock in September 1997 and with cash flow from operations. The Company anticipates meeting its working capital needs which include its major event expenditures such as sanctioning fees and other commitments through cash generated from operations. The Company's bank borrowings consist of short and long term obligations incurred in connection with specific capital improvements and expenditures. Long term debt includes first and second trust deed notes, which together had an outstanding principal balance of approximately $2,461,000 on November 30, 1997 and the SWIDA Loan with a balance of $21,460,000. 15 IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. This statement, which is effective for fiscal 1998, simplifies the standards for computing earnings per share (EPS) by replacing the presentation of primary EPS with a presentation of basic EPS. The Company has not determined the impact of SFAS 128 on its financial statements. 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. 16 PART III Certain information required by Part III is omitted from this Report in that the Registrant will file a definitive proxy statement pursuant to Regulation 14A (the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement that specifically address the items set forth herein are incorporated by reference. Such incorporation does not include the Compensation Committee Report or the Performance Graph included in the Proxy Statement. ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended November 30, 1997. ITEM 10. EXECUTIVE COMPENSATION Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended November 30, 1997. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended November 30, 1997. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended November 30, 1997. 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. Three reports on Form 8-K were filed during the period covered by this report: September 11, 1997 (regarding the sale of 630,000 shares of its unregistered common stock). November 7, 1997 (regarding election of two new directors to fill vacancies created upon amendment of bylaws to provide for a board of 11 members) November 19, 1997 (regarding two new NASCAR sanction agreements) 17 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: February 27, 1998 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. /s/ Christopher R. Pook By __________________________________ Christopher R. Pook Chairman of the Board, President, and Chief Executive Officer 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, February 27, 1998 ____________________________________ President and Chief Christopher R. Pook Executive Officer (Principal Executive Officer) /s/ James P. Michaelian Chief Operating Officer and February 27, 1998 ____________________________________ Director James P. Michaelian /s/ Ronald C. Shirley Chief Financial Officer February 27, 1998 ____________________________________ (Principal Financial and Ronald C. Shirley Accounting Officer) /s/ Joseph Ainge Director February 27, 1998 ____________________________________ Joseph Ainge /s/ Daniel Gurney Director February 27, 1998 ____________________________________ Daniel Gurney /s/ Wayne Kees Director February 27, 1998 ____________________________________ Wayne Kees /s/ George Pellin Director February 27, 1998 ____________________________________ George Pellin /s/ James Sullivan Director February 27, 1998 ____________________________________ James Sullivan
18
SIGNATURE TITLE DATE --------- ----- ---- /s/ John R. Queen, III Director February 27, 1998 ____________________________________ John R. Queen, III /s/ Neil Matlins Director February 27, 1998 ____________________________________ Neil Matlins /s/ H. Lee Combs Director February 27, 1998 ____________________________________ H. Lee Combs /s/ Gregory W. Penske Director February 27, 1998 ____________________________________ Gregory W. Penske
19 EXHIBIT INDEX The following exhibits to this Form 10-KSB 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 5.2** Opinion letter of Gartenberg Jaffe Gelfand & Stein LLP relating to the legality of the securities registered on Form S-3 dated September 29, 1997 5.3++ Opinion letter of Gartenberg Jaffe Gelfand & Stein LLP relating to the legality of the securities registered on Form S-3 dated February 20, 1998 10.1* Amended and Restated Agreement dated September 15, 1996 between the Company and the City of Long Beach 10.2* Official Organizer/Promoter 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 10.5* 1996 Employee and Director Stock Incentive Plan 10.6* Employment Agreement dated May 16, 1996 between the Company and Christopher R. Pook 10.7* Employment Agreement dated May 16, 1996 between the Company and James P. Michaelian 10.8* Agreement dated 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 to the Company by 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
20 EXHIBIT INDEX--(CONTINUED)
EXHIBIT NO. EXHIBIT ----------- ------- 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 the 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 June 12, 1996 by and between Helen M. Bergfield, trustee and Gateway International Motorsports Corporation 10.22* Lease Agreement dated April 1, 1996 by and between Ruth C. Franke and Gateway International Motorsports Corporation 10.23* Lease Agreement dated June 1, 1996 by and between Joseph E. Trover and Gateway Intentional Motorsports Corporation 10.24* Form of Loan Agreement by and between Southwestern Illinois Development Authority and Gateway International Motorsports Corporation 10.25* Form of Guaranty Agreement made by the Company and Automotive Safety & Transportation Systems, Inc. to Magna Trust Company, Trustee, dated 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 May 1, 1996 10.27* Indenture of Trust dated May 1, 1996 by Southwestern Illinois Development Authority, as mortgagee dated May 1, 1996 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 (Certain confidential portions of this agreement have been deleted) 10.30*** Official Sanction Application under the Rules and Regulations of USAC, between United States Auto Club and Applicant, dated November 18, 1996 (Certain confidential portions of this agreement have been deleted) 10.31*** Sanction Agreement Application for National Championship Stock Cars between Automobile Racing Club of America and Applicant, dated November 25, 1996 (Certain confidential portions of this agreement have been deleted) 10.32(A)*** Ground Lease between Land Trust No. 898 Magna Bank, Trustee and Gateway International Motorsports Corporation, an Illinois corporation dated February 7, 1997 10.33(A)*** Lease agreement between Gateway Golf Links LLC and Gateway International Motorsports Corporation, an Illinois corporation dated January 27, 1997 10.32**** Stock Purchase Agreement, dated August 8, 1997, between Midwest Facility Investments, Inc., and the Company 10.33**** Registration Rights Agreement, dated August 8, 1997, between Midwest Facility Investments, Inc., and the Company 10.34**** Stock Purchase Agreement, dated August 8, 1997, between Penske Motorsports, Inc., and the Company
21 EXHIBIT INDEX--(CONTINUED)
EXHIBIT NO. EXHIBIT ------- ------- 10.35**** Registration Rights Agreement, dated August 8, 1997, between Penske Motorsports, Inc., and the Company 10.36**** Right of First Refusal Agreement, dated August 8, 1997 between Midwest Facility Investments, Inc., Penske Motorsports, Inc. and various Shareholders 10.37+ Sanction Application and Agreement between Gateway International Motorsports Corporation and NASCAR Craftsman Truck Series dated October 22,1997 (Certain confidential portions of this agreement have been deleted) 10.38+ Sanction Application and Agreement between Memphis International Motorsports Corporation and NASCAR Craftsman Truck Series dated October 22, 1997 (Certain confidential portions of this agreement have been deleted) 10.39 Reimbursement Agreement between First Tennessee Bank National Association and Gateway International Motorsports Corporation dated January 23, 1998 (filed herewith) 10.40 Irrevocable Standby Letter of Credit No. S983013 dated January 23, 1998 issued by First Tennessee Bank National Association directed to Magna Bank, N.A. (filed herewith) 10.41 Tennessee Deed of Trust with Security Agreement and Assignment of Rents and Leases dated January 23, 1998 between First Tennessee Bank National Association and Memphis International Motorsports Corporation (filed herewith) 10.42 Guaranty Agreement dated January 22, 1998 by the Company in favor of First Tennessee Bank National Association (filed herewith) 10.43 Guaranty Agreement dated January 22, 1998 by Gateway International Services Corporation in favor of First Tennessee Bank National Association (filed herewith) 10.44 Guaranty Agreement dated January 22, 1998 by Memphis International Motorsports Corporation in favor of First Tennessee Bank National Association (filed herewith) 10.45 Guaranty Agreement dated January 22, 1998 by Motorsports Services Corporation of Memphis in favor of First Tennessee Bank National Association (filed herewith) 10.46 Guaranty Agreement dated January 22, 1998 by Del Mar Race Management, Inc. in favor of First Tennessee Bank National Association (filed herewith) 10.47 Guaranty Agreement dated January 22, 1998 by Automotive Safety & Transportation Systems, Inc. in favor of First Tennessee Bank National Association (filed herewith) 21.* Subsidiaries of Registrant 23.7 Consent of Arthur Andersen LLP (filed herewith) 27 Financial Data Schedule
- -------- * 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. ** Incorporated by reference to Company's Form S-3 Filed September 29, 1997. *** Incorporated by reference to the Company's Form 10-KSB/A filed April 8, 1997. **** Incorporated by reference to the Company's Form 8-K filed September 11, 1997. + Incorporated by reference to the Company's Form 8-K filed November 7, 1997. ++ Incorporated by reference to the Company's Form S-3 filed February 24, 1998. 22 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE ---- Consolidated Financial Statements: Report of Independent Public Accountants.................................. F-2 Consolidated Balance Sheets as of November 30, 1997 and 1996.............. F-3 Consolidated Statements of Income for the year ended November 30, 1997, the five month transition period ended November 30, 1996 and the year ended June 30, 1996...................................................... F-4 Consolidated Statements of Shareholders' Equity for the year ended November 30, 1997, the five month transition period ended November 30, 1996 and the year ended June 30, 1996.................................... F-5 Consolidated Statements of Cash Flows for the year ended November 30, 1997, the five month transition period ended November 30, 1996 and the year ended June 30, 1996................................................. F-6 Notes to Consolidated Financial Statements................................ F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Grand Prix Association of Long Beach, Inc.: We have audited the accompanying consolidated balance sheets of Grand Prix Association of Long Beach, Inc. (a California corporation) and subsidiaries as of November 30, 1997 and 1996 and the related consolidated statements of income, shareholders' equity and cash flows for the year ended November 30, 1997, the five month transition period ended November 30, 1996 and the year ended June 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, 1997 and 1996 and the results of their operations and their cash flows for the year ended November 30, 1997, the five month transition period ended November 30, 1996 and the year ended June 30, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP Los Angeles, California February 20, 1998 F-2 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 1997 AND 1996 (DOLLARS IN THOUSANDS)
NOVEMBER 30, NOVEMBER 30, 1996 1997 ------------ ------------ ASSETS ------ CURRENT ASSETS: Cash and cash equivalents......................... $ 10,214 $ 1,520 Accounts receivable............................... 456 712 Prepaid expenses and other current assets......... 388 587 Inventories....................................... 51 326 Income taxes receivable........................... -- 966 Deferred income tax asset......................... 860 207 -------- ------- Total current assets............................ 11,969 4,318 Property and equipment, net......................... 22,279 44,786 Restricted cash..................................... 11,546 7,645 Other assets........................................ 1,092 1,407 -------- ------- Total assets.................................... $ 46,886 $58,156 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Notes payable, current............................ $ 73 $ 228 Accounts payable.................................. 680 870 Accrued interest.................................. 817 593 Deferred major event revenues..................... 1,424 1,511 Other accrued liabilities......................... 49 104 -------- ------- Total current liabilities......................... 3,043 3,306 Notes and bonds payable, long term.................. 22,932 23,693 Other long term liabilities......................... -- 200 Deferred income tax liability....................... 928 915 -------- ------- Total liabilities............................... 26,903 28,114 -------- ------- Series B mandatorily redeemable convertible preferred stock, 250,000 shares issued and outstanding at November 30, 1996................... 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, 4,648,000 and 3,641,000 shares issued and outstanding as of November 30, 1997 and November 30, 1996, respectively.................... 15,673 26,536 Retained earnings................................... 2,193 3,864 Shareholders' notes................................. (383) (358) -------- ------- Total shareholders' equity...................... 17,483 30,042 -------- ------- Total liabilities and shareholders' equity...... $ 46,886 $58,156 ======== =======
The accompanying notes are an integral part of these consolidated balance sheets. F-3 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED NOVEMBER 30, 1997, THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996, AND THE YEAR ENDED JUNE 30, 1996
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997 ------------- ----------------- ----------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Major event revenues Admissions............... $ 5,552 $ -- $ 12,166 Sponsorships............. 3,033 -- 4,049 Ancillary................ 3,892 -- 8,255 --------- --------- --------- Total major event revenues.............. 12,477 -- 24,470 Other operating revenues... 2,774 1,960 6,439 --------- --------- --------- Total revenues......... 15,251 1,960 30,909 --------- --------- --------- Expenses: Major event expenses....... 7,208 -- 15,089 Other operating expenses... 1,971 1,010 2,491 General and administrative. 3,232 2,295 8,074 Depreciation............... 451 668 1,455 --------- --------- --------- Total expenses......... 12,862 3,973 27,109 --------- --------- --------- Income (loss) from operations.................. 2,389 (2,013) 3,800 Other income (expense): Interest income............ 119 647 626 Interest expense, net of capitalized interest of $772 for the year ended November 30, 1997, $186 for the five month period ended November 30, 1996 and $0 for the year ended June 30, 1996............. (174) (764) (1,435) Other, net................. (59) (10) 41 --------- --------- --------- Total other income (expense)............. (114) (127) (768) --------- --------- --------- Income (loss) before (provision) benefit for income taxes................ 2,275 (2,140) 3,032 (Provision) benefit for income taxes................ (955) 797 (1,273) --------- --------- --------- Net income (loss)............ 1,320 (1,343) 1,759 Dividends on Series B mandatorily redeemable convertible preferred stock. -- (44) (88) --------- --------- --------- Net income (loss) applicable to common stockholders...... $ 1,320 $ (1,387) $ 1,671 ========= ========= ========= Income (loss) per share...... $ 0.62 $ (0.38) $ 0.42 ========= ========= ========= Weighted average number of common and common equivalent shares outstanding.......... 2,137,351 3,640,574 4,007,500 ========= ========= =========
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 YEAR ENDED NOVEMBER 30, 1997, THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996, AND THE YEAR ENDED JUNE 30, 1996 (IN THOUSANDS)
PREFERRED COMMON STOCK STOCK --------------- ------------- RETAINED SHAREHOLDERS' SHARES AMOUNT SHARES AMOUNT EARNINGS NOTES TOTAL ------ ------- ------ ------ -------- ------------- ------- BALANCE, June 30, 1995.. 1,956 $ 1,385 -- $ -- $ 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 cost 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 15,673 -- -- 3,580 (383) 18,870 Net loss.............. -- -- -- -- (1,343) -- (1,343) Dividends paid........ -- -- -- -- (44) -- (44) ----- ------- ---- ------ ------- ----- ------- BALANCE, November 30, 1996................... 3,641 15,673 -- -- 2,193 (383) 17,483 Cash received on shareholders' notes.. -- -- -- -- -- 25 25 Exercise of common stock options........ 127 139 -- -- -- -- 139 Tax benefit from exercise of stock options.............. -- 609 -- -- -- -- 609 Private placement of common stock, net of issuance costs of $159.............. 630 7,615 -- -- -- -- 7,615 Conversion of Series B preferred stock to common stock......... 250 2,500 -- -- -- -- 2,500 Net income............ -- -- -- -- 1,759 -- 1,759 Dividends paid........ -- -- -- -- (88) -- (88) ----- ------- ---- ------ ------- ----- ------- BALANCE, November 30, 1997................... 4,648 $26,536 -- $ -- $ 3,864 $(358) $30,042 ===== ======= ==== ====== ======= ===== =======
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 YEAR ENDED NOVEMBER 30, 1997, THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996, AND THE YEAR ENDED JUNE 30, 1996 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS)
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997 ------------- ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................... $ 1,320 $ (1,343) $ 1,759 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation................ 451 668 1,455 Amortization of deferred financing costs............ -- 30 98 Interest earned on restricted cash............ -- (400) (312) Gain on sale of assets...... (1) (2) -- Tax benefit from exercise of employee stock options.. -- -- 609 Changes in assets and liabilities: Accounts receivable....... (249) 421 (256) Income taxes receivable... -- -- (966) Notes receivable.......... (3) -- -- Other current assets...... (80) (100) (474) Other assets.............. -- 50 (153) Accounts payable.......... 1,323 (1,943) 190 Other accrued liabilities.............. -- -- 55 Accrued interest.......... -- 817 (224) Deferred major event revenues................. -- 1,424 87 Income taxes payable...... (129) -- -- Deferred income taxes..... (2) (786) 640 -------- -------- -------- Net cash provided by (used in) operating activities... 2,630 (1,164) 2,508 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures......... (2,400) (11,774) (23,762) Memphis acquisition.......... (2,604) -- -- Restricted cash--construction fund........................ (17,124) 11,036 4,213 Cash received for sale of assets...................... 4 10 -- Other........................ -- -- (260) -------- -------- -------- Net cash used in investing activities................. (22,124) (728) (19,809) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under notes payable..................... 16 -- 1,027 Repayment under notes payable..................... (217) (158) (111) Borrowings under loans payable..................... 21,460 -- -- Repurchase of common stock... (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, net........ 2,330 -- -- Proceeds from initial public offering, net............... 11,934 -- -- Dividends.................... -- (44) (88) Exercise of stock options.... -- -- 139 Proceeds from private placement of common stock, net......................... -- -- 7,615 Shareholders' notes.......... 16 -- 25 -------- -------- -------- Net cash (used in) provided by financing activities.... 29,431 (202) 8,607 -------- -------- -------- Net increase (decrease) in cash........................ 9,937 (2,094) (8,694) Cash and cash equivalents at beginning of period......... 2,371 12,308 10,214 -------- -------- -------- Cash and cash equivalents at end of period............... $ 12,308 $ 10,214 $ 1,520 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest.................... $ 174 $ 60 $ 2,412 Income taxes................ $ 960 $ 199 $ 944 Cash received during the period for: Interest.................... $ 119 $ 622 $ 624 DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: Intangible recorded on issuance of common stock for minority interest in subsidiaries................ $ 25 $ -- $ -- Series B preferred stock issued for Memphis acquisition................. $ 2,500 $ -- $ -- Conversion of Series B preferred stock to common shares...................... $ -- $ -- $ 2,500 Financing of property and equipment................... $ -- $ -- $ 200
F-6 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 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") Gateway International Services Corporation Memphis International Motorsports Corporation ("Memphis") Motorsports Services Corporation of Memphis 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............. (805) Net loss......................................... (467) Loss per share................................... (0.23) 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. 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 (SFAS) No. 95, "Statement of Cash Flows". The Company considers all short term investments with a maturity at the date of purchase of three months or less to be cash equivalents. F-7 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, 1997, the uninsured portion of these balances held at banks aggregated $5,527,000. In addition, the Company has established certain restricted cash funds which are held by a trustee. See Note 3 for details. 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 (39% and 72% for the years ended November 30, 1997 and June 30, 1996, respectively) was realized in connection with the annual Grand Prix race (normally in April) in Long Beach, California. The Company has an agreement with the City of Long Beach to conduct open wheel racing one weekend a year through June 30, 2010. The Company has been conducting Championship Auto Racing Teams, Inc. ("CART") sanctioned Indy car events since 1984 and currently has an agreement which (including the option periods) expires in April 2000. For the year ended November 30, 1997 the Motorola 300 held at Gateway International Raceway accounted for 11% of revenues. The Company has an agreement with CART to conduct this event through November 30, 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 developing other racing venues and other ancillary revenue sources in order to reduce the Company's reliance on the Grand Prix. INVENTORIES Inventories are stated at the lower of cost (first in, first out) or market and consist principally of merchandise held for resale. 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 one-half years. Betterment's, renewals and extraordinary repairs that extend the life of an asset are capitalized. Other repairs and maintenance costs are expensed. 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. Amortization expense totaled $98,000 and $30,000 for the year ended November 30, 1997 and the five month transition period, ended November 30, 1996 respectively. INCOME TAXES The Company accounts for income taxes using the liability method as required by SFAS No. 109, "Accounting for Income Taxes". 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 F-8 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 November 30, 1997 and June 30, 1996 amounted to $518,000 and $137,000, 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. 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 treated as if 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 year ended June 30, 1996 by 62,500 shares. Stock options and warrants were not included in the weighted average shares for the five month period ended November 30, 1996 as they were anti-dilutive. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS In March 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share" and SFAS No. 129, "Disclosure of Information about Capital Structure". SFAS No. 128 is effective for both interim and annual periods ending after December 15, 1997 and SFAS No. 129 is effective for periods ending after December 15, 1997. F-9 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of An Enterprise and Related Information" which are effective for the financial statements for periods beginning after December 15, 1997. Management has not determined the effect of the adoption of these pronouncements on the Company's financial statements. NOTE 2--ACQUISITIONS: 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 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 these financial statements from June 1, 1996 forward. Unaudited pro forma results of operations of the Company assuming this transaction, the private placement of Series A Preferred Stock as discussed in Note 6, and the SWIDA loan discussed in Note 5 had all taken place effective as of July 1, 1995 are as follows:
YEAR ENDED JUNE 30, 1996 ----------- Revenues..................................................... $16,416,000 Net loss..................................................... (38,000) Pro forma loss per share..................................... (0.01) Pro forma weighted average number of common shares outstanding................................................. 3,939,000
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 Trust Company) and as required by the terms of its $7,615,000 private placement (See Note 6) and consist of the following as of November 30, 1997 and 1996:
NOVEMBER NOVEMBER 30, 30, 1996 1997 ----------- ------------ Debt service reserve fund......................... $ 2,561,000 $ 2,524,000 Interest fund..................................... 2,609,000 511,000 Construction fund................................. 6,376,000 1,000 Ticket surcharge fund............................. -- 269,000 Private placement restricted funds................ -- 4,340,000 ----------- ----------- $11,546,000 $ 7,645,000 =========== ===========
These funds are primarily invested in cash equivalents. The proceeds from the issuance of common stock during the year ended November 30, 1997 must be used to develop the company's facilities at Gateway and Memphis and to obtain additional sanctioned events. On January 23, 1998, Gateway International Motorsports Corporation signed a Reimbursement Agreement with First Tennessee Bank whereby the bank provided an irrevocable standby letter of credit to secure the debt reserve fund established pursuant to Gateway's agreement with SWIDA. In furtherance of the Reimbursement Agreement and concurrent therewith, the Company and each of its subsidiaries signed Guaranty Agreements, and Memphis International Motorsports Corporation signed a Trust Deed on its properties to secure repayment of the letter of credit. F-10 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--PROPERTY AND EQUIPMENT: Property and equipment as of November 30, 1997 and 1996 consist of the following:
NOVEMBER 30, NOVEMBER 30, 1996 1997 ------------ ------------ Buildings...................................... $ 3,841,000 $14,996,000 Safety systems and materials................... 4,041,000 6,834,000 Land........................................... 2,827,000 3,273,000 Vehicles and equipment......................... 1,585,000 2,514,000 Facilities..................................... 5,855,000 16,489,000 Office furniture and fixtures.................. 882,000 1,779,000 Equipment...................................... 704,000 1,100,000 Construction in process........................ 6,142,000 2,475,000 Other.......................................... 781,000 1,160,000 ----------- ----------- 26,658,000 50,620,000 Less: accumulated depreciation................. (4,379,000) (5,834,000) ----------- ----------- $22,279,000 $44,786,000 =========== ===========
The cost of fully depreciated property included above is $1,664,000 and $1,465,000 at November 30, 1997 and 1996, respectively. Construction in process relates to the redevelopment of Gateway International Raceway and Memphis Motorsports Park. F-11 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--NOTES AND LOANS PAYABLE: Notes and loans payable as of November 30, 1997 and 1996 are as follows:
NOVEMBER NOVEMBER 30, 1996 30, 1997 ----------- ----------- SWIDA loan for Gateway redevelopment, net of $40,000 original issue discount (see below)................. $21,460,000 $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 (10.50% at November 30, 1997); 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................................................ 775,000 771,000 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............ 673,000 651,000 Other................................................ 97,000 1,039,000 ----------- ----------- 23,005,000 23,921,000 Less: current portion................................ (73,000) (228,000) ----------- ----------- $22,932,000 $23,693,000 =========== ===========
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 F-12 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 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. 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 taxes 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. Aggregate annual maturities of long term debt are as follows:
YEARS ENDING NOVEMBER 30, ------------ 1998................................ $ 228,000 1999................................ 130,000 2000................................ 749,000 2001................................ 695,000 2002................................ 1,440,000 Thereafter........................... 20,679,000 ----------- $23,921,000 ===========
The carrying values of long term debt approximate 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 presented in these financial statements 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 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 with the remainder being used for the redevelopment at Gateway, the improvements at Memphis and general corporate purposes. F-13 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company received $7,615,000, net of issuance costs of $159,000, from a private placement sale of 630,000 shares of Common stock during the year ended November 30, 1997. The proceeds from the issuance of this stock must be used to develop the company's facilities at Gateway and Memphis and to obtain additional sanctioned events NOTE 7--MANDATORILY REDEEMABLE PREFERRED STOCK: On June 28, 1996, the Company issued 250,000 shares of Series B Convertible Preferred stock which was 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 stock was issued with a cumulative 4.185% dividend rate payable quarterly. The preferred stock was converted to common stock in October 1997 on a one for one basis. Dividends paid while these shares were outstanding totaled $88,000 and $44,000 for the year ended November 30, 1997 and the five month period ended November 30, 1996, respectively. 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 options being pledged as collateral for these notes. The notes bear interest at 6.5% with interest only payable annually through December 1997. The Company granted options to purchase 602,451 shares of Common stock pursuant to the Company's 1993 Stock Option Plan (the 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. The options granted under the Plan vest over a five year period and must be exercised by December 13, 2003. As of November 30, 1997 approximately 257,270 shares have vested and are exercisable. An additional 127,723 options that were vested were exercised during the year ended November 30, 1997. An additional 12,691 non-vested options were forfeited in 1997 upon the resignation of an employee. 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 (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. 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. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its fixed stock option plans. Accordingly, no compensation cost has been recognized. In fiscal year 1996 the Company adopted the disclosure method as permitted under SFAS No. 123, "Accounting for Stock-Based Compensation. The adoption of SFAS 123 has had no impact on the Company as there have been no options granted subsequent to June 30, 1995. F-14 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 9--INCOME TAXES: The provisions (benefit) for income taxes for the years ended November 30, 1997 and June 30, 1996 and the five month transition period ended November 30, 1996 are as follows:
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997 ------------- ----------------- ----------------- Taxes currently payable (receivable): Federal............... 744,000 $ (22,000) $ 512,000 State................. 213,000 11,000 121,000 -------- --------- ---------- 957,000 (11,000) 633,000 Taxes applicable to temporary differences.. (2,000) (786,000) 640,000 -------- --------- ---------- Provision (benefit) for income taxes........... $955,000 $(797,000) $1,273,000 ======== ========= ==========
The provisions (benefit) for income taxes for the year ended November 30, 1997, the five month transition period ended November 30, 1996 and the year ended June 30, 1996 result in effective tax rates of 42%, 37% and 42%, respectively.
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997 ------------- ------------------ ----------------- Federal income tax rate. 34% (34)% 34% State income tax, net of federal tax effect............. 6% (4)% 6% Effect of permanent dis- allowable deductions............. 2% 1% 2% --- ---- --- Effective tax rate...... 42% (37)% 42% === ==== ===
Temporary differences which give rise to a significant portion of deferred taxes as of November 30, 1997 and 1996 are:
NOVEMBER 30, ------------------------- 1996 1997 ----------- ----------- Deferred tax assets: Net operating losses.............................. $ 793,000 $ 1,391,000 Reserves and other................................ 118,000 207,000 Depreciation on property.......................... 152,000 -- ----------- ----------- 1,063,000 1,598,000 ----------- ----------- Deferred tax liabilities: Reserves and other................................ (51,000) (50,000) Depreciation and deferred gain on property........ (1,080,000) (2,256,000) ----------- ----------- (1,131,000) (2,306,000) ----------- ----------- Net deferred tax liability.......................... $ (68,000) $ (708,000) =========== ===========
NOTE 10--COMMITMENTS AND CONTINGENCIES: The Company leases certain property at Gateway 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 $162,000 for the year ended November 30, 1997, $50,000 for the five month transition F-15 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) period ended November 30, 1996 and $84,000 for the year ended June 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 purchase option, these payments will be applied toward reducing the Company's rent payments after 2015 at the rate of $1,000 per month. The Company leases office space under a non-cancelable operating lease through December 1999 for its box office operations. The rental payment 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 $10,000 for the year ended November 30, 1997, $4,000 for the five month transition period ended November 30, 1996 and $9,000 for the year ended June 30, 1996. The minimum lease payments due under the aforementioned leases are as follows: 1998........................................................... $ 294,000 1999........................................................... 273,000 2000........................................................... 251,000 2001........................................................... 235,000 2002........................................................... 209,000 Thereafter..................................................... 4,738,000
The Company has entered into several sanctioning agreements to conduct various race competitions in Long Beach, at Gateway and at Memphis. These contracts expire between 1997 and 2000 with certain options to extend thereafter. In connection with the major events, fixed commitments related to various contracts in place, including sanctioning fees and municipal facilities and services among others, require the following minimum payments as of November 30, 1997: 1998.......................................................... $6,956,000 1999.......................................................... 2,352,000 2000.......................................................... 2,123,000 2001.......................................................... 60,000 2002.......................................................... 60,000 Thereafter.................................................... 480,000
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 called for an annual minimum 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, 1997 are as follows: 1998............................................................ $411,000 1999............................................................ 412,000 2000............................................................ 412,000 2001............................................................ 188,000
F-16 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--RELATED PARTIES: During the years ended November 30, 1997 and June 30, 1996, the Company purchased merchandise for resale from a company owned by a director valued at approximately $38,000 and $12,000 respectively. There were no such purchases during the five month period ended November 30, 1996. During the years ended November 30, 1997 and June 30, 1996 the Company purchased merchandise for resale from a company owned by the daughter and son- in-law of a director valued at approximately $176,000 and $5,000 respectively. 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. In addition, during the year ended November 30, 1997, the Company purchased manufacturing equipment from the same company in the amount of $134,000. Included in accounts receivable as of November 30, 1997 and 1996 is $15,000 and $8,500, respectively, due from directors and officers and primarily represents interest due on the shareholders' notes. 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. Contributions made by the Company to the Plan were $25,000 for the year ended November 30, 1997, $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. For the year ended June 30, 1996 $422,000 was distributed pursuant to the Company's Bonus Plan. There were no distributions under the Bonus Plan for the five month transition period ended November 30, 1996 or for the year ended November 30, 1997. 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 $49,000, $5,000 and $50,000 for such plans in the year ended November 30, 1997, the five month transition period ended November 30, 1996, and the year ended June 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-17 EX-10.39 2 REIMBURSEMENT AGREEMENT DATED JANUARY 1, 1998 EXHIBIT 10.39 ================================================================================ REIMBURSEMENT AGREEMENT BETWEEN FIRST TENNESSEE BANK NATIONAL ASSOCIATION, CREDIT BANK AND GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, ACCOUNT PARTY DATED AS OF JANUARY 1, 1998 _______________________________ ================================================================================ TABLE OF CONTENTS ----------------- (This Table of Contents is not a part of the Reimbursement Agreement and is only for convenience of reference.)
Page ---- ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms.............................. 1 Section 1.2 Construction....................................... 7 ARTICLE II LETTER OF CREDIT Section 2.1 Agreement to Issue Letter of Credit................ 7 Section 2.2 Reinstatement of Letter of Credit.................. 7 Section 2.3 Reduction in Amount of Letter of Credit............ 8 Section 2.4 Obligations........................................ 8 Section 2.5 Obligations Absolute............................... 9 Section 2.6 Fees and Commissions............................... 9 Section 2.7 Increased Costs Due to Change in Law............... 10 Section 2.8 Waivers............................................ 10 Section 2.9 Payment of Expenses, Etc........................... 10 Section 2.10 Actions Relating to Letter of Credit; Indemnity.... 11 Section 2.11 Waiver of Right of Setoff.......................... 12 ARTICLE III COLLATERAL SECURITY Section 3.1 Security Interest.................................. 13 ARTICLE IV CONDITIONS PRECEDENT Section 4.1 Opinion of Counsel to the Corporation.............. 13 Section 4.2 Opinion of Bond Counsel............................ 13 Section 4.3 Required Acts and Conditions....................... 13 Section 4.4 No Default......................................... 13 Section 4.5 Representations and Warranties..................... 14 Section 4.6 Certificate of Compliance.......................... 14 Section 4.7 Delivery of the Related Documents.................. 14 Section 4.8 Filings and Recordings............................. 14
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Page ---- Section 4.9 Proceedings........................................ 14 Section 4.10 Title Insurance.................................... 14 Section 4.11 Other Insurance.................................... 14 ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.1 Due Organization, Etc.............................. 15 Section 5.2 Due Authorization, Etc............................. 15 Section 5.3 Approvals.......................................... 15 Section 5.4 Enforceability..................................... 15 Section 5.5 Litigation......................................... 15 Section 5.6 Title to Property.................................. 16 Section 5.7 Compliance with Laws and Contracts................. 16 Section 5.8 Related Documents.................................. 16 Section 5.9 [RESERVED]......................................... 16 Section 5.10 No Misleading Statements........................... 16 Section 5.11 No Burdensome Restrictions......................... 16 Section 5.12 Taxes.............................................. 16 Section 5.13 Leases............................................. 17 Section 5.14 Financial Condition................................ 17 Section 5.15 No Default......................................... 17 Section 5.16 ERISA.............................................. 17 Section 5.17 Environmental and Other Conditions................. 17 Section 5.18 Guarantor.......................................... 18 Section 5.19 Place of Business.................................. 18 Section 5.20 Capital Adequacy................................... 18 ARTICLE VI AFFIRMATIVE COVENANTS Section 6.1 Business and Existence............................. 18 Section 6.2 Maintain Property.................................. 18 Section 6.3 Insurance on Properties............................ 19 Section 6.4 Obligations, Taxes and Liens....................... 19 Section 6.5 Financial Reports and Other Data................... 20 (a) Quarterly Statements............................... 20 (b) Annual Statements.................................. 20 Section 6.6 Notice of Default.................................. 21 Section 6.7 Additional Information............................. 21 Section 6.8 Right of Inspection................................ 21
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Page ---- Section 6.9 Compliance with Laws, Etc.......................... 21 Section 6.10 Certain Notices.................................... 21 Section 6.11 Environmental Laws................................. 22 Section 6.12 Related Documents.................................. 22 Section 6.13 Notice of Adverse Change in Assets................. 22 Section 6.14 Current Ratio...................................... 22 Section 6.15 Net Worth.......................................... 22 Section 6.16 Interest Coverage Ratio............................ 22 Section 6.17 Debt Coverage Ratio................................ 22 ARTICLE VII NEGATIVE COVENANTS Section 7.1 Amendments......................................... 22 Section 7.2 Indebtedness....................................... 23 Section 7.3 Liens.............................................. 23 Section 7.4 Guaranties......................................... 24 Section 7.5 Sale of Assets..................................... 25 Section 7.6 [RESERVED]......................................... 25 Section 7.7 Loans and Investments.............................. 25 Section 7.8 New Business....................................... 25 Section 7.9 [RESERVED]......................................... 25 Section 7.10 [RESERVED]......................................... 25 Section 7.11 Loans to Officers and Employees.................... 25 Section 7.12 Trademarks and Trade Names......................... 25 Section 7.13 Debt to Worth Ratio................................ 25 Section 7.14 [RESERVED]......................................... 25 Section 7.15 [RESERVED]......................................... 25 Section 7.16 Contingent Obligations............................. 26 Section 7.17 Accounting Methods................................. 26 Section 7.18 Fiscal Year........................................ 26 Section 7.19 Management......................................... 26 Section 7.20 Name Change........................................ 26 ARTICLE VIII EVENTS OF DEFAULT Section 8.1 Events of Default.................................. 26 Section 8.2 Remedies........................................... 29 Section 8.3 Additional Remedies................................ 29
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Page ---- ARTICLE IX MISCELLANEOUS Section 9.1 Amendment and Waiver............................... 30 Section 9.2 Governing Law...................................... 30 Section 9.3 Notices............................................ 30 Section 9.4 Waiver............................................. 30 Section 9.5 Headings........................................... 30 Section 9.6 Benefit of Agreement............................... 31 Section 9.7 Counterparts....................................... 31 Section 9.8 Authority to File Notices.......................... 31 Section 9.9 Actions............................................ 31 Section 9.10 Participations..................................... 31 Section 9.11 Term of Agreement.................................. 31 Section 9.12 Severability....................................... 31 Section 9.13 Entire Agreement................................... 32
iv REIMBURSEMENT AGREEMENT ----------------------- THIS REIMBURSEMENT AGREEMENT is made and dated as of January 1, 1998, between GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois corporation (the "Corporation"), and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"). Unless otherwise indicated, all capitalized terms used herein shall take the meaning given them in Article I. A. The Corporation has requested that the Bank issue the Letter of Credit to replace an existing Debt Service Reserve Fund held by the Trustee for the benefit of the holders of the Bonds. B. The Bank has agreed to issue the Letter of Credit on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- Section 1.1 Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings: "Agreement" shall mean this Reimbursement Agreement, as the same may be amended, supplemented or otherwise modified. "Auditors" shall mean independent certified public accountants selected by Corporation and reasonably acceptable to Bank. "Bank" shall mean First Tennessee Bank National Association, a national banking association. "Bankruptcy Law" shall mean Title 11, U.S. Code, as amended or supplemented, any successor statute thereto, or any similar federal, state or foreign law for the relief of debtors. "Bond Counsel" means any firm of nationally-recognized bond counsel familiar with the transactions contemplated under the Indenture and acceptable to the Trustee and the Bank. "Bonds" shall mean those certain Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway International Motorsports Corporation Project) in the original aggregate principal amount of Twenty-One Million Five Hundred Thousand Dollars ($21,500,000.00) issued pursuant to the terms of the Indenture. "Business Day" shall mean a day other than a Saturday or Sunday on which the New York Stock Exchange is open for the transaction of business and on which the Bank and the Trustee are open for the purpose of conducting business. "Capitalized Leases" shall mean capital leases and subleases, as defined in the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 13, dated November 1976, as amended. "Closing Date" shall mean the date the Letter of Credit is issued. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean any and all of the Corporation's property, real or personal, tangible or intangible, which is pledged, mortgaged and hypothecated, now or at any time hereafter, to secure the Corporation's Obligations hereunder. "Commitment Letter" means the letter agreement dated September 11, 1997 between the Bank and the Corporation. "Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Debt, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, Securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by Corporation in good faith. "Corporation" shall mean Gateway International Motorsports Corporation, an Illinois corporation. "Current Ratio" shall mean (a) the sum of current assets plus restricted cash (excluding cash held by trustees for the purpose of paying long term liabilities), divided by (b) current liabilities less deferred revenue. -2- "Debt" shall mean, at any time, the following for Corporation and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP: (i) Capitalized Leases, (ii) debt created, issued, guaranteed, incurred or assumed, or subject to which Property is acquired by Corporation or any of its Subsidiaries for money borrowed or for the deferred purchase price of Property or services purchased, and (iii) obligations of Corporation or any Subsidiary in respect of letters of credit, acceptances or similar obligations issued or created for the account of Corporation or any Subsidiary. "Debt to Worth Ratio" shall mean a ratio of total liabilities to Net Worth. "Default" shall mean any event which with notice or lapse of time, or both, or the happening of any further condition, event or act, would become an Event of Default. "Deferred Costs" shall mean deferred costs, as determined in accordance with GAAP, and shall include other items generally defined under GAAP and designated as goodwill, intangibles, franchises, deferred development costs (excluding Depreciation and amortization, but including deferred loan expense), deferred charges, and other items generally classified as intangibles and other assets and deferred charges. "Depreciation" shall mean depreciation and amortization expenses and other non-cash charges (excluding from this calculation any change in deferred taxes, but including any amortization of Deferred Costs) as determined in accordance with GAAP. "Drawing" means a drawing made by sight draft accompanied by a certificate in the form of EXHIBIT "A" to the Letter of Credit, to pay the Trustee any amount up to the Stated Amount which the Trustee is entitled, under the Indenture, to draw from the Debt Service Reserve Fund. "Environmental Laws" means all local, state or federal laws, rules or regulations pertaining to environmental regulation, contamination or cleanup, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976 or any state lien or superlien or environmental cleanup statutes. "Event of Default" shall mean the events described in Section 8.1 hereof. "Fiscal Year" shall designate the fiscal year of the Corporation ending each November 30. "Funded Debt" shall mean any Debt which is due one year or more from the date of determination or which may be renewed or extended at the option of the obligor to a date one year or more from the date of determination. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. -3- "Group" means Corporation and the Guarantors. "Guarantor" means collectively Grand Prix Association of Long Beach, Inc., Gateway International Services Corporation, Memphis International Motorsport Corporation, Motorsports Services Corporation of Memphis, Del Mar Race Management Inc. and Automotive Safety & Transportation Systems, Inc., each as guarantor under its respective Guaranty Agreement. "Guaranty Agreement" means the individual guaranty agreement of even date herewith of each Guarantor of the Corporation's obligations hereunder. "Hazardous Substances" shall mean and include all hazardous and toxic substances, wastes or materials, any pollutants or contaminants (including, without limitation, asbestos and raw materials which include hazardous constituents), or any other similar substances or materials which are included under or regulated by any Environmental Laws. "Indebtedness" of any Person shall mean all items of indebtedness which, in accordance with generally accepted accounting principles, would be included in determining liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which indebtedness is to be determined and shall include all indebtedness and liabilities of others assumed or guaranteed by such Person or in respect of which such Person is secondarily or contingently liable (other than by endorsement of instruments in the course of collection) whether by reason of any agreement to acquire such indebtedness or to supply or advance sums or otherwise. "Indenture" shall mean the Indenture of Mortgage and Trust, dated as of May 1, 1996, between the Issuer and Magna Trust Company as the original Trustee pursuant to which the Bonds were issued. "Intangible Assets" shall have the meaning assigned to that term under GAAP. "Interest Coverage Ratio" shall mean earnings prior to interest expense, depreciation amortization and taxes, divided by interest expense. "Issuer" shall mean The Southwestern Illinois Development Authority and its lawful successors and assigns. "Laws" shall mean all statutes, laws, ordinances, regulations, orders, writs, injunctions, or decrees of the United States, any state or commonwealth, any municipality, any foreign country, any territory or possession, or any Tribunal. "Letter of Credit" shall mean the Bank's irrevocable letter of credit in substantially the form of EXHIBIT "A" hereto, as the same may be extended, amended, supplemented or otherwise modified, and any substitute therefor or replacement thereof issued by the Bank. -4- "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or any agreement to give any financing agreement under the Uniform Commercial Code or comparable law of any jurisdiction). "Material Adverse Change or Effect" shall mean any act or circumstance or event which (i) causes an Event of Default or Default, (ii) otherwise might be material and adverse to the consolidated financial condition or business operations of Borrower and its Subsidiaries, or (iii) in any manner whatsoever could adversely affect the validity or enforceability of this Agreement. "Mortgage" shall mean that certain deed of trust, security agreement and assignment of rents and leases, dated as of January 1, 1998, from Memphis International Motorsports Corporation to the Bank securing the Obligations, as the same may be supplemented, amended or modified. "Net Worth" means the excess of the book value of the assets of the Borrower over its liabilities calculated in accordance with generally accepted accounting principles, provided, however, that in performing such calculation there shall be (a) excluded from the assets of the Borrower (i) any amount in respect of goodwill, (ii) any amounts owed to Borrower by a Related Person, and (iii) any amounts owed to Borrower by an employee of Borrower or of any Related Person, and (b) included, as equity, any indebtedness owed by Borrower to any Person which indebtedness has, by formal, binding agreement (in form and substance satisfactory to Bank) been deferred and subordinated in priority of payment to the indebtednesses and obligations of Borrower to Bank. "Obligations" shall mean all obligations of the Corporation or any Guarantor to the Bank hereunder and under the Related Documents, whether monetary or nonmonetary, now or hereafter existing. "Paying Agent" shall mean the Trustee or any Paying Agent appointed and serving in such capacity pursuant to the Indenture. "Permitted Encumbrances" shall mean those Liens described in Section 7.3 hereof. "Person" shall mean and include any individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, a government or any department or agency thereof or any other entity. "Project" shall mean the 375 acre racetrack facility owned by Memphis International Motorsports Corporation in Millington, Tennessee pledged to secure the Obligations and encumbered by the Mortgage. -5- "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Reimbursement Agreement" shall mean this agreement between the Corporation and the Bank dated as of January 1, 1998 setting forth the terms on which the Bank has agreed to issue the Letter of Credit. "Related Documents" shall mean the Commitment Letter, this Agreement, the Letter of Credit, the Mortgage, the Guaranties and any exhibit, certificate, notice or other written information or document furnished or to be furnished in connection therewith. "Related Person" shall mean Grand Prix Association of Long Beach, Inc. and any other Person (a) which now or hereafter directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Borrower or any of the corporations or Persons named herein, or (b) which now or hereafter beneficially owns or holds five percent (5%) or more of the capital stock of any of the corporations named herein, or (c) five percent (5%) or more of the capital stock, partnership interest or other form of ownership interest of which is beneficially owned or held by Borrower or any of the corporations or Persons named herein. For the purposes hereof, "control" shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting stock or interests, by contract or otherwise. "Restricted Payment" shall mean any distribution or other dividend of cash or property to any owners of any shares of the stock of the Corporation and its Subsidiaries (except to the Corporation or its Subsidiaries by its or their Subsidiary), or any redemption, retirement, purchase or other acquisition, directly or indirectly, of any shares of any class of any capital stock of the Corporation or its Subsidiaries, now or hereafter outstanding. "Security" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Stated Amount" means Two Million Three Hundred Thousand Dollars ($2,300,000.00). "Subsidiary" shall mean as to any Person, any corporation of which more than five percent (5.0%) of the outstanding stock having ordinary voting power (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Corporation. "Title Policy" shall mean an ALTA lender's extended coverage policy of title insurance on the property encumbered by the Indenture in form and substance satisfactory to the Bank, in the amount of Two Million Three Hundred Thousand Dollars ($2,300,000) for the benefit of the Bank, issued by a title company satisfactory to the Bank, subject only to those exceptions -6- approved by the Bank in writing, together with any endorsements required by the Bank (including, but not limited to, a future advances endorsement) insuring the lien created by the mortgage. "Tribunal" shall mean any state, commonwealth, federal, foreign, territorial, or other court or governmental department, commission, board, bureau, agency or instrumentality. "Trustee" shall mean Magna Bank, N.A. as successor trustee to Magna Trust Company and such successors and assigns as are permitted under the Indenture. Section 1.2 Construction. (a) The definitions set forth in Section 1.1 ------------ shall be equally applicable to both the singular and the plural forms of the terms therein defined and shall cover all genders. "Herein," "hereby," "hereunder," "hereof," "hereinbefore," "hereinafter" and other equivalent words refer to this Agreement and not solely to the particular Article, Section or subdivision hereof in which such word is used. Reference herein to an Article or Section number (e.g., Section 6.2) shall be construed to be a reference to the designated Article number or Section number hereof unless the context or use clearly indicates another or different meaning or intent. (b) Unless otherwise specified herein, all accounting terms used in this Agreement shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP. ARTICLE II LETTER OF CREDIT ---------------- Section 2.1 Agreement to Issue Letter of Credit. The Bank agrees with ----------------------------------- the Corporation, on the terms and subject to the conditions herein set forth, to issue to the Trustee on the Closing Date the Letter of Credit in an amount not to exceed Two Million Five Hundred One Thousand Eight Hundred Twenty-Five Dollars ($2,501,825.00) (the "Stated Amount"). The Letter of Credit will have an initial term beginning on the date of issuance and expiring July 31, 1999, with automatic renewal for successive one year terms (absent ninety (90) days notice to the contrary) and a final expiration date of July 1, 2001 unless otherwise extended. Section 2.2 Reinstatement of Letter of Credit. After any Drawing, the --------------------------------- obligation of the Bank to honor demands for payment under the Letter of Credit with respect to further such drawings will be reinstated up to the total amount specified therein upon receipt by the Bank of payment of all amounts so drawn plus any accrued interest on such amounts [as provided in Section 2.4(f)] due hereunder, provided that the Bank shall have the right to notify the Corporation and the Trustee not later than the tenth (10th) day (or, if such day is not a Business Day, on the next preceding Business Day) following the day on which a payment in respect of a Drawing is made that such reinstatement shall not occur if (i) such drawing or a previous or subsequent drawing has been made under the Letter of Credit for which the Bank has not been -7- reimbursed for amounts then due by the Corporation or (ii) an Event of Default shall have occurred and then be continuing. Section 2.3 Reduction in Amount of Letter of Credit. The total amount --------------------------------------- available under the Letter of Credit will be permanently decreased from time to time upon notice from the Trustee to the Bank of the reduction of the Debt Service Reserve Fund Requirement. Section 2.4 Obligations. The Corporation promises to pay to the Bank at ----------- its office in Memphis, Tennessee, in immediately available funds, the following (the "Obligations"): (a) On each date that any Drawing is made under the Letter of Credit, an amount equal to the amount paid under the Letter of Credit. (b) [RESERVED] (c) on demand, any and all amounts, other than as described in subparagraph (a) of this Section, paid, advanced or incurred by the Bank under this Agreement, the Letter of Credit, the Related Documents or any other instrument or document related hereto or thereto. (d) on demand, all taxes (other than general income taxes), levies, imposts, charges, fees, deductions or withholdings of any nature whatsoever and by whomsoever imposed, paid or incurred by the Bank in connection with this Agreement, the Letter of Credit, the Related Documents or any transactions hereunder or thereunder. (e) on demand, all other amounts, expenses, fees, commissions, advances, liabilities or any other financial accommodations, howsoever arising, owing by the Corporation to the Bank, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising pursuant to the terms of this Agreement, the Letter of Credit, the Related Documents or any other instrument or document related hereto or thereto. (f) on the date of reimbursement or payment to the Bank, interest on the foregoing, from and including the date paid, disbursed, advanced or incurred by the Bank (notice of which shall be given to the Corporation by the Bank promptly after such payment, disbursement or advance by the Bank) at a variable rate per annum (the "Loan Rate") equal to (i) two percent (2.0%) per annum plus (ii) the rate which the Bank establishes from time to time, at its principal offices in Memphis, Tennessee, as its "base commercial rate" (the "Base Rate"). The Base Rate is one of several interest rate indices employed by the Bank. The Corporation acknowledges that the Bank has made, and may hereafter make, loans bearing interest at rates higher or lower than the Base Rate. The rate of interest under this Section 2.4(f) shall be the lesser of the Loan Rate or the maximum rate of interest which may be lawfully charged. In the event a court of competent jurisdiction rules that the Base Rate is invalid, the rate charged under this Section 2.4(f) shall be the lesser of the maximum rate of interest then permissible under the law or a rate of eighteen percent (18%) per annum. Such interest shall be computed on the basis of the actual number of -8- days elapsed over a year of 365 days. Any change in the interest rate resulting from a change in the Base Rate shall be effective on and as of the date of such change without the necessity of notice to the Corporation. Section 2.5 Obligations Absolute. The Obligations shall be absolute, -------------------- unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of this Agreement, the Letter of Credit, the Bonds or of any of the Related Documents; (b) subject to Section 9.1 hereof, any amendment or waiver of or any consent to departure from the terms of this Agreement, the Letter of Credit, the Bonds or any of the Related Documents; (c) the existence of any claim, setoff, defense or other right which the Corporation or any other Person may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any Person for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank, or any other Person, whether in connection with this Agreement, the Letter of Credit, the Bonds, the Related Documents, the Project or any unrelated transaction; (d) any demand, statement or any other document presented under the Letter of Credit proving to be invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever; (e) the surrender or impairment of any security for the performance or observance of any of the terms of this Agreement; or (f) any other circumstance, happening or omission whatsoever, whether or not similar to any of the foregoing. Section 2.6 Fees and Commissions. In consideration of the issuance by -------------------- the Bank of the Letter of Credit, the Corporation agrees to pay to the Bank: (a) simultaneously with the execution of this Agreement, an annual fee in advance in the amount of two percent (2.0%) of the Stated Amount of the Letter of Credit; and (b) on each anniversary of the Closing Date, an annual fee in advance in the amount of two percent (2.0%) of the Stated Amount of the Letter of Credit; and (c) all expenses set forth in Section 2.7, in the manner provided therein. -9- Section 2.7 Increased Costs Due to Change in Law. If any law or ------------------------------------ regulation, any change in any law or regulation, or any interpretation thereof by any court or administrative or governmental authority charged or claiming to be charged with the administration thereof, or any change in generally accepted accounting principles applicable to the Bank, shall (a) impose, modify or make applicable any reserve, special deposit or similar requirement against letters of credit issued by, assets held by, or deposits with or for the account of the Bank or with respect to this Agreement, the Letter of Credit or any Related Document or any transactions hereunder or thereunder, (b) impose on the Bank any other condition regarding this Agreement, the Letter of Credit or any Related Document, or (c) subject the Bank to any tax, charge, fee, deduction or withholding of any kind whatsoever, and the result of any such event, or any similar measure, shall be to increase the cost to the Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be the result of the reasonable allocation by the Bank of the aggregate of such cost increases resulting from such events) or reduce the amount of principal of, interest on, or any fee or compensation receivable by the Bank in respect of, the Letter of Credit or this Agreement, upon demand by the Bank, the Corporation shall promptly pay to the Bank, from time to time as specified by the Bank, such additional amounts as shall, in the reasonable judgment of the Bank, be sufficient to compensate the Bank for such increased costs or reductions together with interest on each such amount from the date demanded until payment in full thereof at the rate set forth in Section 2.4(f) hereof. The obligations of the Corporation under this Section 2.7 shall survive the cancellation or expiration of the Letter of Credit. For the purpose of this Section any reference to the Bank shall be deemed to include any Person to whom the Bank has sold a participation in the Letter of Credit. Section 2.8 Waivers. The Corporation hereby waives (a) presentment, ------- demand, notice of demand, protest, notice of protest, notice of dishonor and notice of nonpayment; (b) except as provided in the Indenture or the Mortgage, the right, if any, to the benefit of, or to direct application of, any security hypothecated to the Bank until all Obligations, howsoever arising, shall have been paid; (c) the right to require the Bank to proceed against the Corporation hereunder, or against any Person under any guaranty or similar arrangement, or under any agreement between the Bank and any Person or to pursue any other remedy in the Bank's power; (d) to the full extent permitted by law, all statutes of limitation; and (e) any defense arising out of the election by the Bank to foreclose on any security by one or more nonjudicial or judicial sales. The Bank may exercise any other right or remedy, even though any such election operates to impair or extinguish the Corporation's right to reimbursement from, or any other right or remedy it may have against, any Person, or any security. The Corporation agrees that the Bank may proceed against the Corporation or any Person directly and independently of any other, and that any forbearance, change of rate of interest, or acceptance, release or substitution of any security, guaranty, or loan or change of any term or condition hereunder or under the Letter of Credit or any Related Document shall not in any way affect the liability of the Corporation hereunder. Section 2.9 Payment of Expenses, Etc. The Corporation agrees to pay on ------------------------- demand, whether or not the transactions hereby contemplated shall be consummated, all reasonable out-of-pocket costs and expenses (including in each case, without limitation, fees and expenses -10- of counsel for the Bank with respect thereto and with respect to advising the Bank as to its rights and responsibilities hereunder) paid or incurred by the Bank or any Person to whom the Bank has sold a participation in the Letter of Credit in connection with (a) the preparation, review, execution, delivery and administration of this Agreement, the Letter of Credit and any Related Document or otherwise arising in connection with this Agreement, the Letter of Credit or any Related Document, (b) any amendments, consents or waivers to this Agreement, the Letter of Credit or any Related Document, (c) the protection of the rights of the Bank under this Agreement, the Letter of Credit and the Related Documents, (d) the enforcement of this Agreement or any Related Document, whether by judicial proceedings or otherwise, (e) the enforcement of payment of all Obligations by any action or participation in, or in connection with, a case or a proceeding under the Bankruptcy Law, (f) all stamp, documentary and other taxes and fees (including interest and penalties, if any) which may be payable in connection with the execution, delivery, filing and recording of this Agreement or any Related Document, and (g) the administration of this Agreement, including fees and expenses of a consulting architect and/or engineer of the Bank's choice to review plans and specifications and for inspection services during the course of construction, if required by the Bank in its sole discretion. The Corporation agrees to indemnify, defend and hold the Bank, and each Person to whom the Bank has sold a participation in the Letter of Credit, harmless from and against all liability (including, without limitation, interest, penalties and attorneys' fees and expenses) to which it may become subject insofar as such liability arises out of or is based upon a suit or proceeding or governmental action brought or taken in connection with the Project, the issuance of the Bonds or the use (or the proposed or potential use) of the proceeds of any drawing under the Letter of Credit. The obligations of the Corporation hereunder shall survive the cancellation or expiration of the Letter of Credit and payment of the Bonds. Section 2.10 Actions Relating to Letter of Credit; Indemnity. (a) Any ----------------------------------------------- action taken or omitted by the Bank under or in connection with this Agreement, the Letter of Credit or any Related Document, if taken or omitted in good faith, shall be binding upon the Corporation and shall not put the Bank under any resulting liability to the Corporation. Without limiting the generality of the foregoing, the Bank shall be protected in relying upon a duly executed instrument of transfer in the form attached as an annex to the Letter of Credit. (b) The Bank may, under the Letter of Credit, receive, accept and pay any drafts, demands or other documents and instruments (otherwise in order) signed by, or issued to, the receiver, trustee in bankruptcy, custodian, executor, administrator, guardian or conservator of anyone named in the Letter of Credit as the person by whom drafts, demands and other documents and instruments are to be made or issued. (c) Except in the case of fraud or gross negligence on the part of the Bank, neither the Bank nor any of its officers or directors shall have any liability to the Corporation, and the Corporation assumes all responsibility for (i) the form, sufficiency, correctness, validity, genuineness, falsification and legal effect of any drafts, demands and other documents, instruments and other papers relating thereto, (ii) the general and particular conditions stipulated -11- therein, (iii) the good faith and acts of any Person (other than the Bank) whomsoever, (iv) the existence, form, sufficiency and breach of contracts of any nature whatsoever, including the Related Documents, (v) the solvency, standing and responsibility of any Person whomsoever, (vi) any delay in giving or failure to give any notice, demand, or protest, (vii) failure of any Person (other than the Bank) to comply with the terms of the Letter of Credit, (viii) errors, omissions, delays in or nondelivery of any message, however sent, and (ix) any other error, neglect or omission, if done in good faith. (d) Except in the case of fraud or gross negligence on the part of the Bank, the Corporation hereby waives any right to object to any payment made under the Letter of Credit against a draft and accompanying documents as provided in the Letter of Credit varying in punctuation, capitalization, spelling or similar matters of form. The determination whether a demand has been made prior to the expiration of the Letter of Credit and whether a demand is in proper and sufficient form for compliance with the Letter of Credit shall be made by the Bank in its sole discretion, which determination shall be conclusive and binding upon the Corporation. (e) The Corporation agrees at all times to protect, indemnify and save harmless the Bank, from and against any and all claims, actions, suits and other legal proceedings, and from and against any and all losses, claims, demands, liabilities, damages, costs, charges, counsel fees and other expenses which the Bank may, at any time, sustain or incur by reason of or in consequence of or arising out of the issuance of the Letter of Credit, this Agreement or any Related Document; it being the intention of the parties that this Agreement shall be construed and applied to protect and indemnify the Bank against any and all risks involved in the issuance of the Letter of Credit, all of which risks are hereby assumed by the Corporation, including, without limitation, any and all risks of the acts or omissions, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority. The Bank ------- -------- shall not, in any way, be liable for any failure by the Bank or anyone else to pay any draft under the Letter of Credit as a result of any governmental acts or any other cause beyond the control of the Bank. The obligations of the Corporation hereunder shall survive cancellation or expiration of the Letter of Credit and payment of the Bonds. Section 2.11 Waiver of Right of Setoff. In addition to any other right or ------------------------- remedy that the Bank may have by operation of law or otherwise, the Bank shall be entitled to exercise its right of setoff or banker's lien; provided, however, that the Bank hereby irrevocably waives such right of setoff or banker's lien in order to appropriate and apply to the payment of unreimbursed payments under the Letter of Credit and interest thereon any balances, credits, deposits, accounts or moneys of the Corporation at any time with the Bank when and if there shall be a drawing under the Letter of Credit during the pendency of any proceedings by or against the Corporation, seeking relief in respect of the Corporation under the Bankruptcy Law; provided further, however, that the Bank may exercise such right of setoff or banker's lien if (a) it is determined by a court of competent jurisdiction that such exercise would not lead to the Bank's being released, prevented or restrained from or delayed in fulfilling its obligations under the Letter of Credit, and (b) the exercise of such right of setoff or banker's lien or right of setoff would not constitute any -12- payment (including pursuant to the Letter of Credit) to holders of the Bonds in respect of amounts payable thereunder a voidable preference payment under the Bankruptcy Law. ARTICLE III COLLATERAL SECURITY ------------------- The Obligations shall be secured as follows: Section 3.1 Security Interest. At the request of the Corporation, ----------------- Memphis International Motorsports Corporation ("Motorsports") shall grant to the Bank, for the benefit of the Bank, as security for the payment and performance of the Obligations (a) a lien upon and security interest in the Project pursuant to the Mortgage and (b) a security interest in certain real and personal property pursuant to the Mortgage. The Corporation agrees to cause Motorsports to execute, file and deliver such financing statements, acknowledgments, notices, authorizations, consents and other documents, instruments and agreements as the Bank may from time to time request to obtain and maintain on behalf of the Bank, the benefits of the security interest and lien granted in the Mortgage. ARTICLE IV CONDITIONS PRECEDENT -------------------- The obligations of the Bank to issue the Letter of Credit on the Closing Date is subject to the satisfaction of the following conditions on or before the Closing Date: Section 4.1 Opinion of Counsel to the Corporation. There shall have been ------------------------------------- delivered to the Bank an opinion of Valerie de Martino, Corporation in-house counsel, dated the Closing Date, addressed to the Bank and covering such matters as the Bank may reasonably request. Section 4.2 Opinion of Bond Counsel. There shall have been delivered to ----------------------- the Bank the opinion of Bryan Cave, LLP, as Bond Counsel, dated the Closing Date, addressed to the Bank, and covering such matters as the Bank may reasonably request. Section 4.3 Required Acts and Conditions. All acts and conditions ---------------------------- (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings or registrations) required to be done and performed, and to have happened precedent to the execution, delivery and performance of this Agreement, the Letter of Credit and the Related Documents to which the Corporation is or is to be a party, and to constitute the same legal, valid and binding obligations of the Corporation enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in due and strict compliance with all applicable laws. Section 4.4 No Default. There shall exist no Default or Event of Default. ---------- -13- Section 4.5 Representations and Warranties. All representations and ------------------------------ warranties of the Corporation contained herein or otherwise made in writing in connection herewith shall be true and correct with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. Section 4.6 Certificate of Compliance. There shall have been delivered ------------------------- to the Bank a certificate of the Corporation, signed by a duly authorized officer of the Corporation and dated the Closing Date, to the effect that all of the conditions specified in Sections 4.4 and 4.5 hereof have been satisfied as of such date. Section 4.7 Delivery of the Related Documents. The Related Documents and --------------------------------- any documents required by the terms thereof, including specifically the requirements set forth in the Commitment Letter, shall have been executed and delivered by the parties thereto, each in form and substance satisfactory to the Bank and its counsel. Section 4.8 Filings and Recordings. The Mortgage and any required ---------------------- financing statements relating thereto shall have been duly filed and recorded in each jurisdiction in which such filing or recordation is required to perfect, preserve and protect the lien and security interest of the Mortgage, and the Bank shall have received evidence satisfactory to it as to any such filing, recording and/or registration. Section 4.9 Proceedings. All corporate minutes, resolutions and other ----------- proceedings in connection with the transactions contemplated by this Agreement, the Letter of Credit and the Related Documents shall be satisfactory in form and substance to the Bank and its counsel, and the Bank and its counsel shall have received an executed or conformed copy of each Related Document required to be executed by the Closing Date, a specimen copy of the Bonds and copies of such documents as the Bank or such counsel may reasonably request. Section 4.10 Title Insurance. The Title Policy shall have been issued to --------------- the Bank and the Bank shall have received an executed original thereof. Section 4.11 Other Insurance. A certificate from an insurance broker --------------- shall be delivered to the Bank setting forth the information concerning insurance which is required by Section 6.3 of this Reimbursement Agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ In order to induce the Bank to enter into this Agreement and to issue the Letter of Credit, the Corporation makes the following representations and warranties to the Bank, which shall survive the execution and delivery of this Agreement and the Letter of Credit (where appropriate, and to the best of its knowledge, Corporation makes such representations and warranties as to Motorsports in connection with its obligations under the Mortgage): -14- Section 5.1 Due Organization, Etc. The Corporation is a corporation duly ---------------------- organized and validly existing under the laws of the State of Illinois, with a term equal to or in excess of the expiration date of the Letter of Credit. The Corporation has all requisite power and authority to conduct its business as presently conducted, to own its assets and properties, and to execute and deliver, and to perform all of its obligations under this Agreement and the Related Documents to which it is or is to be a party, and to carry out the transactions contemplated hereby and thereby. The Corporation is qualified to do business in the jurisdictions in which its ownership of property or conduct of business legally requires such qualifications. Section 5.2 Due Authorization, Etc. The execution, delivery and ----------------------- performance by the Corporation of this Agreement and the Related Documents to which it is or is to be a party have been duly authorized by all necessary corporate action and do not and will not (a) require any registration with, consent or approval of, notice to, or action by, any Person, (b) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect applicable to the Corporation, (c) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Corporation is a party or by which the Corporation or its assets or properties may be bound or affected or (d) except as provided herein, result in, or require, the creation or imposition of any Lien upon or with respect to any of the assets or properties now owned or hereafter acquired by the Corporation. The Corporation is not a party to, or otherwise subject to any provision contained in, any instrument evidencing its indebtedness, any agreement relating thereto or any other contract or agreement which limits the amount of, or otherwise imposes restrictions on the incurring of, obligations of the Corporation under this Agreement and the Related Documents, or if such restrictions are present, such restrictions have been met or duly waived with respect to this Agreement and the Related Documents. Section 5.3 Approvals. No consent, approval or other action by or any --------- notice to or filing with any court or administrative or governmental body is or will be necessary for the valid execution, delivery or performance by the Corporation of this Agreement or any of the Related Documents to which it is or is to be a party other than such consents and approvals which have heretofore been obtained or will be obtained in a timely manner in the future if not currently required. Section 5.4 Enforceability. This Agreement and each of the Related -------------- Documents to which the Corporation is or is to be a party, when executed and delivered, will constitute legal, valid and binding obligations of the Corporation, enforceable against it in accordance with their respective terms. The Mortgage, along with all action required to fully perfect the Bank's security interest thereunder, which action has been taken or completed, creates and constitutes a valid and perfected security interest of a priority acceptable to the Bank in and to the collateral therein described enforceable against all third parties and secures the payment of the Obligations. Section 5.5 Litigation. There are no actions, suits or proceedings ---------- pending or, to the knowledge of the Corporation after due inquiry, threatened against or affecting the Corporation -15- or any of its assets, properties or rights, at law or in equity by or before any court, arbitrator, administrative or governmental body or other Person which, if determined adversely, would have a material adverse effect on the business, condition (financial or otherwise) or operations of the Corporation or adversely affect the Corporation's ability to meet its payment obligations hereunder, except as heretofore disclosed to the Bank in writing. Section 5.6 Title to Property. The Corporation has good and marketable ----------------- fee title to all of its properties and assets (other than those which are leased), subject to no Lien of any kind, except as referred to in Permitted Encumbrances as set forth in Section 7.3 hereof. Section 5.7 Compliance with Laws and Contracts. The Corporation is not ---------------------------------- in violation or default with respect to any applicable law and/or regulation, which materially affects the business, properties or condition (financial or otherwise) of the Corporation nor is it in violation or default with respect to any order, writ, injunction, demand or decree of any court, indenture, agreement or other instrument under which it is bound or may be bound, default under or violation of which might have a material and adverse effect on the business, condition or operations (financial or otherwise) of the Corporation or might result in the acceleration of the maturity of any of its Indebtedness. Section 5.8 Related Documents. The Corporation makes each of the ----------------- representations and warranties made by it in the Related Documents to which it is or is to be a party, to and for the benefit of the Bank as if the same were set forth at length herein. Section 5.9 [RESERVED] Section 5.10 No Misleading Statements. Nothing herein or in any exhibit, ------------------------ certificate, notice or other written information furnished or to be furnished by the Corporation in connection with this Agreement or any Related Document contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 5.11 No Burdensome Restrictions. No contract, agreement or other -------------------------- instrument as to which the Corporation may be bound materially adversely affects, or insofar as the Corporation may reasonably foresee may so affect, the business, operations, property or financial or other condition of the Corporation. Section 5.12 Taxes. The Corporation has filed or caused to be filed all ----- tax returns which to the knowledge of the Corporation are required to be filed, and has paid all taxes shown to be due and payable on said returns or on any assessments made against it, except for returns which have been appropriately extended and all other taxes, fees or other charges imposed on it by any governmental authority, agency or instrumentality which have become due and payable (other than those the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been -16- provided on the books of the Corporation); and no tax liens have been filed and, to the knowledge of the Corporation, no claims are being asserted with respect to any such taxes, fees or other charges. Section 5.13 Leases. The Corporation enjoys peaceful and undisturbed ------ possession under all leases under which it operates, subject to subleases in the ordinary course of business, and all of such leases are valid and subsisting and are in full force and effect. There is no default on the part of the Corporation existing under any of such leases, and none of such leases contains any unusual or burdensome provision which materially adversely affects or in the future may (so far as the Corporation can now foresee) materially adversely affect the Corporation's right of occupancy and right to continue its operations under such lease. Section 5.14 Financial Condition. (a) (i) The balance sheet of the ------------------- Corporation for the fiscal year ended as of November 30, 1996, and the related statement of income and changes in financial conditions for the year then ended, certified by Arthur Andersen, Certified Public Accountants, and (ii) the Corporation's latest quarterly unaudited compilation of all income and expense, dated as of August 31, 1997, and quarterly thereafter, a copy of each of which has been furnished to the Bank, together with any explanatory notes therein referred to and attached thereto, are correct and complete and fairly present the financial condition of the Corporation as at the date of said balance sheets and the results of its operations for said periods and as of the date of closing of this Agreement and related transactions, respectively. All such financial statements have been prepared in accordance with GAAP. (b) There has been no material adverse change in the business, properties or condition, financial or otherwise, of the Corporation since August 31, 1997. Section 5.15 No Default. The Corporation is not in default in the ---------- performance, observance or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument to which it is a party, which default if not cured would materially and substantially affect the financial condition, property or operations of the Corporation. Section 5.16 ERISA. The Corporation is in compliance with all applicable ----- provisions of the Employees Retirement Income Security Act of 1974 ("ERISA") and all other laws, state or federal, applicable to any employees' retirement plan maintained or established by it. Section 5.17 Environmental and Other Conditions. (i) The operations of ---------------------------------- Corporation comply in all respects with all applicable federal, state or local environmental, health and safety statutes and regulations; (ii) none of the operations of Corporation is subject to any judicial or administrative proceeding alleging the violation of any federal, state or local environmental, health or safety statute or regulation; (iii) none of the operations of Corporation is the subject of federal or state investigation evaluating whether any remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent, or other substance into the environment; (iv) Corporation has not filed any notice under any federal or state law indicating -17- past or present treatment, storage or disposal of a hazardous waste or reporting a spill or release of a hazardous or toxic waste, substance or constituent, or other substance into the environment; and (v) to its knowledge, Corporation has no contingent liability in connection with any release of any hazardous or toxic waste, substance or constituent, or other substance into the environment. Section 5.18 Guarantor. The Guarantor has the right, power and authority --------- to execute, deliver and carry out the terms of the Guaranty, which Guaranty constitutes the valid and legally binding obligation of the Guarantor, enforceable in accordance with its terms. The Guarantor does not have any defense or setoff against the Bank. Section 5.19 Place of Business. Corporation is engaged in business ----------------- operations which are in whole or in part carried on at the address or addresses specified in EXHIBIT "B" hereto; if Corporation has more than one place of business, its chief executive office is at the address specified as such in such exhibit. Section 5.20 Capital Adequacy. Corporation now has capital sufficient to ---------------- carry on its business and transactions and all business and transactions in which it is about to engage and is now solvent and able to pay its debts as they mature and Corporation now owns property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its Debts. ARTICLE VI AFFIRMATIVE COVENANTS --------------------- The Corporation covenants with the Bank, until expiration or cancellation of the Letter of Credit and payment in full of all Obligations of the Corporation hereunder or under the Related Documents, unless the Bank shall otherwise consent in writing, such consent to be in the discretion of the Bank, as follows: Section 6.1 Business and Existence. Perform all things necessary to ---------------------- preserve and keep in full force and effect its existence, rights and franchises and comply with all laws applicable to it and continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar years. Section 6.2 Maintain Property. Maintain, preserve, and protect all ----------------- franchises (except for termination of franchises in the normal and usual course of business), and trade names and preserve all the remainder of its properties used or useful in the conduct of its business substantially as conducted and operated during the present and preceding fiscal year; preserve all the remainder of its properties used or useful in the conduct of its business and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly conducted at all times. -18- Section 6.3 Insurance on Properties. (a) At all times maintain in some ----------------------- company or companies (having a Best's rating of A:XI or better) approved by Bank: (i) Comprehensive public liability insurance covering claims for bodily injury, death, and property damage, with minimum limits satisfactory to the Bank, but in any event not less than those amounts customarily maintained by companies in the same or substantially similar business; (ii) Hazard insurance insuring the Corporation's property and assets against loss by fire (with extended coverage) and against such other hazards and perils (including but not limited to loss by windstorm, hail, flood, explosion, riot, aircraft, smoke, vandalism, malicious mischief and vehicle damage) as Bank, in its sole discretion, shall from time to time require, all such insurance to be issued in such form, with such deductible provision, and for such amount as shall be satisfactory to Bank, with loss payable clause in favor of the Trustee and the Bank. The Bank is hereby authorized and empowered, at its option, to adjust or compromise any loss under any such insurance policies and to collect and receive the proceeds from any such policy or policies at any time the Corporation is not in compliance with this Agreement; and (iii) Such other insurance as the Bank may, from time to time, reasonably require by notice in writing to the Corporation. (b) All required insurance policies shall provide for not less than thirty (30) days' prior written notice to the Bank of any cancellation, termination, or material amendment thereto; and in all such liability insurance policies, Bank shall be named as an additional insured. Each such policy shall, in addition, provide that there shall be no recourse against the Bank for payment of premiums or other amounts with respect thereto. Hazard insurance policies shall contain the agreement of the insurer that any loss thereunder shall be payable to the Bank notwithstanding any action, inaction or breach of representation or warranty by the Corporation. The Corporation will deliver to Bank original or duplicate policies of such insurance, or satisfactory certificates of insurance, and, as often as Bank may reasonably request, a report of a reputable insurance broker with respect to such insurance. Any insurance proceeds received by Bank shall be applied upon the indebtednesses, liabilities, and obligations of the Corporation to the Bank (whether matured or unmatured) or, at Bank's option, released to the Corporation. Section 6.4 Obligations, Taxes and Liens. Pay all of its indebtednesses ---------------------------- and obligations promptly in accordance with normal terms and practices of its businesses and pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon any of its income and profits, or upon any of its properties, real, personal or mixed, or upon any part thereof, before the same shall become in default, as well as all lawful claims for labor, materials, and supplies which otherwise, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that the Corporation shall not be required to pay and discharge or to cause to be paid and discharged any such tax, -19- assessment, trade payable, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings. Section 6.5 Financial Reports and Other Data. Corporation shall maintain -------------------------------- a standard system of accounting in accordance with GAAP consistently applied, and Corporation shall furnish to Bank the following: (a) Quarterly Statements. As soon as practicable after the end of each -------------------- fiscal quarter, and in any event within fifty (50) days thereafter, copies of: (i) a consolidated and consolidating balance sheet of the Group and their respective Subsidiaries as of the end of such fiscal quarter, and (ii) consolidated and consolidating statement of income and of surplus of the Group and their respective Subsidiaries for such quarter and for the portion of the Fiscal Year ending with such quarter, provided that Corporation's Form 10Q may be submitted to Bank in satisfaction of - -------- these requirements. (b) Annual Statements. As soon as practicable after the end of each ----------------- Fiscal Year of the Corporation, and in any event within one hundred twenty (120) days thereafter, duplicate copies of: (i) a consolidated and consolidating balance sheet of the Group and their respective Subsidiaries as of the end of such year, (ii) a consolidated and consolidating statement of income and of surplus of the Group and their respective Subsidiaries for such year, and (iii) a consolidated statement of changes in financial position of the Group and their respective Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and accompanied by an unqualified opinion of Auditors, which opinion shall state that said consolidated financial statements have been prepared in accordance with GAAP consistently applied, and that the examination of such Auditors in connection with such financial statements has been made in accordance with generally accepted auditing standards and that said financial statements present fairly the financial condition of the Group and their respective Subsidiaries and their results of operations, except for any inconsistencies required by changes in GAAP. Each set of such annual financial statements shall be accompanied by a certificate of the Auditors, stating that they have reviewed this Agreement, and stating further, whether, in making their review hereof, they have become aware of any -20- noncompliance with any of the Sections, and, if any such noncompliance then exists, specifying the nature and period of existence thereof, provided that a copy of the Corporation's Form 10K and Annual Report may be - -------- submitted to Bank in satisfaction of these requirements. Section 6.6 Notice of Default. At the time of Corporation's first ----------------- knowledge or notice, furnish the Bank with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Agreement, including specifically, (a) any proceedings before any Tribunal involving Corporation or any Subsidiary, which involves the probability of any final judgement or liability against the Group, or any one or more members thereof, in an amount of Five Hundred Thousand Dollars ($500,000.00) or more, and (b) information with respect to and copies of any notices received from federal, state or foreign regulatory agencies or any Tribunal relating to an order, ruling, statute or other Law or information which might materially and adversely affect the franchises, permits, licenses, or rights, or the condition, financial or otherwise, of Corporation or any Subsidiary. Section 6.7 Additional Information. Furnish such other information ---------------------- regarding the operations, business affairs and financial condition of the Corporation as the Bank may reasonably request, including, but not limited to, true and exact copies of its books of account, and all information furnished to its trustees, or any governmental authority. Section 6.8 Right of Inspection. Permit any person designated by the ------------------- Bank, at the Bank's expense, to visit and inspect any of the properties, corporate books and financial reports of the Corporation and to discuss its affairs, finances and accounts with its principal officers, all at such reasonable times and as often as the Bank may reasonably request. Section 6.9 Compliance with Laws, Etc. The Corporation will comply with -------------------------- the requirements of all applicable laws, rules, regulations and orders of any governmental authority having jurisdiction over it, the terms of any indenture, contract or other instrument to which it is a party or under which it or its properties may be bound, noncompliance with which could materially adversely affect (a) the Corporation's business, properties, condition (financial or otherwise) or operations, (b) the Corporation's ability to perform its obligations under this Agreement or any of the Related Documents to which it is or is to be a party, or (c) the Corporation's ability to construct, own or operate the Project, unless the same is being contested in good faith and by appropriate proceedings if it makes adequate provision for payment thereof, satisfactory to the Bank, in the event it should lose such contest. Section 6.10 Certain Notices. The Corporation will furnish to the Bank --------------- (a) a copy of any notice, certification, demand or other writing or communication of a material nature given by the Issuer or the Trustee to the Corporation or by the Corporation to the Issuer or the Trustee under or in connection with the Bonds or any of the Related Documents, in each case promptly after the -21- receipt or giving of the same, and (b) a copy of any opinion of counsel or certificate required to be given by the Corporation to the Trustee or the Issuer under the Related Documents, addressed to the Bank. Section 6.11 Environmental Laws. Maintain at all times all of the ------------------ Corporation's property in compliance with all Environmental Laws, and immediately notify the Bank of any notice, action, lien or other similar action alleging either the location of any Hazardous Substances or the violation of any Environmental Laws with respect to any of Corporation's property or operations. Section 6.12 Related Documents. The Corporation makes each of the ----------------- covenants made by it in the Related Documents to which it is or is to be a party, to and for the benefit of the Bank as if the same were set forth at length herein. Section 6.13 Notice of Adverse Change in Assets. At the time of the ---------------------------------- Corporation's first knowledge or notice, immediately notify the Bank of any information that may adversely affect in any material manner the assets of the Corporation. Section 6.14 Current Ratio. Maintain at all times a Current Ratio of at ------------- least 1.0 to 1.0. Section 6.15 Net Worth. The Group shall maintain at all times a Net Worth --------- equal to or greater than that evidenced by Corporation at the prior Fiscal Year end of Corporation, plus 85% of net proceeds of any equity offering which has occurred during such prior Fiscal Year. Section 6.16 Interest Coverage Ratio. The Group shall maintain at all ----------------------- times a minimum Interest Coverage Ratio of 2.50 to 1.0. Section 6.17 Debt Coverage Ratio. The Group shall maintain as of the end ------------------- of each Fiscal Year a ratio of Cash Flow (hereinafter defined) to Current Maturities of Long-Term Debt (hereinafter defined) of not less than 2.25 to 1.0. As used herein, "Cash Flow" shall mean the sum of net profit, depreciation and amortization for such fiscal year; and "Current Maturities of Long-Term Debt" shall mean the sum of all payments of principal scheduled to come due during the next succeeding fiscal year on debt with maturities which were initially greater than one year. ARTICLE VII NEGATIVE COVENANTS ------------------ The Corporation covenants with the Bank, until expiration or cancellation of the Letter of Credit and payment in full of all Obligations of the Corporation hereunder or under the Related Documents, that, without the prior written consent of the Bank, the Corporation will not: Section 7.1 Amendments. Amend, modify or terminate, or agree to amend, ---------- modify or terminate any Related Document. -22- Section 7.2 Indebtedness. Incur, create, assume or permit to exist any ------------ indebtedness or liability for borrowed money, or on account of deposit, advance or progress payments under contracts, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations except: (a) Indebtedness incurred hereunder or under the Related Documents or in connection with the Bonds; (b) Other indebtednesses to the Bank; (c) Indebtednesses for borrowed money under notes and lease obligations reflected in the Corporation's audited financial statement for the fiscal year ending November 30, 1996 and on the Corporation's quarterly financial statement dated August 31, 1997, but excluding those indebtednesses and obligations which have been or concurrently herewith are being paid and satisfied; (d) Trade accounts payable, taxes payable, deferred sales, accrued employees' bonuses and withheld amounts, accrued liabilities with respect to contributions to pension plans, equipment and machinery purchases financed by the sellers thereof and other similar short-term obligations incurred by the Corporation in the normal course of operating its business, provided that the amount of such obligations shall not be unduly large, in the judgment of the Bank, considering the size and nature of the Corporation's business, and provided that the Corporation shall not be in default with respect to any of such obligations; (e) Indebtedness to any other lender which is subordinated to the indebtednesses described in subsection (a) and (b) hereof by written agreement acceptable in form and content to the Bank; and (f) Indebtedness incurred at any one time of less than $1,500,000.00, provided, that one-time indebtedness in excess of such amount may be -------- incurred with Bank's consent which will not be unreasonably withheld. Section 7.3 Liens. Create, incur, assume or suffer to exist or permit ----- Motorsports to create, incur, assume or suffer to exist any Lien (including any pledge, encumbrance or security interest) of any kind upon the Project, whether now owned or hereafter acquired, except the following "Permitted Encumbrances": (a) liens for taxes or assessments or governmental charges or levies not yet due or delinquent, or which can thereafter be paid without penalty, or which are being contested in good faith; -23- (b) unfiled inchoate mechanics' and materialmen's liens for construction work in progress; (c) workmen's, repairmen's, warehousemen's, and carriers' liens and other similar liens, if any, arising in the ordinary course of business, or which can thereafter be paid without penalty, or which are being contested in good faith; (d) all of the following, if, in the reasonable judgment of the Bank, they do not individually and in the aggregate materially impair the use of the property of the Corporation or materially detract from the value of the property of the Corporation, viz: any easements, restrictions, and defects --- in title; (e) [RESERVED] (f) liens created by or resulting from any litigation or other proceedings, including liens arising out of judgments or awards against the Corporation with respect to which the Corporation is in good faith prosecuting an appeal or proceeding for review, or which can thereafter be paid without penalty, or which are being contested in good faith; (g) other liens of a nature comparable to those described in clauses (a) through (f) above which do not, in the reasonable judgment of the Bank materially interfere with or impair the use of the property of the Corporation or materially detract from the value thereof; (h) the mortgage and security interest created under the Mortgage and the Reimbursement Agreement; (i) any liens, charges or encumbrances of whatever kind permitted in writing by the Bank; (j) [RESERVED] (k) [RESERVED] (l) any liens securing the obligations of the Corporation permitted under Section 7.2. Section 7.4 Guaranties. Guarantee or otherwise in any way become or be ---------- responsible for the indebtedness or obligations of any other Person, by any means whatsoever, whether by agreement to purchase the indebtedness of any other Person or agreement for the furnishing of funds to any other Person through the purchase of goods, supplies or services (or by way of stock purchase, capital contribution, advance or loan) for the purpose of paying or discharging the -24- indebtedness of any other Person, or otherwise, except for the endorsement of negotiable instruments by the Corporation in the ordinary course of business for collection. Section 7.5 Sale of Assets. Sell, lease, transfer or dispose of (other -------------- than in the normal course of business) all or a substantial part of its assets. Section 7.6 [RESERVED]. Section 7.7 Loans and Investments. Make any loans to or investments in, --------------------- or purchase any stock, other securities or evidence of indebtedness of any Person, except as follows: (i) direct obligations of the United States of America or obligations for which the full faith and credit of the United States of America is pledged to provide for the payment of principal and interest, (ii) marketable securities issued by an agency of the United States government, (iii) commercial paper rated A-1 by Standard and Poors Corporation, or P-1 by Moody's Investors Service, Inc., (iv) certificates of deposit of or bankers' acceptances accepted by domestic commercial banks in the United States of America having a combined capital and surplus of at least Ninety Million Dollars ($90,000,000.00), (v) any additional investment grade investment made with Bank's approval not to be unreasonably withheld, or (vi) repurchase agreements of any of the foregoing. Section 7.8 New Business. Acquire or enter into any business other than ------------ its present business, except for expansions of Corporation's present business or entry into any business directly related thereto. Section 7.9 [RESERVED] Section 7.10 [RESERVED] Section 7.11 Loans to Officers and Employees. Permit or allow loans to ------------------------------- officers and employees of the Corporation, in the aggregate, to exceed the aggregate amount of Five Hundred Thousand Dollars ($500,000.00). Section 7.12 Trademarks and Trade Names. Sell, transfer, convey, grant -------------------------- any security interest in, or otherwise encumber any existing or hereafter acquired trademarks or trade names owned by the Corporation. Section 7.13 Debt to Worth Ratio. Permit the Debt to Worth Ratio of the ------------------- Group at any time to exceed a ratio of 2 to 1. Section 7.14 [RESERVED] Section 7.15 [RESERVED] -25- Section 7.16 Contingent Obligations. Create, incur, assume, become or be ---------------------- liable in any manner in respect of, or suffer to exist, any Contingent Obligations, except (i) the endorsement of negotiable instruments in the ordinary course of business; and (ii) guaranties of obligations of other Persons not to exceed One Million Five Hundred Thousand Dollars ($1,500,000.00) in an aggregate principal amount at any one time outstanding. Section 7.17 Accounting Methods. Without prior notice to Bank, change its ------------------ method of accounting if such change would have a Material Adverse Change or Effect. Should the Corporation or any other members of the Group or any of their respective Subsidiaries change any of their methods of accounting, Corporation shall cause, at Bank's request, annual pro forma financial statements to be prepared by Auditors on a basis consistent with those financial statements delivered before such change. Section 7.18 Fiscal Year. Without prior notice to Bank, change its Fiscal ----------- Year. Should the Corporation or any other member of the Group or any of their respective Subsidiaries change any of their Fiscal Years, Corporation shall cause, at Bank's request, annual pro forma financial statements to be prepared by Auditors on a basis consistent with those financial statements delivered before such change. Section 7.19 Management. Without prior notice to Bank, permit any ---------- material change in the management of Corporation or any Subsidiary. Section 7.20 Name Change. Change its name or use any other corporate ----------- name, trade name or fictitious name without at least sixty (60) days prior written notice of such proposed change to Bank. ARTICLE VII EVENTS OF DEFAULT ----------------- Section 8.1 Events of Default. If any of the following events ("Events ----------------- of Default") shall occur and be continuing: (a) the Corporation shall fail to make any payment when due of money required to be made by it (i) under any of the Related Documents or (ii) hereunder and such failure shall continue for a period of five (5) days following notice thereof, except with respect to payments due under Section 2.4(a) or (c) for which there will be no such cure period; or (b) the Issuer shall fail to make any payment required to be made by it under the Indenture or any Bond when due and such failure shall continue after the applicable grace period, if any; or (c) any representation or warranty made by the Corporation or any Guarantor in this Agreement, any of the Related Documents or any writing furnished in connection -26- with or pursuant to this Agreement or any of the Related Documents shall be false in any material respect on the date as of which made; or (d) the Corporation shall fail to perform or observe any term, covenant or agreement contained in Articles VI and VII hereof; or (e) the Corporation or any Guarantor shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any of the Related Documents on its part to be performed or observed and (i) with respect to any such term, covenant or agreement contained herein, any such failure remains unremedied for thirty (30) days after such failure shall first become known to any officer of the Corporation, and (ii) with respect to any such term, covenant or agreement contained in any of the other Related Documents, any such failure remains unremedied after the applicable grace period specified in such Related Document, if any; or (f) [RESERVED] (g) the Corporation shall default in any payment of principal of or interest on any other material obligation for money borrowed (or of any obligation under a conditional sale or other title retention agreement or of any obligation secured by a purchase money mortgage or of any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto; or the Corporation shall default in the performance or observance of any other agreement, term or condition contained in any other agreement under which any such obligation is created (or if any other event or default thereunder or under such agreement shall occur and be continuing) and the effect of such event or default is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to any stated maturity; provided, however, that for purposes of this subsection 8.1(g), obligations shall be deemed material when the sum, in the aggregate, of all such obligations defaulted upon referred to in this subsection 8.1(g) exceeds, at any one time, One Thousand Dollars ($1,000.00); or (h) the Corporation shall commence (by petition, application, or otherwise) a voluntary case or other proceeding under the laws of any jurisdiction seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect, or seeking the appointment of a trustee, self-trusteeship, receiver, custodian, or other similar official of it or any substantial part of its property; or shall consent (by answer or failure to answer, or otherwise) to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it; or shall make an assignment for the benefit of creditors; or shall generally not pay its debts as they become due or not be able to pay its debts as they become due; or admit in writing its inability to -27- pay its debts as they become due; or shall take any partnership or corporate action, as the case may be, to authorize any of the foregoing; or (i) an involuntary case or other proceeding shall be commenced under the laws of any jurisdiction against the Corporation seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect, or seeking the appointment of a trustee, receiver, custodian, or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of thirty (30) days or a trustee, receiver, custodian or other official shall be appointed in such involuntary case; or (j) a final judgment or order for the payment of money in the aggregate in excess of Two Hundred Fifty Thousand Dollars ($250,000.00), shall be rendered against the Group or any one or more members thereof and such judgment or order shall continue unsatisfied and unstayed for a period of thirty (30) days; or (k) any final judgment, writ, attachment, execution, injunction, or similar process which in the aggregate exceeds Two Hundred Fifty Thousand Dollars ($250,000.00) shall be issued or levied against the property of the Corporation, and such process shall not be released, vacated, or fully bonded within thirty (30) days after its issue or levy; or (l) an event of default shall occur in any agreement now in existence or to be later established between the Corporation and the Bank that would require immediate acceleration of sums due the Bank under any such agreement, or should the Bank, pursuant to the terms of any such agreement, cause the acceleration of any obligations under such agreement, or there shall be any material breach under any agreement of any kind between Bank and the Corporation; or (m) The Mortgage shall cease to be in full force and effect as a Lien upon the Project; or (n) the Title Policy does not insure Obligations advanced or incurred by the Bank after the date of the Title Policy; or (o) the Bank reasonably believes that the Obligations might not be entitled to priority over mechanic's or materialmen's liens or any other Liens on the Project, unless the Bank receives, at the Corporation's expense, a title policy endorsement satisfactory to the Bank insuring priority at the time of closing; or (p) the Corporation shall be dissolved; or -28- (q) Any Guarantor fails to keep or perform, or terminates or attempts to terminate, any agreement, undertaking, obligation, covenant or condition under its respective Guaranty. THEN, or at any time thereafter, the Bank may take such action in its discretion as is authorized under Sections 8.2 and 8.3 below. Section 8.2 Remedies. (a) When an Event of Default has occurred under -------- Section 8.1(h) or 8.1(i) above, any Obligations then owing or which will become owing upon a drawing of the full amount available under the Letter of Credit shall automatically become due and payable, and in the case of any other default under Section 8.1, the Bank may, at its option, in addition to all other rights, powers and privileges the Bank may have, by written notice to the Corporation exercise any or all of the following remedies, which remedies shall not be exclusive: (i) declare the amount for which the Letter of Credit was issued and any other Obligations then owing immediately due and payable without further demand or notice and the Corporation shall pay to Bank such amounts, (ii) immediately, and without expiration of any period of grace, enforce payment of all obligations under this Agreement, the Mortgage or any other agreement with the Corporation or Motorsports relating to the Project and exercise any and all remedies granted to it at law, in equity or otherwise, including, without limitation, under this Agreement, the Mortgage or any other agreement with the Corporation relating to the Project, and (iii) take such action as Bank in its sole discretion deems necessary or desirable to remedy any default, which action shall not be deemed a waiver of such default or any prior or subsequent default. (b) Without modifying any provisions contained herein with respect to the Corporation's obligations hereunder, the Bank hereby agrees to waive its rights, at law or otherwise, at any time after the commencement of and during the pendency of a proceeding by or against the Corporation seeking relief in respect of the Corporation under the Bankruptcy Law to set off and apply any and all deposits (general or special, time or demand, provisional or final) at the time held and any other indebtedness at the time owing by the Bank to or for the credit or the account of the Corporation against any and all obligations of the Corporation under this Agreement to reimburse the Bank for amounts drawn and paid under the Letter of Credit; provided, that such agreement shall terminate and be of no force and effect as and when and to the extent that the exercise of such rights would not result in the Bank's being released, prevented, restrained or delayed in fulfilling the Bank's obligation to cause funding under the Letter of Credit. Section 8.3 Additional Remedies. The Bank may exercise any right or ------------------- remedy which it has under the Mortgage, this Agreement or any other agreement with the Corporation or Motorsports relating to the Project, or under any agreement guaranteeing the cost of the Project or the completion of construction of the Project, or otherwise available at law or in equity or by statute, and all of the Bank's rights and remedies will be cumulative. -29- ARTICLE IX MISCELLANEOUS ------------- Section 9.1 Amendment and Waiver. This Agreement and each provision -------------------- hereof may be amended, changed, waived, discharged or terminated only by an instrument in writing signed by the parties hereto. A Default or Event of Default may be waived by the Bank and any such Default or Event of Default which has been waived in writing by the Bank shall not be deemed to be continuing during the period (including any retroactive period) for which the waiver is effective. Section 9.2 Governing Law. The Uniform Customs and Practice for ------------- Documentary Credits (1993 Revision) International Chamber of Commerce, Publication No. 500 (the "UCP") shall in all respects be deemed a part hereof as fully as if incorporated herein, and the Letter of Credit shall be governed by and construed in accordance therewith and, to the extent not inconsistent therewith, the laws of the State of Tennessee. The Corporation acknowledges that the provisions of Article 41 of the UCP are not applicable to the Letter of Credit. This Agreement and the rights and duties of the parties shall be governed by and construed under the laws of the State of Tennessee. Section 9.3 Notices. Except as provided herein, all notices, requests, ------- demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when deposited in the mail, postage prepaid, or, in the case of telex or telegraphic notice, when delivered to the telex or telegraphic company, or in the case of telex notice sent over a telex owned or operated by a party hereto, when sent, addressed to the Corporation, or the Bank, as the case may be, at their respective addresses shown opposite their signatures hereto or at such other address as either of such parties may hereafter specify in writing to the other, except that any communication with respect to a change of address shall be deemed to be given or made when received by the party to whom such communication was sent. Section 9.4 Waiver. No failure or delay on the part of the Bank in ------ exercising any right, power or privilege under this Agreement, the Letter of Credit, or any of the Related Documents and no course of dealing between the Corporation or any other Person and the Bank shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise of any other right, power or privilege. No notice to or demand on the Corporation in any case shall entitle the Corporation to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Bank to any other or further action in any circumstances without notice or demand. Section 9.5 Headings. The descriptive headings of the several Articles -------- and Sections of this Agreement are inserted for convenience only and shall not be deemed to affect the meaning or construction or any of the provisions hereof. -30- Section 9.6 Benefit of Agreement. This Agreement shall be binding upon -------------------- each party hereto, its successors and assigns, except that the Corporation may not transfer or assign any or all of its rights or obligations hereunder without the prior written consent of the Bank. This Agreement is made and entered into solely for the protection and benefit of the Bank and the Corporation and their successors and assigns and no other Person shall have any right of action under this Agreement. Section 9.7 Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. Section 9.8 Authority to File Notices. The Corporation irrevocably ------------------------- appoints the Bank as its attorney-in-fact, with full power of substitution, to file for record, at the Corporation's cost and expense and in the Corporation's name, any continuation statements, notices of completion, notices of cessation of labor, or any other notices that the Bank considers necessary or desirable to protect its security. Section 9.9 Actions. The Bank will have the right, but not the ------- obligation, to commence, appear in, and defend any action or proceeding which might affect its security or its rights, duties, or liabilities relating to the Obligations, the Project, this Agreement, the Related Documents or the Letter of Credit. The Corporation will pay promptly on demand all of the Bank's reasonable out-of-pocket costs, expenses, and legal fees and disbursements incurred in those actions or proceedings. In the event that Bank has reason to believe the Corporation is unaware of any action or proceeding, and that Corporation's rights could be affected thereby, Bank will notify Corporation of the institution of such action. At the request of the Corporation, Bank will notify Corporation of whether or not Bank intends to exercise its rights under this Section 9.9. Section 9.10 Participations. The Bank shall have the right at any time to -------------- sell participations in the Letter of Credit to any other Persons without the consent of the Corporation, provided that no such action by the Bank shall relieve the Bank of its obligations hereunder. The Bank may disclose to any participants or prospective participants any information or other data or material in the Bank's possession relating to the Corporation and the Project, without the consent of the Corporation or the Mortgagor, respectively. Section 9.11 Term of Agreement. This Agreement shall expire upon ----------------- expiration of the Letter of Credit and payment in full of all the Obligations. Section 9.12 Severability. Any provision of this Agreement which is ------------ illegal, invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without invalidating the remaining provisions hereof or affecting the legality, validity or enforceability of such provision in any other jurisdiction. The parties hereto agree to negotiate in good faith to replace any illegal, invalid or unenforceable provision of this agreement with a legal, valid and enforceable provision that, to the extent -31- possible, will preserve the economic bargain of this Agreement or otherwise to amend this Agreement, to achieve such result. Section 9.13 Entire Agreement. This Agreement with Exhibits embodies the ---------------- entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. To the extent any terms of the Agreement conflict with those of the Commitment Letter, this Agreement shall prevail. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective duly authorized officers as of the date first above written. ADDRESS: FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association 165 Madison Avenue Memphis, Tennessee 38103 By: /s/ Bob Nieman Attention: Metropolitan Division --------------------------------- Title: Vice President ------------------------------ ADDRESS: GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION ______________________________ By: /s/ Ronald C. Shirley ______________________________ --------------------------------- ______________________________ Title: CFO ------------------------------ By: /s/ Gemma A. Bannon --------------------------------- Title: Corporate Secretary ------------------------------ -32- EXHIBIT "A" ----------- FORM OF LETTER OF CREDIT ------------------------ A-1 EXHIBIT "B" ----------- ADDRESSES WHERE THE CORPORATION CONDUCTS ITS BUSINESS ----------------------------------------------------- B-1 EX-10.40 3 IRREVOCABLE STANDBY LETTER OF CREDIT NO. S5983013 EXHIBIT 10.40 IRREVOCABLE STANDBY LETTER OF CREDIT NO. S983013 January 23, 1998 Magna Bank, N.A. (successor in interest to MagnaTrust Company), as Trustee under the Indenture described below 1401 South Brentwood Boulevard, 9th Floor St. Louis, Missouri 63144 Ladies and Gentlemen: General - ------- At the request and on the instructions of our customer, Gateway International Motorsports Corporation (the "Account Party"), an Illinois corporation, First Tennessee Bank National Association (sometimes referred to hereinafter as "we" or "us"), as Letter of Credit Bank, hereby establishes this Irrevocable Standby Letter of Credit No. S983013 (hereinafter referred to as the "Letter of Credit") in favor of Magna Bank, N.A. (successor in interest to Magna Trust Company), as Trustee (sometimes referred to hereinafter as "you") under the Indenture of Trust dated as of May 1, 1996, between The Southwestern Illinois Development Authority (the "Issuer") and you (the "Indenture"), pursuant to which Twenty-One Million Five Hundred Thousand Dollars ($21,500,000.00) original aggregate principal amount of Taxable Sports Facility Revenue Bonds Series 1996 (Gateway International Motorsports Corporation Project) (the "Bonds") were issued. This Letter of Credit is issued in an initial amount of Two Million Five Hundred One Thousand Eight Hundred Twenty-Five Dollars ($2,501,825.00) (hereinafter, as reduced from time to time in accordance with the provisions hereof, the "Stated Amount") pursuant to the January 23, 1998 Page 2 Reimbursement Agreement dated as of December 1, 1997, between the Account Party and us (the "Reimbursement Agreement"). This Letter of Credit is being issued to you at the request of the Account Party to replace funds previously held by you under the Indenture in the Debt Service Reserve Fund (as such term is defined in the Indenture). You have verified to us that the Stated Amount, on the date of issuance hereof, is equal to the Debt Service Reserve Requirement (as defined in the Indenture). You will be permitted to make a draw hereunder upon (a) the occurrence of any event entitling you, under the Indenture, to withdraw moneys from the Debt Service Reserve Fund, or (b) upon receipt of notice from the undersigned of the occurrence of an Event of Default under the Reimbursement Agreement or (c) ten days prior to the date on which this Letter of Credit is to expire if, by such date, we receive written notice from you that you have not received a Substitute Funding Instrument (as defined in the Indenture) or cash or a combination of the two equal in the aggregate to the amount of the Debt Service Reserve Requirement in effect at such time. This Letter of Credit is effective immediately and, unless it expires earlier as hereinafter provided, will expire at 2:00 P.M., prevailing Memphis time, on July 31, 1999; provided, however, that the term of this Letter of Credit shall, absent ninety (90) days' notice from the Bank to you and the Account Party in its absolute discretion to the contrary, be renewed by the Bank in accordance with the terms of the Reimbursement Agreement and the Indenture for additional twelve (12) month periods, each of which shall expire on July 1 of such additional period with a final expiration date of July 1, 2001. The Bank will provide you with notices of such annual extensions upon request. Upon expiration, this Letter of Credit must be surrendered to us at the counters of our International Department, First Tennessee Bank National Association, 165 Madison Avenue, Memphis, Tennessee 38103. Demands for Payment - ------------------- Subject to the foregoing and the further provisions of this Letter of Credit, a demand for payment may be made by you by presentation to us, at the counters of our International Department, First Tennessee Bank National Association, 165 Madison Avenue, Memphis, Tennessee 38103 of (a) your executed sight draft, appropriately completed, in the form attached hereto as ANNEX A and ------- made a part hereof, and (b) a draw certificate executed by your duly authorized officer in the form of ANNEX B hereto. ------- The sight draft drawn under this Letter of Credit must bear on its face the clause "Drawn under First Tennessee Bank National Association Irrevocable Standby Letter of Credit No. S983013." No drawing made hereunder shall exceed the Stated Amount (as reduced from time to time in accordance with the provisions hereof) available to be drawn hereunder at any time. January 23, 1998 Page 3 Reduction in Stated Amount - -------------------------- The Stated Amount will be permanently decreased from time to time upon written notice from the Trustee to the Bank of the reduction of the Debt Service Reserve Requirement and direction to reduce the Stated Amount by such amount. Reinstatement - ------------- After any Drawing, the obligation of the Bank to honor demands for payment hereunder with respect to further such drawings will be reinstated up to the total amount specified therein upon receipt by the Bank of payment of all amounts so drawn plus any accrued interest on such amounts due under the Reimbursement Agreement, provided that the Bank shall have the right to notify the Account Party and the Trustee not later than the tenth (10th) day (or, if such day is not a Business Day, on the next preceding Business Day) following the day on which a payment in respect of a Drawing is made that such reinstatement shall not occur if (i) such drawing or a previous or subsequent drawing has been made hereunder for which the Bank has not been reimbursed for amounts then due by Account Party or (ii) an Event of Default under the Reimbursement Agreement shall have occurred and then be continuing. Payment - ------- Prior to the expiration of this Letter of Credit, demand for payment may be made by you under this Letter of Credit at our aforesaid counters at any time prior to 2:00 P.M., prevailing Memphis, Tennessee time, on a Business Day. As used herein, the term "Business Day" means a day on which we (at our aforesaid counters) are not required or authorized by law or executive order to close for the purpose of conducting a commercial banking business or on which the New York Stock Exchange is not closed. If demand for payment is made by you hereunder at or prior to 10:30 a.m., prevailing Memphis, Tennessee time, on a Business Day, and provided that such demand for payment and the documents presented in connection therewith conform to the terms and conditions hereof, payment shall be made to you of the amount demanded, in immediately available funds, on the same Business Day on which the demand is made or not later than 1:30 P.M., prevailing Memphis, Tennessee time, or such later Business Day as you shall specify. If demand for payment is made by you hereunder after 10:30 a.m., prevailing Memphis, Tennessee time, on a Business Day, and provided that such demand for payment and the documents presented in connection therewith conform to the terms and conditions hereof, payment shall be made to you of the amount demanded, in immediately available funds, not later than 1:30 P.M., prevailing Memphis, Tennessee time, on the next Business Day following the date of demand or such later Business Day as you shall specify. January 23, 1998 Page 4 If a demand for payment made by you hereunder does not conform to the terms and conditions of this Letter of Credit, we shall give you notice without delay but no later than the time payment would otherwise be due hereunder that the demand for payment is not in accordance with the terms and conditions of this Letter of Credit, stating the reasons therefor and that we are holding any documents at your disposal or are returning the same to you, as we may elect. Upon being notified that the demand for payment is not in conformity with the terms and conditions of this Letter of Credit, you may attempt to correct any such non-conforming demand for payment if, and to the extent that, you are entitled (without regard to the provisions of this sentence) and able to do so. All drafts paid under this Letter of Credit shall be paid solely from the funds of First Tennessee Bank National Association and not from funds of the Issuer, the Account Party or any general partner or guarantor of the Account Party. Expiration - ---------- This Letter of Credit shall automatically expire at 2:00 P.M., prevailing Memphis, Tennessee time, at our aforesaid counters on the earliest to occur of the following dates: (a) July 31, 1999 (assuming the Bank has notified you of its intention not to renew this Letter of Credit as provided in the Reimbursement Agreement) or such subsequent July 1 to which the term of this Letter of Credit shall have been automatically renewed or otherwise extended by the Bank in accordance with the terms of the Indenture and as described above; or (b) the date on which the Stated Amount is reduced to zero (0); or (c) the date 10 days after the Bank notifies you of the occurrence of an Event of Default under the Reimbursement Agreement; or (d) the date on which we receive an executed Certificate As To Alternative Funding of Debt Service Reserve Fund, appropriately completed, in the form attached hereto as ANNEX C, and made a part hereof, with ------- respect to the acceptance of a Substitute Funding Instrument (as defined in the Indenture), cash, or a combination thereof in substitution for this Letter of Credit. Upon expiration, this Letter of Credit must be surrendered to us at the counters of our International Department, First Tennessee Bank National Association, 165 Madison Avenue, Memphis, Tennessee 38103. January 23, 1998 Page 5 Entire Agreement - ---------------- This Letter of Credit sets forth in full the terms of our undertaking, and this undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein or in which this Letter of Credit is referred to or to which this Letter of Credit relates, except for the exhibits attached hereto and made a part hereof, references to the Indenture and Reimbursement Agreement for the definitions of certain terms, and any amendment to which you consent, as beneficiary of this Letter of Credit. Any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such exhibits, such references to the Indenture and the Reimbursement Agreement and any amendment to which you consent. Transfer - -------- This Letter of Credit is transferable in its entirety (but not in part) to any transferee who has succeeded you as Trustee under the Indenture and may be successively transferred. Transfer of this Letter of Credit to such transferee shall be effected by the presentation to us of this Letter of Credit for endorsement of the transfer accompanied by an executed Transfer Of Rights To Draw Under Letter of Credit, completed in the form of ANNEX D attached hereto ------- and made a part hereof. Only you (or a transferee as permitted by the terms of this Letter of Credit) may make a drawing under this Letter of Credit. Upon the payment to you or your account or to the transferee or its account of the amount specified in any sight draft drawn hereunder, we shall be fully discharged on our obligation under this Letter of Credit to the extent of such drawing (pending reinstatement thereof as provided elsewhere herein). Governing Law - ------------- This Letter of Credit shall be subject to the Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 500 (the "UCP"), except if this Letter of Credit would have otherwise expired by its terms during any period when our business has been interrupted by acts of God or other events not within our control, our obligations hereunder shall continue for a maximum of thirty (30) days after resumption of our business, notwithstanding Article 17 of the UCP. This Letter of Credit shall be deemed to be issued under the laws of the State of Tennessee and shall, as to matters not governed by the UCP, be governed by and construed in accordance with the laws of the State of Tennessee. Communications - -------------- Communications with respect to this Letter of Credit shall be in writing and shall be addressed to us at the address of our counters set forth above (Attention: International Department), specifically referring to the number of this Letter of Credit. We hereby agree with the drawer of a sight draft drawn in compliance with the terms of this Letter of Credit that the same shall be duly honored on presentation to the drawee. At your request, we have agreed that any notices to you will be given by confirmed fax and by overnight delivery such as Federal --- Express to: Magna Bank, N.A. Attn: Kent T. Schroeder 1401 S. Brentwood Boulevard, Ninth Floor St. Louis, Missouri 63144-1401 Fax #: 314/963-2475 with copy to: Carolyn B. Ryseff, General Counsel Magna Bank, N.A. 1401 S. Brentwood Boulevard, Ninth Floor St. Louis, Missouri 63144-1401 Fax #: 314/963-2496 Very truly yours, FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: /s/ Patty L. Wiley ------------------------ Title: Vice President --------------------- ANNEX A ------- FORM OF SIGHT DRAFT ------------------- DATE: __________________ AT SIGHT PAY TO THE ORDER OF ___________________________________ THE SUM OF U.S.$_______________________________________________ DOLLARS. DRAWN UNDER FIRST TENNESSEE BANK NATIONAL ASSOCIATION IRREVOCABLE STANDBY TRANSFERABLE LETTER OF CREDIT NO. _____________. MAGNA BANK, N.A., as Trustee By:_________________________ Name:_______________________ Title:______________________ TO: First Tennessee Bank National Association International Department 165 Madison Avenue Memphis, Tennessee 38103 Annex B to First Tennessee Bank National Association Irrevocable Standby Letter of Credit No. S983013 DRAWING CERTIFICATE ------------------- The undersigned, a duly authorized officer of the Trustee named below (the "Trustee"), hereby certifies to First Tennessee Bank National Association (the "Bank"), with reference to Irrevocable Standby Letter of Credit No. S983013 (the "Letter of Credit"), issued by the Bank in favor of the Trustee, that: (1) The Trustee is the Trustee under the Indenture. (2) The Letter of Credit has been provided to the Trustee in satisfaction of the requirement of a Debt Service Reserve Fund under the Indenture. (3) Choose One: ____ (a) The Trustee is required, under Section 5.10 of the Indenture, to withdraw moneys from the Debt Service Reserve Fund in the event there are insufficient funds on deposit in the Bond Fund established under the Indenture to pay scheduled payments of principal and interest to the holders of the Bonds. The Trustee hereby certifies that there are insufficient funds on deposit in the Bond Fund to pay principal and interest on the Bonds, and that any other conditions precedent to a withdrawal from the Debt Service Reserve Fund under the Indenture have occurred. The amount of the sight draft(s) accompanying this Certificate is less then or equal to the lesser of (i) the amount of the shortfall in the Bond Fund or (ii) the Stated Amount. ____ (b) You have notified the Trustee that an Event of Default has occurred under the Reimbursement Agreement, thus entitling the Trustee to draw up to the entire amount available under the Letter of Credit. ____ (c) The Trustee has not received a Substitute Funding Instrument, or cash, or a combination thereof equal in the aggregate to the Debt Service Reserve Requirement in effect on the date hereof, which date is within ten (10) days of the expiration of the Letter of Credit. The amount of the sight draft(s) accompanying this Certificate is equal to the lesser of (i) the amount of the shortfall in the Debt Service Reserve Fund or (ii) the Stated Amount. (4) The amount of the sight draft(s) accompanying this Certificate does not exceed the amount available to be drawn under the Letter of Credit. (5) Upon receipt by the Trustee of the amount demanded hereby, (a) the Trustee will apply the same directly for the purpose specified in paragraph (3), and (b) no portion of said amount shall be applied by the Trustee for any purpose other than as set forth in paragraph (3) above. Any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the _________ day of ________, _____. MAGNA BANK, N.A., as trustee By:________________________ Title:_____________________ Annex C to First Tennessee Bank National Association Irrevocable Standby Letter of Credit No. S983013 CERTIFICATE AS TO ALTERNATIVE FUNDING OF DEBT SERVICE RESERVE FUND ------------------------------------------------------------------- Magna Bank, N.A., as Trustee (the "Trustee"), and Gateway International Motorsports Corporation (the "Account Party") hereby certify to First Tennessee Bank National Association (the "Bank"), in connection with the Bank's Irrevocable Standby Letter of Credit No. S983013 (the "Letter of Credit") (any capitalized term used herein and not defined herein shall have its respective meaning as set forth in the Letter of Credit) issued by the Bank in favor of the Trustee, that: (a) The Trustee is the Trustee under the Indenture, and the Account Party is the Account Party under the Reimbursement Agreement. (b) The Trustee has accepted the deposit of a Substitute Funding Instrument, cash, or a combination thereof in the amount of the Debt Service Reserve Requirement for deposit to the Debt Service Reserve Fund. (c) By its terms, the Letter of Credit expires as of the date of this Certificate. (d) The Trustee is delivering the Letter of Credit to the Bank herewith for cancellation. IN WITNESS WHEREOF, the Trustee and the Account Party have executed and delivered this Certificate as of the _____ day of ____________, ____. GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, as Account Party By:_________________________ Title:______________________ MAGNA BANK, N.A., as Trustee By:_________________________ Title:______________________ Annex D to First Tennessee Bank National Association Irrevocable Standby Letter of Credit No. S983013 ANNEX D ------- TRANSFER OF RIGHTS TO DRAW UNDER LETTER OF CREDIT ------------------------------------------------- To: First Tennessee Bank National Association International Department 165 Madison Avenue Memphis, Tennessee 381301 Re: First Tennessee Bank National Association Irrevocable Standby Letter of Credit No. S983013 For value received, the undersigned beneficiary hereby irrevocably transfers to: _________________________________ (Name of Transferee) ________________________________ ________________________________ (Address) all rights (in their entirety) of the undersigned beneficiary to draw under the above Letter of Credit. The transferee has succeeded the undersigned as Trustee under the Indenture of Trust entered into between The Southwestern Illinois Development Authority and Magna Trust Company, the original trustee and predecessor in interest to the undersigned, as Trustee, dated as of May 1, 1996. By this transfer, all rights of the undersigned beneficiary in the Letter of Credit are transferred to the transferee, and the transferee shall have the sole rights as beneficiary thereof, including sole rights relating to any amendments, whether increases or extensions or other amendments and whether now existing or hereafter made. All amendments are to be advised directly to the transferee without necessity of any consent of or notice to the undersigned beneficiary. The Letter of Credit is returned herewith, and we ask you to endorse the transfer on the reverse hereof, and forward it directly to the transferee with your customary notice of transfer. IN WITNESS WHEREOF, the undersigned beneficiary has executed and delivered this Transfer as of the ____ day of ____________, ____. MAGNA BANK, N.A., as Trustee By:_________________________ Name:_______________________ Title:______________________ EX-10.41 4 TENNESSEE DEED OF TRUST DATED JANUARY 23, 1998 EXHIBIT 10.41 THIS INSTRUMENT PREPARED BY AND RETURN TO: Anne B. Mathes, Attorney Baker, Donelson, Bearman & Caldwell 165 Madison Avenue Memphis, Tennessee TENNESSEE DEED OF TRUST ----------------------- WITH SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES ---------------------------------------------------------- (WITH FIXTURE FILING) THIS INDENTURE is made and entered into on this 23rd day of January, 1998, by and among MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION, a corporation organized and existing under the laws of the State of Tennessee whose address is 5500 Taylor Forge Drive, Millington, Tennessee 38053, party of the first part (hereinafter called "Grantor"), DAVID G. WILLIAMS and THOMAS F. BAKER, IV, as TRUSTEES, both of whom are residents of Shelby County, Tennessee, parties of the second part (hereinafter called "Trustees"), and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association whose address is 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan Division, party of the third part (hereinafter called "Bank"). This instrument covers property which is or may become so affixed to real property as to become fixtures and also constitutes a fixture filing under (S) 47-9-402 of Tennessee Code Annotated. NOTICE PURSUANT TO (S) 47-28-104 OF TENNESSEE CODE ANNOTATED: This Deed of Trust secures future advances which are "obligatory advances" as defined in the aforesaid statute. This Deed of Trust is for "commercial purposes" as defined in said statute. FOR AND IN CONSIDERATION OF FIVE DOLLARS ($5.00) cash in hand paid by the Trustees to the Grantor, and the debt and trusts hereinafter mentioned, the said Grantor has bargained and sold, and does hereby bargain, sell, convey and confirm unto the said Trustees the real estate [said real property together with the Improvements (hereinafter defined) being herein called the "Mortgaged Property"] situated and being in Shelby County, Tennessee, more particularly described in EXHIBIT "A," attached hereto and made a part hereof as fully and particularly as if set out herein verbatim, together with: (A) All the improvements now on or which may be hereafter placed on said land during the existence of this lien; and (B) All the income, rents, issues and profits arising therefrom and for the use thereof; and (C) All materials, equipment, furnishings or other property whatsoever installed or to be installed and used in and about the building or buildings on said land, including, but not being limited to, all heating, plumbing, lighting, water-heating, cooking, refrigerating, incinerating, ventilating and air conditioning equipment, storm doors and windows, shades, rugs, carpeting, awnings, blinds, drapes, and linoleums, and property of like nature, all of which property and things are hereby declared to be permanent accessions to the freehold and part of the realty conveyed herein as security for the Obligations (hereinafter defined) [the property described in the foregoing clause (A) and this clause (C) being sometimes herein called the "Improvements"]; and (D) All leasehold estate, right, title and interest of Grantor in and to all leases and subleases covering the Mortgaged Property or any portion thereof now or hereafter existing or entered into, subject to the provisions of Section 2.15 hereof, including, without limitation, all cash or security deposits, advance rentals, guarantees and deposits of similar nature; TO HAVE AND TO HOLD, the aforedescribed Mortgaged Property, together with all the hereditaments and appurtenances thereunto belonging or in anywise appertaining unto the said Trustees, their successors in trust and assigns, in fee simple forever; and the said Grantor does hereby covenant with the said Trustees, their successors in trust and assigns, that Grantor is lawfully seized in fee of the estate described in EXHIBIT "A," hereto attached, that Grantor has a good right to sell and convey the same; that the same is unencumbered; and that the title and quiet possession thereto Grantor will and Grantor's successors shall warrant and forever defend against the lawful claims of all persons. BUT THIS IS A TRUST DEED, and is made for the following uses and purposes, and none other; that is to say: Borrower (as hereinafter defined) is justly indebted to Bank or the holder of the indebtedness hereinafter mentioned (said Bank or such holder being hereinafter sometimes called the "Beneficiary"), in the principal sum of TWO MILLION FIVE HUNDRED ONE THOUSAND EIGHT HUNDRED TWENTY- FIVE DOLLARS ($ 2,501,825.00), arising under that certain Reimbursement Agreement dated as of January 1, 1998 between Gateway International Motorsports Corporation as Account Party ("Borrower") and the Bank as issuer of its Irrevocable Letter of Credit No. S983013 (the "Letter of Credit") in the amount of $2,501,825.00 (the "Stated Amount"). AS FURTHER SECURITY, Grantor hereby pledges, assigns and grants to Beneficiary a continuing security interest in the property (the "Personal Property") described in EXHIBIT "B," attached hereto and incorporated herein by reference [the property described in subparagraph (a) of EXHIBIT "B" being sometimes herein called the "Tangible Personal Property."] Grantor desires to secure and make certain the payment of the indebtednesses incurred by Borrower under the Reimbursement Agreement, and any and all renewals, modifications and extensions thereof, in whole or in part and also the payment and performance of the other Obligations, as hereinafter defined. NOW, THEREFORE, so long as any part of the Obligations shall remain unpaid or unperformed, Grantor covenants, agrees, represents and warrants as follows: ARTICLE I OBLIGATIONS DEFINED The following obligations of the Grantor and Borrower are hereinafter collectively called the "Obligations": 1.1 Reimbursement Agreement. (a) Payment of the indebtedness (and ----------------------- interest thereon) incurred by Borrower arising under the Reimbursement Agreement in connection with the Letter of Credit, and any and all amendments and modifications thereof, in whole or in part, including all FUTURE ADVANCES pursuant to the Reimbursement Agreement and the Letter of Credit which constitute a binding obligation on the part of the Bank to make loans and advances on behalf of the Borrower in amounts not to exceed the aggregate principal amount of Two Million Five Hundred One Thousand Eight Hundred Twenty- Five Dollars ($2,501,825.00); and (b) performance of all other obligations of Borrower under the Reimbursement Agreement; 1.2 Deed of Trust. Payment of all sums advanced by Beneficiary to or for ------------- the benefit of Grantor contemplated hereby and performance of all obligations and covenants herein contained, including, without limitation, any amounts advanced to protect the trust estate and security interests herein granted and all attorneys' fees, court costs, and expenses of whatever kind incident thereto or to the collection of the indebtednesses and obligations hereby secured and/or enforcement of the liens and security interests herein granted; 1.3 [Reserved] -------- - 2 - 1.4 Other Indebtednesses. Payment of all other indebtednesses arising -------------------- under or in connection with this Deed of Trust, the Reimbursement Agreement, the Letter of Credit or any other instrument or document now or at any time evidencing, securing or guaranteeing the same including specifically Grantor's Guaranty Agreement of even date to Bank, given to Bank as a guaranty of Borrower's obligations under the Reimbursement Agreement (collectively the "Letter of Credit Documents"), of whatever kind or character, now owing or which may hereafter become owing by Grantor to Beneficiary, whether such indebtednesses are evidenced by note, open account, overdraft, endorsement, surety agreement, guaranty or otherwise; and 1.5 Other Indebtednesses of Grantor and Borrower to Beneficiary. Payment ----------------------------------------------------------- and performance of any and all other present and future indebtednesses and obligations of Grantor to Beneficiary, of every kind, character and description, howsoever and whensoever arising, whether absolute or contingent, joint or several, matured or unmatured, direct or indirect, primary or secondary, and including without limitation, all future advances to the Grantor, all liabilities of the Grantor under any guaranty executed in favor of the Beneficiary at any time and all obligations of the Grantor with respect to any letters of credit issued at any time by Beneficiary for the benefit of Grantor. ARTICLE II COVENANTS AND AGREEMENTS AS TO MORTGAGED PROPERTY Grantor does hereby covenant, warrant and represent to and agree with Beneficiary as follows: 2.1 Payment and Performance. Grantor shall make or shall use its best ----------------------- efforts to cause Borrower to make all payments required under the Reimbursement Agreement when due and shall punctually and properly perform all of Grantor's other Obligations, or cause Borrower to do so as applicable. 2.2 Insurance. Grantor shall, at Grantor's sole cost and expense, obtain --------- and maintain in some company or companies (having a Best's rating of A:XI or better) approved by Beneficiary: (a) Comprehensive public liability insurance covering claims for bodily injury, death, and property damage, with such minimum limits as Beneficiary shall, from time to time, specify, but in any event not less than those amounts customarily maintained by owners of substantially similar property; and (b) If any of the Mortgaged Property is within an area known as a "special flood hazard area" as defined in the Flood Disaster Protection Act of 1973, a Standard Flood Insurance Policy on the Mortgaged Property as required by the Act or in the Stated Amount, whichever is greater; and (c) Hazard insurance upon the Improvements and Tangible Personal Property, insuring against loss by fire and all other hazards covered by extended coverage and special extended coverage endorsements (including but not limited to loss by windstorm, hail, flood, earthquake, tornado, explosion, riot, aircraft, smoke, vandalism, malicious mischief and vehicle damage) as Beneficiary, in its sole discretion, shall from time to time require, all such insurance to be issued in such form, with such deductible provision, and for such amount (which shall, in any event be at least equal to the full replacement value of the improvements) as shall be satisfactory to Beneficiary; and (d) Such other insurance as the Beneficiary may, from time to time, reasonably require by notice in writing to the Grantor. All required insurance policies shall provide for not less than thirty (30) days' prior written notice to the Beneficiary of any cancellation, termination, or material amendment thereto. Grantor will cause all policies of hazard insurance, business interruption insurance and loss of rents insurance to be payable to Beneficiary pursuant to a standard mortgagee clause acceptable to Beneficiary; and Grantor will cause all liability insurance policies to name Beneficiary as additional insured, if Beneficiary so requires. Grantor will deposit said policy or policies of insurance with the - 3 - Beneficiary as further security for the Obligations, no responsibility for the approval or maintenance of any insurance (required to be maintained pursuant hereto) being imposed upon the Beneficiary or the Trustees. In the event of damage to or destruction of the Improvements and/or Tangible Personal Property by fire or other casualty, the net proceeds of the insurance shall be applied upon the Obligations in such manner as the Beneficiary may elect; or, at the option of the Beneficiary, such proceeds may be released to Grantor to be used to restore such property to its former condition. Any insurance policies furnished the Beneficiary shall become its property in the event the Beneficiary becomes the owner of the Mortgaged Property by foreclosure or otherwise. The Beneficiary is hereby authorized and empowered, at its option, to adjust or compromise any loss under any insurance policies, and to collect and receive the proceeds from any such policy or policies. 2.3 Taxes and Assessments. Grantor will promptly pay when due all taxes, --------------------- assessments, levies, dues and charges of every type or nature assessed against the Mortgaged Property or the Personal Property, and any claim, lien or encumbrance against the Mortgaged Property or the Personal Property which may be or become prior to the lien of this Deed of Trust. 2.4 Deposit of Taxes and Insurance Premiums. If required by Beneficiary, --------------------------------------- Grantor will deposit with the Beneficiary, monthly, on the first day of each month, one-twelfth (1/12) of the annual charges for ground or other rent, if any, insurance premiums and real estate taxes, assessments, water, sewer, and other charges which might become a lien upon the Mortgaged Property. In addition, if required by the Beneficiary, the Grantor shall simultaneously therewith deposit with the Beneficiary a sum of money which, together with the monthly installments aforementioned, will be sufficient to make each of the payments aforementioned at least thirty (30) days prior to the date such payments are due. Should said charges not be ascertainable at the time any deposit is required to be made with the Beneficiary, the deposit shall be made on the basis of an estimate made by the Beneficiary in its sole discretion; and when the charges are fixed for the then current year, the Grantor shall deposit any deficiency with the Beneficiary. All funds so deposited with the Beneficiary shall be held by it, but not in escrow and, except to the extent required by applicable law, without interest, and, provided that no Event of Default (hereinafter defined) shall have occurred, shall be applied in payment of the charges aforementioned when and as payable, to the extent the Beneficiary shall have funds on hand. Upon the occurrence of any Event of Default, the funds deposited with the Beneficiary, as aforementioned, may be applied in payment of the charges for which such funds shall have been deposited, or to the payment of the Obligations, or upon any other charges affecting the security of the Beneficiary, as the Beneficiary sees fit, but no such application shall be deemed to have been made by operation of law or otherwise until actually made by the Beneficiary as herein provided, nor shall any application be deemed to affect any right or remedy of the Beneficiary hereunder or under any statute or rule of law. If deposits are being made with the Beneficiary, the Grantor shall furnish the Beneficiary with bills for the charges for which such deposits are required to be made hereunder and/or any other documents necessary for the payment of same, not later than fifteen (15) days prior to the date upon which the charges first become payable. The enforceability of the covenants relating to taxes, assessments, and insurance premiums herein otherwise provided for shall not be affected except insofar as those obligations have been met by compliance with this paragraph. Beneficiary may, from time to time, at its option, waive, and after any such waiver reinstate, any or all of the provisions hereof requiring such deposits, by notice to Grantor in writing. While any such waiver is in effect, Grantor shall pay the taxes, assessments, insurance premiums, and other charges as herein provided. 2.5 Taxes on Reimbursement Agreement or Deed of Trust. If at any time any ------------------------------------------------- law shall be enacted imposing or authorizing the imposition of any tax upon the Reimbursement Agreement, any of the Obligations, or this Deed of Trust, or upon any rights, titles, liens, or security interests created hereby, or any part thereof, Grantor shall immediately pay all such taxes; provided that, if it is unlawful for Grantor to pay such taxes, Beneficiary may pay such taxes and Grantor shall reimburse Beneficiary for such payment in full within ten (10) days after notice; provided, further, that if it shall be unlawful for Grantor either to pay such taxes or to reimburse Beneficiary therefor, or if such payment or reimbursement would be usurious, Grantor shall not be required to make such payment or reimbursement, but at Beneficiary's option, the Obligations shall thereupon be immediately due and payable. - 4 - 2.6 Eminent Domain. Grantor hereby transfers, sets over, and assigns to -------------- Beneficiary all judgments, awards of damages and settlements hereafter made as a result or in lieu of any taking of the Mortgaged Property or any part thereof under the power of eminent domain, or for any damage (whether caused by such taking or otherwise) to the Mortgaged Property or any part thereof, or to any rights appurtenant thereto, including any award for change of grade of streets. Beneficiary is hereby authorized, but not required, in behalf and in the name of Grantor, to execute and deliver valid acquittances for, and to appeal from, any such judgments or awards. Beneficiary may apply all such sums or any part thereof so received, after the payment of all of its expenses, including costs and reasonable attorney's fees, on the Obligations secured hereby, whether due or not, in such manner as it elects or, at its option, the entire amount or any part thereof so received may be released to the Grantor or other party lawfully entitled thereto. 2.7 Repair, Waste, Alterations, etc. Grantor shall keep every part of the -------------------------------- Mortgaged Property and the Personal Property in good operating order, repair and condition and shall not commit or permit any removal or waste thereof, normal wear and tear excepted. Grantor shall not remove or demolish or alter the design or structural character of any Improvements now or hereafter erected upon the Mortgaged Property without the prior written consent of Beneficiary unless such removal, demolition or alteration is contemplated and permitted by the Letter of Credit Documents. Grantor shall make promptly all necessary repairs, renewals and replacements to the Mortgaged Property and the Personal Property. 2.8 Advances by Beneficiary to Protect Collateral. If the Grantor shall --------------------------------------------- default in paying taxes, maintaining insurance or making repairs, the Beneficiary may, at its discretion, advance and pay such sums as may be proper to satisfy taxes, maintain insurance and make repairs, and protect and preserve the Mortgaged Property and Personal Property, and such amounts so paid shall be treated as part of the expense of administering this trust, shall be repaid by Grantor on demand with interest at the Default Rate (hereinafter defined), and shall be secured by the lien hereof. However, the making of any such payment by Beneficiary shall not be construed as a waiver of any default of Grantor. 2.9 No Mechanics' Liens. Grantor shall discharge all claims for labor ------------------- performed and material furnished to the Mortgaged Property, and shall not suffer any lien of mechanics or materialmen to be filed against any part of the Mortgaged Property. Beneficiary has not consented and will not consent to any contract or to any work or to the furnishing of any materials which might be deemed to create a lien or liens superior to the lien of this instrument, either under (S) 66-11-108 of Tennessee Code Annotated, or otherwise. 2.10 Protection and Priority of Lien. Grantor shall not do anything or ------------------------------- suffer or permit anything to be done whereby the lien and security interest of this Deed of Trust could be impaired. Grantor shall pay such reasonable expenses and fees as may be necessary in the protection of the Mortgaged Property and Personal Property and the maintenance and execution of liens and security interests herein granted. Any agreement hereafter made by Grantor and Beneficiary pursuant to or regarding this Deed of Trust shall be superior to the rights of the holder of any intervening lien or encumbrance. 2.11 Compliance with Laws. Grantor, the Mortgaged Property, the Personal -------------------- Property, and the use thereof by Grantor shall comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, orders and decrees of any governmental authority or court applicable to Grantor or the Mortgaged Property and its use; Grantor will not suffer or permit any violation thereof; and Grantor shall pay all fees or charges of any kind in connection therewith. 2.12 Further Assurances. Grantor, upon the request of Beneficiary, shall ------------------ execute, acknowledge, deliver, and record such further instruments and do such further acts as may be necessary, desirable or proper to carry out the purposes of this instrument and the other Letter of Credit Documents and to subject to the liens and security interests created thereby any property intended by the terms thereof to be covered thereby, including specifically but without limitation any renewals, additions, substitutions, replacements, improvements, or appurtenances to the Mortgaged Property or the Personal Property. - 5 - 2.13 Inspection of Premises. Until the Obligations shall have been fully ---------------------- paid and satisfied, Beneficiary and its agents shall have the right at all reasonable times to inspect the Mortgaged Property, the Personal Property and the other security for the Obligations, and all applicable books and financial records relating thereto. 2.14 Applicable to Prior Liens. If this Deed of Trust is or becomes ------------------------- subordinate to any other lien, security interest, assignment of leases or rents or any other encumbrance affecting any of the Mortgaged Property (collectively, the "Prior Liens") the provisions of this Section shall apply. Grantor shall not enter into any renewal, extension, modification, increase or refinancing of any instrument or document (collectively the "Prior Lien Documents") which creates, evidences or governs any such Prior Lien or the indebtedness secured thereby without the prior written consent of Beneficiary. Grantor shall pay when due all indebtednesses evidenced and secured by the Prior Lien Documents and shall timely perform all other obligations of the Grantor under the Prior Lien Documents. Beneficiary may, but shall not be obligated to, pay any such indebtedness or perform any such obligations for the account of Grantor and any sum so expended plus interest shall be secured hereby. Grantor shall pay to Beneficiary on demand all amounts so expended by Beneficiary with interest on such amounts at the Default Rate (hereinafter defined). Grantor shall send to Beneficiary a copy of each notice of default or notice of acceleration or other notice received by Grantor from the holder of any of the Prior Lien Documents within three (3) business days after receipt thereof by Grantor. Notwithstanding the foregoing, Beneficiary does not consent to any Prior Lien unless otherwise expressly permitted in this Deed of Trust. 2.15 Due on Sale or Encumbrance. Grantor hereby acknowledges to -------------------------- Beneficiary that (a) the identity and expertise of Grantor were and continue to be material circumstances upon which the Beneficiary has relied in connection with, and which constitute valuable consideration to Beneficiary for, issuing the Letter of Credit and entering into the Reimbursement Agreement, (b) any change in such identity or expertise could materially impair or jeopardize the security granted to Beneficiary by this Deed of Trust, for the payment of the Obligations. Grantor therefore covenants and agrees with Beneficiary that the entire Obligations secured by this Deed of Trust shall, at the absolute option of Beneficiary, be and become immediately due and payable should the Grantor, without the prior written consent of Beneficiary (which consent may be given or withheld in the sole and absolute discretion of Beneficiary), sell, assign, transfer, convey, lease with option to purchase, enter into a contract for sale, grant an option to purchase, or further encumber any or all of Grantor's interest in the Mortgaged Property or the Personal Property, or any portion thereof, or permit the same to be sold, assigned, transferred, conveyed, contracted for or further encumbered. Any change of ownership in the stock ownership of Grantor, without the prior written consent of Beneficiary, shall also be deemed to constitute a breach of this covenant. 2.16 Hazardous Wastes. (a) As used below, and in any of the other Letter ---------------- of Credit Documents, "Hazardous Substances" shall mean and include all hazardous and toxic substances, wastes or materials, any pollutants or contaminants (including, without limitation, asbestos and raw materials which include hazardous constituents), or any other similar substances, or materials which are included under any local, state or federal law, rules or regulations pertaining to environmental regulation, contamination or clean-up, including, without limitation, "CERCLA," "RCRA," or state lien or state superlien or environmental clean-up statutes (all such laws, rules and regulations being referred to collectively as "Environmental Laws"). Grantor warrants, represents and covenants as follows: (i) Neither the Mortgaged Property nor any other personal or real property owned by Grantor is subject to any private or governmental lien or judicial or administrative notice or action, relating to Hazardous Substances or environmental problems, impairments or liabilities with respect to the Mortgaged Property or such other property, or the direct or indirect violation of any Environmental Laws. (ii) Except strictly in accordance with all applicable Environmental Laws (A) no Hazardous Substances are located on or have been stored, processed or disposed of on or to the best of Grantor's knowledge released or discharged from (including ground water contamination) the Mortgaged Property, and no aboveground or underground storage tanks exist on the Mortgaged Property other than as disclosed in environmental reports supplied to the Beneficiary; and (B) Grantor shall not allow any Hazardous Substances - 6 - to be stored, located, discharged, possessed, managed, processed or otherwise handled on the Mortgaged Property. Grantor shall comply with all Environmental Laws affecting the Mortgaged Property. (iii) To the best of the Grantor's knowledge and belief, no property adjoining the Mortgaged Property is being used, or has ever been used at any previous time for the disposal, storage, treatment processing or other handling of Hazardous Substances. (iv) Grantor shall immediately notify Beneficiary should Grantor become aware of (1) any Hazardous Substance or other environmental problem or liability with respect to the Grantor or the Mortgaged Property, or (2) any lien, action, or notice of the nature described in subparagraph (i) above. Grantor shall, at Grantor's own cost and expense, take all actions as shall be necessary or advisable for the clean-up of the Mortgaged Property, including all removal, containment and remedial actions in accordance with all applicable Environmental Laws (and in all events in a manner satisfactory to Beneficiary), and shall further pay or cause to be paid at no expense to Beneficiary all clean-up, administrative and enforcement costs of any court or applicable government agencies which may be asserted against the Mortgaged Property or the owner thereof. Grantor shall indemnify Beneficiary against and hold it harmless from all clean-up, administrative and enforcement costs, damages, liabilities, losses, claims, expenses (including attorneys' fees and disbursements) which are incurred by Beneficiary, whether before or after foreclosure of the lien hereof, with respect to any violation or claim of violation of any Environmental Law pertaining to the Mortgaged Property. Grantor shall (1) pay such amounts within ten (10) days after notice from Beneficiary itemizing the amounts incurred to the date of such notice without requirement of waiting for the ultimate outcome of any litigation, claim or other proceeding; or (2) provide Beneficiary, within ten (10) days after demand by Beneficiary, with a bond, letter of credit or similar financial assurance evidencing to Beneficiary's satisfaction that the necessary funds are available to pay the cost of removing, treating and disposing of such Hazardous Substances and discharging any assessments which may be established on the Mortgaged Property as a result thereof. (b) Beneficiary (by its officers, employees and agents) at any time and from time to time, after the occurrence of an Event of Default, may contract for the services of persons (the "Site Reviewers") to perform environmental site assessments ("Site Assessments") on the Mortgaged Property for the purpose of determining whether there exists on the Mortgaged Property any environmental condition which could reasonably be expected to result in any liability, cost or expense to the owner, occupier or operator of such Mortgaged Property arising under any state, federal or local law, rule or regulation relating to Hazardous Substances. The Site Assessments may be performed at any time or times, upon reasonable notice, and under reasonable conditions established by Grantor which do not impede the performance of the Site Assessments. The Site Reviewers are hereby authorized to enter upon the Mortgaged Property for such purposes. The Site Reviewers are further authorized to perform both above and below the ground testing for environmental damage or the presence of Hazardous Substances on the Mortgaged Property and such other tests on the Mortgaged Property as may be necessary to conduct the Site Assessments in the reasonable opinion of the Site Reviewers. Grantor will supply to the Site Reviewers such historical and operational information regarding the Mortgaged Property as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments and will make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. On request, Beneficiary shall make the results of such Site Assessments fully available to Grantor, which (prior to an Event of Default) may at its election participate under reasonable procedures in the direction of such Site Assessments and the description of tasks of the Site Reviewers. The reasonable cost of performing such Site Assessments shall be paid by Grantor upon demand of Beneficiary and any such obligations shall be Obligations secured by this Deed of Trust. (c) Beneficiary shall have the right but not the obligation, prior or subsequent to an Event of Default, without in any way limiting Beneficiary's other rights and remedies under this Deed of Trust, to enter onto the Mortgaged Property or to take such other actions as it deems necessary or advisable to clean up, remove, resolve or minimize the impact of, or otherwise deal with, any Hazardous Substances on the Mortgaged Property following receipt of any notice from any person or entity asserting the existence of any Hazardous Substance pertaining to the Mortgaged Property or any part thereof which, if true, could result in an order, suit, imposition of a lien on the Mortgaged Property, or other - 7 - action and/or which, in Beneficiary's sole opinion, could jeopardize Beneficiary's security under this Deed of Trust. All reasonable costs and expenses paid or incurred by Beneficiary in the exercise of any such rights shall be Obligations secured by this Deed of Trust and shall be payable by Grantor upon demand. (d) All warranties and representations above shall be deemed to be continuing and shall remain true and correct in all material respects until all of the Obligations have been paid in full and any limitations period expires. Grantor's covenants above shall survive any exercise of any remedy by Beneficiary under the Letter of Credit Documents, including foreclosure of this Deed of Trust (or deed in lieu thereof), even if, as a part of such foreclosure or deed in lieu of foreclosure, the Obligations are satisfied in full and/or this Deed of Trust shall have been released. 2.17 Relationship of Parties; Adequate Consideration. Grantor and Borrower ----------------------------------------------- are each first tier, wholly-owned subsidiaries of Grand Prix Association of Long Beach, Inc. and are part of an integrated business. Grantor has received adequate consideration from Bank for the grant made in this Deed of Trust by virtue of the benefit it will receive as a result of the issuance of the Letter of Credit for the benefit of Borrower. ARTICLE III ASSIGNMENT OF RENTS AND LEASES 3.1 Assignment of Rents and Leases. All of the rents, royalties, bonuses, ------------------------------ issues, profits, revenue, income, deposits, escrow accounts and other benefits derived from the Mortgaged Property or arising from the use or enjoyment of any portion thereof or from any existing or future lease or agreement pertaining thereto and liquidated damages following default under such leases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of the Mortgaged Property, together with any and all rights that Grantor may have against any tenant under such leases or any subtenants or occupants of any part of the Mortgaged Property and any award made hereafter to Grantor in any court proceeding involving any of the tenants or in any bankruptcy, insolvency, or reorganization proceedings in any state or federal court, and all payments by tenants in lieu of rent (all hereinafter collectively called the "Rents"), are hereby absolutely and unconditionally assigned to Beneficiary, to be applied by Beneficiary in payment of the Obligations. Grantor hereby further assigns to Beneficiary all existing and future leases, including subleases, any and all extensions, renewals, modifications, and replacements thereof, and all guaranties of tenants' performance thereunder, upon any part of the Mortgaged Property (the "Leases"). It is understood and agreed by the parties that this assignment is intended to be and is an absolute assignment from Grantor to Beneficiary, and not merely the passing of a security interest; provided, however, that prior to an Event of Default, Grantor shall have a license, without joinder of Beneficiary, to enforce the Leases and to collect the Rents as they come due and to retain, use and enjoy the same. Grantor shall, upon request of Beneficiary, execute confirmatory assignments of any specific leases affecting any part of the Mortgaged Property. 3.2 Warranties Concerning Leases and Rents. Grantor represents and -------------------------------------- warrants: (a) Grantor has good title to the Leases and Rents hereby assigned and full authority to assign them without the consent of any other party; (b) none of the Rents have been or will be assigned, mortgaged or pledged; (c) all existing Leases are valid and in full force and effect, and neither Grantor nor any tenant is in default under any of the Leases; (d) none of the Rents have been or will be anticipated, waived, released, discounted, set off or compromised; - 8 - (e) except as indicated in the Leases, Grantor has not received any funds or deposits from any tenant except for and on account of Rents which have heretofore come due; (f) the terms of the Leases have not been changed from the terms in the copies of any of the Leases submitted to Beneficiary for approval. 3.3 Grantor's Covenants of Performance. Grantor covenants to: ---------------------------------- (a) perform all of its obligations under the Leases, take all action and fulfill all covenants and conditions required to enforce the Leases against the tenants, and give prompt notice to Beneficiary of any material failure to do so; (b) enforce the tenants' obligations under the Leases; (c) defend, at Grantor's expense, any proceeding pertaining to the Leases, including, if Beneficiary so requests, any such proceeding to which Beneficiary is a party; and (d) neither create nor permit any encumbrance upon or assignment of Grantor's interest as lessor under the Leases, except this Deed of Trust. 3.4 Prior Approval for Actions Affecting Leases. Grantor shall not, ------------------------------------------- without the prior written consent of Beneficiary: (a) receive or collect Rents not yet due under the terms of any of the Leases; (b) waive or release any obligation of any tenant under the Leases or any party liable under the Leases; (c) cancel, terminate or modify any of the Leases, cause or permit any cancellation, termination or surrender of any of the Leases, or commence any proceedings for dispossession of any tenant under any of the Leases, except upon default by the tenant thereunder; or (d) change, alter or modify any of the Leases. 3.5 Settlement for Termination. Grantor agrees that no settlement for -------------------------- damages for termination of any of the Leases under the Federal Bankruptcy Code, or under any other federal, state, or local statute, shall be made without the prior written consent of Beneficiary, and any check in payment of such damages shall be made payable solely to Beneficiary or jointly to Grantor and Beneficiary. Grantor agrees to endorse any dual payee check for such payment to the order of Beneficiary. Unless Beneficiary shall hereafter agree otherwise, any such settlement for damages shall be applied to the Obligations as Beneficiary may elect. 3.6 No Obligation upon Beneficiary. Beneficiary's acceptance of the ------------------------------ assignment of Leases and Rents provided for herein shall not obligate Beneficiary to appear in or defend any proceeding relating to any of the Leases or to the Mortgaged Property, take any action hereunder, expend any money, incur any expenses, or perform any obligation or liability under the Leases, or assume any obligation for any deposits delivered to Grantor by any tenant. Beneficiary shall not be liable for any injury or damage to person or property in or about the Mortgaged Property. 3.7 Records. Upon request by Beneficiary, Grantor shall deliver to ------- Beneficiary executed originals of all Leases and copies of all records relating thereto. 3.8 Merger. There shall be no merger of the leasehold estates created by ------ the Leases with the fee estate of the Mortgaged Property without the prior written consent of Beneficiary. - 9 - 3.9 Right to Rely. Grantor hereby authorizes Beneficiary to give notice ------------- in writing of this assignment at any time to any tenant under any of the Leases, and from and after the occurrence of an Event of Default hereunder, to direct any such tenant to make payment of rentals and other amounts due directly to Beneficiary. Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Beneficiary upon written demand by Beneficiary, without further consent of Grantor, and without verifying whether an Event of Default has occurred; and the tenants may rely upon any written statement delivered by Beneficiary to the tenants. Any such payment to Beneficiary shall constitute full acquittance to the party making such payment for the amount of such payment. 3.10 Priority of Leases. Except to the extent, if any, otherwise provided ------------------ in a written instrument signed by Beneficiary, the lien of this Deed of Trust is prior and paramount to all Leases of the Mortgaged Property or any part thereof. However, Beneficiary may at its option without the consent of any person or entity, at any time subordinate the lien of this Deed of Trust to any existing or future Lease of all or any part of the Mortgaged Property by giving written notice to the tenant under such Lease; and upon sale of the Mortgaged Property under this Deed of Trust such tenant shall attorn to the owner and each successive owner of the Mortgaged Property. ARTICLE IV SECURITY AGREEMENT 4.1 Security Interest. This Deed of Trust shall be a security agreement ----------------- between Grantor, as debtor, and Beneficiary, as secured party, respecting the Personal Property, and Grantor grants to Beneficiary a security interest in such Personal Property (described in EXHIBIT "B" hereto). In addition to Beneficiary's other rights hereunder, Beneficiary shall have all rights of secured parties under the Uniform Commercial Code as adopted in Tennessee (hereinafter called the "Code"). Grantor shall execute and deliver to Beneficiary all financing statements that may be required by Beneficiary to establish and maintain the validity and priority of Beneficiary's security interest, and Grantor shall bear all costs thereof, including all Code searches reasonably required by Beneficiary. Upon the occurrence of an Event of Default, Beneficiary or the Trustees may sell the Personal Property as provided in Article VI hereof. This security agreement is supplemental to, and not in derogation of, any separate security agreement which now or hereafter is entered into between the Grantor and the Beneficiary. 4.2 Representations and Warranties. The Grantor represents and warrants ------------------------------ as follows: (a) Grantor's principal place of business and chief executive office is set forth in the first paragraph of this Deed of Trust. (b) The Grantor owns and, with respect to any Personal Property hereafter acquired, will own the Personal Property free and clear of any lien, security interest or other charge or encumbrance except for the security interest created by this Deed of Trust, and no effective financing statement or other instrument similar in effect covering all or any part of the Personal Property is on file in any recording office except such as may have been filed in favor of Beneficiary relating to this Deed of Trust; Grantor has not and, with respect to Personal Property hereafter acquired, will not acquire any of the Personal Property under any conditional sales contract or other agreement or arrangement where the seller thereof purports to take or reserve a security interest therein; Grantor has the right to encumber the Personal Property and to grant a security interest therein to Beneficiary; and Grantor will forever warrant and defend the security interest of Beneficiary against the lawful claims of all persons. 4.3 Covenants as to the Personal Property. So long as any of the ------------------------------------- Obligations shall remain outstanding, unless Beneficiary shall otherwise consent in writing: (a) Notice of Changes. Subject to the provisions of Section 2.15 hereof, ----------------- Grantor shall give advance notice in writing to Beneficiary of any change or proposed change in Grantor's name, identity, or structure and shall execute and deliver to Beneficiary, prior to or concurrently with the occurrence of any such change, all additional financing - 10 - statements that Beneficiary may require to establish and maintain the validity and priority of Beneficiary's security interest with respect to any of the Personal Property described or referred to herein. (b) Further Assurances. Grantor will at Grantor's expense, at any time ------------------ and from time to time, promptly execute and deliver all further instruments and documents and take all further action that Beneficiary deems necessary or desirable or that Beneficiary may request in order (i) to perfect and protect the security interest created or purported to be created hereby; (ii) to enable Beneficiary to exercise and enforce its rights and remedies hereunder in respect of the Personal Property; or (iii) to otherwise effect the purposes of this Deed of Trust, including, without limitation: (A) executing and filing such financing or continuation statements, or amendments thereto, as Beneficiary deems necessary or desirable or that Beneficiary may request in order to perfect and preserve the security interest created or purported to be created hereby; (B) furnishing to Beneficiary from time to time statements and schedules further identifying and describing the Personal Property and such other reports in connection with the Personal Property as Beneficiary may reasonably request, all in reasonable detail. (c) Location of Property. The Grantor will at all times keep all of the -------------------- Tangible Personal Property on the Mortgaged Property. (d) Financing Statements. The Grantor hereby authorizes Beneficiary to -------------------- file, without execution by the Grantor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Personal Property. (e) Care and Custody. The powers conferred on Beneficiary hereunder are ---------------- solely to protect its interest in the Personal Property and shall not impose any duty upon it to exercise any such powers. Except for the accounting for moneys actually received by it hereunder, Beneficiary shall have no duty as to any Personal Property, the preservation or protection of the same or the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Personal Property. ARTICLE V EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an Event of Default hereunder: 5.1 Failure to Pay Obligations. If Grantor or Borrower shall fail to pay -------------------------- any part of their respective Obligations, whether principal or interest, promptly when the same becomes due, or if the Grantor shall fail to pay any sum necessary to satisfy and discharge taxes and assessments promptly when due, or to maintain insurance or repairs, or the necessary expense of protecting the Mortgaged Property or the Personal Property and executing this trust; or 5.2 Default Under Other Liens. If any of the Mortgaged Property or the ------------------------- Personal Property be levied upon or attached by any legal process, or if there shall occur any default under or with respect to any Prior Lien, or if the holder of any lien or security interest on the Mortgaged Property or the Personal Property institutes foreclosure or other proceedings for the enforcement of its remedies thereunder; or 5.3 Default on Other Indebtedness. If the Grantor shall default in the ----------------------------- payment of any other indebtedness, liability or obligation now or hereafter owed by the Grantor to the Beneficiary; or 5.4 Bankruptcy or Insolvency. If Grantor, or any other owner of the ------------------------ Mortgaged Property, or any guarantor of any of the Obligations, shall voluntarily become a party to any insolvency, bankruptcy, composition or reorganization procedure, or make any assignment for the benefit of creditors; or if any involuntary bankruptcy, insolvency, composition, or other reorganization proceedings be filed against Grantor, any other owner of the Mortgaged Property, - 11 - or any guarantor of the Obligations, and the same shall not be dismissed within thirty (30) days after the commencement of any such involuntary proceedings; or 5.5 Abandonment. If Grantor abandons any material portion of the ----------- Mortgaged Property; or 5.6 Grant of Easement, etc. If Grantor grants any easement or dedication, ----------------------- files any plat, condominium declaration or restriction, or enters into any lease, with respect to the Mortgaged Property, unless such action is authorized by the Letter of Credit Documents or is otherwise consented to by Beneficiary; or 5.7 False Representation. If any statement, representation or warranty in -------------------- the Letter of Credit Documents, any financial statement or any other writing delivered to Beneficiary in connection with the Obligations is false, misleading or erroneous in any material respect; or 5.8 Grantor's Default Under Leases. If Grantor shall default in any of ------------------------------ Grantor's covenants, obligations and undertakings under any of the Leases and shall fail to cure said default within the time, if any, permitted by any of such Leases for cure thereof; or 5.9 Nonperformance of Covenants. If there shall occur any other default --------------------------- in Grantor's covenants, warranties, agreements, liabilities, obligations and undertakings as contained in this Deed of Trust or the Letter of Credit Documents (including, without limitation, any "Event of Default" as defined in the Reimbursement Agreement), or contained in any other instrument which now or hereafter secures the Obligations, if such default is not cured within a period of ten (10) days following the date of written notice thereof by the Bank to Grantor, or if there is another cure period specifically applicable to such default, within such applicable cure period. ARTICLE VI REMEDIES If an Event of Default shall occur, Beneficiary may exercise any one or more of the following remedies: 6.1 Acceleration. Beneficiary may declare the entire Obligations, ------------ principal and interest, immediately due and payable without notice or demand, the same being hereby expressly waived. 6.2 Enforcement of Assignment of Rents and Leases. Beneficiary may: --------------------------------------------- (a) terminate the license granted to Grantor to collect the Rents (regardless of whether Beneficiary or Trustee shall have entered into possession of the Mortgaged Property), collect and sue for the Rents in Beneficiary's own name, give receipts and releases therefor, and after deducting all expenses of collection, including reasonable attorneys' fees, apply the net proceeds thereof to any Obligations as Beneficiary may elect; (b) make, modify, enforce, cancel or accept surrender of any Leases, evict tenants, adjust Rents, maintain, decorate, refurbish, repair, clean, and make space ready for renting, and otherwise do anything Beneficiary reasonably deems advisable in connection with the Mortgaged Property; (c) apply the Rents so collected to the operation and management of the Mortgaged Property, including the payment of reasonable management, brokerage and attorneys' fees, or to the Obligations; and (d) require Grantor to transfer and deliver possession of all security deposits and records thereof to Beneficiary. - 12 - 6.3 Power of Sale. Beneficiary may require the Trustees, and the Trustees ------------- are hereby authorized and empowered, to enter and take possession of the Mortgaged Property and to sell all or part of the Mortgaged Property, at public auction, to the highest bidder for cash, free from equity of redemption, and any statutory or common law right of redemption, homestead, dower, marital share, and all other exemptions, after giving notice of the time, place and terms of such sale and of the Mortgaged Property to be sold, by advertising the sale of the property for twenty-one (21) days by three (3) weekly notices in some newspaper published in the county and state where the Mortgaged Property is situated, which notice may be given before or after entry by the Trustees. The Trustee shall execute a conveyance to the purchaser in fee simple and deliver possession to the purchaser, which the Grantor warrants shall be given without obstruction, hindrance or delay. Trustee may sell all or any portion of the Mortgaged Property, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property a conveyance in fee simple. Trustee making such sale shall receive the proceeds thereof and shall apply the same as follows: (a) first, the payment of the expenses of making, maintaining and executing this trust, protection of the Mortgaged Property, including the expense of any litigation and reasonable attorneys' fees, and reasonable compensation to the Trustee; (b) second, to any advancements made by the Trustee or the Beneficiary pursuant hereto, with interest thereon; (c) third, to the payment of the Obligations herein secured or intended so to be, in such order as Beneficiary shall elect, and any balance of said Obligations may be the subject of immediate suit; (d) and, fourth, should there be any surplus, Trustee will pay it to the Grantor, or to such person as may be legally entitled thereto. The sale or sales by Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Mortgaged Property shall be less than the aggregate of the Obligations and the expenses thereof, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property; provided, however, that Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Beneficiary shall have the right at its sole election, to request Trustee to sell less than the whole of the Mortgaged Property. Beneficiary may bid and become the purchaser of all or any part of the Mortgaged Property at any such sale, and the amount of Beneficiary's successful bid may be credited on the Obligations. 6.4 Sale of Personal Property. At the request of the Beneficiary the ------------------------- Trustee shall sell the Personal Property concurrently with and in conjunction with a sale of the Mortgaged Property, in which case the provisions of the preceding Section shall apply to the Personal Property as well as the Mortgaged Property. Grantor stipulates and agrees that a sale of the Personal Property in conjunction with the Mortgaged Property is a commercially reasonable manner of disposing of the Personal Property. Alternatively, Beneficiary may sell or otherwise dispose of the Personal Property separately and apart from the Mortgaged Property in the time and manner provided by the Code. To the extent that the Code shall require prior notice of sale or other disposition of the Personal Property, five (5) days written notice shall be deemed to be reasonable notice. Beneficiary also may (a) require the Grantor to, and the Grantor hereby agrees that Grantor will at Grantor's expense and upon request of Beneficiary forthwith, assemble all or part of the Personal Property as directed by Beneficiary and make it available to Beneficiary at a place to be designated by Beneficiary which is reasonably convenient to the parties; and (b) sell the Personal Property or any part thereof in one or more parcels at public or private sale for cash or credit or for future delivery, and at such price or prices and upon such other terms as Beneficiary may deem commercially reasonable. Beneficiary shall not be obligated to make any sale of the Personal Property regardless of notice of sale having been given. Beneficiary may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 6.5 Judicial and Other Relief. Beneficiary or Trustees may proceed by a ------------------------- suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property or the Personal Property under the judgment or decree of any court or courts of competent jurisdiction. 6.6 Entry on Mortgaged Property; Tenancy at Will. (a) Beneficiary may -------------------------------------------- enter into and upon and take possession of all or any part of the Mortgaged Property, and may exclude Grantor, and all persons claiming under - 13 - Grantor, and its agents or servants, wholly or partly therefrom; and, holding the same, Beneficiary may use, administer, manage, operate, and control the Mortgaged Property and may exercise all rights and powers of Grantor in the name, place and stead of Grantor, or otherwise, as the Beneficiary shall deem best; and in the exercise of any of the foregoing rights and powers Beneficiary shall not be liable to Grantor for any loss or damage thereby sustained unless due solely to the willful misconduct or gross negligence of Beneficiary. (b) In the event of a trustee's or other foreclosure sale hereunder and if at the time of such sale Grantor or any other party (other than a tenant under a Lease as to which the Beneficiary shall have expressly subordinated the lien of this Deed of Trust as hereinabove set out) occupies the portion of the Mortgaged Property so sold or any part thereof, such occupant shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of such purchaser, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied (but not less than any rental theretofore paid by such tenant, computed on a daily basis). An action of forcible detainer shall lie if any such tenant holds over after a demand in writing for possession of such portion of the Mortgaged Property. 6.7 Receiver. Beneficiary may make application to a court of competent -------- jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Obligations, for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all necessary and proper powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court. 6.8 Beneficiary's Right to Perform. Upon Grantor's failure to make a ------------------------------ payment or perform an act required by the Letter of Credit Documents, then at any time thereafter, and without notice to or demand upon Grantor and without waiving or releasing any other right, remedy or recourse, Beneficiary may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor, and shall have the right to enter upon the Mortgaged Property for such purpose and to take all such action as Beneficiary may deem necessary or appropriate. 6.9 Remedies Cumulative, Concurrent and Nonexclusive. If the Obligations ------------------------------------------------ are now or hereafter further secured by chattel mortgages, deeds of trust, security agreements, pledges, contracts of guaranty, assignments of leases, or other security, Beneficiary may, at its option, exhaust its remedies under any one or more of said instruments and this Deed of Trust, either concurrently or independently, and in such order as Beneficiary may determine. Beneficiary shall have all rights, remedies and recourses granted in the Letter of Credit Documents and available to it at law or equity (including, without limitation, those granted by the Code), and same (a) shall be cumulative, concurrent, and nonexclusive, (b) may be pursued separately, successively or concurrently against Grantor or others obligated for the Obligations, or any part thereof or against any one or more of them, or against the Mortgaged Property or the Personal Property, at the sole discretion of Beneficiary, and (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise of or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse. ARTICLE VII TRUSTEES 7.1 Action by Either Trustee. Either of the Trustees named herein shall ------------------------ be clothed with full power to act when action hereunder shall be required, and to execute any conveyance of the Mortgaged Property. In the event that the substitution of a Trustee shall become necessary for any reason, the substitution of one trustee in the place of those or any of those named herein shall be sufficient. The term "Trustees" shall be construed to mean "Trustee" whenever the sense requires. The necessity of the Trustees herein named, or any successor in trust, making oath or giving bond, is expressly waived. - 14 - 7.2 Employment of Agents. The Trustees, or any one acting in their stead, -------------------- shall have, in their discretion, authority to employ all proper agents and attorneys in the execution of this trust and/or in the conducting of any sale made pursuant to the terms hereof, and to pay for such services rendered out of the proceeds of the sale of the Mortgaged Property, should any be realized; and if no sale be made or if the proceeds of sale be insufficient to pay the same, then Grantor hereby undertakes and agrees to pay the cost of such services rendered to said Trustees. Trustees may rely on any document believed by them in good faith to be genuine. All money received by Trustees shall, until used or applied as herein provided, be held in trust, but need not be segregated (except to the extent required by law), and Trustees shall not be liable for interest thereon. 7.3 Indemnification of Trustees. If the Trustees shall be made a party to --------------------------- or shall intervene in any action or proceeding affecting the Mortgaged Property or the title thereto, or the interest of the Trustees or Beneficiary under this Deed of Trust, the Trustees and Beneficiary shall be reimbursed by Grantor, immediately and without demand, for all reasonable costs, charges and attorney's fees incurred by them or either of them in any such case, and the same shall be secured hereby as a further charge and lien upon the Property. 7.4 Successor Trustee. In the event of the death, refusal, or of ----------------- inability for any cause, on the part of the Trustees named herein, or of any successor trustee, to act at any time when action under the foregoing powers and trust may be required, or for any other reason satisfactory to the Beneficiary, the Beneficiary is authorized, either in its own name or through an attorney or attorneys in fact appointed for that purpose, by written instrument duly registered, to name and appoint a successor or successors to execute this trust, such appointment to be evidenced by writing, duly acknowledged; and when such writing shall have been registered, the substituted trustee named therein shall thereupon be vested with all the right and title, and clothed with all the power of the Trustees named herein and such like power of substitution shall continue so long as any part of the debt secured hereby remains unpaid. ARTICLE VII MISCELLANEOUS 8.1 Waiver of Marshaling and Certain Rights. To the extent that Grantor --------------------------------------- may lawfully do so, Grantor hereby expressly waives any right pertaining to the marshalling of assets or marshalling of liens, the equity of redemption, any statutory or common law right of redemption, homestead, dower, marital share, and all other exemptions, or other matter which might defeat, reduce or affect the right of Beneficiary to sell the Mortgaged Property or the Personal Property for the collection of the Obligations, or the right of Beneficiary to the payment of the Obligations out of the proceeds of sale of the Mortgaged Property or the Personal Property, or the proceeds of the Rents and Leases, in preference to every other person and claimant. 8.2 Waiver of Impairment of Recourse Defenses. Without affecting the ----------------------------------------- liability of Grantor or any other person (except any person expressly released in writing) for the payment or performance of any of the Obligations, and without affecting the rights of Beneficiary with respect to any security not expressly released in writing, Beneficiary may, at any time, and from time to time, either before or after the maturity of the Note, and without notice or consent: (a) Release any person liable for payment or performance of all or any part of the Obligations; (b) Make any agreement extending the time or otherwise altering the terms of payment or of all or any part of the Obligations (without limit as to the number of such extensions or the period or periods thereof), or modifying or waiving any obligation, or subordinating, modifying or otherwise dealing with the lien or charge hereof; (c) Exercise or refrain from exercising any right Beneficiary may have; (d) Accept additional security of any kind; - 15 - (e) Release or otherwise deal with any property, real or personal, securing the Obligations, including all or any part of the Mortgaged Property herein described. Furthermore, the failure of the Beneficiary to perfect any lien granted herein or in any other Loan Document, to take any action to obtain payment or performance of the Obligations or to exercise any rights or remedies available hereunder shall not relieve Grantor or any other person from liability for the payment or performance of the Obligations nor effect a discharge of the lien, security interest or assignment herein granted; it being intended that all "impairment of recourse" and "impairment of collateral" defenses are hereby waived. 8.3 No Waiver. No waiver by the Trustee or the Beneficiary shall be --------- construed as a waiver of a subsequent similar default or any other default by the Grantor. No delay by Beneficiary or by the Trustee in exercising any right or remedy hereunder, or otherwise afforded by law, shall operate as a waiver thereof or preclude the exercise thereof during the continuance of any default hereunder. No failure of Beneficiary to exercise any option herein given to declare the maturity of the debt hereby secured, no forbearance by Beneficiary after the exercise of such option, and no withdrawal or abandonment of foreclosure proceedings by the Beneficiary after the exercise of such option, shall be taken or construed as a waiver of its right to exercise such option or to declare such maturity by reason of any past, present, or future default on the part of the Grantor. Acceptance by Beneficiary of partial payments shall not constitute a waiver of the default by failure to make full payments. 8.4 Beneficiary's Consent. Except as otherwise expressly provided herein, --------------------- in any instance hereunder where Beneficiary's approval or consent is required or the exercise of Beneficiary's judgment is required, the granting or denial of such approval or consent and the exercise of such judgment shall be within the sole discretion of Beneficiary, and Beneficiary shall not, for any reason or to any extent, be required to grant such approval or consent or exercise such judgment. Beneficiary may consult with counsel, and the written advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. 8.5 Appointment of Attorney. Grantor hereby irrevocably appoints ----------------------- Beneficiary as Grantor's attorney-in-fact, coupled with an interest, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Beneficiary's discretion, to take any action and to execute any instrument which Beneficiary may deem necessary or advisable to accomplish the purposes of this Deed of Trust, including, without limitation (a) to obtain and adjust insurance required to be maintained pursuant to the provisions of this Deed of Trust; (b) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due in respect of any of the Mortgaged Property, the Leases or the Personal Property; (c) to receive, endorse, and collect any drafts or other instruments, documents, and chattel paper in connection with clause (a) or (b) above; (d) to appear in any action concerning any of the Leases; and (e) to file any claims or take any action or institute any proceedings which Beneficiary may deem necessary or desirable for the collection of any of the Rents or the Personal Property or any amounts otherwise due in connection with the Mortgaged Property or the Personal Property, or otherwise to enforce the rights of Beneficiary with respect to the Mortgage Property, the Leases and Rents and the Personal Property. Grantor hereby ratifies and approves all acts of said attorney; and so long as the attorney acts in good faith it shall have no liability to Grantor for any act or omission as such attorney. 8.6 Estoppel Certificate. At the request of the Beneficiary, the Grantor -------------------- shall furnish promptly a written statement or affidavit, in such form as may be required by Beneficiary, confirming the unpaid balance of the Obligations, the date to which interest has been paid and that there are no offsets to or defenses against any payment or performance of the Obligations or, if there are any such offsets or defenses, specifying them. 8.7 Expenses of Beneficiary. The Grantor will upon demand pay to the ----------------------- Beneficiary the amount of any and all costs and expenses, including without limitation all fees and disbursements of the Beneficiary's counsel and of any experts and agents, which Beneficiary may incur in connection with (a) the preparation and recording of this Deed of Trust and the financing statements to be filed to perfect the security interests granted herein, (b) the administration of - 16 - this Deed of Trust, (c) the sale of, collection from, or other realization upon the Mortgaged Property, the Rents and Leases and the Personal Property; (d) the exercise or enforcement of any of the rights of Beneficiary hereunder; or (e) the failure of Grantor to perform or observe any of the provisions hereof. 8.8 Indemnification. The Grantor agrees to indemnify and hold the --------------- Beneficiary harmless from and against any and all claims, losses, and liabilities arising out of or resulting from this Deed of Trust and the assignment of rents and leases and the grant of security interests contained herein (including, without limitation, enforcement of this Deed of Trust), and/or arising out of or in connection with any other Letter of Credit Documents, except claims, losses, or liabilities resulting solely and directly from the Beneficiary's gross negligence or willful misconduct. In the event that Beneficiary shall assign or transfer its rights hereunder or under the Reimbursement Agreement or any other Letter of Credit Documents, the rights of the Beneficiary under this section, under the immediately preceding section and under any other provisions of the Letter of Credit Documents which require the Grantor to indemnify or pay expenses of the Beneficiary shall continue in favor of the Beneficiary originally named herein as well as any successor or assign of the Beneficiary; and any such provision may be enforced severally by the original Beneficiary named herein or any such successor or assign of the Beneficiary or, at their option, by all of such parties acting jointly. 8.9 Default Rate. If Beneficiary shall expend any money chargeable to ------------ Grantor or subject to reimbursement by Grantor under the terms of this Deed of Trust or any of the other Letter of Credit Documents, Grantor shall repay the same to Beneficiary immediately at the place where payments, if any, under the Reimbursement Agreement are payable, together with interest thereon from the date due (or, if there is no specified due date, from the date of demand therefor by Beneficiary) until paid at a rate (herein the "Default Rate") equal to the lesser of (a) twenty percent (20%) per annum, or (b) the maximum effective contract rate of interest allowed by applicable law. 8.10 Subrogation. To the extent that proceeds of the Obligations are used ----------- to pay any outstanding lien, charge or encumbrance affecting the Mortgaged Property (including, without limiting the generality of the foregoing, any Prior Lien) Beneficiary shall be subrogated to all rights, interests and liens owned or held by any owner or holder of such outstanding liens, charges and encumbrances, irrespective of whether such liens, charges or encumbrances are released of record; provided, however, that the terms and provisions hereof ----------------- shall govern the rights and remedies of Beneficiary and, to the extent permitted by law without impairing any of Beneficiary's rights of subrogation, shall supersede the terms, provisions, rights, and remedies under the lien or liens to which Beneficiary is subrogated hereunder. 8.11 Payment in Full. If the said Grantor shall pay and perform all of the --------------- Obligations promptly when due, and shall pay such sums as shall be necessary to discharge taxes and maintain insurance and perform repairs and the costs, fees and expenses of making, enforcing and executing this trust, when they shall severally be due and payable, and shall comply with all of the covenants, terms and conditions of the Reimbursement Agreement, and this Deed of Trust, and any other instrument which also now or hereafter secures the Obligations secured hereby, then this conveyance shall become void, the Trustees shall reconvey by quitclaim the Mortgaged Property herein described at the expense of the Grantor, and the Beneficiary shall execute and deliver to Grantor, at Grantor's request, such documents as may be necessary to evidence the termination of the security interests and assignments herein granted. 8.12 No Partnership. Nothing contained in this Deed of Trust is intended -------------- to create any partnership, joint venture or association between Grantor and Beneficiary, or in any way make Beneficiary a co-principal with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 8.13 Headings, Use of Terms. The article, paragraph and subparagraph ---------------------- headings hereof are inserted for convenience of reference only and shall not alter, define, or be used in construing the text of such articles, paragraphs or subparagraphs. Whenever used, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. The term "Grantor" shall include in their individual capacities and jointly all parties hereinabove named a Grantor. The term "Beneficiary" shall include any lawful owner, holder, pledgee, or assignee of any of the Obligations. The duties, covenants, conditions, obligations, and warranties of Grantor in this - 17 - Deed of Trust shall be joint and several obligations of Grantor and each Grantor, if more than one, and each Grantor's heirs, personal representatives, successors and assigns. 8.14 Severability. If any provision of this Deed of Trust is held to be ------------ illegal, invalid, or unenforceable under present or future laws effective while this Deed of Trust is in effect, the legality, validity and enforceability of the remaining provisions of this Deed of Trust shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Deed of Trust a provision that is legal, valid and enforceable and as similar in terms to such illegal, invalid or unenforceable provision as may be possible. If any of the Obligations shall be unsecured, the unsecured portion of the Obligations shall be completely paid prior to the payment of the secured portion of such Obligations, and all payments made on account of the Obligations shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Obligations. 8.15 Burden and Benefit. This instrument shall be binding on Grantor, and ------------------ Grantor's successors and assigns, and shall inure to the benefit of the Beneficiary and Trustees and their respective successors and assigns. 8.16 Applicable Law. This Deed of Trust shall be governed by and construed -------------- in accordance with the laws of the State of Tennessee. 8.17 Financial Statements. At the request of the Beneficiary, Grantor -------------------- shall furnish to the Beneficiary, (a) within one hundred twenty (120) days after the end of each fiscal year, financial statements of the Grantor as of the close of such year, and (b) within ninety (90) days after the close of each fiscal year, a detailed operating statement with respect to the Mortgaged Property for the preceding year, reflecting, inter alia, total rents or income ----- ---- received or gross receipts from operations, together with a profit and loss statement for such year and an occupancy report for the Mortgaged Property. If required by Beneficiary, such statements shall be prepared by a certified public accountant acceptable to Beneficiary; and in any event shall be prepared in accordance with generally accepted accounting principles. 8.18 Venue of Actions. It is expressly understood and agreed that no suit ---------------- or action shall be commenced by the Grantor, or by any successor, personal representative or assignee of Grantor, with respect to the indebtedness secured hereby with respect to this Deed of Trust, or any of the other Letter of Credit Documents, other than in a state court of competent jurisdiction in and for the County of the State in which the principal place of business of the Bank is situated, or in the United States District Court for the District in which the principal place of business of the Bank is situated, and not elsewhere. Nothing in this paragraph contained shall prohibit Bank from instituting suit in any court of competent jurisdiction for the enforcement of its rights hereunder, in the Reimbursement Agreement, or in any other Letter of Credit Document. 8.19 Waiver of Right to Trial By Jury. GRANTOR HEREBY EXPRESSLY WAIVES ANY -------------------------------- RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS INSTRUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS INSTRUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING; AND FURTHER AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, - 18 - AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT TO THE WAIVER OF TRIAL BY JURY. IN WITNESS WHEREOF, Grantor has caused this Indenture to be executed by its duly authorized officers, on this the day and year first above written. ATTEST: MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION /s/ Gemma A. Bannon By: /s/ Christopher R. Pook - --------------------------------- ------------------------------ Title: Corporate Secretary Title: President --------------------------- --------------------------- STATE OF California --------------- COUNTY OF Los Angeles -------------- Before me, Christopher Allen, a Notary Public in and for the State and County aforesaid, personally appeared Chris Pook and Gemma Bannon, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged themselves to be the President and Secretary, respectively, of MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION, the within named bargainor, a corporation, and that they as such President and Secretary, being duly authorized so to do, executed the foregoing instrument for the purposes therein contained, by the said Chris Pook signing the name of the corporation by himself as such President and by the said Gemma Bannon attesting the same as such Secretary. WITNESS my hand and seal at office, on this the 22 day of January, 1998. /s/ Christopher Allen -------------------------------- Notary Public My Commission Expires: [NOTARY SEAL] 12-25-99 - --------------------- - 19 - EXHIBIT "A" ----------- (Property Description) [SEE ATTACHED] A-1 EXHIBIT "B" ----------- (a) All stoves, ranges, refrigerators, dishwashers, clothes washers, clothes dryers, disposals, all heating, plumbing, lighting, water heating, incinerating, ventilating and air conditioning equipment, swimming pool equipment, shades, awnings, blinds, drapes and draperies, linoleum, rugs and carpeting, all furniture, furnishings, machinery, equipment, and fixtures (whether or not so attached to the realty as to become a part thereof) and all other tangible personal property of every kind and character now or at any time hereafter located in or on the buildings and improvements on the property described in EXHIBIT "A" attached hereto, together with all substitutions, additions, and accessions to any and all of the foregoing, and exchanges and replacements of any and all of the foregoing; (b) All rents, incomes, profits, revenues, royalties, bonuses, rights, accounts, contract rights, general intangibles, and benefits under any and all leases or tenancies now existing or hereafter created of the real property described in EXHIBIT "A," any improvements thereon, or any part thereof; (c) All leases and subleases covering the property described in EXHIBIT "A" or any portion thereof now or hereafter existing or entered into, and all rights and interests thereunder, including, without limitation, all cash or security deposits, advance rentals, guarantees and deposits of similar nature; (d) All judgments, awards of damages, and settlements hereafter made as a result of or in lieu of any taking of said real property and improvements, or any part thereof or interest therein under the power of eminent domain, or for any damage (whether caused by such taking or otherwise) to said real property or the improvements thereon or any part thereof or interest therein, including any award for change of grade of streets; (e) All proceeds of hazard or other insurance policies maintained with respect to any collateral described in subparagraph (a) above or with respect to the improvements now or hereafter located on said real property (whether or not First Tennessee Bank National Association is loss payee thereof); (f) All proceeds of any and all of the foregoing collateral. Although proceeds are covered, First Tennessee Bank National Association does not authorize the sale or other transfer of any of the collateral or the transfer of any interest in the collateral; in each case, whether now owned or hereafter acquired by Grantor (Debtor) and howsoever the interest of Grantor (Debtor) therein may arise or appear (whether by ownership, lease, security interest, claim, or otherwise). NAME OF RECORD OWNER OF REAL PROPERTY DESCRIBED IN EXHIBIT "A": MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION B-1 EX-10.42 5 GUARANTY AGREEMENT BY GRAND PRIX ASSOCIATION EXHIBIT 10.42 GUARANTY AGREEMENT ------------------ FOR VALUE RECEIVED, and in consideration of credit given or to be given, advances made or to be made, or other financial accommodation from time to time afforded or to be afforded to GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois corporation (hereinafter called the "Debtor"), by FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, and having a place of business in Memphis, Tennessee (hereinafter called the "Bank"), the undersigned, GRAND PRIX ASSOCIATION OF LONG BEACH, INC. (hereinafter the "Guarantor"), hereby jointly and severally (if more than one), for themselves, their heirs, executors, administrators and successors absolutely and unconditionally guarantee(s) the full and prompt payment to the Bank, at maturity (whether by acceleration or otherwise) and at all times thereafter, of each and all of the following: 1. The indebtedness (and interest thereon) incurred under that certain Reimbursement Agreement dated as of January 1, 1998, between Debtor and Bank (the "Reimbursement Agreement") pursuant to which Bank has issued its Irrevocable Standby Letter of Credit No. S983013 in the Stated Amount of $2,501,825.00 (the "Letter of Credit"), said indebtedness and interest being payable to the order of the Bank, at the offices of the Bank at 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan Division, or at such other place as the Bank may designate in writing, being executed by the Debtor, and being given for value received, said Reimbursement Agreement and Letter of Credit being incorporated herein by reference as fully and particularly as if set out verbatim herein; and 2. All obligations of Debtor pursuant to any and all renewals, modifications, or extensions, in whole or in part, of the Reimbursement Agreement and Letter of Credit; and 3. All obligations of the Debtor or Memphis International Motorsports Corporation ("Motorsports") under and pursuant to any deed of trust, mortgage, security agreement, assignment of rents and leases, or other security document (collectively herein called "Security Documents") which now or hereafter secures the payment of the indebtedness evidenced by the Reimbursement Agreement and the Letter of Credit; and 4. All obligations of Debtor or Motorsports pursuant to any and all renewals, modifications, or extensions, in whole or in part, of any of the Security Documents; together with all expenses, legal and/or otherwise (including court costs and reasonable attorney's fees) incurred by the Bank in collecting or endeavoring to collect the Indebtedness, or any part thereof, in protecting any collateral, and in enforcing this Guaranty (all of which is hereinafter collectively referred to as the "Indebtedness"). THIS GUARANTY SHALL BE A CONTINUING, ABSOLUTE AND UNCONDITIONAL GUARANTY, and shall remain in full force and effect until the Indebtedness (and interest thereon and expenses in connection therewith), and all renewals, modifications, or extensions thereof, in whole or in part, shall have been fully paid and satisfied and shall remain in full force and effect thereafter until written notice of its discontinuance, addressed to 165 Madison Avenue, Memphis, Tennessee 38103 Attn: Metropolitan Division, shall be actually received by the Bank by faxed copy with originals to follow (the burden of proof of receipt by the Bank of such notice being in all cases upon the Guarantor), and also until any and all said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice, and expenses in connection therewith, shall be fully paid. Regardless of when a renewal or extension of pre-termination debt occurs (with or without adjustment of interest rate or other terms), the debt is deemed to have been incurred prior to termination to the extent of the renewal or extension, and to be fully covered by this Guaranty. The death, dissolution or withdrawal of the Guarantor (or any of them, if more than one) shall not terminate this Guaranty until notice of any such death, dissolution or withdrawal, given as above provided, shall have actually been received by the Bank, and until all of said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice shall be fully paid. And in the event of any such death, dissolution or withdrawal and notice thereof to the Bank, this Guaranty shall, notwithstanding, continue and remain in force against any surviving Guarantor until discontinued as hereinabove provided. The Bank is hereby expressly authorized to make from time to time, without notice to anyone: any renewals, modifications or extensions, whether such renewals, modifications or extensions be in whole or in part and without limit as to the number of such extensions or of the renewal periods thereof, and without notice to or further assent from the undersigned, sales, pledges, surrenders, compromises, settlements, releases, indulgences, alterations, substitutions, exchanges, changes in, modifications, or other dispositions including, without limitation, cancellations, of all or any part of the collateral pledged to secure the Indebtedness or any part of said Indebtedness, either express or implied, or of any contracts or instruments evidencing any thereof, or of any security or collateral therefor, and/or to take any security for or other guaranties upon any of said Indebtedness; and the liability of the Guarantor (or any of them, if more than one) shall not be in any manner affected, diminished or impaired thereby, or by any lack of diligence, failure, neglect or omission on the part of the Bank to make any demand or protest, or give any notice of dishonor or default, or to realize upon or protect any of said Indebtedness, or any collateral or security therefor, or to exercise any lien upon or right of appropriation or setoff of any moneys, accounts, credits, or property of said Debtor, possessed by the Bank, towards the liquidation of said Indebtedness, or by any application of payments or credits thereon. The Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on said Indebtedness, or any part thereof, and shall be under no obligation, at any time, to first resort to, make demand on, file a claim against, or exhaust its remedies against the Debtor, or any one or more of the Guarantors, or other persons or corporations, their properties or estates, or to resort to or exhaust its remedies against, any collateral, security, property, liens or other rights whatsoever. It is expressly agreed that the Bank may at any time make demand for payment on, or bring suit against the Guarantor (or any of them, if more than one), or any other guarantors, may compound with the Guarantor or any other guarantor for such sums or on such terms as Bank may see fit and release the Guarantor (or any of them, if more than one) or any other guarantor from all further liability to the Bank, without thereby impairing the rights of the Bank in any respect to demand, sue for and collect the balance of the Indebtedness from any guarantor not so released; and that any claims against Debtor, against any -2- other guarantor, or against any collateral, accruing to the Guarantor (or any of them, if more than one) by reason of payments made hereunder shall be in all respects junior and subordinate to any obligation then or subsequently owed by the Debtor or by such other guarantor to the Bank. In addition, the liability of the Guarantors (or each of them, if more than one) shall not be affected by any lack of validity or enforceability of the guaranteed debt. As security for the undertakings and obligations of the Guarantor hereunder, the Guarantor (or each of them, if more than one) expressly grants and gives to the Bank a right of immediate setoff, without demand or notice, of the balance of every deposit account, now or at any time hereafter existing, of the Guarantor (or each of them, if more than one) with the Bank, and a general lien upon, and security interest in all money, negotiable instruments, commercial paper, notes, bonds, stocks, credits and/or choses in action, or any interest therein, and any other property, rights, and interests of the Guarantor (or each of them, if more than one) or any evidence thereof, which have or any time shall come into the possession, custody, or control of the Bank, and, in the event of default hereunder, the Bank may sell or cause to be sold at public or private sale in any manner which may be lawful, for cash or credit and upon such terms as the Bank may see fit, and (except as may be otherwise expressly provided by the Uniform Commercial Code, or other applicable law) without demand or notice to the Guarantor (or each of them, if more than one), all or any of such security, and the Bank (unless prohibited by the Uniform Commercial Code from so doing) or any other person may purchase such property, rights or interests so sold and thereafter hold the same free of any claim or right of whatsoever kind, including any right or equity or redemption, of the Guarantor (or each of them, if more than one), such demand, notice, right or equity of redemption being hereby expressly waived and released. In the event of the death, incompetency, dissolution, liquidation, insolvency (however evidenced) of the Debtor, or institution of bankruptcy or receivership proceedings by the Debtor, or in the event that any involuntary bankruptcy or receivership proceedings filed against the Debtor shall not be dismissed within thirty (30) days following the institution of such proceedings, then and in any such event all of the Indebtedness shall, for the purposes of this Guaranty, and at the option of the Bank, immediately become due and payable from the Guarantor; and, in such event, any and all sums or payments of any nature which may be or become due and payable by the Debtor to the undersigned are hereby assigned to the Bank, and shall be collectible by the Bank, without necessity for other authority than this instrument, until the Indebtedness shall be fully paid and discharged, but such collection by the Bank shall not in any respect affect, impair or diminish any other rights of the Bank hereunder. The granting of credit from time to time by the Bank to the Debtor, in excess of the amount to which right of recovery under this Guaranty is limited and without notice to the Guarantor (or any of them, if more than one), is hereby expressly authorized and shall in no way affect or impair this Guaranty; and, in the event that the Indebtedness of the Debtor to the Bank shall so exceed the amount to which this Guaranty is limited, any payment by the Debtor or any collections or recovery by the Bank from any sources other than this Guaranty may first be applied by the Bank to any portion of the Indebtedness which exceeds the limits of this Guaranty. The Guarantor (or each of them, if more than one) will not exercise any rights that Guarantor (or any of them, if more than one) may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all of the Indebtedness shall have been paid in full. If -3- any amount shall be paid to the Guarantor (or any of them, if more than one) on account of such subrogation rights at any time when all the Indebtedness shall not have been paid in full, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied upon the Indebtedness. NOTWITHSTANDING ANY PROVISION OF THE PRECEDING PARAGRAPH TO THE CONTRARY, IF AT ANY TIME THE GUARANTOR (OR ANY OF THEM, IF MORE THAN ONE) IS OR BECOMES AN "INSIDER" (AS DEFINED FROM TIME TO TIME IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) WITH RESPECT TO THE DEBTOR, THE GUARANTOR (OR EACH OF THEM, IF MORE THAN ONE) WAIVES ANY AND ALL RIGHTS OF SUBROGATION AGAINST THE DEBTOR WITH RESPECT TO THIS GUARANTY, WHETHER SUCH RIGHTS ARISE UNDER AN EXPRESS OR IMPLIED CONTRACT OR BY OPERATION OF LAW, IT BEING THE INTENTION OF THE PARTIES THAT, IF ANY GUARANTOR IS AN "INSIDER" WITH RESPECT TO THE DEBTOR, THE GUARANTOR SHALL NOT BE DEEMED TO BE A "CREDITOR" (AS DEFINED IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) OF THE DEBTOR, BY REASON OF THE EXISTENCE OF THIS GUARANTY IN THE EVENT THAT THE DEBTOR BECOMES A DEBTOR IN ANY PROCEEDING UNDER THE FEDERAL BANKRUPTCY CODE. Notwithstanding any other provision of this Guaranty to the contrary, if the obligations of the Guarantor hereunder would otherwise be held or determined by a court of competent jurisdiction in any action or proceeding involving any state corporate law or any state or Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other law affecting the rights of creditors generally, to be void, invalid or unenforceable to any extent on account of the amount of the Guarantor's (or each of them, if more than one) liability under this Guaranty, then notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantor (or each of them, if more than one) or any other person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding. The Bank may without any notice whatsoever to anyone, sell, assign or transfer all or any part of said Indebtedness; and in that event each and every immediate and successive assignee, transferee or holder of all or any part of said Indebtedness shall have the right to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee or holder, as fully as though such assignee, transferee or holder were herein by name given such rights, powers and benefits; but the Bank shall have an unimpaired right, prior and superior to that of any said assignee, transferee or holder, to enforce this Guaranty for the benefit of the Bank, as to so much of said Indebtedness that has not been sold, assigned or transferred. No act of commission or omission of any kind, or at any time, on the part of the Bank in respect of any matter whatsoever shall in any way affect or impair this Guaranty. This Guaranty is in addition to and not in substitution for or discharge of any other Guaranty held by the Bank. The Guarantor (or each of them, if more than one) waives any rights of action Guarantor (or any of them, if more than one) might have against the Bank because of the exercise by the Bank in any manner howsoever of any rights granted to the Bank herein. This Guaranty contains the entire agreement between the parties and every part thereof shall be binding upon the Guarantor (or each of them, if more than one), Guarantor's successors and -4- assigns, as fully as though everywhere specifically mentioned, and shall inure to the benefit of the Bank, and its successors and assigns, and shall be construed according to the laws of the State of Tennessee, in which state it is accepted by the Bank. If any provision hereof is invalid or unenforceable, the remaining provisions hereof shall not be affected by such invalidity or unenforceability. Each term and provision contained herein shall, however, be valid and enforceable to the fullest extent permitted by applicable law. The Guarantor (or each of them, if more than one) acknowledges that this Guaranty Agreement is and shall be effective against such Guarantor upon execution by such Guarantor (regardless of whether any other person named herein as Guarantor shall sign), and delivery hereof to the Bank, or its agent; and that it shall not be necessary for the Bank to execute any acceptance hereof or otherwise to signify or express its acceptance hereof. ALL OF THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR WHICH MAY BE DELIVERED IN THE FUTURE) IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP BETWEEN THE PARTIES TO THIS AGREEMENT. IN WITNESS WHEREOF, the Guarantor (or each of them, if more than one) has caused this Guaranty Agreement to be executed by its duly authorized officers on this the ____ day of January, 1998. ATTEST: GRAND PRIX ASSOCIATION OF LONG BEACH, INC. _______________________________ By:____________________________ Title:_________________________ Title:_________________________ -5- STATE OF ______________ COUNTY OF _____________ Before me, ______________________________, a Notary Public in and for the State and County aforesaid, personally appeared ___________________ and ______________________, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself (or herself) to be the ______________________ and _______________, respectively, of GRAND PRIX ASSOCIATION OF LONG BEACH, INC., the within-named bargainor, a corporation, and that they as such ________________________ and _______________, being duly authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by themselves as such ____________________ and _______________. WITNESS my hand and seal at office, on this the ____ day of January, 1998. ______________________________________ Notary Public My Commission Expires: ______________________ -6- EX-10.43 6 GUARANTY AGREEMENT BY GATEWAY INTERNATIONAL EXHIBIT 10.43 GUARANTY AGREEMENT ------------------ FOR VALUE RECEIVED, and in consideration of credit given or to be given, advances made or to be made, or other financial accommodation from time to time afforded or to be afforded to GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois corporation (hereinafter called the "Debtor"), by FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, and having a place of business in Memphis, Tennessee (hereinafter called the "Bank"), the undersigned, GATEWAY INTERNATIONAL SERVICES CORPORATION (hereinafter the "Guarantor"), hereby jointly and severally (if more than one), for themselves, their heirs, executors, administrators and successors absolutely and unconditionally guarantee(s) the full and prompt payment to the Bank, at maturity (whether by acceleration or otherwise) and at all times thereafter, of each and all of the following: 1. The indebtedness (and interest thereon) incurred under that certain Reimbursement Agreement dated as of January 1, 1998, between Debtor and Bank (the "Reimbursement Agreement") pursuant to which Bank has issued its Irrevocable Standby Letter of Credit No. S983013 in the Stated Amount of $2,501,825.00 (the "Letter of Credit"), said indebtedness and interest being payable to the order of the Bank, at the offices of the Bank at 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan Division, or at such other place as the Bank may designate in writing, being executed by the Debtor, and being given for value received, said Reimbursement Agreement and Letter of Credit being incorporated herein by reference as fully and particularly as if set out verbatim herein; and 2. All obligations of Debtor pursuant to any and all renewals, modifications, or extensions, in whole or in part, of the Reimbursement Agreement and Letter of Credit; and 3. All obligations of the Debtor or Memphis International Motorsports Corporation ("Motorsports") under and pursuant to any deed of trust, mortgage, security agreement, assignment of rents and leases, or other security document (collectively herein called "Security Documents") which now or hereafter secures the payment of the indebtedness evidenced by the Reimbursement Agreement and the Letter of Credit; and 4. All obligations of Debtor or Motorsports pursuant to any and all renewals, modifications, or extensions, in whole or in part, of any of the Security Documents; together with all expenses, legal and/or otherwise (including court costs and reasonable attorney's fees) incurred by the Bank in collecting or endeavoring to collect the Indebtedness, or any part thereof, in protecting any collateral, and in enforcing this Guaranty (all of which is hereinafter collectively referred to as the "Indebtedness"). THIS GUARANTY SHALL BE A CONTINUING, ABSOLUTE AND UNCONDITIONAL GUARANTY, and shall remain in full force and effect until the Indebtedness (and interest thereon and expenses in connection therewith), and all renewals, modifications, or extensions thereof, in whole or in part, shall have been fully paid and satisfied and shall remain in full force and effect thereafter until written notice of its discontinuance, addressed to 165 Madison Avenue, Memphis, Tennessee 38103 Attn: Metropolitan Division, shall be actually received by the Bank by faxed copy with originals to follow (the burden of proof of receipt by the Bank of such notice being in all cases upon the Guarantor), and also until any and all said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice, and expenses in connection therewith, shall be fully paid. Regardless of when a renewal or extension of pre-termination debt occurs (with or without adjustment of interest rate or other terms), the debt is deemed to have been incurred prior to termination to the extent of the renewal or extension, and to be fully covered by this Guaranty. The death, dissolution or withdrawal of the Guarantor (or any of them, if more than one) shall not terminate this Guaranty until notice of any such death, dissolution or withdrawal, given as above provided, shall have actually been received by the Bank, and until all of said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice shall be fully paid. And in the event of any such death, dissolution or withdrawal and notice thereof to the Bank, this Guaranty shall, notwithstanding, continue and remain in force against any surviving Guarantor until discontinued as hereinabove provided. The Bank is hereby expressly authorized to make from time to time, without notice to anyone: any renewals, modifications or extensions, whether such renewals, modifications or extensions be in whole or in part and without limit as to the number of such extensions or of the renewal periods thereof, and without notice to or further assent from the undersigned, sales, pledges, surrenders, compromises, settlements, releases, indulgences, alterations, substitutions, exchanges, changes in, modifications, or other dispositions including, without limitation, cancellations, of all or any part of the collateral pledged to secure the Indebtedness or any part of said Indebtedness, either express or implied, or of any contracts or instruments evidencing any thereof, or of any security or collateral therefor, and/or to take any security for or other guaranties upon any of said Indebtedness; and the liability of the Guarantor (or any of them, if more than one) shall not be in any manner affected, diminished or impaired thereby, or by any lack of diligence, failure, neglect or omission on the part of the Bank to make any demand or protest, or give any notice of dishonor or default, or to realize upon or protect any of said Indebtedness, or any collateral or security therefor, or to exercise any lien upon or right of appropriation or setoff of any moneys, accounts, credits, or property of said Debtor, possessed by the Bank, towards the liquidation of said Indebtedness, or by any application of payments or credits thereon. The Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on said Indebtedness, or any part thereof, and shall be under no obligation, at any time, to first resort to, make demand on, file a claim against, or exhaust its remedies against the Debtor, or any one or more of the Guarantors, or other persons or corporations, their properties or estates, or to resort to or exhaust its remedies against, any collateral, security, property, liens or other rights whatsoever. It is expressly agreed that the Bank may at any time make demand for payment on, or bring suit against the Guarantor (or any of them, if more than one), or any other guarantors, may compound with the Guarantor or any other guarantor for such sums or on such terms as Bank may see fit and release the Guarantor (or any of them, if more than one) or any other guarantor from all further liability to the Bank, without thereby impairing the rights of the Bank in any respect to demand, sue for and collect the balance of the Indebtedness from any guarantor not so released; and that any claims against Debtor, against any -2- other guarantor, or against any collateral, accruing to the Guarantor (or any of them, if more than one) by reason of payments made hereunder shall be in all respects junior and subordinate to any obligation then or subsequently owed by the Debtor or by such other guarantor to the Bank. In addition, the liability of the Guarantors (or each of them, if more than one) shall not be affected by any lack of validity or enforceability of the guaranteed debt. As security for the undertakings and obligations of the Guarantor hereunder, the Guarantor (or each of them, if more than one) expressly grants and gives to the Bank a right of immediate setoff, without demand or notice, of the balance of every deposit account, now or at any time hereafter existing, of the Guarantor (or each of them, if more than one) with the Bank, and a general lien upon, and security interest in all money, negotiable instruments, commercial paper, notes, bonds, stocks, credits and/or choses in action, or any interest therein, and any other property, rights, and interests of the Guarantor (or each of them, if more than one) or any evidence thereof, which have or any time shall come into the possession, custody, or control of the Bank, and, in the event of default hereunder, the Bank may sell or cause to be sold at public or private sale in any manner which may be lawful, for cash or credit and upon such terms as the Bank may see fit, and (except as may be otherwise expressly provided by the Uniform Commercial Code, or other applicable law) without demand or notice to the Guarantor (or each of them, if more than one), all or any of such security, and the Bank (unless prohibited by the Uniform Commercial Code from so doing) or any other person may purchase such property, rights or interests so sold and thereafter hold the same free of any claim or right of whatsoever kind, including any right or equity or redemption, of the Guarantor (or each of them, if more than one), such demand, notice, right or equity of redemption being hereby expressly waived and released. In the event of the death, incompetency, dissolution, liquidation, insolvency (however evidenced) of the Debtor, or institution of bankruptcy or receivership proceedings by the Debtor, or in the event that any involuntary bankruptcy or receivership proceedings filed against the Debtor shall not be dismissed within thirty (30) days following the institution of such proceedings, then and in any such event all of the Indebtedness shall, for the purposes of this Guaranty, and at the option of the Bank, immediately become due and payable from the Guarantor; and, in such event, any and all sums or payments of any nature which may be or become due and payable by the Debtor to the undersigned are hereby assigned to the Bank, and shall be collectible by the Bank, without necessity for other authority than this instrument, until the Indebtedness shall be fully paid and discharged, but such collection by the Bank shall not in any respect affect, impair or diminish any other rights of the Bank hereunder. The granting of credit from time to time by the Bank to the Debtor, in excess of the amount to which right of recovery under this Guaranty is limited and without notice to the Guarantor (or any of them, if more than one), is hereby expressly authorized and shall in no way affect or impair this Guaranty; and, in the event that the Indebtedness of the Debtor to the Bank shall so exceed the amount to which this Guaranty is limited, any payment by the Debtor or any collections or recovery by the Bank from any sources other than this Guaranty may first be applied by the Bank to any portion of the Indebtedness which exceeds the limits of this Guaranty. The Guarantor (or each of them, if more than one) will not exercise any rights that Guarantor (or any of them, if more than one) may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all of the Indebtedness shall have been paid in full. If any amount shall be paid to the Guarantor (or any of them, if more than one) on account of such -3- subrogation rights at any time when all the Indebtedness shall not have been paid in full, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied upon the Indebtedness. NOTWITHSTANDING ANY PROVISION OF THE PRECEDING PARAGRAPH TO THE CONTRARY, IF AT ANY TIME THE GUARANTOR (OR ANY OF THEM, IF MORE THAN ONE) IS OR BECOMES AN "INSIDER" (AS DEFINED FROM TIME TO TIME IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) WITH RESPECT TO THE DEBTOR, THE GUARANTOR (OR EACH OF THEM, IF MORE THAN ONE) WAIVES ANY AND ALL RIGHTS OF SUBROGATION AGAINST THE DEBTOR WITH RESPECT TO THIS GUARANTY, WHETHER SUCH RIGHTS ARISE UNDER AN EXPRESS OR IMPLIED CONTRACT OR BY OPERATION OF LAW, IT BEING THE INTENTION OF THE PARTIES THAT, IF ANY GUARANTOR IS AN "INSIDER" WITH RESPECT TO THE DEBTOR, THE GUARANTOR SHALL NOT BE DEEMED TO BE A "CREDITOR" (AS DEFINED IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) OF THE DEBTOR, BY REASON OF THE EXISTENCE OF THIS GUARANTY IN THE EVENT THAT THE DEBTOR BECOMES A DEBTOR IN ANY PROCEEDING UNDER THE FEDERAL BANKRUPTCY CODE. Notwithstanding any other provision of this Guaranty to the contrary, if the obligations of the Guarantor hereunder would otherwise be held or determined by a court of competent jurisdiction in any action or proceeding involving any state corporate law or any state or Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other law affecting the rights of creditors generally, to be void, invalid or unenforceable to any extent on account of the amount of the Guarantor's (or each of them, if more than one) liability under this Guaranty, then notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantor (or each of them, if more than one) or any other person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding. The Bank may without any notice whatsoever to anyone, sell, assign or transfer all or any part of said Indebtedness; and in that event each and every immediate and successive assignee, transferee or holder of all or any part of said Indebtedness shall have the right to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee or holder, as fully as though such assignee, transferee or holder were herein by name given such rights, powers and benefits; but the Bank shall have an unimpaired right, prior and superior to that of any said assignee, transferee or holder, to enforce this Guaranty for the benefit of the Bank, as to so much of said Indebtedness that has not been sold, assigned or transferred. No act of commission or omission of any kind, or at any time, on the part of the Bank in respect of any matter whatsoever shall in any way affect or impair this Guaranty. This Guaranty is in addition to and not in substitution for or discharge of any other Guaranty held by the Bank. The Guarantor (or each of them, if more than one) waives any rights of action Guarantor (or any of them, if more than one) might have against the Bank because of the exercise by the Bank in any manner howsoever of any rights granted to the Bank herein. This Guaranty contains the entire agreement between the parties and every part thereof shall be binding upon the Guarantor (or each of them, if more than one), Guarantor's successors and assigns, as fully as though everywhere specifically mentioned, and shall inure to the benefit of the -4- Bank, and its successors and assigns, and shall be construed according to the laws of the State of Tennessee, in which state it is accepted by the Bank. If any provision hereof is invalid or unenforceable, the remaining provisions hereof shall not be affected by such invalidity or unenforceability. Each term and provision contained herein shall, however, be valid and enforceable to the fullest extent permitted by applicable law. The Guarantor (or each of them, if more than one) acknowledges that this Guaranty Agreement is and shall be effective against such Guarantor upon execution by such Guarantor (regardless of whether any other person named herein as Guarantor shall sign), and delivery hereof to the Bank, or its agent; and that it shall not be necessary for the Bank to execute any acceptance hereof or otherwise to signify or express its acceptance hereof. ALL OF THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR WHICH MAY BE DELIVERED IN THE FUTURE) IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP BETWEEN THE PARTIES TO THIS AGREEMENT. IN WITNESS WHEREOF, the Guarantor (or each of them, if more than one) has caused this Guaranty Agreement to be executed by its duly authorized officers on this the 22 day of January, 1998. ATTEST: GATEWAY INTERNATIONAL SERVICES CORPORATION /s/ Gemma A. Bannon By: /s/ James P. Michaelian - ------------------------------ -------------------------------------- Title: Corporate Secretary Title: Chief Operating Officer ------------------------ ----------------------------------- -5- STATE OF California ---------------- COUNTY OF Los Angeles --------------- Before me, Christopher Allen, a Notary Public in and for the State and County aforesaid, personally appeared Jim Michaelian and Gemma Bannon, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself (or herself) to be the President and Secretary, respectively, of GATEWAY INTERNATIONAL SERVICES CORPORATION, the within-named bargainor, a corporation, and that they as such President and Secretary, being duly authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by themselves as such President and Secretary. WITNESS my hand and seal at office, on this the 22 day of January, 1998. /s/ Christopher Allen ------------------------------------------- Notary Public My Commission Expires: [NOTARY STAMP] 12-25-99 - ---------------------- -6- EX-10.44 7 GUARANTY AGREEMENT BY MEMPHIS INTERNATIONAL EXHIBIT 10.44 GUARANTY AGREEMENT ------------------ FOR VALUE RECEIVED, and in consideration of credit given or to be given, advances made or to be made, or other financial accommodation from time to time afforded or to be afforded to GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois corporation (hereinafter called the "Debtor"), by FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, and having a place of business in Memphis, Tennessee (hereinafter called the "Bank"), the undersigned, MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION (hereinafter the "Guarantor"), hereby jointly and severally (if more than one), for themselves, their heirs, executors, administrators and successors absolutely and unconditionally guarantee(s) the full and prompt payment to the Bank, at maturity (whether by acceleration or otherwise) and at all times thereafter, of each and all of the following: 1. The indebtedness (and interest thereon) incurred under that certain Reimbursement Agreement dated as of January 1, 1998, between Debtor and Bank (the "Reimbursement Agreement") pursuant to which Bank has issued its Irrevocable Standby Letter of Credit No. S983013 in the Stated Amount of $2,501,825.00 (the "Letter of Credit"), said indebtedness and interest being payable to the order of the Bank, at the offices of the Bank at 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan Division, or at such other place as the Bank may designate in writing, being executed by the Debtor, and being given for value received, said Reimbursement Agreement and Letter of Credit being incorporated herein by reference as fully and particularly as if set out verbatim herein; and 2. All obligations of Debtor pursuant to any and all renewals, modifications, or extensions, in whole or in part, of the Reimbursement Agreement and Letter of Credit; and 3. All obligations of the Debtor or Memphis International Motorsports Corporation ("Motorsports") under and pursuant to any deed of trust, mortgage, security agreement, assignment of rents and leases, or other security document (collectively herein called "Security Documents") which now or hereafter secures the payment of the indebtedness evidenced by the Reimbursement Agreement and the Letter of Credit; and 4. All obligations of Debtor or Motorsports pursuant to any and all renewals, modifications, or extensions, in whole or in part, of any of the Security Documents; together with all expenses, legal and/or otherwise (including court costs and reasonable attorney's fees) incurred by the Bank in collecting or endeavoring to collect the Indebtedness, or any part thereof, in protecting any collateral, and in enforcing this Guaranty (all of which is hereinafter collectively referred to as the "Indebtedness"). THIS GUARANTY SHALL BE A CONTINUING, ABSOLUTE AND UNCONDITIONAL GUARANTY, and shall remain in full force and effect until the Indebtedness (and interest thereon -1- and expenses in connection therewith), and all renewals, modifications, or extensions thereof, in whole or in part, shall have been fully paid and satisfied and shall remain in full force and effect thereafter until written notice of its discontinuance, addressed to 165 Madison Avenue, Memphis, Tennessee 38103 Attn: Metropolitan Division, shall be actually received by the Bank by faxed copy with originals to follow (the burden of proof of receipt by the Bank of such notice being in all cases upon the Guarantor), and also until any and all said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice, and expenses in connection therewith, shall be fully paid. Regardless of when a renewal or extension of pre-termination debt occurs (with or without adjustment of interest rate or other terms), the debt is deemed to have been incurred prior to termination to the extent of the renewal or extension, and to be fully covered by this Guaranty. The death, dissolution or withdrawal of the Guarantor (or any of them, if more than one) shall not terminate this Guaranty until notice of any such death, dissolution or withdrawal, given as above provided, shall have actually been received by the Bank, and until all of said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice shall be fully paid. And in the event of any such death, dissolution or withdrawal and notice thereof to the Bank, this Guaranty shall, notwithstanding, continue and remain in force against any surviving Guarantor until discontinued as hereinabove provided. The Bank is hereby expressly authorized to make from time to time, without notice to anyone: any renewals, modifications or extensions, whether such renewals, modifications or extensions be in whole or in part and without limit as to the number of such extensions or of the renewal periods thereof, and without notice to or further assent from the undersigned, sales, pledges, surrenders, compromises, settlements, releases, indulgences, alterations, substitutions, exchanges, changes in, modifications, or other dispositions including, without limitation, cancellations, of all or any part of the collateral pledged to secure the Indebtedness or any part of said Indebtedness, either express or implied, or of any contracts or instruments evidencing any thereof, or of any security or collateral therefor, and/or to take any security for or other guaranties upon any of said Indebtedness; and the liability of the Guarantor (or any of them, if more than one) shall not be in any manner affected, diminished or impaired thereby, or by any lack of diligence, failure, neglect or omission on the part of the Bank to make any demand or protest, or give any notice of dishonor or default, or to realize upon or protect any of said Indebtedness, or any collateral or security therefor, or to exercise any lien upon or right of appropriation or setoff of any moneys, accounts, credits, or property of said Debtor, possessed by the Bank, towards the liquidation of said Indebtedness, or by any application of payments or credits thereon. The Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on said Indebtedness, or any part thereof, and shall be under no obligation, at any time, to first resort to, make demand on, file a claim against, or exhaust its remedies against the Debtor, or any one or more of the Guarantors, or other persons or corporations, their properties or estates, or to resort to or exhaust its remedies against, any collateral, security, property, liens or other rights whatsoever. It is expressly agreed that the Bank may at any time make demand for payment on, or bring suit against the Guarantor (or any of them, if more than one), or any other guarantors, may compound with the Guarantor or any other guarantor for such sums or on such terms as Bank may see fit and release the Guarantor (or any of them, if more than one) or any other guarantor from all further liability to the Bank, without thereby impairing the rights of the Bank in any respect to demand, sue for and collect the balance of the Indebtedness from any guarantor not so released; and that any claims against Debtor, against any -2- other guarantor, or against any collateral, accruing to the Guarantor (or any of them, if more than one) by reason of payments made hereunder shall be in all respects junior and subordinate to any obligation then or subsequently owed by the Debtor or by such other guarantor to the Bank. In addition, the liability of the Guarantors (or each of them, if more than one) shall not be affected by any lack of validity or enforceability of the guaranteed debt. As security for the undertakings and obligations of the Guarantor hereunder, the Guarantor (or each of them, if more than one) expressly grants and gives to the Bank a right of immediate setoff, without demand or notice, of the balance of every deposit account, now or at any time hereafter existing, of the Guarantor (or each of them, if more than one) with the Bank, and a general lien upon, and security interest in all money, negotiable instruments, commercial paper, notes, bonds, stocks, credits and/or choses in action, or any interest therein, and any other property, rights, and interests of the Guarantor (or each of them, if more than one) or any evidence thereof, which have or any time shall come into the possession, custody, or control of the Bank, and, in the event of default hereunder, the Bank may sell or cause to be sold at public or private sale in any manner which may be lawful, for cash or credit and upon such terms as the Bank may see fit, and (except as may be otherwise expressly provided by the Uniform Commercial Code, or other applicable law) without demand or notice to the Guarantor (or each of them, if more than one), all or any of such security, and the Bank (unless prohibited by the Uniform Commercial Code from so doing) or any other person may purchase such property, rights or interests so sold and thereafter hold the same free of any claim or right of whatsoever kind, including any right or equity or redemption, of the Guarantor (or each of them, if more than one), such demand, notice, right or equity of redemption being hereby expressly waived and released. In the event of the death, incompetency, dissolution, liquidation, insolvency (however evidenced) of the Debtor, or institution of bankruptcy or receivership proceedings by the Debtor, or in the event that any involuntary bankruptcy or receivership proceedings filed against the Debtor shall not be dismissed within thirty (30) days following the institution of such proceedings, then and in any such event all of the Indebtedness shall, for the purposes of this Guaranty, and at the option of the Bank, immediately become due and payable from the Guarantor; and, in such event, any and all sums or payments of any nature which may be or become due and payable by the Debtor to the undersigned are hereby assigned to the Bank, and shall be collectible by the Bank, without necessity for other authority than this instrument, until the Indebtedness shall be fully paid and discharged, but such collection by the Bank shall not in any respect affect, impair or diminish any other rights of the Bank hereunder. The granting of credit from time to time by the Bank to the Debtor, in excess of the amount to which right of recovery under this Guaranty is limited and without notice to the Guarantor (or any of them, if more than one), is hereby expressly authorized and shall in no way affect or impair this Guaranty; and, in the event that the Indebtedness of the Debtor to the Bank shall so exceed the amount to which this Guaranty is limited, any payment by the Debtor or any collections or recovery by the Bank from any sources other than this Guaranty may first be applied by the Bank to any portion of the Indebtedness which exceeds the limits of this Guaranty. The Guarantor (or each of them, if more than one) will not exercise any rights that Guarantor (or any of them, if more than one) may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all of the Indebtedness shall have been paid in full. If -3- any amount shall be paid to the Guarantor (or any of them, if more than one) on account of such subrogation rights at any time when all the Indebtedness shall not have been paid in full, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied upon the Indebtedness. NOTWITHSTANDING ANY PROVISION OF THE PRECEDING PARAGRAPH TO THE CONTRARY, IF AT ANY TIME THE GUARANTOR (OR ANY OF THEM, IF MORE THAN ONE) IS OR BECOMES AN "INSIDER" (AS DEFINED FROM TIME TO TIME IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) WITH RESPECT TO THE DEBTOR, THE GUARANTOR (OR EACH OF THEM, IF MORE THAN ONE) WAIVES ANY AND ALL RIGHTS OF SUBROGATION AGAINST THE DEBTOR WITH RESPECT TO THIS GUARANTY, WHETHER SUCH RIGHTS ARISE UNDER AN EXPRESS OR IMPLIED CONTRACT OR BY OPERATION OF LAW, IT BEING THE INTENTION OF THE PARTIES THAT, IF ANY GUARANTOR IS AN "INSIDER" WITH RESPECT TO THE DEBTOR, THE GUARANTOR SHALL NOT BE DEEMED TO BE A "CREDITOR" (AS DEFINED IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) OF THE DEBTOR, BY REASON OF THE EXISTENCE OF THIS GUARANTY IN THE EVENT THAT THE DEBTOR BECOMES A DEBTOR IN ANY PROCEEDING UNDER THE FEDERAL BANKRUPTCY CODE. Notwithstanding any other provision of this Guaranty to the contrary, if the obligations of the Guarantor hereunder would otherwise be held or determined by a court of competent jurisdiction in any action or proceeding involving any state corporate law or any state or Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other law affecting the rights of creditors generally, to be void, invalid or unenforceable to any extent on account of the amount of the Guarantor's (or each of them, if more than one) liability under this Guaranty, then notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantor (or each of them, if more than one) or any other person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding. The Bank may without any notice whatsoever to anyone, sell, assign or transfer all or any part of said Indebtedness; and in that event each and every immediate and successive assignee, transferee or holder of all or any part of said Indebtedness shall have the right to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee or holder, as fully as though such assignee, transferee or holder were herein by name given such rights, powers and benefits; but the Bank shall have an unimpaired right, prior and superior to that of any said assignee, transferee or holder, to enforce this Guaranty for the benefit of the Bank, as to so much of said Indebtedness that has not been sold, assigned or transferred. No act of commission or omission of any kind, or at any time, on the part of the Bank in respect of any matter whatsoever shall in any way affect or impair this Guaranty. This Guaranty is in addition to and not in substitution for or discharge of any other Guaranty held by the Bank. The Guarantor (or each of them, if more than one) waives any rights of action Guarantor (or any of them, if more than one) might have against the Bank because of the exercise by the Bank in any manner howsoever of any rights granted to the Bank herein. This Guaranty contains the entire agreement between the parties and every part thereof shall be binding upon the Guarantor (or each of them, if more than one), Guarantor's successors and -4- assigns, as fully as though everywhere specifically mentioned, and shall inure to the benefit of the Bank, and its successors and assigns, and shall be construed according to the laws of the State of Tennessee, in which state it is accepted by the Bank. If any provision hereof is invalid or unenforceable, the remaining provisions hereof shall not be affected by such invalidity or unenforceability. Each term and provision contained herein shall, however, be valid and enforceable to the fullest extent permitted by applicable law. The Guarantor (or each of them, if more than one) acknowledges that this Guaranty Agreement is and shall be effective against such Guarantor upon execution by such Guarantor (regardless of whether any other person named herein as Guarantor shall sign), and delivery hereof to the Bank, or its agent; and that it shall not be necessary for the Bank to execute any acceptance hereof or otherwise to signify or express its acceptance hereof. ALL OF THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR WHICH MAY BE DELIVERED IN THE FUTURE) IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP BETWEEN THE PARTIES TO THIS AGREEMENT. IN WITNESS WHEREOF, the Guarantor (or each of them, if more than one) has caused this Guaranty Agreement to be executed by its duly authorized officers on this the ____ day of January, 1998. ATTEST: MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION /s/ Gemma A. Bannon By: /s/ Christopher R. Pook - --------------------------- ------------------------ Title: Corporate Secretary Title: President --------------------- --------------------- -5- STATE OF California ------------ COUNTY OF Los Angeles ----------- Before me, Christopher Allen, a Notary Public in and for the State and County aforesaid, personally appeared Chris Pook and Gemma Bannon, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself (or herself) to be the President and Secretary respectively, of MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION, the within-named bargainor, a corporation, and that they as such President and Secretary, being duly authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by themselves as such President and Secretary. WITNESS my hand and seal at office, on this the 22 day of January, 1998. /s/ Christopher Allen -------------------------- Notary Public My Commission Expires: [NOTARY SEAL] 12-25-99 - ---------------------- -6- EX-10.45 8 GUARANTY AGREEMENT BY MOTORSPORTS SERVICES EXHIBIT 10.45 GUARANTY AGREEMENT ------------------ FOR VALUE RECEIVED, and in consideration of credit given or to be given, advances made or to be made, or other financial accommodation from time to time afforded or to be afforded to GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois corporation (hereinafter called the "Debtor"), by FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, and having a place of business in Memphis, Tennessee (hereinafter called the "Bank"), the undersigned, MOTORSPORTS SERVICES CORPORATION OF MEMPHIS (hereinafter the "Guarantor"), hereby jointly and severally (if more than one), for themselves, their heirs, executors, administrators and successors absolutely and unconditionally guarantee(s) the full and prompt payment to the Bank, at maturity (whether by acceleration or otherwise) and at all times thereafter, of each and all of the following: 1. The indebtedness (and interest thereon) incurred under that certain Reimbursement Agreement dated as of January 1, 1998, between Debtor and Bank (the "Reimbursement Agreement") pursuant to which Bank has issued its Irrevocable Standby Letter of Credit No. S983013 in the Stated Amount of $2,501,825.00 (the "Letter of Credit"), said indebtedness and interest being payable to the order of the Bank, at the offices of the Bank at 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan Division, or at such other place as the Bank may designate in writing, being executed by the Debtor, and being given for value received, said Reimbursement Agreement and Letter of Credit being incorporated herein by reference as fully and particularly as if set out verbatim herein; and 2. All obligations of Debtor pursuant to any and all renewals, modifications, or extensions, in whole or in part, of the Reimbursement Agreement and Letter of Credit; and 3. All obligations of the Debtor or Memphis International Motorsports Corporation ("Motorsports") under and pursuant to any deed of trust, mortgage, security agreement, assignment of rents and leases, or other security document (collectively herein called "Security Documents") which now or hereafter secures the payment of the indebtedness evidenced by the Reimbursement Agreement and the Letter of Credit; and 4. All obligations of Debtor or Motorsports pursuant to any and all renewals, modifications, or extensions, in whole or in part, of any of the Security Documents; together with all expenses, legal and/or otherwise (including court costs and reasonable attorney's fees) incurred by the Bank in collecting or endeavoring to collect the Indebtedness, or any part thereof, in protecting any collateral, and in enforcing this Guaranty (all of which is hereinafter collectively referred to as the "Indebtedness"). THIS GUARANTY SHALL BE A CONTINUING, ABSOLUTE AND UNCONDITIONAL GUARANTY, and shall remain in full force and effect until the Indebtedness (and interest thereon and expenses in connection therewith), and all renewals, modifications, or extensions thereof, in whole or in part, shall have been fully paid and satisfied and shall remain in full force and effect thereafter until written notice of its discontinuance, addressed to 165 Madison Avenue, Memphis, Tennessee 38103 Attn: Metropolitan Division, shall be actually received by the Bank by faxed copy with originals to follow (the burden of proof of receipt by the Bank of such notice being in all cases upon the Guarantor), and also until any and all said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice, and expenses in connection therewith, shall be fully paid. Regardless of when a renewal or extension of pre-termination debt occurs (with or without adjustment of interest rate or other terms), the debt is deemed to have been incurred prior to termination to the extent of the renewal or extension, and to be fully covered by this Guaranty. The death, dissolution or withdrawal of the Guarantor (or any of them, if more than one) shall not terminate this Guaranty until notice of any such death, dissolution or withdrawal, given as above provided, shall have actually been received by the Bank, and until all of said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice shall be fully paid. And in the event of any such death, dissolution or withdrawal and notice thereof to the Bank, this Guaranty shall, notwithstanding, continue and remain in force against any surviving Guarantor until discontinued as hereinabove provided. The Bank is hereby expressly authorized to make from time to time, without notice to anyone: any renewals, modifications or extensions, whether such renewals, modifications or extensions be in whole or in part and without limit as to the number of such extensions or of the renewal periods thereof, and without notice to or further assent from the undersigned, sales, pledges, surrenders, compromises, settlements, releases, indulgences, alterations, substitutions, exchanges, changes in, modifications, or other dispositions including, without limitation, cancellations, of all or any part of the collateral pledged to secure the Indebtedness or any part of said Indebtedness, either express or implied, or of any contracts or instruments evidencing any thereof, or of any security or collateral therefor, and/or to take any security for or other guaranties upon any of said Indebtedness; and the liability of the Guarantor (or any of them, if more than one) shall not be in any manner affected, diminished or impaired thereby, or by any lack of diligence, failure, neglect or omission on the part of the Bank to make any demand or protest, or give any notice of dishonor or default, or to realize upon or protect any of said Indebtedness, or any collateral or security therefor, or to exercise any lien upon or right of appropriation or setoff of any moneys, accounts, credits, or property of said Debtor, possessed by the Bank, towards the liquidation of said Indebtedness, or by any application of payments or credits thereon. The Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on said Indebtedness, or any part thereof, and shall be under no obligation, at any time, to first resort to, make demand on, file a claim against, or exhaust its remedies against the Debtor, or any one or more of the Guarantors, or other persons or corporations, their properties or estates, or to resort to or exhaust its remedies against, any collateral, security, property, liens or other rights whatsoever. It is expressly agreed that the Bank may at any time make demand for payment on, or bring suit against the Guarantor (or any of them, if more than one), or any other guarantors, may compound with the Guarantor or any other guarantor for such sums or on such terms as Bank may see fit and release the Guarantor (or any of them, if more than one) or any other guarantor from all further liability to the Bank, without thereby impairing the rights of the Bank in any respect to demand, sue for and collect the balance of the Indebtedness from any guarantor not so released; and that any claims against Debtor, against any -2- other guarantor, or against any collateral, accruing to the Guarantor (or any of them, if more than one) by reason of payments made hereunder shall be in all respects junior and subordinate to any obligation then or subsequently owed by the Debtor or by such other guarantor to the Bank. In addition, the liability of the Guarantors (or each of them, if more than one) shall not be affected by any lack of validity or enforceability of the guaranteed debt. As security for the undertakings and obligations of the Guarantor hereunder, the Guarantor (or each of them, if more than one) expressly grants and gives to the Bank a right of immediate setoff, without demand or notice, of the balance of every deposit account, now or at any time hereafter existing, of the Guarantor (or each of them, if more than one) with the Bank, and a general lien upon, and security interest in all money, negotiable instruments, commercial paper, notes, bonds, stocks, credits and/or choses in action, or any interest therein, and any other property, rights, and interests of the Guarantor (or each of them, if more than one) or any evidence thereof, which have or any time shall come into the possession, custody, or control of the Bank, and, in the event of default hereunder, the Bank may sell or cause to be sold at public or private sale in any manner which may be lawful, for cash or credit and upon such terms as the Bank may see fit, and (except as may be otherwise expressly provided by the Uniform Commercial Code, or other applicable law) without demand or notice to the Guarantor (or each of them, if more than one), all or any of such security, and the Bank (unless prohibited by the Uniform Commercial Code from so doing) or any other person may purchase such property, rights or interests so sold and thereafter hold the same free of any claim or right of whatsoever kind, including any right or equity or redemption, of the Guarantor (or each of them, if more than one), such demand, notice, right or equity of redemption being hereby expressly waived and released. In the event of the death, incompetency, dissolution, liquidation, insolvency (however evidenced) of the Debtor, or institution of bankruptcy or receivership proceedings by the Debtor, or in the event that any involuntary bankruptcy or receivership proceedings filed against the Debtor shall not be dismissed within thirty (30) days following the institution of such proceedings, then and in any such event all of the Indebtedness shall, for the purposes of this Guaranty, and at the option of the Bank, immediately become due and payable from the Guarantor; and, in such event, any and all sums or payments of any nature which may be or become due and payable by the Debtor to the undersigned are hereby assigned to the Bank, and shall be collectible by the Bank, without necessity for other authority than this instrument, until the Indebtedness shall be fully paid and discharged, but such collection by the Bank shall not in any respect affect, impair or diminish any other rights of the Bank hereunder. The granting of credit from time to time by the Bank to the Debtor, in excess of the amount to which right of recovery under this Guaranty is limited and without notice to the Guarantor (or any of them, if more than one), is hereby expressly authorized and shall in no way affect or impair this Guaranty; and, in the event that the Indebtedness of the Debtor to the Bank shall so exceed the amount to which this Guaranty is limited, any payment by the Debtor or any collections or recovery by the Bank from any sources other than this Guaranty may first be applied by the Bank to any portion of the Indebtedness which exceeds the limits of this Guaranty. The Guarantor (or each of them, if more than one) will not exercise any rights that Guarantor (or any of them, if more than one) may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all of the Indebtedness shall have been paid in full. If -3- any amount shall be paid to the Guarantor (or any of them, if more than one) on account of such subrogation rights at any time when all the Indebtedness shall not have been paid in full, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied upon the Indebtedness. NOTWITHSTANDING ANY PROVISION OF THE PRECEDING PARAGRAPH TO THE CONTRARY, IF AT ANY TIME THE GUARANTOR (OR ANY OF THEM, IF MORE THAN ONE) IS OR BECOMES AN "INSIDER" (AS DEFINED FROM TIME TO TIME IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) WITH RESPECT TO THE DEBTOR, THE GUARANTOR (OR EACH OF THEM, IF MORE THAN ONE) WAIVES ANY AND ALL RIGHTS OF SUBROGATION AGAINST THE DEBTOR WITH RESPECT TO THIS GUARANTY, WHETHER SUCH RIGHTS ARISE UNDER AN EXPRESS OR IMPLIED CONTRACT OR BY OPERATION OF LAW, IT BEING THE INTENTION OF THE PARTIES THAT, IF ANY GUARANTOR IS AN "INSIDER" WITH RESPECT TO THE DEBTOR, THE GUARANTOR SHALL NOT BE DEEMED TO BE A "CREDITOR" (AS DEFINED IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) OF THE DEBTOR, BY REASON OF THE EXISTENCE OF THIS GUARANTY IN THE EVENT THAT THE DEBTOR BECOMES A DEBTOR IN ANY PROCEEDING UNDER THE FEDERAL BANKRUPTCY CODE. Notwithstanding any other provision of this Guaranty to the contrary, if the obligations of the Guarantor hereunder would otherwise be held or determined by a court of competent jurisdiction in any action or proceeding involving any state corporate law or any state or Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other law affecting the rights of creditors generally, to be void, invalid or unenforceable to any extent on account of the amount of the Guarantor's (or each of them, if more than one) liability under this Guaranty, then notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantor (or each of them, if more than one) or any other person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding. The Bank may without any notice whatsoever to anyone, sell, assign or transfer all or any part of said Indebtedness; and in that event each and every immediate and successive assignee, transferee or holder of all or any part of said Indebtedness shall have the right to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee or holder, as fully as though such assignee, transferee or holder were herein by name given such rights, powers and benefits; but the Bank shall have an unimpaired right, prior and superior to that of any said assignee, transferee or holder, to enforce this Guaranty for the benefit of the Bank, as to so much of said Indebtedness that has not been sold, assigned or transferred. No act of commission or omission of any kind, or at any time, on the part of the Bank in respect of any matter whatsoever shall in any way affect or impair this Guaranty. This Guaranty is in addition to and not in substitution for or discharge of any other Guaranty held by the Bank. The Guarantor (or each of them, if more than one) waives any rights of action Guarantor (or any of them, if more than one) might have against the Bank because of the exercise by the Bank in any manner howsoever of any rights granted to the Bank herein. This Guaranty contains the entire agreement between the parties and every part thereof shall be binding upon the Guarantor (or each of them, if more than one), Guarantor's successors and -4- assigns, as fully as though everywhere specifically mentioned, and shall inure to the benefit of the Bank, and its successors and assigns, and shall be construed according to the laws of the State of Tennessee, in which state it is accepted by the Bank. If any provision hereof is invalid or unenforceable, the remaining provisions hereof shall not be affected by such invalidity or unenforceability. Each term and provision contained herein shall, however, be valid and enforceable to the fullest extent permitted by applicable law. The Guarantor (or each of them, if more than one) acknowledges that this Guaranty Agreement is and shall be effective against such Guarantor upon execution by such Guarantor (regardless of whether any other person named herein as Guarantor shall sign), and delivery hereof to the Bank, or its agent; and that it shall not be necessary for the Bank to execute any acceptance hereof or otherwise to signify or express its acceptance hereof. ALL OF THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR WHICH MAY BE DELIVERED IN THE FUTURE) IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP BETWEEN THE PARTIES TO THIS AGREEMENT. IN WITNESS WHEREOF, the Guarantor (or each of them, if more than one) has caused this Guaranty Agreement to be executed by its duly authorized officers on this the 22 day of January, 1998. ATTEST: MOTORSPORTS SERVICES CORPORATION OF MEMPHIS /s/ Gemma A. Bannon By: /s/ Christopher R. Pook - ------------------- ----------------------- Title: Corporate Secretary Title: President ------------------- -------------------- -5- STATE OF California ------------ COUNTY OF Los Angeles ------------ Before me, Christopher Allen, a Notary Public in and for the State and County aforesaid, personally appeared Chris Pook and Gemma Bannon, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself (or herself) to be the President and Corporate Secretary, respectively, of MOTORSPORTS SERVICES CORPORATION OF MEMPHIS, the within-named bargainor, a corporation, and that they as such President and Secretary, being duly authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by themselves as such President and Secretary. WITNESS my hand and seal at office, on this the 22 day of January, 1998. /s/ Christopher Allen ------------------------------ Notary Public My Commission Expires: [NOTARY STAMP] 12-25-99 - ---------------------- -6- EX-10.46 9 GUARANTY AGREEMENT BY DEL MAR RACE MANAGEMENT EXHIBIT 10.46 GUARANTY AGREEMENT ------------------ FOR VALUE RECEIVED, and in consideration of credit given or to be given, advances made or to be made, or other financial accommodation from time to time afforded or to be afforded to GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois corporation (hereinafter called the "Debtor"), by FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, and having a place of business in Memphis, Tennessee (hereinafter called the "Bank"), the undersigned, DEL MAR RACE MANAGEMENT, INC. (hereinafter the "Guarantor"), hereby jointly and severally (if more than one), for themselves, their heirs, executors, administrators and successors absolutely and unconditionally guarantee(s) the full and prompt payment to the Bank, at maturity (whether by acceleration or otherwise) and at all times thereafter, of each and all of the following: 1. The indebtedness (and interest thereon) incurred under that certain Reimbursement Agreement dated as of January 1, 1998, between Debtor and Bank (the "Reimbursement Agreement") pursuant to which Bank has issued its Irrevocable Standby Letter of Credit No. S983013 in the Stated Amount of $2,501,825.00 (the "Letter of Credit"), said indebtedness and interest being payable to the order of the Bank, at the offices of the Bank at 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan Division, or at such other place as the Bank may designate in writing, being executed by the Debtor, and being given for value received, said Reimbursement Agreement and Letter of Credit being incorporated herein by reference as fully and particularly as if set out verbatim herein; and 2. All obligations of Debtor pursuant to any and all renewals, modifications, or extensions, in whole or in part, of the Reimbursement Agreement and Letter of Credit; and 3. All obligations of the Debtor or Memphis International Motorsports Corporation ("Motorsports") under and pursuant to any deed of trust, mortgage, security agreement, assignment of rents and leases, or other security document (collectively herein called "Security Documents") which now or hereafter secures the payment of the indebtedness evidenced by the Reimbursement Agreement and the Letter of Credit; and 4. All obligations of Debtor or Motorsports pursuant to any and all renewals, modifications, or extensions, in whole or in part, of any of the Security Documents; together with all expenses, legal and/or otherwise (including court costs and reasonable attorney's fees) incurred by the Bank in collecting or endeavoring to collect the Indebtedness, or any part thereof, in protecting any collateral, and in enforcing this Guaranty (all of which is hereinafter collectively referred to as the "Indebtedness"). THIS GUARANTY SHALL BE A CONTINUING, ABSOLUTE AND UNCONDITIONAL GUARANTY, and shall remain in full force and effect until the Indebtedness (and interest thereon and expenses in connection therewith), and all renewals, modifications, or extensions thereof, in whole or in part, shall have been fully paid and satisfied and shall remain in full force and effect thereafter until written notice of its discontinuance, addressed to 165 Madison Avenue, Memphis, Tennessee 38103 Attn: Metropolitan Division, shall be actually received by the Bank by faxed copy with originals to follow (the burden of proof of receipt by the Bank of such notice being in all cases upon the Guarantor), and also until any and all said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice, and expenses in connection therewith, shall be fully paid. Regardless of when a renewal or extension of pre-termination debt occurs (with or without adjustment of interest rate or other terms), the debt is deemed to have been incurred prior to termination to the extent of the renewal or extension, and to be fully covered by this Guaranty. The death, dissolution or withdrawal of the Guarantor (or any of them, if more than one) shall not terminate this Guaranty until notice of any such death, dissolution or withdrawal, given as above provided, shall have actually been received by the Bank, and until all of said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice shall be fully paid. And in the event of any such death, dissolution or withdrawal and notice thereof to the Bank, this Guaranty shall, notwithstanding, continue and remain in force against any surviving Guarantor until discontinued as hereinabove provided. The Bank is hereby expressly authorized to make from time to time, without notice to anyone: any renewals, modifications or extensions, whether such renewals, modifications or extensions be in whole or in part and without limit as to the number of such extensions or of the renewal periods thereof, and without notice to or further assent from the undersigned, sales, pledges, surrenders, compromises, settlements, releases, indulgences, alterations, substitutions, exchanges, changes in, modifications, or other dispositions including, without limitation, cancellations, of all or any part of the collateral pledged to secure the Indebtedness or any part of said Indebtedness, either express or implied, or of any contracts or instruments evidencing any thereof, or of any security or collateral therefor, and/or to take any security for or other guaranties upon any of said Indebtedness; and the liability of the Guarantor (or any of them, if more than one) shall not be in any manner affected, diminished or impaired thereby, or by any lack of diligence, failure, neglect or omission on the part of the Bank to make any demand or protest, or give any notice of dishonor or default, or to realize upon or protect any of said Indebtedness, or any collateral or security therefor, or to exercise any lien upon or right of appropriation or setoff of any moneys, accounts, credits, or property of said Debtor, possessed by the Bank, towards the liquidation of said Indebtedness, or by any application of payments or credits thereon. The Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on said Indebtedness, or any part thereof, and shall be under no obligation, at any time, to first resort to, make demand on, file a claim against, or exhaust its remedies against the Debtor, or any one or more of the Guarantors, or other persons or corporations, their properties or estates, or to resort to or exhaust its remedies against, any collateral, security, property, liens or other rights whatsoever. It is expressly agreed that the Bank may at any time make demand for payment on, or bring suit against the Guarantor (or any of them, if more than one), or any other guarantors, may compound with the Guarantor or any other guarantor for such sums or on such terms as Bank may see fit and release the Guarantor (or any of them, if more than one) or any other guarantor from all further liability to the Bank, without thereby impairing the rights of the Bank in any respect to demand, sue for and collect the balance of the Indebtedness from any guarantor not so released; and that any claims against Debtor, against any other guarantor, or against any collateral, accruing to the Guarantor (or any of them, if more than -2- one) by reason of payments made hereunder shall be in all respects junior and subordinate to any obligation then or subsequently owed by the Debtor or by such other guarantor to the Bank. In addition, the liability of the Guarantors (or each of them, if more than one) shall not be affected by any lack of validity or enforceability of the guaranteed debt. As security for the undertakings and obligations of the Guarantor hereunder, the Guarantor (or each of them, if more than one) expressly grants and gives to the Bank a right of immediate setoff, without demand or notice, of the balance of every deposit account, now or at any time hereafter existing, of the Guarantor (or each of them, if more than one) with the Bank, and a general lien upon, and security interest in all money, negotiable instruments, commercial paper, notes, bonds, stocks, credits and/or choses in action, or any interest therein, and any other property, rights, and interests of the Guarantor (or each of them, if more than one) or any evidence thereof, which have or any time shall come into the possession, custody, or control of the Bank, and, in the event of default hereunder, the Bank may sell or cause to be sold at public or private sale in any manner which may be lawful, for cash or credit and upon such terms as the Bank may see fit, and (except as may be otherwise expressly provided by the Uniform Commercial Code, or other applicable law) without demand or notice to the Guarantor (or each of them, if more than one), all or any of such security, and the Bank (unless prohibited by the Uniform Commercial Code from so doing) or any other person may purchase such property, rights or interests so sold and thereafter hold the same free of any claim or right of whatsoever kind, including any right or equity or redemption, of the Guarantor (or each of them, if more than one), such demand, notice, right or equity of redemption being hereby expressly waived and released. In the event of the death, incompetency, dissolution, liquidation, insolvency (however evidenced) of the Debtor, or institution of bankruptcy or receivership proceedings by the Debtor, or in the event that any involuntary bankruptcy or receivership proceedings filed against the Debtor shall not be dismissed within thirty (30) days following the institution of such proceedings, then and in any such event all of the Indebtedness shall, for the purposes of this Guaranty, and at the option of the Bank, immediately become due and payable from the Guarantor; and, in such event, any and all sums or payments of any nature which may be or become due and payable by the Debtor to the undersigned are hereby assigned to the Bank, and shall be collectible by the Bank, without necessity for other authority than this instrument, until the Indebtedness shall be fully paid and discharged, but such collection by the Bank shall not in any respect affect, impair or diminish any other rights of the Bank hereunder. The granting of credit from time to time by the Bank to the Debtor, in excess of the amount to which right of recovery under this Guaranty is limited and without notice to the Guarantor (or any of them, if more than one), is hereby expressly authorized and shall in no way affect or impair this Guaranty; and, in the event that the Indebtedness of the Debtor to the Bank shall so exceed the amount to which this Guaranty is limited, any payment by the Debtor or any collections or recovery by the Bank from any sources other than this Guaranty may first be applied by the Bank to any portion of the Indebtedness which exceeds the limits of this Guaranty. The Guarantor (or each of them, if more than one) will not exercise any rights that Guarantor (or any of them, if more than one) may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all of the Indebtedness shall have been paid in full. If any amount shall be paid to the Guarantor (or any of them, if more than one) on account of such -3- subrogation rights at any time when all the Indebtedness shall not have been paid in full, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied upon the Indebtedness. NOTWITHSTANDING ANY PROVISION OF THE PRECEDING PARAGRAPH TO THE CONTRARY, IF AT ANY TIME THE GUARANTOR (OR ANY OF THEM, IF MORE THAN ONE) IS OR BECOMES AN "INSIDER" (AS DEFINED FROM TIME TO TIME IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) WITH RESPECT TO THE DEBTOR, THE GUARANTOR (OR EACH OF THEM, IF MORE THAN ONE) WAIVES ANY AND ALL RIGHTS OF SUBROGATION AGAINST THE DEBTOR WITH RESPECT TO THIS GUARANTY, WHETHER SUCH RIGHTS ARISE UNDER AN EXPRESS OR IMPLIED CONTRACT OR BY OPERATION OF LAW, IT BEING THE INTENTION OF THE PARTIES THAT, IF ANY GUARANTOR IS AN "INSIDER" WITH RESPECT TO THE DEBTOR, THE GUARANTOR SHALL NOT BE DEEMED TO BE A "CREDITOR" (AS DEFINED IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) OF THE DEBTOR, BY REASON OF THE EXISTENCE OF THIS GUARANTY IN THE EVENT THAT THE DEBTOR BECOMES A DEBTOR IN ANY PROCEEDING UNDER THE FEDERAL BANKRUPTCY CODE. Notwithstanding any other provision of this Guaranty to the contrary, if the obligations of the Guarantor hereunder would otherwise be held or determined by a court of competent jurisdiction in any action or proceeding involving any state corporate law or any state or Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other law affecting the rights of creditors generally, to be void, invalid or unenforceable to any extent on account of the amount of the Guarantor's (or each of them, if more than one) liability under this Guaranty, then notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantor (or each of them, if more than one) or any other person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding. The Bank may without any notice whatsoever to anyone, sell, assign or transfer all or any part of said Indebtedness; and in that event each and every immediate and successive assignee, transferee or holder of all or any part of said Indebtedness shall have the right to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee or holder, as fully as though such assignee, transferee or holder were herein by name given such rights, powers and benefits; but the Bank shall have an unimpaired right, prior and superior to that of any said assignee, transferee or holder, to enforce this Guaranty for the benefit of the Bank, as to so much of said Indebtedness that has not been sold, assigned or transferred. No act of commission or omission of any kind, or at any time, on the part of the Bank in respect of any matter whatsoever shall in any way affect or impair this Guaranty. This Guaranty is in addition to and not in substitution for or discharge of any other Guaranty held by the Bank. The Guarantor (or each of them, if more than one) waives any rights of action Guarantor (or any of them, if more than one) might have against the Bank because of the exercise by the Bank in any manner howsoever of any rights granted to the Bank herein. This Guaranty contains the entire agreement between the parties and every part thereof shall be binding upon the Guarantor (or each of them, if more than one), Guarantor's successors and assigns, as fully as though everywhere specifically mentioned, and shall inure to the benefit of the -4- Bank, and its successors and assigns, and shall be construed according to the laws of the State of Tennessee, in which state it is accepted by the Bank. If any provision hereof is invalid or unenforceable, the remaining provisions hereof shall not be affected by such invalidity or unenforceability. Each term and provision contained herein shall, however, be valid and enforceable to the fullest extent permitted by applicable law. The Guarantor (or each of them, if more than one) acknowledges that this Guaranty Agreement is and shall be effective against such Guarantor upon execution by such Guarantor (regardless of whether any other person named herein as Guarantor shall sign), and delivery hereof to the Bank, or its agent; and that it shall not be necessary for the Bank to execute any acceptance hereof or otherwise to signify or express its acceptance hereof. ALL OF THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR WHICH MAY BE DELIVERED IN THE FUTURE) IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP BETWEEN THE PARTIES TO THIS AGREEMENT. IN WITNESS WHEREOF, the Guarantor (or each of them, if more than one) has caused this Guaranty Agreement to be executed by its duly authorized officers on this the 22 day of January, 1998. ATTEST: DEL MAR RACE MANAGEMENT, INC. /s/ Gemma A. Bannon By: /s/ James P. Michaelian - -------------------------- -------------------------- Title: Corporate Secretary Title: Chief Operating Officer ------------------- ----------------------- -5- STATE OF California ------------ COUNTY OF Los Angeles ----------- Before me, Christopher Allen, a Notary Public in and for the State and County aforesaid, personally appeared Jim Michaelian and Gemma Bannon, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself (or herself) to be the President and Secretary respectively, of DEL MAR RACE MANAGEMENT, INC., the within-named bargainor, a corporation, and that they as such President and Secretary being duly authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by themselves as such President and Secretary. WITNESS my hand and seal at office, on this the 22 day of January, 1998. /s/ Christopher Allen ------------------------------- Notary Public My Commission Expires: -------------------------------- 12-25-99 NOTARY STAMP - ---------------------- -------------------------------- -6- EX-10.47 10 GUARANTY AGREEMENT BY AUTOMOTIVE SAFETY EXHIBIT 10.47 GUARANTY AGREEMENT ------------------ FOR VALUE RECEIVED, and in consideration of credit given or to be given, advances made or to be made, or other financial accommodation from time to time afforded or to be afforded to GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois corporation (hereinafter called the "Debtor"), by FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, and having a place of business in Memphis, Tennessee (hereinafter called the "Bank"), the undersigned, AUTOMOTIVE SAFETY & TRANSPORTATION SYSTEMS, INC. (hereinafter the "Guarantor"), hereby jointly and severally (if more than one), for themselves, their heirs, executors, administrators and successors absolutely and unconditionally guarantee(s) the full and prompt payment to the Bank, at maturity (whether by acceleration or otherwise) and at all times thereafter, of each and all of the following: 1. The indebtedness (and interest thereon) incurred under that certain Reimbursement Agreement dated as of January 1, 1998, between Debtor and Bank (the "Reimbursement Agreement") pursuant to which Bank has issued its Irrevocable Standby Letter of Credit No. S983013 in the Stated Amount of $2,501,825.00 (the "Letter of Credit"), said indebtedness and interest being payable to the order of the Bank, at the offices of the Bank at 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan Division, or at such other place as the Bank may designate in writing, being executed by the Debtor, and being given for value received, said Reimbursement Agreement and Letter of Credit being incorporated herein by reference as fully and particularly as if set out verbatim herein; and 2. All obligations of Debtor pursuant to any and all renewals, modifications, or extensions, in whole or in part, of the Reimbursement Agreement and Letter of Credit; and 3. All obligations of the Debtor or Memphis International Motorsports Corporation ("Motorsports") under and pursuant to any deed of trust, mortgage, security agreement, assignment of rents and leases, or other security document (collectively herein called "Security Documents") which now or hereafter secures the payment of the indebtedness evidenced by the Reimbursement Agreement and the Letter of Credit; and 4. All obligations of Debtor or Motorsports pursuant to any and all renewals, modifications, or extensions, in whole or in part, of any of the Security Documents; together with all expenses, legal and/or otherwise (including court costs and reasonable attorney's fees) incurred by the Bank in collecting or endeavoring to collect the Indebtedness, or any part thereof, in protecting any collateral, and in enforcing this Guaranty (all of which is hereinafter collectively referred to as the "Indebtedness"). THIS GUARANTY SHALL BE A CONTINUING, ABSOLUTE AND UNCONDITIONAL GUARANTY, and shall remain in full force and effect until the Indebtedness (and interest thereon and expenses in connection therewith), and all renewals, modifications, or extensions thereof, in whole or in part, shall have been fully paid and satisfied and shall remain in full force and effect thereafter until written notice of its discontinuance, addressed to 165 Madison Avenue, Memphis, Tennessee 38103 Attn: Metropolitan Division, shall be actually received by the Bank by faxed copy with originals to follow (the burden of proof of receipt by the Bank of such notice being in all cases upon the Guarantor), and also until any and all said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice, and expenses in connection therewith, shall be fully paid. Regardless of when a renewal or extension of pre-termination debt occurs (with or without adjustment of interest rate or other terms), the debt is deemed to have been incurred prior to termination to the extent of the renewal or extension, and to be fully covered by this Guaranty. The death, dissolution or withdrawal of the Guarantor (or any of them, if more than one) shall not terminate this Guaranty until notice of any such death, dissolution or withdrawal, given as above provided, shall have actually been received by the Bank, and until all of said indebtedness, or any extensions or renewals thereof, existing before receipt of such notice shall be fully paid. And in the event of any such death, dissolution or withdrawal and notice thereof to the Bank, this Guaranty shall, notwithstanding, continue and remain in force against any surviving Guarantor until discontinued as hereinabove provided. The Bank is hereby expressly authorized to make from time to time, without notice to anyone: any renewals, modifications or extensions, whether such renewals, modifications or extensions be in whole or in part and without limit as to the number of such extensions or of the renewal periods thereof, and without notice to or further assent from the undersigned, sales, pledges, surrenders, compromises, settlements, releases, indulgences, alterations, substitutions, exchanges, changes in, modifications, or other dispositions including, without limitation, cancellations, of all or any part of the collateral pledged to secure the Indebtedness or any part of said Indebtedness, either express or implied, or of any contracts or instruments evidencing any thereof, or of any security or collateral therefor, and/or to take any security for or other guaranties upon any of said Indebtedness; and the liability of the Guarantor (or any of them, if more than one) shall not be in any manner affected, diminished or impaired thereby, or by any lack of diligence, failure, neglect or omission on the part of the Bank to make any demand or protest, or give any notice of dishonor or default, or to realize upon or protect any of said Indebtedness, or any collateral or security therefor, or to exercise any lien upon or right of appropriation or setoff of any moneys, accounts, credits, or property of said Debtor, possessed by the Bank, towards the liquidation of said Indebtedness, or by any application of payments or credits thereon. The Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on said Indebtedness, or any part thereof, and shall be under no obligation, at any time, to first resort to, make demand on, file a claim against, or exhaust its remedies against the Debtor, or any one or more of the Guarantors, or other persons or corporations, their properties or estates, or to resort to or exhaust its remedies against, any collateral, security, property, liens or other rights whatsoever. It is expressly agreed that the Bank may at any time make demand for payment on, or bring suit against the Guarantor (or any of them, if more than one), or any other guarantors, may compound with the Guarantor or any other guarantor for such sums or on such terms as Bank may see fit and release the Guarantor (or any of them, if more than one) or any other guarantor from all further liability to the Bank, without thereby impairing the rights of the Bank in any respect to demand, sue for and collect the balance of the Indebtedness from any guarantor not so released; and that any claims against Debtor, against any -2- other guarantor, or against any collateral, accruing to the Guarantor (or any of them, if more than one) by reason of payments made hereunder shall be in all respects junior and subordinate to any obligation then or subsequently owed by the Debtor or by such other guarantor to the Bank. In addition, the liability of the Guarantors (or each of them, if more than one) shall not be affected by any lack of validity or enforceability of the guaranteed debt. As security for the undertakings and obligations of the Guarantor hereunder, the Guarantor (or each of them, if more than one) expressly grants and gives to the Bank a right of immediate setoff, without demand or notice, of the balance of every deposit account, now or at any time hereafter existing, of the Guarantor (or each of them, if more than one) with the Bank, and a general lien upon, and security interest in all money, negotiable instruments, commercial paper, notes, bonds, stocks, credits and/or choses in action, or any interest therein, and any other property, rights, and interests of the Guarantor (or each of them, if more than one) or any evidence thereof, which have or any time shall come into the possession, custody, or control of the Bank, and, in the event of default hereunder, the Bank may sell or cause to be sold at public or private sale in any manner which may be lawful, for cash or credit and upon such terms as the Bank may see fit, and (except as may be otherwise expressly provided by the Uniform Commercial Code, or other applicable law) without demand or notice to the Guarantor (or each of them, if more than one), all or any of such security, and the Bank (unless prohibited by the Uniform Commercial Code from so doing) or any other person may purchase such property, rights or interests so sold and thereafter hold the same free of any claim or right of whatsoever kind, including any right or equity or redemption, of the Guarantor (or each of them, if more than one), such demand, notice, right or equity of redemption being hereby expressly waived and released. In the event of the death, incompetency, dissolution, liquidation, insolvency (however evidenced) of the Debtor, or institution of bankruptcy or receivership proceedings by the Debtor, or in the event that any involuntary bankruptcy or receivership proceedings filed against the Debtor shall not be dismissed within thirty (30) days following the institution of such proceedings, then and in any such event all of the Indebtedness shall, for the purposes of this Guaranty, and at the option of the Bank, immediately become due and payable from the Guarantor; and, in such event, any and all sums or payments of any nature which may be or become due and payable by the Debtor to the undersigned are hereby assigned to the Bank, and shall be collectible by the Bank, without necessity for other authority than this instrument, until the Indebtedness shall be fully paid and discharged, but such collection by the Bank shall not in any respect affect, impair or diminish any other rights of the Bank hereunder. The granting of credit from time to time by the Bank to the Debtor, in excess of the amount to which right of recovery under this Guaranty is limited and without notice to the Guarantor (or any of them, if more than one), is hereby expressly authorized and shall in no way affect or impair this Guaranty; and, in the event that the Indebtedness of the Debtor to the Bank shall so exceed the amount to which this Guaranty is limited, any payment by the Debtor or any collections or recovery by the Bank from any sources other than this Guaranty may first be applied by the Bank to any portion of the Indebtedness which exceeds the limits of this Guaranty. The Guarantor (or each of them, if more than one) will not exercise any rights that Guarantor (or any of them, if more than one) may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all of the Indebtedness shall have been paid in full. If -3- any amount shall be paid to the Guarantor (or any of them, if more than one) on account of such subrogation rights at any time when all the Indebtedness shall not have been paid in full, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied upon the Indebtedness. NOTWITHSTANDING ANY PROVISION OF THE PRECEDING PARAGRAPH TO THE CONTRARY, IF AT ANY TIME THE GUARANTOR (OR ANY OF THEM, IF MORE THAN ONE) IS OR BECOMES AN "INSIDER" (AS DEFINED FROM TIME TO TIME IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) WITH RESPECT TO THE DEBTOR, THE GUARANTOR (OR EACH OF THEM, IF MORE THAN ONE) WAIVES ANY AND ALL RIGHTS OF SUBROGATION AGAINST THE DEBTOR WITH RESPECT TO THIS GUARANTY, WHETHER SUCH RIGHTS ARISE UNDER AN EXPRESS OR IMPLIED CONTRACT OR BY OPERATION OF LAW, IT BEING THE INTENTION OF THE PARTIES THAT, IF ANY GUARANTOR IS AN "INSIDER" WITH RESPECT TO THE DEBTOR, THE GUARANTOR SHALL NOT BE DEEMED TO BE A "CREDITOR" (AS DEFINED IN SECTION 101 OF THE FEDERAL BANKRUPTCY CODE) OF THE DEBTOR, BY REASON OF THE EXISTENCE OF THIS GUARANTY IN THE EVENT THAT THE DEBTOR BECOMES A DEBTOR IN ANY PROCEEDING UNDER THE FEDERAL BANKRUPTCY CODE. Notwithstanding any other provision of this Guaranty to the contrary, if the obligations of the Guarantor hereunder would otherwise be held or determined by a court of competent jurisdiction in any action or proceeding involving any state corporate law or any state or Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other law affecting the rights of creditors generally, to be void, invalid or unenforceable to any extent on account of the amount of the Guarantor's (or each of them, if more than one) liability under this Guaranty, then notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantor (or each of them, if more than one) or any other person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding. The Bank may without any notice whatsoever to anyone, sell, assign or transfer all or any part of said Indebtedness; and in that event each and every immediate and successive assignee, transferee or holder of all or any part of said Indebtedness shall have the right to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee or holder, as fully as though such assignee, transferee or holder were herein by name given such rights, powers and benefits; but the Bank shall have an unimpaired right, prior and superior to that of any said assignee, transferee or holder, to enforce this Guaranty for the benefit of the Bank, as to so much of said Indebtedness that has not been sold, assigned or transferred. No act of commission or omission of any kind, or at any time, on the part of the Bank in respect of any matter whatsoever shall in any way affect or impair this Guaranty. This Guaranty is in addition to and not in substitution for or discharge of any other Guaranty held by the Bank. The Guarantor (or each of them, if more than one) waives any rights of action Guarantor (or any of them, if more than one) might have against the Bank because of the exercise by the Bank in any manner howsoever of any rights granted to the Bank herein. This Guaranty contains the entire agreement between the parties and every part thereof shall be binding upon the Guarantor (or each of them, if more than one), Guarantor's successors and -4- assigns, as fully as though everywhere specifically mentioned, and shall inure to the benefit of the Bank, and its successors and assigns, and shall be construed according to the laws of the State of Tennessee, in which state it is accepted by the Bank. If any provision hereof is invalid or unenforceable, the remaining provisions hereof shall not be affected by such invalidity or unenforceability. Each term and provision contained herein shall, however, be valid and enforceable to the fullest extent permitted by applicable law. The Guarantor (or each of them, if more than one) acknowledges that this Guaranty Agreement is and shall be effective against such Guarantor upon execution by such Guarantor (regardless of whether any other person named herein as Guarantor shall sign), and delivery hereof to the Bank, or its agent; and that it shall not be necessary for the Bank to execute any acceptance hereof or otherwise to signify or express its acceptance hereof. ALL OF THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR WHICH MAY BE DELIVERED IN THE FUTURE) IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP BETWEEN THE PARTIES TO THIS AGREEMENT. IN WITNESS WHEREOF, the Guarantor (or each of them, if more than one) has caused this Guaranty Agreement to be executed by its duly authorized officers on this the 22 day of January, 1998. ATTEST: AUTOMOTIVE SAFETY & TRANSPORTATION SYSTEMS, INC. /s/ Gemma A. Bannon By: /s/ Dwight R. Tanaka - -------------------------- ----------------------- Title: Corporate Secretary Title: President ------------------- -------------------- -5- STATE OF California ------------- COUNTY OF Los Angeles ------------ Before me, Christopher Allen, a Notary Public in and for the State and County aforesaid, personally appeared Gemma Bannon and Dwight Tanaka, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself (or herself) to be the Corporate Secretary and President respectively, of AUTOMOTIVE SAFETY & TRANSPORTATION SYSTEMS, INC., the within-named bargainor, a corporation, and that they as such Corporate Secretary and President, being duly authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by themselves as such Corporate Secretary and President. WITNESS my hand and seal at office, on this the 22 day of January, 1998. /s/ Christopher Allen ------------------------------- Notary Public My Commission Expires: [NOTARY SEAL] 12-25-99 - ---------------------- -6- EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10KSB FOR THE YEAR ENDED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STAETMENTS. 1 YEAR NOV-30-1997 DEC-01-1996 NOV-30-1997 1,520,000 0 712,000 0 326,000 4,318,000 50,620,000 (5,834,000) 58,156,000 3,306,000 23,693,000 0 0 26,536,000 3,864,000 58,156,000 30,909,000 30,909,000 0 27,109,000 (768,000) 0 1,435,000 3,032,000 1,273,000 1,759,000 0 0 0 1,671,000 0.42 0.42
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