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Filed Pursuant To Rule 424(b)(1)
File No. 333-34923
THE ROCK LOGO
NORTH CAROLINA MOTOR SPEEDWAY, INC.
October 31, 1997
Dear North Carolina Motor Speedway, Inc. Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
North Carolina Motor Speedway, Inc. ("NCMS") which will be held on Tuesday,
December 2, 1997 at the offices of NCMS located at 2152 North US 1 Highway,
Rockingham, North Carolina 28380, commencing at 10:00 A.M., local time.
At the meeting you will be asked to consider and approve the Agreement and
Plan of Merger, dated as of August 5, 1997 (the "Merger Agreement"), among NCMS,
Penske Acquisition, Inc., a North Carolina corporation ("Merger Sub"), and
Penske Motorsports, Inc. ("PMI"), pursuant to which NCMS will merge with and
into Merger Sub (the "Merger") and the shareholders of NCMS will receive at
their option either cash or shares of PMI Common Stock in exchange for their
shares of NCMS common stock, par value $.25 per share ("NCMS Stock").
Enclosed with this letter are a Notice of Special Meeting of Shareholders
and a Proxy Statement/Prospectus which describes in detail the background and
terms of the Merger and other related information. As discussed in the
accompanying Proxy Statement/Prospectus, NCMS' financial advisor,
Interstate/Johnson Lane Corporation has delivered a written opinion to the Board
of Directors of NCMS to the effect that the Merger is fair to the shareholders
of NCMS from a financial point of view. A copy of the opinion is attached to the
Proxy Statement/Prospectus. The Proxy Statement/Prospectus, and all of the
material in it (including the fairness opinion) should be read carefully by NCMS
shareholders in its entirety.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS
OF NCMS AND ITS SHAREHOLDERS. A MAJORITY OF THE BOARD OF DIRECTORS HAS APPROVED
THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER.
Your vote is important no matter how large or small your holdings may be.
To assure your representation at the meeting, please complete, sign, date and
return your proxy in the enclosed envelope. If you attend the meeting, you may
revoke your proxy and vote in person if you wish, even if you have previously
returned your proxy.
Sincerely,
NORTH CAROLINA MOTOR SPEEDWAY, INC.
Jo DeWitt Wilson, President
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THE ROCK LOGO
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, DECEMBER 2, 1997
To Shareholders of North Carolina Motor Speedway, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of North
Carolina Motor Speedway, Inc., a North Carolina corporation ("NCMS"), will be
held on Tuesday, December 2, 1997 at 10:00 A.M., local time, at the offices of
NCMS located at 2152 North US 1 Highway, Rockingham, North Carolina, 28380, for
the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of August 5, 1997 (the "Merger Agreement"), among
Penske Motorsports, Inc., a Delaware corporation ("PMI"), Penske
Acquisition, Inc., a North Carolina corporation and a wholly-owned
subsidiary of PMI, and NCMS, the terms and conditions of which are
described in the attached Proxy Statement/Prospectus.
2. To consider and act upon such other business as may properly come
before the meeting or any adjournment thereof.
The close of business on October 31, 1997 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
meeting and any and all adjournments or postponements thereof. The terms of the
Merger Agreement are summarized in the attached Proxy Statement/Prospectus. A
copy of the Merger Agreement is attached to the Proxy Statement/Prospectus.
Shareholders are or may be entitled to assert dissenters' rights under
Article 13 of the North Carolina Business Corporation Act. A copy of Article 13
of the North Carolina Business Corporation Act is attached to the enclosed Proxy
Statement/Prospectus.
A proxy card for the meeting and the Proxy Statement/Prospectus are
enclosed herewith.
By Order of the Board of Directors
Nancy B. Daugherty, Secretary
Rockingham, North Carolina
October 31, 1997
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. TO
ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE DATE THE ENCLOSED PROXY, WHICH
IS SOLICITED BY THE BOARD OF DIRECTORS OF NCMS, SIGN EXACTLY AS YOUR NAME
APPEARS THEREON AND RETURN IT IMMEDIATELY.
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NORTH CAROLINA MOTOR SPEEDWAY, INC.
PROXY STATEMENT
-------------------------
PENSKE MOTORSPORTS, INC.
PROSPECTUS
550,000 SHARES OF COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the shareholders of
North Carolina Motor Speedway, Inc., a North Carolina corporation ("NCMS"), in
connection with the solicitation of proxies by the NCMS Board of Directors (the
"Board") for use at the Special Meeting of Shareholders of NCMS to be held on
Tuesday, December 2, 1997, at the offices of NCMS located at 2152 North US 1
Highway, Rockingham, North Carolina, 28380, commencing at 10:00 A.M., local
time, and at any adjournments or postponements thereof (the "Special Meeting").
This Proxy Statement/Prospectus also constitutes the Prospectus of Penske
Motorsports, Inc., a Delaware corporation ("PMI"), with respect to the issuance
of 550,000 shares of PMI common stock, par value of $0.01 per share (the "PMI
Stock"), to be issued to the shareholders of NCMS in connection with the Merger
described below. Shareholders of PMI will not be voting to approve the Merger.
PMI Stock is traded on The Nasdaq National Market ("Nasdaq") under the symbol
"SPWY." On October 30, 1997 the last reported sales price for the Common Stock
as reported by Nasdaq was $29.125 per share.
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of NCMS with and into Penske Acquisition, Inc., a North Carolina
corporation and a wholly-owned subsidiary of PMI ("Merger Sub"), pursuant to an
Agreement and Plan of Merger, dated as of August 5, 1997 (the "Merger
Agreement"), among NCMS, Merger Sub and PMI. Pursuant to the Merger Agreement,
NCMS is to be merged with and into Merger Sub, with Merger Sub continuing as the
surviving corporation. As a result of the Merger, each outstanding share of
Common Stock, par value $.25 per share, of NCMS (the "NCMS Stock"), other than
any shares owned by PMI, Merger Sub, or other subsidiaries of PMI, shares held
in the treasury of NCMS and shares ("Dissenting Shares") in respect of which
dissenters' rights are properly exercised under the North Carolina Business
Corporation Act (the "NCBCA"), would be converted on the effective date of the
Merger (the "Effective Date") into the right to receive, at the holder's option,
either: (i) an amount, in cash, without interest, equal to $19.61 per share of
NCMS Stock or (ii) $19.61 worth of PMI Stock, with the PMI Stock being valued at
the average of the closing prices for PMI Stock as reported on Nasdaq (as
published in the Wall Street Journal) for the five consecutive trading days
during which shares are traded on Nasdaq ending on the fifth trading day prior
to the Effective Date (the "Average Closing Price"), subject to cash being paid
in lieu of issuing any fractional shares of PMI Stock. Because the value of the
PMI Stock will not be determined until the fifth trading day prior to the
Effective Date, NCMS shareholders may not know at the time of the Special
Meeting the number of shares of PMI Stock that they can elect to receive in the
Merger. If the Effective Date was the date of this Proxy Statement/Prospectus,
NCMS shareholders could elect to receive 0.6275 share of PMI Stock per share of
NCMS Stock. Assuming that all NCMS shareholders (other than PMI, Merger Sub or
other subsidiaries of PMI) elected to receive cash in consideration for their
exchange of the NCMS Stock held by them, the aggregate consideration paid to
such shareholders as a result of the Merger would be $13,201,981.47. In addition
to the payment of the Merger Consideration, if the holder of any Dissenting
Shares becomes entitled to an amount in excess of $19.61, as a result of
exercising his dissenter's rights, and such holder of Dissenting Shares owned
more than 5% of the outstanding NCMS Stock immediately before the Effective
Date, PMI will promptly pay in cash to each holder of NCMS Stock outstanding
immediately before the Effective Date (other than the Dissenting Shares) an
additional amount per share equal to such excess, less any amount per share
received as described in the next sentence. In addition, if PMI, during the one
year period following the Effective Date, sells all of the outstanding common
stock of the surviving corporation or all or substantially all of the assets of
the surviving corporation to any person other than PMI or its affiliates, PMI
shall promptly pay in cash to each holder of NCMS Stock immediately before the
Effective Date (other than Dissenting Shares) an additional amount equal to the
difference between (i) such holder's proportionate share (based on such holder's
percentage ownership of the NCMS Stock immediately before the Effective Date) of
the net sales price received by PMI from such sale, less the Merger
Consideration paid to such holder and any amount received by such holder
pursuant to the preceding sentence of this paragraph. Following the Merger, NCMS
will become a wholly-owned subsidiary of PMI. Consummation of the Merger is
subject to various conditions, including the approval and adoption of the Merger
Agreement by the holders of a majority of the outstanding shares of NCMS Stock.
PMI intends to vote all 1,563,478 of the shares of NCMS Stock held directly or
indirectly by PMI (approximately 69.9% of the total outstanding shares of NCMS
Stock as of October 31, 1997) in favor of the Merger and the Merger Agreement.
Therefore, PMI has sufficient voting power to approve the Merger and the Merger
Agreement without the affirmative vote of any other NCMS shareholders. NCMS
stockholders will have dissenters' rights. Neither PMI nor NCMS has the right to
terminate the Merger upon a decrease in the price of PMI Stock. It is expected
that closing of the Merger will take place immediately after the Special
Meeting.
All information in this Proxy Statement/Prospectus with respect to NCMS has
been provided by NCMS. All information contained in this Proxy
Statement/Prospectus with respect to PMI and Merger Sub has been provided by
PMI.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to NCMS shareholders on or about October 31, 1997. A
shareholder who has given a proxy to NCMS may revoke it at any time prior to its
exercise. See "The Special Meeting -- Record Date; Voting Rights; Proxies."
NCMS SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS OCTOBER 31, 1997.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION, IN ANY SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE
OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
INCORPORATED BY REFERENCE ON THE DATE HEREOF.
AVAILABLE INFORMATION
PMI is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder, and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the "Commission").
These reports, proxy and information statements and other information filed by
PMI can be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and
at the Commission's regional offices located at Northwest Atrium Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661 and at Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a site
on the World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
PMI has filed with the Commission a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the PMI Stock offered hereby (including all amendments and
supplements thereto, the "Registration Statement"). This Proxy
Statement/Prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. Statements contained herein concerning the provisions of certain
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
can be inspected and copied at the public reference facilities and regional
offices of the Commission.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by PMI with the Commission
pursuant to the Exchange Act (File No. 0-28044), are incorporated by reference
and made a part of this Proxy Statement/Prospectus: (i) PMI's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996; (ii) all other reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act since December 31,
1996, specifically including PMI's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, PMI's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, and PMI's Current Report on Form 8-K dated May 27, 1997; and
(iii) the description of the PMI Stock, contained in its Registration Statement
on Form 8-A, including any amendment or reports filed for the purpose of
updating such description.
All documents subsequently filed by PMI pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the date of the Special Meeting shall
be deemed to be incorporated by reference in this Proxy Statement/Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained in a document or information incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any subsequently filed document that also is, or is deemed to be,
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
PMI UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND
ALL OF THE INFORMATION THAT HAS BEEN OR MAY BE INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS (EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES). REQUESTS SHOULD BE DIRECTED TO
ROBERT H. KURNICK, JR., SECRETARY, PENSKE MOTORSPORTS, INC., 13400 WEST OUTER
DRIVE, DETROIT, MICHIGAN 48239-4001, TELEPHONE: (313) 592-8255.
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
AVAILABLE INFORMATION....................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. iii
SUMMARY..................................................... 1
Business of PMI........................................... 1
Business of NCMS.......................................... 1
The Special Meeting....................................... 1
The Merger................................................ 3
Certain Federal Income Tax Consequences................... 6
Comparative Rights of Shareholders........................ 6
Risk Factors.............................................. 7
Interests of Certain Persons in the Merger................ 7
PMI Selected Consolidated Financial Data.................. 8
RISK FACTORS................................................ 9
Litigation to Enjoin the Merger........................... 9
Determination of the Amount of Shares of PMI Stock to be
Received in the Merger................................. 9
Interest of Certain Persons in the Merger................. 9
Races Sanctioned Only on an Annual Basis.................. 10
Environmental Matters..................................... 11
Competition............................................... 11
Establishment of the Rival Indy Racing League............. 12
Dependence on Key Personnel............................... 12
Seasonality............................................... 12
Liability for Personal Injuries........................... 12
Reliance Upon Industry Sponsorships and Risk of Adverse
Government Regulation.................................. 12
Financial Impact of Bad Weather........................... 13
Potential Seismic Activity................................ 13
Control of PMI by Single Shareholder...................... 13
Possible Volatility of Stock Price........................ 13
Shares Eligible for Future Sale........................... 13
Possible Depressing Effect of Future Sales of PMI Stock
Issued in Future Acquisitions.......................... 14
Anti-Takeover Provisions.................................. 14
Dilution in Connection with the Merger and Future Business
Combinations........................................... 14
Historical, Pro Forma and Equivalent Per Share Data....... 15
THE SPECIAL MEETING......................................... 16
Purpose of the Special Meeting............................ 16
Record Date; Voting Rights; Proxies....................... 16
Solicitation of Proxies................................... 16
Quorum.................................................... 17
Required Vote............................................. 17
THE MERGER.................................................. 18
General................................................... 18
Effective Date............................................ 19
Conversion of Shares; Procedures for Exchange of
Certificates........................................... 19
Background of the Merger.................................. 20
The Special Committee's Activities and Investigations..... 22
Declination of Members at Special Committee to be
Re-elected............................................. 30
Action and Recommendation of the Board of Directors of
NCMS; Reasons for the Merger........................... 30
Interests of Certain Persons in the Merger................ 31
Certain Federal Income Tax Consequences................... 32
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ITEM PAGE
- ---- ----
Anticipated Accounting Treatment.......................... 33
Regulatory Approvals...................................... 33
Federal Securities Law Consequences....................... 34
Nasdaq Listing............................................ 34
Dividends................................................. 34
Dissenters' Rights........................................ 35
THE MERGER AGREEMENT........................................ 37
Terms of the Merger....................................... 37
Exchange of Certificates.................................. 39
Representations and Warranties............................ 39
Conduct of Business Pending the Merger.................... 40
Conditions to the Merger.................................. 40
Termination............................................... 40
Amendment and Waiver...................................... 41
Indemnification........................................... 41
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS.................. 41
BUSINESS OF NCMS............................................ 42
General................................................... 42
Racing and Related Events................................. 42
Facility.................................................. 42
Competition............................................... 42
Employees................................................. 43
Legal Proceedings......................................... 43
Insurance................................................. 43
Patents and Trademarks.................................... 43
NCMS SELECTED FINANCIAL DATA................................ 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF NCMS......................... 45
NCMS FINANCIAL STATEMENTS................................... 49
PMI AND SUBSIDIARIES UNAUDITED PRO FORMA FINANCIAL DATA..... 57
PRINCIPAL SHAREHOLDERS OF NCMS.............................. 62
DESCRIPTION OF NCMS' CAPITAL STOCK.......................... 63
General................................................... 63
Common Stock.............................................. 63
COMPARISON OF SHAREHOLDER RIGHTS............................ 64
Director Liability........................................ 64
Indemnification of Directors, Officers and Other Agents... 64
Protection of Minority Shareholder Rights................. 65
Call of Shareholders Meeting; Action by Written Consent... 65
Proxy Requirement......................................... 65
Derivative Actions........................................ 65
Voting for Directors; Cumulative Voting................... 65
Removal of Directors; Vacancies........................... 65
Rights of Dissenting Shareholders......................... 66
LEGAL MATTERS AND EXPERTS................................... 66
ANNEX A -- MERGER AGREEMENT................................. A-1
ANNEX B -- ARTICLE 13 OF THE NCBCA (DISSENTER'S RIGHTS)..... B-1
ANNEX C -- FAIRNESS OPINION OF INTERSTATE/JOHNSON LANE...... C-1
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SUMMARY
The following is a summary of information contained elsewhere in this Proxy
Statement/Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained in this Proxy
Statement/Prospectus and the Annexes hereto. Unless the context otherwise
requires, all references in this Proxy Statement/Prospectus to the Company mean
PMI and its subsidiaries, considered as one enterprise. "NASCAR(R)", "Grand
National(R)" and "Winston Cup(R)" are registered trademarks and service marks of
the National Association of Stock Car Auto Racing, Inc. ("NASCAR"). "CART"
refers to Championship Auto Racing Teams, Inc. Shareholders of NCMS are urged to
read this Proxy Statement/Prospectus and the Annexes hereto, and in particular
the section herein entitled "Risk Factors," in their entirety. This Proxy
Statement/Prospectus contains certain forward-looking statements within the
meaning of the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended. Actual results could differ materially from those
projected in the forward-looking statements as a result of certain risks and
uncertainties set forth under the caption "Risk Factors" and elsewhere in this
Proxy Statement/Prospectus.
BUSINESS OF PMI
PMI is a leading promoter and marketer of professional motorsports in the
United States. PMI owns and operates, through its subsidiaries, the Michigan
Speedway ("Michigan Speedway") in Brooklyn, Michigan, the Nazareth Speedway
("Nazareth Speedway") in Nazareth, Pennsylvania and the California Speedway,
near Los Angeles, California ("California Speedway"). PMI also recently acquired
approximately 69.9% of the outstanding NCMS Stock and in July 1997 acquired a
40% limited liability company interest in Homestead-Miami Speedway, LLC, which
operates the Metro-Dade Homestead Motorsports Complex ("Homestead Speedway") in
Homestead, Florida. On August 11, 1997, PMI acquired a 7% interest in Grand Prix
Association of Long Beach, Inc. ("GPLB"). GPLB is the owner and operator of the
Grand Prix of Long Beach and owns and operates Gateway International Raceway in
Madison, Illinois and Memphis Motorsports Park in Millington, Tennessee. PMI
also produces and markets motorsports-related merchandise such as apparel,
souvenirs and collectibles through its wholly-owned subsidiary Motorsports
International Corp. In addition, through its wholly-owned subsidiaries
Competition Tire West, Inc. and Competition Tire South, Inc., PMI sells Goodyear
brand racing tires in the midwest and southeastern regions of the United States.
PMI promoted a total of nine racing events at Michigan Speedway and Nazareth
Speedway in 1996 and will promote a total of 15 racing events at Michigan
Speedway, Nazareth Speedway and California Speedway in 1997. In addition, NCMS
is scheduled to host four racing events in 1997 and Homestead Speedway is
scheduled to host three racing events in 1997.
PMI Stock is traded on Nasdaq under the trading symbol "SPWY." PMI's
principal executive offices are located at 13400 West Outer Drive, Detroit,
Michigan 48239-4001, and its telephone number is (313) 592-8255.
BUSINESS OF NCMS
NCMS owns and operates North Carolina Motor Speedway in Rockingham, North
Carolina. NCMS promoted a total of four racing events in 1996 and expects to
promote four racing events in 1997.
NCMS' principal executive offices are located at 2152 North US 1 Highway,
Rockingham, North Carolina 28380, and its telephone number is (910) 205-1299.
THE SPECIAL MEETING
TIME, PLACE AND DATE
The Special Meeting will be held on Tuesday, December 2, 1997 at the
offices of NCMS located at 2152 North US 1 Highway, Rockingham, North Carolina
28380, at 10:00 A.M., local time.
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PURPOSE OF THE MEETING
At the Special Meeting, holders of NCMS Stock will consider and vote upon a
proposal to approve and adopt the Merger Agreement. In connection with the
Merger, each share of NCMS Stock will be converted into either $19.61 cash or,
at the holder's option, $19.61 worth of PMI Stock with the PMI Stock being
valued at the Average Closing Price and with cash being paid in lieu of
fractional shares. See "The Merger -- General."
A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS OF NCMS HAS APPROVED
THE MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT NCMS SHAREHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. SEE "THE MERGER -- BACKGROUND
OF THE MERGER," "-- RECOMMENDATION OF THE BOARD OF DIRECTORS OF NCMS; REASONS
FOR THE MERGER" AND "--INTERESTS OF CERTAIN PERSONS IN THE MERGER."
VOTES REQUIRED; RECORD DATE
The Merger will require approval and adoption of the Merger Agreement by
the affirmative vote of the holders of a majority of the outstanding shares of
NCMS Stock. Holders of NCMS Stock are entitled to one vote per share. Only
holders of NCMS Stock at the close of business on October 31, 1997 (the "Record
Date") will be entitled to notice of and to vote at the NCMS Special Meeting.
See "Special Meeting."
As of the Record Date, directors and executive officers of NCMS and their
affiliates were beneficial owners of approximately 25.2% of the outstanding
shares of NCMS Stock. In addition, 1,563,478 shares (approximately 69.9%) of
NCMS Stock is held by PMI or its subsidiaries. Walter P. Czarnecki, Richard J.
Peters, and Robert H. Kurnick, Jr. are all directors or executive officers of
PMI and its subsidiaries and are also each a director of NCMS. Also, Ms. Carrie
B. DeWitt owns 906,542 shares of PMI Stock (approximately 6.41% of the
outstanding shares of PMI prior to any shares issued pursuant to the Merger),
and Ms. DeWitt, together with her two daughters, Jo DeWitt Wilson and Nancy
DeWitt Daugherty, are directors of NCMS. Ms. DeWitt Wilson is also a director of
PMI. Each of Ms. DeWitt, Ms. DeWitt Daugherty and Ms. DeWitt Wilson, and each of
Messrs. Czarnecki, Peters and Kurnick, as directors of NCMS, voted in favor of
the Merger.
Mr. Bruton Smith owns 532,398 shares of NCMS Stock and Speedway
Motorsports, Inc. ("SMI") owns 12,984 shares of NCMS Stock (together,
approximately 24.3%). Mr. Smith, Mr. Humpy Wheeler and Mr. William Brooks are
all directors or executive officers of SMI and are also directors of NCMS. SMI
submitted a competing bid to the Board of NCMS and each of Messrs. Smith,
Wheeler and Brooks voted against the proposed Merger as directors of NCMS. On
August 5, 1997, Mr. Smith filed a lawsuit to enjoin the Merger, alleging among
other things, that the Board breached its fiduciary duty to the minority
shareholders of NCMS by approving the Merger. The lawsuit is in preliminary
stages; discovery has commenced and a hearing on PMI's motion to dismiss the
complaint and Mr. Smith's motion seeking a preliminary injunction has been
tentatively scheduled for November 5, 1997. See "The Merger -- Background of the
Merger."
PMI intends to vote all 1,563,478 of its and its subsidiaries shares of
NCMS stock in favor of the Merger and the Merger Agreement. With these shares,
representing approximately 69.9% of the outstanding shares of NCMS stock, PMI
has sufficient voting power to approve the Merger and the Merger Agreement
without the affirmative vote of any other NCMS shareholders. It is expected that
closing of the Merger will take place immediately after the Special Meeting.
CHANGE OF VOTE
NCMS shareholders who have delivered a proxy to NCMS may revoke the proxy
at any time prior to its exercise at the Special Meeting by giving written
notice to the Secretary of NCMS, by signing and returning a later dated proxy or
by voting in person at the Special Meeting. ACCORDINGLY, SHAREHOLDERS OF NCMS
WHO HAVE EXECUTED AND RETURNED PROXY CARDS TO NCMS IN ADVANCE OF
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THE SPECIAL MEETING MAY CHANGE THEIR VOTE AT ANY TIME PRIOR TO OR AT THE SPECIAL
MEETING.
THE MERGER
MERGER AGREEMENT
A copy of the Merger Agreement is included as Annex A to this Proxy
Statement/Prospectus and should be read in its entirety. For a description of
the Merger Agreement, see "The Merger Agreement."
MERGER CONSIDERATION
Upon the terms and subject to the conditions of the Merger Agreement, NCMS
will be merged with and into Merger Sub with Merger Sub continuing as the
surviving corporation and as a wholly owned subsidiary of PMI. In the Merger,
each share of NCMS Stock outstanding at the Effective Date, other than any
shares owned by PMI, shares held in the treasury of NCMS and Dissenting Shares,
will be converted into the right to receive the Merger Consideration, which will
be, at the holder's option, either (i) $19.61 in cash or (ii) $19.61 worth of
PMI Stock with the PMI Stock being valued at the Average Closing Price and with
cash being paid in lieu of fractional shares. Because the value of the PMI Stock
will not be determined until the fifth trading day prior to the Effective Date,
NCMS shareholders may not know at the time of the Special Meeting the number of
shares of PMI Stock that they can elect to receive in the Merger. If the
Effective Date was the date of this Proxy Statement/Prospectus, NCMS
shareholders could elect to receive 0.6275 share of PMI Stock per share of NCMS
Stock.
The following table sets forth exchange ratios at various hypothetical PMI
Stock price levels:
HYPOTHETICAL NUMBER OF SHARES OF PMI
AVERAGE CLOSING PRICE STOCK PER SHARE OF NCMS STOCK
- --------------------- -----------------------------
30.00 .65366
32.50 .60338
35.00 .56028
37.50 .52293
Assuming that all NCMS shareholders (other than PMI, Merger Sub or other
subsidiaries of PMI) elected to receive cash in consideration for their exchange
of the NCMS Stock held by them, the aggregate consideration paid to such
shareholders as a result of the Merger would be $13,201,981.47. See "The
Merger -- General." In addition to the payment of the Merger Consideration, if
the holder of any Dissenting Shares becomes entitled to an amount in excess of
$19.61 as a result of exercising his dissenter's rights, and such holder of
Dissenting Shares owned more than 5% of the outstanding NCMS Stock immediately
before the Effective Date, PMI will promptly pay in cash to each holder of NCMS
Stock outstanding immediately before the Effective Date (other than the
Dissenting Shares) an additional amount per share equal to such excess, less any
amount per share received as described in the next paragraph. As an illustrative
example, if such a 5% holder received $20 or $21 per share, respectively, then
each other NCMS shareholder would receive in cash an additional $0.39 or $1.39,
respectively, per share of NCMS Stock. PMI has no present intention to purchase
Dissenting Shares in an amount other than for the Merger Consideration. If,
however, a holder of 5% or more of the outstanding shares of NCMS Stock receives
less than $19.61 in an appraisal proceeding, NCMS shareholders who have
surrendered their shares for Merger Consideration would be entitled to retain
the full amount of the Merger Consideration.
In addition, if PMI, during the one year period following the Effective
Date, sells all of the outstanding common stock of the surviving corporation or
all or substantially all of the assets of the surviving corporation to any
person other than PMI or its affiliates, PMI shall promptly pay in cash to each
holder of NCMS Stock immediately before the Effective Date (other than
Dissenting Shares) an additional amount equal to the difference between (i) such
holder's proportionate share (based on such holder's percentage ownership of the
NCMS Stock immediately before the Effective Date) of the net sales price
received by PMI from such sale, less the Merger Consideration paid to such
holder, and (ii) any amount received by such holder pursuant to
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the first sentence of this paragraph. As an illustrative example, if within one
year after the Effective Date, PMI were to sell all of the outstanding shares of
NCMS Stock or if NCMS were to sell all or substantially all of its assets for
$50 million, a person holding 2,237 shares of NCMS Stock immediately prior to
the Effective Time (representing approximately 0.1% of the 2,236,705 shares of
NCMS Stock outstanding) who had not exercised rights of dissent and appraisal
would be entitled to receive an additional cash payment equal to the difference
between $50,000 (0.1% of the $50 million sales price) less $43,861.79 (the
$19.61 Merger Consideration multiplied by the 2,237 shares held by the
shareholder), or $6,138.21 (approximately $2.74 per share). If such a sale were
to occur at a total price of $43,861,785 (the $19.61 Merger Consideration
multiplied by the total number of shares of NCMS Stock outstanding) or less, the
shareholder in the foregoing example would not be entitled to receive any
additional payment but would be entitled to retain the full amount of Merger
Consideration. PMI has no present plans or intention to enter into a sale
transaction which is described in this paragraph.
RECOMMENDATION OF NCMS' BOARD
A majority of the members of the Board approved the Merger Agreement and
the transactions contemplated thereby. The Board has determined that the Merger
is fair to, and in the best interests of, NCMS and the shareholders of NCMS and
recommends that the shareholders approve and adopt the Merger Agreement. For a
discussion of the factors considered by the Board in reaching its recommendation
and determination, see "The Merger -- Background of the Merger," "-- The Special
Committee's Activities and Investigations," and "-- Recommendation of the Board
of Directors of NCMS/Reasons for the Merger."
FORMATION OF SPECIAL COMMITTEE; OPINION OF NCMS' FINANCIAL ADVISOR
The Special Committee of the Board (the "Special Committee") was
established by the Board on April 9, 1997 in response to written proposals by
PMI and SMI to acquire ownership of NCMS by means of proposed mergers with PMI
or SMI, or their respective affiliates (respectively, the "PMI Proposal" and the
"SMI Proposal"). The Special Committee retained Interstate/Johnson Lane
Corporation ("IJL") to act as its financial advisor and to evaluate and to
render its opinion to the Board as to the fairness of the consideration offered
in the PMI Proposal and SMI Proposal, from a financial point of view, to the
NCMS shareholders. After analysis, IJL orally advised the Special Committee in
June 1997, that it expected to be able to render a favorable opinion as to the
fairness, from a financial point of view, of both the SMI Proposal and the PMI
Proposal. On October 28, 1997, IJL issued its opinion to the Board that the
consideration offered by PMI in the Merger to be received by the NCMS
shareholders is fair to such shareholders from a financial point of view. The
full text of the opinion of IJL, which sets forth certain assumptions made,
certain procedures followed and certain matters considered by IJL, is included
as Annex C to this Proxy Statement/Prospectus and should be read in its
entirety. For a description of this opinion, see "The Merger -- Opinion of NCMS'
Financial Advisor."
EFFECTIVE DATE OF THE MERGER
The Merger will become effective at the date and time that the Articles of
Merger are duly filed with the Secretary of State of the State of North Carolina
in accordance with the NCBCA or at such later time as may be specified in the
Articles of Merger so filed. The filing of the Articles of Merger will be made
as soon as practicable after all conditions set forth in the Merger Agreement
have been satisfied or waived. See "The Merger Agreement -- Terms of the Merger"
and "The Merger -- Effective Date."
CONDITIONS TO THE MERGER; TERMINATION
The obligations of PMI and NCMS to consummate the Merger are subject to
various conditions, including (i) obtaining approval of the Merger Agreement by
NCMS' shareholders; (ii) the effectiveness of the Registration Statement and the
listing with Nasdaq of the additional shares of PMI Stock to be issued as
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part of the Merger; (iii) the absence of any statute, rule, regulation,
executive order, decree, injunction, or other order of any court or other
governmental authority outstanding that has the effect of prohibiting the
consummation of the Merger; (iv) delivery of an opinion or private letter ruling
reasonably satisfactory to NCMS to the effect that the Merger qualifies for
federal income tax purposes as a tax-free reorganization; and (v) obtaining
certain third party consents. Except for items (ii) and (iii), any of the
foregoing conditions may be waived. If a material condition is waived, NCMS
intends to resolicit proxies from NCMS shareholders.
The Merger Agreement may be terminated at any time prior to the Effective
Date, whether before or after approval of the Merger by NCMS shareholders: (i)
if the Merger does not take place by December 31, 1997; (ii) by mutual action of
the Board of Directors of each of PMI, Merger Sub and NCMS; (iii) by either PMI
or NCMS if any court or governmental body issues a final, non-appealable order,
decree, or ruling permanently enjoining, restraining, or prohibiting the Merger;
(iv) if the shareholders of NCMS fail to approve the Merger or approve a
different proposed acquisition transaction at a duly held meeting of the
shareholders; (v) by PMI if NCMS breaches any of its representations, warranties
or covenants contained in the Merger Agreement and such breach has a material
adverse effect on NCMS; or (vi) by NCMS if PMI breaches any of its
representations, warranties or covenants contained in the Merger Agreement and
such breach has a material adverse effect on PMI. Neither PMI nor NCMS has the
right to terminate the Merger upon a decrease in the price of PMI Stock.
See "The Merger Agreement -- Conditions to the Merger" and
"-- Termination."
EXCHANGE OF CERTIFICATES OF NCMS STOCK
Detailed instructions with regard to the surrender of certificates of NCMS
Stock, together with a letter of transmittal, will be forwarded to holders of
NCMS Stock promptly, but in no event later than five business days, following
the Effective Date. Upon surrender of the certificates and other required
documents to Merger Sub, the Merger Consideration will be distributed.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME. See "The
Merger Agreement -- Exchange of Certificates."
NASDAQ LISTING
PMI will file a notification for the listing of the shares of PMI Stock to
be issued in connection with the Merger on Nasdaq, subject to approval of the
Merger Agreement by NCMS' shareholders. Shares of PMI Stock are traded on Nasdaq
under the symbol "SPWY."
REGULATORY APPROVALS
Except as otherwise set forth herein, PMI is not aware of any approval or
other action by any governmental or administrative agency which would be
required for the completion of the Merger as contemplated herein. Should any
such approval or other action be required, it will be sought; however, PMI has
no current intention to delay the Merger pending the outcome of any such matter,
subject to satisfaction of any of the conditions specified in the Merger
Agreement. The federal government has adopted antitrust laws, regulations and
rules applicable to attempts to acquire securities of corporations incorporated
or operating in the United States. Such laws, regulations and rules, could
prohibit the consummation of the Merger. The Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") provides that the Merger may not be
consummated unless certain information has been furnished to the Department of
Justice, Antitrust Division (the "Division"), and the Federal Trade Commission
("FTC") and certain waiting period requirements have been satisfied. Such filing
and waiting period requirements have all been satisfied.
DIVIDENDS
PMI may from time to time consider the payment of cash dividends. However,
any declaration and payment of dividends will be (i) dependent upon PMI's
results of operations, financial condition, cash requirements, capital
improvements and other relevant factors, (ii) subject to the discretion of the
Board of Directors of PMI and (iii) payable only out of PMI's surplus or current
net profits in accordance with the
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General Corporation Law of the State of Delaware. No assurance can be given that
PMI will be able to pay such dividends at any time in the future.
The Merger Agreement provides that NCMS will not, among other things, prior
to the Effective Date, (i) except in the normal course as consistent with prior
practice declare, set aside or pay any dividend (whether in cash, stock or
property) or make any other distribution or payment with respect to any shares
of its capital stock or (ii) directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or make any commitment for any
such action.
DISSENTERS' RIGHTS
If the Merger Agreement is approved by the required vote of the NCMS
shareholders and is not abandoned or terminated, holders of NCMS stock who did
not vote in favor of the Merger may, by complying with Article 13 (entitled
"Dissenters Rights") of the NCBCA, a copy of which is attached hereto as Annex
B, assert dissenter's rights as described therein, and the shares of NCMS held
by such persons will be deemed to be "Dissenting Shares." See "The Merger --
Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Counsel to PMI, Drinker Biddle & Reath LLP, has provided a written opinion
to NCMS that for federal income tax purposes (i) the Merger will qualify as part
of a reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) no gain or loss will be
recognized by either NCMS or PMI as a result of consummation of the Merger and
(iii) except for cash received in lieu of fractional shares or cash received at
the election of an NCMS shareholder, no gain or loss will be recognized by a
holder of NCMS Stock upon the exchange of such stock for PMI Stock pursuant to
the Merger. Such opinion is based on various representations, qualifications and
assumptions, may not apply to holders of NCMS Stock who are subject to special
circumstances, and does not address any foreign, state or local tax consequences
of the Merger. Moreover, such opinion has no binding effect or official status
of any kind, and no assurance can be given that the Internal Revenue Service or
a court would take the same position on these issues. Accordingly, holders of
NCMS Stock are urged to consult their own tax advisors concerning the federal,
foreign, state and local tax consequences of the Merger to them. See "The Merger
- -- Certain Federal Income Tax Consequences."
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of shareholders of NCMS currently are governed by North Carolina
law, NCMS' Certificate of Incorporation and NCMS' By-laws. Upon consummation of
the Merger, shareholders of NCMS electing to receive PMI Stock will become
shareholders of PMI, which is a Delaware corporation, and their rights as
shareholders of PMI will be governed by the General Corporation Law of the State
of Delaware, PMI's Certificate of Incorporation and PMI's By-laws. Following is
a brief summary of the material differences in shareholder rights:
- PMI's Certificate of Incorporation eliminates the liability of its
directors to PMI and its shareholders for monetary damages for breach of
fiduciary duty as a director; NCMS' Articles of Incorporation do not.
- Holders of 10% or more of the outstanding shares of NCMS Stock are
entitled to call a shareholders meeting, while PMI shareholders are not
permitted to call a meeting.
- NCMS proxies are valid for an 11-month period; PMI proxies are valid for
three years.
- Under the North Carolina corporation law applicable to NCMS, shareholders
are required to obtain court approval prior to settlement, compromise or
discontinuance of a derivative action and a court may require a
shareholder-plaintiff to pay the reasonable expenses if the court finds
that the defendant's derivative action is without reasonable cause.
Delaware corporation law does not impose similar provisions on PMI
shareholders.
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- NCMS shareholders have cumulative voting rights; PMI shareholders do not.
- PMI directors can be removed from office by shareholders only for cause,
while NCMS directors can be removed from office by shareholders with or
without cause (individual NCMS directors can only be removed if the vote
against removal is not sufficient to elect a director under cumulative
voting).
For a more complete discussion of various differences between the rights of
shareholders of NCMS and the rights of shareholders of PMI, see "Comparison of
Shareholder Rights."
RISK FACTORS
Shareholders of NCMS should carefully evaluate the matters set forth under
"Risk Factors." Factors to be considered, among other things, include the
potential for fluctuation in the value of PMI Stock, the potential for changes
in the businesses and financial condition of PMI prior to the Effective Date,
the pending litigation attempting to enjoin the Merger, the inability to
determine the market price of PMI Stock prior to voting on the Merger and the
interests of certain people in the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board, with respect to the Merger
Agreement and the transactions contemplated thereby, shareholders of NCMS should
be aware that certain members of the management and the Board of Directors of
NCMS have certain interests in the Merger that are in addition to the interests
of the shareholders of NCMS generally. NCMS has entered into employment
agreements with Jo DeWitt Wilson, Nancy DeWitt Daugherty and Carrie B. DeWitt,
which become effective upon consummation of the Merger. In addition, prior to
April 1997, Ms. DeWitt exchanged her shares of NCMS stock for 906,542 shares of
PMI stock, which exchange included price protection and liquidity provisions.
Upon completion of the Merger, Ms. DeWitt's exchange will be deemed to be part
of a tax-free reorganization under Section 368(a)(1)(A) and 368(a)(2)(E) of the
Code. In the event the Merger is not completed, PMI will reimburse Ms. DeWitt
for the tax consequences as a result of her exchange. See "The Merger --
Interests of Certain Persons In the Merger," and "-- Certain Federal Income Tax
Consequences."
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PMI SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of income and balance sheet data as of
or for each of the years ended December 31, 1996, 1995, 1994 and 1993 presented
below were derived from the consolidated financial statements of PMI, which have
been audited by Deloitte & Touche LLP, independent auditors. The selected
consolidated statement of income and balance sheet data for the six months ended
June 30, 1997 and 1996 and for the year ended December 31, 1992 was derived from
the unaudited consolidated financial statements of PMI, which include all
adjustments which management considers necessary for a fair presentation of the
data for such period, all of which were of a normal recurring nature. The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," PMI's consolidated financial
statements, related notes and other financial information set forth in PMI's
Annual Report on Form 10-K for the year ended December 31, 1996 and Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, which are incorporated
herein by reference.
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME:
REVENUES
Speedway admissions.............. $19,696 $9,780 $20,248 $17,375 $15,278 $13,997 $13,391(a)
Other speedway revenues.......... 15,750 7,694 13,041 7,654 7,181 6,149 6,053(a)
Merchandise, tires and
accessories.................... 16,225 10,905 21,886 16,976 18,059 13,070 9,847
---------- ---------- ---------- --------- ------- ------- -------
Total Revenues............... 51,671 28,379 55,175 42,005 40,518 33,216 29,291
EXPENSES
Operating expenses............... 16,314 8,970 18,067 14,060 13,322 11,026 10,820
Cost of sales(b)................. 9,402 6,515 12,834 9,672 10,169 7,573 5,358
Depreciation and amortization.... 2,313 1,473 3,167 2,563 2,018 1,601 1,513
Selling, general and
administrative................. 8,283 3,113 6,185 4,631(c) 4,632(c) 4,420(c) 4,124(c)
---------- ---------- ---------- --------- ------- ------- -------
Total Expenses............... 36,312 20,071 40,253 30,926 30,141 24,620 21,815
Operating Income................. 15,359 8,308 14,922 11,079 10,377 8,596 7,476
Interest income (expense), net..... 77 756 1,950 (895) (1,005) (875) (793)
---------- ---------- ---------- --------- ------- ------- -------
Income before income taxes......... 15,436 9,064 16,872 10,184 9,372 7,721 6,683
Income taxes....................... 6,018 3,337 5,992 3,410(d) 3,032(d) 2,528(d) 753(d)(e)
---------- ---------- ---------- --------- ------- ------- -------
Net Income......................... $ 9,418 $ 5,727 $10,880 $ 6,774 $ 6,340 $ 5,193 $ 5,930
========== ========== ========== ========= ======= ======= =======
Net income per share................. $.70
Weighted average shares
outstanding........................ 13,457,164
Pro forma net income per share(f).... $.51 $.90 $.84
Pro forma weighted average shares
outstanding(f)..................... 11,232,960 12,128,920 8,077,245
SELECTED OPERATING DATA(g):
Operating margin................... 29.7% 29.3% 27.0% 26.4% 25.6% 25.9% 25.5%
Number of seats
Michigan Speedway................ 106,775 98,276 98,276 88,141 77,991 72,906 66,173
Nazareth Speedway................ 46,341 35,654 35,654 30,534 30,534 26,668 24,270
California Speedway.............. 70,948
Total attendance................... 481,066 300,392 599,480 518,396 448,168 414,937 362,502
Number of events
Winston Cup...................... 2 1 2 2 2 2 2
CART............................. 1 1 2 2 2 2 2
Other............................ 5 4 5 4 5 4 3
BALANCE SHEET DATA:
Total assets....................... $266,810 $168,149 $183,997 $73,255 $34,510 $36,407 $27,406
Total debt......................... 18,907 4,032 5,563 350 12,515 12,035 10,221
Total stockholders' equity......... 182,016 132,052 145,402 45,812 10,187 13,467 11,062
- -------------------------
(a) Revenues in 1992 include $2.6 million, relating to Indy Car Grand Prix,
Inc., a company which promoted an annual CART sanctioned event in Cleveland,
Ohio and whose assets were sold in 1993.
(b) Cost of sales relates only to revenue from merchandise, tires and
accessories sales.
(c) Penske Corporation allocated consolidated corporate overhead as management
fees on a pro-rata basis among Penske Corporation's operating subsidiaries,
pursuant to formulas which management believes are reasonable. The
management fees charged to PMI are not necessarily reflective of the expense
PMI would have incurred on a stand-alone basis during such periods.
Management estimates that had PMI operated on a stand-alone basis during
such periods actual expenses paid would have been 60-70% of the management
fees paid of $774,000, $654,000, $600,000 and $450,000 in 1995, 1994, 1993
and 1992, respectively.
(d) The effective tax rate is lower than the statutory rate because Competition
Tire West was a subchapter S corporation prior to its acquisition by PMI in
1996.
(e) PMI is a member of a consolidated tax group. Prior to 1993, income taxes
were allocated based on a proportionate amount of income before taxes
generated by each member of the group. In 1993 the method of recording was
changed to reflect the adoption of FASB 109, "Accounting for Income Taxes."
The impact of such change was to record tax expense as if PMI were a
separate taxpayer.
(f) The pro forma net income per share reflects the weighted average number of
shares outstanding and the dilutive effect of the number of shares to be
issued, at the initial public offering price of $24 per share, equivalent to
the $2.9 million capital distribution associated with the acquisition in
March 1996 of Competition Tire West, Inc. from its controlling shareholder.
(g) Number of seats, attendance and number of events for NCMS are excluded from
the information presented as no events have occurred since the acquisition
by PMI.
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RISK FACTORS
IN CONSIDERING THE MATTERS SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS,
NCMS SHAREHOLDERS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE SIGNIFICANT
RISKS AND FACTORS DESCRIBED BELOW WHICH ARE ASSOCIATED WITH THE MERGER AND AN
INVESTMENT IN THE SHARES OF PMI STOCK BEING OFFERED.
LITIGATION TO ENJOIN THE MERGER
The Merger Agreement provides that as a condition to the Merger, no
injunction or other order shall have been entered by any court that has the
effect of prohibiting the consummation of the Merger. On August 5, 1997, O.
Bruton Smith, a shareholder of NCMS and the majority shareholder and chairman of
SMI, filed a lawsuit in North Carolina Superior Court, Mecklenburg County,
against NCMS, PMI, Merger Sub, PSH Corp., a shareholder of PMI and Walter P.
Czarnecki, Richard J. Peters, Robert H. Kurnick, Jr., Carrie B. DeWitt, Nancy
DeWitt Daugherty and Jo DeWitt Wilson, each a director of NCMS, seeking to
enjoin the consummation of the Merger. NCMS, PMI and the other defendants in the
lawsuit have filed a motion to dismiss Mr. Smith's lawsuit, and Mr. Smith has
filed a motion to obtain a preliminary injunction to prohibit the Merger. The
court has approved a motion for expedited discovery and has set a hearing for
November 5, 1997 to consider the defendants' motion to dismiss and Mr. Smith's
motion for a preliminary injunction. On September 15, 1997, Mr. Smith filed a
motion to add 12 other shareholders of NCMS as additional plaintiffs. A hearing
on this motion has not been scheduled. In his lawsuit, Mr. Smith alleges that
Ms. Carrie DeWitt, as a majority shareholder, owed a duty to the minority
shareholders of NCMS to sell her shares of NCMS Stock in a transaction that
would result in the minority shareholders receiving the "highest price" for
their shares and that she breached this duty by selling her shares to PMI. In
addition, Mr. Smith alleges that the defendant directors breached their
fiduciary duties to NCMS and its shareholders by approving the proposed Merger
with PMI. Finally, Mr. Smith alleges that PMI's negotiation and purchase of Ms.
DeWitt's NCMS Stock and the negotiation and execution of the Merger Agreement
constituted an unfair and deceptive trade practice under North Carolina law. If
the court grants a preliminary injunction against the Merger, the Merger may be
delayed until final resolution of the lawsuit. If the Merger is permanently
enjoined prior to its completion, the Merger will not occur and shareholders
will continue to hold their shares of NCMS Stock and will not be entitled to
receive any Merger Consideration. If the Merger is completed and Mr. Smith is
able thereafter to obtain judicial relief (such as a permanent injunction or
monetary damages), such relief may involve an unwinding of the Merger and may
have a material adverse effect on PMI and its shareholders, including those
shareholders receiving shares in the Merger.
DETERMINATION OF THE AMOUNT OF SHARES OF PMI STOCK TO BE RECEIVED IN THE MERGER
As a result of the Merger, each outstanding share of NCMS Stock, other than
shares owned by PMI, Merger Sub, or other subsidiaries of PMI, shares held in
the treasury of NCMS and Dissenting Shares, would be converted on the Effective
Date into the right to receive, at the holder's option, either: (i) an amount,
in cash, without interest, equal to $19.61 per share of NCMS Stock or (ii)
$19.61 worth of PMI Stock, with the PMI Stock being valued at the Average
Closing Price. In the event a holder of NCMS Stock elects to receive PMI Stock
as part of the Merger, the exact number of shares of PMI Stock to be received
may not be determinable at the time of the Special Meeting and will be subject
to changes in the market price of PMI Stock. If the market price of PMI Stock
drops and a shareholder of NCMS elects to receive cash in lieu of PMI Stock,
despite the additional shares of PMI Stock such shareholder would receive in
that case, the cash payment would not be treated as a tax-free event for such
shareholder.
INTEREST OF CERTAIN PERSONS IN THE MERGER
Certain members of NCMS management and Board have interests in the Merger
that other NCMS shareholders do not. Prior to execution of the Merger Agreement,
Merger Sub, PMI and Ms. Carrie B. DeWitt entered into the a Shareholder Option
and Voting Agreement, dated April 1, 1997, (as subsequently amended, the "Option
Agreement"). Pursuant to the Option Agreement, Ms. DeWitt granted to PMI options
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to acquire her NCMS Stock for shares of PMI Stock (at a ratio of .620333 share
of PMI Stock for each share of NCMS Stock). PMI agreed that if its exercise of
such Option were taxable to Ms. DeWitt, it would pay in such case an amount
equal to her income taxes (if any) resulting from such exchange, less
$1,400,000. The exchange ratio reflected a value of $18.61 per share of Company
Common Stock at a $30.00 per share value of PMI Stock. As part of the
consideration for such options, PMI paid $1,400,000 (equivalent to $.958 per
share of Ms. DeWitt's NCMS Stock) into escrow, to be disbursed to Ms. DeWitt
upon the happening of certain events related to the completion of the Merger.
The Option Agreement also gave Ms. DeWitt a put option after a period of time to
require PMI to effect the exchange of shares as provided above. The Option
Agreement also permits Ms. DeWitt (or her estate within seven months after her
death) the ability to require PMI to effect the registration of Ms. DeWitt's
shares of PMI Stock to permit her to dispose of her shares of PMI Stock through
a registered public offering or, if a registered offering at a price per share
of at least $30.00 cannot be completed, through a sale of her shares to an
affiliate of PMI at the greater of the then fair market value of the shares or
$30.00 per share. The Option Agreement provides that the foregoing rights may be
exercised by Ms. DeWitt (or her estate) on a limited basis within one year, and
completely within three years, after her acquisition of shares of PMI Stock
pursuant to the Option Agreement or, if earlier, seven months after her death.
In the event that such an offering cannot be completed, Ms. DeWitt is entitled
to require an affiliate of PMI to purchase up to $27 million of Ms. DeWitt's
shares of PMI Stock at a price equal to the greater of (i) the then fair market
value per share of PMI Stock or (ii) $30.00 per share. In addition, in the event
that Ms. DeWitt had previously sold a portion of her shares of PMI Stock, she
may require that an affiliate of PMI purchase her remaining shares for $27
million less the gross proceeds from her prior sales of PMI Stock or that an
affiliate of PMI purchase up to $27 million worth of her shares of PMI Stock at
a price equal to the then fair market value thereof plus the product of the
number of shares previously sold multiplied by the difference between $30.00 and
the average per share sales price of the shares previously sold. On or about May
15, 1997, PMI exercised its purchase option under the Option Agreement and
acquired Ms. DeWitt's NCMS Stock at the stated exchange ratio. The terms of the
Option Agreement were derived through negotiations with Ms. DeWitt and her
representatives.
Ms. DeWitt and her daughters, Jo DeWitt Wilson and Nancy DeWitt Daugherty,
are all members of the NCMS Board and are officers of NCMS (collectively, the
"Officers") who have five year employment agreements (the "Employment
Agreements") with NCMS which become effective upon completion of the Merger. The
Employment Agreements provide that the Officers will be employed by NCMS in
their current positions for a five-year term commencing on the Effective Date.
The term will automatically renew for successive one-year periods unless
terminated in writing by either party prior to the end of the initial five-year
term or any successive renewal term. Under the Employment Agreements, Ms.
DeWitt, Chairman of the Board, Ms. DeWitt Wilson, President and Chief Executive
Officer, and Ms. DeWitt Daugherty, Secretary of NCMS, will receive annual
salaries of $125,000, $120,000 and $25,000, respectively, with an annual bonus
and annual salary increases at the discretion of the Board. NCMS may terminate
any of the Officers' employment upon her death, disability or for cause. The
Officers may terminate their employment at any time. In the event an Officer's
employment is terminated due to her death or disability, NCMS is obligated to
pay the Officer or her estate all compensation and fringe benefits due to her
for the remaining term of the Employment Agreement. If an Officer resigns or is
terminated for cause, she will receive all compensation due to her through the
date of termination. The Employment Agreements further provide for
confidentiality and non-compete provisions during the term of the Officer's
employment by NCMS.
Ms. DeWitt Wilson is also a director of PMI. PMI owns 70% of the
outstanding stock of NCMS; Richard J. Peters, Walter P. Czarnecki, and Robert H.
Kurnick, Jr. are all directors or executive officers of PMI and its subsidiaries
and are also directors of NCMS. See "-- Interests of Certain Persons in the
Merger".
RACES SANCTIONED ONLY ON AN ANNUAL BASIS
PMI's success has been and will remain dependent to a significant extent
upon maintaining a good working relationship with the sanctioning bodies of its
racing events, particularly NASCAR and CART. In
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1996, PMI's NASCAR-sanctioned races accounted for approximately 44% of PMI's
total revenue. Each NASCAR sanction agreement is negotiated on an annual basis.
In 1996, PMI's two CART-sanctioned car races accounted for approximately 16% of
PMI's total revenue. Each CART sanction agreement continues through at least the
1998 race season. NASCAR is under no obligation to renew its annual sanction
agreements with PMI and CART is under no obligation to extend PMI's sanction
agreements beyond the 1998 racing season. Revocation or nonrenewal of a sanction
agreement would have a material adverse effect on PMI.
ENVIRONMENTAL MATTERS
Prior to the commencement of construction of the California Speedway,
portions of the California Speedway site were identified by Kaiser Ventures,
Inc. ("Kaiser"), which transferred the site to PMI and participated in the
development of the site, and the applicable governmental agency as requiring
remediation by Kaiser to comply with applicable environmental laws. Property
owned by Kaiser adjacent to the site has also been identified as requiring
remediation by Kaiser. Remediation activities at the site, a former steel
production facility, were carried out by Kaiser under a Consent Order between
Kaiser and the California Environment Protection Agency, Department of Toxic
Substances Control ("DTSC"), dated August 22, 1988. PMI believes that all known
and required remediation for the site has been completed. If damage to persons
or property or contamination of the environment is determined to have been
caused or exacerbated by the conduct of PMI's business or by pollutants,
substances, contaminants or wastes used, generated or disposed of by PMI or
which may be found on the property of PMI, there may be liability to various
parties for such damage and PMI may be required to pay the cost of investigation
or remediation, or both, of such contamination or damage caused thereby. The
amount of such liability, as to which PMI may be self-insured or which is not
subject to indemnification by Kaiser or to which Kaiser does not financially
respond, could be material. In addition, should Kaiser fail to remediate
properly or honor its indemnification of PMI for such remediation activities,
PMI may be required to pay the costs of investigations and/or remediations,
which costs may be material. Changes in federal, state or local laws,
regulations or requirements, or the discovery of heretofore unknown conditions,
could also require additional expenditures by PMI.
Treated effluent from the site of the California Speedway has been
historically utilized by an unrelated party, California Steel Industries, Inc.
("CSI"), in its industrial processes under an arrangement with Kaiser. PMI
believes that this utilization will continue into the future, but there can be
no assurances in this regard. Should CSI's utilizations cease and an alternative
user not be found, or should federal, state or local laws or regulations change,
it might be impracticable for the treatment facility servicing the site of the
California Speedway to continue in operation. PMI would then be required to
connect to the public sewerage system, which could require material expenditures
by PMI either to acquire and/or upgrade the treatment facility or to obtain
other sanitary wastewater treatment services from a public utility.
COMPETITION
PMI's racing events compete not only with other sports and other
recreational events scheduled on the same dates, but also with other racing
events sanctioned by various racing bodies such as NASCAR, CART, the United
States Auto Club ("USAC"), the Indy Racing League (the "IRL"), the National Hot
Rod Association ("NHRA"), Sports Car Club of America ("SCCA"), the International
Motor Sports Association ("IMSA"), the Automobile Racing Club of America
("ARCA") and others. Racing events sanctioned by different organizations often
are held on the same dates at separate tracks, in competition with the NASCAR
and CART event dates. In addition, motorsports facilities compete for the
patronage of motor racing spectators with other track owners and with other
sports and entertainment businesses, many of which have resources that exceed
those of PMI. The quality of the competition, type of racing event, caliber of
the events, sight lines, location, ticket pricing and customer conveniences,
among other things, differentiate the various motorsports facilities. In
addition, while PMI believes that the California Speedway is the only oval
speedway operating in Southern California, there have been and continue to be
numerous attempts by other parties to develop a permanent speedway to serve the
large Southern California market. Currently, projects have been announced for
sites in Long Beach, Victorville, Lake Elsinore, San Jose and Coachella Valley,
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California. There can be no assurance that PMI will maintain or improve its
position in light of such competition.
ESTABLISHMENT OF THE RIVAL INDY RACING LEAGUE ("IRL")
In 1995, the IRL was formed as a rival league for CART-sanctioned race
events, competing directly with CART and the PPG Indy Car World Series. PMI is
unable to predict whether or to what extent the IRL and CART competition will
affect its future operating results and is unable to predict the effect that a
successful IRL would have on its future operating results.
DEPENDENCE ON KEY PERSONNEL
PMI's success depends upon the availability and performance of its senior
management, particularly the experience and relationships Roger S. Penske, PMI's
Chairman, has within the industry, especially his relationship with NASCAR and
CART. The loss of Mr. Penske's services could have a material adverse effect on
PMI. PMI does not have any formal agreement or understanding for retaining Mr.
Penske's services.
SEASONALITY
PMI derives a substantial portion of its total revenue from speedway
admissions and other revenue derived from its speedway events. Until this year,
PMI's events were held in April, May, June, July and August; however, this year
there are three event weekends scheduled for the California Speedway in each of
June, September and October. In addition, NCMS, of which PMI acquired
approximately 69.9% in April 1997, hosted a race weekend in the first quarter of
1997 and will host a race weekend in the fourth quarter of 1997; and Homestead
Speedway, of which PMI acquired 40% in July 1997, hosted two event weekends in
the first quarter of 1997 and will host one major racing event in the fourth
quarter of 1997. As a result, PMI's business has been, and is expected to
remain, highly seasonal. During 1996, PMI's second and third quarters accounted
for approximately 88% of PMI's total annual revenue and in excess of 100% of its
total annual operating income. PMI has historically experienced an operating
loss in its first and fourth quarters during which it historically promoted no
races.
LIABILITY FOR PERSONAL INJURIES
Racing events can be dangerous to participants and to spectators. PMI
maintains insurance policies that provide coverage within limits that in
management's judgment are sufficient to protect PMI from material financial loss
due to liability for personal injuries sustained by persons on PMI's premises in
the ordinary course of PMI's business. Nevertheless, there can be no assurance
that such insurance will be adequate or available at all times and in all
circumstances. PMI's financial condition, results of operations and cash flows
would be adversely affected to the extent claims and associated expenses exceed
insurance recoveries.
RELIANCE UPON INDUSTRY SPONSORSHIPS AND RISK OF ADVERSE GOVERNMENT REGULATION
The motorsports industry generates significant revenue each year from the
promotion, sponsorship and advertising of various companies and their products.
Government regulation can adversely impact the availability to motorsports of
this promotion, sponsorship and advertising revenue. Advertising by the tobacco
and liquor industries is generally subject to greater governmental regulation
than advertising by other sponsors of PMI's events. During the past several
months, various state attorney generals and certain plaintiffs' attorneys
announced settlement arrangements with the tobacco industry that if approved
and, if implemented, could potentially restrict tobacco industry sponsorship of,
and advertising at, sporting events. Advertising revenue from the tobacco and
liquor industry accounted for less than 2% of PMI's total revenue in the year
ended December 31, 1996.
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FINANCIAL IMPACT OF BAD WEATHER
Weather conditions affect sales of tickets, concessions, merchandise and
souvenirs, among other things, at speedway events. Although PMI sells
nonrefundable tickets well in advance of its events, poor weather conditions
could have an adverse effect on PMI's results of operations.
POTENTIAL SEISMIC ACTIVITY
The geology and other natural conditions of the Southern California area in
which the California Speedway is located present risks of natural disasters,
particularly the risk of seismic activity which could cause significant damage
to the California Speedway facilities and/or adjacent public thoroughfares and
adversely affect PMI's financial condition and results of future operations. PMI
maintains insurance policies that provide coverage within limits that in
management's judgment are sufficient to protect PMI from material financial loss
resulting from damage to the California Speedway as a result of seismic
activity. Nevertheless, there can be no assurance that such insurance will be
adequate or available at all times and in all circumstances. PMI's financial
condition and business prospects would be adversely affected to the extent
claims and associated expenses exceed insurance recoveries.
CONTROL OF PMI BY SINGLE SHAREHOLDER
As of October 31, 1997, PSH Corp., an indirect 80%-owned subsidiary of
Penske Corporation, was the beneficial owner of approximately 55.1% of PMI's
Stock. As a result, PSH Corp. controls the outcome of substantially all issues
submitted to PMI's shareholders, including the election of all of PMI's
directors. If the Merger is completed on terms consistent with those currently
proposed, PSH Corp. would own approximately 53.5% of PMI's Stock assuming all
shareholders of NCMS elect to receive shares of PMI Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has, from time to time, experienced extreme price and
volume fluctuations, which could adversely affect the market price of the PMI
Stock without regard to the financial performance of PMI. The market price of
the PMI Stock may also fluctuate substantially in response to variations in
PMI's results of operations, announcements by PMI or other developments
affecting PMI, as well as by general economic and other external factors.
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the 14,148,340 shares of PMI Stock currently outstanding and
the 14,570,453 shares of PMI Stock which would be outstanding after completion
of the Merger on the terms currently proposed (assuming NCMS shareholders all
elect to receive PMI Stock), PMI has reserved an additional 400,000 shares of
PMI Stock for issuance pursuant to PMI's Stock Option Plan, which shares are
registered under the Securities Act, and will be freely transferable. PMI has
granted options to purchase 190,000 shares of PMI Stock pursuant to such plan.
The 7,871,554 shares of PMI Stock beneficially owned by the principal
shareholders of PMI are "restricted securities", as defined in Rule 144 ("Rule
144") under the Securities Act, and may be resold in compliance with Rule 144.
Ms. DeWitt has agreed not to resell or otherwise dispose of the 906,542 Shares
of PMI Stock recently issued to her in connection with the acquisition of her
NCMS shares for a period of one year; however, Ms. DeWitt's estate has the right
beginning upon the earlier of her death or May 15, 1998 to demand registration
of her shares of PMI Stock for resale to the public in addition to her right to
sell such shares in compliance with Rule 144 after the expiration of the one
year "lock-up" period. No prediction can be made as to the effect that resale of
shares of PMI Stock, or the availability of shares of PMI Stock for resale, will
have on the market price of the PMI Stock prevailing from time to time. The
resale of substantial amounts of PMI Stock, or the perception that such resales
may occur, could adversely affect prevailing market prices of the PMI Stock.
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POSSIBLE DEPRESSING EFFECT OF FUTURE SALES OF PMI STOCK ISSUED IN FUTURE
ACQUISITIONS
PMI may issue PMI Stock in connection with possible future acquisitions or
in other transactions. There can be no assurance as to when, and how many of,
such shares will be sold and the effect such sales may have on the market price
of PMI Stock. Such securities may be subject to resale restrictions in
accordance with the Securities Act and the regulations promulgated thereunder.
As such restrictions lapse or if such shares are registered for sale to the
public, such securities may be sold to the public. In the event of the issuance
and subsequent resale of a substantial number of shares of PMI Stock, or a
perception that such sales could occur, there could be a material adverse effect
on the prevailing market price of PMI Stock.
ANTI-TAKEOVER PROVISIONS
Certain provisions of PMI's Certificate of Incorporation and By-laws
authorize the issuance of "blank check" preferred stock, stagger the election of
directors and establish advance notice requirements for director nominations and
actions to be taken at shareholder meetings. These provisions could discourage
or impede a tender offer, proxy contest or other similar transaction involving
control of PMI, which transaction might be viewed favorably by minority
shareholders. See "Comparison of Shareholder Rights."
DILUTION IN CONNECTION WITH THE MERGER AND FUTURE BUSINESS COMBINATIONS
The issuance of additional shares of PMI Stock upon completion of the
Merger and any possible future acquisitions or business combinations for PMI
Stock may have a dilutive effect on earnings per share and will have a dilutive
effect on the voting rights of the holders of PMI Stock. Assuming the
consummation of the Merger and that all shareholders of NCMS elect to receive
PMI Stock in the Merger, Ms. DeWitt and the other shareholders of NCMS will own
approximately 9.1% of the outstanding shares of PMI Stock based on the number of
shares of PMI Stock outstanding as of October 31, 1997, plus the PMI Stock
assumed to be issued in the Merger.
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HISTORICAL, PRO FORMA AND EQUIVALENT PER SHARE DATA
The following table sets forth certain historical and pro forma per share
data of PMI and NCMS. The pro forma per share data reflects the per share data
of PMI as if the shares of NCMS were acquired at the beginning of the period
presented. The equivalent pro forma per share data reflects the pro forma net
income, pro forma book value and pro forma dividends per share of PMI multiplied
by the ratio at which NCMS shares are being exchanged for PMI shares.
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
PMI:
Net Income Per Share
Historical............................................. $ .70 $ .90
Pro Forma.............................................. .65 .83
Book Value Per Share
Historical............................................. 12.86 10.98
Pro Forma.............................................. 13.43 12.78
Dividends Per Share....................................... None None
NCMS:
Net Income Per Share
Historical............................................. .23 .63
Equivalent Pro Forma................................... .40 .51
Book Value Per Share
Historical............................................. 3.13 2.88
Equivalent Pro Forma................................... 8.23 7.83
Dividends Per Share
Historical............................................. .00 .02
Equivalent Pro Forma................................... .00 .00
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THE SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, which will be held on Tuesday, December 2, 1997 at
the offices of NCMS, located at 2152 North US 1 Highway, Rockingham, North
Carolina 28380, commencing at 10:00 A.M., local time, and at any and all
adjournments or postponements thereof, holders of NCMS Stock will consider and
vote upon the proposal to approve and adopt the Merger Agreement, pursuant to
which NCMS will be merged with and into Merger Sub, with Merger Sub being the
surviving corporation, and such other matters as may properly be brought before
the Special Meeting. If the Merger is approved and completed in accordance with
the Merger Agreement, at the Effective Date, NCMS will become a wholly-owned
subsidiary of PMI, and each outstanding share of NCMS Stock, other than any
shares owned by PMI, shares held in the treasury of NCMS and dissenting shares
will be converted into and exchangeable for, at the holder's option, either (i)
$19.61 in cash or (ii) $19.61 worth of PMI Stock with the PMI Stock being valued
at the Average Closing Price and with cash being paid in lieu of fractional
shares.
A MAJORITY OF THE MEMBERS OF THE BOARD HAS APPROVED THE MERGER AND THE
MERGER AGREEMENT AND RECOMMENDS THAT NCMS SHAREHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. SEE "THE MERGER -- BACKGROUND OF THE MERGER,"
" -- RECOMMENDATION OF THE BOARD OF DIRECTORS OF NCMS; REASONS FOR THE MERGER"
AND " -- INTERESTS OF CERTAIN PERSONS IN THE MERGER."
RECORD DATE; VOTING RIGHTS; PROXIES
The Board has fixed the close of business on October 31, 1997 as the Record
Date for determining holders entitled to notice of and to vote at the Special
Meeting.
As of the Record Date, there were 2,236,705 shares of NCMS Stock issued and
outstanding, each of which entitles the holder thereof to one vote. All shares
of NCMS Stock represented by properly executed proxies delivered to NCMS will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH SHARES OF NCMS STOCK WILL BE VOTED IN FAVOR OF APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. NCMS does not know of any matters other than as described in
the accompanying Notice of Special Meeting that are to come before the Special
Meeting. If any other matter or matters are properly presented for action at the
Special Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment, unless such authorization is withheld. A shareholder who
has given a proxy to NCMS may revoke it at any time prior to its exercise by
giving written notice thereof to the Secretary of NCMS, by signing and returning
a later dated proxy or by voting in person at the Special Meeting. Accordingly,
shareholders who have executed and returned to NCMS proxy cards in advance of
the Special Meeting may change their vote at any time prior to or at the Special
Meeting; however, mere attendance at the Special Meeting will not in and of
itself have the effect of revoking any proxy.
Votes cast by proxy or in person at the Special Meeting will determine
whether or not a quorum is present at the Special Meeting and will be tabulated
by election inspectors appointed for the Special Meeting. The election
inspectors will treat abstentions as shares that are present and entitled to
vote for purposes of determining the presence of a quorum but as unvoted for
purposes of determining the approval of any matter submitted to the shareholders
for a vote.
SOLICITATION OF PROXIES
NCMS will bear its own cost of solicitation of proxies. Fiduciaries,
nominees and others will be reimbursed for their out-of-pocket expenses in
forwarding proxy materials to beneficial owners of stock held in their names.
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QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of NCMS Stock is necessary to
constitute a quorum at the Special Meeting.
REQUIRED VOTE
The approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of NCMS Stock. PMI intends to
vote all 1,563,478 (approximately 69.9% of the outstanding shares of NCMS stock)
of the shares of NCMS Stock owned directly or indirectly by it in favor of the
Merger and the Merger Agreement. Therefore, PMI has sufficient voting power to
approve the Merger and the Merger Agreement without the affirmative vote or the
attendance at the Special Meeting of any other NCMS shareholders. Abstentions
will have the effect of votes against approval of the Merger and the Merger
Agreement. It is expected that closing of the Merger will take place immediately
after the Special Meeting. See "The Merger -- Interests of Certain Persons in
the Merger."
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE SHAREHOLDERS OF NCMS. ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. NCMS SHAREHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
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THE MERGER
This section of this Proxy Statement/Prospectus, as well as the next
section of this Proxy Statement/ Prospectus entitled "The Merger Agreement,"
describe certain aspects of the proposed Merger. To the extent that it relates
to the Merger Agreement or other agreements described in this Proxy
Statement/Prospectus, the following description describes all material terms of
the Merger Agreement, but does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement which is attached as Annex A
to this Proxy Statement/Prospectus and is incorporated herein by reference and
such other agreements that are filed as exhibits to the Registration Statement
filed by PMI with the Commission under the Securities Act, with respect to the
securities offered hereby. All NCMS shareholders are urged to read the Merger
Agreement in its entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
approvals of the NCMS shareholders required therefor are obtained and all other
conditions to the Merger are satisfied or waived. At the Effective Date, NCMS
will be merged with and into Merger Sub, and Merger Sub will continue as a
wholly-owned subsidiary of PMI. As a result, at the Effective Date, each share
of NCMS Stock issued and outstanding immediately prior to the Effective Date,
other than any shares owned by PMI, shares held in the treasury of NCMS, and
Dissenting Shares in respect of which dissenter's rights are properly exercised
under the NCBCA, will be converted into and exchangeable, at the holder's
option, for either (i) $19.61 in cash or (ii) $19.61 worth of PMI Stock, with
the PMI Stock being valued at the Average Closing Price. No fractional shares of
PMI Stock will be issued in the Merger. In lieu of fractional shares, each
holder of NCMS Stock who otherwise would be entitled to receive a fractional
share of PMI Stock will instead receive cash (without interest) determined by
multiplying the Average Closing Price by the fractional share interest to which
such holder would otherwise be entitled. Because the value of the PMI Stock may
not be determined until the fifth trading day prior to the Effective Date, NCMS
shareholders will not know at the time of the Special Meeting the number of
shares of PMI Stock that they can elect to receive in the Merger. If the
Effective Date was the date of this Proxy Statement/Prospectus, NCMS
shareholders could elect to receive 0.6275 share of PMI Stock per share of NCMS
Stock.
The following table sets forth exchange ratios at various hypothetical PMI
Stock price levels:
HYPOTHETICAL NUMBER OF SHARES OF PMI
AVERAGE CLOSING PRICE STOCK PER SHARE OF NCMS STOCK
- --------------------- -----------------------------
30.00 .65366
32.50 .60338
35.00 .56028
37.50 .52293
Assuming that all NCMS shareholders (other than PMI, Merger Sub or other
subsidiaries of PMI) elected to receive cash in consideration for their exchange
of the NCMS Stock held by them, the aggregate consideration paid to such
shareholders as a result of the Merger would be $13,201,981.47. See "The
Merger -- General."
In addition to the payment of the Merger Consideration, if the holder of
any Dissenting Shares becomes entitled to an amount in excess of $19.61 as a
result of exercising his dissenter's rights, and such holder of Dissenting
Shares owned more than 5% of the outstanding NCMS Stock immediately before the
Effective Date, PMI will promptly pay in cash to each holder of NCMS Stock
outstanding immediately before the Effective Date (other than the Dissenting
Shares) an additional amount per share equal to such excess, less any amount per
share received as described below. As an illustrative example, if such a 5%
holder received $20 or $21 per share, respectively, then each other NCMS
stockholder would receive in cash an additional $0.39 or $1.39, respectively,
per share of NCMS Stock. PMI has no present intention to purchase Dissenting
Shares in an amount other than for the Merger Consideration. If, however, a
holder of 5% or more of the outstanding shares of NCMS Stock receives less than
$19.61 in an appraisal proceeding, NCMS shareholders who have
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surrendered their shares for Merger Consideration would be entitled to retain
the full amount of the Merger Consideration.
In addition, if PMI, during the one year period following the Effective
Date, sells all of the outstanding common stock of the surviving corporation or
all or substantially all of the assets of the surviving corporation to any
person other than PMI or its affiliates, PMI shall promptly pay in cash to each
holder of NCMS Stock immediately before the Effective Date (other than
Dissenting Shares) an additional amount equal to the difference between (i) such
holder's proportionate share (based on such holder's percentage ownership of the
NCMS Stock immediately before the Effective Date) of the net sales price
received by PMI from such sale, less the Merger Consideration paid to such
holder, and (ii) any amount received by such holder pursuant to the first
sentence of this paragraph. As an illustrative example, if within one year after
the Effective Date, PMI were to sell all of the outstanding shares of NCMS Stock
or if NCMS were to sell all or substantially all of its assets for $50 million,
a person holding 2,237 shares of NCMS Stock immediately prior to the Effective
Time (representing approximately 0.1% of the 2,236,705 shares of NCMS Stock
outstanding) who had not exercised rights of dissent and appraisal would be
entitled to receive an additional cash payment equal to the difference between
$50,000 (0.1% of the $50 million sales price) less $43,861.79 (the $19.61 Merger
Consideration multiplied by the 2,237 shares held by the shareholder), or
$6,138.21 (approximately $2.74 per share). If such a sale were to occur at a
total price of $43,861,785 (the $19.61 Merger Consideration multiplied by the
total number of shares of NCMS Stock outstanding) or less, the shareholder in
the foregoing example would not be entitled to receive any additional payment
but would be entitled to retain the full amount of Merger Consideration. PMI has
no present plans or intention to enter into a sale transaction which is
described in this paragraph.
EFFECTIVE DATE
Consummation of the Merger will occur upon the filing of Articles of Merger
with the Secretary of State of the State of North Carolina or at such later time
as is specified in such Articles. The filing of the Articles of Merger will
occur as soon as practicable after the satisfaction or waiver of all conditions
to the closing of the transactions contemplated by the Merger Agreement. The
Merger Agreement will be terminated if the Merger shall not have been
consummated on or before December 31, 1997 unless any party extends the Merger
Agreement for an additional 180 days. It is expected that closing of the Merger
will take place immediately after the Special Meeting. See "The Merger Agreement
- -- Conditions to the Merger" and "-- Termination."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of NCMS Stock into the right to receive, at the holder's
option, cash or PMI Stock will occur automatically at the Effective Date.
Promptly after the Effective Date, Merger Sub shall mail transmittal materials
(which shall specify that delivery shall be effected, and risk of loss and title
to the certificates theretofore representing shares of NCMS Stock shall pass,
only upon proper delivery of such certificates to Merger Sub) to each holder of
NCMS Stock of record as of the Effective Date advising such holder of the
procedure for surrendering to Merger Sub outstanding certificates formerly
evidencing NCMS Stock in exchange for cash or new certificates for PMI Stock and
cash in lieu of fractional shares. Upon surrender to Merger Sub of a certificate
formerly representing shares of NCMS Stock, together with duly executed
transmittal materials and such other documents as may reasonably be required by
the Merger Sub, the holder of such Certificate shall be paid, as elected by such
holder (i) the number of whole shares of PMI Stock that such person is entitled
to receive in the Merger and cash in lieu of fractional shares or (ii) if the
holder so elects in the transmittal materials, $19.61 per share of NCMS Stock
(without interest). Upon surrender, each certificate theretofore evidencing NCMS
Stock shall be cancelled.
If any issuance of shares of PMI Stock in exchange for shares of NCMS Stock
is to be made to a person other than the NCMS shareholder in whose name the
certificate is registered at the Effective Date, it will be a condition of such
exchange that the certificate so surrendered be properly endorsed or otherwise
in proper form for transfer and that the NCMS shareholder requesting such
issuance either pay any transfer or other tax required or establish to the
satisfaction of PMI that such tax has been paid or is not payable.
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Beginning on the Effective Date, there will be no further transfers of NCMS
Stock on the stock transfer books of the surviving corporation. If a certificate
representing NCMS Stock is presented for transfer, it will be cancelled and
either cash or a certificate representing the appropriate number of full shares
of PMI Stock and cash in lieu of fractional shares will be issued in exchange
therefor.
At the Effective Date, all shares of NCMS Stock shall no longer be
outstanding and shall automatically be cancelled and retired and cease to exist,
and each holder of a certificate representing any such shares of NCMS Stock
shall cease to have any rights with respect thereto, except the right to receive
the Merger Consideration, without interest, or, with respect to holders of
Dissenting Shares, rights provided under Article 13 of the NCBCA. If the holder
of NCMS Stock does not make the election as to which form of Merger
Consideration to receive within 15 days following written notice from PMI
regarding the election, then such holder shall be deemed to have elected to
receive cash. No dividends or other distributions, if any, payable to holders of
record of PMI Stock prior to the Effective Date will be paid to the holders of
any certificates for shares of NCMS Stock.
NCMS SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO MERGER SUB UNTIL
THEY HAVE RECEIVED TRANSMITTAL LETTERS. NCMS SHAREHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
BACKGROUND OF THE MERGER
THE PROPOSALS; FORMATION OF THE SPECIAL COMMITTEE
PMI's strategy is to continue to significantly increase revenue and
profitability by (i) hosting premier weekend motorsports events at facilities
designed and maintained to maximize the spectators' overall entertainment
experience, (ii) expanding the Company's existing seating capacity and otherwise
improving its facilities, and (iii) increasing sales of racing related
merchandise such as tires, apparel, souvenirs and collectibles. In order to
expand and improve its facilities, one of PMI's strategies has been to increase
its revenues and diversify its business by acquiring additional speedways. In
August, 1996, Jo DeWitt Wilson, Ms. DeWitt's daughter, initially approached PMI
to discuss PMI's possible role in financing her purchase of O. Bruton Smith's
NCMS Stock. This proposal was considered by PMI but rejected because PMI
believed that it was able to acquire Ms. DeWitt's controlling interest in NCMS.
Discussions then turned to a possible purchase by PMI of Ms. DeWitt's
controlling interest in NCMS. PMI began negotiating with the majority
shareholder of NCMS in August 1996 to determine if it could acquire NCMS'
business. There were a number of meetings from August, 1996 through March 31,
1997 between PMI and its counsel and Ms. DeWitt and her counsel and financial
advisors at which the terms of PMI's acquisition of Ms. DeWitt's shares were
discussed and negotiated. PMI initially believed that it could obtain control of
NCMS through acquiring Ms. DeWitt's shares without the need to purchase
additional shares and incur additional expenses in a merger transaction. One of
Ms. DeWitt's principal objectives, however, was to sell her shares in NCMS in a
tax-free reorganization. PMI and Ms. DeWitt agreed to permit PMI to achieve this
objective in a two-step transaction, involving the purchase of Ms. DeWitt's
shares followed by a merger. PMI agreed to indemnify Ms. DeWitt for any income
taxes arising from its acquisition of Ms. DeWitt's NCMS Stock if PMI could not
complete the two-step transaction as a tax-free reorganization. Accordingly, Ms.
DeWitt and PMI entered into the Option Agreement to enable PMI to acquire Ms.
DeWitt's NCMS Stock in a merger transaction or to purchase Ms. DeWitt's NCMS
Stock. On May 15, 1997, PMI exercised its right under the Option Agreement to
purchase Ms. DeWitt's NCMS Stock and purchased her shares on that date, and has
elected to proceed with the Merger to acquire the remaining shares of NCMS
Stock. PMI believed that this two-step transaction structured to constitute a
tax-free reorganization would allow PMI to acquire all of the outstanding shares
of NCMS Stock for approximately the same aggregate purchase price that would be
paid for Ms. DeWitt's shares if the transaction was not structured as a tax-free
reorganization.
After negotiations, on April 1, 1997, PMI and Ms. DeWitt entered into the
Option Agreement. Pursuant to the Option Agreement, Ms. DeWitt granted to PMI
the option to acquire all 1,461,378 shares of her NCMS Stock in exchange for PMI
Stock at a ratio of one share of NCMS Stock for each .620333 share of PMI Stock.
The ratio reflected a value of $18.61 per share of NCMS Stock and $30.00 per
share of PMI
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Stock. PMI paid $1,400,000 (equivalent to $.958 per share of Ms. DeWitt's stock)
into escrow for the option, payable to Ms. DeWitt upon the occurrence of certain
events relating to consummation of the Merger. PMI also agreed that if it
exercised the option and the transaction were taxable to Ms. DeWitt, it would
reimburse, on a tax-free basis, her income taxes, if any, resulting from the
exchange, less $1,400,000. PMI exercised the option on May 15, 1997, and after
such exercise owned 1,563,478 shares of NCMS stock (approximately 69.9% of the
outstanding shares), which included 102,100 shares of NCMS Stock previously
owned by PMI. The Option Agreement provides Ms. DeWitt with rights during
specified periods to dispose of all or any portions Ms. DeWitt desires of the
PMI Stock she received upon exercise at a price equal to the greater of the then
fair market value of the shares or $30.00 a share, either through a sale to PMI
or an affiliate or registration of such shares for sale to the public. The terms
of the option were derived through negotiations with Ms. DeWitt and her
representatives.
Concurrent with its negotiations with Ms. DeWitt, PMI transmitted a draft
of a proposed merger agreement to Moore & Van Allen, PLLC ("Moore & Van Allen"),
counsel to NCMS. Though no meetings between PMI and Moore & Van Allen took place
regarding the negotiation of the merger agreement, the draft of the merger
agreement was revised in response to written comments made by Moore & Van Allen.
On April 1, 1997, the same day it entered into the Option Agreement, PMI
submitted a merger proposal to the Board to acquire all shares of NCMS Stock for
either $14.00 in cash or .620333 share of PMI Stock for each share of NCMS
Stock. In order to better align the cash portion of the merger proposal with the
terms of Ms. DeWitt's sale, on April 9, 1997, PMI amended the April 1 proposal
so that holders of NCMS Stock would have the option to receive either $18.61 in
cash or .620333 share of PMI Stock for each share of NCMS Stock (the "PMI
Proposal"). PMI determined the valuation contained in the PMI Proposal (and as
subsequently amended) through its negotiations with Ms. DeWitt and its purchase
of Ms. DeWitt's shares and through discussions with J. Norfleet Pruden, Esq. of
Kennedy Covington Lobdell and Hickman LLP, special independent counsel to the
Special Committee. PMI did not utilize a financial advisor to determine the
valuation set forth in the PMI Proposal. On April 2, 1997, SMI, which also
engages principally in the ownership and operation of motorsports racing
facilities, submitted a proposal to acquire NCMS for approximately $23.00 per
share (the "SMI Proposal"). Neither NCMS management nor the Board sought any
such proposal from SMI; however, three members of the Board are executive
officers of SMI. SMI owns approximately 12,984 shares of NCMS Stock and Mr. O.
Bruton Smith, SMI's principal shareholder and chairman of its board of directors
and a director of NCMS, owns approximately 532,398 shares of NCMS Stock
(together, approximately 24.4% of the outstanding NCMS Stock).
No other parties submitted any proposals nor were any such proposals
requested by NCMS because NCMS believed that soliciting such proposals would be
futile in light of PMI's ownership of a majority of the outstanding shares of
NCMS stock and PMI's desire to implement the PMI Proposal. However, the
submission of the PMI Proposal and SMI Proposal had been publicly announced and
news accounts concerning these efforts to acquire NCMS were published and
broadcast by the national media. No party other than PMI or SMI approached NCMS
to express an interest in acquiring NCMS following these public announcements.
On April 9, 1997, the Board determined that it was desirable and in the
best interests of the shareholders of NCMS to establish a special committee to
consider the proposals because certain members of the Board were associated with
PMI or SMI or related to Ms. DeWitt. The Board established the committee, which
consisted of NCMS directors W.R. Webb, Jr., Paul Russell, D.L. McDonald, and
R.W. Goodman (the "Special Committee"), to review both the PMI Proposal and the
SMI Proposal. The members of the Special Committee, who were paid their normal
director's fee of $300 per meeting for their services, were all of the NCMS
directors who were unaffiliated with SMI or PMI and not related to Ms. DeWitt.
For a discussion of possible conflicts of interest see "The Merger -- Interests
of Certain Persons in the Merger." No other committees were created by the
Board, nor were any unaffiliated representatives retained by the Board to
evaluate the effect of the proposals on the interests of the minority
shareholders separate or distinct from the interests of all the shareholders of
NCMS generally. NCMS believes that such actions did not have any material effect
on the Board's evaluation of the merger proposals. On April 16, 1997, SMI
modified its proposal to provide that NCMS shareholders would have the option to
receive $32.00 in cash or $32.00 in
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market value of SMI Common Stock, par value $0.01 per share ("SMI Stock"). SMI
also proposed to give shareholders a five-year right to put the SMI stock back
to SMI. SMI supplemented its proposal on June 24, 1997, and again on July 3,
1997, and occasionally submitted revised merger proposals, the last of which was
submitted on August 1, 1997, in the form of a revised draft of merger agreement.
SMI's final proposal included an offer to purchase minority shares for $18.63 if
its merger were not approved by shareholders, which price was later increased to
$28.00, but this offer expired if the Board approved a merger with any other
party. PMI also submitted revised drafts of its proposal from time to time. On
June 22, 1997, upon the request of the Special Committee, PMI orally modified
its proposal to provide the Merger Consideration described under the caption
"Conversion of Shares; Procedures For Exchange of Certificates" above. This
final proposal was submitted in written form on June 27, 1997. The final
proposal was the result of negotiations with the Special Committee's counsel and
was in response to the Special Committee's request, (which was communicated
through counsel to the Special Committee), that PMI make its final and best
offer prior to the Special Committee's final meeting to review the PMI Proposal.
The Special Committee was successful through these negotiations in increasing
the amount per share payable pursuant to the PMI Proposal from $18.61 to 19.61
per share. In addition, the other material revisions made to the PMI Proposal
through this negotiation process related to (i) reduction of the scope of NCMS'
representations and warranties, in light of the fact that PMI owned 70% of NCMS;
and (ii) at the request of the Special Committee, increasing the per share
consideration to $19.61 per share, fixing the value of the PMI Stock near the
Effective Date (rather than fixing an exchange ratio in the Merger Agreement),
paying the NCMS shareholder any excess over the Merger Consideration which may
be paid to holders of more than 5% of NCMS Stock and paying NCMS shareholders a
proportionate share of any proceeds of a sale of NCMS within one year after the
Effective Date. The increase in price and the provision to pay additional
amounts in the event a dissenting shareholder received more than $19.61 per
share or PMI sold NCMS or its assets within one year were agreed to by PMI on
the condition that the Board promptly approve the Merger.
The Special Committee engaged IJL as a financial advisor and Ms. DeWitt
engaged the firm of Gleiberman, Spears, Shepherd and Menaker as her financial
advisor. See "The Special Committee's Activities and Investigations."
THE SPECIAL COMMITTEE'S ACTIVITIES AND INVESTIGATIONS
The Special Committee held meetings on April 9, April 21, June 19, June 23,
and July 2, 1997. In addition, the chairman of the Special Committee was in
regular contact with counsel for the Special Committee, who performed various
functions on behalf of the Special Committee. At its April 9 meeting, the
Special Committee engaged J. Norfleet Pruden of Kennedy, Covington, Lobdell and
Hickman L.L.P. as special independent counsel. At such meeting, counsel advised
the Special Committee regarding its legal rights and duties, including its
fiduciary duties as directors. The Special Committee directed that all contacts
with the Special Committee be through such counsel, and such counsel so notified
the other interested parties. Such counsel has also maintained regular contacts
with NCMS counsel and counsel for PMI and SMI.
At its April 21 meeting, the Special Committee interviewed two firms
proposed as independent financial advisors to the Special Committee.
The Special Committee retained IJL to act as its financial advisor and to
render its opinion to the Board as to the fairness of the consideration offered
in the Merger, from a financial point of view, to the NCMS shareholders. Prior
to retaining IJL the Special Committee interviewed representatives of IJL and
The Robinson-Humphrey Company, Inc., ("Robinson-Humphrey"). Robinson-Humphrey
and IJL are nationally recognized investment banking firms based in the
Southeast and neither had managed or co-managed an offering by PMI or SMI or
served as an adviser to PMI or SMI. The Special Committee selected IJL due to
its qualifications and its lower fees. After analysis, IJL orally advised the
Special Committee in June 1997, that it expected to be able to render a
favorable opinion as to the fairness, from a financial point of view, of both
the SMI Proposal and the PMI Proposal. On October 28, 1997, IJL issued its
opinion to the Board that the consideration offered by PMI in the Merger to be
received by the NCMS shareholders is fair to such shareholders from a financial
point of view.
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NCMS committed to pay IJL $150,000 for its services, plus reasonable
expenses. In rendering this opinion, IJL concluded that, based upon its
financial analyses and its weighting of their significance, an equity valuation
in the range of approximately $35 to $40 million, or approximately $15.65 to
$17.88 per share of NCMS Stock was fair, from a financial point of view.
At its June 19 meeting, the Special Committee discussed the financial
aspects of the PMI and SMI Proposals. Mr. Pruden and IJL also discussed with the
Special Committee the terms of the draft merger agreements that had been
submitted by PMI and SMI. The Special Committee then discussed its available
alternatives in responding to such proposals, which included rejecting both
proposals, accepting one of the proposals, recommending both proposals, making
counter-proposals of its own or a combination of the foregoing. The Special
Committee instructed its counsel to contact counsel for PMI and SMI and try to
determine whether they were willing to improve their proposals before the
Special Committee made its recommendation, and scheduled its next meeting for
June 23 to consider further such proposals and any changes therein.
At its June 23 meeting, the Special Committee heard a report by its counsel
on his contacts with counsel for PMI and SMI, including the modifications to the
PMI Proposal described in "-- Background of the Merger" and "-- The Proposals;
Formation of the Special Committee." He reported that SMI's counsel had called
earlier in the morning and indicated that SMI was considering a modification of
its proposal, but that he would not be in a position to present such
modification until later in the day. The Special Committee then discussed what
its recommendations might be in the absence of any modification of the SMI
Proposal, and agreed to meet again if any such modification were presented that
merited further discussion and action.
The Special Committee then met on July 2, 1997 to discuss its
recommendations in light of the June 24, 1997 letter from SMI supplementing the
SMI Proposal. The June 24 letter added a provision to SMI's proposal that in the
event the Special Committee recommended the SMI Proposal and the Board approved
the SMI Proposal and submitted it to the shareholders of NCMS and PMI voted
against the SMI Proposal, SMI would commence a tender offer to purchase shares
of the NCMS Stock (other than shares directly or indirectly held by PMI or Mr.
Smith) for $28 per share. The letter also stated that SMI's offer would
terminate upon the Board's adoption of, or recommendation to the NCMS
shareholders that they accept any merger or acquisition proposal other than
SMI's or the NCMS shareholders' approval of any merger or acquisition proposal
other than the SMI Proposal. The Special Committee discussed the alternatives
before it, reviewed a draft of the Special Committee report, and unanimously
approved the report and the conclusions and recommendations set forth therein.
OPINION OF NCMS' FINANCIAL ADVISOR
The Special Committee retained IJL to evaluate the PMI Proposal and SMI
Proposal and to render an opinion to the NCMS Board as to the fairness, from a
financial point of view, of the proposals. After analysis, IJL orally advised
the Special Committee in June 1997, that it expected to be able to render a
favorable opinion as to the fairness, from a financial point of view, of both
the SMI Proposal and the PMI Proposal. Because the Board recommended only the
PMI Proposal to the NCMS shareholders, NCMS requested that IJL issue its
fairness opinion only with respect to the PMI Proposal. On October 28, 1997, IJL
issued its opinion (the "IJL Opinion") to the Board that the consideration
offered by PMI in the Merger to be received by the NCMS shareholders is fair to
such shareholders from a financial point of view.
THE FULL TEXT OF THE IJL OPINION IS ATTACHED AS ANNEX C TO THE PROXY
STATEMENT/PROSPECTUS. HOLDERS OF NCMS STOCK ARE URGED TO, AND SHOULD, READ THE
IJL OPINION CAREFULLY IN ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY
STATEMENT/PROSPECTUS FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE
REVIEW BY IJL.
The IJL Opinion addresses only the fairness of the Merger, from a financial
point of view, to the shareholders of NCMS and does not constitute a
recommendation to any shareholder of NCMS as to how such shareholder should vote
with respect to the approval of the Merger. The summary of the IJL Opinion set
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forth in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
The Special Committee engaged IJL as its financial advisor because IJL is a
nationally recognized investment banking firm not affiliated with either PMI,
NCMS or SMI and because of its record and experience in rendering fairness
opinions. IJL as part of its investment banking business is regularly engaged in
the valuation of businesses and securities, mergers and acquisitions, negotiated
underwritings, secondary distributions of securities and private placements. In
requesting IJL's fairness opinion, the Special Committee did not give any
special instructions to IJL or impose any limitations upon the scope of the
investigations that IJL deemed necessary to enable it to deliver its opinion.
During the past five years, neither IJL nor any affiliate of IJL has performed
any investment banking or other financial services for or had any other material
relationship with NCMS or PMI except those described herein.
Pursuant to its engagement, IJL interviewed management of NCMS and
management of PMI and SMI; reviewed financial and operational information about
NCMS and about PMI and SMI and performed financial evaluations of NCMS, PMI,
SMI, and the PMI and SMI Proposals. IJL also conducted certain due-diligence
investigations on the motorsports industry in general to give context to its
evaluation of NCMS and IJL reviewed and discussed with the Special Committee the
specific economic aspects of the drafts of the merger agreements that had been
submitted by PMI and SMI and how the proposals fit within the valuation range
determined by IJL.
After PMI's initial submission of the PMI Proposal to the Board, IJL was
given a copy of a preliminary valuation assessment of the equity value of NCMS
which had been requested by PMI of an investment banking firm which had an
on-going relationship with PMI and its affiliates (the "Preliminary
Assessment"). The Preliminary Assessment was based upon information provided by
PMI to the investment banking firm; it did not involve a due diligence
examination of NCMS or other procedures which are customarily involved in
fairness opinions or similar evaluations. In arriving at the IJL Opinion, IJL
did not give weight to the Preliminary Assessment because IJL relied upon its
own due diligence and analysis in the preparation of the IJL Opinion. The
Preliminary Assessment was completed in June 1997 and was provided by PMI to the
Special Committee's counsel who provided it to IJL. The Preliminary Assessment
indicated a summary range of equity value of NCMS of $40.0 million to $45.0
million. Although IJL conducted its own independent analysis of NCMS, it
reported to the Special Committee that the methodologies utilized by the
investment banking firm retained by PMI were similar to the methodologies
utilized by IJL, and that the differences in value occurred because of
differences in underlying assumptions, as well as differences in subjective
conclusions, and not because of differences in valuation methodologies. The
Special Committee did not give any weight to the Preliminary Assessment in
evaluating the fairness of the PMI Proposal because it relied on the IJL
Opinion, and the Preliminary Assessment was not distributed to the Board or
discussed by the Board at its meeting to consider the PMI Proposal. In addition,
PMI did not use the Preliminary Assessment, and was not advised by such
investment banking firm, in developing the PMI Proposal.
IJL relied upon and assumed, without independent verification, (i) the
accuracy and completeness of all of the financial and other information provided
to it by PMI and NCMS for purposes of its opinion and (ii) the reasonableness of
the assumptions made by the management of PMI and NCMS with respect to their
projected financial results and potential synergies which could be achieved upon
consummation of the Merger. IJL further relied upon the assurances of the
managements of PMI and NCMS that they are unaware of any facts that would make
the information provided to IJL incomplete or misleading. In addition, IJL did
not make or seek to obtain appraisals of PMI's or NCMS' assets and liabilities
in rendering its opinion. The IJL Opinion is also necessarily based upon the
market, economic and other conditions as in effect on, and the information made
available to IJL, as of the date of the opinion.
IJL reported to the Special Committee that it had evaluated NCMS using
three methods of analysis: (i) analysis of publicly-traded comparable companies;
(ii) analysis of comparable mergers and acquisitions; and (iii) discounted cash
flow analysis using historical and projected financial information as to NCMS
that was provided by NCMS.
In its analysis of publicly-traded comparable companies, IJL used PMI, SMI,
GPLB and International Speedway Corporation ("ISC") as the publicly-traded
companies with motorsports facilities and operations
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most similar to NCMS. IJL deemed PMI, SMI, GPLB and ISC as comparable to NCMS
because each owns and operates motorsports racing facilities and engages almost
exclusively in the promotion, marketing and sponsorship of motorsports
activities in the United States and are publicly-traded. Other comparable
companies engaged in motorsports activities in the United States either are not
publicly-traded or are engaged in other business activities which cause the
comparison of their results to the results of NCMS to be not meaningful.
In its analysis of comparable mergers and acquisitions IJL used North
Wilkesboro Speedway, Bristol International Raceway, Sears Point International
Raceway and Watkins Glen International, Inc., as comparable acquisitions of
motorsports racing facilities (the "Comparable Transactions"). IJL deemed the
Comparable Transactions as transactions comparable to PMI's proposed merger with
NCMS principally because each of the Comparable Transactions involved the
acquisition of a company deemed comparable to NCMS by IJL (i.e., a company that
owns and operates a single motorsports racing facility and hosts at least one
Winston Cup Series event).
In connection with its discounted cash flow analysis, IJL relied upon
financial projections approved by management of NCMS setting forth projections
of future revenues, earnings and net income of NCMS. In rendering its opinion,
although IJL assisted management in the construction and presentation of
management's projections, IJL relied upon the representations of management of
NCMS as to the reasonableness of these projections, including all factual
assumptions upon which such projections were based. The projections adopted by
NCMS management were not intended to forecast likely or anticipated operating
results, but instead were merely one scenario intended to represent internal
goals and illustrate capital needs and other elements necessary based on a
financial model to achieve such goals. ACTUAL RESULTS OF NCMS FOR THE FISCAL
YEAR ENDED AUGUST 31, 1997 ARE INCLUDED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS AND THE PROJECTIONS CONTAINED BELOW SHOULD BE READ IN
CONJUNCTION WITH "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION OF NCMS" AND NCMS' FINANCIAL STATEMENTS, RELATED
FOOTNOTES AND OTHER FINANCIAL INFORMATION SET FORTH ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. The projections were not prepared with a view to public
disclosure or compliance with published guidelines of the Commission or the
American Institute of Certified Public Accountants for projections. The
inclusion of the projections should not be regarded as an indication that IJL,
NCMS, PMI or any of their respective officers and directors consider such
information to be accurate or reliable, and none of such persons assumes any
responsibility for the accuracy thereof. The projections were prepared for
internal use and are subjective in many respects and thus susceptible to various
interpretations and periodic revision based upon actual experience and business
development. In addition, because the estimates and assumptions underlying the
projections are inherently subject to significant economic and competitive
uncertainties and contingencies, which are difficult or impossible to predict
accurately and are beyond the control of NCMS, PMI, or IJL, there can be no
assurance that the projections will be realized.
NORTH CAROLINA MOTOR SPEEDWAY, INC.
SUMMARY 1997 AND 1998 PROJECTIONS
YEAR ENDED
DECEMBER 31,
-----------------------
1997 1998
---- ----
(IN THOUSANDS)
(UNAUDITED)
Total Revenues.......................................... $11,162 $12,651
Earnings Before Taxes................................... 3,038 3,686
Net Income.............................................. 1,865 2,263
Except as otherwise indicated herein, the information concerning NCMS
contained below has been taken from or is based upon reports and other documents
provided to the Board by IJL. Although none of PMI, NCMS, or IJL have any
knowledge that would indicate that any statements contained herein based upon
such reports and documents are untrue, none of NCMS, PMI, or IJL take any
responsibility for the accuracy or completeness of the information contained in
such reports and other documents or for any failure by IJL,
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NCMS or PMI to disclose events that may have occurred and may affect the
significance or accuracy of any such information but that are unknown to any of
them.
With regard to the four comparable companies, IJL analyzed the key
operating data, such as location, size and type of tracks, number of seats and
other amenities. From a financial point of view, IJL analyzed historical margins
and growth rates of such comparable companies, with a particular emphasis on
their historical and projected earnings. In addition, IJL calculated commonly
used industry multiples based on the latest twelve months of financial
statements with respect to the following ratios: (i) Enterprise Value (market
value of equity plus total debt less cash and equivalents) to Revenue (mean
multiple of 6.9), to EBITDA (mean multiple of 21.1) and to EBIT (mean multiple
of 25.8), (ii) Price to Net Income (mean multiple of 38.7), and (iii) Price Per
Share to EPS estimates for the fiscal year ended August 31, 1997 and 1998
(projected) (mean multiples of 26.1 and 21.0, respectively). IJL calculated a
leverage ratio, long term debt as a percent of total capital, and determined the
"PEG" rate, which is the price to earnings multiple divided by the EPS growth
ratio. A 20% discount was applied to the public multiples to account for the
difference between public and private company valuations (illiquidity or
marketability discount). The foregoing comparable company analysis resulted in
the equity valuation ranging from $35 million to $50 million.
Using NCMS management's input and assumptions, IJL also estimated free cash
flow for the company over a five year period from 1997 fiscal year end through
the end of fiscal 2001. It then used a range of Discount Rates and Terminal
EBITDA Multiples to arrive at an equity value in current terms. Discount rates
of 14%-18% were based on the build-up method, which considers Treasury yields,
average betas and the risk premium for equities. Terminal EBITDA multiples of
nine to 13 were estimated based on reviewing the public comparables and the
Comparable Transactions and comparing those EBITDA multiples to a reasonable
range of EBITDA multiples for private companies. Employing these criteria, IJL
also arrived at equity values which ranged from $35 million to $50 million.
IJL also employed the Securities Data Database to research any acquisitions
of race tracks where financial information is available. IJL discovered four
Comparable Transactions and calculated Enterprise Value (purchase price of
equity plus total debt, less cash and cash equivalents) to latest 12 month
Revenues (average multiple of approximately 3), to latest 12 month EBITDA
(average multiple of approximately 14) and to latest 12 month EBIT (average
multiple of approximately 21). This criteria supported a $26 million to $45
million equity valuation.
In reaching its conclusion, IJL reported to the Special Committee that it
considered the following: the various financial analyses considered by IJL
indicated equity values of NCMS ranging from $25.8 to $45.6 million. The
comparable public company analysis indicated a range of $34.6 to $45.6 million,
although IJL was of the view that values based upon net income (rather than EBIT
and EBITDA), which ranged from $34.5 to $38.1 million, were the most significant
values in this analysis because public companies are generally valued on an
earnings per share basis which is essentially derived from net income figures as
opposed to EBIT or EBITDA calculations. (IJL calculated, but gave no weight to,
an analysis based upon the multiple of enterprise value to total revenues, which
would have indicated an equity value of $50.5 million.) The comparable mergers
and acquisitions analysis indicated a range of $25.8 to $44.8 million, although
IJL was of the view that the enterprise value/EBITDA valuation (which indicated
an equity value of $33.3 million) and the average of the three valuations
determined under this analysis (which indicated an equity value of $34.6
million) were the most significant values indicated by the comparable mergers
and acquisitions analysis. The discounted cash flow analysis indicated a range
of $33.7 to $44.2 million. IJL suggested that greater weight be given to the
values indicated by the comparable public company analysis and comparable
mergers and acquisitions analysis that IJL considered to be the most significant
values than to the discounted cash flow analysis because the values indicated by
the comparable analyses were derived from publically available information while
discounted cash flow analysis is based on certain assumptions and projections
which are apt to be more subjective.
The Merger Consideration represents a total equity value of NCMS of $43.9
million, which is above the range of values that IJL concluded was appropriate
($35 to $40 million) and at the upper end of the range indicated by all of the
analyses considered by IJL ($25.8 to $45.6 million).
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Based upon the foregoing, IJL concluded that the Merger was fair, from a
financial point of view, to the shareholders of NCMS.
The preparation of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering the analyses
as a whole, could create an incomplete view of the processes underlying the IJL
Opinion. In arriving at its opinion, IJL considered the results of all of its
analyses. The analyses were prepared solely for purposes of providing its
opinion to the Board as to the fairness of the Merger, from a financial point of
view, to the shareholders of NCMS. As described above, the IJL Opinion and
presentation to the Special Committee was one of many factors taken into
consideration by the Board in making its determination to approve the Merger.
The foregoing summary does not purport to be a complete description of the
analyses performed by IJL.
BASIC LEGAL MATTERS CONSIDERED BY THE SPECIAL COMMITTEE
The Special Committee considered the duties of directors under North
Carolina corporate law, including the requirement that they discharge their
duties as directors, including as members of the Special Committee, (a) in good
faith; (b) with the care an ordinarily prudent person in a like position would
exercise under similar circumstances; and (c) in a manner reasonably believed to
be in the best interests of NCMS. The Special Committee considered its
entitlement, under North Carolina corporate law, in discharging such duties, to
rely upon information, opinions, reports and statements prepared and presented
by professional advisors, including its counsel and its financial advisors, as
to matters within their professional or expert competence. The Special Committee
specifically considered that, under North Carolina corporate law, (a) the
mergers proposed by PMI and SMI require shareholder approval, (b) shareholder
approval of a merger requires the affirmative vote of the holders of a majority
of the outstanding shares of NCMS Stock, (c) for a plan of merger to be
approved, the board must recommend the plan of merger to the shareholders unless
it determines that because of a conflict of interest or other special
circumstances it should make no recommendation, (d) the board may condition its
submission of a proposed plan of merger on any basis, and (e) a shareholder is
entitled to dissent from, and obtain payment of the "fair" value of such
shareholder's NCMS Stock in the event of either of the mergers proposed by PMI
and SMI.
The Special Committee did not give any weight to the Preliminary Assessment
because it relied on the IJL Opinion.
CONCLUSIONS
Based upon its investigations, the advice of its legal and financial
advisors as to matters within their professional competence and its
consideration of the facts and circumstances presented and application of its
business judgment to such facts and circumstances, the Special Committee reached
the following conclusions:
A. Each of the PMI Proposal and the SMI Proposal, considered alone and
without regard to the other, is fair to the shareholders of NCMS from a
financial point of view, and either is preferable to maintaining the status
quo in which the NCMS shareholders have no ready opportunity to sell their
shares at a fair price:
1. The merger consideration per share offered by the PMI Proposal
($19.61), represents a total equity value of the Company of $43.9
million, which is above the range of values ($35 to $40 million) that
IJL advised was the range of fair value for NCMS based upon its analyses
of valuation methodologies conducted as of June 19, 1997 and at the
upper end of the range of values indicated by three individual valuation
methodologies performed by IJL ($25.8 to $45.6 million) as of June 19,
1997. Such merger consideration is also approximately equivalent to the
value of the cash and shares paid to Ms. DeWitt for her NCMS Stock and
the option granted thereon ($18.61 in PMI Stock valued at the time of
the transaction and $0.958 per share for her option), although it does
not reflect any value for the "price protection" afforded to Ms. DeWitt
under the Option Agreement. Such merger consideration also affords the
opportunity for shareholders to receive PMI Stock in a "tax-free"
reorganization and therefore continue the shareholder's investment in a
larger company whose operations will include the operations of NCMS and
whose common stock is publicly traded.
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To the best knowledge of the members of the Special Committee, such
merger consideration also appeared to represent a significantly higher
price per share than has been offered for the NCMS Stock prior to the
PMI and SMI Proposals and PMI's entering into the Option Agreement with
Ms. DeWitt. PMI's agreement to provide to all other shareholders the
benefit of any greater consideration paid to dissenting shareholders
under the conditions specified was also considered by the Special
Committee to be a significant enhancement of the original PMI Proposal.
2. The merger consideration offered in the SMI Proposal ($32.00 per
share of NCMS Stock) is substantially greater than that offered in the
modified PMI Proposal and offers at least the same advantages, at the
higher values, including the opportunity for a "tax-free" exchange into
shares of a larger company that are publicly traded on the New York
Stock Exchange. Even if the "tax-free" exchange were unavailable for the
SMI Proposal, the differential in amount of merger consideration should
be more than sufficient in the case of most if not all shareholders to
cover the amount of income taxes payable. The "put" option offered by
the SMI Proposal adds value to the stock consideration offered.
3. The merger contemplated by the SMI Proposal, however, will
require the affirmative vote of PMI, and the Special Committee has been
advised through counsel that PMI will not vote its shares in favor of
the SMI Proposal. The Special Committee did not believe that it has any
right, or any available method, to require PMI, as majority shareholder,
to vote its shares in favor of the SMI Proposal. Consequently, the SMI
Proposal appears to bear a contingency (shareholder approval) that
cannot be met.
4. Although the Special Committee determined that the SMI Proposal
offered greater value for the NCMS Stock, the Board also concerned
itself with the consequences of no feasible proposal being presented to
the shareholders (that is, one in which the shareholders will have a
real opportunity, as a practical matter, to realize fair value for their
shares). In the view of the Special Committee, submission of the PMI
Proposal for approval by the shareholders (which approval would be
expected) is preferable, from the point of view of the minority
shareholders as a whole, to presenting no opportunity for liquidity for
the minority shareholders. To maintain the status quo would present the
risk that the shareholders of NCMS would indefinitely maintain an
illiquid investment, and the opportunities for liquidity at a price at
least equivalent to that offered by the PMI Proposal may not arise again
in the foreseeable future.
B. The supplement to the SMI Proposal set forth in SMI's letter of
June 24 was responsive to the Special Committee's concern for providing
liquidity for the minority shareholders of NCMS in the event that the SMI
Proposal would not be approved by majority vote of the shareholders,
although it was conditioned upon the Board not approving any other merger
or acquisition proposal (which would include the PMI Proposal) and upon
submission of the SMI Proposal to the shareholders and its rejection by
PMI. The $28 per share consideration offered by the SMI Proposal, when
compared with the $19.61 cash option in the PMI Proposal, is significantly
greater; when compared with the option of taking $19.61 in PMI Stock in a
"tax-free" reorganization, receipt of $28 in cash in a taxable transaction
will likely also be as valuable or more valuable to the shareholder in most
if not all cases, since the after-tax proceeds will likely be greater than
the value of the PMI Stock at the applicable exchange ratio (depending upon
the shareholder's tax basis and holding period in NCMS Stock, applicable
federal and state tax rates (including legislation reducing the rate of
federal tax on capital gains), application of other taxes such as
alternative minimum tax, and taking into account the timing of tax
payments) and could be used to purchase PMI Stock (if desired) on the open
market (which shares would then have a tax basis equal to the purchase
price, rather than the "transferred basis" of the NCMS Stock acquired in a
"tax-free" exchange). Moreover, the offered $28 per share consideration
could be accepted or declined at the election of the individual
shareholder. That the $28 offer is not made to PMI as majority shareholder
is not of concern, since by voting in favor of SMI Proposal PMI would have
the power to receive a greater value per share if it should choose to do
so. The principal risk, from the point of view of the minority
shareholders, in pursuing the modified SMI Proposal was the risk of delay
in the commencement of SMI's offer due to delay in the submission of the
SMI Proposal to the shareholders for their vote, due to
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delays, whether within or beyond SMI's control, in obtaining the necessary
regulatory approvals (Securities Act registration and clearance under the
HSR Act) to present the SMI Proposal to the shareholders. Recommendation of
the modified SMI Proposal upon the conditions specified was to be subject
to appropriate contractual assurances that if submission of the SMI
Proposal to the shareholders was delayed through no fault of NCMS, SMI
would nevertheless make its $28 offer to the minority shareholders by some
specified date within a reasonable time after submission of its proposal is
approved by the Board. Through its counsel, SMI indicated that it is
willing to provide such assurance, although specific terms were not
submitted to the Special Committee by the time of issuance of its opinion.
C. Independent of the feature of the modified SMI Proposal providing
for SMI's offer to purchase NCMS Stock from the majority shareholders at
$28 per share if the SMI Proposal alone is submitted to the shareholders
and rejected by the minority, SMI, through its counsel, has asserted that
it should have the opportunity to have its proposal submitted to a
shareholder vote, and that if PMI elects to vote against it in its capacity
as a shareholder, it should be presented with that opportunity. The Special
Committee believed that NCMS could accommodate SMI's desire for a
shareholder vote on its proposal without jeopardizing the opportunity for
the shareholders to vote on the PMI Proposal if, as expected, PMI voted
against the SMI Proposal. Such accommodation would have required both PMI
and SMI to proceed with diligence and in good faith in obtaining regulatory
approvals necessary to present their respective proposals to the
shareholders (Securities Act registration in both cases and clearance under
the HSR Act in the case of SMI), and the Board or Special Committee could
have been empowered to require such diligence and good faith and if
necessary to proceed without the proposal of either such party who is
unable to move ahead toward a shareholder vote within a reasonable time.
Nothing in the Special Committee's conclusion, however, was intended to
suggest that the Board could not determine in good faith that PMI's stated
position that it would not vote in favor of the SMI Proposal would make
submission of the SMI Proposal futile; however, it was the view of the
Special Committee that submission of both proposals should avoid any doubt
as to the capacity in which PMI is acting if it chose to exercise its
voting power as majority shareholder to prevent shareholder approval of the
SMI Proposal.
RECOMMENDATIONS
Accordingly, the Special Committee made the following recommendations to
the Board:
A. Provided that satisfactory contractual assurances were obtained
from SMI that, if submission of the SMI Proposal to the shareholders was
delayed through no fault of NCMS, SMI would nevertheless make its $28 offer
to the minority shareholders by some specified date within a reasonable
time after submission of its proposal was approved by the Board, the Board
would (i) approve the merger agreement submitted by SMI (subject to
satisfactory changes in response to the comments made by NCMS counsel and
the additional terms proposed by SMI and as necessary to conform to these
recommendations), (ii) approve the SMI Proposal and submit it to the
shareholders (after adopting an appropriate plan of merger reflecting such
proposal and the other terms referred to herein) for their vote, and (iii)
cause NCMS to proceed with diligence and in good faith to take all such
actions (including necessary regulatory approvals) necessary to hold a
special meeting of shareholders to act on such proposal as soon as
possible.
B. If such satisfactory contractual assurances were not obtained:
1. Subject to all of the conditions set forth in the
recommendation, the Board submit both the PMI and SMI Proposals to the
shareholders (after adopting appropriate plans of merger reflecting such
proposals) with the recommendation that (i) the SMI Proposal be
approved, but (ii) if the SMI Proposal is not approved, the PMI Proposal
be approved, and with the vote on the SMI Proposal to be held before the
vote on the PMI Proposal and the submission of the PMI Proposal to be
conditioned on the rejection of the SMI Proposal;
2. The Board approve the respective merger agreements submitted by
PMI and SMI, subject to satisfactory changes in response to the comments
made by NCMS counsel and as necessary to conform to these
recommendations; and
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3. The Board require PMI and SMI to proceed with diligence and in
good faith to take all such actions (including necessary regulatory
approvals) necessary to hold a special meeting of shareholders to act on
such proposals as soon as possible, and reserve the right not to present
any such proposal if to do so would result in inordinate delay.
DECLINATION OF MEMBERS AT SPECIAL COMMITTEE TO BE RE-ELECTED
On July 7, 1997 at the substitute annual meeting of the shareholders of
NCMS, Messrs. Goodman and Russell, members of the Special Committee, declined to
stand for re-election as directors. Each of the remaining directors were
re-elected and Richard J. Peters and Robert H. Kurnick, Jr., a director and
executive officer, respectively, of PMI were also elected as directors.
ACTION AND RECOMMENDATION OF THE BOARD OF DIRECTORS OF NCMS; REASONS FOR THE
MERGER
A majority of the members of the Board has approved the Merger Agreement
(being Ms. DeWitt, Ms. DeWitt Wilson, Ms. DeWitt Daugherty, Mr. Peters, Mr.
Czarnecki, Mr. Kurnick and Mr. McDonald), has determined that the Merger is fair
and in the best interests of NCMS and its shareholders (including its minority
shareholders) and recommends that holders of shares of NCMS Stock vote FOR
approval and adoption of the Merger Agreement.
In reaching its decision to approve the Merger Agreement and to recommend
that NCMS' shareholders vote for approval and adoption of the Merger Agreement,
the Board considered, among other things, the following factors: (i) its
knowledge of the business, operations, properties, assets, financial condition
and operating results of PMI and NCMS; (ii) judgments as to NCMS' future
prospects; (iii) the recommendation of the Special Committee of the Board which
was appointed to analyze the Merger; (iv) the determination by the Special
Committee that the Merger, considered alone, is fair to the NCMS shareholders
and is preferable to maintaining the status quo in which the shareholders have
no ready opportunity to sell their shares at a fair price; (v) the economic
terms of the SMI Proposal and futility of recommending the SMI Proposal to
shareholders of NCMS given PMI's stated position of not voting in favor of the
SMI Proposal; (vi) the terms of the Merger Agreement, which were the product of
arm's length negotiations (see "The Merger Agreement"); (vii) that the increase
in price and provision for possible additional payments to shareholders offered
by PMI were offered on the condition that the Board act promptly to approve the
Merger, and the risk that PMI would not continue to offer the increased price
and additional payment provisions if the Board did not approve the Merger;
(viii) the Merger Consideration offered by PMI was above the range of values
that IJL had concluded was appropriate and at the upper end of the range
indicated by all analyses considered by IJL; (ix) PMI had advised the Board that
if it could not complete the proposed Merger prior to December 31, 1997, or
possibly even if under any circumstances the SMI Proposal was approved by the
Board and submitted to the shareholders, there would be certain potential
adverse tax consequences that could substantially increase PMI's effective cost
of the NCMS Stock acquired by PMI from Mrs. DeWitt; (x) the historical trading
prices, dividend rates and trading activity for PMI Stock; (xi) the
compatibility of the respective business philosophies of NCMS and PMI; and (xii)
the opportunity for NCMS shareholders to continue to participate, as holders of
PMI Stock, in professional motorsports and PMI's related businesses, and to do
so by means of a transaction which is designed to be tax-free to NCMS'
shareholders. In making its determination of the fairness of the PMI Proposal,
the Board did recognize that the SMI Proposal included an offer to purchase the
NCMS Stock at a price higher than the price offered in the PMI Proposal. Each of
the factors considered by the Board, however, supported the Board's
determination that the PMI Proposal was fair to the NCMS shareholders
notwithstanding the higher price offered by SMI. In particular, the Board
considered as especially relevant the Special Committee's determination that the
price offered by PMI was above the range of equity values determined by IJL to
be fair from a financial point of view, PMI's unequivocable position that it
would not vote for a merger proposal other than the PMI Proposal and the
resulting futility of sending the SMI Proposal to the NCMS shareholders for a
vote.
The Special Committee report also reviewed and included recent and current
market prices of PMI Stock, the manner in which the Merger Consideration was
determined, and published research reports dealing with the merits of investing
in PMI Stock. The Board did not establish any range of value for NCMS but did
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consider the equity value range determined by IJL as noted above. The Board did
not consider whether or not the market price for shares of NCMS, book value or
net tangible book value were indicators of fair value for NCMS. IJL's valuation
of NCMS was not presented to the Board in a written report prior to recommending
the PMI Proposal to the shareholders of NCMS. The equity valuation ranges were
included in the report of the Special Committee presented to the Board. The
Board did not consider whether or not the lack of a written report by IJL
impacted the Board's ability to assess the reasonableness of the opinion
contained in the report of the Special Committee.
In addition, the Board had received a draft merger agreement submitted by
SMI's counsel several days before the meeting that, although purporting to
obligate SMI to commence a tender offer to purchase shares of NCMS Stock at $28
per share from holders other than PMI and Mr. Smith if the Board approved the
SMI Proposal and the SMI Proposal was then rejected by the shareholders, did not
obligate SMI to complete such a tender offer within any specified time period
and conditioned SMI's obligation to purchase such shares on the Board or the
shareholders not approving a merger transaction with PMI. In addition, such
draft agreement provided that if the shareholders rejected the SMI Proposal, SMI
could terminate the agreement, which would include its obligation to commence
such tender offer.
The foregoing discussions of the information and factors considered by the
Board is not intended to be exhaustive. In view of the multitude and variety of
factors considered in connection with its evaluation of the Merger, the Board
did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Board may have given
different weights to different factors. The Board did not discuss whether or not
the interests of certain officers and directors of NCMS in the Merger should be
factors in the Board's conclusion. For a discussion of the interests of certain
members of NCMS' management and of the Board in the Merger, see "-- Interests of
Certain Persons in the Merger" below.
The Board carefully reviewed the Special Committee's analysis, conclusions
and recommendations described above. On August 5, 1997, PMI advised the Board
that it would vote its shares of NCMS Stock against the SMI Proposal if the SMI
Proposal was submitted to Shareholders for approval. The Board then met that
day. In light of PMI's ownership of approximately 70% of the outstanding shares
of NCMS Stock, the requirement under North Carolina law that a merger of NCMS
would require the approval of the holders of a majority of the outstanding
shares, and the unambiguous statement by PMI delivered to the Board that PMI
would not vote in favor of any merger proposed by SMI, the Board determined that
exploring a merger transaction with SMI or any other party would be futile. In
addition, SMI had not provided any contractual assurances that it would timely
complete a tender offer for minority shares if the SMI Proposal was submitted to
and rejected by NCMS shareholders. At its August 5 meeting, the Board (i)
concluded that it would be futile to submit the SMI Proposal to the shareholders
for a vote thereon, (ii) determined that the PMI Proposal is fair to NCMS and
its shareholders and that proceeding with the Merger is in the best interests of
NCMS and its shareholders, (iii) elected to approve and adopt the Merger
Agreement, (iv) authorized the President of NCMS to call a special meeting of
shareholders and take all other action reasonably necessary to present the PMI
Proposal to the NCMS shareholders, (v) permitted SMI to tender for any shares of
NCMS stock it chooses, and (vi) established a record date for the Special
Meeting to permit SMI to complete such a tender offer prior to said record date.
Ten of eleven Board members were present at the meeting, with seven voting in
favor of the foregoing, being Ms. DeWitt, Ms. DeWitt Wilson, Ms. DeWitt
Daugherty, Mr. Peters, Mr. Czarnecki, Mr. Kurnick and Mr. McDonald (the only
member of the Special Committee who attended the Meeting), and three voting
against, being Mr. Smith, Mr. Wheeler and Mr. Brooks (each of whom is an officer
of SMI). Mr. Webb, the remaining director and other remaining member of the
Special Committee, did not attend the meeting. On August 5, 1997, Mr. Smith
filed a lawsuit to enjoin the Merger, alleging among other things, that the
Board breached its fiduciary duty to the minority shareholders of NCMS by
approving the Merger. See "Business of NCMS -- Legal Proceedings."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the Merger
Agreement and the transactions contemplated thereby, shareholders of NCMS should
be aware that certain members of NCMS'
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management and the Board have certain interests in the Merger that other
shareholders of NCMS generally do not.
Prior to consummation of the Merger, Merger Sub, PMI and Ms. Carrie B.
DeWitt entered into the Option Agreement. Pursuant to the Option Agreement, Ms.
DeWitt granted to PMI options to acquire her NCMS Stock for shares of PMI Stock
(at a ratio of .620333 share of PMI Stock for each share of NCMS Stock). PMI
agreed that if its exercise of such Option were taxable to Ms. DeWitt, it would
pay in such case an amount equal to her income taxes (if any) resulting from
such exchange, less $1,400,000. The exchange ratio reflected a value of $18.61
per share of Company Common Stock at a $30.00 per share value of PMI Stock. As
part of the consideration for such options, PMI paid $1,400,000 (equivalent to
$.958 per share of Ms. DeWitt's NCMS Stock) into escrow, to be disbursed to Ms.
DeWitt upon the happening of certain events related to the completion of the
Merger. The Option Agreement also gave Ms. DeWitt a put option after a period of
time to require PMI to effect the exchange of shares as provided above. The
Option Agreement also permits Ms. DeWitt (or her estate within seven months
after her death) the ability to require PMI to effect the registration of Ms.
DeWitt's shares of PMI Stock to permit her to dispose of her shares of PMI Stock
through a registered public offering or, if a registered offering at a price per
share of at least $30.00 could not be completed, through a sale of her shares to
an affiliate of PMI at the greater of the then fair market value of the shares
or $30.00 per share. The Option Agreement provides that the foregoing rights may
be exercised by Ms. DeWitt (or her estate) on a limited basis within one year,
and completely within three years, after her acquisition of shares of PMI Stock
pursuant to the Option Agreement or, if earlier, seven months after her death.
In the event that such an offering cannot be completed, Ms. DeWitt is entitled
to require an affiliate of PMI to purchase up to $27 million of Ms. DeWitt's
shares of PMI Stock at a price equal to the greater of (i) the then fair market
value per share of PMI Stock or (ii) $30.00 per share. In addition, in the event
that Ms. DeWitt had previously sold a portion of her shares of PMI Stock, she
may require that an affiliate of PMI purchase her remaining shares for $27
million less the gross proceeds from her prior sales of PMI Stock or that an
affiliate of PMI purchase up to $27 million worth of her shares of PMI Stock at
a price equal to the then fair market value thereof plus the product of the
number of shares previously sold multiplied by the difference between $30.00 and
the average per share sales price of the shares previously sold. On or about May
15, 1997, PMI exercised its purchase option under the Option Agreement and
acquired Ms. DeWitt's NCMS Stock at the stated exchange ratio. The terms of the
Option Agreement were derived through negotiations with Ms. DeWitt and her
representatives.
NCMS has entered into the Employment Agreements with the Officers that
become effective upon the consummation of the Merger. The Employment Agreements
provide that the Officers will be employed by NCMS in their current positions
for a five-year term commencing on the Effective Date. The term will
automatically renew for successive one-year periods unless terminated in writing
by either party prior to the end of the initial five-year term or any successive
renewal term. Under the Employment Agreements, Ms. DeWitt, Ms. DeWitt Wilson and
Ms. DeWitt Daugherty will receive annual salaries of $125,000, $120,000 and
$25,000, respectively, with an annual bonus and annual salary increases at the
discretion of the Board. NCMS may terminate any of the Officers' employment upon
her death, disability or for cause. The Officers may terminate their employment
at any time. In the event an Officer's employment is terminated due to her death
or disability, NCMS is obligated to pay the Officer or her estate all
compensation and fringe benefits due to her for the remaining term of the
Employment Agreement. If an Officer resigns or is terminated for cause, she will
receive all compensation due to her through the date of termination. The
Employment Agreements further provide for confidentiality and non-compete
provisions during the term of the Officer's employment by NCMS.
In July 1997, Ms. DeWitt Wilson was elected to the Board of Directors of
PMI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain material federal income tax
consequences of the Merger is based on the provisions of the Code, the Treasury
Regulations promulgated thereunder, and rulings and court decisions in effect as
of the date hereof, all of which are subject to change, possibly with
retroactive effect. No ruling on any of the issues discussed below has been
obtained from the Internal Revenue Service (the "IRS"). This
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discussion does not address every aspect of the federal income tax laws that may
be relevant to holders of NCMS Stock in light of their personal investment
circumstances or to certain types of holders of NCMS stock subject to special
treatment under the federal income tax laws (for example, foreign persons, banks
and life insurance companies and persons who acquired their shares of NCMS Stock
as compensation) and is generally limited to holders of NCMS Stock who hold such
stock as a capital asset. In addition, this discussion does not address any
state, local or foreign tax laws that may be relevant to holders of NCMS Stock.
It is intended that the Merger qualify as part of a reorganization within
the meaning of Section 368(a) of the Code for federal income tax purposes. It is
a condition to the obligation of NCMS and PMI to consummate the Merger that PMI
and NCMS shall have received the opinion of Drinker Biddle & Reath LLP with
respect to the tax treatment of the Merger or a private letter ruling. See "The
Merger Agreement -- Conditions Precedent to Closing." The opinion has been filed
in its entirety as an exhibit to the Registration Statement. The opinion of
Drinker Biddle & Reath LLP provides as follows:
The Merger will qualify as part of a tax-free reorganization within the
meaning of Section 368(a)(1)(A) and 368(a)(2)(D) of the Code if consummated in
accordance with the Merger Agreement, and PMI, NCMS, and Merger Sub will each be
a party to the reorganization within the meaning of Section 368(b) of the Code.
No gain or loss will be recognized by holders of NCMS Stock upon the receipt by
them of the shares of PMI Stock in exchange for their shares of NCMS Stock
pursuant to the Merger (except in respect of cash received for fractional shares
as discussed below). The aggregate tax basis of the shares of PMI Stock received
by the holders of NCMS Stock will be the same as the aggregate tax basis of the
shares of NCMS Stock surrendered in exchange therefor (excluding any basis
allocable to shares for which cash is provided or to fractional shares for which
cash is received). The holding period of the shares of PMI Stock received by
holders of NCMS Stock will include the period during which the shares of NCMS
Stock surrendered in exchange therefor were held, provided that such shares of
NCMS Stock were held as capital assets at the time of the Merger. A holder of
NCMS Stock who elects to receive cash in the Merger will recognize gain equal to
the lesser of the cash received by him and his overall gain on the exchange,
taking into account the fair market value of any PMI Stock received by him and
his basis in his NCMS Stock; except as discussed below for fractional shares,
such a holder may not recognize loss unless he elects to receive solely cash for
his NCMS Stock. A holder of NCMS Stock who receives cash in lieu of a fractional
share of PMI Stock will recognize gain or loss equal to the difference between
the cash payment received and the holder's tax basis in the shares or the
portion of the share or shares of NCMS Stock exchanged therefor. Gain or loss
recognized by holders of NCMS share(s) on receipt of cash in the Merger will be
capital gain or loss, provided that such share(s) of NCMS Stock was held as a
capital asset at the time of the Merger, will be long-term capital gain or loss
if such share(s) had been held for more than eighteen months at such time and
will be mid-term capital gain or loss if such share(s) had been held for more
than twelve months but not more than eighteen months. No gain or loss will be
recognized by NCMS or PMI as a result of the Merger.
THE ABOVE OPINION HAS NO BINDING EFFECT OR OFFICIAL STATUS OF ANY KIND, AND
NO ASSURANCE CAN BE GIVEN THAT THE INTERNAL REVENUE SERVICE OR A COURT WOULD
TAKE THE SAME POSITION ON THESE ISSUES. NCMS SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS.
ANTICIPATED ACCOUNTING TREATMENT
The acquisition of the minority interest contemplated by the Merger
Agreement will be accounted for using the purchase method of accounting for
financial reporting purposes.
REGULATORY APPROVALS
Except as set forth below, PMI is not aware of any approval or other action
by any governmental or administrative agency which would be required for the
completion of the Merger as contemplated herein.
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Should any such approval or other action be required, it will be sought but PMI
has no current intention to delay the Merger pending the outcome of any such
matter, subject, however, to satisfaction of any of the conditions specified in
the Merger Agreement. There can be no assurance that any such approval or other
action, if needed, would be obtained or would be obtained without substantial
conditions, or that adverse consequences might not result to the business of PMI
or NCMS business or that certain parts of the NCMS' business might not have to
be disposed of if any such approvals were not obtained or other action taken.
The federal government has adopted antitrust laws, regulations and rules
applicable to attempts to acquire securities of corporations incorporated or
operating in the United States. Such laws, regulations and rules, could prohibit
the consummation of the Merger. The HSR Act provides that the Merger may not be
consummated unless certain information has been furnished to the Division and
the FTC and certain waiting period requirements have been satisfied. Such filing
and waiting period requirements have all been satisfied.
FEDERAL SECURITIES LAW CONSEQUENCES
All PMI Stock issued in connection with the Merger will be freely
transferable, except that any PMI Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of NCMS or PMI
prior to the Merger may be sold by them only in transactions permitted by the
resale provisions of Rule 145 under the Securities Act ("Rule 145") with respect
to affiliates of NCMS, or Rule 144 under the Securities Act ("Rule 144") with
respect to persons who are or become affiliates of PMI, or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of NCMS or PMI generally include individuals or entities that control, are
controlled by, or are under common control with, such corporation and may
include certain officers and directors of such corporation as well as principal
shareholders of such corporation.
Affiliates may not sell their shares of PMI Stock acquired in connection
with the Merger, except pursuant to an effective registration under the
Securities Act covering such shares or in compliance with Rule 145 (or Rule 144
in the case of persons who are or become affiliates of PMI) or another
applicable exemption from the registration requirements of the Securities Act.
In general, under Rule 145, for one year following the Effective Date, an
affiliate (together with certain related persons) of NCMS would be entitled to
sell shares of PMI Stock acquired in connection with the Merger only through
unsolicited "brokers' transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 145. Additionally, the number of
shares to be sold by an affiliate (together with certain related persons and
certain persons acting in concert) within any three-month period for purposes of
Rule 145 may not exceed the greater of 1% of the outstanding shares of PMI Stock
or the average weekly trading volume of such stock during the four calendar
weeks preceding such sale. Rule 145 and Rule 144 would only remain available,
however, to affiliates if PMI remains current with its informational filings
with the Commission under the Exchange Act. One year after the Effective Date,
an affiliate of NCMS would be able to sell such NCMS Stock without such manner
of sale or volume limitations provided that PMI is current with its Exchange Act
informational filings and such affiliate is not then an affiliate of PMI. If
such person were an affiliate of PMI, such limitations would continue to apply
under Rule 144. Two years after the Effective Date, an affiliate of NCMS would
be able to sell such shares of PMI Stock without any restrictions so long as
such affiliate had not been an affiliate of PMI for at least three months prior
thereto.
NASDAQ LISTING
The shares of PMI Stock to be issued in the Merger will be authorized for
listing and trading on Nasdaq under the symbol "SPWY".
DIVIDENDS
PMI may from time to time consider the payment of cash dividends. However,
any declaration and payment of dividends will be (i) dependent upon PMI's
results of operations, financial condition, cash requirements, capital
improvements and other relevant factors, (ii) subject to the discretion of the
Board of Directors of PMI and (iii) payable only out of PMI's surplus or current
net profits in accordance with the
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General Corporation Law of the State of Delaware. No assurance can be given that
PMI will be able to pay such dividends at any time in the future.
The Merger Agreement provides that NCMS will not among other things, prior
to the effective date, (i) except in the normal course as consistent with prior
practice, declare, set aside or pay any dividend (whether in cash, stock or
property) or make any other distribution or payment with respect to any shares
of its capital stock or (ii) directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or make any commitment for any
such action.
DISSENTERS' RIGHTS
Article 13 (entitled "Dissenters' Rights") of the NCBCA sets forth the
rights of shareholders of NCMS who object to the Merger. The following is a
summary of the statutory procedures to be followed by a holder of NCMS Stock in
order to dissent from the Merger and perfect dissenters' rights under the NCBCA.
This summary is qualified in its entirety by reference to Article 13 of the
NCBCA, a copy of which is attached as Annex B hereto.
If any shareholder of NCMS elects to exercise such shareholder's right to
dissent from the Merger and demand appraisal, such shareholder must satisfy each
of the following conditions:
(i) such shareholder must give to NCMS, and NCMS must actually
receive, before the vote on approval or disapproval of the Merger is taken,
written notice (the "Notice") of such shareholder's intent to demand
payment for such shareholder's shares if the Merger is effectuated (this
Notice must be in addition to and separate from any proxy or vote against
the merger; neither voting against, abstaining from voting, nor failing to
vote on the Merger will constitute a Notice within the meaning of the
NCBCA); and
(ii) such shareholder must not vote in favor of the Merger (a failure
to vote will satisfy this requirement, but a vote in favor of the Merger,
by proxy or in person, or the return of a signed proxy which does not
specify a vote against approval of the Merger or direction to abstain, will
constitute a waiver of such shareholder's dissenters' rights).
Any Notice should be addressed to North Carolina Motor Speedway, Inc., 2152
US 1 Highway, Rockingham, North Carolina, 28380 Attention: Nancy DeWitt
Daugherty, Secretary, and should be executed by, or on behalf of, or in the case
of a dissent by a beneficial owner, consented to by, the holder of record. The
Notice must reasonably inform NCMS of the identity of the shareholder and that
such shareholder is thereby objecting to the Merger and demanding payment for
his shares.
If the requirements of (i) and (ii) above are not satisfied and the Merger
becomes effective, a shareholder will not be entitled to payment for such
shareholder's shares under the provisions of Article 13 of the NCBCA.
If the Merger is approved by the NCMS shareholders, NCMS (or Merger Sub as
the survivor of the Merger (the "Surviving Corporation") if such notice is sent
after the Effective Date) will be required to mail by registered or certified
mail, return receipt requested, a written notice (the "Dissenters' Notice") to
all shareholders who have satisfied the requirements of (i) and (ii) above. The
notice must be sent no later than ten (10) days after the shareholder approval
of the Merger, and must (i) state where the payment demand must be sent and
where and when certificates for certificated shares must be deposited; (ii)
supply a form for demanding payment; (iii) set a date by which NCMS (or the
Surviving Corporation) must receive the payment demand (not fewer than thirty
(30) days nor more than sixty (60) days after the Dissenters' Notice is mailed)
and (iv) include a copy of Article 13 of the NCBCA (Dissenters' Rights).
A shareholder who sends a Dissenters' Notice must demand payment and
deposit such shareholder's share certificates in accordance with the terms of
the Dissenters' Notice. A shareholder who demands payment and deposits such
shareholder's share certificates retains all other rights of a shareholder until
these rights are canceled or modified by the Merger. A shareholder who does not
demand payment or deposit such
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shareholder's share certificates where required, each by the date set in the
Dissenters' Notice, is not entitled to payment for his shares under the NCBCA.
Upon receipt of a demand for payment, the Surviving Corporation is required
to pay each dissenting shareholder the amount the Surviving Corporation
estimates to be the fair value of such shareholder's shares, plus interest
accrued from the Effective Date to the date of payment. The payment must be
accompanied by (i) NCMS' most recent available balance sheet, income statement
and statement of cash flows as of and at the fiscal year ending not more than
sixteen (16) months before the date of offer of payment, and the latest
available interim financial statements, if any; (ii) an explanation of how the
Surviving Corporation's estimated the fair value of the shares; (iii) an
explanation of the interest calculation; (iv) a statement of the dissenters'
right to demand payment (as described below); and (v) a copy of Article 13 of
the NCBCA (Dissenters' Rights).
If the Merger is not consummated within sixty (60) days after the date set
for demanding payment and depositing share certificates, NCMS must, pursuant to
the NCBCA, return the deposited certificates. If after returning the deposited
certificates the Merger is consummated, the Surviving Corporation must send a
new Dissenters' Notice and repeat the payment demand procedure.
A shareholder may, however, notify the Surviving Corporation in writing of
such shareholder's own estimate of the fair value of his shares and amount of
interest due, and demand payment of the excess of such shareholder's estimate of
the fair value of such shareholder's shares and the amount previously paid by
the Surviving Corporation and interest due if: (i) the shareholder believes that
the amount offered is less than the fair value of the NCMS Stock or that the
interest is incorrectly calculated; (ii) the Surviving Corporation fails to make
payment of its estimate of fair value to a shareholder within thirty (30) days
after receipt of a demand for payment; or (iii) the Surviving Corporation having
failed to take action, does not return the deposited certificates within sixty
(60) days after the date set for demanding payment. A shareholder waives the
right to demand payment unless such shareholder notifies the Surviving
Corporation of such shareholder's demand in writing within thirty (30) days of
the Surviving Corporation's payment of its estimate of fair value (with respect
to clause (i) above) or the Surviving Corporation's failure to perform (with
respect to clauses (ii) and (iii) above). A shareholder who fails to notify the
Surviving Corporation of his demand within such thirty (30) day period shall be
deemed to have withdrawn such shareholder's dissent and demand of payment.
If a demand for payment remains unsettled, the dissenting shareholder may
commence a proceeding within sixty (60) days after the date of his payment
demand and file a complaint with the Superior Court Division of the North
Carolina General Court of Justice to determine the fair value of the shares and
accrued interest. If the dissenting shareholder does not commence the proceeding
within such sixty (60) day period, the dissenting shareholder shall have deemed
to have withdrawn his dissent and demand for payment.
The court in such an appraisal proceeding will determine all costs of the
proceeding and assess the costs as it finds equitable. The proceeding is to be
tried as in other civil actions. The court may also assess the fees and expenses
of counsel and expenses for the respective parties, in the amounts the court
finds equitable; (i) against the Surviving Corporation if the court finds that
it did not comply with the statutes; or (ii) against the Surviving Corporation
or the dissenting shareholder, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously or not in good
faith.
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THE MERGER AGREEMENT
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is included in this Proxy Statement/Prospectus as
Annex A and incorporated herein by reference. Statements in this Proxy
Statement/Prospectus with respect to the terms of the Merger are qualified in
their entirety by reference to the Merger Agreement. NCMS Shareholders are urged
to read the full text of the Merger Agreement.
TERMS OF THE MERGER
THE MERGER
At the Effective Date and subject to and upon the terms and conditions of
the Merger Agreement and North Carolina law, NCMS will be merged with and into
Merger Sub, the separate corporate existence of NCMS will cease, and Merger Sub
will continue as the surviving corporation. As a result, Merger Sub will
continue as a wholly-owned subsidiary of PMI.
EFFECTIVE DATE
As promptly as practicable after the satisfaction or waiver of the
conditions to the Merger set forth in the Merger Agreement, the Merger will be
consummated by filing Articles of Merger with the Secretary of State of the
State of North Carolina in accordance with the provisions therein and as
provided by North Carolina Law. It is expected that closing of the Merger will
take place immediately after the Special Meeting.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Merger Agreement provides that the Articles of Incorporation and
By-laws of Merger Sub, as in effect immediately prior to the Effective Date, as
amended to change the name of Merger Sub to "North Carolina Motor Speedway,
Inc." will be the Articles of Incorporation and By-laws of the Surviving
Corporation until thereafter amended in accordance with the provisions therein
and as provided by North Carolina Law.
DIRECTORS AND OFFICERS
The directors of Merger Sub and the officers of NCMS immediately prior to
the Effective Date shall be the directors and officers, respectively, of Merger
Sub as of the Effective Date.
CONVERSION OF STOCK
At the Effective Time, each share of NCMS Stock issued and outstanding
immediately prior to the Effective Date (excluding shares referred to in the
following paragraphs) will be converted into and exchangeable for the Merger
Consideration. Because the value of the PMI Stock will not be determined until
the fifth trading day prior to the Effective Date, NCMS shareholders may not
know at the time of the Special Meeting the number of shares of PMI Stock that
they can elect to receive in the Merger. If the Effective Date was the date of
this Proxy Statement/Prospectus, NCMS shareholders could elect to receive 0.6275
share of PMI Stock per share of NCMS Stock. Assuming that all NCMS shareholders
(other than PMI, Merger Sub or other subsidiaries of PMI) elected to receive
cash in consideration for their exchange of the NCMS Stock held by them, the
aggregate consideration paid to such shareholders as a result of the Merger
would be $13,201,981.47. See "The Merger -- Conversion of Shares; Procedure for
Exchange of Certificates." If, however, a holder of 5% or more of the
outstanding shares of NCMS Stock receives less than $19.61 in an appraisal
proceeding, NCMS shareholders who have surrendered their shares for Merger
Consideration would be entitled to retain the full amount of the Merger
Consideration.
In addition to the payment of the Merger Consideration, if the holder of
any Dissenting Shares becomes entitled to an amount in excess of $19.61 per
share from any person who owned more than 5% of the outstanding NCMS Stock
immediately before the Effective Date, PMI will promptly pay in cash to each
holder of NCMS Common Stock outstanding immediately before the Effective Date
(other than the
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Dissenting Shares) an additional amount per share equal to such excess, less any
amount per share received as described below. As an illustrative example, if
such a 5% holder received $20 or $21 per share, respectively, then each other
NCMS shareholder would receive in cash an additional $0.39 or $1.39,
respectively, per share of NCMS Stock. PMI has no present intention to purchase
Dissenting Shares in an amount other than for the Merger Consideration. In
addition, if PMI, during the one year period following the Effective Date, sells
all of the outstanding common stock of the surviving corporation or all or
substantially all of the assets of the surviving corporation to any person other
than PMI or its affiliates, PMI shall promptly pay in cash to each holder of
NCMS Stock immediately before the Effective Date (other than Dissenting Shares)
an additional amount equal to (i) such holder's proportionate share (based on
such holder's percentage ownership of the NCMS Stock immediately before the
Effective Date) of the net sales price received by PMI from such sale, less the
Merger Consideration paid to such holder, and (ii) any amount received by such
holder pursuant to the preceding sentence of this paragraph. As an illustrative
example, if within one year after the Effective Date, PMI were to sell all of
the outstanding shares of NCMS Stock or if NCMS were to sell all or
substantially all of its assets for $50 million, a person holding 2,237 shares
of NCMS Stock immediately prior to the Effective Time (representing
approximately 0.1% of the 2,236,705 shares of NCMS Stock outstanding) who had
not exercised rights of dissent and appraisal would be entitled to receive an
additional cash payment equal to the difference between $50,000 (0.1% of the $50
million sales price) less $43,861.79 (the $19.61 Merger Consideration multiplied
by the 2,237 shares held by the shareholder), or $6,138.21 (approximately $2.74
per share). If such a sale were to occur at a total price of $43,861,785 (the
$19.61 Merger Consideration multiplied by the total number of shares of NCMS
Stock outstanding) or less, the shareholder in the foregoing example would not
be entitled to receive any additional payment but would be entitled to retain
the full amount of Merger Consideration. PMI has no present intentions or plan
to enter into a sale transaction which is described in this paragraph.
Each share of NCMS Stock held as treasury stock of NCMS immediately prior
to the Effective Date, and each share of NCMS Stock held by PMI, Merger Sub and
their subsidiaries, shall be cancelled, retired and cease to exist, and no
exchange or payment shall be made in respect thereof.
Each share of common stock of Merger Sub issued and outstanding immediately
prior to the Effective Time will be converted into one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.
DISSENTING SHARES
Shares of NCMS Stock which are held by any holder who does not vote in
favor of the Merger or consent thereto in writing and who gives timely written
notice to NCMS of intent to demand payment in accordance with Article 13
(Dissenters' Rights) of the NCBCA, who demands payment and deposits share
certificates in accordance with such article and who otherwise perfects rights
of appraisal under Article 13 of the NCBCA shall not be converted into the right
to receive the Merger Consideration but shall become the right to receive such
consideration as may be determined to be due in respect of such Dissenting
Shares pursuant to Article 13 of the NCBCA; provided, however, that any holder
of Dissenting Shares who shall have failed to perfect or shall have withdrawn or
lost his rights to appraisal of such Dissenting Shares, in each case under the
NCBCA, shall forfeit the right to appraisal of such Dissenting Shares, and such
Dissenting Shares shall be deemed to have been converted into the right to
receive, as of the Effective Date, the Merger Consideration without interest.
See "The Merger -- Dissenters' Rights."
FRACTIONAL SHARES
No fractional shares of PMI Stock, and no certificates representing such
fractional shares, shall be issued upon the surrender for exchange of
certificates representing NCMS Stock. In lieu of any fractional share, PMI shall
pay to each holder of NCMS Stock who otherwise would be entitled to receive a
fractional share of PMI Stock an amount of cash (without interest) determined by
multiplying (a) the Average Closing Price times (b) the fractional share
interest to which such holder would otherwise be entitled.
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EXCHANGE OF CERTIFICATES
EXCHANGE PROCEDURES
Promptly after the Effective Date, Merger Sub shall mail transmittal
materials (which shall specify that delivery shall be effected, and risk of loss
and title to the certificates theretofore representing shares of NCMS Stock
shall pass, only upon proper delivery of such certificates to Merger Sub) to
each holder of NCMS Stock of record as of the Effective Date advising such
holder of the procedure for surrendering to Merger Sub outstanding certificates
formerly evidencing NCMS Stock in exchange for cash or, at the holder's option,
new certificates for PMI Stock (and, if applicable, cash in lieu of fractional
shares). Upon surrender to Merger Sub of a certificate formerly representing
shares of NCMS Stock, together with duly executed transmittal materials, and
such other documents as may reasonably be required by Merger Sub, the holder of
such certificate shall be paid, as elected by such holder, (i) the number of
whole shares of PMI Stock that such person is entitled to receive in the Merger
and cash in lieu of fractional shares as provided above or, if the holder has so
elected, (ii) $19.61 (without interest) in cash per share of NCMS Stock. Upon
surrender, each certificate theretofore evidencing NCMS Stock shall be canceled.
TRANSFERS OF OWNERSHIP
If any certificate evidencing shares of PMI Stock is to be issued to a
person other than the person in whose name the certificate surrendered is
registered, it shall be a condition to the issuance of PMI Stock that the
certificate so surrendered shall be properly endorsed or be otherwise in proper
form for transfer and that the person requesting such exchange shall pay all
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the certificate surrendered (or establish to the
satisfaction of PMI that such tax has been paid or is not applicable).
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED NCMS STOCK
After the Effective Date, no dividend or distribution payable to holders of
record of PMI Stock shall be paid to any holder of outstanding and unexchanged
certificates of NCMS Stock.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
NCMS and of Merger Sub and PMI.
REPRESENTATIONS AND WARRANTIES OF NCMS
The representations and warranties of NCMS relate, among other things, to
the following matters (subject, in certain cases, to specified exceptions): (a)
NCMS' corporate organization and good standing; (b) NCMS' power and authority to
enter into the Merger Agreement; (c) NCMS' capital structure; (d) the absence of
restrictions and conflicts with the Merger Agreement; (e) the accuracy of
certain information supplied by NCMS for inclusion in the Registration Statement
and the materials distributed to NCMS shareholders; and (f) NCMS' execution of
employment agreements with certain officers of NCMS.
REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PMI
The representations and warranties of Merger Sub and PMI relate to the
following matters (subject, in certain cases, to specified exceptions): (i)
corporate organization and good standing; (ii) capital structure; (iii) power
and authority to enter into the Merger Agreement; (iv) the absence of
restrictions and conflicts with the Merger Agreement; (v) PMI's reports filed
with the Commission; and (vi) the accuracy of certain information supplied by
PMI and Merger Sub for inclusion in the Registration Statement and the materials
distributed to NCMS' shareholders.
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CONDUCT OF BUSINESS PENDING THE MERGER
CONDUCT OF BUSINESS BY NCMS
The Merger Agreement provides that, prior to the Effective Date, unless PMI
agrees in writing, NCMS will conduct its business in the ordinary course and in
a manner consistent with past practice, and NCMS will use reasonable efforts to
preserve intact its present business organization. The Merger Agreement further
provides that (i) NCMS will confer on a regular basis with representatives of
PMI to report material operational matters and proposals for material
transactions, (ii) both NCMS and PMI will promptly notify the other of any
material emergency, change in the condition, business, properties, assets,
liabilities, prospects or the normal course of its business or the operation of
its properties, any material litigation or governmental complaints,
investigations or hearings, or the breach in any material respect of any
representation or warranty, and (iii) NCMS and PMI will promptly deliver to the
other party true and correct copies of any materials filed with or delivered to
the SEC or any other governmental entity (other than routine filings in the
ordinary course of business). Without the prior written consent of PMI, NCMS has
agreed that it will not: (i) amend its Articles of Incorporation or Bylaws; (ii)
issue, sell or pledge any shares of its capital stock or effect any stock split
or otherwise change its capitalization; (iii) grant, confer or award any option,
warrant or conversion right or other right to acquire any shares of its capital
stock; (iv) except in the ordinary course, increase any compensation to, or
enter into or amend any employment agreement with, any present or future
officers or directors; (v) except in the ordinary course, adopt any new employee
benefit plan or amend any existing employee benefit plan; (vi) except in the
ordinary course and consistent with past practice, declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares of
its capital stock; (vii) redeem, purchase or otherwise acquire any shares of its
capital stock; (viii) sell, lease, or otherwise dispose of any assets of NCMS or
any subsidiary or make any acquisition by means of merger or otherwise, of any
material amount of assets or securities; (ix) agree to do any of the foregoing;
or (x) take any action which would make any representation of warranty of NCMS
in the Merger Agreement untrue or incorrect.
CONDITIONS TO THE MERGER
The obligations of PMI and NCMS to consummate the Merger are subject to
various conditions, including (i) obtaining approval of the Merger Agreement by
NCMS' shareholders; (ii) the effectiveness of the Registration Statement and the
listing with Nasdaq of the additional PMI Stock to be issued as part of the
Merger; (iii) the absence of any statute, rule, regulation, executive order,
decree, injunction, ruling or order of any court, other governmental authority
outstanding that has the effect of prohibiting the consummation of the Merger;
(iv) delivery of an opinion or private letter ruling reasonably satisfactory to
NCMS to the effect that the Merger qualifies for federal income tax purposes so
a tax-free re-organization; and (v) obtaining certain third party consents.
Except for items (ii) and (iii), any of the foregoing conditions may be waived.
If a material condition is waived, NCMS intends to resolicit proxies from NCMS
shareholders.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date, whether before or after approval by the
shareholders of NCMS:
(i) if the Merger does not take place on or before December 31, 1997;
provided, either party may extend that date 180 days;
(ii) by mutual action of the Boards of Directors of PMI and NCMS;
(iii) by either PMI or NCMS if any court or governmental body issues a
final, non-appealable order, decree, or ruling permanently enjoining,
restraining, or prohibiting the Merger;
(iv) by either PMI or NCMS if the shareholders of NCMS fail to approve
the Merger or approve a different proposed acquisition transaction at a
duly held meeting of the shareholders;
(v) by PMI if NCMS breaches any of its representations, warranties or
covenants contained in the Merger Agreement and such breach has a material
adverse effect on NCMS; or
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(vi) by NCMS if PMI breaches any of its representations, warranties or
covenants contained in the Merger Agreement and such breach has a material
adverse effect on PMI.
Neither PMI nor NCMS has the right to terminate the Merger upon a decrease
in the price of PMI Stock.
AMENDMENT AND WAIVER
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto; however after approval of the
Merger by the shareholders of NCMS, no amendment may be made without the further
approval of the shareholders of NCMS.
At any time prior to the Effective Date, whether before or after any
meeting of NCMS' shareholders, any party to the Merger Agreement may (i) extend
the time for the performance of any of the obligations or other acts of the
other party, (ii) subject to the Merger Agreement, waive compliance with any
conditions to the respective obligations of any party, or (iii) waive any
inaccuracies in the representations and warranties contained in the Merger
Agreement or in any document, certificate or writing delivered thereto by any
party. Any agreement on the part of a party to the Merger Agreement to such an
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party by a duly authorized officer.
INDEMNIFICATION
PMI shall, either individually or through the Surviving Corporation,
indemnify, defend and hold harmless to the fullest extent permitted or required
by the NCBCA the present and former directors and officers of NCMS and any of
the NCMS' subsidiaries and their respective heirs, executors, administrators and
legal representatives against all losses, expenses, claims, damages, or
liabilities arising out of actions or omissions occurring on or prior to the
Effective Date (including, without limitation, acts or omissions relating to the
transactions contemplated by this Agreement).
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements and information under the captions "PMI", "NCMS" and
"Risk Factors," and elsewhere in this Proxy Statement/Prospectus (including
documents incorporated herein by reference, see "Incorporation of Certain
Documents by Reference"), constitute "forward-looking statements" within the
meaning of the Federal Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
PMI to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, PMI's ability to maintain good working
relationships with the sanctioning bodies for its events, obtain sanctioning
agreements for events at the California Speedway, competition in PMI's current
and future markets, environmental matters, industry sponsorships, governmental
regulation, dependence on key personnel, PMI's ability to control construction
and operational costs, the impact of bad weather at PMI's events, PMI's ability
to integrate and successfully operate acquired businesses and the risks
associated with such businesses, PMI's ability to consummate the Merger, and
other factors referenced in this Proxy Statement/Prospectus. See "Risk Factors."
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BUSINESS OF NCMS
GENERAL
NCMS is a promoter and marketer of professional motorsports. NCMS owns and
operates North Carolina Motor Speedway near Rockingham, North Carolina. NCMS
promoted a total of four racing events over two weekends in 1996 and expects to
promote a total of four racing events over two weekends in 1997. All of the 1996
events were stock car races which were sanctioned by NASCAR. NASCAR events
promoted by NCMS included two NASCAR races associated with the Winston Cup
Series and two races associated with the NASCAR Busch Grand National Series.
RACING AND RELATED EVENTS
NCMS's 1997 scheduled racing events are as follows:
DATE RACE CIRCUIT
---- ---- -------
February 22, 1997................ Goodwrench 200 Busch Grand National Series
February 23, 1997................ Goodwrench 400 Winston Cup Series
October 25, 1997................. AC Delco 200 Busch Grand National Series
October 26, 1997................. AC Delco 400 Winston Cup Series
NASCAR grants sanctioning agreements on an annual basis for the next
succeeding year. NCMS has hosted two Winston Cup races annually since 1966. In
addition to the racing events listed above, NCMS also hosts the UNOCAL
76/Rockingham Pit Crew World Championship which will be held this year on
October 25, 1997.
FACILITY
North Carolina Motor Speedway is located near Rockingham, North Carolina,
approximately 90 miles south of Raleigh, North Carolina. NCMS, which was formed
and began operations in 1965, has 47,158 reserved grandstand seats, 3,000
general admission seats, and 34 suites.
The speedway and all adjacent parking areas consist of approximately 260
acres, all of which are owned by NCMS. North Carolina Motor Speedway is a 1.017
mile oval with 22 degrees to 25 degrees banking in the turns and 8 degrees
banking on the front and back straight-away. The track is 55 feet wide with a
50-foot apron on the turns and 50 feet wide with a 20-foot apron on the
straight-aways. The backstretch is 1,367 feet in length. The front pit road is
1,013 feet long, 25 feet wide and contains space for 31 individual pit areas.
The back pit road is 841 feet long, 15 feet wide and contains space for 22
individual pit areas. The oval was resurfaced in 1994.
COMPETITION
Racing events compete not only with other sports and other recreational
events scheduled at the same dates, but with other racing events sanctioned by
various racing bodies such as NASCAR, CART, USAC, IRL, SCCA, IMSA, ARCA, NHRA
and others. Racing events (including IRL events) sanctioned by different
organizations are often held on the same dates at separate tracks, in
competition with the NASCAR and CART event dates. In addition, motorsports
facilities compete with one another for the patronage of motor racing
spectators, with other track owners and with other sports and entertainment
businesses, many of which have resources that exceed those of NCMS. The quality
of the competition, type of racing event, caliber of the events, sight lines,
ticket pricing, location, customer conveniences, among others, distinguish the
motorsports facilities.
NCMS' principal competitors include Charlotte Motor Speedway, Darlington
Raceway, Martinsville Speedway, Bristol Speedway and Richmond International
Raceway.
42
50
EMPLOYEES
As of July 1, 1997, NCMS had 11 full-time employees and five seasonal
employees. NCMS engages temporary personnel to assist during periods of peak
attendance at its events. For example, NCMS may engage up to 1,000 persons for a
race weekend at North Carolina Motor Speedway, some of whom are volunteers. None
of NCMS's employees is represented by a labor union. Management believes that
NCMS enjoys a good relationship with its employees.
LEGAL PROCEEDINGS
In August, 1997, a purported class action was commenced against NCMS in the
U.S. District Court for the Middle District of North Carolina at Greensboro
seeking treble damages under the United States and North Carolina anti-trust
laws. The suit alleges, in substance, that NCMS conspired with various persons
to fix the prices of souvenirs sold at the track during the Winston Cup and
Busch Series Grand National Division stock car races from 1988 until January
1997. The suit names various persons as alleged co-conspirators, but does not
name them (or others) as defendants, at this time. The suit alleges similar
conduct that appeared in the purported national class actions pending in the
U.S. District Court, Northern District of Georgia, filed against approximately
28 other businesses including PMI, and previously reported in PMI's Form 10-Q
for the quarter ended March 31, 1997. That suit alleges that similar wrongful
conduct occurred at NCMS during 1991 to the present time. PMI and NCMS dispute
the claims and expect to vigorously defend themselves. The lawsuit does not
state the amount of damages being sought by the claimants.
On August 5, 1997, O. Bruton Smith, a shareholder of NCMS and the majority
shareholder and chairman of SMI, filed a lawsuit in North Carolina Superior
Court, Mecklenburg County, against NCMS, PMI, Merger Sub, PSH Corp., a
shareholder of PMI, and Walter P. Czarnecki, Richard J. Peters, Robert H.
Kurnick, Jr., Carrie B. DeWitt, Nancy DeWitt Daugherty and Jo DeWitt Wilson,
each a director of NCMS, seeking to enjoin the consummation of the Merger. NCMS,
PMI and the other defendants in the lawsuit have filed a motion to dismiss Mr.
Smith's lawsuit, and Mr. Smith has filed a motion to obtain a preliminary
injunction to prohibit the Merger. The court has approved a motion for expedited
discovery and has set a hearing for November 5, 1997 to consider the defendants'
motion to dismiss and Mr. Smith's motion for a preliminary injunction. On
September 15, 1997, Mr. Smith filed a motion to add 12 other shareholders of
NCMS as additional plaintiffs. A hearing on this motion has not been scheduled.
In his lawsuit, Mr. Smith alleges that Ms. Carrie DeWitt, as a majority
shareholder, owed a duty to the minority shareholders of NCMS to sell her shares
of NCMS Stock in a transaction that would result in the minority shareholders
receiving the "highest price" for their shares and that she breached this duty
by selling her shares to PMI. In addition, Mr. Smith alleges that the defendant
directors breached their fiduciary duties to NCMS and its shareholders by
approving the proposed Merger with PMI. Finally, Mr. Smith alleges that PMI's
negotiation and purchase of Ms. DeWitt's NCMS Stock and the negotiation and
execution of the Merger Agreement constituted an unfair and deceptive trade
practice under North Carolina law.
INSURANCE
NCMS maintains insurance with insurance companies against such risks and in
such amounts, with such deductibles, as are customarily maintained by similar
businesses.
PATENTS AND TRADEMARKS
NCMS has a U.S. Trademark/Servicemark application pending with the U.S.
Patent and Trademark office to register the rights to "North Carolina Motor
Speedway."
43
51
NCMS SELECTED FINANCIAL DATA
The selected statement of income and balance sheet data as of and for the
years ended August 31, 1997 and 1996 was derived from the financial statements
of NCMS which have been audited by Deloitte & Touche LLP, independent auditors.
The selected statement of income and balance sheet data as of and for the seven
month period ended August 31, 1995 and for the years ended January 31, 1995,
1994 and 1993 was derived from the unaudited financial statements of NCMS, which
include all adjustments which management considers necessary for a fair
presentation of the data for such periods, all of which were of a normal
recurring nature. The table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," NCMS
financial statements, related notes and other financial information included
elsewhere in this Prospectus.
SEVEN
MONTHS
YEAR ENDED AUGUST 31, ENDED YEAR ENDED JANUARY 31,
---------------------- AUGUST 31, ---------------------------------
1997 1996 1995 1995 1994 1993
---- ---- ---------- ---- ---- ----
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES:
Speedway admissions............. $ 5,592 $4,615 $1,996 $4,016 $3,518 $3,365
Other speedway revenues......... 4,504 4,132 1,879 2,801 2,313 2,412
--------- --------- --------- --------- --------- ---------
Total Revenues............. 10,096 8,747 3,875 6,817 5,831 5,777
EXPENSES:
Operating expenses.............. 6,378 5,836 2,722 4,984 4,816 4,437
Depreciation.................... 424 264 133 256 215 186
Selling, general and
administrative............... 654 591 421 348 314 265
--------- --------- --------- --------- --------- ---------
Total Expenses............. 7,456 6,691 3,276 5,588 5,345 4,888
Operating Income.................. 2,640 2,056 599 1,229 486 889
Interest Income (Expense), net.... (332) 27 69 53 45 15
--------- --------- --------- --------- --------- ---------
Income Before Income Taxes........ 2,308 2,083 668 1,282 531 904
Income Taxes...................... 905 823 248 481 186 333
--------- --------- --------- --------- --------- ---------
Net Income........................ $ 1,403 $1,260 $ 420 $ 801 $ 345 $ 571
========= ========= ========= ========= ========= =========
Net Income Per Share.............. $.63 $.56 $ .19 $.36 $.15 $.26
Weighted Average Shares
Outstanding..................... 2,236,705 2,236,705 2,236,705 2,236,705 2,236,705 2,236,705
BALANCE SHEET DATA:
Total assets.................... $15,890 $12,473 $6,296 $5,127 $3,919 $3,385
Total debt...................... 4,224 3,977
Total shareholders' equity...... 6,756 5,398 4,183 3,808 3,119 2,865
OTHER DATA:
Number of seats................. 46,023 41,768 41,768 41,768 41,768 39,420
Attendance...................... 150,374 131,107 61,126 121,429 110,223 118,246
Number of event weekends........ 2 2 1 2 2 2
44
52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF NCMS
GENERAL
NCMS owns and operates North Carolina Motor Speedway, a 1.017-mile oval
speedway near Rockingham, North Carolina. NCMS promotes race weekends in
February and October of each year featuring a NASCAR Busch Series Grand National
Division event and a NASCAR Winston Cup Series event. NCMS also hosts the annual
UNOCAL 76/Rockingham Pit Crew World Championship during the October event
weekend.
NCMS classifies its revenues as speedway admissions, which includes ticket
sales for racing events, and other speedway revenues, which consists of revenues
from concessions sales, corporate hospitality and sponsorship, broadcast
revenues and billboard and program advertising. Speedway admissions and other
speedway revenues are generally collected in advance and recorded as deferred
revenues, net of deferred expenses, until the completion of the related event.
NCMS classifies its expenses as operating, depreciation and selling,
general and administrative expenses. Operating expenses consist primarily of
costs associated with conducting race events, such as sanction fees and wages.
During 1995, NCMS changed its fiscal year-end from January 31 to August 31.
The financial statements presented herein include the years ended August 31,
1997 and 1996, the seven month period ended August 31, 1995, and the year ended
January 31, 1995. During the seven month period ended August 31, 1995, NCMS held
only one weekend racing event, while two events were held in each of the other
periods presented.
Revenues for the year ended August 31, 1997 were $10.1 million, compared to
$8.7 million for the year ended August 31, 1996, $3.9 million for the seven
months ended August 31, 1995 and $6.8 million for the year ended January 31,
1995. Revenues have increased each year (including the seven months ended August
31, 1995 on an annualized basis) due to increased attendance each year, periodic
increases in ticket prices and increased revenues from corporate sponsorship and
broadcast revenues. Net income for the year ended August 31, 1997 was $1.4
million, compared to $1.3 million for the year ended August 31, 1996, $.4
million for the seven months ended August 31, 1995 and $.8 million for the year
ended January 31, 1995. This upward trend is due to the ability of NCMS to
increase revenues, as discussed above, without a corresponding increase in
expenses associated with such operations.
NCMS does not believe that its financial performance has been materially
affected by inflation.
SEASONALITY
NCMS promotes weekend events in February and October of each year. The
weekend events consist of a Saturday NASCAR Busch Series Grand National Division
event and a Sunday NASCAR Winston Cup Series event. NCMS believes that combining
the races creates a more attractive weekend racing experience than an isolated
race event. As a result of this strategy, NCMS has historically generated
substantially all of its revenues in two weekends.
45
53
RESULTS OF OPERATIONS
The percentage relationships between revenues and other elements of NCMS'
Statements of Income were:
SEVEN
YEAR ENDED MONTHS YEAR
AUGUST 31, ENDED ENDED
------------------- AUGUST 31, JANUARY 31,
1997 1996 1995 1995
---- ---- ---------- -----------
REVENUES:
Speedway admissions.............................. 55.4% 52.8% 51.5% 58.9%
Other speedway revenues.......................... 44.6 47.2 48.5 41.1
----- ----- ----- -----
Total Revenues................................ 100.0 100.0 100.0 100.0
----- ----- ----- -----
EXPENSES:
Operating........................................ 63.2 66.7 70.2 73.1
Depreciation..................................... 4.2 3.0 3.4 3.8
Selling, general and administrative.............. 6.5 6.8 10.9 5.1
----- ----- ----- -----
Total Expenses................................ 73.9 76.5 84.5 82.0
----- ----- ----- -----
Operating Income................................... 26.1% 23.5% 15.5% 18.0%
===== ===== ===== =====
YEAR ENDED AUGUST 31, 1997 COMPARED TO YEAR ENDED AUGUST 31, 1996.
Revenues -- Revenues for the year ended August 31, 1997 were $10.1 million,
an increase of $1.3 million, or 15%, compared to the same period in 1996 due to
increases in speedway admissions and other speedway revenues. Speedway
admissions increased $1.0 million, from $4.6 million in 1996 to $5.6 million in
1997 due to increased attendance from the addition of approximately 4,000 seats.
Other speedway revenues increased $.4 million, from $4.1 million in 1996 to $4.5
million in 1997, due to increased revenues from television broadcast rights and
higher sales of concessions and souvenirs.
Operating Expenses -- Operating expenses of $6.4 million for the year ended
August 31, 1997 increased $.5 million from the year ended August 31, 1996 due to
an increase in sanction fees.
Depreciation -- Depreciation expense of $424,000 for the year ended August
31, 1997 increased $160,000 compared to 1996 due to the addition of a grandstand
and a hospitality structure which was placed in service prior to the October
1996 race.
Selling, General and Administrative -- Selling, general and administrative
expenses of $654,000 for the year ended August 31, 1997 increased $63,000 from
the same period in 1996 due to additional promotional costs.
Interest -- NCMS recorded net interest expense for the year ended August
31, 1997 of $332,000, which relates to the debt incurred to fund construction of
the grandstand and hospitality structure, compared to net interest income of
$27,000 in 1996, which was earned from the short-term investment of excess cash.
Income Tax Expense -- The effective tax rate for the year ended August 31,
1997 was 39.2%, compared to 39.5% for the year ended August 31, 1996.
Net Income -- Net income for the year ended August 31, 1997 was $1.4
million, an increase of 11% over net income of $1.3 million for the year ended
August 31, 1996. The increase in net income for 1997 is due primarily to
increases in speedway admissions from increased seating and other speedway
revenues from increases in broadcast revenues and sales of concessions and
souvenirs, net of increases in operating expenses due to higher sanction fees,
depreciation expense due to capital improvements and interest expense due to
debt incurred to fund capital improvements.
46
54
YEAR ENDED AUGUST 31, 1996 COMPARED TO SEVEN MONTHS ENDED AUGUST 31, 1995
Revenues -- Revenues for the year ended August 31, 1996 were $8.7 million,
or $4.9 million more than revenues of $3.9 million during the seven months ended
August 31, 1995. This increase is due primarily to the inclusion in 1996 of a
second weekend racing event, which accounts for approximately half of NCMS'
revenues. Revenues per event increased approximately $500,000 for events in the
year ended August 31, 1996 due primarily to an increase in attendance per event
of approximately 5,000 guests and higher ticket prices.
Operating Expenses -- Operating expenses of $5.8 million for the year ended
August 31, 1996 are $3.1 million higher than the seven months ended ended August
31, 1995 as a result of the addition of expenses to promote a second race
weekend during the year ended August 31, 1996.
Depreciation -- Depreciation expense of $264,000 for the year ended August
31, 1996 is $131,000 higher than the seven months ended August 31, 1995 due to
the additional months of depreciation in 1996.
Selling, General and Administrative -- Selling, general and administrative
expenses of $591,000 for the year ended August 31, 1996 was higher than the
seven months in 1995 by $170,000 due to additional promotional costs associated
with holding a second racing event in 1996.
Interest -- Net interest income decreased from $69,000 for the seven months
ended August 31, 1995 to $27,000 for the year ended August 31, 1996 as NCMS
utilized excess cash for capital improvements.
Income Tax Expense -- The effective tax rate for the year ended August 31,
1996 was 39.5% compared to 37.1% in 1995.
Net Income -- Net income for the year ended August 31, 1996 was $1.3
million compared to $.4 million for the seven months ended August 31, 1995. The
increase reflects increases in speedway admissions and other speedway revenues
due to the inclusion of a second event weekend in 1996.
SEVEN MONTHS ENDED AUGUST 31, 1995 COMPARED TO YEAR ENDED JANUARY 31, 1995
Revenues -- Revenues of $3.9 million for the seven months ended August 31,
1995, during which one race weekend was held, compared to revenues of $6.8
million for the year ended January 31, 1995, when NCMS held two weekend events.
Revenues for the event weekend in February 1995 were higher than in February
1994 by $500,000 due to increased speedway admissions revenues of $300,000 from
higher attendance and increased other speedway revenues of $200,000 from higher
sponsorship revenues.
Operating Expenses -- Operating expenses of $2.7 million for the seven
months ended August 31, 1995 were $2.3 million lower than in the year ended
January 31, 1995 due to the reduction of events held.
Depreciation -- Depreciation expense of $133,000 for the seven months ended
August 31, 1995 was $123,000 lower than depreciation expense of $256,000 for the
year ended January 31, 1995 due to the reduction in the number of months during
the period.
Selling, General and Administrative Expenses -- Selling, general and
administrative expenses of $421,000 for the seven months ended August 31, 1995
were $73,000 higher than $348,000 for the year ended January 31, 1995 due to
increased promotional costs for the event weekend held during the seven months
ended August 31, 1995.
Interest -- NCMS recorded net interest income of $69,000 for the seven
months ended August 31, 1995, compared to $53,000 for the year ended January 31,
1995 due to increases in available cash to invest.
Income Tax Expense -- The effective tax rate of 37.1% for the seven months
ended August 31, 1995 compared to the effective rate of 37.5% for the year ended
January 31, 1995
Net Income -- Net income for the seven months ended August 31, 1995
decreased by $381,000 to $420,000 from $801,000 for the year ended January 31,
1995 due to additional income from operating a second race weekend during the
year ended January 31, 1995.
47
55
LIQUIDITY AND CAPITAL RESOURCES
Historically, NCMS has relied on cash flows from operating activities
supplemented, as necessary, by bank borrowings to finance working capital and
capital expenditures. In June 1996, NCMS obtained a $6 million note to fund
construction of a multipurpose structure which is used for hospitality seating,
the press box and the control tower. The note, which had a balance of $4.1
million as of August 31, 1997, is payable in semi-annual installments through
2003. NCMS also has lines of credit of $2.1 million, of which $1.9 million was
available as of August 31, 1997.
NCMS believes it has sufficient resources from existing cash balances and
from operating activities and, if necessary, from available borrowings under its
line of credit to satisfy ongoing cash requirements for the next twelve months.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, certain matters
discussed in this Proxy Statement/ Prospectus are forward-looking statements,
including the information contained on page 25 above, which involve risks and
uncertainties, including but not limited to NCMS' ability to maintain good
working relationships with NASCAR for its events and completion of the proposed
merger between NCMS and PMI, as well as other risks and uncertainties affecting
NCMS' operations, such as the ability of NCMS to complete the Merger,
competition, environmental, industry sponsorships, governmental regulation,
dependence on key personnel, NCMS' ability to control operational costs and the
impact of bad weather at NCMS' events.
48
56
INDEX TO FINANCIAL STATEMENTS
PAGE
----
North Carolina Motor Speedway, Inc. Financial Statements
Balance Sheets as of August 31, 1997 and 1996............. 50
Statements of Income and Retained Earnings for the Years
Ended August 31, 1997 and 1996,
the Seven Months Ended August 31, 1995, and the Year
Ended January 31, 1995................................. 51
Statements of Cash Flows for the Years Ended August 31,
1997 and 1996, the Seven Months Ended August 31, 1995
and the Year Ended January 31, 1995.................... 52
Notes to Financial Statements............................... 53
Independent Auditors' Report................................ 56
Penske Motorsports, Inc. and Subsidiaries Unaudited Pro
Forma Financial Data
Unaudited Pro Forma Statement of Income for the Six Months
Ended June 30, 1997.................................... 58
Unaudited Pro Forma Statement of Income for the Year Ended
December 31, 1996...................................... 59
Unaudited Pro Forma Balance Sheet as of June 30, 1997..... 60
Notes to Unaudited Pro Forma Financial Statements........... 61
49
57
NORTH CAROLINA MOTOR SPEEDWAY, INC.
BALANCE SHEETS
AUGUST 31,
------------------
1997 1996
---- ----
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2 $ 599
Receivables:
Trade.................................................. 186 383
Related party.......................................... 140
Inventories............................................... 96 57
Prepaid expenses.......................................... 97 15
------- -------
Total Current Assets................................... 521 1,054
Property and Equipment, net................................. 15,144 11,019
Deferred Taxes.............................................. 225
Other Assets................................................ 400
------- -------
Total....................................................... $15,890 $12,473
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 857 $ 428
Accounts payable and accrued expenses..................... 498 247
Deferred revenues, net.................................... 3,490 2,623
------- -------
Total Current Liabilities.............................. 4,845 3,298
Long-Term Debt, less current portion........................ 3,367 3,549
Deferred Revenues........................................... 922
Deferred Taxes.............................................. 228
Commitments and Contingencies
SHAREHOLDERS' EQUITY:
Common stock, par value $ .25 share:
Authorized 8,000,000 shares
Issued and outstanding 2,236,705 shares in 1997 and
1996.................................................. 559 559
Retained earnings......................................... 6,197 4,839
------- -------
Total Shareholders' Equity............................. 6,756 5,398
------- -------
Total....................................................... $15,890 $12,473
======= =======
See accompanying notes to financial statements.
50
58
NORTH CAROLINA MOTOR SPEEDWAY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
SEVEN
YEAR ENDED MONTHS YEAR ENDED
AUGUST 31, ENDED JANUARY 31,
---------------------- AUGUST 31, -----------
1997 1996 1995 1995
---- ---- ---------- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
REVENUES:
Speedway admissions............................ $5,592 $4,615 $1,996 $4,016
Other speedway revenues........................ 4,504 4,132 1,879 2,801
--------- --------- --------- ---------
Total Revenues................................. 10,096 8,747 3,875 6,817
EXPENSES:
Operating expenses............................. 6,378 5,836 2,722 4,984
Depreciation................................... 424 264 133 256
Selling, general and administrative............ 654 591 421 348
--------- --------- --------- ---------
Total Expenses................................. 7,456 6,691 3,276 5,588
Operating Income................................. 2,640 2,056 599 1,229
Interest Income (Expense), net................... (332) 27 69 53
Income Before Income Taxes....................... 2,308 2,083 668 1,282
Income Taxes..................................... 905 823 248 481
--------- --------- --------- ---------
Net Income....................................... 1,403 1,260 420 801
Retained Earnings, beginning of period........... 4,839 3,624 3,249 2,560
Dividends Paid................................... (45) (45) (45) (112)
--------- --------- --------- ---------
Retained Earnings, end of period................. $6,197 $4,839 $3,624 $3,249
========= ========= ========= =========
Net Income Per Share............................. $.63 $.56 $.19 $.36
========= ========= ========= =========
Weighted Average Shares Outstanding.............. 2,236,705 2,236,705 2,236,705 2,236,705
========= ========= ========= =========
See accompanying notes to financial statements.
51
59
NORTH CAROLINA MOTOR SPEEDWAY, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED SEVEN MONTHS YEAR ENDED
AUGUST 31, ENDED JANUARY 31,
----------------- AUGUST 31, -----------
1997 1996 1995 1995
---- ---- ------------ ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 1,403 $ 1,260 $ 420 $ 801
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 424 264 133 256
Changes in assets and liabilities which
provided (used) cash:
Receivables................................. 57 (247) (135)
Inventories, prepaid expenses and other
assets................................... (121) 8 (25) 16
Accounts payable and accrued liabilities.... 251 38 143 (89)
Deferred taxes.............................. (453) 57
Deferred revenue............................ 1,789 890 481 607
------- ------- ------- -----
Net cash provided by operating activities..... 3,350 2,270 1,017 1,591
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment, net......... (4,549) (6,480) (1,069) (610)
Payments received on notes receivable............ 400 50 50
------- ------- ------- -----
Net cash used in investing activities......... (4,149) (6,430) (1,019) (610)
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan proceeds.................................... 2,176 3,977
Payments on debt................................. (1,929)
Dividends........................................ (45) (45) (45) (112)
------- ------- ------- -----
Net cash provided by (used in) financing
activities.................................. 202 3,932 (45) (112)
------- ------- ------- -----
Net Increase (Decrease) in Cash and Cash
Equivalents...................................... (597) (228) (47) 869
Cash and Cash Equivalents at Beginning of Period... 599 827 874 5
------- ------- ------- -----
Cash and Cash Equivalents at End of Period......... $ 2 $ 599 $ 827 $ 874
======= ======= ======= =====
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest......... $ 357 $ 48 $ 1
======= ======= =====
Cash paid during the period for taxes............ $ 1,361 $ 833 $ 201 $ 482
======= ======= ======= =====
See accompanying notes to financial statements.
52
60
NORTH CAROLINA MOTOR SPEEDWAY, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The financial statements include the accounts of NCMS, which owns and
operates North Carolina Motor Speedway near Rockingham, North Carolina. NCMS
promotes race weekends in February and October of each year featuring a NASCAR
Busch Series Grand National Division event and a NASCAR Winston Cup Series
event. NCMS also hosts the annual UNOCAL 76/Rockingham Pit Crew World
Championship during the October event weekend.
The accompanying unaudited financial statements have been prepared by
management and, in the opinion of management, contain all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
results of operations and cash flows of NCMS for the seven months ended August
31, 1995 and for the year ended January 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents -- NCMS considers all investments with a maturity
of three months or less, at purchase, as cash equivalents.
Inventories -- Inventories are stated at the lower of cost or market value,
with cost determined primarily by the first in, first out (FIFO) method.
Property and Equipment -- Property and equipment is carried at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over estimated useful lives ranging from three to forty years. The
carrying values of fixed assets are evaluated annually for impairment.
Revenue Recognition -- Race related revenues and expenses are recognized
upon completion of an event. Deferred revenues represents advance race related
revenues, net of expenses, on future races.
Income Taxes -- Deferred taxes reflect the impact of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results will likely differ from those which are estimated, however such
differences are not expected to be material.
Reclassifications -- Certain reclassifications have been made to prior
period financial statements to conform with the 1997 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
AUGUST 31,
-----------------------
1997 1996
---- ----
(IN THOUSANDS)
Land and improvements....................................... $ 209 $ 209
Buildings and improvements.................................. 17,741 13,228
Equipment................................................... 839 803
------- -------
18,789 14,240
Less accumulated depreciation............................... 3,645 3,221
------- -------
$15,144 $11,019
======= =======
53
61
NORTH CAROLINA MOTOR SPEEDWAY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
As of August 31, 1997, NCMS had $1.2 million in construction in progress
relating primarily to the construction of a new grandstand and related
facilities with an estimated total cost of $1.5 million. As of August 31, 1996,
NCMS had $4.0 million in construction in progress relating to the construction
of a multipurpose structure above the main grandstand.
4. LONG-TERM DEBT
Long-term debt at August 31, 1997 and 1996 consists of a note payable
bearing interest at 2.7% over the average 91-day Treasury rate (7.76% and 7.87%
at August 31, 1997 and 1996, respectively) secured by all assets of NCMS and
guaranteed by PMI. The note is to be repaid in fourteen semi-annual payments of
$429,000 with the final payment in 2003. NCMS also has lines of credit of $2.1
million at the same rate as above, of which $1.9 million was available as of
August 31, 1997. As of August 31, 1997, the carrying value of the debt
approximated fair value.
5. EMPLOYEE BENEFIT PLANS
NCMS participates in a non-contributory, discretionary profit-sharing plan
which covers employees who meet certain length of service requirements.
Contributions of approximately $75,000, $57,000, $35,000 (unaudited) and $48,000
(unaudited), respectively were made to the plan during the years ended August
31, 1997 and 1996, the seven months ended August 31, 1995 and the year ended
January 31, 1995.
Employees are also provided a defined contribution retirement plan, whereby
NCMS contributes 10% of each eligible employee's annual salary to the plan. The
expense related to this plan was $50,000, $38,000, $23,000 (unaudited) and
$32,000 (unaudited), respectively during the years ended August 31, 1997 and
1996, the seven months ended August 31, 1995 and the year ended January 31,
1995.
6. TAXES
The provision for income taxes consists of the following:
YEAR ENDED SEVEN MONTHS YEAR
AUGUST 31, ENDED ENDED
------------- AUGUST 31, JANUARY 31,
1997 1996 1995 1995
---- ---- ------------ -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Current................................................ $1,358 $766 $224 $444
Deferred............................................... (453) 57 24 37
------ ---- ---- ----
Total............................................. $ 905 $823 $248 $481
====== ==== ==== ====
A reconciliation of taxes computed at the federal statutory rate and the
effective rate is as follows:
YEAR ENDED SEVEN MONTHS YEAR
AUGUST 31, ENDED ENDED
--------------- AUGUST 31, JANUARY 31,
1997 1996 1995 1995
---- ---- ------------ -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Income before income taxes........................... $2,308 $2,083 $668 $1,282
------ ------ ---- ------
Taxes computed at statutory rate..................... 785 $ 708 $227 $ 436
State taxes, net of federal.......................... 120 115 21 45
------ ------ ---- ------
Total income tax expense........................ $ 905 $ 823 $248 $ 481
====== ====== ==== ======
Effective tax rate................................... 39.2% 39.5% 37.1% 37.5%
====== ====== ==== ======
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NORTH CAROLINA MOTOR SPEEDWAY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Temporary differences which give rise to deferred tax assets and
(liabilities) are as follows:
AUGUST 31,
-----------------
1997 1996
---- ----
(IN THOUSANDS)
Depreciation................................................ $(262) $(192)
State taxes................................................. 48 (36)
Deferred revenues........................................... 439
----- -----
Total.................................................. $ 225 $(228)
===== =====
7. CHANGE IN CONTROL
In May, 1997, PMI purchased the common stock of NCMS held by the majority
shareholder, increasing its ownership interest to approximately 69.9%. A
proposal to merge PMI and NCMS was approved by the NCMS Board of Directors in
August, 1997. This merger proposal, which offers NCMS shareholders cash of
$19.61 per share or an equivalent amount of PMI Stock, will be presented to the
shareholders of NCMS at a meeting to be held in the fourth quarter of 1997.
Subsequent to the approval of the merger by the NCMS Board of Directors, O.
Bruton Smith, a minority shareholder of NCMS, sued NCMS, PMI and certain
directors of NCMS in an effort to enjoin the completion of the merger.
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63
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
North Carolina Motor Speedway
Rockingham, North Carolina
We have audited the accompanying balance sheets of North Carolina Motor
Speedway as of August 31, 1997 and 1996 and the related statements of income and
retained earnings and of cash flows for the years then ended. 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of August 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Detroit, Michigan
September 23, 1997
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PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data ("the Unaudited Pro Forma
Financial Data") as of June 30, 1997, for the six months ended June 30, 1997 and
for the year ended December 31, 1996 have been derived by the application of pro
forma adjustments to the financial statements of PMI incorporated by reference
in this Prospectus and the applicable financial statements of NCMS. The
unaudited consolidated financial statements of PMI include NCMS as of June 30,
1997 and for the period from June 1, 1997 (the effective date of approximately
69.9% control of NCMS) to June 30, 1997. The pro forma statements of income for
the year ended December 31, 1996 and for the six months ended June 30, 1997
account for NCMS as if it was a wholly-owned subsidiary as of January 1, 1996
and January 1, 1997, respectively. The pro forma balance sheet gives effect to
the acquisition of the minority interest of NCMS as if such acquisition had
occurred on June 30, 1997. The adjustments are described in the accompanying
notes. The pro forma financial data assumes that the minority shares of NCMS are
acquired using PMI common shares. See Notes C and E of the Notes to Pro Forma
Financial Statements for the impact on pro forma net income and pro forma net
income per share assuming that 50% and 100% of the NCMS shareholders elect to
receive cash. The Unaudited Pro Forma Financial Data do not purport to represent
what the Company's results of operations actually would have been if the
acquisition had been consummated on the date or for the periods indicated, or
what such results will be for any future date or for any future period. The
Unaudited Pro Forma Financial Data should be read in conjunction with 1) the
"PMI Selected Financial Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements set
forth in PMI's Annual Report on Form 10-K for the year ended December 31, 1996
and Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 which are
incorporated herein by reference and 2) "NCMS Selected Financial Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of NCMS" and the financial statements included elsewhere in this
Prospectus.
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65
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1997
NCMS
JANUARY 1 - PRO FORMA COMBINED
PMI MAY 31, 1997 ADJUSTMENTS PRO FORMA
--- ------------ ----------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUES:
Speedway admissions......................... $19,696 $2,668 $22,364
Other speedway revenues..................... 15,750 2,150 17,900
Merchandise, tires and accessories.......... 16,225 16,225
---------- --------- ----------
Total Revenues.............................. 51,671 4,818 56,489
EXPENSES:
Operating expenses.......................... 16,314 3,077 19,391
Cost of sales............................... 9,402 9,402
Depreciation and amortization............... 2,313 185 $ 486 A 2,984
Selling, general and administrative......... 8,309 343 8,652
---------- --------- ----- ----------
Total Expenses.............................. 36,338 3,605 486 40,429
Operating Income.............................. 15,333 1,213 (486) 16,060
Interest Income (Expense), net................ 77 (136) (59)
---------- --------- ----- ----------
Income Before Income Taxes.................... 15,410 1,077 (486) 16,001
Income Taxes.................................. 6,018 466 6,484
Minority Interest............................. (26) 26 B
---------- --------- ----- ----------
Net Income.................................... $ 9,418 $ 611 $(512) $ 9,517 C
========== ========= ===== ==========
Net Income Per Share.......................... $.70 $.27 $.65C
========== ========= ==========
Weighted Average Number of Shares
Outstanding................................. 13,457,164 2,236,705 14,561,340 C
========== ========= ==========
See accompanying notes to unaudited pro forma financial statements.
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PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
PRO FORMA COMBINED
PMI NCMS ADJUSTMENTS PRO FORMA
--- ---- ----------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUES:
Speedway admissions........................ $20,248 $5,205 $25,453
Other speedway revenues.................... 13,041 4,365 17,406
Merchandise, tires and accessories......... 21,886 21,886
---------- --------- ----------
Total Revenues............................. 55,175 9,570 64,745
EXPENSES:
Operating expenses......................... 18,067 6,097 24,164
Cost of sales.............................. 12,834 12,834
Depreciation and amortization.............. 3,167 285 $ 1,068 D 4,520
Selling, general and administrative........ 6,185 742 6,927
---------- --------- ------- ----------
Total Expenses............................. 40,253 7,124 1,068 48,445
Operating Income............................. 14,922 2,446 (1,068) 16,300
Interest Income (Expense), net............... 1,950 (97) 1,853
---------- --------- ------- ----------
Income Before Income Taxes................... 16,872 2,349 (1,068) 18,153
Income Taxes................................. 5,992 940 6,932
---------- --------- ------- ----------
Net Income................................... $10,880 $1,409 $(1,068) $11,221 E
========== ========= ======= ==========
Net Income Per Share......................... $.90 $.63 $.83 E
========== ========= ==========
Weighted Average Number of Shares
Outstanding................................ 12,128,920 2,236,705 13,448,462 E
========== ========= ==========
See accompanying notes to unaudited pro forma financial statements.
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PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
PRO FORMA
PMI ADJUSTMENTS TOTAL
--- ----------- -----
($ IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 6,973 $ 6,973
Receivables.......................................... 12,135 12,135
Inventories.......................................... 4,432 4,432
Prepaid.............................................. 1,254 1,254
-------- --------
Total Current Assets............................ 24,794 24,794
Property and Equipment, net............................ 209,771 209,771
Goodwill, net.......................................... 30,099 $11,400 F 41,499
Other Assets........................................... 2,146 2,146
-------- ------- --------
Total.................................................. $266,810 $11,400 $278,210
======== ======= ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 13,620 $ 13,620
Accounts payable..................................... 18,026 18,026
Accrued expenses..................................... 10,661 10,661
Deferred revenues, net............................... 25,189 25,189
-------- --------
Total Current Liabilities....................... 67,496 67,496
Long-Term Debt, less current portion................... 5,287 5,287
Deferred Taxes......................................... 9,910 9,910
Minority Interest...................................... 2,101 $(2,101)G --
Commitments and Contingencies
SHAREHOLDERS' EQUITY:
Common stock......................................... 141 4 H 145
Additional paid-in capital........................... 157,721 13,497 I 171,218
Retained earnings.................................... 24,154 24,154
-------- ------- --------
Total Shareholders' Equity...................... 182,016 13,501 195,517
-------- ------- --------
Total.................................................. $266,810 $11,400 $278,210
======== ======= ========
See accompanying notes to unaudited pro forma financial statements.
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68
PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
JUNE 30, 1997 PRO FORMA INCOME STATEMENT
A. To record: 1) amortization expense of $243,000, using an amortization
period of 40 years, for the period from January 1 to May 31 on $23.3 million,
which represents the excess purchase price of the majority interest in NCMS over
the fair value of the net assets acquired; 2) amortization expense of $143,000,
using an amortization period of 40 years, for the period from January 1 to June
30, 1997 on $11.4 million, which represents the excess purchase price of the
minority interest over the fair value of the net assets acquired; and 3)
additional depreciation expense of $100,000 on the increased valuation of the
NCMS fixed assets as a result of purchase accounting adjustments.
B. To reverse the minority interest expense recorded in the PMI
consolidated statement of income for the six months ended June 30, 1997,
reflecting the ownership by PMI of all of the NCMS Stock.
C. The unaudited pro forma statement of income reflects the acquisition of
the minority interest of NCMS assuming that all NCMS shareholders elect to
receive PMI common shares. If 50% of the NCMS shareholders elect to receive
cash, net income would be reduced by $133,000 and there would be no impact on
net income per share for the six months ended June 30, 1997. If 100% of the NCMS
shareholders elect to receive cash, net income would decrease by $266,000 and
there would be no impact on net income per share for the six months ended June
30, 1997. The reduction in net income reflects additional interest expense, net
of tax, on the cash payment to the NCMS shareholders.
DECEMBER 31, 1996 PRO FORMA INCOME STATEMENT
D. To record: 1) amortization expense of $868,000, using an amortization
period of 40 years, for the year ended December 31, 1996 on $34.7 million, which
represents the excess purchase price over the fair value of the net assets
acquired; and 2) additional depreciation expense of $200,000 on the increased
valuation of the NCMS fixed assets as a result of purchase accounting
adjustments.
E. The unaudited pro forma statement of income reflects the acquisition of
the minority interest of NCMS assuming that all NCMS shareholders elect to
receive PMI common shares. If 50% of the NCMS shareholders elect to receive
cash, net income would be reduced by $266,000 and there would be no impact on
net income per share for the year ended December 31, 1996. If 100% of the NCMS
shareholders elect to receive cash, net income would decrease by $532,000 and
net income per share would decrease by $.01 for the year ended December 31,
1996. The reduction in net income reflects additional interest expense, net of
tax, on the cash payment to the NCMS shareholders.
JUNE 30, 1997 PRO FORMA BALANCE SHEET
F. To record the purchase of 673,227 shares at a value of $19.61 per share,
plus estimated acquisition costs. The goodwill recorded is the excess of this
amount over the fair value of the NCMS net assets acquired.
G. To eliminate the minority interest recorded on the books of PMI at June
30, 1997.
H. To reflect the issuance of 413,000 shares of PMI's common stock in
exchange for 673,227 shares of NCMS stock. The NCMS stock is valued at $19.61
per share and converted to PMI Stock using an estimated average price of PMI's
common stock of $32 per share.
I. To record the increase in additional paid-in capital resulting from the
purchase of the minority shares of NCMS.
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69
PRINCIPAL SHAREHOLDERS OF NCMS
The following table sets forth certain information regarding beneficial
ownership of the shares of NCMS Stock (i) by each person who is known by NCMS to
own beneficially more than 5% of the shares of NCMS Stock, (ii) by each of the
NCMS' directors, (iii) by each of the executive officers of NCMS and (iv) by all
executive officers and directors, as a group:
SHARES
BENEFICIALLY PERCENT OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) PRIOR TO MERGER
--------------------------------------- ------------ ---------------
Penske Motorsports, Inc..................................... 1,563,478 69.9%
13400 West Outer Drive
Detroit, MI 48239
O. Bruton Smith............................................. 545,382(3) 24.8%
Speedway Motorsports, Inc.
PO Box 18747
Charlotte, NC 28218
William Brooks.............................................. 0 --
Christopher M. Browning..................................... 250 *
Walter P. Czarnecki......................................... 0 --
Nancy DeWitt Daugherty...................................... 5,000 *
Carrie B. DeWitt............................................ 0 --
Robert H. Kurnick, Jr....................................... 0 --
D.L. McDonald............................................... 5,000 *
Richard J. Peters........................................... 0 --
W.R. Webb, Jr............................................... 100 *
H.A. Wheeler................................................ 0 --
Jo DeWitt Wilson............................................ 7,100 *
All executive of officers and directors as a group (9
persons)..................................................
- -------------------------
(1) Unless otherwise indicated, all addresses are care of North Carolina Motor
Speedway, Inc., 2152 North US 1 Highway, Rockingham, North Carolina, 28380.
(2) Unless otherwise noted, NCMS believes that all persons named in the table
have sole voting and investment power with respect to all shares of NCMS
Stock beneficially owned by them.
(3) Includes 12,984 shares of NCMS Stock owned of record by SMI of which Mr.
Smith is the principal shareholder.
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DESCRIPTION OF NCMS' CAPITAL STOCK
GENERAL
The NCMS authorized capital stock consists of 8,000,000 shares of Common
Stock, par value $.25 per share. Of these shares, 2,236,705 shares of NCMS Stock
are currently outstanding. All of the outstanding shares of the NCMS Stock are
fully paid and non-assessable. NCMS is incorporated under the laws of North
Carolina. There is no established public trading market for NCMS' Common Stock
as of October 31, 1997. There are approximately 100 holders of record of NCMS
Common Stock.
COMMON STOCK
Holders of NCMS Stock are entitled to (i) one vote per share on all matters
to be voted on by shareholders, (ii) share ratably in any dividends, (iii) vote
cumulatively at an election of directors, and (iv) share ratably in the
remaining assets of NCMS upon liquidation. Holders of NCMS Stock have no
preemptive rights, subscription rights, or conversion rights. Provided there is
a quorum, the affirmative vote of a majority of the shares represented at any
meeting will be required for action by shareholders on any matter unless the
vote of a greater number or voting by classes is required by North Carolina law.
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COMPARISON OF SHAREHOLDER RIGHTS
For many years Delaware has followed a policy of encouraging incorporation
in that state and, in furtherance of that policy, has long been a leader in
adopting, construing and implementing comprehensive, flexible corporate laws
responsive to the legal and business needs of corporations organized under its
laws. The General Corporation Law of the State of Delaware is widely regarded as
the most extensive and well defined body of corporate law in the United States.
Because of Delaware's prominence as the state of incorporation for many major
corporations, both the legislature and courts in Delaware have demonstrated an
ability and a willingness to act quickly and effectively to meet changing
business needs. Moreover, the Delaware courts have rendered a substantial number
of decisions interpreting and explaining Delaware law and public policies with
respect to corporate issues.
Delaware General Corporation Law and the North Carolina Business
Corporation Act, the applicable corporate laws in Delaware and North Carolina,
respectively, are referred to herein as the "DGCL" and "NCBCA", respectively.
DIRECTOR LIABILITY
Under both North Carolina and Delaware law, corporations may adopt
provisions in their charter documents reducing or eliminating the liability of a
director to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director. Only PMI currently has such provisions in its
charter documents.
It should be noted that, in accordance with Delaware law, PMI's Certificate
of Incorporation does not limit or eliminate liability based on the following
types of claims:
1. liability based on a breach of the director's duty of loyalty to
PMI or its shareholders;
2. liability based on the payment of an improper dividend or an
improper repurchase of PMI Stock under Section 174 of the DGCL;
3. liability for acts or omissions not in good faith or which the
director knew were in violation of law;
4. liability arising out of intentional misconduct by the director; or
5. liability arising out of any transaction pursuant to which the
director received some improper personal benefit.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER AGENTS
North Carolina law and Delaware law have substantially similar provisions
and limitations regarding indemnification by a corporation of its officers,
directors, employees and other agents. For example, North Carolina law and
Delaware law both provide (i) for the advancement of expenses to a person
seeking indemnification upon receipt of an undertaking to repay such amount and
(ii) that statutory indemnifications are not exclusive of other rights a person
seeking indemnification may be entitled to under any bylaw or contract or
resolution adopted by a corporation subject to the limits imposed by the NCBCA.
Since the Delaware statute is by its terms nonexclusive regarding
indemnification provisions, it is possible that certain claims beyond the scope
of the statute may be indemnifiable. In the event PMI should be required to pay
a significant damage award on behalf of an officer of director pursuant to an
indemnification agreement, the shareholders' investment in PMI could be
negatively impacted.
The By-laws of PMI have implemented the applicable statutory framework for
indemnification of officers, directors, employees and agents. They require that
indemnity must be provided to officers, directors, employees, and agents where
permitted by statute and provide procedural mechanisms for directors and
officers to enforce these rights. Pursuant to a resolution adopted at the April
9, 1997 special meeting of the Board, NCMS' ByLaws specifically provide for the
indemnification of officers and directors.
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PROTECTION OF MINORITY SHAREHOLDER RIGHTS
Despite the belief of the Board that the Merger is in the best interests of
NCMS and its shareholders, shareholders should be aware that Delaware law has
been publicly criticized on the ground that it does not afford minority
shareholders the same substantive rights and protection as are available in a
number of other states.
CALL OF SHAREHOLDERS MEETING; ACTION BY WRITTEN CONSENT
Under both the NCBCA and the DGCL, a special meeting of shareholders may be
called by the board of directors of a corporation or by such person or persons
authorized to do so by the certificate or articles of incorporation of bylaws.
In addition, the NCBCA permits the holders of 10% of the outstanding shares
entitled to vote on any issue proposed to be considered at the proposed special
meeting to require that such a meeting be called. However, unless otherwise
provided in the articles of incorporation or by-laws, the call of a special
meeting by shareholders is not available to the shareholders of a public
corporation. The DGCL has no provision permitting shareholders to call a
meeting. However, a Delaware corporation may provide for any other method for
calling a meeting, including allowing the shareholders to call the meeting, if
such a provision is included in the corporation's by-laws or certificate of
incorporation. Neither PMI's By-laws nor its Certificate of Incorporation
provides for other methods for calling a meeting.
The DGCL allows the shareholders of a corporation to take any action which
may be taken at a meeting of the shareholders by majority written consent
without a meeting, while the NCBCA requires unanimous written consent for such
action.
PMI's By-laws prohibit the taking of any action by written consent.
PROXY REQUIREMENT
Under the NCBCA, proxies are valid for an eleven-month period unless a
different period is expressly provided for in the appointment form. Under the
DGCL, proxies are valid for up to three years unless otherwise specified
therein. In addition, the NCBCA specifies that, if the appointment form
conspicuously states that it is irrevocable, proxies from pledgees, purchasers,
creditors, contract employees, and persons designated in a shareholder agreement
are irrevocable. Under the DGCL, a proxy is irrevocable if it specifically
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support that power.
DERIVATIVE ACTIONS
Both the DGCL and the NCBCA permit shareholders to bring derivative actions
on behalf of the corporation. Unlike the DGCL, however, under the NCBCA (i) a
shareholder is required to obtain court approval if he wishes to settle,
compromise or discontinue a derivative action and (ii) if the court finds that
the derivative action was without reasonable cause, the court may require the
plaintiff to pay the defendant's reasonable expenses.
VOTING FOR DIRECTORS; CUMULATIVE VOTING
The NCBCA grants cumulative voting rights to shareholders of certain
corporations in the election of directors. The DGCL permits cumulative voting if
provision therefore is made in the corporation's certificate of incorporation.
PMI's Certificate of Incorporation does not provide of cumulative voting. NCMS'
Bylaws specifically provide for cumulative voting.
REMOVAL OF DIRECTORS; VACANCIES
PMI's Bylaws provide that one or more directors may be removed with cause
by vote of the holders of a majority of the share entitled to vote at an
election of directors cast at a meeting of a majority of the shareholders called
for that purpose. NCMS' Bylaws provide that directors may be removed from office
with or without cause by a vote of shareholders holding a majority of the shares
entitled to vote at an election of
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directors. However, unless the entire board is removed, an individual director
may not be removed if the number of shares voting against the removal would be
sufficient to elect a director if such shares were voted cumulatively at an
annual election. Vacancies on the boards of directors of both PMI and NCMS may
be filled by the majority vote of the remaining directors; however, NCMS' Bylaws
provide that vacancies created by expanding the number of directors may only be
filled by the shareholders at the next occurring annual meeting.
RIGHTS OF DISSENTING SHAREHOLDERS
The DGCL grants appraisal rights only in the case of a merger or
consolidation and not in the case of other transactions, unless the
corporation's certificate of incorporation provides for such expanded rights.
PMI's certificate of Incorporation does not provide for any extended appraisal
rights. In general, the DGCL does not allow appraisal rights in a merger for the
shares of any class of series of stock which is listed on a national securities
exchange or held of record by more than 2,000 shareholders, provided that in
such merger shareholders receive only shares of stock of the corporation
surviving the merger or consolidation which share must be so listed or widely
held.
The NCBCA contains comprehensive provisions which allow shareholders to
dissent from certain fundamental corporate changes and demand payment for the
appraised "fair value" of their shares. For a discussion of the NCBCA provisions
concerning rights of dissenting shareholders, see "The Merger -- Dissenters'
Rights."
The foregoing summary does not purport to be a complete statement of the
rights of holders of NCMS Stock and PMI Stock under, and is qualified in its
entirety by reference to, the DGCL, the NCBCA, PMI's Certificate of
Incorporation and PMI's By-laws, and NCMS' Articles of Incorporation and Bylaws.
LEGAL MATTERS AND EXPERTS
The validity of the PMI Stock offered hereby will be passed upon for PMI by
Honigman Miller Schwartz and Cohn, Detroit, Michigan. Opinions to the effect
that the Merger will qualify as a tax-free reorganization for Federal income tax
purposes will be issued by Drinker, Biddle & Reath LLP, Philadelphia
Pennsylvania, special tax counsel to PMI.
The financial statements incorporated in this prospectus by reference from
PMI's Annual Report on Form 10-K for the year ended December 31, 1996 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given their authority as experts in
accounting and auditing.
With respect to the unaudited interim financial information for PMI for the
periods ended March 31, 1997 and 1996 and June 30, 1997 and 1996 which is
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included in PMI's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997 and
incorporated by reference herein, Deloitte & Touche LLP did not audit and they
did not express an opinion on that interim financial information. Accordingly,
the degree of reliance on their reports on such information should be restricted
in light of the limited nature of the review procedures applied. Deloitte &
Touche LLP are not subject to the liability provisions of Section 11 of the
Securities Act of 1933 for their reports on the unaudited interim financial
information because their reports are not "reports" or a "part" of the
registration statement prepared or certified by an accountant within the meaning
of Section 7 and 11 of the Act.
The financial statements of NCMS as of and for the year ended August 31,
1996 included in this Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is included
herein, and has been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
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ANNEX A
MERGER AGREEMENT
A-1
75
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 5, 1997
AMONG
PENSKE MOTORSPORTS, INC.,
PENSKE ACQUISITION, INC.
AND
NORTH CAROLINA MOTOR SPEEDWAY, INC.
76
TABLE OF CONTENTS
ARTICLE I THE MERGER................................................... 1
1.01 The Merger:................................................. 1
1.02 Effective Time:............................................. 1
1.03 Effects of the Merger:...................................... 1
1.04 Amendments to Articles of Incorporation and Bylaws:......... 1
1.05 Directors and Officers:..................................... 1
1.06 Conversion of Shares:....................................... 2
1.07 Registration:............................................... 2
ARTICLE II DISSENTING SHARES; EXCHANGE OF SHARES....................... 3
2.01 Dissenting Shares:.......................................... 3
2.02 Exchange of Certificates:................................... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.... 5
3.01 Existence; Good Standing:................................... 5
3.02 Capitalization:............................................. 5
3.03 Authorization; Validity and Effect of Agreements:........... 5
3.04 No Violation:............................................... 5
3.05 SEC Documents:.............................................. 6
3.06 Distributed Materials; Registration Statement:.............. 6
3.07 Merger Sub:................................................. 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 7
4.01 Existence; Good Standing; Corporate Authority; Compliance 7
With Law:...................................................
4.02 Authorization, Validity and Effect of Agreements:........... 7
4.03 Capitalization:............................................. 7
4.04 No Violation:............................................... 7
4.05 Distributed Materials; Registration Statement:.............. 8
4.06 Officer Employment Agreement:............................... 8
ARTICLE V COVENANTS.................................................... 8
5.01 Conduct of Business:........................................ 8
5.02 Filings; Other Action:...................................... 9
5.03 Inspection of Records:...................................... 10
5.04 Indemnification:............................................ 10
5.05 Further Action:............................................. 11
5.06 Expenses:................................................... 11
5.07 Meeting of the Company's Shareholders:...................... 11
5.08 Distributed Materials:...................................... 11
5.09 Publicity:.................................................. 11
5.10 Best Efforts to Close:...................................... 12
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER.................... 12
6.01 Conditions to Each Party's Obligation to Effect the 12
Merger:.....................................................
ARTICLE VII TERMINATION; AMENDMENT; WAIVER............................. 12
7.01 Termination:................................................ 12
7.02 Effect of Termination:...................................... 13
7.03 Amendment:.................................................. 13
7.04 Extension; Waiver:.......................................... 13
7.05 Procedure for Termination, Amendment, Extension or 13
Waiver:.....................................................
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ARTICLE VIII MISCELLANEOUS............................................. 14
8.01 Nonsurvival of Representations, Warranties and 14
Agreements:.................................................
8.02 Assignment, Binding Effect; Benefit; Entire Agreement:...... 14
8.03 Enforcement of the Agreement:............................... 14
8.04 Severability:............................................... 14
8.05 Notices:.................................................... 15
8.06 Governing Law:.............................................. 15
8.07 Descriptive Headings:....................................... 15
8.08 Performance by Merger Sub:.................................. 15
8.09 Counterparts:............................................... 15
8.10 Certain Definitions:........................................ 15
8.11 Waivers:.................................................... 16
8.12 Incorporation of Exhibits:.................................. 16
8.13 Interpretation:............................................. 16
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of August 5, 1997, (this
"Agreement"), among Penske Motorsports, Inc., a Delaware corporation ("Parent"),
Penske Acquisition Corp., a North Carolina corporation ("Merger Sub"), and North
Carolina Motor Speedway, Inc., a North Carolina corporation (the "Company").
BACKGROUND
The respective Boards of Directors of Parent and the Company have each
approved, upon the terms and subject to the conditions set forth in this
Agreement, the merger (the "Merger") of the Company with and into Merger Sub, a
wholly owned direct subsidiary of parent, whereby each issued and outstanding
share of Common Stock of the Company (the "Common Stock") not owned directly or
indirectly by Parent or the Company will be converted into the right to receive
the per share consideration as set forth in Article I, subject to the rights of
persons who perfect rights of appraisal under the North Carolina Business
Corporation Act (the "North Carolina Statute").
In consideration of the respective representations, warranties, covenants
and agreements contained in this Agreement, Parent and the Company hereby agree
as follows:
ARTICLE I
THE MERGER
1.01 THE MERGER:
Upon the terms and subject to the conditions hereof, and in accordance with
the relevant provisions of the North Carolina Statute the Company shall be
merged with and into Merger Sub as soon as practicable following the
satisfaction or waiver, if permissible, of the conditions set forth in Article
VI. Following the Merger, Merger Sub shall continue as the surviving corporation
(the "Surviving Corporation") and shall continue its existence under the laws of
the State of North Carolina, and the separate corporate existence of the Company
shall cease.
1.02 EFFECTIVE TIME:
As soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Article VI, the Merger shall be
consummated by filing with the Secretary of State of the State of North Carolina
articles of merger or other appropriate documents (in any case, the "Articles of
Merger") in accordance with the North Carolina Statute. The Merger shall become
effective at such time as the Articles of Merger is duly filed, or at such later
time as Merger Sub and the Company shall specify in the Articles of Merger (the
time the Merger becomes effective being the "Effective Time").
1.03 EFFECTS OF THE MERGER:
The Merger shall have the effects specified in the North Carolina Statute.
1.04 AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS:
The Articles of Incorporation of Merger Sub as in effect immediately prior
to the Effective Time shall be amended to change the name of Merger Sub to
"North Carolina Motor Speedway, Inc.", and, as so amended, the Articles of
Incorporation and the Bylaws of Merger Sub shall be the articles of
incorporation and bylaws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
1.05 DIRECTORS AND OFFICERS:
The directors of Merger Sub and the officers of the Company immediately
prior to the Effective Time shall be the directors and officers, respectively,
of the Surviving Corporation as of the Effective Time.
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1.06 CONVERSION OF SHARES:
At the Effective Time, by virtue of the Merger and without any action on
the part of Parent, Merger Sub, the Company or the holders of any of the
following securities, the following events shall automatically occur:
(a) Each share of Common Stock held by the Company or any subsidiary
of the Company as treasury stock and each issued and outstanding share of
Common Stock owned by Parent, Merger Sub or any other subsidiary of Parent
shall be canceled and retired and shall cease to exist, and no payment or
consideration shall be made with respect thereto;
(b) Each issued and outstanding share of Common Stock, other than
shares of Common Stock referred to in paragraph (a) above and Dissenting
Shares (as defined in Section 2.01) shall be converted into the right to
receive, at the option of the holder of the shares of Common Stock (the
"Holder") either, but not a combination of, (i) an amount in cash, without
interest, equal to $19.61 per share of Common Stock or (ii) $19.61 worth of
Parent's Common Stock, $0.01 par value per share ("PMI Common Stock"), with
the PMI Common Stock being valued at the average of the closing prices (the
"Average Closing Price") for PMI Common Stock as reported on the Nasdaq
National Stock Market (as published in The Wall Street Journal) for the
five consecutive trading days during which shares are traded on the Nasdaq
National Stock Market ending on the fifth trading day prior to the
Effective Time (the "Merger Consideration"). No fractional shares of PMI
Common Stock shall be issued. In lieu thereof, each holder of Common Stock
who would otherwise be entitled to a fraction of a share of PMI Common
Stock shall be entitled to receive from Parent an amount of cash (rounded
to the nearest whole cent) equal to the product of such fraction multiplied
by the Average Closing Price. No interest will accrue or be paid on the
cash payable in lieu of fractional shares. If the Holder does not make the
election required by the immediately preceding sentence within 15 days
following written notice from Parent regarding the election given pursuant
to Section 2.02(b), then the Holder shall be deemed to have elected as
Merger Consideration the consideration in Section 1.06(b)(i). At the
Effective Time, all shares of Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such shares of Common
Stock shall cease to have any rights with respect thereto, except the right
to receive the Merger Consideration, without interest or, with respect to
holders of Dissenting Shares, rights provided under Article 13 of the North
Carolina Statute;
(c) Each issued and outstanding share of capital stock of Merger Sub
shall be converted into one fully paid and nonassessable share of common
stock, par value $0.01, of the Surviving Corporation.
In addition to the payment of the Merger Consideration, if Parent purchases
any Dissenting Shares for an amount in excess of $19.61 per share from any
Holder who owned more than 5% of the outstanding Common Stock immediately prior
to the Effective Time, Parent shall promptly pay in cash to each holder of
Common Stock outstanding immediately prior to the Effective Time (other than
Dissenting Shares) an additional amount per share of Common Stock equal to such
excess less any amount per share received pursuant to the following sentence. In
addition, if Parent, during the one-year period following the Effective Time,
sells all of the outstanding common stock of the Surviving Corporation or all or
substantially all of the assets of the Surviving Corporation to any Person other
than Parent or an Affiliate of Parent, Parent shall promptly pay in cash to each
Holder of Common Stock outstanding immediately prior to the Effective Time
(other than Dissenting Shares) an additional amount equal to the difference
between (i) such Holder's proportionate share (based on such Holder's percentage
ownership of the Common Stock immediately prior to the Effective Time) of the
net sales price received by Parent from such sale less (ii) the Merger
Consideration paid to such Holder and any amount received by such Holder
pursuant to the first sentence of this paragraph.
1.07 REGISTRATION:
As soon as reasonably practicable, following the execution of this
Agreement, Parent will file with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-4 registering pursuant to the
Securities Act of 1933 (the "Securities Act") all shares of PMI Common Stock
which will be issued to any shareholder of the Company as Merger Consideration
pursuant to Section 1.06. As used herein,
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the term "Merger Registration Statement" shall include the registration
statement filed with the SEC, and the prospectus included therein. The Parent
shall use its reasonable best efforts to cause the Merger Registration Statement
to be declared effective by the SEC prior to the Effective Time.
ARTICLE II
DISSENTING SHARES; EXCHANGE OF SHARES
2.01 DISSENTING SHARES:
(a) Notwithstanding anything in this Agreement to the contrary, shares
of Common Stock which are held by any record holder who does not vote in
favor of the Merger or consent thereto in writing and who gives timely
written notice to the Company of intent to demand payment in accordance
with Section 55-13-21 of the North Carolina Statute, who demands payment
and deposits share certificates in accordance with Section 55-13-23 of the
North Carolina Statute and who otherwise perfects rights of appraisal under
Article 13 of the North Carolina Statute (the "Dissenting Shares") shall
not be converted into the right to receive the Merger Consideration but
shall become the right to receive such consideration as may be determined
to be due in respect of such Dissenting Shares pursuant to Article 13 of
the North Carolina Statute; provided, however, that any holder of
Dissenting Shares who shall have failed to perfect or shall have withdrawn
or lost his rights to appraisal of such Dissenting Shares, in each case
under the North Carolina Statute, shall forfeit the right to appraisal of
such Dissenting Shares, and such Dissenting Shares shall be deemed to have
been converted into the right to receive, as of the Effective Time, the
Merger Consideration set forth in Section 1.06(b)(i), without interest.
Notwithstanding anything to the contrary contained in this Section 2.01, if
(i) the Merger is rescinded or abandoned or (ii) if the shareholders of the
Company revoke the authority to effect the Merger, then the right of any
shareholder to be paid the fair value of such shareholder's Dissenting
Shares shall cease. The Surviving Corporation shall comply with all of its
obligations under the North Carolina Statute with respect to holders of
Dissenting Shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal, and any withdrawals of such demands, received by the Company and
any other related instruments served pursuant to the North Carolina Statute
and received by the Company, and (ii) prior to the Effective Time, the
opportunity to participate in all negotiations and proceedings with respect
to demands for appraisal under the North Carolina Statute. The Company
shall not, except with the prior written consent of Parent, make any
payment with respect to any demands for appraisal or offer to settle or
settle any such demands.
2.02 EXCHANGE OF CERTIFICATES:
(a) Prior to the Effective Time, Parent shall appoint a bank or trust
company to act as disbursing agent (the "Disbursing Agent") for the payment
of Merger Consideration upon surrender of certificates representing the
shares of Common Stock. Parent will enter into a disbursing agent agreement
with the Disbursing Agent, in form and substance reasonably acceptable to
the Company, and at such times, and from time to time, as the Disbursing
Agent requires funds to make the payments or the disbursements pursuant to
Section 1.06, Parent shall deposit or cause to be deposited with the
Disbursing Agent in trust for the benefit of the Company's shareholders
cash in an aggregate amount necessary to make the cash payments pursuant to
Section 1.06 and/or such number of shares of PMI Common Stock necessary to
exchange the Common Stock of Holders for PMI Common Stock pursuant to
Section 1.06 to holders of shares of Common Stock (such amounts being
hereinafter referred to as the "Exchange Fund").
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause the Disbursing Agent to mail to each person who was a record holder
as of the Effective Time of an outstanding certificate or certificates
which immediately prior to the Effective Time represented shares of Common
Stock (the "Certificates"), and whose shares were converted into the right
to receive Merger Consideration pursuant to Section 1.06, a form of letter
of transmittal (which shall specify that delivery shall be effected, and
risk
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of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Disbursing Agent) and instructions for use in
effecting the surrender of the Certificates in exchange for payment of the
Merger Consideration, all in a form reasonably approved by the Company and
Parent prior to the Effective Time. The letter will also provide
information about the Holders' opportunity to elect Merger Consideration as
set forth in Section 1.06(b). Upon surrender to the Disbursing Agent of a
Certificate, together with such letter of transmittal duly executed and
such other documents as may be reasonably required by the Disbursing Agent,
the holder of such Certificate shall be paid in exchange therefor the
Merger Consideration elected by the Holder in accordance with Section 1.06,
and such Certificate shall forthwith be canceled. No interest will be paid
or accrued on the Merger Consideration payable upon the surrender of the
Certificates. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a
condition of payment that the Certificate so surrendered be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 2.02, each
Certificate (other than Certificates representing shares of Common Stock
owned by Parent, Merger Sub or any other subsidiary of Parent, shares of
Common Stock held in the treasury of the Company, shares of Common Stock
held by any subsidiary of the Company and Dissenting Shares) shall
represent for all purposes only the right to receive the Merger
Consideration without any interest thereon.
(c) At and after the Effective Time, there shall be no registration of
transfers of shares of Common Stock which were outstanding immediately
prior to the Effective Time on the stock transfer books of the Surviving
Corporation. From and after the Effective Time, the holders of shares of
Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Common Stock except
as otherwise provided in this Agreement or by applicable law. All cash paid
upon the surrender of Certificates in accordance with the terms of this
Article II shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares of Common Stock previously represented by
such Certificates. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, such Certificates shall be
canceled and exchanged for Merger Consideration as provided in this Article
II. At the close of business on the day of the Effective Time, the stock
ledger of the Company shall be closed.
(d) At any time more than one year after the Effective Time, the
Surviving Corporation shall be entitled to require the Disbursing Agent to
deliver to it any funds which had been made available to the Disbursing
Agent and not disbursed in exchange for Certificates (including, without
limitation, all interest and other income received by the Disbursing Agent
in respect of all such funds). Thereafter, holders of shares of Common
Stock shall look only to the Surviving Corporation (subject to the terms of
this Agreement, abandoned property, escheat and other similar laws) as
general creditors thereof with respect to any Merger Consideration that may
be payable, without interest, upon due surrender of the Certificates held
by them. If any Certificates shall not have been surrendered prior to three
years after the Effective Time (or immediately prior to such time on which
any payment in respect hereof would otherwise escheat or become the
property of any governmental unit or agency), the payment in respect of
such Certificates shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto. Notwithstanding the
foregoing, none of Parent, the Company, the Surviving Corporation nor the
Disbursing Agent shall be liable to any holder of a share of Common Stock
for any Merger Consideration delivered in respect of such share of Common
Stock to a public official pursuant to any abandoned property, escheat or
other similar law.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub represents and warrants to the Company as of
the date of this Agreement and as of the Effective Time as follows:
3.01 EXISTENCE; GOOD STANDING:
Each of Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation.
3.02 CAPITALIZATION:
The authorized capital stock of Parent consists of 50,000,000 shares of PMI
Common Stock. As of May 1, 1997, there were 13,241,798 shares of PMI Common
Stock issued and outstanding. Since such date, 906,542 additional shares of
capital stock of Parent have been issued. All issued and outstanding shares of
PMI Common Stock are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights. As of the date of this Agreement, 190,000 shares
of PMI Common Stock were reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding options granted under
the Penske Motorsports, Inc. 1996 Stock Incentive Plan (the "Option Plan") and
210,000 shares were reserved for issuance upon the exercise of additional
options that may be granted under the Option Plan. Except as set forth in this
Section 3.02, (i) Parent is not a party to or bound by any written or oral
contract or agreement which grants to any person an option, warrant or right of
first refusal or other right of any character to acquire at any time, or upon
the happening of any stated events, any shares of or interest in Parent, whether
or not presently authorized, issued or outstanding, and (ii) there are
outstanding (A) no shares of capital stock or other voting securities of Parent,
(B) no securities of Parent or any of its subsidiaries convertible into or
exchangeable for shares of capital stock or voting securities of Parent, (C) no
options or other rights to acquire from Parent or any of its subsidiaries, and
no obligations of Parent or any of its subsidiaries to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Parent, and (D) no equity equivalents, interests
in the ownership or earnings of Parent or any of its subsidiaries or other
similar rights. Upon issuance of the PMI Common Stock as Merger Consideration,
such shares of PMI Common Stock shall be duly authorized, validly issued, fully
paid, nonassessable, and free of preemptive rights.
3.03 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENTS:
Each of Parent and Merger Sub has the requisite corporate power and
authority to execute and deliver this Agreement. The consummation by each of
Parent and Merger Sub of the transactions contemplated hereby has been duly
authorized by all requisite corporate action and the issuance of the PMI Common
Stock as Merger Consideration is not required to be approved by the shareholders
of Parent. This Agreement constitutes the valid and legally binding obligation
of each of Parent and Merger Sub, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
3.04 NO VIOLATION:
Neither the execution and delivery by either of Parent or Merger Sub of
this Agreement, nor the consummation by either of Parent or Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the Certificate of
Incorporation or Bylaws of Parent or Articles of Incorporation or Bylaws of
Merger Sub, as the case may be; (ii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the triggering of any payment or
compensation under, or result in the creation of any lien, security interest,
charge or encumbrance (a "Lien") upon any of the material properties of Parent
or its subsidiaries (including Merger Sub) under, or
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result in being declared void, voidable, or without further binding effect, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust or any material license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which Parent or any
of Parent's subsidiaries (including Merger Sub) is a party, or by which Parent
or any of Parent's subsidiaries (including Merger Sub) or any of their
respective properties is bound or affected, except for any of the foregoing
matters which would not have a material adverse effect on the business, results
of operations, financial condition or prospects of Parent and its subsidiaries
taken as a whole (a "Parent Material Adverse Effect"); or (iii) other than the
filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), the Securities Exchange Act of 1934, (the "Exchange Act"), the
Securities Act or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of its qualification to do business in other
jurisdictions, and the filings contemplated by Section 5.02 of this Agreement
(collectively, the "Regulatory Filings"), require any material consent, approval
or authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority, the failure to obtain or make which would
have a Parent Material Adverse Effect.
3.05 SEC DOCUMENTS:
The Parent has delivered to the Company each registration statement,
report, proxy statement or information statement prepared by it and filed with
the SEC, and in the form filed with the SEC (including any amendments thereto,
but excluding exhibits thereto) since December 31, 1995, including, without
limitation, (i) its Registration Statement (No. 333-692) declared effective by
the SEC on March 26, 1996 (the "Registration Statement"), (ii) its Quarterly
Reports on Form 10-Q for the periods ended March 31, 1996, June 30, 1996,
September 30, 1996 and March 31, 1997 (collectively, the "Company 10-Qs") and
(iii) its Annual Report on Form 10-K for the year ending December 31, 1996 (the
"Company 10-K"; and, together with the Registration Statement, the Company 10-Qs
and any information incorporated by reference therein, the "Company Reports").
As of their respective dates, the Company Reports (i) were prepared in all
material respects in accordance with the applicable requirements of the
Securities Act, the Exchange Act, and the respective rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
3.06 DISTRIBUTED MATERIALS; REGISTRATION STATEMENT:
(a) None of the information supplied by Parent, Merger Sub and their
respective affiliates in writing specifically for inclusion or
incorporation by reference in the Distributed Materials (as hereinafter
defined) will, at the time the Distributed Materials are mailed, at the
time of the special meeting of the shareholders of the Company to approve
the Merger (the "Meeting"), if any, or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The letter to shareholders, notice of meeting, the information
statement, if any, and any other materials distributed to shareholders of
the Company in connection with the Merger, are collectively referred to as
the "Distributed Materials." If, prior to the Effective Time, any event
relating to Parent, Merger Sub or any of their affiliates, officers or
directors is discovered by Parent that should be set forth in an amendment
of or supplement to the Distributed Materials, Parent will promptly inform
the Company.
(b) The Merger Registration Statement will not at the time filed with
the SEC and when first published, sent or given to the shareholders of the
Company, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that no representation is made by Parent
or Merger Sub with respect to information supplied by the Company in
writing specifically for inclusion or incorporation by reference in the
Merger Registration Statement.
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3.07 MERGER SUB:
Merger Sub is a wholly owned subsidiary of Parent and conducts no
activities, and has no assets or liabilities, except as necessary to consummate
the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered by or on behalf of
the Company to Parent at or prior to the execution hereof (the "Company
Disclosure Letter"), the Company represents and warrants to Parent as of the
date of this Agreement and as of the Effective Time as follows:
4.01 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE WITH LAW:
Each of the Company and its subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The copies of the Company's Articles of
Incorporation and Bylaws previously delivered to Parent are true and correct and
have not since been amended, modified or rescinded.
4.02 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS:
The Company has the requisite corporate power and authority to execute and
deliver this Agreement. Subject only to the approval of the Merger by the
holders of a majority of the outstanding shares of the Common Stock, the
consummation by the Company of all transactions contemplated hereby has been
duly authorized by all requisite corporate action. This Agreement constitutes
the valid and legally binding obligation of the Company, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
4.03 CAPITALIZATION:
The authorized capital stock of the Company consists of 8,000,000 shares of
Common Stock. There are 2,236,705 shares of Common Stock issued and outstanding.
All issued and outstanding shares of Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. The Company is
not a party to or bound by any written or oral contract or agreement which
grants to any person an option, warrant or right of first refusal or other right
of any character to acquire at any time, or upon the happening of any stated
events, any shares of or interest in the Company, whether or not presently
authorized, issued or outstanding. Except as set forth in this Section 4.03,
there are outstanding (i) no shares of capital stock or other voting securities
of the Company, (ii) no securities of the Company or any of its subsidiaries
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (iii) no options or other rights to acquire from the
Company or any of its subsidiaries, and no obligations of the Company or any of
its subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company, and (iv) no equity equivalents, interests in the ownership or earnings
of the Company or any of its subsidiaries or other similar rights. There are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any securities of the Company.
4.04 NO VIOLATION:
Except as disclosed in Schedule 4.04 hereto, neither the execution and
delivery by the Company of this Agreement nor the consummation by the Company of
the transactions contemplated hereby in accordance with the terms hereof will:
(i) conflict with or result in a breach of any provisions of the Articles of
Incorporation or Bylaws of the Company or its subsidiaries; (ii) to the
knowledge of the Company, violate, or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the triggering of any payment or
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compensation under, or result in the creation of any Lien upon any of the
properties of the Company or its subsidiaries under, or result in being declared
void, voidable, or without further binding effect, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust or any
material license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which the Company or its subsidiaries is
a party, or by which the Company or its subsidiaries or any of their respective
properties or assets is bound or affected, except for any of the foregoing
matters which, singularly or in the aggregate, would not have a Company Material
Adverse Effect; (iii) other than the Regulatory Filings, require any material
consent, approval or authorization of, or declaration, filing or registration
with, any domestic governmental or regulatory authority, the failure to obtain
or make which would have a Company Material Adverse Effect; or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company, any of its subsidiaries or any of their assets, except for violations
which in the aggregate would not have a Company Material Adverse Effect or
materially adversely affect the ability of the Company to consummate the Merger.
4.05 DISTRIBUTED MATERIALS; REGISTRATION STATEMENT:
(a) The Distributed Materials will not, at the time they are first
published, sent or given to shareholders, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that
no representation is made by the Company with respect to information
supplied by Parent or Merger Sub in writing specifically for inclusion in
the Distributed Materials.
(b) The information supplied by the Company specifically for inclusion
or incorporation by reference in the Merger Registration Statement will
not, at the time filed with the SEC, and at the time it is first published,
sent or given to shareholders, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied
by Parent in writing specifically for inclusion or incorporation by
reference in the Merger Registration Statement. If, prior to the Effective
Time, any event relating to the Company or any of its subsidiaries or any
of their affiliates, officers or directors is discovered by the Company
that should be set forth in an amendment of or supplement to the Merger
Registration Statement, the Company will promptly inform Parent.
4.06 OFFICER EMPLOYMENT AGREEMENTS:
The Company and the officers named therein have executed the Officer
Employment Agreements (the "Officer Employment Agreements") attached hereto as
Exhibit 6.01(g).
ARTICLE V
COVENANTS
5.01 CONDUCT OF BUSINESS:
From and after the date of this Agreement until the Merger is effected or
this Agreement is terminated, unless Parent has consented in writing thereto,
the Company, and, with respect to (e) and (f) below, the Parent and the Company:
(a) Shall, and shall cause its subsidiaries to, conduct its operations
according to its usual, regular and ordinary course in substantially the
same manner as heretofore conducted;
(b) Shall use reasonable efforts, and shall cause its subsidiaries to
use reasonable efforts, to preserve intact its business organization and
goodwill, keep available the services of its officers and employees and
maintain satisfactory relationships with those persons having business
relationships with it;
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(c) Shall confer on a regular basis with one or more representatives
of Parent to report operational matters of materiality and any proposals to
engage in material transactions;
(d) Shall not amend its Articles of Incorporation or Bylaws;
(e) Shall promptly notify the other parties hereto of any material
emergency or other material change in the condition (financial or
otherwise), business, properties, assets, liabilities, prospects or the
normal course of its businesses or in the operation of its properties, any
material litigation or material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated),
or the breach in any material respect of any representation or warranty
contained herein;
(f) Shall promptly deliver to the other parties hereto true and
correct copies of any report, statement or schedule filed with or delivered
to the SEC, any other Governmental Entity (other than routine corporate,
tax and other filings in the ordinary course of business) or any
shareholder of the Company or the Parent, as the case may be, subsequent to
the date of this Agreement;
(g) Shall not (i) issue, sell or pledge, or agree to issue, sell or
pledge, any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it existed on the date hereof, (ii)
grant, confer or award any option, warrant, conversion, right or other
right to acquire any shares of its capital stock or grant any right to
convert or exchange any securities of the Company for Common Stock, (iii)
increase any compensation or enter into or amend any employment agreement
with any of its present or future officers or directors, other than in the
ordinary course of the Company's business or as provided in Section
6.01(g), (iv) adopt any new employee benefit plan, other than in the
ordinary course of the Company's business (including any stock option,
stock benefit or stock purchase plan) or amend any existing employee
benefit plan in any material respect, other than in the ordinary course of
business, except, in each case, for changes which are less favorable to
participants in such plans or as may be required by applicable law, or (v)
amend any Officer Employment Agreement or increase any compensation payable
pursuant to such Officer Employment Agreements;
(h) Shall not (i) except in the normal course of business as
consistent with prior practice, declare, set aside or pay any dividend
(whether in cash, stock or property) or make any other distribution or
payment with respect to any shares of its capital stock or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital
stock or make any commitment for any such action;
(i) Shall not, and shall not permit its subsidiaries to (i) sell,
lease or otherwise dispose of any assets of the Company or its subsidiaries
(including capital stock) which are of a material amount, individually or
in the aggregate, or (ii) make any acquisition, by means of merger or
otherwise, of any assets or securities which are of a material amount,
individually or in the aggregate; and
(j) Shall not, and shall not permit its subsidiaries to, agree in
writing to take or otherwise take (i) any of the foregoing actions or (ii)
any action which would make any representation or warranty of the Company
herein untrue or incorrect.
5.02 FILINGS; OTHER ACTION:
Subject to the terms and conditions herein provided, the Company and Parent
shall: (i) promptly make their respective filings and thereafter make any other
required submissions under the HSR Act with respect to the Merger; (ii) use all
reasonable efforts to cooperate with one another in (A) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained prior
to the Effective Time from, governmental or regulatory authorities of the United
States, the several states, and other jurisdictions in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (B) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations; and
(iii) use best efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this
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Agreement, the proper officers and directors of Parent and the Company shall use
best efforts to take all such necessary action.
5.03 INSPECTION OF RECORDS:
From the date hereof to the Effective Time, the Company shall allow all
designated officers, attorneys, accountants and other representatives of Parent
access at all reasonable times to the records and files, correspondence, audits
and properties, as well as to all information relating to commitments,
contracts, titles and financial position, or otherwise pertaining to the
business and affairs, of the Company and its subsidiaries.
5.04 INDEMNIFICATION:
(a) (i) Parent shall, either individually or through the Surviving
Corporation, indemnify, defend and hold harmless to the fullest extent
permitted or required by the North Carolina Statute the present and former
directors and officers of the Company and any of the Company's subsidiaries
and their respective heirs, executors, administrators and legal
representatives (individually, an "Indemnified Party" and, collectively,
the "Indemnified Parties") against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions occurring on or prior to
the Effective Time (including, without limitation, acts or omissions
relating to the transactions contemplated by this Agreement (collectively,
"Losses")). In connection with the foregoing obligation, from and after the
Effective Time, the Surviving Corporation shall bear the cost of expenses
incurred in defending against any claim, action, suit, proceeding or
investigation arising out of any alleged acts or omissions occurring on or
prior to the Effective Time (including, without limitation, acts or
omissions relating to the transactions contemplated by this Agreement), as
incurred to the fullest extent permitted under applicable law, provided
that the person to whom expenses are advanced provides an undertaking
reasonably satisfactory to the Parent to repay such advances if it is
ultimately determined that such person is not entitled to indemnification.
All rights to indemnification, including provisions relating to advances of
expenses and exculpation of director liability, existing in favor of the
Indemnified Parties as provided in the Company's Articles of Incorporation
and Bylaws, as in effect as of the date of this Agreement, with respect to
matters occurring through the Effective Time, will survive the Effective
Time and will continue in full force and effect.
(ii) Any Indemnified Party will promptly notify the Parent and the
Surviving Corporation of any claim, action, suit, proceeding or
investigation for which such party may seek indemnification under this
Section (a "Third Party Claim"). In the event of any such Third Party
Claim, (x) within twenty (20) days of receipt of such notice, the Surviving
Corporation will have the right to assume the defense thereof, and the
Surviving Corporation will not be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently
incurred thereafter by such Indemnified Parties in connection with the
defense thereof, except that all Indemnified Parties (as a group) will have
the right to retain one separate counsel, acceptable to such Indemnified
Parties and Parent, at the expense of the Indemnifying Party if the named
parties to any such proceeding include both the Indemnified Party and the
Surviving Corporation and the representation of such parties by the same
counsel would be inappropriate due to a conflict of interest between them,
and each Indemnified Party will have the right to retain a separate
counsel, acceptable to such Indemnified Party and Parent, at the expense of
the Indemnifying Party, if representation of such Indemnified Party and the
other Indemnified Parties as a group would be inappropriate due to a
conflict of interest between them and (y) the Indemnified Parties will
cooperate in the defense of any such matter. If the Surviving Corporation
fails to take action within twenty (20) days as set forth in (x) above,
then the Indemnified Party shall have the right to pay, compromise or
defend any Third Party Claim and to assert the amount of any payment on the
Third Party Claim plus the expense of defense or settlement as a Loss. The
Surviving Corporation will not be liable for any settlement effected
without its prior written consent, unless it has failed to take action
within the twenty (20) day period after receipt of notice as set forth
above. Notwithstanding the foregoing, the Surviving Corporation will not
have any obligation under this Section 5.04 to indemnify an Indemnified
Party when and if a court of competent jurisdiction ultimately determines,
and such
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determination becomes final, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law.
(b) The Surviving Corporation shall pay all reasonable expenses,
including reasonable attorneys' fees, that may be incurred by any
Indemnified Parties in enforcing the indemnity and other obligations
provided for in this Section 5.04.
(c) The rights of each Indemnified Party hereunder shall be in
addition to any other rights such Indemnified Party may have under the
Articles of Incorporation or Bylaws of the Company, under the North
Carolina Statute or otherwise. The provisions of this Section shall survive
the consummation of the Merger and expressly are intended to benefit each
of the Indemnified Parties and will be binding on all successors and
assigns of the Surviving Corporation.
Each party hereto shall, subject to the fulfillment at or before the
Effective Time of each of the conditions of performance set forth herein or the
waiver thereof, perform such further acts and execute such documents as may be
reasonably required to effect the Merger.
5.05 FURTHER ACTION:
Each party hereto shall, subject to the fulfillment at or before the
Effective Time of each of the conditions of performance set forth herein or the
waiver thereof, perform such further acts and execute such documents as may be
reasonably required to effect the Merger.
5.06 EXPENSES:
Whether or not the Merger is consummated, except as provided in Section
7.02 hereof or as provided otherwise herein, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, provided that the Company may pay any
legal, accounting or financial advisor's fees or expenses incurred by the
Company on or prior to the Effective Time.
5.07 MEETING OF THE COMPANY'S SHAREHOLDERS:
If required by applicable law in order to consummate the Merger, the
Company shall submit the Merger to the shareholders of the Company for their
consideration in accordance with applicable law.
5.08 DISTRIBUTED MATERIALS:
The Company shall prepare the Distributed Materials, as promptly as
practicable after the execution of this Agreement. Parent and the Company shall
cooperate with each other in the preparation of the Distributed Materials. The
Company shall give Parent and its counsel the opportunity to review the
Distributed Materials prior to its distribution to shareholders and shall give
Parent and its counsel the opportunity to review all amendments and supplements
to the Distributed Materials prior to their distribution to shareholders. As
promptly as practicable after the Distributed Materials have been prepared, the
Company shall mail the Distributed Materials to the shareholders of the Company.
To the extent its actions affect the validity of Parent's Merger Registration
Statement, the Company will not send any Distributed Materials or any other
material relating to the Merger to any of its shareholders without the prior
written consent of Parent.
5.09 PUBLICITY:
The initial press release relating to this Agreement shall be a joint press
release and thereafter the Company and Parent shall, subject to their respective
legal obligations (including requirements of the Nasdaq National Market, stock
exchanges and other similar regulatory bodies), consult with each other, and use
reasonable efforts to agree upon the text of any press release, before issuing
any such press release or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any federal or
state governmental or regulatory agency or with Nasdaq National Market, or any
national securities exchange with respect thereto.
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5.10 BEST EFFORTS TO CLOSE:
The parties hereto agree to use their best efforts to close the
transactions contemplated hereby by September 30, 1997.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER:
The respective obligations of each Party to effect the Merger are subject
to the satisfaction or waiver, where permissible, prior to the Effective Time,
of the following conditions, except that (d) below shall only be a condition to
the Company's, but not Parent's, obligation to effect the Merger.
(a) This Agreement shall have been approved by the affirmative vote of
the shareholders of the Company by the requisite vote in accordance with
applicable law;
(b) No statute, rule, regulation, executive order, decree, injunction
or other order (whether temporary, preliminary or permanent), shall have
been enacted, entered, promulgated or enforced by any court or governmental
authority which is in effect and has the effect of prohibiting the
consummation of the Merger; provided, however, that each of the parties
shall have used its best efforts to prevent the entry of any injunction or
other order and to appeal as promptly as possible any injunction or other
order that may be entered;
(c) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act, if any, shall have expired or
been terminated; and
(d) The Merger Registration Statement shall have been declared
effective by the SEC under the Securities Act and the PMI Common Stock to
be issued as Merger Consideration shall have been approved for additional
listing on the Nasdaq Stock Market, Inc.
(e) Parent shall have provided to the Company the favorable opinion of
its legal or accounting firm, in form and substance satisfactory to the
Company, or a private letter ruling from the Internal Revenue Service, both
of which provide, in all material respects, that the Merger shall
constitute a tax-free reorganization pursuant to the provisions of Section
368 of the Internal Revenue Code of 1986, as amended.
(f) Each of the consents listed on Schedule 4.04 hereto shall have
been obtained.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
7.01 TERMINATION:
Except as otherwise set forth in this Section 7.01, this Agreement shall
terminate at 11:59 p.m., North Carolina time, December 31, 1997, provided that
either party may extend this Agreement for an additional 180-day period by
written notice to the other party prior to December 31, 1997. Notwithstanding
the foregoing and/or the approval of this Agreement by the shareholders of the
Company, this Agreement may be terminated and the Merger contemplated hereby may
be abandoned at any time prior to the Effective Time:
(a) By mutual written consent, duly authorized by their respective
Boards of Directors, by the Company and Parent;
(b) By either the Company or Parent
(i) If any court of competent jurisdiction or any other
governmental body shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise
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permanently prohibiting the Merger and such order, decree, ruling or
other action shall have become final and non-appealable;
(ii) If, upon a vote at a duly held meeting or upon any adjournment
thereof, the shareholders of the Company shall have failed to give any
required approval or shall have approved a different proposed
Acquisition Transaction; or
(c) By Parent if the Company shall have breached any of its
representations and warranties or covenants contained herein and if such
breach or breaches, either individually or in the aggregate, will have, or
are reasonably likely to have, a material adverse effect on the business,
results of operations, financial condition or prospects of the Company (a
"Company Material Adverse Effect"), unless, in the case of a breach of
covenant, such failure to perform has been caused by a breach of this
Agreement by Parent.
(d) By the Company if Parent shall have breached any of its
representations and warranties and such breach or breaches, either
individually or in the aggregate, will have, or are reasonably likely to
have, a Parent Material Adverse Effect, or if a Parent shall have breached
in any material respect any of its covenants contained herein, unless, in
the case of a breach of any covenant, such failure to perform has been
caused by a breach of this Agreement by the Company;
7.02 EFFECT OF TERMINATION:
In the event of the termination and abandonment of this Agreement pursuant
to Section 7.01, this Agreement, except for the obligations of the parties
pursuant to this Section 7.02 and the provisions of Sections 5.04 and 5.06,
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders; provided that
nothing in this Section 7.02 shall relieve any party to this Agreement of
liability for breach of this Agreement.
7.03 AMENDMENT:
To the extent permitted by applicable law, this Agreement may be amended by
the parties, at any time before or after approval of this Agreement and the
Merger by the shareholders of the Company but, after any such shareholder
approval, no amendment shall be made that by law requires further approval of
such shareholders without the approval of such shareholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of all the
parties.
7.04 EXTENSION; WAIVER:
At any time prior to the Effective Time, the parties hereto may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein by any other applicable party or in any document,
certificate or writing delivered pursuant hereto by any other applicable party
or (iii) subject to the terms hereof, waive compliance with any of the
agreements or conditions of the other parties contained herein. Any agreement on
the part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
a party to this Agreement to assert any of its rights under this Agreement shall
not constitute a waiver of those rights.
7.05 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER:
A termination of this Agreement pursuant to Section 7.01, an amendment of
this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require (a) in the case of Parent,
action by its Board of Directors or the duly authorized designee of its Board of
Directors and (b) in the case of the Company, action by its Board of Directors.
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ARTICLE VIII
MISCELLANEOUS
8.01 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS:
All representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to be only
conditions to the Merger and shall not survive the Merger, provided, however,
that the Merger Registration Statement and the agreements contained in Article
II and in Section 5.04 and this Article VIII shall survive the Merger.
8.02 ASSIGNMENT, BINDING EFFECT; BENEFIT; ENTIRE AGREEMENT:
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties,
except Parent may assign any and all of its rights, interests and obligations to
any one or more entities, the majority of whose voting power, directly or
indirectly, is owned in the aggregate by Parent and its subsidiaries and
affiliates (it being understood that no such assignment shall relieve Parent of
any of its obligations hereunder.) Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary except the right of holders of
Common Stock to Merger Consideration and the rights of Indemnified Parties under
Section 5.04, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement. This Agreement
and any documents delivered by the parties in connection herewith constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings (oral and written) among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
8.03 ENFORCEMENT OF THE AGREEMENT:
The parties hereto agree that irreparable damage would occur in the event
that any of the material provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they may be entitled at law or in equity.
8.04 SEVERABILITY.
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or otherwise
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision, clause, section or
part of this Agreement is so broad as to be unenforceable, the provision,
clause, section or part shall be interpreted to be only so broad as is
enforceable, and all other provisions, clauses, sections or parts of this
Agreement which can be effective without such unenforceable provision, clause,
section or part shall, nevertheless, remain in full force and effect.
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8.05 NOTICES:
Any notice required to be given hereunder shall be sufficient if in
writing, and sent by facsimile transmission and by courier service (with proof
of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
IF TO THE COMPANY: IF TO PARENT OR MERGER SUB
------------------ --------------------------
Ms. Carrie B. DeWitt, Chairperson Penske Motorsports, Inc.
Board of Directors 13400 West Outer Drive
North Carolina Motor Speedway Detroit, MI 48239
U.S. Highway 1 North Attention: President
Rockingham, NC 28399 Telecopy: 313-592-7312
WITH A COPY TO: WITH A COPY TO:
--------------- ---------------
C. Wells Hall III Penske Motorsports, Inc.
Moore & Van Allen, PLLC 13400 West Outer Drive
NationsBank Corporate Center Detroit, MI 48239
100 North Tryon Street, Floor 47 Attention: General Counsel
Charlotte, NC 28202-4003 Telecopy: 313-592-7312
Telecopy: 704-331-1159
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8.06 GOVERNING LAW:
This Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina without regard to its rules of conflict of
laws.
8.07 DESCRIPTIVE HEADINGS:
The descriptive headings herein are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
8.08 PERFORMANCE BY MERGER SUB:
Parent hereby agrees to cause Merger Sub to comply with its obligations
hereunder and to cause Merger Sub to consummate the Merger as contemplated
herein.
8.09 COUNTERPARTS:
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a number of copies of this Agreement, each of
which may be signed by less than all of the parties hereto, but together all
such copies are signed by all of the parties hereto.
8.10 CERTAIN DEFINITIONS:
For purposes of this Agreement, the following terms shall have the meanings
ascribed to them below:
(a) "Affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first-mentioned person.
(b) "Control" (including the terms "controlling", "controlled by" and
"under common control with") means the possession, direct or indirect, of
the power to direct or cause the direction of the
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management and policies of a person, whether through ownership of voting
securities, by contract, or otherwise.
(c) "Person" means a natural person, company, corporation,
partnership, joint venture, association, trust, unincorporated organization
or other entity.
(d) a "subsidiary" of any person means a person in which such first
referenced person owns directly or indirectly an amount of the voting
securities, other voting ownership or voting partnership interests which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, owns directly or
indirectly 50% or more of the equity interest).
8.11 WAIVERS:
Except as provided in this Agreement, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.12 INCORPORATION OF EXHIBITS:
The Company Disclosure Letter and all Exhibits and annexes attached hereto
and referred to herein are hereby incorporated herein and made a part hereof for
all purposes as if fully set forth herein.
8.13 INTERPRETATION:
In this Agreement, unless the context otherwise requires, words describing
the singular number shall include the plural and visa versa, words denoting any
gender shall include all genders and words denoting natural persons shall
include corporations and partnerships and vice versa.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officers thereunto duly authorized, all
as of the day and year first above written.
PENSKE MOTORSPORTS, INC.,
a Delaware corporation
By: /s/ WALTER P. CZARNECKI
------------------------------------
Its: Vice Chairman
---------------------------------
PENSKE ACQUISITION CORP.
a North Carolina corporation
By: /s/ WALTER P. CZARNECKI
------------------------------------
Its: Vice Chairman
---------------------------------
NORTH CAROLINA MOTOR SPEEDWAY, INC.,
a North Carolina corporation
By: /s/ J. DEWITT WILSON
------------------------------------
Its: President
---------------------------------
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ANNEX B
ARTICLE 13 OF THE NCBCA
(DISSENTERS' RIGHTS)
ARTICLE 13.
DISSENTER'S RIGHTS.
PART I. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES.
SEC. 55-13-01. DEFINITIONS.
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and
in the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances, giving due consideration to the rate currently
paid by the corporation on its principal bank loans, if any, but not less
than the rate provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 55-13-02. RIGHT TO DISSENT.
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
(other than a parent corporation in a merger under G.S. 55-11-04) is a
party unless (i) approval by the shareholders of that corporation is not
required under G.S. 55-11-03(g) or (ii) such shares are then redeemable
by the corporation at a price not greater than the cash to be received
in exchange for such shares;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired,
unless such shares are then redeemable by the corporation at a price not
greater than the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than as permitted by G.S.
55-12-01, including a sale in dissolution, but not including a sale
pursuant to court order or a sale pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed in
cash to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because
it (i) alters or abolishes a preferential right of the shares; (ii)
creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a
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sinking fund for the redemption or repurchase, of the shares; (iii)
alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; (iv) excludes or limits the right of
the shares to vote on any matter, or to cumulate votes; (v) reduces the
number of shares owned by the shareholder to a fraction of a share if
the fractional share so created is to be acquired for cash under G.S.
55-6-04; or (vi) changes the corporation into a nonprofit corporation or
cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares; and
(b) A shareholder entitled to dissent and obtain payment for his
shares under this Article may not challenge the corporate action creating
his entitlement, including without limitation a merger solely or partly in
exchange for cash or other property, unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were
(i) listed on a national securities exchange or (ii) held by at least 2,000
recorded shareholders, unless in either case:
(1) The articles of incorporation of the corporation issuing the
shares provide otherwise;
(2) In the case of a plan of merger or share exchange, the holders
of the class or series are required under the plan of merger or share
exchange to accept for the shares anything except:
a. Cash;
b. Shares, or shares and cash in lieu of fractional shares of
the surviving or acquiring corporation, or of any other corporation
which, at the record date fixed to determine the shareholders
entitled to receive notice of and vote at the meeting at which the
plan of merger or share exchange is to be acted on, were either
listed subject to notice of issuance on a national securities
exchange or held of record by at least 2,000 record shareholders; or
c. A combination of cash and shares as set forth in
sub-subdivisions a, and b, of this subdivision.
SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his name only if he dissents with respect
to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose
behalf he asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which he
dissents and his other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
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SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this Article and be accompanied by a copy
of this Article.
(b) If corporate action creating dissenters' rights under G.S.
55-13-02 is taken without a vote of shareholders, the corporation shall no
later than 10 days thereafter notify in writing all shareholders entitled
to assert dissenters' rights that the action was taken and send them the
dissenters' notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this
section, such failure shall not invalidate any corporate action taken; but
any shareholder may recover from the corporation any damage which he
suffered from such failure in a civil action brought in his own name within
three years after the taking of the corporate action creating dissenters'
rights under G.S. 55-13-02 unless he voted for such corporate action.
SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) is not entitled to payment for his shares under this Article.
SEC. 55-13-22. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation
shall mail by registered or certified mail, return receipt requested, a
written dissenters' notice to all shareholders who satisfied the
requirement of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
shareholder approval, or if no shareholder approval is required, after
approval of the board of directors, of the corporate action creating
dissenters' rights under 6.S.55-13-02, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after
the date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
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SEC. 55-13-23. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22
must demand payment and deposit his share certificates in accordance with
the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this Article.
SEC. 55-13-24. SHARE RESTRICTION.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
SEC. 55-13-25. PAYMENT.
(a) As soon as the proposed corporate action is taken, or within 30
days after receipt of a payment demand, the corporation shall offer to pay
each dissenter who complied with G.S. 55-13-23 the amount the corporation
estimates to be the fair value of his shares, plus interest accrued to the
date of payment.
(b) The payment shall be accompanied by:
(1) The corporation's most recent available balance sheet as of the
end of a fiscal year ending not more than 16 months before the date of
payment, an income statement for that year, a statement of cash flows
for that year, and the latest available interim financial statements, if
any;
(2) As explanation of how the corporation estimated the fair value
of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
G.S. 55-13-28; and
(5) A copy of this Article.
SEC. 55-13-26. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand
procedure.
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SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES.
SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S OFFER OR
FAILURE TO PERFORM.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and
demand payment of the amount in excess of the payment by the corporation
under G.S. 55-13-25 for the fair value of his shares and interest due, if;
(1) The dissenter believes that the amount offered under G.S.
55-13-25 is less than the fair value of his shares or that the interest
due is incorrectly calculated;
(2) The corporation fails to make payment under G.S. 55-13-25; or
(3) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the
date set for demanding payment.
(b) A dissenter waives his rights to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation made payment for
his shares or (ii) under subdivisions (a)(2) and (a)(3) within 30 days
after the corporation has failed to perform timely. A dissenter who fails
to notify the corporation of his demand under subsection (a) within such
30-day period shall be deemed to have withdrawn his dissent and demand for
payment.
SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES.
PART 3. JUDICIAL APPRAISAL OF SHARES.
SEC. 55-13-30. COURT ACTION.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the earlier of (i)
the date payment is made under G.S. 55-13-28, or (ii) the date of the
dissenter's payment demand under G.S. 55-13-28 by filing a complaint with
the Superior Court Division of the General Court of Justice to determine
the fair value of the shares and accrued interest. A dissenter who takes no
action within the 60-day period shall be deemed to have withdrawn his
dissent and demand for payment.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters
(whether or not residents of this State) whose demands remain unsettled
parties to the proceeding as in an action against their shares and all
parties must be served with a copy of the complaint. Nonresidents may be
served by registered or certified mail or by publication as provided by
law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (a) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or any amendment to it. The parties are entitled to
the same discovery rights as parties in other civil proceedings. The
proceeding shall be tried as in other civil actions. However, in a
proceeding by a dissenter in a corporation that was a public corporation
immediately prior to consummation of the corporate action giving rise to
the right of dissent under G.S. 55-13-02, there is no right to a trial by
jury.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation.
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SEC. 55-13-31. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall
assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amount the court finds equitable;
(1) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of
either or any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily, vexatiously,
or not in good faith with respect to the rights provided by this
Article.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and
that the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to be
paid out of the amounts awarded the dissenters who were benefited.
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ANNEX C
October 28, 1997
Board of Directors of North Carolina Motor Speedway, Inc.:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of North Carolina Motor Speedway, Inc. (the
"Company"), of the consideration to be received in the proposed merger (the
"Merger") of the Company with Penske Acquisition, Inc. (the "Acquiror"), a
subsidiary of Penske Motorsports, Inc. ("Penske"), pursuant to the terms of the
Merger Agreement (the "Agreement") dated as of August 5, 1997 by and among the
Company, the Acquiror, and Penske. Pursuant to the Merger, each share of common
stock of the Company will be converted into the right to receive $19.61 per
share, payable at the election of each shareholder either in cash or in shares
of Penske common stock having such value based upon a formula in the Agreement,
and with cash being paid in lieu of fractional shares of common stock of Penske.
In arriving at our opinion, with respect to the Company, we have taken such
actions and considered such matters and documents as we have deemed appropriate
under the circumstances including, without limitation: (i) reviewed the
Agreement which includes the terms of the Merger; (ii) met with officers and
certain members of management to discuss the Company's business, financial
condition, operating results and future prospects; (iii) reviewed annual audited
financial statements and interim unaudited financial statements through February
28, 1997; (iv) performed an analysis of public companies comparable in business
to the Company; (v) performed an analysis of terms available to us of merger and
acquisition transactions involving companies comparable in business to the
Company; (vi) reviewed projected financial statements through December 31, 2001
which projections were prepared based on assumptions and data provided by the
management of the Company and performed a discounted cash flow analysis based on
these projections; and (vii) made such other financial studies, analyses and
investigations as we deemed appropriate. The sole purpose of this letter is to
provide our opinion as to the fairness, from a financial point of view, to the
Company's shareholders of the consideration to be received in the proposed
Merger. We were not requested to and therefore did not solicit the interest of
third parties in submitting a competing offer for the acquisition of the
Company. However, concurrent with our review of the Acquiror's bid, we also
reviewed a bid (the "SMI Bid") to acquire the Company submitted by Speedway
Motorsports, Inc. ("SMI"). Prior to the date of this letter, we confirmed to a
special committee of the Board of Directors of the Company our opinion that the
proposed price of the SMI Bid was in excess of the range of the prices that we
concluded to be fair, and was significantly higher than the price of the Penske
bid. Following its meeting on August 5, 1997, the Board of Directors of the
Company instructed our firm that they would not approve the SMI Bid or submit it
to the Company's shareholders for a vote thereon. In light of these
instructions, we have not rendered any opinion letter with respect to the
fairness, from a financial point of view, of the consideration proposed to be
paid by SMI.
With respect to the Acquiror and Penske, we have taken such actions and
considered such matters and documents as we have deemed appropriate under the
circumstances including, without limitation: (i) met with officers and certain
members of the management to discuss Penske's business, financial condition,
operating results and future prospects; (ii) reviewed annual audited financial
statements and interim unaudited financial statements of Penske through June 30,
1997; (iii) reviewed various published research reports; (iv) reviewed publicly
available information regarding Penske including recent Securities and Exchange
Commission filings; (v) performed an analysis of public companies comparable in
business to Penske; (vi) analyzed the effect on estimated earnings to Penske's
shareholders resulting from completion of the Merger; (vii) reviewed historical
market price and volume data for the common stock of Penske on a stand-alone
basis and in comparison to both stock market indices and public companies
comparable in business to Penske; and (viii) made such other financial studies,
analyses and investigations as we deemed appropriate.
In rendering this opinion, we have relied upon the accuracy and
completeness of all financial and other information furnished to us by or on
behalf of the Company and Penske, and other publicly available information that
we considered in our review. We were not requested to and generally have not
undertaken to
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verify independently the accuracy and completeness of such information. We have
relied upon the reasonableness of all Company projections and forecasts reviewed
by us and have assumed that the projections approved by management and reviewed
by us reflect the best currently available estimates and good faith judgment of
Company management. Our opinion herein is based on the circumstances existing
and known to us as of the date hereof. We have not made or obtained any
independent evaluations or appraisals of the assets or liabilities (contingent
or otherwise) of the Company, nor were we furnished with any such evaluations or
appraisals. Consequently, we do not express any opinion regarding the value of
any of the Company's specific individual assets. We were not requested to, and
therefore did not, participate in the structuring or negotiating of the Merger.
Furthermore, we are not expressing any opinion herein as to the range of prices
at which Penske's common stock will trade subsequent to consummation of the
Merger.
Interstate/Johnson Lane Corporation, as part of its investment banking
business, is engaged in the valuation of securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. Pursuant to our engagement in connection with this fairness
opinion, we will receive a fee for our services in rendering said opinion. We
will also receive a fee in connection with services provided to a committee of
the Board of Directors of the Company in our capacity as financial advisor.
The opinion, and any supporting analysis or other material supplied by us,
may not be quoted, referred to or used in any public filing or in any written
document or for any other purpose without the prior written approval of
Interstate/Johnson Lane Corporation, which has been granted with respect to
references in the Form S-4 Registration Statement relating to the Merger and
with respect to filing this letter as an exhibit thereto.
We undertake no responsibility to update this letter for events and
circumstances occurring after the date of this letter. Any further consultation,
attendance, research or opinions in reference to the present engagement beyond
the date of this letter is subject to agreement by Interstate/Johnson Lane
Corporation and to specific written arrangements between the parties.
Based upon the foregoing considerations, it is our opinion that as of
October 6, 1997 the consideration to be received upon consummation of the Merger
is fair, from a financial point of view, to the Company's shareholders.
Sincerely,
/s/ INTERSTATE/JOHNSON LANE CORPORATION
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Interstate/Johnson Lane Corporation
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