-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FOFOId/imLVxu2+GYfzedmyRcyHOlMAJ7TVwiIEOy/8UwtNqMCzeJAHMAmaHSk4c J04qg/VQgHlRbJ660jLGtQ== 0000950152-97-008812.txt : 19971224 0000950152-97-008812.hdr.sgml : 19971224 ACCESSION NUMBER: 0000950152-97-008812 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19971223 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPIONSHIP AUTO RACING TEAMS INC CENTRAL INDEX KEY: 0001051825 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-43141 FILM NUMBER: 97743690 BUSINESS ADDRESS: STREET 1: 755 W BIG BEAVER RD STREET 2: SUITE 800 CITY: TROY STATE: MI ZIP: 48084 BUSINESS PHONE: 2483628800 MAIL ADDRESS: STREET 1: 755 W BIG BEAVER RD STREET 2: SUITE 800 CITY: TROY STATE: MI ZIP: 48084 S-1 1 CHAMPIONSHIP AUTO RACING TEAMS, INC. S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CHAMPIONSHIP AUTO RACING TEAMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 8980 APPLIED FOR (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------ 755 WEST BIG BEAVER ROAD, SUITE 800 TROY, MICHIGAN 48084 (248) 362-8800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ ANDREW CRAIG 755 WEST BIG BEAVER ROAD, SUITE 800 TROY, MICHIGAN 48084 (248) 362-8800 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: JACK A. BJERKE T. MARK KELLY AMY M. SHEPHERD JEFFERY B. FLOYD KEGLER, BROWN, HILL & RITTER CO., L.P.A. VINSON & ELKINS, L.L.P. 65 EAST STATE STREET 1001 FANNIN, SUITE 2300 18TH FLOOR HOUSTON, TX 77002 COLUMBUS, OH 43215 (713) 758-2222 (614) 462-5400
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
================================================================================================================== TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE ------------------------------------------------------------------------------------------------------------------ Common Stock, par value $.01 per share: Shares issued in public offering including the associated stock purchase $84,143,200 $24,823 rights.............................. ==================================================================================================================
(1) Estimated pursuant to Rule 457 solely for the purpose of calculating the registration fee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997 4,573,000 SHARES PROSPECTUS [LOGO] CHAMPIONSHIP AUTO RACING TEAMS, INC. COMMON STOCK ------------------------ Of the 4,573,000 shares of Common Stock, par value $.01 per share (the "Common Stock") offered hereby (the "Offering"), 4,333,000 shares are being sold by Championship Auto Racing Teams, Inc. (the "Company") and 240,000 shares are being sold by certain stockholders (the "Selling Stockholders"). The Company intends to apply for listing of the Common Stock on The New York Stock Exchange under the symbol " ." Prior to the Offering, there has been no public market for the Common Stock. It is currently estimated that the initial offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. It is expected that following the completion of the Offering, the current stockholders of the Company will own approximately 69% of the outstanding Common Stock. See "Risk Factors--Control of the Company." Shares of Common Stock are being reserved for sale to certain employees, directors and business associates of, and certain other persons designated by, the Company, at the initial public offering price. Such employees, directors and other persons are expected to purchase, in the aggregate, not more than 6.5% of the Common Stock offered in the Offering. See "Underwriting." ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS. ------------------------ 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.
PROCEEDS PROCEEDS TO PRICE TO UNDERWRITING TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS -------- ------------ ---------- ------------ Per Share.............................. $ $ $ $ Total(3)............................... $ $ $ $
- --------------- (1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated at $950,000. (3) The Company has granted the Underwriters a 30-day option to purchase up to 685,950 additional shares of Common Stock on the same terms and conditions as set forth above, solely to cover over-allotments, if any. If the option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Common Stock are offered by the several Underwriters, subject to prior sale when, as and if issued to and accepted by the Underwriters. The Underwriters reserve the right to reject orders in whole or part. It is expected that delivery of the shares of Common Stock will be made against payment therefor in New York, New York on or about , 1998. ------------------------ JEFFERIES & COMPANY, INC. A.G. EDWARDS & SONS, INC. , 1998 3 [PHOTOS] Prior to the Offering, the Company has not been subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends to furnish its stockholders with annual reports containing audited consolidated financial statements reported on by independent public accountants following the end of each fiscal year and such interim reports as it may determine to be necessary or desirable. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZATION, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." This Prospectus includes references to certain registered trademarks, servicemarks and logos, including FedEx, PPG, MCI, Indianapolis 500 and others, all of which are owned by the respective corporations. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. References in this Prospectus to the "Company" shall mean Championship Auto Racing Teams, Inc., its predecessor and its subsidiaries, and references to "CART" shall mean the Company's subsidiary, CART, Inc., its predecessors and its and their subsidiaries, unless the context otherwise requires. Unless otherwise noted herein, the information contained in this Prospectus gives effect to (i) the Reorganization (as defined herein)and the proposed acquisition of American Racing Series, Inc. and BP Automotive, Inc., as described herein (the "Indy Lights Acquisition") and (ii) assumes the Underwriters' over-allotment option will not be exercised. THE COMPANY Championship Auto Racing Teams, Inc. owns, operates and sanctions the premier open-wheel motorsports series in North America, the FedEx Championship Series, formerly known as the PPG CART World Series (the "CART Championship"), and is responsible for organizing, marketing and staging each of the races in the CART Championship. With speeds up to 240 miles per hour, and an average margin of victory during the 1997 race season of fewer than four seconds, CART open-wheel racing is the fastest form of closed-circuit auto racing available to motorsports audiences, providing intense excitement and competition. The drivers and racing teams participating in CART racing events are among the most recognized names in motorsports, with marquee drivers including Michael Andretti, Bobby Rahal, Al Unser Jr., Jimmy Vasser and Alex Zanardi. The excitement and competition of CART racing also attracts well-known racing legends, business leaders and sports and entertainment personalities as team owners, including Chip Ganassi, Carl Haas, David Letterman, Bruce McCaw, Joe Montana, Paul Newman, U.E. "Pat" Patrick, Walter Payton and Roger Penske. For a complete list of CART drivers and teams, see "Business." Major sponsors of the 1998 CART Championship will include Federal Express and PPG Industries as the co-title sponsors, MCI, Budweiser, Mercedes-Benz, Honda, Craftsman and other Fortune 500 companies. Open-wheel racing in the United States traces its history to 1904, and is the oldest continually scheduled motorsports competition in the world. The 1997 CART Championship included 17 races staged in four countries -- the United States, Canada, Australia and Brazil. Two additional races have been added for 1998, one in Motegi, Japan and one in Houston, Texas. CART races are conducted on four different types of tracks: superspeedways, ovals, temporary street courses and permanent road courses, requiring teams and drivers to employ a variety of skills to master different courses to compete for the CART Championship. Each race weekend in the CART Championship is an "event" offering spectators the opportunity to enjoy a CART race as well as a full weekend of entertainment, including additional races, practice and qualifying rounds for all racing events, and automotive and general entertainment demonstrations and displays. Race weekends provide corporate sponsors and other businesses the opportunity to entertain their customers and employees through hospitality areas and other activities. Motorsports is among the most popular and fastest growing spectator sports in the United States and, after soccer, it is the most watched sport worldwide. CART's races were televised in more than 185 countries in 1996 with aggregate television audiences of approximately 1 billion viewers. Total attendance at major auto racing series' events in North America and CART racing events increased significantly from 12.4 million and 1.8 million, respectively, in 1991 to 15.4 million and 2.4 million, respectively, in 1996. CART believes the demographic profile of its growing spectator base has considerable appeal to track owners, sponsors, television networks and advertisers. The mean annual family income of CART spectators has been estimated to be $52,700, compared to $38,400 for an average United States household. The Company derives its revenues from four primary sources: sanction fees paid by track promoters, corporate sponsorship fees and television and royalty revenues. The Company's revenues have increased during the last three years from $25.2 million in 1994 to $41.5 million in 1996. Based upon current promoter and sponsorship agreements, the Company expects that sanction fee revenues will increase from $24.4 million to $30.4 million and that sponsorship revenues will increase from $7.2 million to $12.1 million from 1997 to 1998. 3 5 GROWTH STRATEGY The Company's growth strategy is to increase revenues and net income by expanding the worldwide audience for CART racing. The Company intends to capitalize on its position as the premier open-wheel racing series in North America and the thrill and excitement of CART racing to increase CART's brand awareness. The Company believes that these factors will provide it with opportunities for increased sanction fees, corporate sponsorship fees, television revenues and royalties. To implement its strategy, the Company intends to: - Acquire and Develop Related Businesses and Properties. The Company will selectively pursue opportunities to acquire and apply the CART brand name to other race-related businesses and properties. The Company expects to vertically integrate certain support-racing series to develop future racing talent in the United States. The Company is also seeking opportunities to acquire and develop race experience products such as simulation or virtual reality products, indoor kart racing centers and race schools, which will provide potential and existing race fans with an affordable and accessible opportunity to experience the sport. As the first step in this strategy, the Company is acquiring American Racing Series, Inc. ("ARS"), which operates the PPG Dayton Indy Lights Championship ("Indy Lights") and BP Automotive, Inc. ("BP"), which provides certain equipment to the participants of Indy Lights. This transaction will close concurrently with the Offering. - Increase Market Penetration in the United States. The Company will continue to develop its race schedule in key markets in the United States and will sanction a new race in Houston, Texas during the 1998 season. Because CART races are conducted on superspeedways, ovals, temporary street courses and permanent road courses, the Company believes it has great flexibility in selecting future race venues. - Expand International Audience. The Company believes that the world market for motorsports is predisposed to CART's style of exciting, competitive, open-wheel racing. The CART Championship will span four continents in 1998, with events in the United States, Canada, Australia, Brazil and Japan. The Company typically receives higher sanction fees from the promoters of international race events. Management continues to explore additional opportunities to export its high-value, American racing product throughout the world and to include more international-based sponsors for the Company and its race teams. - Expand Media Exposure. The Company plans to expand CART's exposure and fan awareness by developing additional television and radio coverage. During the 1998 race season, the Company expects to continue its magazine-style program, "Inside CART," which premiered in the United States on the Fox Sports Network in late 1997. Internationally, CART will continue to build on the solid media distribution base established over recent years in conjunction with its various distribution partners, with a particular emphasis on expanding primary network coverage within individual countries. - Increase CART's Licensing Opportunities. The Company will continue to seek out opportunities to bring the CART brand to a broader market. Through CART Licensed Products, LP ("CART Licensed Products"), an affiliated limited partnership, CART provides "one stop shopping" for potential licensees for the servicemarks and trademarks of CART, as well as for participating race teams, drivers and tracks. This integrated approach allows licensees and retailers to work with a single licensing entity rather than negotiating in the fragmented licensing environment found in other sports. RECENT DEVELOPMENTS CO-TITLE SPONSORSHIP FROM FEDERAL EXPRESS Beginning with the 1998 race season, Federal Express will become the co-title sponsor of the CART Championship, which has been officially designated the "FedEx Championship Series." Under the sponsorship agreement, Federal Express has acquired a comprehensive range of marketing benefits as well as opportunities to supply services to CART, its teams and its race promoters. A significant feature of this sponsorship arrangement is the combination of the marketing rights of both CART and its race promoters to provide an exclusive sponsorship involvement through the entire CART Championship. PPG Industries, CART's long-time title sponsor, will continue to be involved as a co-title sponsor of the series and the name 4 6 sponsor of the CART Championship winner's trophy -- the "PPG Cup." PPG will also continue with its successful pace car program at each CART race event. THE INDY LIGHTS ACQUISITION In December 1997, the Company entered into a binding letter of intent to acquire all of the outstanding shares of common stock of ARS and the assets of BP for $10.0 million in cash, and options to purchase 100,000 shares of Common Stock at the initial public offering price (the "Indy Lights Acquisition"). ARS operates Indy Lights and BP provides certain equipment to the participants of Indy Lights. Indy Lights, the Official Development Series of the CART Championship, was founded in 1986 as a series to develop future CART teams, drivers, engineers and crew members. Indy Lights was designed to emphasize driver and team talent, while reducing any advantage gained through large monetary expenditures for equipment and technology. By restricting competition to a single chassis design, powered by identical, sealed engines and running a single brand of tires, Indy Lights offers a series in which costs can be carefully controlled and creates a level playing field for drivers, team managers and engineers. Indy Lights races are sanctioned by CART and 11 of the 13 races in the 1997 Indy Lights series were held in conjunction with CART events. The Indy Lights Acquisition will close concurrently with the Offering and will be funded with a portion of the proceeds from the Offering. See "Use of Proceeds" and "Business-PPG Dayton Indy Lights Championship." THE REORGANIZATION The Company was formed in December 1997 to serve as a holding company for CART and its subsidiaries. CART previously issued 25.5 shares of its common stock to racing teams who met certain participation requirements. Each outstanding share of common stock of CART was acquired by the Company in exchange for 400,000 shares of Common Stock (the "Reorganization"). The Reorganization was completed in anticipation of, and to facilitate, the Offering. In connection with the Reorganization and pursuant to a three-year agreement among each of the Company's current stockholders, effective January 1, 1998, the payment of certain items to franchise members including reimbursement of travel expenses on a per race basis, directors fees and other race-related payments will be discontinued. Such payments aggregated approximately $8,976,000 and $8,527,000 in 1995 and 1996, respectively, and $19,389,000 in the nine months ended September 30, 1997. See "Business -- Franchise System and Race Teams." THE OFFERING Common Stock offered by the Company............................. 4,333,000 shares Common Stock offered by the Selling Stockholders...................... 240,000 shares Common Stock outstanding after the Offering(1)......................... 14,533,000 shares Use of Proceeds..................... $10.0 million of the net proceeds from the Offering will be used to fund the cash portion of the Indy Lights Acquisition; $9.5 million will be used to pay certain obligations to franchise race teams; and the balance will be used for working capital and other general corporate purposes, including funding future acquisitions and developing racing related businesses and properties. See "Use of Proceeds." The Company will not receive any of the proceeds from the sale of Common Stock by the Selling Stockholders. Proposed New York Stock Exchange Symbol.............................. " " - --------------- (1) Excludes 1,088,050 shares issuable upon exercise of stock options to be granted under the Company's 1997 Stock Option Plan concurrently with the Offering (the "Stock Option Plan") and 100,000 shares issuable upon exercise of stock options to be granted in connection with the Indy Lights Acquisition. See "Management -- Stock Option Plan." 5 7 SUMMARY CONSOLIDATED FINANCIAL DATA The following pro forma financial information gives effect to (i) the Indy Lights Acquisition, (ii) the Reorganization, and (iii) the Offering and the application of the net proceeds therefrom, as if each of these events had occurred on January 1, 1996. The Summary Consolidated Financial Data below should be read in conjunction with "Selected Consolidated Financial Data," the Company's Consolidated Financial Statements and related notes thereto, the Unaudited Pro Forma Condensed Consolidated Financial Information and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," contained elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------------- ----------------------------------- HISTORICAL HISTORICAL -------------------------------- PRO FORMA ---------------------- PRO FORMA 1994 1995 1996 1996 1996 1997 1997 -------- -------- -------- --------- --------- --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF RACES) STATEMENT OF OPERATIONS DATA:(1) Revenues: Sanction fees........................... $ 16,299 $ 18,708 $ 21,078 $ 21,078 $ 21,178 $ 24,248 $ 24,248 Sponsorship revenue..................... 4,104 4,780 5,501 7,797 4,488 6,186 8,074 Television revenue...................... 2,343 3,177 4,139 4,139 4,139 5,002 5,002 U.S. 500(2)............................. -- -- 7,054 7,054 7,078 -- -- Other revenue........................... 2,441 3,312 3,682 6,189 2,967 4,467 6,928 -------- -------- -------- --------- --------- --------- --------- Total revenues...................... 25,187 29,977 41,454 46,257 39,850 39,903 44,252 Total expenses(2)(3)(4)(5)................ 25,105 29,196 41,971 37,802 37,419 47,268 31,310 Income (loss) before income taxes......... 82 781 (517) 8,455 2,431 (7,365) 12,942 Net income (loss)......................... 426 985 (338) 5,675 1,540 (4,789) 8,732 Net income (loss) per share............... $ .04 $ .10 $ (.04) $ .41 $ .16 $ (.47) $ .60 Weighted average common shares outstanding(6).......................... 10,200 10,200 9,400 13,733 9,400 10,200 14,533 OTHER DATA: Number of CART races...................... 15 16 16 16 16 17 17 Total attendance.......................... 2,015 2,260 2,366 N/A 2,366 --(7) N/A (7)
AS OF SEPTEMBER 30, 1997 ----------------------- ACTUAL PRO FORMA ------- ----------- (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents................................................................ $ 4,850 $44,005 Working capital (deficit)................................................................ (2,291) 46,399 Total assets............................................................................. 18,461 67,616 Total long-term debt (including current portion)......................................... 466 466 Total stockholders' equity (deficit)..................................................... (2,827) 58,468
- --------------- (1) The Company derives a substantial portion of its total revenues from sanction fees and sponsorship revenue received primarily during the racing season. As a result, the Company's operations have been, and are expected to remain highly seasonal. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality and Quarterly Results." (2) In 1996, the Company staged and acted as promoter of the inaugural U.S. 500. Revenues attributable to the U.S. 500 included sponsorship fees, television, admissions, program sales and other revenues associated with promoting the event. Expenses included, among others, the race purse, track rental, promotional and advertising costs and other expenses necessary to promote the event. Such expenses for the year ended December 31, 1996 and the nine months ended September 30, 1996 (including purse awards) amounted to $8,246,000 and $8,220,000, respectively. The Company no longer acts as the promoter of the U.S. 500, but does continue to sanction the event. (3) Total expenses for the years ended December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997 include certain payments to franchise members, including reimbursement of travel expenses, director fees, purse awards and other race related payments. Effective January 1, 1998, the Company and the existing franchise members entered into an agreement whereby reimbursements for travel expenses, directors fees and race-related payments will be discontinued. Such agreement expires in December 2000. The pro forma statement of income data for the year ended December 31, 1996 and the nine months ended September 30, 1997 excludes reimbursements of $8,527,000 and $19,389,000, respectively, which will be discontinued as a result of such agreement. (4) Total historical and pro forma expenses for the year ended December 31, 1996 include approximately $1,734,000 of expenses related to litigation and the settlement of lawsuits. (5) Total expenses for the historical and pro forma year ended December 31, 1996 and the historical and pro forma nine months ended September 30, 1996 and 1997 include compensation expense of $1,167,000, $1,167,000 and $1,483,000, respectively, related to the issuance of Common Stock to franchise members below its fair value, on the date the Common Stock became eligible for purchase. If these compensation expenses were excluded from the pro forma results, net income per share would increase by $.06 and $.07 for the year ended December 31, 1996 and nine months ended September 30, 1997, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (6) Includes 1,400,000 shares, consisting of 1,200,000 shares and 200,000 shares of Common Stock issued to new franchise members and other race competitors, respectively, on December 19, 1997. See "Business -- Franchise System and Race Teams." (7) Total attendance information for the 1997 race season is not yet available. 6 8 RISK FACTORS Prospective Purchasers of the Common Stock should consider carefully the risk factors set forth below, as well as the other information contained in this Prospectus. This Prospectus contains certain forward-looking statements. The safe harbor provisions of the Private Securities Litigation Reform Act of 1995 do not apply to this Offering or other initial public offerings. Actual results may differ materially from those projected in the forward-looking statements as a result of any number of factors, including the risk factors set forth below. COMPETITION The Company's racing events compete for television viewership, attendance and sponsorship funding with other racing events sanctioned by various other racing bodies and with other sports, entertainment and recreational events, such as football, basketball and baseball. The competition with other racing bodies such as Formula One, NASCAR, the Indy Racing League ("IRL"), the United States Auto Club ("USAC"), the National Hot Rod Association ("NHRA"), the Sports Car Club of America ("SCCA"), Professional SportsCar Racing ("PSCR"), the Automobile Racing Club of America ("ARCA") and others is intense. Racing events sanctioned by other organizations often are held on the same dates as CART events, at separate tracks, and compete for attendance as well as television viewership. In addition, CART competes with other racing bodies to sanction racing events at various motorsports facilities. In consideration of the intense competition in the sports and entertainment industry, there can be no assurance that the Company will maintain or improve its market position. See "Auto Racing Industry Overview" and "Business -- Competition." INDUSTRY SPONSORSHIPS 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. If promotion, sponsorship and advertising revenues are not available to the Company and its teams in the future, the Company's results of operations would be adversely affected. Advertising by the tobacco and liquor industries is generally subject to greater governmental regulation than advertising by other sponsors. Although the Company does not derive significant advertising revenue from the tobacco and liquor industries, many of the teams participating in CART-sanctioned events derive a substantial portion of their operating revenues from such industry sponsors. In addition, many of the race events that are sanctioned by CART are sponsored in part by the tobacco and/or liquor industries, with such sponsorship fees paid to the track promoters. There is currently pending litigation involving various aspects of the tobacco industry. In settlement of outstanding litigation with various state attorneys general in the United States, the tobacco industry has proposed an agreement which would implement certain proposed governmental regulations which would prohibit advertisement of tobacco products at sports events, including motorsports. The proposed settlement must be approved by the United States Congress and signed by the President prior to implementation into law, and therefore could change substantially prior to approval by Congress. The Company cannot predict whether the settlement discussed above will be approved by Congress or the timing of any future restrictions on advertising impacting the tobacco industry. The Company believes that a prohibition on tobacco advertising will have an immediate effect on some of the teams participating in CART events (specifically including the seven 1998 race teams who the Company expects will derive substantially all of their funding from tobacco industry sponsors), as well as those United States race promoters who derive a portion of their revenues from tobacco advertising and sponsorship. If the settlement is approved by Congress, the race teams will be required to seek other sponsorship and their failure to secure replacement sponsorship could adversely affect the ability of these race teams to continue their participation in CART events. Regardless of the outcome of the proposed settlement in the United States, any future limitations on tobacco advertising may have an adverse effect on race venues and may limit the Company's ability to expand its race schedule into other countries. See "Auto Racing Industry Overview" and "Business -- Drivers and Corporate Sponsors." RELIANCE ON PARTICIPATION BY TEAMS The future success of the Company is dependent upon the continued participation of racing teams, including team owners, drivers, engineers, mechanics and other team members, in CART-sanctioned race events. The teams currently participating in CART events derive substantially all of their funding for race operations from such team's sponsors. Generally, the team sponsors measure advertising exposure, including attendance at the events and television viewership, to determine future sponsorship commitments. Decreased attendance and television viewership could adversely affect the level of funding by some team sponsors. If sponsorship revenues are not available to teams, such teams may not have the 7 9 necessary funding to participate in CART events, which could have an adverse effect on the Company's business and financial condition. In addition, the termination of continued participation by teams currently competing in all CART events could have an adverse effect on the Company's business and financial condition. See "Business -- Franchise System and Race Teams." In connection with the Reorganization, CART discontinued certain significant payments to CART's race teams. The discontinuation of payments may have an adverse effect on CART's ability to retain existing race teams or attract new race teams that could have previously received these payments. Since CART will continually need to attract new race teams, this change could have a negative impact on CART's operations. See "Business -- Franchise System and Race Teams." THE INDY RACING LEAGUE In 1995, the IRL was formed as a rival open-wheel racing league to compete directly with CART and the CART Championship. The IRL was founded by affiliates of the Indianapolis Motor Speedway ("IMS"). Following the creation of the IRL and rule changes instituted by USAC, which governed the Indianapolis 500, almost all of the CART teams and drivers have not competed at the Indianapolis 500, believing that the rule changes were adverse to CART and the teams participating in CART events. The 1996 rule changes included, among others, reservation of 25 of the 33 starting positions in the Indianapolis 500 for those competing in other IRL events. Additional rule changes for 1997 included substantial changes to equipment specifications such that the cars competing in CART-sanctioned events could not compete at the Indianapolis 500. The reservation of starting positions was eliminated by the IRL for 1998. The Indianapolis 500 is a major racing event in the United States and draws substantial television viewership. For these reasons, many companies that sponsored race teams historically regarded an involvement at the Indianapolis 500 as being an extremely important part of their sponsorship. Considerable sums have been spent by corporations to sponsor race teams participating at the Indianapolis 500 and on advertising and promotion in support of such sponsorship. Through the date of this Prospectus, the Company does not believe that it or its teams have lost significant sponsors due to non-participation by CART teams and drivers at the Indianapolis 500. The Company is unable to predict what effect, if any, the IRL or the continued non-participation by CART teams at the Indianapolis 500 will have on the Company's future results. See "Auto Racing Industry Overview" and "Business -- Competition." LIABILITY FOR PERSONAL INJURIES Racing events can be dangerous to participants and spectators. CART requires all race participants (excluding the general public) to execute a general release and waiver of liability prior to participating in racing events sanctioned by CART and requires each track promoter to indemnify CART against any liability for personal injuries sustained at such promoter's racing event. In addition, CART requires each event promoter to carry a minimum of $10.0 million in liability insurance, with CART as a named insured, and CART maintains a $15.0 million umbrella insurance policy. Nevertheless, there can be no assurance that the release and waivers will be fully enforced in a court of law, that the promoter will have liquid assets to satisfy any indemnification requirement, or that such insurance will be adequate or available at all times at reasonable premiums and in all circumstances. The Company's financial condition and results of operations would be adversely affected to the extent claims and associated expenses exceed insurance and indemnification recoveries or are otherwise not covered by insurance. See "Business -- Legal Proceedings." RELIANCE ON PARTICIPATION BY SUPPLIERS The Company's racing events are dependent upon the continued participation of suppliers of engines, tires and chassis to teams competing in CART events. The engines and tires for CART race cars are designed specifically for CART racing, and the Company believes that the costs to some industry suppliers are greater than the revenues generated from the sale or lease of such products to the teams. Without the continued supply of engines, chassis and tires, the Company believes that its financial condition could be adversely affected. See "Business." 8 10 LIMITATIONS ON ABILITY TO EXPAND THE RACE SCHEDULE The 1998 CART Championship schedule includes 19 races, with one race in Japan, one race in Australia and one race in Brazil, in addition to the 16 races that will be staged in North America. The first race of the 1998 season will be held on March 15, with the season-ending race to be run on November 1. Although the Company intends to explore opportunities to further extend the racing season, continued expansion of the number of races staged each year will require additional personnel and resolution of logistical issues such as transportation and availability of equipment. The Company's ability to expand the race schedule will also be limited to the extent the teams are able to secure funding and equipment for participation in additional events and the teams' willingness to participate in an expanded schedule. See "Business -- Racing Events." RELIANCE ON EVENT PROMOTERS The Company derives a substantial portion of its total revenues from sanction fees which are paid by each promoter to the Company. In the event that the particular event or event promoters incur financial losses or restrictions that prohibit future events from taking place, the Company believes that its financial condition could be adversely affected. MANAGING THE COMPANY'S GROWTH The Company's ability to effectively manage future growth and to successfully implement its growth strategy in connection with acquiring and developing race related businesses and properties will require it to successfully integrate the operations of such businesses and properties with the Company's operations, to further enhance its operational, financial and management systems, and to successfully hire, train, retain and motivate additional employees. The failure of the Company to manage its growth on an effective basis could have a material adverse effect on the Company's business and financial condition. See "Business -- Growth Strategy." CONTROL OF THE COMPANY Upon completion of the Offering, current stockholders of the Company will own approximately 69% (approximately 65% if the Underwriters' over-allotment option is exercised in full) of the Company's Common Stock. As a result, the current stockholders, as a group, will continue to control the outcome of substantially all issues submitted to the Company's stockholders, including the election of directors. See "Principal and Selling Stockholders" and "Business -- Franchise System and Race Teams." CONFLICTS OF INTEREST Each of the current stockholders is the owner of a race team that participates in the CART Championship, and each of the current directors is affiliated with a race team that participates in the CART Championship, which will result in an inherent conflict of interest with regard to certain matters to be considered by the stockholders or directors. In addition, certain stockholders and directors control, or are affiliated with persons who control, racing venues which stage CART and other racing events and therefore a conflict of interest may arise with respect to determining the location and dates of CART events and the amount of sanction fees paid. See "Certain Related Transactions." DEPENDENCE ON KEY PERSONNEL The Company's success depends to a large extent upon the availability and performance of certain key employees, including Messrs. Andrew Craig, President and Chief Executive Officer, and Randy K. Dzierzawski, Executive Vice President and Chief Financial Officer, the loss of whose services could have a material adverse effect on the Company. In an effort to minimize this risk, the Company has entered into employment agreements with certain key employees, including Messrs. Craig and Dzierzawski. See "Management." SEASONALITY AND FLUCTUATION OF QUARTERLY RESULTS The Company derives a substantial portion of its total revenues from sanction fees and sponsorship revenues paid primarily during the racing season. As a result, the Company's operations have been, and are expected to remain, highly seasonal. Historically, revenues are higher in the second and third quarters of the year due to the number of races staged in those quarters. The scheduling of any race in the CART Championship can significantly affect the Company's quarterly results of operations when compared to a previous quarter if such race is scheduled during different quarters from year to year. The 1998 racing season will extend through the month of November, compared to 1997, when the last 9 11 race was staged in September. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Seasonality and Quarterly Results." ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE Prior to the Offering, there has been no public market for the Common Stock and there can be no assurance that an active trading market will develop subsequent to the Offering. The offering price will be determined by negotiations between the Company and representatives of the Underwriters and may not be indicative of the market price of the Common Stock after the Offering. See "Underwriting" for the factors to be considered in determining the initial public offering price. There can be no assurance that the market price of the Common Stock prevailing at any time after the Offering will equal or exceed the initial public offering price. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations, which could adversely affect the market price of the Common Stock without regard to the financial performance of the Company. The market price of the Common Stock may fluctuate substantially in response to variations in the Company's results of operations, announcements by the Company or other developments affecting the Company, as well as by general economic trends and other external factors. See "Description of Capital Stock" and "Underwriting." DILUTION Purchasers of the shares of Common Stock offered hereby will experience an immediate and substantial dilution of $ per share in net tangible book value from the initial public offering price. See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE Sales of significant amounts of the Common Stock in the public market after this Offering could adversely affect the market price of the Company's Common Stock. After the Offering, 14,533,000 shares of Common Stock (15,218,950 shares if the Underwriters' over-allotment option is exercised in full) will be outstanding. In addition to the 4,573,000 shares of Common Stock offered hereby (5,258,950 shares if the Underwriters' over-allotment option is exercised in full), a total of 8,560,000 shares of Common Stock have been held by non-affiliates for more than one year but less than two years, or by affiliates for more than one year and, therefore, will be eligible for sale, beginning 90 days after the date of this Prospectus, subject to the volume limitations of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), the Underwriters' lock-up and an agreement among stockholders. The approximately 1,400,000 remaining shares have been held for less than one year and are not yet eligible for sale. In addition to the 10,200,000 shares of Common Stock outstanding, the Company has reserved an additional 2,000,000 and 100,000 shares of Common Stock for issuance pursuant to the Stock Option Plan and the Director Option Plan, respectively, which shares will be registered under the Securities Act, and will be freely transferable. No prediction can be made as to the effect that resale of shares of Common Stock, or the availability of shares of Common Stock for resale, will have on the market price of the Common Stock prevailing from time to time. The resale of substantial amounts of Common Stock, or the perception that such resales may occur, could adversely affect prevailing market prices of the Common Stock. The Company's officers, directors and current stockholders have agreed not to sell their shares (approximately 9,960,000 shares) for a period of 180 days from the date of this Prospectus without the prior written consent of the representatives of the Underwriters. In addition, each of the current stockholders have signed an agreement which restricts their ability to sell any shares of Common Stock for a period of one year from the date of this Prospectus. See "Shares Eligible for Future Sale" and "Underwriting." ANTI-TAKEOVER PROVISIONS The General Corporation Law of the State of Delaware contains certain provisions which may delay or prevent an attempt by a third party to acquire control of the Company. In addition, certain provisions of the Company's Certificate of Incorporation and Bylaws authorize the issuance of preferred stock, and establish advance notice requirements for director nominations and actions to be taken at stockholder meetings. These provisions could discourage or impede a tender offer, proxy contest or other similar transaction involving control of the Company, which transaction might be viewed favorably by minority stockholders. In addition, the severance provisions of employment agreements with certain members of management could impede an attempted change of control of the Company. The Company has adopted a Stockholder Rights Plan which may have the effect of impeding a hostile attempt to acquire control of the Company. See "Description of Capital Stock -- Delaware Law" and "Certain Charter and By-Law Provisions." 10 12 ABILITY TO ISSUE PREFERRED STOCK The Company may issue preferred stock in the future without stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. The rights of the holders of Common Stock will be subject and subordinate to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. The Company has no outstanding preferred stock and no present plans to issue any shares of preferred stock. See "Description of Capital Stock -- Preferred Stock." DIVIDEND POLICY The Company does not anticipate declaring and paying cash dividends on its Common Stock after consummation of the Offering at any time in the foreseeable future. See "Dividend Policy." CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Certain statements and information contained in this Prospectus, particularly those under the headings "Business," "Risk Factor," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," concerning future, proposed and anticipated activities of the Company, certain trends with respect to the Company's revenues, operating results on a pro forma basis, capital resources and liquidity or with respect to the Company's competitive position or the motorsports industry in general, and other statements contained in this Prospectus regarding matters that are not historical facts are forward-looking statements. Such statements, by their very nature, include risks and uncertainties, many of which are beyond the Company's control. Accordingly, actual results may differ, perhaps materially, from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include those discussed herein under "Risk Factors." 11 13 USE OF PROCEEDS The net proceeds to the Company from the Offering are estimated to be $ ($ if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per share (the midpoint of the initial public offering filing range) and after deducting the underwriting discount and estimated offering expense payable by the Company. The Company intends to use approximately $10.0 million of the net proceeds of the Offering to purchase the common stock of ARS which operates the Indy Lights Championship, the Official Development Series for CART, and the assets of BP, which supplies certain equipment to the participants in the Indy Lights Championship. See "Business--PPG Dayton Indy Lights Championship." Approximately $9.5 million will be used to pay certain obligations to franchise race teams, and the remaining net proceeds from the Offering will be used for working capital and general corporate purposes, including the expansion of the Company's business through the acquisition or development of racing-related businesses and properties. The Company currently has no agreements with respect to any acquisitions other than the Indy Lights Acquisition, but it regularly engages in discussions relating to potential acquisitions. No assurance can be given that the Company will be able to acquire racing-related businesses in the near future. Pending application of the net proceeds of this Offering as described above, the Company will invest such proceeds in short-term, interest-bearing, investment grade securities. The Company will not receive any proceeds from the sale of shares of Common Stock to be sold by the Selling Stockholders. 12 14 CAPITALIZATION The following table sets forth the cash and cash equivalents and the consolidated capitalization of the Company as of September 30, 1997 and on a pro forma basis reflects the sale of the Common Stock offered hereby and application of the estimated net proceeds as described in "Use of Proceeds." This table should be read in conjunction with the Consolidated Financial Statements and related notes thereto, "Management's Discussion and Analysis of Results of Operations" and the Unaudited Pro Forma Condensed Consolidated Financial Information and related notes thereto, included elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1997 ------------------------ ACTUAL PRO FORMA(1) ------- ------------ (DOLLARS IN THOUSANDS) Cash and cash equivalents.............................................. $ 4,850 $ 44,005 ======= ======== Long-term debt (including current portion)............................. $ 466 $ 466 Membership deposits.................................................... 1,320 -- Franchise fund liability............................................... 1,320 -- Stockholders' equity (deficit): Preferred Stock, $.01 par value, 5,000,000 shares authorized; none issued and outstanding............................................ -- -- Common Stock, $.01 par value, 50,000,000 shares authorized; 10,200,000 issued and outstanding, as of September 30, 1997; and 14,533,000 issued and outstanding, as adjusted(1)(2).............. 88 145 Additional paid-in-capital........................................... 3,472 64,710 Accumulated deficit.................................................. (6,387) (6,387) ------- -------- Total stockholders' equity (deficit)............................ (2,827) 58,468 ------- -------- Total capitalization................................................... $ 279 $ 58,934 ======= ========
- --------------- (1) Includes (i) the proceeds from the issuance of 1,400,000 shares by the Company, consisting of 1,200,000 shares and 200,000 shares issued to new franchise members and other race competitors, respectively, on December 19, 1997, (ii) the Indy Lights Acquisition, (iii) the payment of accrued point awards and repayment of membership deposits and the franchise fund liability to franchise members, and (iv) the Offering and the application of the net proceeds therefrom. See "Business--Franchise System and Race Teams." (2) Excludes 1,088,050 shares issuable upon exercise of stock options to be granted under the Company's 1997 Stock Option Plan concurrently with the Offering and 100,000 shares issuable upon exercise of stock options to be granted in connection with the Indy Lights Acquisition. See "Management -- Stock Option Plans." DIVIDEND POLICY The Company intends to retain future earnings for the operation and expansion of its business. The Company does not anticipate paying any cash dividends in the foreseeable future. Any decision by the Board of Directors concerning the payment of dividends on the Common Stock in the future will be dependent upon the Company's results of operations, financial condition, cash requirements, capital expenditure requirements and other factors deemed relevant by the Board of Directors. 13 15 DILUTION The Company's net tangible book value at September 30, 1997 was $ , or $ per share. Net tangible book value per share represents the Company's total tangible assets less its total liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the sale of the Common Stock offered hereby (assuming an offering price of $ per share, the midpoint of the price range set forth on the cover page of this Prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses), the Company's pro forma net tangible book value at September 30, 1997 would have been approximately $ or $ per share. This represents an immediate increase in net tangible book value per share of $ to existing stockholders and an immediate dilution of $ per share to the investors purchasing shares of Common Stock at the initial public offering price. The following table illustrates this dilution in net tangible book value to new investors: Assumed price to public................................................. $ Net tangible book value before Offering............................... $ Increase attributable to new investors................................ -------- Pro forma net tangible book value after Offering........................ -------- Dilution to new investors............................................... $ --------
If the Underwriters exercise their right to purchase an additional shares of Common Stock in the aggregate to cover over-allotments, the net tangible book value per share after the Offering would be $ , which would result in dilution to new investors of $ per share. The above table excludes 1,088,050 shares of Common Stock issuable upon exercise of options to be granted under the Company's Stock Option Plan and 100,000 shares of Common Stock issuable upon exercise of options to be granted in connection with the Indy Lights Acquisition, all of which are subject to vesting schedules. See "Management -- Stock Option Plans" and "Business -- PPG Dayton Indy Lights Championship." The following table sets forth the number of shares of Common Stock purchased from the Company, the effective cash contributions made and the average price per share paid by existing stockholders and by purchasers of the Common Stock offered hereby:
TOTAL SHARES PURCHASED CONSIDERATION PAID ------------------ ------------------ AVERAGE PRICE NUMBER PERCENT NUMBER PERCENT PER SHARE ------ ------- ------ ------- ------------- Existing Stockholders........................ % % $ New Investors................................ ----- ----- ----- ----- Total...................................... 100.0% 100.0% ===== ===== ===== =====
14 16 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data as of and for the periods ended December 31, 1992, 1993, 1994, 1995 and 1996 are derived from the Company's Consolidated Financial Statements, audited by Deloitte & Touche LLP, independent auditors. The selected consolidated financial data for the nine months ended September 30, 1996 and 1997 are derived from the Company's unaudited Consolidated Financial Statements. In the opinion of management, such unaudited Consolidated Financial Statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the consolidated financial condition and results of operations as of and for the periods presented. Operating results for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1997. The pro forma financial information gives effect to (i) the Indy Lights Acquisition, (ii) the Reorganization, and (iii) the Offering and the application of the net proceeds therefrom as if each of these events had occurred on January 1, 1996. The selected consolidated financial data below should be read in conjunction with the Company's Consolidated Financial Statements and related notes thereto and the Pro Forma Financial Information contained elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------------- ------------------------------ HISTORICAL PRO HISTORICAL PRO ------------------------------------------------ FORMA ------------------- FORMA 1992 1993 1994 1995 1996 1996 1996 1997 1997 ------- ------- ------- -------- ------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) STATEMENT OF OPERATIONS:(1) Revenues: Sanction fees.................... $14,168 $15,239 $16,299 $ 18,708 $21,078 $ 21,078 $ 21,178 $ 24,248 $ 24,248 U.S. 500(2)...................... -- -- -- -- 7,054 7,054 7,078 -- -- Sponsorship revenue.............. 4,547 3,664 4,104 4,780 5,501 7,797 4,488 6,186 8,074 Television revenue............... 7,425 9,391 2,343 3,177 4,139 4,139 4,139 5,002 5,002 Engine leases, rebuilds and wheel sales.......................... -- -- -- -- -- 2,347 -- -- 2,355 Other revenue.................... 1,773 2,132 2,441 3,312 3,682 3,842 2,967 4,467 4,573 ------- ------- ------- ------- ------- -------- -------- -------- -------- Total revenues............... 27,913 30,426 25,187 29,977 41,454 46,257 39,850 39,903 44,252 Expenses: Race and franchise fund payments(3).................... 16,852 17,425 18,305 18,446 17,198 11,649 17,096 28,686 12,226 U.S. 500(2)...................... -- -- -- -- 8,246 8,246 8,220 -- -- Race expenses(4)................. 6,604 8,530 2,621 4,612 6,055 4,804 4,409 6,118 4,489 Costs of engine rebuilds and wheel sales.................... -- -- -- -- -- 898 -- -- 742 Administrative and indirect expenses(3)(4)................. 4,224 3,992 3,977 5,832 8,620 10,012 6,153 10,841 11,974 Compensation expense (5)......... 179 204 -- -- 1,167 1,167 1,167 1,483 1,483 Depreciation and amortization.... -- -- 202 306 685 1,026 374 350 606 Minority interest................ -- -- -- -- -- -- -- (210) (210) ------- ------- ------- ------- ------- -------- -------- -------- -------- Total expenses............... 27,859 30,151 25,105 29,196 41,971 37,802 37,419 47,268 31,310 ------- ------- ------- ------- ------- -------- -------- -------- -------- Income (loss) before income taxes............................ 54 275 82 781 (517) 8,455 2,431 (7,365) 12,942 Income tax expense (benefit)....... -- 3 (344) (204) (179) 2,780 891 (2,576) 4,210 ------- ------- ------- ------- ------- -------- -------- -------- -------- Net income (loss).................. $ 54 $ 272 $ 426 $ 985 $ (338) $ 5,675 $ 1,540 $ (4,789) $ 8,732 ======= ======= ======= ======= ======= ======== ======== ======== ======== Net income (loss) per share(6)..... $ .01 $ .02 $ .04 $ .10 $ (.04) $ .41 $ .16 $ (.47) $ .60 ======= ======= ======= ======= ======= ======== ======== ======== ======== Weighted average common shares outstanding(6)................... 10,600 11,000 10,200 10,200 9,400 13,733 9,400 10,200 14,533 ======= ======= ======= ======= ======= ======== ======== ======== ========
15 17
AS OF AS OF DECEMBER 31, SEPTEMBER 30, 1997 ------------------------------------------------ ------------------- 1992 1993 1994 1995 1996 ACTUAL PRO FORMA ------- ------- ------- -------- ------- ------- --------- (UNAUDITED) (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents............................ $ 259 $ 327 $ 1,393 $ 2,046 $ 630 $ 4,850 $44,005 Working capital (deficit)............................ (1,023) (378) (209) (1,182) (524) (2,291) 46,399 Total assets......................................... 1,181 1,378 2,974 5,613 6,600 18,461 67,616 Long-term debt (including current portion)........... -- -- -- -- 574 466 466 Total Stockholders' equity (deficit)................. (2,509) (2,101) (1,875) (1,250) (151) (2,827) 58,468
- --------------- (1) The Company derives a substantial portion of its total revenues from sanction fees and sponsorship revenue, received primarily during the racing season. As a result, the Company's operations have been, and are expected to remain, highly seasonal. See "Management's Discussion's and Analysis of Financial Condition and Results of Operations--Seasonality and Quarterly Results." (2) In 1996, the Company staged and acted as promoter of the inaugural U.S. 500. Revenues attributable to the U.S. 500 included sponsorship fees, television, admissions, program sales and other revenues associated with promoting the event. Expenses included, among others, the race purse, track rental, promotional and advertising costs and other expenses necessary to promote the event. (3) Total expenses for the years ended December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997 include certain payments to franchise members, including reimbursement of travel expenses, director fees, purse awards and other race related payments. Effective January 1, 1998, the Company and the existing franchise members entered into an agreement whereby reimbursements for travel expenses, directors fees and race-related payments will be eliminated. Such agreement expires in December 2000. The pro forma statement of income data for the year ended December 31, 1996 and the nine months ended September 30, 1997 excludes reimbursements of $8,527,000 and $19,389,000, respectively, which will be discontinued as a result of such agreement. (4) Total historical and pro forma expenses for the year ended December 31, 1996 include approximately $1,734,000 of expenses related to litigation and the settlement of lawsuits. (5) Total expenses for the historical and pro forma year ended December 31, 1996 and the historical and pro forma nine months ended September 30, 1996 and 1997 include compensation expense of $1,167,000, $1,167,000 and $1,483,000, respectively, related to the issuance of Common Stock to franchise members below its fair value, on the date the Common Stock became eligible for purchase. If these compensation expenses were excluded from the pro forma results, net income per share would increase by $.06 and $.07 for the year ended December 31, 1996 and nine months ended September 30, 1997, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (6) Includes 1,400,000 shares, consisting of 1,200,000 shares and 200,000 shares issued to new franchise members and other race competitors, respectively, on December 19, 1997. See "Business -- Franchise System and Race Teams." 16 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto and "Selected Consolidated Financial Data" included elsewhere in this Prospectus. GENERAL In December 1997, as part of the Reorganization, each of the current stockholders exchanged their shares of stock in CART for shares of Common Stock of the Company. Prior to the Reorganization, the franchise owners received reimbursement of travel expenses, directors fees and franchise payments in an aggregate amount equal to $7.4 million, $9.0 million and $8.5 million for the years ended December 31, 1994, 1995 and 1996, respectively, and $8.4 million and $19.4 million for the nine months ended September 30, 1996 and 1997, respectively. These payments will be discontinued after January 1, 1998 pursuant to contractual commitments, which were entered into on December 19, 1997 and expire in December 2000. Set forth below are selected income and expense items and the relationship of such income and expense items to total revenues for the years ended December 31, 1994, 1995 and 1996 and the nine month periods ended September 30, 1996 and 1997.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------------------ -------------------------------------- 1994 1995 1996 1996 1997 ---------------- ---------------- ---------------- ---------------- ---------------- Revenues: Sanction fees....... $16,299 64.7% $18,708 62.4% $21,078 50.8% $21,178 53.1% $24,248 60.8% U.S. 500(1)......... -- -- -- -- 7,054 17.0 7,078 17.8 -- -- Sponsorship revenue........... 4,104 16.3 4,780 15.9 5,501 13.3 4,488 11.3 6,186 15.5 Television revenue............... 2,343 9.3 3,177 10.6 4,139 10.0 4,139 10.4 5,002 12.5 Other revenue....... 2,441 9.7 3,312 11.1 3,682 8.9 2,967 7.4 4,467 11.2 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total Revenues...... $25,187 100.0% $29,977 100.0% $41,454 100.0% $39,850 100.0% $39,903 100.0% ======= ===== ======= ===== ======= ===== ======= ===== ======= ===== Expenses: Race and franchise fund payments(2).. $18,305 72.7% $18,446 61.5% $17,198 41.5% $17,096 42.9% $28,686 71.9% U.S. 500(1)......... -- -- -- -- 8,246 19.9 8,220 20.6 -- -- Race expenses(2).... 2,621 10.4 4,612 15.4 6,055 14.6 4,409 11.1 6,118 15.3 Compensation expense........... -- -- -- -- 1,167 2.8 1,167 2.9 1,483 3.7 Administrative and other indirect expenses(2)....... 3,977 15.8 5,832 19.5 8,620 20.8 6,153 15.5 10,841 27.2 Depreciation and amortization...... 202 0.8 306 1.0 685 1.6 374 0.9 350 0.9 Minority interest in loss of subsidiaries...... -- -- -- -- -- -- -- -- (210) (0.5) ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total Expenses...... $25,105 99.7% $29,196 97.4% $41,971 101.2% $37,419 93.9% $47,268 118.5% ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
- --------------- (1) CART's promotion of the U.S. 500 was a one-time event, and though CART continues to sanction the event, it does not anticipate acting as the promoter of the U.S. 500 in the future. (2) Includes certain payments that will be discontinued after January 1, 1998, as discussed above. REVENUES The Company classifies its revenues to include sanction fees, the U.S. 500, sponsorship revenue, television revenue and other revenue, as discussed below: Sanction Fees. The Company derives its sanction fee revenue from the promoter at each venue on the CART Championship schedule in accordance with negotiated contracts pursuant to which CART agrees to stage a CART Championship race at such venue in return for the payment of a sanction fee (a "Promoter Agreement"). The terms of each contract vary by location and type of facility and have maturities ranging from 1998 to 2002. Sanction fee revenue is recorded upon completion of each event. The entire sanction fee is collected in advance of the relevant event with the contracted fees ranging from $850,000 to $4.1 million, from 1998 to 2000, respectively, excluding option periods. U.S. 500. In 1996, due to the reservation of starting positions at the Indianapolis 500 for IRL competitors, CART promoted and sanctioned the inaugural U.S. 500 at Michigan International Speedway on May 26. Because the event was promoted by CART, CART did not receive sanction fee revenue from the event but did receive revenue from admissions, 17 19 hospitality, television, sponsorship and licensing. CART's promotion of the U.S. 500 was a one-time event, and though CART continues to sanction the event, it does not anticipate acting as the promoter of the U.S. 500 in the future. Sponsorship Revenue. The Company receives corporate sponsorship revenue in accordance with negotiated contracts. CART currently has corporate sponsor contracts with 15 major manufacturing and consumer products companies. The remaining terms of these contracts range from one to three years. An official corporate sponsor receives status and recognition rights, event rights and product category exclusivity with respect to CART as the sanctioning body. Television Revenue. The Company's television revenue is derived from negotiated contracts with ESPN, ESPN International, Fittipaldi USA (Brazil), Gold Coast Motor Events Co. (Australia) and Molstar (Canada) ("broadcast partners"). A guaranteed rights fee is paid to CART by each broadcast partner. In addition, pursuant to the agreement with ESPN/ESPN International (the "ESPN Contract"), CART receives 50% of the net profits generated from the CART race broadcasts under the ESPN Contract which exceed the minimum guaranteed rights fee. A provision of the ESPN Contract requires that at least 50% of the CART events are broadcast on a major broadcasting network in the United States. In 1996 and 1997, all CART races were broadcast on either ABC or ESPN. In addition, CART races are re-aired on ESPN and ESPN2. ESPN2 also broadcasts CART qualifying sessions and pre-race shows. Other Revenue. Other revenue includes membership and entry fees, contingency awards money, royalties and other miscellaneous revenue items. Membership and entry fees are payable on an annual basis by CART and Indy Lights competitors. In addition, competitors are charged fees for credentials for all team participants and driver license fees for all drivers competing in the series. Contingency awards money is payable to competitors in the CART Championship upon satisfaction of specific criteria. Royalty revenue is received by the Company for the use of the CART servicemarks and trademarks on licensed merchandise that is sold both at tracks and at off-track sites. EXPENSES The Company classifies its expenses to include race and franchise fund payments, expenses related to promoting the U.S. 500, race expenses and administrative and indirect expenses, as discussed below. For a discussion of expenses discontinued in connection with the Reorganization, see "Business -- Franchise System and Race Teams." Race and Franchise Fund Payments. The Company pays the racing teams for their on-track performance. Race and franchise fund payments include the following for each event: a fixed franchise expense to each franchise competitor, the event purse which is paid based on finishing position, and contingency award payments. The Company also pays awards to the teams based on their cumulative performance for the season out of the year-end point fund. After the Reorganization, franchise fund payments will be discontinued. U.S. 500. In addition to the race purse, expenses for the U.S. 500 in 1996 included sales costs related to the sale of sponsorships, track rental expenses, compensation expenses related to contract staff, promotional and advertising costs and administrative expenses incurred solely with respect to the U.S. 500 event. Race Expenses. The Company is responsible for officiating and administering each event in the CART Championship. Costs primarily include officiating fees, travel, per diem and lodging expenses for the following officiating groups: safety, technical inspection, race officiating and rules compliance, medical services, timing and scoring audit, registration and race administration. Prior to the Reorganization, each franchise team was paid a travel fee to attend and participate in each event, and after January 1, 1998, such payments will be discontinued. Overseas event organizers are responsible for costs related to cargo, air passenger travel and lodging for CART staff and race participants. Administrative and Indirect Expenses. All operating costs not directly incurred for a specific event, primarily wages, Board of Directors fees and other administrative expenses, are recorded as administrative and indirect expenses. RESULTS OF OPERATIONS Nine months ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Revenues. Total revenues for the nine months ended September 30, 1997 were $39.9 million, an increase of $53,000 from the corresponding period in the prior year. This increase was due to higher sanction fees and sponsorship, television and other revenue as described below, partially offset by a reduction in revenue of $7.1 million due to the fact that the Company did not promote the U.S. 500 in 1997. 18 20 Sanction fees for the nine months ended September 30, 1997 were $24.2 million, an increase of $3.1 million, or 15%, from the corresponding period in the prior year. This increase was the result of the addition of two new events in Madison, Illinois near St. Louis and Fontana, California near Los Angeles and annual sanction fee escalation for 15 other events. Sponsorship revenue for the nine months ended September 30, 1997 was $6.2 million, an increase of $1.7 million, or 38%, from the corresponding period in the prior year. This increase was primarily attributable to a new sponsorship agreement entered into with MCI. Television revenue for the nine months ended September 30, 1997 was $5.0 million, an increase of $863,000, or 21%, from the corresponding period in the prior year. This increase was due to the escalation in the ESPN rights fee and an increase in rights fees from Fittipaldi USA, the Company's Brazilian television partner. Other revenue for the nine months ended September 30, 1997 was $4.5 million, an increase of $1.5 million, or 51%, from the corresponding period in the prior year. This increase was primarily attributable to additional revenue from CART-sanctioned support series, the sale of commercial time for "Inside CART" and video footage sales. Expenses. Total expenses for the period ended September 30, 1997 were $47.3 million, an increase of $9.8 million, or 26%, from the corresponding period in the prior year. This increase was due to higher race and franchise fund payments, race expense, compensation expense and administrative and indirect expenses as described below, partially offset by a reduction in expenses of $8.2 million because the Company did not act as the promoter of the U.S. 500 in 1997. Race and franchise fund payments for the period ended September 30, 1997 were $28.7 million, an increase of $11.6 million, or 68%, from the corresponding period in the prior year. This increase was attributable to a one-time increase of $9.5 million in the year-end point fund in 1997, increases in purse distributions for the additional events in Madison, Illinois and Fontana, California and payments related to team travel expenses. Race expenses for the nine months ended September 30, 1997 were $6.1 million, an increase of $1.7 million, or 39%, from the corresponding period in the prior year. This increase was the result of the addition of the events in Madison, Illinois and Fontana, California. Compensation expense for the nine months ended September 30, 1997 was $1.5 million, an increase of $316,000, or 27%, from the corresponding period in the prior year. This increase was attributable to purchases of the Company's stock at below fair market value prices. New franchise members became eligible to acquire three and one-half shares during the nine months ended September 30, 1997, compared to the three shares that were eligible for purchase during the comparable period in 1996. Administrative and indirect expenses for the nine months ended September 30, 1997 were $10.8 million, an increase of $4.7 million, or 76%, from the corresponding period in the prior year. This increase was primarily attributable to the hiring of additional personnel in the marketing, promotion, public relations and television areas and the implementation of new programs as part of the corporate expansion program in the areas previously described, and increased sales costs from the sponsorship agreement entered into with MCI. Loss before income taxes for the nine months ended September 30, 1997 was $7.4 million, a decrease in income of $9.8 million from the corresponding period in the prior year due to the factors described above. Income tax benefit for the nine months ended September 30, 1997 was $2.6 million compared to an income tax expense of $891,000 for the corresponding period in the prior year. Net loss for the nine months ended September 30, 1997 was $4.8 million, a decrease in net income of $6.3 million from the corresponding period in the prior year as a result of the factors described above. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Revenues. Total revenues for 1996 were $41.5 million, an increase of $11.5 million, or 38%, from 1995. This increase was the result of higher sanction fees, revenue received from the promotion of the U.S. 500 and increases in sponsorship, television and other revenue as described below. Sanction fees for 1996 were $21.1 million, an increase of $2.4 million, or 13%, from 1995. This increase was primarily attributable to the addition of a new race in Rio de Janeiro, Brazil and annual sanction fee escalation for 14 other events, partially offset by the elimination of the Phoenix and New Hampshire events for 1996. 19 21 U.S. 500 revenues for 1996 were $7.1 million. These revenues resulted from the Company's promotion of the inaugural U.S. 500 and were comprised of ticket sales, sponsorship, hospitality, television and other revenue. The Company did not act as the promoter of the U.S. 500 prior to 1996, and, therefore, no revenues were received for the comparable prior period. Sponsorship revenue for 1996 was $5.5 million, an increase of $721,000, or 15%, from 1995. This increase was primarily the result of new sponsorship agreements entered into with Toyota Truck and Honda Motorcycle and revenue from PPG's sponsorship of the CART Championship internet website. Television revenue for 1996 was $4.1 million, an increase of $962,000, or 30%, from 1995 due to increased revenue received from ESPN over the minimum guarantee. Other revenue for 1996 was $3.7 million, an increase of $370,000, or 11%, from 1995. This additional revenue resulted from increases related to the CART-sanctioned support series, Indy Lights, and interest from investments, additional licensing revenues related to radio rights, a franchise redemption and revenues from equipment leases. Expenses. Total expenses for 1996 were $42.0 million, an increase of $12.8 million, or 44%, from 1995. This increase was due to higher race, non-cash compensation, administrative and indirect expenses and the Company's promotion of the U.S. 500 as described below, partially offset by slightly lower race and franchise fund payments. Race and franchise fund payments for 1996 were $17.2 million, a decrease of $1.2 million, or 7%, from 1995. The Company had a reduction in franchise fund payments in 1996 because the Company did not make a franchise fund payment related to the U.S. 500 and because race payments related to the U.S. 500 are included in U.S. 500 expenses below. U.S. 500 expenses for 1996 were $8.2 million. These expenses include track rental, cost of sales related to sponsorships, labor costs to promote and officiate the event and advertising and promotions to publicize the event, as well as associated race payments which are not included in the race and franchise fund payments described above. The expenses incurred in 1996 were related to the Company's promotion of the inaugural U.S. 500 in that year, and, therefore, no expenses related to the U.S. 500 were incurred for the comparable prior period or any period subsequent to 1996. Race expenses for 1996 were $6.1 million, an increase of $1.4 million, or 31%, from 1995. This increase was primarily attributable to one-time research and development costs, a restructuring of officials fees, the addition of spring training for the race teams and the write-off of equipment. Compensation expense for 1996 was $1.2 million. The non-cash compensation expense relates to the issuance of the Company's stock to new franchise members at below fair market value prices. New franchise members became eligible to acquire three shares in 1996. Non-cash compensation expenses related to stock purchases by eligible franchise members which were not incurred in the prior year. Administrative and indirect expenses for 1996 were $8.6 million, an increase of $2.8 million, or 48%, from 1995. This increase was primarily the result of professional fee expenses incurred in litigation, an increase in interest expense related to the acquisition of a new medical coach and costs associated with the continued growth of the Company. Loss before income taxes for 1996 was $517,000, a decrease in income of $1.3 million from 1995 due to the factors described above. Income tax benefit for 1996 was $179,000, a decrease of $25,000 from 1995. Net loss for 1996 was $338,000, a decrease in net income of $1.3 million from 1995 as a result of the factors described above. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Revenues. Total revenues for 1995 were $30.0 million, an increase of $4.8 million, or 19%, from 1994. This increase was due to higher sanction fees, sponsorship, television and other revenue as described below. Sanction fees for 1995 were $18.7 million, an increase of $2.4 million, or 15%, from 1994. This increase was attributable to the addition of a new race in Miami, Florida and annual sanction fee escalation for certain other race events. 20 22 Sponsorship revenue for 1995 was $4.8 million, an increase of $676,000, or 16%, from 1994. This increase was primarily the result of new sponsorship agreements entered into with Budweiser, Mercedes Benz, Craftsman, IBM and Domaine Chandon. Television revenue for 1995 was $3.2 million, an increase of $834,000, or 36%, from 1994 due to an increase in net revenues and minimum guarantees from ESPN. Other revenue for 1995 was $3.3 million, an increase of $871,000, or 36%, from 1994. This additional revenue was the result of increases in royalty revenues and consulting fees from the development of an on-track physical damage program. Expenses. Total expenses for the year-ended 1995 were $29.2 million, an increase of $4.1 million, or 16%, from 1994. This increase was due to higher race and franchise fund payments, race expenses and administrative and indirect expenses. Race and franchise fund payments for 1995 were $18.4 million, an increase of $141,000, or 1%, from 1994. This increase was attributable to the additional race held in Miami, Florida and was partially offset by a reduction in franchise fund payments that was the result of a decrease in franchises from 23 to 24 in 1995 to 22 in 1994. Race expenses for 1995 were $4.6 million, an increase of $2.0 million, or 76%, from 1994. This increase was due to the additional race in Miami, Florida and expenses related to a travel reimbursement plan implemented in 1995. Administrative and indirect expenses for 1995 were $5.8 million, an increase of $1.9 million, or 47%, from 1994 due to a relocation of the Company's headquarters and the continued growth of the Company. Income before income taxes for 1995 was $781,000, an increase of $699,000 from 1994 due to the factors described above. Income tax benefit for 1995 was $204,000, a decrease of $140,000 from 1994. Net income for 1995 was $985,000, an increase of $559,000 from 1994 as a result of the factors described above. SEASONALITY AND QUARTERLY RESULTS The Company derives a substantial portion of its total revenues during the CART Championship season. As a result, the Company's business has been, and is expected to remain, seasonal, based upon the CART Championship schedule. The Company's quarterly results vary relative to the number of races held during the quarter. In addition, the mix between the type of race (street course, superspeedway, etc.) and the sanction fees attributed to those races will affect quarterly results. The following table sets forth certain unaudited quarterly financial data of the Company for each of the four quarters of 1995 and 1996 and for the first three quarters of 1997. The information for each of these quarters is prepared on the same basis as the financial statements of the Company and related notes thereto included elsewhere in this Prospectus and include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to fairly present the data for such periods. The tables should be read in conjunction with "Selected Consolidated Financial Data," the financial statements of the Company and the related notes thereto and the other financial information included elsewhere in this Prospectus. 21 23
QUARTERS ENDED -------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- (DOLLARS IN THOUSANDS) Total Revenues 1995............................................................ $5,995 $ 9,427 $ 12,721 $ 1,834 1996(1)......................................................... 10,623 17,580 11,647 1,604 1997............................................................ 5,569 18,564 15,770 -- Income (Loss) Before Taxes 1995............................................................ $1,159 $ (662) $ 1,166 $ (882) 1996............................................................ 3,542 (948) (163) (2,948) 1997............................................................ 1,272 (1,695) (6,942) -- Number of Races 1995............................................................ 2 6 8 0 1996............................................................ 3 6 7 0 1997............................................................ 1 8 8 --
(1) Includes revenues of $7.1 million related to the Company's promotion of the U.S. 500 in the quarter ended June 30. The Company will continue to sanction this event, but does not anticipate promoting the event in the future. The revenues from any race in the CART Championship can significantly affect the Company's results of operations for a particular quarter. Consequently, changes in race schedules from year to year, with races held in different quarters, will result in the fluctuation of quarterly results and affect comparability. LIQUIDITY AND CAPITAL RESOURCES The Company has relied on cash flow from operations, supplemented by bank borrowings, to finance working capital, investments and capital expenditures. The Company's bank borrowing with a commercial bank consists of a fixed rate installment note incurred in connection with the acquisition of a mobile medical unit that is transported to each North American race. The note bears interest at the rate of 8.25% per annum and matures on May 1, 2001. The note is secured by the Company's mobile medical unit. Interest is payable monthly. As of September 30, 1997, the current portion of this note was $130,000 and the long-term portion was $336,000. The Company also has a $1.5 million revolving line of credit with a commercial bank. As of September 30, 1997, there was no outstanding balance under the line of credit. The line of credit contains no covenants or restrictions. Advances on the line of credit are payable on demand and bear interest at the bank's prime rate. The line is secured by the Company's deposits with the bank. The Company's cash balance on September 30, 1997 was $4.9 million, a net increase of $4.2 million from December 31, 1996. This increase was primarily the result of net cash provided by operations of $3.9 million, net equity contributions of $855,000 and an increase in net working capital, which was offset by capital expenditures incurred during the year of $583,000. The Company's cash balance on September 30, 1996 was $5.4 million, compared to $2.0 million at December 31, 1995, a net increase of $3.4 million. The increase was primarily the result of net cash from operations of $3.3 million, net proceeds from long-term debt and a line of credit of $204,000, increase in membership deposits of $360,000 and net equity contributions of $60,000, which were partially offset by capital expenditures incurred during 1995 of $641,000. The Company has budgeted approximately $1.7 million of capital expenditures for 1998, including capital expenditures expected by Indy Lights. The Company believes that the proceeds of the Offering, cash flow from operations and available borrowings under its bank facilities will be sufficient to fund its capital expenditures and other cash needs during 1998. YEAR 2000 COMPLIANCE The Company does not expect the cost of converting its computer systems to year 2000 compliance will be material to its financial condition. The Company believes that it will be able to achieve year 2000 compliance by the end of 1999, 22 24 and does not currently anticipate any disruption in its operations as the result of any failure by the Company to be in compliance. The Company does not currently have any information concerning the year 2000 compliance status of its suppliers and customers. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" was issued by the Financial Accounting Standards Board ("FASB"). SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS") and applies to all entities with publicly-held common shares or potential common shares. SFAS No. 128 replaces the presentation of primary EPS and fully-diluted EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding for the period. Similar to fully diluted EPS, diluted EPS reflects the potential dilution of securities that could share in the earnings. SFAS No. 128 is not expected to have a material effect on the Company's reported EPS amounts. SFAS No. 128 is effective for the Company's financial statements for the year ending December 31, 1997. In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and related Information was issued by the FASB. SFAS No. 131 establishes standards for the way that public business enterprises report financial and descriptive information about its reporting operating segments. The Company has not determined the impact on the Company's financial statement disclosure. SFAS No. 131 is effective for the Company's financial statements for the year ending December 31, 1998. 23 25 AUTO RACING INDUSTRY OVERVIEW Auto racing consists of several distinct categories, each with its own organizing body and racing events. The largest category in the United States, in terms of attendance and media exposure, is stock car racing, which is dominated by NASCAR. Stock car racing utilizes equipment similar in appearance to standard passenger automobiles and races are typically staged on oval courses. Internationally, the most recognized form of auto racing is open-wheel racing, utilizing an aerodynamically designed chassis to attain high speeds, and technologically advanced equipment. The most established international open-wheel racing series' are Formula One, the CART Championship, Formula 3000 and Indy Lights. In addition to these established open-wheel series, the Indy Racing League (the "IRL"), a new American-based oval-racing series that includes the Indianapolis 500, was formed in 1996. Drag racing typically involves short sprint races on a straight-line drag strip, with the objective being to attain the lowest elapsed time over the short distance of the track. The National Hot Rod Association ("NHRA") is the most preeminent organizing body in drag racing. Other, less prominent, racing segments include various types of sports car racing and club racing. Motorsports events are generally heavily promoted, with a number of supporting events surrounding the main race event. Examples of supporting events include qualifying trials, secondary racing events, driver autograph sessions, automobile and product expositions, catered parties and other related events which are all designed to maximize the spectators' entertainment experience. The primary participants in motorsports are spectators, corporate sponsors, track owners, drivers, team owners and sanctioning bodies. Spectators. Motorsports is among the fastest growing spectator sports in the United States and, after soccer, it is the most watched sport worldwide. Total attendance at all motorsports events in the United States in 1996 exceeded 15 million people. During 1996, approximately 2.4 million people attended CART events. CART races were also televised in more than 185 countries in 1996, with aggregate television audiences of approximately 1 billion viewers. Corporate Sponsors. Drawn to motorsports by the large number of spectators and television audiences and their attractive demographics, corporate sponsors are active in all phases of the industry. The Company believes that the demographic profile of its growing spectator base has considerable appeal to sponsors, track owners, television networks and advertisers. The mean annual family income of CART spectators has been estimated to be $52,700, compared to $38,400 for an average United States household. The Company believes that the spectators are loyal to motorsports and to its corporate sponsors. In addition to sponsoring the various racing series, corporate sponsors support drivers and teams by funding certain costs of their operations, and race promoters and track owners by sponsoring and promoting specific events. In return, corporate sponsors receive advertising exposure on television and radio, through newspapers, printed materials, advertising and promotional and hospitality benefits at the track over the race weekend. Companies negotiate sponsorship arrangements based on factors including a series' or event's audience size or spectator demographics and a team's racing success. Race Promoters. Race promoters, which include track owners, government organizations and other groups and individuals, pay a fee to have an event sanctioned at their race venue and are responsible for the local marketing and promotion of the event. Their revenue sources generally include admissions, sponsorships, corporate hospitality (suites, chalets and tents for race viewing and other amenities), advertising and concessions and souvenir sales. Drivers. A majority of drivers contract independently with team owners, while select drivers own their own teams. Principally, these drivers receive income from contracts with team owners, sponsorship fees and prize money. Successful drivers may also receive income from personal endorsement fees and souvenir sales. The personality and success of a driver can be an important marketing advantage for team owners, because it can help attract corporate sponsorships and generate sales for licensed merchandise. Team Owners. In most instances, team owners underwrite the financial risk of placing their teams in competition. They contract with drivers, acquire racing vehicles and support equipment, employ pit crews and mechanics and syndicate sponsorship of their teams. Team owners generally receive income primarily from sponsorships and a percentage of the purses. Sanctioning Bodies. Sanctioning bodies sanction events at various race venues in exchange for fees from race promoters and track owners, and are responsible for all aspects of race management necessary to "manufacture" the race event. Sanctioning bodies are responsible for presenting racing cars, drivers, and teams and providing race officials to ensure fair competition, as well as providing the race and series' purses and other prize payments. 24 26 The Federation Internationale de l'Automobile (the "FIA"), based in Paris, France, is the worldwide governing body for auto racing, with "national sporting authority" members in more than 100 countries. The FIA's United States national sporting authority is the Automobile Competition Committee of the United States, which in turn is made up of seven member sanctioning organizations: CART, NASCAR, United States Auto Club ("USAC"), Professional SportsCar Racing ("PSCR"), NHRA, Sports Car Club of America ("SCCA") and the IRL. - CART. The CART Championship is the premier open-wheel motorsports series in North America. CART events are staged on four different types of tracks -- superspeedways, ovals, temporary street courses and permanent road courses, requiring teams and drivers to employ a variety of skills to master different courses to compete for the CART Championship. The CART Championship is sanctioned by CART and will include 19 races in the 1998 season. - Formula One. The FIA sanctions the Formula One World Championship events consisting of open-wheel races on road courses in Europe, South America, Canada, Australia and Japan. The Formula One World Championship was founded in 1950. The 1997 Formula One calendar included 17 events in 16 different countries. Currently, there are no events in the Formula One World Championship that are staged in the United States. - IRL. In 1995, the IRL was formed as a rival United States open-wheel racing series, competing directly with CART. The IRL's events are staged solely on oval courses. The IRL's first season of racing commenced in 1996 and consisted of five races, including the Indianapolis 500. The 1998 season will consist of 11 races, including the Indianapolis 500. The IRL was sanctioned by USAC during 1996, but during 1997, the IRL elected to sanction its own events. - NASCAR. Professional stock car racing developed in the Southeastern United States in the 1930s, and NASCAR has been influential in the growth and development of the sport. NASCAR is the most recognized sanctioning body of professional stock car racing in North America, supervising the Winston Cup and Busch Grand National stock car race series. The 1997 Winston Cup and Busch Grand National race series included 31 and 29 races, respectively, all of which were held in the United States, with an exhibition event in Japan. - Other Sanctioning Bodies. Sports car races are held on road courses and temporary street circuits throughout the United States and are sanctioned by SCCA and PSCR. Drag racing is sanctioned in the United States by NHRA. ARCA sanctions stock cars races that are less prominent than the those sanctioned by NASCAR. 25 27 BUSINESS THE COMPANY The Company owns, operates and sanctions the premier open-wheel motorsports series in North America, the CART Championship, and is responsible for organizing, marketing and staging each of the races in the CART Championship. With speeds up to 240 miles per hour, and an average margin of victory during the 1997 race season of fewer than four seconds, CART open-wheel racing is the fastest form of closed-circuit auto racing available to motorsports audiences, providing intense excitement and competition. The drivers and racing teams participating in CART racing events are among the most recognized names in motorsports, with marquee drivers including Michael Andretti, Bobby Rahal, Al Unser Jr., Jimmy Vasser and Alex Zanardi. The excitement and competition of CART racing also attracts well-known racing legends, business leaders and sports and entertainment personalities as team owners including Chip Ganassi, Carl Haas, David Letterman, Bruce McCaw, Joe Montana, Paul Newman, U.E. "Pat" Patrick, Walter Payton and Roger Penske. For a complete list of CART drivers and teams, see "-- Drivers and Corporate Sponsors," below. Major sponsors of the 1998 CART Championship will include Federal Express and PPG Industries as the co-title sponsors, MCI, Budweiser, Mercedes-Benz, Honda, Craftsman and other Fortune 500 companies. Open-wheel racing in the United States traces its history to 1904, and is the oldest continually scheduled motorsports competition in the world. The 1997 CART Championship included 17 races staged in four countries -- the United States, Canada, Australia and Brazil. Two additional races have been added for 1998, one in Motegi, Japan and one in Houston, Texas. CART races are conducted on four different types of tracks: superspeedways, ovals, temporary street courses and permanent road courses, requiring teams and drivers to employ a variety of skills to master different courses to compete for the CART Championship. Each race weekend in the CART Championship is an "event" offering spectators the opportunity to enjoy a CART race as well as a full weekend of entertainment, including additional races, practice and qualifying rounds for all racing events, and automotive and general entertainment demonstrations and displays. Race weekends provide corporate sponsors and other businesses the opportunity to entertain their customers and employees through hospitality areas and other activities. Motorsports is among the most popular and fastest growing spectator sports in the United States and, after soccer, it is the most watched sport worldwide. CART's races were televised in more than 185 countries in 1996 with aggregate television audiences of approximately 1 billion viewers. Total attendance at major auto racing series' events in North America and CART racing events increased significantly from 12.4 million and 1.8 million, respectively, in 1991 to 15.4 million and 2.4 million, respectively, in 1996. CART believes the demographic profile of its growing spectator base has considerable appeal to track owners, sponsors, television networks and advertisers. The mean annual family income of CART spectators has been estimated to be $52,700, compared to $38,400 for an average United States household. The Company derives its revenues from four primary sources: sanction fees paid by track promoters, corporate sponsorship fees and television and royalty revenues. The Company's revenues have increased during the last three years from $25.2 million in 1994 to $41.5 million in 1996. Based upon current promoter and sponsorship agreements, The Company expects that sanction fee revenues will increase from $24.4 million to $30.4 million and that sponsorship revenues will increase from $7.2 million to $12.1 million from 1997 to 1998. In December 1997, the Company was incorporated in Delaware in contemplation of the Reorganization. The Company's principal executive office is located at 755 West Big Beaver Road, Suite 800, Troy, Michigan 48084, and its telephone number is (248)362-8800. GROWTH STRATEGY The Company's growth strategy is to increase revenues and net income by expanding the worldwide audience for CART racing. The Company intends to capitalize on its position as the premier open-wheel racing series in North America and the thrill and excitement of CART racing to increase CART's brand awareness. The Company believes that these factors will provide it with opportunities for increased sanction fees, corporate sponsorship fees, television revenues and royalties. To implement its strategy, the Company intends to: 26 28 - Acquire and Develop Related Businesses and Properties. The Company will selectively pursue opportunities to acquire and apply the CART brand name to other race-related businesses and properties. The Company expects to vertically integrate certain support-racing series to develop future racing talent in the United States. The Company is also seeking opportunities to acquire and develop race experience products such as simulation or virtual reality products, indoor kart racing centers and race schools, which will provide potential and existing race fans with an affordable and accessible opportunity to experience the sport. As the first step in this strategy, the Company is acquiring ARS, which operates Indy Lights, and BP, which provides certain equipment to the participants of Indy Lights. This transaction will close concurrently with the Offering. - Increase Market Penetration in the United States. The Company will continue to develop its race schedule in key markets in the United States and will stage a race in Houston, Texas during the 1998 season. Because CART races are conducted on superspeedways, ovals, temporary street courses and permanent road courses, the Company believes it has great flexibility in selecting future race venues. - Expand International Audience. The Company believes that the world market for motorsports is predisposed to CART's style of exciting, competitive, open-wheel racing. The CART Championship will span four continents in 1998, with events in the United States, Canada, Australia, Brazil and Japan. The Company typically receives higher sanction fees from the promoters of international race events. Management continues to explore additional opportunities to export its high-value, American racing product throughout the world and to include more international-based sponsors for the Company and its race teams. - Expand Media Exposure. The Company plans to expand CART's exposure and fan awareness by developing additional television and radio coverage. During the 1998 race season, the Company expects to continue its magazine-style program, "Inside CART," which premiered in the United States on the Fox Sports Network in late 1997. Internationally, CART will continue to build on the solid media distribution base established over recent years in conjunction with its various distribution partners, with a particular emphasis on expanding primary network coverage within individual countries. - Increase CART's Licensing Opportunities. The Company will continue to seek out opportunities to bring the CART brand to a broader market. Through CART Licensed Products, an affiliated limited partnership, CART provides "one stop shopping" for potential licensees for the servicemarks and trademarks of CART, as well as for participating race teams, drivers and tracks. This integrated approach allows licensees and retailers to work with a single licensing entity rather than negotiating with the fragmented licensing environment found in other sports. THE CART ADVANTAGE The CART Championship. CART was founded in 1978 by a group of team owners dedicated to the future of open-wheel motorsports. This group has evolved into today's CART Championship competitors. In 1997, 17 teams entered 27 cars to compete for the title of PPG CART World Series Champion. Purse money and CART Championship points are awarded to teams based on their finishing position in each race. The CART Champion is determined by the cumulative points received over the course of the season. The current champion is Alex Zanardi of Italy. Past CART champions include such well known drivers as Mario Andretti, Michael Andretti, Emerson Fittipaldi, Nigel Mansell, Rick Mears, Bobby Rahal, Johnny Rutherford, Danny Sullivan, Al Unser, Jr., Al Unser, Sr., Jimmy Vasser and Jacques Villeneuve. The Races. Winning the CART Championship requires race teams and their drivers to master superspeedways, high-intensity one-mile ovals, permanent road courses and temporary road courses. High-tech race cars with state-of-the-art engines from Mercedes-Benz, Honda, Ford and Toyota reach speeds of up to 240 miles per hour. The Company believes that the CART Championship offers the fastest and most competitive racing of any closed-circuit motorsport series, with an average margin of victory during 1997 of fewer than four seconds. The World-Wide Appeal. The sport of motor racing is second only to soccer in its worldwide popularity. CART's open-wheel style of racing is well understood throughout the world and is recognized as the ultimate form of the sport. CART has capitalized on its broad, worldwide appeal and now races in Australia, Brazil and Canada, in addition to the United States. In 1998, a race in Japan will be added to the CART schedule. Adding to CART's worldwide appeal is the diversity of its drivers. In 1997, 19 of the 31 drivers who competed in at least one CART race event were born outside of the United States. In total, these drivers represented 10 different countries. 27 29 The Fans. The primary means for a fan to interface with the CART Championship is through direct attendance at events or by television viewership. CART spectators are demographically attractive to sponsors and advertisers in that they are generally young males with education and income levels above the national average. This demographic group is hard to reach by traditional methods, making sponsorship of CART's teams or events an attractive advertising and promotional investment. CART's television audience, while closer to the national average for household income, encompasses an above average proportion of males in the 25 to 54 age group, an attractive demographic for advertisers since this age group tends to watch less television than the average American. CART's television ratings have declined in recent years and mirror the overall decline in television ratings for sports events in the United States. On a worldwide basis, CART's television audience was composed of approximately 1 billion viewers during 1996, which represented a 7% increase over the 1995 race season. CART HISTORY CART-style, open-wheel racing stands as the longest continually scheduled major motorsports championship in the world, dating back to the early 1900s. The first American automobile race took place in 1895, and the American Automobile Association ("AAA") began sanctioning major races in 1904. The AAA sanctioned races through the 1955 season at which time USAC became the official sanctioning body. In the 1970s, race team owners became increasingly concerned about escalating costs, lack of promotional activities and concentration solely on the Indianapolis 500. As a result, in November 1978, a group of 18 of the 21 team owners left USAC to form CART and the CART Championship. The group included U.E. "Pat" Patrick, Roger Penske and other teams owners who desired greater participation in the rule-making and administrative processes concerning open-wheel racing in the United States. In its 1979 inaugural season, CART staged 13 races. PPG Industries became the title sponsor of the CART Championship late in that inaugural year, and Rick Mears was crowned the first champion of the CART Championship. Since Mears' victory in the inaugural season, CART has had many other memorable champions including Al Unser, Sr., Johnny Rutherford, Mario Andretti, Danny Sullivan, Emerson Fittipaldi, Al Unser, Jr., Michael Andretti, Bobby Rahal, Nigel Mansell, Jacques Villeneuve, Jimmy Vasser and Alex Zanardi. Competitive, close racing is the hallmark of CART. In 1991, there were six different winners in the first six races, and the 1993 season yielded six different race winners and 13 different podium finishers. The 1994 through 1997 race seasons were equally competitive. In 1997, there were eight different winners, including first-time victories in the CART Championship for Mark Blundell, Mauricio Gugelmin and Greg Moore. Due to starting position reservations and changes to equipment specifications, CART teams have generally not competed in the Indianapolis 500 since 1995. The reservation of starting positions for IRL competitors was removed by the Indianapolis Motor Speedway ("IMS") after the 1997 Indianapolis 500. The Company will continue to evaluate opportunities for an accommodation with the IMS, but there can be no assurance that a resolution will be reached or of the timing of any such resolution. The Company is unable to predict what effect, if any, the continued non-participation by CART teams at the Indianapolis 500 will have on the Company's future results. Since 1995, CART has added domestic races in Homestead, Florida, Madison, Illinois, and Fontana, California. These races serve the important Miami, St. Louis and Los Angeles markets, respectively. Internationally, a race in Rio de Janeiro, Brazil was added to CART's schedule in 1996. The Company has scheduled new races in Houston, Texas and Motegi, Japan for 1998. Today, the CART Championship is the premier open-wheel racing series in North America and has successfully expanded its core domestic audience and exported its product to international race venues and television markets. CART's race cars, which can attain speeds of up to 240 miles per hour, are the fastest closed-circuit race cars in the United States, and its events, staged on four types of tracks, require different skills and disciplines from the drivers and teams. FRANCHISE SYSTEM AND RACE TEAMS Since 1984, CART has been operated as a "franchise system." A franchise was available for each competing car, with any one owner limited to a maximum of two franchise memberships. The number of franchises awarded has varied, 28 30 but has never exceeded 25. To become a franchise member, a race team must have competed in all events for the prior race year and be one of the 25 highest placed teams, based on points received from competition. Prior to the Reorganization, each franchise member received the right to purchase one share of common stock of CART. The participation of race teams is critical to the ongoing success of the Company and the CART Championship. The Company believes that the franchise system, which is the only race governing system that offers teams direct input into race scheduling, rules and all other racing activities, is a significant factor in encouraging entities who are interested in auto racing to participate in CART-sanctioned events. CART, which became a wholly-owned subsidiary of the Company following the Reorganization, is managed by a board of directors composed of race team participants (the "CART franchise board"). Prior to the Reorganization, each franchise owner was entitled to designate a member to the CART franchise board and to receive certain benefits, including reimbursement of travel expenses on a per race basis, directors fees and other race-related expenses. The franchise and the one share of stock were not transferable without the approval of the CART franchise board and were subject to redemption by CART at the price set by the CART franchise board for the year in which the redemption occurred. In certain instances, a race team sold its franchise and share of stock to an incoming franchisee at the price set by the CART franchise board. In other instances, the franchise and stock were redeemed by CART on the same basis. For the 1997 season, each new race team that purchased a franchise and a share of common stock paid $400,000. At the end of the 1997 race season, there were 22 franchises, each of which, prior to the Reorganization, owned one share of stock in CART. Upon completion of the Reorganization, each share of stock was converted into 400,000 shares of Common Stock. The three new race teams who met the franchise purchase criteria in September 1997 became franchise owners in December 1997, and were issued one share of stock in CART, which was subsequently converted into 400,000 shares of Common Stock of the Company. In addition, three new race teams who competed in all of the CART races during the 1997 season, but did not earn enough points to be a franchise owner, were awarded an aggregate of one-half share of stock, which was converted into an aggregate of 200,000 shares of Common Stock upon the Reorganization. Subsequent to the Reorganization, the franchise system will continue without any additional equity ownership in the Company or CART. Rather, the 25 race teams which have met participation requirements and have the highest total of points from the prior season will each be permitted to designate a member to the CART franchise board, which will manage and oversee all racing-related activities and make all decisions with respect to specifications for engines and chassis, race and venue participation, rules and related matters. The stockholders of the Company have received payments in equal amounts based on their ownership of franchises and race participation for the fiscal year ended December 31, 1994, 1995, 1996 and the nine months ended September 30, 1997 in the aggregate amounts of $7.4 million, $9.0 million, $8.5 million and $19.4 million, respectively. These franchise payments will be discontinued after January 1, 1998 pursuant to contractual commitments which expire in December 2000. In addition, all of the stockholders of the Company have competed for the purse money distributions for each race event and year-end points distributions and contingency awards. These amounts have been paid by CART to various teams based solely upon their performance in the CART events and have been paid to race teams regardless of whether or 29 31 not they were franchise or share owners. The amounts paid to each of the current stockholders and their predecessors during the past four years were as follows:
STOCKHOLDERS 1994 1995 1996 1997 - ----------------------------------------- ---------- ---------- ---------- ---------- All American Racers, Inc................. $ -- $ -- $ 265,250 $ 240,250 Arciero-Wells Racing, Inc................ 95,950 133,000 173,250 275,000 Bettenhausen Motorsports, Inc............ 272,725 246,125 367,300 275,450 Davis Racing, Inc........................ -- -- -- 146,900 Della Penna Motorsports, Inc............. -- -- 28,650 125,000 Forsythe-Green Racing, Inc............... 362,050 -- -- -- Forsythe Racing, Inc..................... -- 461,100 489,175 541,000 Hogan/Penske Racing, Inc................. -- -- 229,750 -- Hogan Racing, L.L.C...................... -- -- -- 178,500 Newman/Haas Racing....................... 635,000 1,169,600 1,695,850 729,000 PacWest Racing Group..................... 366,600 621,150 700,100 1,283,000 Patrick Racing, Inc...................... -- 522,070 503,400 984,000 Dale Coyne Racing........................ 153,725 267,900 366,050 251,250 Penske Racing, Inc....................... 3,941,600 1,319,751 1,004,500 895,500 Project Indy............................. 88,500 69,500 11,500 82,000 Rahal/Hogan Racing, Inc.................. 412,875 929,150 -- -- Chip Ganassi Racing, Inc................. 797,050 634,500 3,823,175 2,564,750 Tasman Motorsports Group................. -- 275,400 762,975 399,000 Team Green, Inc.......................... -- 1,667,050 -- 216,900 Team Rahal, Inc.......................... -- -- 1,115,875 582,000 Walker & Associates Motorsport, Ltd...... 750,900 850,250 424,400 1,013,250
PPG DAYTON INDY LIGHTS CHAMPIONSHIP The Indy Lights Championship was formed in 1986 by racing team owner U.E. "Pat" Patrick as a series in which team owners could discover and develop the next generation of CART talent. Indy Lights was designed to emphasize driver and team talent, while reducing any advantage gained through large monetary expenditures for equipment and technology. By restricting competition to a single chassis design, powered by identical, sealed engines and running a single brand of tires, Indy Lights offers a series in which costs can be carefully controlled and creates a level playing field for drivers, team managers and engineers. The Indy Lights Championship is designated as the "Official Development Series of the CART Championship," and is sanctioned by CART. During the 1997 season, seven different drivers, representing five different race teams and four different countries, won races, making 1997 one of the most competitive seasons in the series' history. During 1997, the series had 21 full-season entrants, with a total of 36 drivers competing in at least one race in the Indy Lights Championship. Graduates from the Indy Lights Championship who now compete in the CART Championship include drivers Paul Tracy, Bryan Herta, Greg Moore, Andre Ribeiro, Adrian Fernandez and Gualter Salles, as well as Steve Horne's Tasman Motorsports Group. In 1997, CART team owners Steve Horne (Tasman Motorsports Group), Gerald Forsythe (Players' Forsythe Racing), Bruce McCaw (PacWest Racing) and Barry Green (Team KOOL Green) each competed in the Indy Lights Championship to train a talent pool of mechanics, engineers and other team personnel. At the conclusion of the 1997 season, CART team owner and driver, Bobby Rahal, announced that Team Rahal will compete in the Indy Lights Championship for the 1998 race season. Similar to the CART Championship, the Indy Lights Championship races are run on four different types of tracks. Each of the race events is sanctioned by CART and, at certain venues, CART receives a sanction fee from the promoter for staging the Indy Lights event. CART's management believes that the Indy Lights Championship can create significant revenue growth for CART through packaged sponsorships, extending CART's efforts to integrate category sponsorship and additional sanction fees for "stand alone" Indy Lights events, both in the United States and overseas. With the growth and popularity of the series, the Company believes that Indy Lights will play a significant role in its future revenue growth. 30 32 In December 1997, the Company entered into a binding letter of intent to acquire all of the outstanding shares of ARS and certain assets of BP for a total purchase price of $10.0 million, of which $7.0 million is payable in cash at closing and $3.0 million, which will be escrowed and payable equally over three years subject to ARS meeting certain performance criteria. In addition, the shareholders of ARS and BP will be granted options to purchase 100,000 shares of the Company's common stock at the initial public offering price which vest one year from closing if certain performance criteria are met for 1998. At the time of the Offering, the shareholders of ARS will be granted the right to purchase 67,000 shares of the Company's common stock at the initial public offering price. ARS operates Indy Lights and BP provides certain equipment to the participants of Indy Lights. The Indy Lights Acquisition will close concurrently with the Offering and a portion of the proceeds from the Offering will be used to fund the cash portion of the Indy Lights Acquisition. RACING EVENTS When staging a CART event, the Company provides all aspects of race management necessary to "manufacture" the race event, including the required expertise and personnel. Such race management services are provided to track promoters in exchange for a sanction fee. CART stages events at four different types of tracks, including superspeedways, ovals, temporary street courses and permanent road courses. Superspeedways are banked ovals of two miles or more in distance, on which CART cars can attain speeds of up to 240 miles per hour. Oval tracks are closed circuits, less than two miles in distance, which are often "banked" at varying angles. Temporary street courses are typically built on closed-off downtown streets of major cities, but can also be built on airport runways or similar facilities which have a primary purpose other than as a motorsports venue. Permanent road courses are raceways built solely for motorsports racing and are designed with varying turns, straight-aways and elevation changes to simulate driving on a road. As competition, support and interest in the CART Championship have increased, CART has increased the number of events staged per race season. The 1979 CART Championship was comprised of 13 race events. In 1997, CART ran 17 races -- 13 in the United States, two in Canada and one each in Australia and Brazil. These races included two superspeedway races, five oval races, six temporary street course races and four permanent road course races. The 1998 CART Championship will be comprised of 19 races in five different countries and will include two new race venues for CART participants. A race event will be run through the streets of Houston, marking CART's first race in Texas, and CART will also add its first race in Asia, a 500-kilometer oval race in Motegi, Japan. In 1997, the Indy Lights Championship was comprised of 13 races. Of the 13 races, 11 were held in conjunction with CART events, and two races were "stand alone" events. In 1998, the Indy Lights Championship is expected to include 13 races, one of which will be a stand alone event. 31 33 The following table sets forth the locations and venues for the 1997 and 1998 CART Championship and the 1997 and 1998 Indy Lights Championship, as well as the CART event dates of the 1997 and 1998 seasons, whether there was an Indy Light race as part of the event weekend and a description of the racing circuit:
1998 EVENT DATE INDY --------------- LIGHTS LOCATION 1998 1997 RACE TRACK DESCRIPTION - ----------------------------------------------------- ----- ----- ------- ----------------------------------- Homestead, Florida................................... 3/1 3/2 Yes 1.5 mile oval Metro-Dade Homestead Motorsports Complex Motegi, Japan (1).................................... 3/28 -- No 1.5 mile oval Twin Ring Long Beach, California............................... 4/5 4/13 Yes 1.6 mile temporary street course Long Beach Nazareth, Pennsylvania............................... 4/26 4/27 Yes 1.0 mile tri-oval Nazareth Speedway Rio de Janeiro, Brazil............................... 5/10 5/11 No 1.8 mile oval Emerson Fittipaldi Speedway at Nelson Piquet International Raceway Madison, Illinois.................................... 5/23 5/24 Yes 1.3 mile banked oval Gateway International Raceway West Allis, Wisconsin................................ 5/31 6/1 Yes 1.0 mile oval The Milwaukee Mile Detroit, Michigan.................................... 6/7 6/8 Yes 2.1 mile temporary street course The Raceway on Belle Isle Portland, Oregon..................................... 6/21 6/22 Yes 2.0 mile permanent road course Portland International Raceway Cleveland, Ohio...................................... 7/12 7/13 Yes 2.4 mile temporary street course Burke Lakefront Airport Toronto, Ontario, Canada............................. 7/19 7/20 Yes 1.8 mile temporary street course Toronto Brooklyn, Michigan................................... 7/26 7/27 Yes 2.0 mile tri-oval superspeedway Michigan International Speedway Lexington, Ohio...................................... 8/9 8/10 No 2.3 mile permanent road course Mid-Ohio Sports Car Course Elkhart, Wisconsin................................... 8/16 8/17 No 4.0 mile permanent road course Road America Vancouver, British Columbia, Canada.................. 9/6 8/31 Yes 1.7 mile temporary street course Vancouver Monterey, California................................. 9/13 9/7 Yes 2.2 mile permanent road course Laguna Seca Raceway Houston, Texas (1)................................... 10/4 -- No 1.7 mile temporary street course Houston Gold Coast, Queensland, Australia.................... 10/18 4/6 No 2.8 mile temporary street course Surfers Paradise, Queensland Fontana, California.................................. 11/1 9/28 Yes 2.0 mile banked oval superspeedway California Speedway Trois-Rivieres, Quebec, Canada (2)................... -- -- Yes 2.1 mile temporary street course Trois-Rivieres Savannah, Georgia (3)................................ -- -- No 2.0 mile temporary street course Grand Prize Circuit at Savannah Harbor
- --------------- (1) Added to race schedule for 1998. (2) Indy Lights race only, to be held on August 2, 1998 and held on August 3, 1997. (3) Indy Lights ran a stand alone race on May 18, 1997, but will not race at Savannah in 1998. 32 34 SANCTION FEES For each race in the CART Championship, the promoter enters into a multi-year sanction agreement which provides for payment of a sanction fee to CART. For the 1997 season, CART received sanction fees of approximately $24.4 million, an average of $1.4 million per event. For the year ended December 31, 1996, CART received sanction fees of approximately $21.1 million, representing approximately 51% of CART's total revenues, and averaging $1.3 million per event. Based upon current promoter agreements, CART projects it will receive sanction fee revenue of $30.4 million in 1998, an average of $1.6 million per event. As CART has expanded internationally, its average sanction fee has increased as international events typically have higher sanction fees than events in North America. During 1997, sanction fees at international events averaged $2.8 million per event, compared to $1.2 million for events in North America. As the terms of existing promoter agreements expire, CART believes that it will be positioned to negotiate increased sanction fees at many of the current race venues to stage future races. Further, CART believes that the popularity of the CART Championship will provide additional domestic and international race venues willing to pay sanction fees higher than CART's current average sanction fee. 33 35 DRIVERS AND CORPORATE SPONSORS Drivers. During the 1997 season, 31 drivers competed in at least one of the CART race events, including such well known drivers as Michael Andretti, Bobby Rahal, Al Unser, Jr., Jimmy Vasser and Alex Zanardi. Set forth below is information regarding each of the drivers who participated in the 1997 CART Championship:
DRIVER BIRTH PLACE 1997 RACE TEAM - ---------------------------------- ---------------------------------- ---------------------------------- MICHAEL ANDRETTI*................. Bethlehem, Pennsylvania Newman/Haas Racing Mark Blundell..................... Barret, Hertforshire, England PacWest Racing Group Raul Boesel....................... Curitiba, Brazil Brahma Sports Team/Patrick Racing Patrick Carpentier................ Ville Lasalle, Quebec, Canada Bettenhausen Motorsports Gil DeFerran...................... Paris, France Walker Racing Juan Fangio II.................... Balcarce, Buenos Aires, Argentina All American Racers Adrian Fernandez.................. Mexico City, Mexico Tasman Motorsports Group Christian Fittipaldi.............. Sao Paulo, Brazil Newman/Haas Racing Dario Franchitti.................. Edinburgh, Scotland Hogan Racing Mauricio Gugelmin................. Joinville, Brazil PacWest Racing Group Richie Hearn...................... Glendale, California Della Penna Motorsports Bryan Herta....................... Warren, Michigan Team Rahal Parker Johnstone.................. Fort Benning, Georgia Team KOOL Green PJ Jones.......................... Torrance, California All American Racers Michel Jourdain, Jr............... Mexico City, Mexico Payton/Coyne Racing Hiro Matsushita................... Kobe, Japan Arciero-Wells/Panasonic Racing Arnd Meier........................ Hanover, Germany Project Indy Roberto Moreno.................... Rio de Janeiro, Brazil Payton/Coyne Racing Greg Moore........................ British Columbia, Canada Player's Forsythe Racing Team Charlie Nearwood.................. Midland, Texas Payton/Coyne Racing Max Papis......................... Como, Italy Arciero-Wells/Panasonic Racing Scott Pruett...................... Sacramento, California Brahma Sports Team/Patrick Racing BOBBY RAHAL*...................... Medina, Ohio Team Rahal Andre Ribeiro..................... Sao Paulo, Brazil Tasman Motorsports Group Gualter Salles.................... Rio de Janeiro, Brazil Davis Racing Paul Tracy........................ Scarborough, Ontario, Canada Marlboro Team Penske AL UNSER JR.*..................... Albuquerque, New Mexico Marlboro Team Penske JIMMY VASSER*..................... Canoga Park, California Target/Chip Ganassi Racing Dennis Vitolo..................... Massapequa, New York Project Indy ALEX ZANARDI*..................... Bologna, Italy Target/Chip Ganassi Racing
- --------------- *Indicates past champion of the CART Championship. Corporate Sponsors. Sponsorship revenues are paid to CART pursuant to sponsorship contracts, primarily for the opportunity to receive brand and product exposure. For the year ended December 31, 1996, CART received sponsorship revenues of approximately $5.5 million, representing approximately 13% of CART's total revenues. For the 1997 season, CART has sponsorship contracts requiring aggregate payments to CART in sponsorship revenue of approximately $7.2 million. Based upon sponsorship agreements, CART expects that it will receive sponsorship revenues of approximately $12.1 million in 1998. 34 36 Management believes that as CART expands the audience for CART events, it will see a corresponding increase in sponsorship opportunities and expects that sponsorship revenues would increase. In addition, CART has taken a different approach to selling sponsorship by integrating the rights of the sanctioning body and the race tracks. This approach provides series-wide exclusivity and a centralized sponsorship program which increases the value and appeal of the sponsorship opportunity. MCI was the first such integrated sponsor, becoming the Official Communications Company of CART in 1997. Beginning with the 1998 race season, Federal Express has become the co-title sponsor of the CART Championship, which has been officially designated the "FedEx Championship Series." Under the agreement, Federal Express has acquired a comprehensive range of marketing benefits as well as opportunities to supply services to CART, its teams and its race promoters. A significant feature of this sponsorship arrangement is the combination of the marketing rights of both CART and its race promoters to provide an exclusive sponsorship involvement through the entire CART Championship. PPG Industries, CART's long-time title sponsor, will continue to be involved as a co-title sponsor of the series and will continue to be the name sponsor of the CART Championship winner's trophy--the "PPG Cup." PPG will also continue with its successful pace car program at each CART race event. The current list of sponsors for the 1998 CART Championship is set forth below:
SPONSOR OFFICIAL DESIGNATION YEARS AS SPONSOR -------------------------------------------- ------------------------------------ ---------------- Federal Express............................. Official Co-Title Sponsor New PPG Industries.............................. Official Co-Title Sponsor 18 MCI Telecommunications...................... Official Communications Company 1 Budweiser................................... Official Beer 3 Craftsman Tools............................. Official Hand Tools 3 Featherlite Trailers and Vantare Coach...... Official Trailer and Coach 3 Ford SVO Technology......................... Official Safety Technology Provider 1 Holmatro.................................... Official Rescue Tool 6 Honda Motorcycles........................... Official Motorcycle 2 Honda Power Equipment....................... Official Power Equipment 2 K&K Insurance............................... Official Insurance Provider 4 Mercedes-Benz............................... Official Car 3 Motorola/Racing Radios...................... Official Two-Way Radio 8 Omega....................................... Official Watch and Timekeeper 1 Toyota Trucks............................... Official Truck 2 The Valvoline Company....................... Official Fuel and Oil 18
In addition to the sponsors listed above, CART has entered into various sponsorship agreements with other companies who supply CART with products and services. ATTENDANCE, VIEWERSHIP AND BROADCAST RIGHTS Attendance. CART spectator attendance has grown dramatically in the 1990s, with more than a 40% increase from 1990 to 1996, based upon figures compiled by Goodyear Tire & Rubber Co. Race Reports (the "Goodyear Race Reports"). The table below shows attendance information for CART events, based upon the Goodyear Race Reports. The figures do not include attendance at the Indianapolis 500, which was not a CART-sanctioned event.
1990 1991 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- --------- --------- Total Attendance at CART Events..... 1,683,139 1,803,601 1,890,327 1,964,180 2,015,417 2,259,751 2,366,440 Number of Race Events............... 15 16 15 15 15 16 16 Average Attendance per Event........ 112,209 112,725 126,022 130,945 134,361 141,234 147,902 Percentage Change................... -- 0.1% 11.8% 3.9% 2.6% 5.1% 4.7%
35 37 Viewership. In addition to the fan support offered by spectators at CART race events, millions of people around the world watch CART racing on television. According to the Nielson Season Summary for 1996, an aggregate of 32.6 million gross United States households were delivered for the CART races, with gross United States viewership of approximately 41.8 million. The CART races are televised in 188 countries and territories through terrestrial and satellite broadcasts, in 19 languages. Based upon an independent study conducted by Sponsorship Research International ("SRI"), the 1996 CART Championship had an average of 61 million viewers per race, an increase of 7% over the 1995 per race average, with cumulative worldwide viewership of 973.5 million. Broadcast Rights. In 1994, CART entered into a long-term agreement with ESPN, which was amended in 1996 to extend through 2001, to provide broadcast coverage of each CART race, with at least 50% of the races each year to be broadcast on one of the three major broadcast networks of ABC, CBS or NBC. Pursuant to the agreement, CART receives 50% of the net revenues received by ESPN for distribution of the race programs, subject to an escalating minimum guarantee. CART retained the television rights for Brazil, Canada and Australia, and has entered into exclusive agreements with (i) Fittipaldi U.S.A., Inc. to provide television broadcasts in Brazil of the CART race events through the 2001 race season, (ii) Molstar for the distribution of television broadcasts in Canada through the 2002 race season, and (iii) Gold Coast Motor Events for the distribution of television broadcasts in Australia through the 2000 race season. In 1997, the Company introduced "Inside CART," a weekly magazine-type show aired on the Fox Sport Network. In 1998, the Company intends to produce 28 episodes of "Inside CART." The Company intends to expand this show in future years and will explore additional media opportunities. CART LICENSED PRODUCTS As a part of the Company's initiative to increase CART's brand awareness and increase licensing opportunities, the Company formed CART Licensed Products, a Georgia limited partnership, in 1996. The Company has a 55% interest in CART Licensed Products. The primary purpose of CART Licensed Products is to provide "one stop shopping" for potential licensees for the servicemarks and trademarks of CART, the race teams, drivers and tracks. This integrated structure allows licensees and retailers to work with a single licensing entity rather than negotiating in the fragmented licensing environment found in other sports. CART Licensed Products pays approximately 60% of the royalties it receives to the owners of the licensed property (including CART). The Company is paid a royalty for the sale of products which bear the CART name or logo. Drivers, team owners and track promoters are similarly paid royalties for products bearing their names, likeness or other property. The remaining 40% of revenues is used to fund the operations of CART Licensed Products. CART will be attributed with 55% of the net income (or loss) of CART Licensed Products related to its ownership interest in the entity. CART Licensed Products has executed long-term licensing agreements with such major companies as Microsoft, Sony, Mattel, Antigua, Warner Brothers, Sierra Online and Racing Champions, in addition to other licensing contracts. COMPETITION The Company's racing events compete not only with other sports and recreational events scheduled on the same dates, but also with racing events sanctioned by various other racing bodies such as the FIA, NASCAR, the IRL, USAC, NHRA, SCCA, PSCR, ARCA and others. Racing events sanctioned by other organizations often are held on the same dates as CART events, at separate tracks, and compete for attendance as well as television viewership. In addition, CART competes with other racing bodies to sanction racing events at various motorsports facilities. The quality of the competition, caliber of the events, drivers and team owners participating in CART, and speed of the CART cars distinguish CART events from the racing events staged by other racing bodies. CART receives numerous requests to sanction racing events at venues throughout the world. However, there can be no assurance that the Company will maintain or improve its position in light of such competition. 36 38 EMPLOYEES As of December 1, 1997, the Company had 48 full-time employees and a roster of approximately 101 people who serve as race officials and 204 volunteers for CART events. None of the Company's employees are represented by a labor union. Management believes that the Company enjoys a good relationship with its employees. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business. Management does not believe that the resolution of any or all of such litigation is likely to have a material adverse effect on the Company's financial condition. Racing events can be dangerous to participants and spectators. CART requires all race participants (excluding the general public) to execute a general release and waiver of liability prior to participating in racing events sanctioned by CART and requires each track promoter to indemnify CART against any liability for personal injuries sustained at such promoter's racing event. In addition, CART requires each track promoter to carry a minimum of $10.0 million in liability insurance, with CART as a named insured, and CART maintains a $15.0 million umbrella insurance policy. Nevertheless, there can be no assurance that the release and waivers will be fully enforced in a court of law, that the promoter will have sufficient assets to satisfy any indemnification requirement, or that such insurance will be adequate or available at all times at reasonable premiums and in all circumstances. PATENTS AND TRADEMARKS The Company has various registered and common law trademark rights to "CART" and related logos. The Company has licenses from various drivers, teams, tracks and industry sponsors to use names and logos for merchandising programs and product sales. Management's policy is to vigorously protect its intellectual property rights to maintain its proprietary value in merchandise and promotional sales. 37 39 MANAGEMENT Set forth below is the name, age as of the date of this Prospectus, and position of each of the directors, executive officers and other significant employees of the Company and CART as they will exist at the closing of the Offering. Each director is elected by the stockholders to serve a one-year term. The Company intends to add two additional outside directors as soon as possible after the Offering.
NAME AGE POSITION - ------------------------------------- ------------------------------------------------------------- Andrew Craig...................... 48 President, Chief Executive Officer, Chairman of the Board and Director of the Company Randy K. Dzierzawski.............. 34 Executive Vice President and Chief Financial Officer of the Company Carl L. Cohen..................... 37 Executive Vice President of Marketing of CART Robert E. Hollander............... 50 President of CART Licensed Products J. Kirk Russell................... 53 Vice President of Competition of CART Dennis Swan....................... 50 Vice President of Logistics of CART Keith Allo........................ 31 Vice President of Television of CART Rena Shanaman..................... 45 Vice President of Promoter Relations of CART Ron Richards...................... 45 Vice President of Communications of CART Wally Dallenbach.................. 60 Chief Steward of CART Michael J. Mills.................. 46 Secretary and General Counsel of the Company Gerald R. Forsythe(1)............. 57 Director of the Company Chip Ganassi...................... 39 Director of the Company Carl A. Haas(1)................... 68 Director of the Company Bruce R. McCaw(2)................. 51 Director of the Company U.E. Patrick(1)................... 68 Director of the Company Robert W. Rahal................... 44 Director of the Company Derrick Walker(1)................. 52 Director of the Company
- --------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee Messrs. Craig, Dzierzawski, Cohen and Hollander have entered into employment agreements with the Company or CART pursuant to which they hold their current positions. See "-- Employment Agreements." The other officers of the Company and CART are elected by the Board of Directors to serve one year terms. Set forth below is a brief description of the background of each of the directors, executive officers and significant employees of the Company and CART: Andrew Craig was first elected President, Chief Executive Officer and Chairman of the Board of the Company in December 1997 and has served as the President and Chief Executive Officer of CART since January 1994. He has served as a director of the Company since December 1997. From 1983 to 1994, Mr. Craig was employed by ISL Marketing, AG, an international sports marketing firm located in Switzerland. For the four years prior to his employment with CART, Mr. Craig served as executive vice president and deputy chief executive officer of ISL Marketing, AG. Randy K. Dzierzawski was first elected Executive Vice President and Chief Financial Officer of the Company in December 1997 and has served as Executive Vice President and Chief Financial Officer of CART since October 1996. From December 1990 until his appointment as Executive Vice President of CART in 1996, Mr. Dzierzawski served in various positions with CART, including Director of Administration, Treasurer, Vice President and Senior Vice President. From 1988 to 1990, Mr. Dzierzawski served as a Senior Analyst in the Financial and Reporting Division and as the 38 40 president of his own financial consulting company. Prior to 1988, Mr. Dzierzawski, a certified public accountant, was employed by Arthur Andersen and Company as a Senior Tax Consultant. Carl L. Cohen was first named Executive Vice President of Series Marketing for CART in May 1997. From 1995 to 1997, Mr. Cohen was the director of marketing for Ryder System. Prior to his position with Ryder System, Mr. Cohen served as brand director of Philip Morris Companies. He has also held marketing positions with Airwick Industries and Colgate-Palmolive. Robert E. Hollander was first named President and Chief Executive Officer of CART Licensed Products in 1997. From 1992 to 1996, Mr. Hollander was the leader of the worldwide licensing and merchandising effort for the 1996 Olympic Games. Prior to that, Mr. Hollander worked with various companies, including IBM and Shearson, Lehman Brothers, in the area of licensing and marketing consumer products. Keith Allo was first named Vice President of Television for CART in June 1997. Prior to his employment with CART, Mr. Allo was an executive for PASS Sports beginning in 1994. While with PASS Sports, Mr. Allo served as executive producer of programming for the Detroit Redwings, Pistons, Tigers and Lions, and the University of Michigan and Michigan State University. From 1988 to 1993, Mr. Allo worked as producer and director for SportsChannel Florida and the University of Florida Athletic Association, as well as producing programs for Jefferson Pilot Teleproductions and Host Creative. Rena Shanaman was first named Vice President of Promoter Relations for CART in July 1997 after serving as the General Manager of CART's inaugural U.S. 500 on a contractual basis. Ms. Shanaman has been involved in motorsports for more than 16 years, including the Detroit Grand Prix, Molson Indy Vancouver and the Arrivederci, Mario tour for racing legend Mario Andretti. Ron Richards was first named Vice President of Communications of CART in November 1996. From 1989 to 1996, Mr. Richards worked for Miller Brewing Company in several positions including manager and director of employee communications, including the management of all sports marketing public relations. From 1982 to 1984 and from 1987 to 1989, Mr. Richard worked with the Sports Car Club of America as both director of marketing and public relations manager. During this time, he also served as the motorsports public relations manager for Coors-sponsored racing programs. Wally Dallenbach was first appointed Chief Steward of CART in 1981. Mr. Dallenbach joined CART as Competition Director in 1979 after retiring as a driver. Mr. Dallenbach's distinguished racing career spanned fourteen years and included five wins. He was a fixture at the Indianapolis 500, starting thirteen times. In 1995, Mr. Dallenbach received the Championship Drivers Association's highest honor, the "Carl Horton Safety Award." Michael J. Mills was appointed general corporate counsel and corporate secretary to CART in 1990. From 1978 to 1989, Mr. Mills served as CART's associate counsel. In addition to his positions with CART, Mr. Mills currently serves as counsel to the law firm of Monaghan, LoPrete, McDonald, Yakima & Grenke. From 1989 to 1996, Mr. Mills was the managing partner of Tripp and Mills. Prior to that time, he was a partner with Frasco, Hackett & Mills. Mr. Mills' law practice focuses on corporate and pension law, business and commercial transactions, labor/management relations and general litigation. Gerald R. Forsythe was first elected a director of the Company in December 1997. Mr. Forsythe currently serves as President of Forsythe Racing, Inc. and a director and President of Player's/Forsythe Racing Team, Ltd. Since 1963, Mr. Forsythe has been employed in various positions with and currently serves as Chairman and Chief Executive Officer of INDECK Power Equipment Company, its subsidiaries and affiliates. INDECK Power Equipment Company is North America's largest emergency and back-up steam generating source. The company also designs and fabricates water treatment equipment and rents generator sets, chillers and compressors. Chip Ganassi was first elected a director of the Company in December 1997. Since 1987, Mr. Ganassi has served as President and owner of Chip Ganassi Racing Teams, Inc. Mr. Ganassi currently holds executive positions with Fox Gulf, a private air transportation company, Premier Marine, a barge towing company; and CCT Liquidating, a liquidating corporation. U.E. Patrick was first elected a director of the Company in December 1997. Mr. Patrick was a founding member of CART in November of 1978 and served as its first President and Chief Executive Officer. Mr. Patrick currently serves as 39 41 President of Patrick Racing, Patrick Racing International and Patrick Properties. He holds the position of Chairman of the Board for Patrick Exploration, Inc., an oil and gas exploration company; Turbo-Mac Software, a company specializing in software sales; and ARS. In addition, Mr. Patrick serves on the Board of Directors of Marcum Natural Gas Services, Inc., a publicly-held oil and gas company. Carl A. Haas was first elected a director of the Company in December 1997. Currently, Mr. Haas serves as Chief Executive Officer of Carl A. Haas Auto Imports, a company specializing in the distribution of race cars and parts. Mr. Haas is also the Managing Partner of Newman Haas Racing. He currently serves as President of Carl A. Haas Racing Teams, Ltd. and the Managing Member of Texaco Grand Prix of Houston, LLC. Both Carl A. Haas Racing Teams, Ltd. and Texaco Grand Prix of Houston, LLC are race promotion organizations. In addition, Mr. Haas also holds positions with various companies, including, but not limited to, Carl A. Haas Enterprises, Inc., Team Haas USA Ltd., Kranefuss Haas Racing, Inc., Road America, SCCA Pro Racing, Inc. and Milwaukee Mile, Inc, all of which are racing related businesses. Derrick Walker was first elected a director of the Company in 1997. Mr. Walker is currently the President and owner of Derrick Walker Racing. In 1988, he joined Al Holbert's Porsche Indy Car project and assumed control of the program upon the death of Al Holbert. From 1980 to 1988, he was responsible for Penske Racing, Inc.'s Indy car program. Bruce R. McCaw was first elected a director of the Company in December 1997. Mr. McCaw currently serves as the president of RaceSport Management Company, which he founded in 1993, and PacWest Racing Group, LLC, PacWest Lights and PacWest Touring Car Group, Inc., affiliated companies, each of which is involved in various types of auto racing. Mr. McCaw is also involved in various other ventures in the areas of communications, real estate and aviation and holds a variety of positions in entities involved in these businesses. Robert W. Rahal was first elected a director of the Company in December 1997. Mr. Rahal is the co-owner of Team Rahal, Inc. He has an accomplished career as a CART competitor, winning the PPG CART World Series title three times in his 15-year CART career. Additionally, Mr. Rahal won the Indianapolis 500 in 1986. Mr. Rahal is the only driver in the CART Championship who is also a team owner. COMMITTEES The Board of Directors of the Company has established an Audit Committee and a Compensation Committee. The Audit Committee is charged with recommending to the Board of Directors the appointment of the Company's independent auditors, reviewing the compensation of such auditors and reviewing with such accountants the plans for the result and scope of their auditing engagement. The Compensation Committee reviews the performance and compensation of directors, executive officers and key employees and makes recommendations to the Board of Directors with respect thereto. It also administers the Company's Stock Option Plan. See "-- Stock Option Plan." LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS The Company's Certificate of Incorporation provides that the liability of the directors for monetary damages shall be limited to the fullest extent permissible under Delaware law, except in the case of: (i) a breach of the director's duty of loyalty to the Company or its stockholders, (ii) an act or omission not in good faith or which involves intentional misconduct or a knowing violation of law, (iii) the unlawful payment of dividends or unlawful stock purchases or redemptions, or (iv) a transaction from which a director derived an improper personal benefit. The Company's Bylaws indemnify its directors and officers to the fullest extent possible under Delaware law, except as otherwise provided in the Certificate of Incorporation. These indemnification provisions require the Company to indemnify such persons against certain liabilities and expenses to which they may become subject by reason of their service as a director or officer of the Company. The provisions also set forth certain procedures, including the advancement of expenses, that apply in the event of a claim for indemnification. The Company intends to enter into indemnification agreements with each of the directors of the Company, pursuant to which the Company will indemnify each such director to the fullest extent permitted by law, except as otherwise provided in the Certificate of Incorporation. The Company also intends to obtain insurance to protect its officers and directors from liability. 40 42 DIRECTOR COMPENSATION Independent members of the Board of Directors who are not Company officers and who are not team owners participating in CART events may be paid a per meeting fee. The Company will also reimburse all directors for their expenses incurred in connection with their activities as directors of the Company. Directors who are also employees of the Company or who otherwise participate as a team owner in CART events receive no compensation for serving on the Board of Directors. EXECUTIVE COMPENSATION Set forth below is information regarding all forms of compensation paid or payable by the Company to the Chief Executive Officer and the only other executive officers whose annual salary and bonus exceeded $100,000 in 1996 (the "Named Officers"): ANNUAL COMPENSATION SUMMARY COMPENSATION TABLE
NAME AND OTHER ANNUAL ALL OTHER PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION COMPENSATION - --------------------------------------------- ---- -------- -------- ------------ ------------ Andrew Craig................................. 1996 $373,436 $120,000 $ --(1) $5,912(2) Chief Executive Officer and President Randy K. Dzierzawski......................... 1996 173,041 33,000 $ --(1) 2,375(3) Executive Vice President J. Kirk Russell.............................. 1996 118,461 11,500 $ --(1) 2,375(3) Vice President of Competition
- --------------- (1) The aggregate amount of perquisite compensation to be reported herein is less than the lesser of $50,000 or 10% of the total of annual salary and bonus reported for the named executive officer. No other annual compensation was paid or payable to the named executive officers in the years indicated. (2) Includes annual Company contributions of $2,375 to vested and unvested defined contribution plans, and insurance premiums of $3,537 paid by the Company with respect to term life insurance for the benefit of the named executive officer. (3) Represents annual contributions to vested and unvested defined contribution plans. STOCK OPTION PLANS In December 1997, the Board of Directors of the Company (the "Board") authorized, and the stockholders of the Company approved, a stock incentive plan for executive and key management employees of the Company and its subsidiaries, including a limited number of outside consultants and advisors, effective as of the completion of the Offering (the "Stock Option Plan"). Under the Stock Option Plan, key employees, outside consultants and advisors (the "Participants") of the Company and its Subsidiaries (as defined in the Stock Option Plan) may receive awards of stock options (both Nonqualified Options and Incentive Options, as defined in the Stock Option Plan). A maximum of 2,000,000 shares of Common Stock will be subject to the Stock Option Plan. The purpose of the Stock Option Plan is to provide key employees (including officers and directors who are also key employees) and key non-employee consultants and advisors of the Company and its Subsidiaries ("employees") with an increased incentive to make significant and extraordinary contributions to the long-term performance and growth of the Company and its Subsidiaries, to join the interests of key employees with the interests of the stockholders of the Company, and to facilitate attracting and retaining key employees of exceptional ability. Administration. The Stock Option Plan is administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"), or such other committee as may be specified by the Board of Directors to perform the functions and duties of the Committee under the Stock Option Plan. Subject to the provisions of the Stock Option Plan, the Committee shall determine, from those eligible to be Participants, the persons to be granted stock options, the amount of stock options granted to each such person, and the terms and conditions of any stock options. Subject to the 41 43 provisions of the Stock Option Plan, the Committee is authorized to interpret the Stock Option Plan, to make, amend and rescind rules and regulations relating to the Stock Option Plan and to make all other determinations necessary or advisable for the Stock Options Plan's administration. Participants. The Participants in the Stock Option Plan are those key employees, consultants and advisors of the Company or any Subsidiary who in the judgment of the Committee are or will become responsible for the direction and financial success of the Company or any Subsidiary. Key employees include officers and directors who are also key employees of the Company or any Subsidiary. Shares Subject to Plan. The maximum number of shares with respect to which stock options may be granted under the Stock Option Plan is 2,000,000 shares of Common Stock. Shares covered by expired or terminated stock options will again become available for grant under the Stock Option Plan. The number of shares subject to each outstanding stock option, the option price with respect to outstanding stock options, and the aggregate number of shares remaining available under the Stock Option Plan will be subject to such adjustment as the Committee, in its discretion, deems appropriate to reflect such events as stock dividends, stock splits, recapitalizations, mergers, consolidations or reorganizations of or by the Company. Stock Options. Subject to the terms of the Stock Option Plan, the Committee may grant to Participants either Incentive Options meeting the definition of an incentive stock option under Section 422 of the Code or Nonqualified Options not meeting such definition, or any combination thereof. The exercise price for an Incentive Option may not be less than 100% of the fair market value of the stock on the date of grant; however, the exercise price for an Incentive Option granted to an employee who owns more than 10% of the voting stock of the Company or any subsidiary may not be less than 110% of the fair market value of the stock on the date of grant. The exercise price for a Nonqualified Option may not be less than 100% of the fair market value of the stock on the date of grant. The exercise period for stock options will be determined by the Committee, but no stock option may be exercisable after 10 years from the date of grant, subject to certain conditions and limitation. Stock options are not transferable by a Participant other than by will or by the laws of descent and distribution, and stock options are exercisable, during the lifetime of the Participant, only by the Participant. If the employment or consultancy of a Participant by the Company or a Subsidiary terminates, the committee may, in its discretion, permit the exercise of stock options granted to such Participant (i) for a period not to exceed three months following termination of employment with respect to Incentive Options of employment is not due to death or permanent disability of the Participant, (ii) for a period not to exceed one year following termination of employment with respect to Incentive Options if termination of employment is due to the death or permanent disability of the Participant, and (iii) for a period not to extend beyond the expiration date with respect to Nonqualified Options. Termination, Duration and Amendments Of Plan. The Stock Option Plan may be abandoned or terminated at any time by the Board of Directors. Unless sooner terminated, the Stock Option Plan will terminate on the date ten years after its adoption by the Board of Directors. The termination of the Stock Option Plan will not affect the validity of any stock option outstanding on the date of termination. For the purpose of conforming to any changes in applicable law or governmental regulation, or for any other lawful purpose, the Board of Directors will have the right, with or without approval of the stockholders of the Company, to amend or revise the terms of the Stock Option Plan at any time; however, no such amendment or revision will (i) without approval or ratification of the stockholders (A) increase the maximum number of shares in the aggregate which are subject to the Stock Option Plan (other than anti-dilution adjustments), (B) increase the maximum number of shares for which any Participant may be granted stock options under the Stock Option Plan (other than anti-dilution adjustments), (C) change the class of persons eligible to be Participants under the Stock Option Plan, or (ii) without the consent of the holder thereof, change the stock option price (other than anti-dilution adjustments) or alter or impair any stock option which has been previously granted or awarded under the Stock Option Plan. Federal Income Tax Consequences. The rules governing the tax treatment of stock options, stock appreciation rights, and shares acquired upon the exercise of stock options are technical. Therefore, the description of federal income tax consequences set forth below is necessarily general in nature and does not purport to be complete. Moreover, statutory 42 44 provisions are subject to change, as are their interpretations, and their application may vary in individual circumstances. Finally, the tax consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. Incentive Options. Incentive Options granted pursuant to the Plan are intended to qualify as "Incentive Options" within the meaning of Section 422 of the Code. If the Participant makes no disposition of the shares acquired pursuant to exercise of an Incentive Option within one year after the transfer of shares to such Participant and within two years from grant of the option, such Participant will realize no taxable income as a result of the grant or exercise of such option, and any gain or loss that is subsequently realized may be treated as long-term capital gain or loss, as the case may be. Under these circumstances, the Company will not be entitled to a deduction for federal income tax purposes with respect to either the issuance of such Incentive Options or the transfer of shares upon their exercise. However, the exercise of an Incentive Option is an item of tax preference and a Participant may have alternative minimum tax liability. If shares acquired upon exercise of Incentive Options are disposed of prior to the expiration of the above time periods, the Participant will recognize ordinary income in the year in which the disqualifying disposition occurs, the amount of which will generally be the lesser of (i) the excess of the market value of the shares on the date of exercise over the option price, or (ii) the gain recognized on such disposition. Such amount will ordinarily be deductible by the Company for federal income tax purposes in the same year, provided that the amount constitutes reasonable compensation. In addition, the excess, if any, of the amount realized on a disqualifying disposition over the market value of the shares on the date of exercise will be treated as capital gain. Nonqualified Options. A Participant who acquires shares by exercise of a Nonqualified Option generally realizes as taxable ordinary income, at the time of exercise, the difference between the exercise price and the fair market value of the shares on the date of exercise. Such amount will ordinarily be deductible by the Company in the same year, provided that the amount constitutes reasonable compensation. Subsequent appreciation or decline in the value of the shares on the sale or other disposition of the shares will generally be treated as capital gain or loss. Withholding Payments. If, upon exercise of a Nonqualified Option or upon a disqualifying disposition of shares acquired upon exercise of an Incentive Option, the Company or any Subsidiary must pay amounts for income tax withholding, then in the Committee's sole discretion, either the Company will appropriately reduce the amount of stock or cash to be delivered or paid to the Participant or the Participant must pay such amount to the Company to reimburse the Company for such payment. The Committee may permit a Participant to satisfy such withholding obligations by electing to reduce the number of shares of Common Stock delivered or deliverable to the Participant upon exercise of a stock option or by electing to tender an appropriate number of shares of Common Stock back to the Company subsequent to exercise of a stock option (with such restrictions as the Committee may adopt). Limitation on Compensation Deduction. Publicly-held corporations are precluded from deducting compensation paid to certain of its executive officers in excess of $1.0 million. The employees covered by the $1.0 million limitation on deductibility of compensation include the chief executive officer and those employees whose annual compensation is required to be reported to the Securities and Exchange Commission because the employee is one of the company's four highest compensated employees for the taxable year (other than the chief executive officer). The grant of stock options generally are included in an employees compensation for purposes of the $1.0 million limitation on deductibility of compensation. There is an exception to the $1.0 million deduction limitation for compensation (including the grant of stock options paid pursuant to a qualified performance-based compensation plan.) Compensation attributable to stock options is deemed to satisfy the qualified performance-based compensation exception if the grant is made by a compensation committee comprised of outside directors; the plan under which the option is granted states the maximum number of shares with respect to which options may be granted during a specified period to any employee; and, under the terms of the option, the amount of compensation the employee could receive is based solely on an increase in the value of the stock after the date of the grant. If the amount of compensation a covered employee will receive under the grant is not based solely on an increase of the value of the stock after the date of the grant (e.g., an option that is granted with an exercise price that is less than the fair market value as of the date of the grant), none of the compensation attributable to the grant is qualified performance- 43 45 based compensation unless the grant is made on account of the attainment of a performance goal that has been previously established and approved by the stockholders of the Company. The grant of stock options to a Participant under the Stock Option Plan to purchase the Company's stock at fair market value determined on the date of the grant will, if granted at fair market value, be deemed to satisfy the requirements of the performance-based compensation exception and the $1.0 million deduction limitation will not otherwise limit the deductibility of the compensation paid to covered employees by the Company. However, the grant of a stock option with an exercise price less than the fair market value of the stock on the date of grant will be included in a covered employee's compensation in determining the $1.0 million deductibility limit. Accounting Treatment. Generally, under current accounting rules neither the grant nor the exercise of an Incentive Option or a Nonqualified Option granted at an exercise price equal to the fair market value of the shares on the date of grant requires any charge against earnings. The Company will implement the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, which provide for the disclosure of the pro forma impact of the issuance of options on net income and earnings per share in the footnotes to the Company's financial statements. Accordingly, management currently believes that there will be no impact on earnings of the Company as a result of the adoption of SFAS 123. Director Option Plan. The Director Option Plan permits the granting of non-qualified stock options ("Director NQSOs") for up to 100,000 shares of Common Stock to directors of the Company who are neither employees of the Company nor affiliates of a race team which participates in CART race events (an "Independent Director"). Each person who is first elected or appointed to serve as an Independent Director of the Company is automatically granted an option to purchase shares of Common Stock. In addition, each individual who is re-elected as an Independent Director is automatically granted an option to purchase shares of Common Stock each year on the date of the annual meeting of stockholders. Each of the options automatically granted upon election, appointment or re-election as an Independent Director (the "Fixed Options") are exercisable at a price at least equal to the fair market value of the Common Stock on the date of grant. In addition to the Fixed Options, each Independent Director may elect to receive stock options in lieu of any director's fees payable to such individuals. All Directors NQSOs are immediately exercisable upon grant. The exercise price for all such options may be paid in cash, shares of Common Stock or other property. If an independent Director dies or becomes ineligible to participate in the Director Option Plan due to disability, his Director NQSOs expire on the first anniversary of such event. If an Independent Director retires with the consent of the Company, his Director NQSOs expire 90 days after his retirement. In no event may a Director NQSO be exercised more than 10 years from the date of grant. EMPLOYMENT AGREEMENTS Andrew Craig and Randy K. Dzierzawski currently have employment agreements with the Company. Pursuant to the terms of the agreements, Messrs. Craig and Dzierzawski have agreed to serve as full-time employees of the Company until December 2000. In the event there is a change in control in the Company, the Company will pay each employee, upon termination for any reason, a lump sum equal to three times his base salary in effect at termination. If the change of control provisions were applied at the present time, Messrs. Craig and Dzierzawski would receive $1.5 million and $675,000, respectively. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to the Reorganization in December 1997, all matters concerning executive officer compensation were determined by the Compensation Committee of CART. No executive officer of the Company was a director of CART during 1994, 1995, 1996 or 1997. In connection with the Reorganization, the Board of Directors has established a Compensation Committee to deliberate upon matters concerning executive compensation, the issuance of options under the Stock Option Plan and other benefits payable to the Company's executive officers. The members of the Compensation Committee are Messrs. Haas (Chairman), Patrick, Forsythe and Walker. 44 46 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CART has entered into, and the Company will continue to enter into, transactions with entities that are affiliated with the Company's stockholders and directors and with affiliates of its race teams (the "Race Teams"). Race Teams that participate in the CART Championship and are franchise members have received certain payments and reimbursements from CART. In addition, Race Teams receive purse distributions on a per race basis and from the year end point fund which amounts have been paid based solely upon their performance in specific races. See "Business -- Franchise System and Race Teams." Penske Motorsports, Inc. ("PMI"), a public company controlled indirectly by Roger S. Penske, a Race Team owner, has entered into Promoter Agreements with CART with respect to PMI's race tracks in Brooklyn, Michigan, Nazareth, Pennsylvania, and Fontana, California. Pursuant to the terms thereof, and subject to such agreement's extension or renewal, a CART Championship race will be held at the Brooklyn and Nazareth facilities through 1998, and at the Fontana facilities in each year through 1999. The sanction fees payable to CART pursuant to these agreements vary from year to year and track to track and are similar to sanction fees paid by independent third parties. Pursuant to existing Promoter Agreements, PMI has paid or will pay sanction fees to CART in the aggregate amount of $3.4 million, $3.7 million and $1.1 million in 1997, 1998 and 1999, respectively. In 1997, PMI also acquired a 40% interest in the race track at Homestead, Florida. Pursuant to the Promoter Agreement for Homestead, CART will sanction a race through 2000 and will be paid a sanction fee in the amount of $1.3 million, $1.37 million and $1.43 million in 1998, 1999 and 2000, respectively. See "Business -- Racing Events and Sanction Fees." In May 1996, CART leased PMI's Michigan facility, the Michigan International Speedway, at which CART organized, promoted and staged the U.S. 500. CART paid PMI a total lease payment of $1.2 million. Carl A. Haas, a director of the Company and a Race Team owner, is a principal owner of Carl Haas Racing Teams, Ltd. and Texaco Houston Grand Prix L.L.C., each of which have entered into Promoter Agreements with respect to CART Championship races at the Wisconsin State Park Speedway in Milwaukee, Wisconsin and at a temporary road course to be constructed in Houston, Texas. Pursuant to the terms thereof, a CART Championship race will be held in Milwaukee through 1998, and in Houston, beginning in 1998, through 2003. The sanction fees payable to CART under these agreements are similar to those paid by independent race promoters. Pursuant to existing Promoter Agreements, entities affiliated with Mr. Haas have paid or will pay sanction fees to CART in the aggregate amount of $792,200, $2.0 million, $1.4 million, $1.9 million, $2.4 million, $2.7 million and $2.7 million in 1997, 1998, 1999, 2000, 2001, 2002 and 2003, respectively. See "Business -- Racing Events and Sanction Fees." Gerald Forsythe, a director of the Company and a Race Team owner, is a principal of North American Touring Car Championship, L.L.C. ("NATCC"). In 1997, NATCC entered into an agreement with CART which provided that CART would sanction the NATCC racing series held in conjunction with certain CART Championship races for a fee of $200,000. The term of the agreement commenced in the 1997 season. At the end of the 1997 racing season, NATCC decided to terminate its racing activities and subsequently the agreement between NATCC and CART was terminated by mutual agreement. ARS, the organizer of the Indy Lights Championship, is controlled indirectly by U.E. Patrick, a director of the Company and a Race Team owner. ARS has entered into an agreement with CART that provides that ARS will be the "Official Development Series of the CART Championship", that its racing activities will be sanctioned by CART and for the sharing of sanction fees, television revenues and costs. In connection with this agreement, CART has paid ARS $269,625 and $120,406 for the fiscal year ended December 31, 1995 and 1996, respectively, and $688,750 for the nine months ended September 30, 1997. In addition, the Company has entered into a binding letter of intent to purchase all of the stock of ARS and certain assets of BP for a total purchase price of $10.0 million and the grant of 100,000 options to purchase the Company's common stock at the initial public offering price. Mr. Patrick did not participate in or vote upon the approval of the Indy Lights Acquisition. Mr. Michael J. Mills, secretary of the Company, is a principal in a law firm which received fees for legal services from the Company in the amount of $111,540, $128,660 and $133,200 during 1995, 1996 and 1997, respectively. Each of the current directors is affiliated with entities engaged in various levels of business activity with CART. These and other transactions of the Company with officers, directors, employees, principal stockholders or affiliates have been or will be (i) made in the ordinary course of business, (ii) on substantially the same terms as those prevailing at the 45 47 time for comparable transactions with other persons, and (iii) such that did not or do not involve more than normal levels of risk or present other unfavorable features. 46 48 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information, as of December 19, 1997, with respect to the beneficial ownership of the Common Stock by (i) each person or entity known to the Company to be the beneficial owner of more than five percent of the outstanding shares of the Common Stock, (ii) each of the Company's directors, (iii) each of the Named Officers, (iv) each of the Selling Stockholders, and (v) all directors and executive officers as a group.
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY OWNED SHARES OWNED NAME(1) PRIOR TO OFFERING BEING OFFERED AFTER OFFERING - ---------------------------------------------- -------------------------- ------------- -------------------------- NUMBER PERCENT(2) NUMBER PERCENT --------- ---------- --------- ---------- All American Racers, Inc...................... 466,666 4.6% -- 466,666 3.2% Arciero-Wells Racing, Inc..................... 400,000 4.6% 40,000 360,000 2.5% Arciero-Wells Racing II, Ltd., LLC............ 66,666 * -- 66,666 * Bettenhausen Motorsports, Inc................. 400,000 3.9% -- 400,000 2.8% Dale Coyne Racing(2).......................... 800,000 7.8% 80,000 720,000 5.0% Davis Racing, Inc............................. 400,000 3.9% -- 400,000 2.8% Della Penna Motorsports, Inc.................. 400,000 3.9% -- 400,000 2.8% Forsythe Racing, Inc.(3)...................... 400,000 3.9% -- 400,000 2.8% Hogan Racing, L.L.C........................... 400,000 3.9% -- 400,000 2.8% Newman/Haas Racing(4)......................... 800,000 7.8% -- 800,000 5.5% PacWest Racing Group(5)....................... 800,000 7.8% -- 800,000 5.5% Patrick Racing, Inc.(6)....................... 800,000 7.8% -- 800,000 5.5% Penske Racing, Inc.(7)........................ 800,000 7.8% -- 800,000 5.5% Project Indy.................................. 66,666 * -- 66,666 * Chip Ganassi Racing Teams, Inc.(8)............ 800,000 7.8% 80,000 720,000 5.0% Tasman Motorsports Group(9)................... 800,000 7.8% -- 800,000 5.5% Team Green, Inc............................... 400,000 3.9% 40,000 360,000 2.5% Team Rahal, Inc.(10).......................... 800,000 7.8% -- 800,000 5.5% Walker & Associates Motorsport, Ltd.(11)...... 400,000 3.9% -- 400,000 2.8% Andrew Craig(12).............................. -- -- -- -- -- Randy K. Dzierzawski(12)...................... -- -- -- -- -- J. Kirk Russell(12)........................... -- -- -- -- -- Gerald Forsythe(3)............................ 400,000 3.9% -- 400,000 2.8% Chip Ganassi(8)............................... 800,000 7.8% 80,000 720,000 5.0% Carl A. Haas(4)............................... 800,000 7.8% -- 800,000 5.5% Bruce R. McCaw(5)............................. 800,000 7.8% -- 800,000 5.5% U.E. Patrick(6)............................... 800,000 7.8% -- 800,000 5.5% Robert W. Rahal(10)........................... 800,000 7.8% -- 800,000 5.5% Derrick Walker(11)............................ 400,000 3.9% -- 400,000 2.8% All executive officers and directors as a group (11) persons)......................... 4,800,000 47.1% 4,720,000 32.5%
- --------------- * Less than 1% (1) Unless otherwise noted, each person or entity has sole investing and voting power with respect to the shares indicated. (2) Percent before the Offering is based on 10,200,000 shares outstanding on December 19, 1997. (3) The shares are held of record by Forsythe Racing, Inc. and beneficially by Gerald Forsythe. (4) The shares are held of record by Newman/Haas Racing and beneficially by Carl A. Haas. The address for Newman/Haas Racing and Carl A. Haas is 500 Tower Parkway, Lincolnshire, Illinois 60069. (5) The shares are held of record by PacWest Racing Group and beneficially by Bruce R. McCaw. The address for PacWest Racing Group and Bruce R. McCaw is 4601 Methanol Lane, Indianapolis, Indiana 46268. (6) The shares are held of record by Patrick Racing, Inc. and beneficially by U.E. Patrick. The address for Patrick Racing, Inc. and U.E. Patrick is 8431 Georgetown Road, Indianapolis, Indiana 46268. (7) The address for Penske Racing, Inc. is 366 Penske Plaza, Reading, Pennsylvania 19603. 47 49 (8) The shares are held of record by Chip Ganassi Racing Teams, Inc. and beneficially by Chip Ganassi. The address for Chip Ganassi Racing Teams, Inc. and Chip Ganassi is 3821 Industrial Boulevard, Indianapolis, Indiana 46254. (9) The address for Tasman Motorsports Group is 4192 Weaver Court, Hilliard, Ohio 43026. (10) The shares are held of record by Team Rahal, Inc. and beneficially by Robert W. Rahal. The address for Team Rahal, Inc. and Robert W. Rahal is 4601 Lyman Drive, Hilliard, Ohio 43026. (11) The shares are held of record by Walker & Associates Motorsport, Ltd. and beneficially by Derrick Walker. (12) The address for Messrs. Craig, Dzierzawski and Russell is 755 West Big Beaver Road, Suite 800, Troy, Michigan 48084. 48 50 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01 per share. On December 19, 1997, a total of 10,200,000 shares of Common Stock were issued and outstanding and such shares were held by 19 stockholders. No shares of Preferred Stock were outstanding. Upon completion of the Offering, there will be 14,533,000 shares of Common Stock (15,218,950 shares if the Underwriters' over-allotment option is exercised in full) and no shares of Preferred Stock issued and outstanding. The following summary description of the Company's capital stock does not purport to be complete and is qualified in its entirety by this reference to the Company's Certificate of Incorporation and By-laws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. COMMON STOCK All outstanding shares of Common Stock are, and the shares offered hereby will be, duly authorized, validly issued, fully paid and nonassessable. Holders of Common Stock are entitled to receive dividends, when and if declared by the Board of Directors, out of funds legally available therefor and, subject to the prior rights of holders of any Preferred Stock then outstanding, to share ratably in the net assets of the Company upon liquidation. The payment by the Company of dividends, if any, rests with the Board of Directors and will depend upon the Company's results of operation, financial condition and capital expenditure plans, as well as other factors considered relevant by the Board of Directors. Holders of Common Stock do not have preemptive or other rights to subscribe for additional shares, nor are there any redemption or sinking fund provisions associated with the Common Stock. Holders of Common Stock are entitled to one vote per share on all matters requiring a vote of stockholders. Since the Common Stock does not have cumulative voting rights in electing directors, the holders of more than a majority of the outstanding shares of Common Stock voting for the election of directors can elect all of the directors whose terms expire that year, if they choose to do so. PREFERRED STOCK Under the Company's Certificate of Incorporation ("Certificate"), the Board of Directors has the power, without further action by the holders of the Common Stock, to designate the relative rights and preferences of the Preferred Stock, when and if issued. The Board of Directors are authorized to issue up to 5,000,000 shares of Preferred Stock in one or more series. The rights and preferences could include preferences as to liquidation, redemption and conversion rights, voting rights, dividends or other preferences, any of which may be dilutive to the interests of the holders of Common Stock. The issuance of Preferred Stock may have the effect of delaying or preventing a change in control of the Company and may have an adverse effect on the rights of the holders of Common Stock. The issuance of any series of Preferred Stock, and the relative powers, preferences, rights, qualifications, limitations and restrictions of such series, if and when established, will depend upon, among other things, the future capital needs of the Company, then-existing market conditions and other factors that, in the judgment of the Board of Directors, might warrant the issuance of Preferred Stock. At the date of this Prospectus, there are no plans, agreements or understandings relative to the issuance of any shares of Preferred Stock. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS Certain provisions of the General Corporation Law of the State of Delaware (the "DGCL")and of the Company's Certificate of Incorporation and By-laws, summarized in the following paragraphs, may be considered to have an anti- takeover effect and may delay, deter or prevent a tender offer, proxy contest or other takeover attempt that a stockholder might consider to be in such stockholder's best interest, including such an attempt as might result in payment of a premium over the market price for shares held by stockholders. Anti-Greenmail. The Certificate of Incorporation prohibits redemption by the Company of any of its securities held by a person holding more than 5% or more of its securities at a price in excess of the securities then fair market value unless certain conditions are met, including stockholder approval or a comparable offer to all stockholders. Other Voting Requirements. The Certificate of Incorporation requires the approval of 67% of the Company's voting securities for an amendment of certain provisions of the Certificate of Incorporation, unless 2/3 of the Board of Directors 49 51 first approve the matter. The Certificate of Incorporation also requires either the approval of 67% of the Company's voting securities or a vote of not less than a majority of the Board of Directors to amend the By-Laws. Delaware Anti-Takeover Law. The Company, a Delaware corporation, is subject to the provisions of the General Corporation Law of the State of Delaware, including Section 203 thereof. In general, Section 203 prohibits a public Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which such person became an interested stockholder unless: (i) prior to such date, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; or (ii) upon becoming an interested stockholder, the stockholder then owned at least 85% of the voting stock, as defined in Section 203; or (iii) subsequent to such date, the business combination is approved by both the Board of Directors and by holders of at least 66 2/3% of the corporation's outstanding voting stock, excluding shares owned by the interested stockholder. For these purposes, the term "business combination" includes mergers, asset sales and other similar transactions with an "interested stockholder." An "interested stockholder" is a person who together with affiliates and associates, owns (or, within the prior three years, did own) 15% or more of the corporation's voting stock. Although Section 203 permits a corporation to elect not to be governed by its provisions, to date the Company has not made this election. Special Meetings of Stockholders; No Action Without Meeting. The Company's By-laws provide that special meetings of stockholders may be called only by the Chairman, the President or the Board of Directors. The Company's Certificate of Incorporation and By-laws also provide that no action required to be taken or that may be taken at any annual or special meeting of stockholders may be taken without a meeting. Additionally, the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. These provisions may make it more difficult for stockholders to take action opposed by the Board of Directors. Advance Notice Requirements for Stockholder Proposals and Director Nominations. The Company's By-laws provide that stockholders seeking to bring business before an annual or special meeting of stockholders, or to nominate candidates for election as directors at an annual or a special meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive office of the Company (i) with respect to business to be considered at the annual meeting of the stockholders of the Company not less than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Company, and (ii) with respect to business to be considered at a special meeting of stockholders of the Company not later than the close of business on the 10th day following the day on which notice of the date of the special meeting was mailed to stockholders of the Company, or public disclosure of the date of the special meeting was made, whichever first occurs. These provisions may preclude some stockholders from making nominations for directors at an annual or special meeting or from bringing other matters before the stockholders at a meeting. RIGHTS AGREEMENT The Company and a rights agent will enter into a Rights Agreement, dated effective December 22, 1997, which provides for the distribution of a right to purchase one share of Common Stock at an exercise price of $80 to the holder of each share of Common Stock. The holders of rights do not have any voting rights and are not entitled to dividends. Prior to the distribution date (the "Distribution Date"), the rights will be evidenced by certificates representing the shares of Common Stock to which they are attached and may be transferred with, and only with, shares of Common Stock. The Distribution Date will occur, if at all, upon the earlier of (a) the tenth day following a public announcement that a person has acquired or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock, or (b) the tenth business day (or such later date as determined by the board of Directors) following the commencement of or the first public announcement of intent of a tender offer or exchange for 15% or more of the outstanding shares of Common Stock (other than by the Company or certain related entities). The rights are not exercisable until the Distribution Date and will expire at the close of business on December 22, 2007, unless earlier redeemed by the Company. After the Distribution Date, the rights may either "flip-in" or "flip-over," allowing a stockholder to acquire the common stock or the voting equity securities of the acquiring person, respectively, at a 50% discount. Once any person (other than the Company or certain related entities) becomes a 15% beneficial owner of the outstanding shares of Common Stock, the rights (other than rights beneficially owned by the acquiring person which would become null and void) automatically flip-in, unless the Board of Directors has decided to exchange the rights for shares of Common Stock. 50 52 If, after the Distribution Date, the Company consolidates or merges with, or transfers a majority of its assets to, any person, the rights will flip-over. The rights may have certain anti-takeover effects. The rights are designed to cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board of Directors. The rights will not interfere with any merger or other business combination approved by the Board because the rights may be redeemed by the Company at $.01 per right at any time prior to a 15% acquisition. The Rights Agreement may be amended, without limitation prior to the distribution of the Rights, by the Board of Directors without the approval of the holders of the rights. TRANSFER AGENT The transfer agent and registrar of the Common Stock is . SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have outstanding 14,533,000 shares of Common Stock (15,218,950 shares if the Underwriters' over-allotment option is exercised in full). In addition, the Company has reserved an additional 2,000,000 and 100,000 shares of Common Stock for issuance pursuant to the Stock Option Plan and Directors Option Plan, respectively, which shares will be registered under the Securities Act and will be freely transferable. Of such outstanding shares, the 4,573,000 Shares (5,258,950 shares if the over-allotment option is exercised in full) sold in the Offering will be freely transferable and may be resold without further registration under the Securities Act. The holders of the remaining 9,960,000 shares will be entitled to resell them only pursuant to a registration statement under the Securities Act or an applicable exemption from registration thereunder, such as an exemption provided by Rule 144. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned "restricted securities" for at least one year may, under certain circumstances, resell within any three- month period such number of shares as does not exceed the greater of one percent of the then-outstanding shares or the average weekly trading volume during the four calendar weeks prior to such resale. Rule 144 also permits, under certain circumstances, the resale of shares without any quantity limitation by a person who has satisfied a two-year holding period and who is not, and has not been for the preceding three months, an affiliate of the Company. In addition, holding periods of successive non-affiliate owners are aggregated for purposes of determining compliance with these one- and two-year holding period requirements. Upon completion of the Offering, 8,560,000 shares of Common Stock outstanding on the date of this Prospectus and not sold in the Offering will have been held for at least one year and may be resold pursuant to Rule 144 three months after the date of this Prospectus. The availability of shares for sale or actual sales under Rule 144 may have an adverse effect on the market price of the Common Stock. Sales under Rule 144 also could impair the Company's ability to market additional equity securities. The Company has agreed, however, not to issue, and the officers and directors of the Company have each agreed not to resell, or otherwise dispose of, any shares of Common Stock or other equity securities of the Company for a period of 180 days after the date of this Prospectus without the prior written consent of the representatives of the Underwriters. In addition, each of the current stockholders have entered into an agreement which restricts the resale of shares of Common Stock for a period of one year from the date of this Prospectus. 51 53 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, the Company and the Selling Stockholders have severally agreed to sell to the underwriters named below (the "Underwriters"), for whom Jefferies & Company, Inc. ("Jefferies") and A.G. Edwards & Sons, Inc. are acting as representatives (the "Representatives"), and the Underwriters have severally agreed to purchase, the number of shares of Common Stock set forth opposite their respective names in the table below at the public offering price less the underwriting discount set forth on the cover page of this Prospectus:
NUMBER OF UNDERWRITERS SHARES ---------------------------------------------------------------------------------- --------- Jefferies & Company, Inc.......................................................... A.G. Edwards & Sons, Inc.......................................................... Total...................................................................
The Underwriting Agreement provides that the obligation of the Underwriters to purchase the shares of Common Stock offered hereby is subject to certain conditions. The Underwriters are committed to purchase all of the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below), if any are purchased. The Underwriters propose to offer the Common Stock initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share to certain other dealers. After the initial public offering of Common Stock, the public offering price, concession to selected dealers and reallowance to other dealers may be changed by the Representatives. The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to 685,950 additional shares of Common Stock at the initial public offering price, less the underwriting discount. The Underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the shares of Common Stock offered by this Prospectus. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase additional shares of Common Stock proportionate to such Underwriters' initial commitment as indicated in the preceding table. The Company, the Selling Stockholders and the directors and executive officers of the Company have agreed not to offer for sale, sell or otherwise dispose of any shares of Common Stock or options, right or warrants to acquire any Common Stock, or any securities convertible into or exchangeable for Common Stock, for a period of 180 days from the date of this Prospectus, without the prior written consent of Jefferies. 52 54 The Representatives have informed the Company that they do not expect the Underwriters to confirm sales of shares of Common Stock offered by this Prospectus to any accounts over which they exercise discretionary authority. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities that may be incurred in connection with the Offering, including liabilities under the Securities Act, or contribute to payments the Underwriters may be required to make in respect thereof. In order to facilitate the Offering of the Common Stock, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may overallot in connection with the Offering, creating a short position in the Common Stock for their own account. In addition, to cover over-allotments or to stabilize the price of the Common Stock, the Underwriters may bid for, and purchase, the Common Stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer in distributing the Common Stock in the Offering. If the syndicate repurchases previously distributed shares of Common Stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities and may end any of these activities at any time. The Company intends to make application to list the Common Stock on the NYSE under the symbol " ". The Underwriters have reserved for sale, at the initial public offering price, up to 297,245 shares of Common Stock for certain employees, directors and business associates of, and certain other persons designated by, the Company who have expressed an interest in purchasing such shares of Common Stock. The number of shares available for sale to the general public in the Offering will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered to the general public on the same basis as other shares offered hereby. Prior to the Offering, there has been no public trading market for the Common Stock and there can be no assurance that an active trading market will develop or be sustained upon the completion of the Offering. The initial public offering price of the Common Stock will be determined by negotiations among the Company, the Selling Stockholders and the Representatives. The material factors considered in determining such public offering price will be the history of and the prospects for the industry in which the Company competes, an assessment of the Company's management, the Company's past and present operations, the Company's past and present earnings and the trend of its earnings, the general condition of the securities markets at the time of the Offering and the price-earnings ratio and market prices of publicly traded securities of companies that the Company and the Representatives believe to be comparable to the Company. In order to facilitate the Offering of the Common Stock, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may over-allot in connection with the Offering, creating a short position in the Common Stock for their own account. In addition, to cover over-allotments or to stabilize the price of the Common Stock, the Underwriters may bid for, and purchase, the Common Stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer in distributing the Common Stock in the Offering if the syndicate repurchases previously distributed shares of Common Stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities and any of these may be discontinued at any time. LEGAL MATTERS Certain legal matters related to this Offering will be passed upon for the Company and the Selling Stockholders by Kegler, Brown, Hill & Ritter Co., L.P.A., Columbus, Ohio. Certain legal matters related to this Offering will be passed upon for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas. EXPERTS The Consolidated Financial Statements of the Company included in this Prospectus and the Consolidated Financial Statements from which the Selected Consolidated Financial Data included in this Prospectus have been derived, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein. Such Consolidated Financial Statements and Selected Consolidated Financial Data have been included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 53 55 The Combined Financial Statements of American Racing Series, Inc. and BP Automotive, Inc. as of December 31, 1996 and 1995 and for the two-year period ended December 31, 1996, included in this Prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and have been so included in reliance upon the report of such firm given their authority as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission, Washington, D.C. 20549 (the "SEC"), a registration statement on Form S-1 under the Securities Act of 1933 with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement, including the exhibits filed as a part thereof. Statements contained in this Prospectus as to the contents of any contract or any other document are not necessarily complete, and, in each such instance, reference is hereby made to the contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by this reference thereto. The Registration Statement, together with its exhibits, may be inspected at the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of such materials may be obtained from any such office upon the payment of the fees prescribed by the SEC, or through the Internet at www.sec.gov. The Company intends to furnish its stockholders with annual reports containing financial statements audited by its independent public accountants and to announce publicly its quarterly results for the first three quarters of each fiscal year. 54 56 CHAMPIONSHIP AUTO RACING TEAMS, INC. INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION, CONSOLIDATED FINANCIAL STATEMENTS, AND COMBINED FINANCIAL STATEMENTS
PAGE ---- CHAMPIONSHIP AUTO RACING TEAMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION Unaudited Pro Forma Condensed Consolidated Financial Information................... F-2 Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1997............................................................................... F-3 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 1997.................................................... F-4 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1996............................................................ F-5 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.......... F-6 CHAMPIONSHIP AUTO RACING TEAMS, INC. Independent Auditors' Report....................................................... F-8 Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (Unaudited)........................................................................ F-9 Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months Ended September 30, 1996 and 1997 (Unaudited)..... F-10 Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months Ended September 30, 1997 (Unaudited)... F-11 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months Ended September 30, 1996 and 1997 (Unaudited)..... F-12 Notes to Consolidated Financial Statements......................................... F-13 AMERICAN RACING SERIES, INC. AND BP AUTOMOTIVE, INC. Independent Auditors' Report....................................................... F-20 Combined Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (Unaudited)........................................................................ F-21 Combined Statements of Income for the Years Ended December 31, 1995 and 1996 and for the Nine Months Ended September 30, 1996 and 1997 (Unaudited).................. F-22 Combined Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1995 and 1996 and for the Nine Months Ended September 30, 1997 (Unaudited)..... F-23 Combined Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the Nine Months Ended September 30, 1996 and 1997 (Unaudited).............. F-24 Notes to Combined Financial Statements............................................. F-25
F-1 57 CHAMPIONSHIP AUTO RACING TEAMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The unaudited pro forma condensed consolidated balance sheet as of September 30, 1997 gives effect to (i) the Reorganization and the elimination of certain payments to franchise members. See "Business -- Franchise System and Race Teams" (ii) the Indy Lights Acquisition (See "Business -- PPG Dayton Indy Lights Championship") and (iii) the Offering and application of the net proceeds from the Offering (after deducting underwriting discounts and commissions and estimated expenses of the Offering, but excluding the underwriters' over-allotment option), as if each had occurred as of September 30, 1997. The following unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 1997 and for the year ended December 31, 1996 give effect to each of the above transactions as if each had occurred as of January 1, 1996. Pro forma adjustments are described in the accompanying notes. The unaudited pro forma condensed consolidated financial information should be read in conjunction with "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Consolidated and Combined Financial Statements and the Notes thereto included elsewhere in this Prospectus. The unaudited pro forma condensed consolidated statements of operations are not necessarily indicative of the actual results of operations that would have been reported if the events described above had occurred as of January 1, 1996, nor do such statements propose to indicate the results of future operations of the Company. Furthermore, the pro forma results do not give effect to cost savings or incremental costs, if any, which may occur as a result of the integration and consolidation of the Indy Lights Acquisition or the investment of cash balances available from the Offering. In the opinion of management, all adjustments necessary to present fairly such unaudited pro forma condensed consolidated financial statements have been made. F-2 58 CHAMPIONSHIP AUTO RACING TEAMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 (DOLLARS IN THOUSANDS)
PRO FORMA FOR ACQUISITION OF INDY LIGHTS -------------------------------------- INDY PRO FORMA ADJUSTMENTS LIGHTS PRO FORMA FOR INDY FOR THE HISTORICAL HISTORICAL ADJUSTMENTS LIGHTS OFFERING PRO FORMA ----------- ---------- ----------- ---------- ----------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents..................... $ 4,850 $ 430 $ (10,000)(A) $ (5,150) $ (12,140)(A) $44,005 (430)(A) 59,495(B) 1,800(B) Accounts receivable........................... 5,225 1,094 (1,094)(A) 5,225 -- 5,225 Inventory..................................... 17 35 -- 52 -- 52 Prepaid expenses.............................. 1,155 205 (205)(A) 1,155 -- 1,155 Deferred tax asset............................ 4,759 -- -- 4,759 -- 4,759 ------- ------ --------- ------- ------- ------- Total current assets................... 16,006 1,764 (11,729) 6,041 49,155 55,196 PROPERTY AND EQUIPMENT -- Net................... 2,177 758 (482)(A) 4,382 -- 4,382 1,929(A) INTANGIBLES..................................... 128 -- 7,760(A) 7,888 -- 7,888 OTHER ASSETS.................................... 150 3 (3)(A) 150 -- 150 ------- ------ ------- ------- ------- TOTAL ASSETS.................................... $18,461 $2,525 $ (2,525) $ 18,461 $ 49,155 $67,616 ======= ====== ========= ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable.............................. $ 2,246 $ 498 $ (498)(A) $ 2,246 $ -- $ 2,246 Accrued liabilities........................... 14,788 456 (456)(A) 14,788 (9,500)(A) 5,288 Unearned revenue.............................. 1,133 775 (775)(A) 1,133 -- 1,133 Current portion of notes payable.............. 130 -- -- 130 -- 130 ------- ------ --------- ------- ------- ------- Total current liabilities.............. 18,297 1,729 (1,729) 18,297 (9,500) 8,797 NOTES PAYABLE................................... 336 -- -- 336 -- 336 MEMBERSHIP DEPOSITS............................. 1,320 -- -- 1,320 (1,320)(A) -- FRANCHISE FUND LIABILITY........................ 1,320 -- -- 1,320 (1,320)(A) -- MINORITY INTEREST............................... 15 -- -- 15 -- 15 COMMITMENTS AND CONTINGENCIES................... -- -- -- -- -- -- STOCKHOLDERS' EQUITY (DEFICIT).................. (2,827) 796 (485)(A) (2,827) 1,800(B) 58,468 -- -- (311)(A) -- 59,495(B) -- ------- ------ --------- ------- ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)..................................... $18,461 $2,525 $ (2,525) $ 18,461 $ 49,155 $67,616 ======= ====== ========= ======= ======= =======
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. F-3 59 CHAMPIONSHIP AUTO RACING TEAMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA FOR ACQUISITION OF INDY LIGHTS --------------------------------------- INDY PRO FORMA ADJUSTMENTS LIGHTS PRO FORMA FOR FOR THE HISTORICAL HISTORICAL ADJUSTMENTS INDY LIGHTS OFFERING PRO FORMA ------------- ---------- ----------- ----------- ----------- --------- REVENUES: Sanction fees............................. $24,248 $ -- $ -- $24,248 $ -- $24,248 Sponsorship revenue....................... 6,186 2,287 (399)(D) 8,074 -- 8,074 Television revenue........................ 5,002 -- -- 5,002 -- 5,002 Engine leases, rebuilds and wheel sales... -- 2,355 -- 2,355 -- 2,355 Other revenue............................. 4,467 106 -- 4,573 -- 4,573 -------- ------ ----- ------- -------- Total revenues..................... 39,903 4,748 (399) 44,252 -- 44,252 EXPENSES: Race and franchise fund payments.......... 28,686 540 -- 29,226 (17,000)(E) 12,226 Race expenses............................. 6,118 989 (399)(D) 6,708 (2,219)(E) 4,489 Cost of engine rebuilds and wheel sales... -- 742 -- 742 -- 742 Administrative and indirect expenses...... 10,841 1,303 -- 12,144 (170)(E) 11,974 Compensation expense (I).................. 1,483 -- -- 1,483 -- 1,483 Depreciation and amortization............. 350 235 21(C) 606 -- 606 Minority interest......................... (210) -- -- (210) -- (210) -------- ------ ----- ------- ------- -------- Total expenses..................... 47,268 3,809 (378) 50,699 (19,389) 31,310 -------- ------ ----- ------- ------- -------- INCOME (LOSS) BEFORE INCOME TAXES........... (7,365) 939 (21) (6,447) 19,389 12,942 INCOME TAX EXPENSE (BENEFIT)................ (2,576) -- -- (2,576) 6,786(F) 4,210 -------- ------ ----- ------- ------- -------- NET INCOME (LOSS)........................... $(4,789) $ 939 $ (21) $(3,871) $ 12,603 $ 8,732 ======== ====== ===== ======= ======= ======== EARNINGS (LOSS) PER SHARE (G)................................. $ (.47) $ .60 ======== ========
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. F-4 60 CHAMPIONSHIP AUTO RACING TEAMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA FOR INDY LIGHTS ACQUISITION ---------------------------------------- PRO FORMA ADJUSTMENTS INDY LIGHTS PRO FORMA FOR FOR THE HISTORICAL HISTORICAL ADJUSTMENTS INDY LIGHTS OFFERING PRO FORMA ------------ ----------- ----------- ------------ ----------- --------- REVENUES: Sanction fees.................. $ 21,078 $ -- $ -- $ 21,078 $ -- $21,078 U.S. 500....................... 7,054 -- -- 7,054 -- 7,054 Sponsorship revenue............ 5,501 2,416 (120)(D) 7,797 -- 7,797 Television revenue............. 4,139 -- -- 4,139 -- 4,139 Engine leases, rebuilds and wheel sales.................. -- 2,347 -- 2,347 -- 2,347 Other revenue.................. 3,682 160 -- 3,842 -- 3,842 ------- ------ ----- ------- -------- Total revenues.......... 41,454 4,923 (120) 46,257 -- 46,257 EXPENSES: Race and franchise fund payments..................... 17,198 731 -- 17,929 (6,280)(E) 11,649 U.S. 500....................... 8,246 -- -- 8,246 -- 8,246 Race expenses.................. 6,055 822 (120)(D) 6,757 (1,953)(E) 4,804 Cost of engine rebuilds and wheel sales.................. -- 898 -- 898 -- 898 Administrative and indirect expenses(H).................. 8,620 1,686 -- 10,306 (294)(E) 10,012 Compensation expense(I)........ 1,167 -- -- 1,167 -- 1,167 Depreciation and amortization................. 685 397 (56)(C) 1,026 -- 1,026 ------- ------ ----- ------- -------- -------- Total expenses.......... 41,971 4,534 (176) 46,329 (8,527) 37,802 ------- ------ ----- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES.......................... (517) 389 56 (72) 8,527 8,455 INCOME TAX (BENEFIT) EXPENSE..... (179) -- -- (179) 2,959(F) 2,780 ------- ------ ----- ------- -------- -------- NET INCOME (LOSS)................ $ (338) $ 389 $ 56 $ 107 $ 5,568 $ 5,675 ======= ====== ===== ======= ======== ======== EARNINGS (LOSS) PER SHARE (G).... $ (.04) $ .41 ======= ========
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. F-5 61 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION BALANCE SHEET -- In December 1997, the Company entered into a binding letter of intent to acquire all of the outstanding shares of stock of ARS and the assets of BP (entities related through certain common ownership) for $10,000,000 in cash and options to purchase 100,000 shares of the Company's Common Stock at the initial public offering price. ARS operates Indy Lights and BP provides certain equipment to the participants of Indy Lights. The excess of the purchase price over the net book value of the net assets acquired of Indy Lights has been allocated to the tangible and intangible assets based on the Company's estimate of the fair market value of the net assets acquired. The allocation of the purchase price paid for Indy Lights is as follows:
(IN THOUSANDS) Fair market value of net assets acquired................................. $ 2,240 Allocation of purchase price in excess of acquired assets--Goodwill...... 7,760 -------------- Total Purchase Price................................................ $ 10,000 ===========
The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 1997 has been prepared as if the Offering, the Indy Lights Acquisition and the Reorganization had been consummated as of September 30, 1997 and includes: (A) a pro forma adjustment has been made to: - record the write-up to fair market value of assets acquired ($1,929,000) and goodwill related to the Indy Lights Acquisition ($7,760,000); - repay accrued point awards of $9,500,000 and the Membership Deposits of $1,320,000 and Franchise Fund Liability of $1,320,000 to Franchise Members for a total of $12,140,000; - present the Indy Lights Acquisition for $10,000,000 in cash; - eliminate Indy Lights historical equity balances ($311,000) and the net assets and liabilities (net amount of $485,000) that will be distributed to the stockholders of ARS and BP immediately prior to the Indy Lights Acquisition. (B) a pro forma adjustment has been recorded to present the application of the net proceeds ($59,495,000) of the Offering, assuming additional Offering expenses of $950,000. A pro forma adjustment has been recorded to present the proceeds of $1,800,000 related to the issuance of 1,400,000 shares of Common Stock on December 19, 1997. See "Business -- Franchise System and Race Teams." STATEMENT OF OPERATIONS -- The accompanying unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 1997 and for the year ended December 31, 1996 present the results as though the Offering, the Indy Lights Acquisition and the Reorganization had been consummated on January 1, 1996. The accompanying unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 1997 and for the year ended December 31, 1996 have been prepared by combining the historical results for the Company and Indy Lights for such respective periods and include the following adjustments: (C) Adjustments for the nine months ended September 30, 1997 and for the year ended December 31, 1996 have been made to increase (decrease) depreciation and amortization by $21,000 and $(56,000), respectively, related to the Indy Lights Acquisition (which has been primarily allocated to property and equipment and goodwill) as if the Indy Lights Acquisition had occurred as of January 1, 1996. Property and equipment is depreciated over their estimated useful lives of 15 years. Goodwill is amortized over 40 years. The Company intends to periodically evaluate the recoverability of goodwill based upon future profitability and undiscounted operating cash flows of the Indy Lights Acquisition. F-6 62 (D) Represents the elimination of inter-entity revenues and expenses based upon agreements between the Company and Indy Lights. (E) Pro forma adjustments for the periods presented have been made to reduce certain benefits paid to franchise members, including reimbursement of travel expenses, director fees, purse awards and other race related payments, to discontinue specific expenses that would not have been incurred had the Offering, the Indy Lights Acquisition and the Reorganization occurred as of January 1, 1996. Effective January 1, 1998, the Company and the existing franchise members entered into an agreement whereby reimbursements for travel expenses, director fees and race related payments will be discontinued. Such agreement expires in December 2000. Additional cost savings that the Company expects to realize through the integration of the Indy Lights Acquisition have not been included. (F) Prior to the Indy Lights Acquisition, ARS and BP were S-Corporations and, accordingly, were not subject to federal or state income taxes. The pro forma provision for income taxes has been computed as if the Indy Lights Acquisition was subject to federal and state income taxes for the periods presented based on the statutory tax rate then in effect. Additionally, the pro forma adjustments have been tax effected at a 35% federal rate. (G) Pro forma earnings per share is computed by dividing pro forma net income by the weighted average common shares outstanding and the shares offered hereby. Pro forma common shares outstanding for the nine months ended September 30, 1997 and the year ended December 31, 1996 were 14,533,000 shares and 13,733,000 shares, respectively. The weighted average common shares outstanding used in the computation of historical and pro forma earnings (loss) per share reflect the issuance of 1,400,000 shares of Common Stock on December 19, 1997. See "Business -- Franchise System and Race Teams." (H) Included in administrative and indirect expenses for the historical and pro forma year ended December 31, 1996 is approximately $1,734,000 related to litigation expenses and the settlement of lawsuits. (I) Total expenses for the historical and pro forma year ended December 31, 1996 and the historical and pro forma nine months ended September 30, 1997 include compensation expense of $1,161,000 and $1,483,000, respectively, related to the issuance of Common Stock to franchise members below its fair value, on the date the common stock became eligible for purchase. F-7 63 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Championship Auto Racing Teams, Inc.: We have audited the accompanying consolidated balance sheets of Championship Auto Racing Teams, Inc. (the "Company") as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Detroit, Michigan January 20, 1997 (December 19, 1997 as to Note 9) F-8 64 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30, ------------------ ------------- 1995 1996 1997 ------- ------ ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 2,046 $ 630 $ 4,850 Accounts receivable (no allowance for doubtful accounts deemed necessary in 1995, 1996 and 1997)............... 821 2,302 5,225 Inventory................................................. 53 16 17 Prepaid expenses.......................................... 121 423 1,155 Deferred income taxes..................................... -- 12 4,759 ------- ------ ------- Total current assets.............................. 3,041 3,383 16,006 PROPERTY AND EQUIPMENT -- Net............................... 1,580 1,929 2,177 DEFERRED INCOME TAXES....................................... 828 1,042 -- TRADEMARKS (Net of accumulated amortization of $59 in 1995, $0 in 1996 and $15 in 1997)............................... 89 101 128 OTHER ASSETS................................................ 75 145 150 ------- ------ ------- TOTAL ASSETS................................................ $ 5,613 $6,600 $18,461 ======= ====== ======= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable.......................................... $ 797 $ 931 $ 2,246 Accrued liabilities: Race expenses and point awards......................... -- -- 13,130 Bonus.................................................. 167 195 172 Taxes.................................................. 250 250 1,429 Other.................................................. 34 70 57 Unearned revenue.......................................... 2,583 2,331 1,133 Bank line of credit....................................... 392 -- -- Current portion of long-term debt......................... -- 130 130 ------- ------ ------- Total current liabilities.............................. 4,223 3,907 18,297 LONG-TERM DEBT.............................................. -- 444 336 MEMBERSHIP DEPOSITS......................................... 600 960 1,320 FRANCHISE FUND LIABILITY.................................... 2,040 1,440 1,320 COMMITMENTS AND CONTINGENCIES (Note 7)...................... -- -- -- MINORITY INTEREST IN SUBSIDIARIES........................... -- -- 15 STOCKHOLDERS' DEFICIT: Preferred Stock, $.01 par value; 5,000,000 shares authorized, none issued and outstanding at December 31, 1995, 1996 and September 30, 1997...................... -- -- -- Common stock, $.01 par value; 45,000,000 shares authorized, 8,800,000; 8,000,000; and 8,800,000 shares issued and outstanding at December 31, 1995, 1996 and September 30, 1997, respectively................................. 88 80 88 Additional paid-in capital................................ 522 1,367 3,472 Note receivable -- stockholder............................ (600) -- -- Accumulated deficit....................................... (1,260) (1,598) (6,387) ------- ------ ------- Total stockholders' deficit....................... (1,250) (151) (2,827) ------- ------ ------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT................. $ 5,613 $6,600 $18,461 ======= ====== =======
The accompanying notes are an integral part of the consolidated financial statements. F-9 65 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- ------------------- 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- (UNAUDITED) REVENUES: Sanction fees.................................... $16,299 $18,708 $21,078 $21,178 $24,248 U.S. 500......................................... -- -- 7,054 7,078 -- Sponsorship revenue.............................. 4,104 4,780 5,501 4,488 6,186 Television revenue............................... 2,343 3,177 4,139 4,139 5,002 Other revenue.................................... 2,441 3,312 3,682 2,967 4,467 ------- ------- ------- ------- ------- Total revenues........................... 25,187 29,977 41,454 39,850 39,903 EXPENSES: Race and franchise fund payments................. 18,305 18,446 17,198 17,096 28,686 U.S. 500......................................... -- -- 8,246 8,220 -- Race expenses.................................... 2,621 4,612 6,055 4,409 6,118 Administrative and indirect expenses............. 3,977 5,832 8,620 6,153 10,841 Compensation expense............................. -- -- 1,167 1,167 1,483 Depreciation and amortization.................... 202 306 685 374 350 Minority interest in loss of subsidiaries........ -- -- -- -- (210) ------- ------- ------- ------- ------- Total expenses........................... 25,105 29,196 41,971 37,419 47,268 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES.................. 82 781 (517) 2,431 (7,365) INCOME TAX EXPENSE (BENEFIT)....................... (344) (204) (179) 891 (2,576) ------- ------- ------- ------- ------- NET INCOME (LOSS).................................. $ 426 $ 985 $ (338) $ 1,540 $(4,789) ======= ======= ======= ======= ======= EARNINGS (LOSS) PER SHARE.......................... $ .04 $ .10 $ (.04) $ .16 $ (.47) ======= ======= ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-10 66 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (DOLLARS AND SHARES IN THOUSANDS)
COMMON STOCK ADDITIONAL NOTE --------------- PAID-IN RECEIVABLE- ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL STOCKHOLDER DEFICIT DEFICIT ------ ------ ---------- ----------- ----------- ------------- BALANCES, JANUARY 1, 1994.......... 9,600 $ 96 $ 474 $ -- $(2,671) $(2,101) Net income....................... -- -- -- -- 426 426 Stock redemption................. (1,600) (16) (464) -- -- (480) Stock issuance................... 800 8 272 -- -- 280 ----- ----- ---- ------- ----- ------- BALANCES, DECEMBER 31, 1994........ 8,800 88 282 -- (2,245) (1,875) Net income....................... -- -- -- -- 985 985 Stock redemption................. (1,600) (16) (464) -- -- (480) Issuance of note receivable to stockholder................... -- -- -- (600) -- (600) Stock issuance................... 1,600 16 704 -- -- 720 ----- ----- ---- ------- ----- ------- BALANCES, DECEMBER 31, 1995........ 8,800 88 522 (600) (1,260) (1,250) Net income....................... -- -- -- -- (338) (338) Compensation expense............. -- -- 1,167 -- -- 1,167 Stock redemption and repayment of note receivable............... (2,000) (20) (940) 600 -- (360) Stock issuance................... 1,200 12 618 -- -- 630 ----- ----- ---- ------- ----- ------- BALANCES, DECEMBER 31, 1996........ 8,000 80 1,367 -- (1,598) (151) Net loss (Unaudited)............. -- -- -- -- (4,789) (4,789) Compensation expense............. -- -- 1,483 -- -- 1,483 Stock redemption (Unaudited)..... (400) (4) (206) -- -- (210) Stock issuance (Unaudited)....... 1,200 12 828 -- -- 840 ----- ----- ---- ------- ----- ------- BALANCES, SEPTEMBER 30, 1997 (Unaudited)...................... 8,800 $ 88 $3,472 $ -- $(6,387) $(2,827) ===== ===== ==== ======= ===== =======
The accompanying notes are an integral part of this consolidated financial statements. F-11 67 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------ ------------------- 1994 1995 1996 1996 1997 ------ ------- ------- ------- ------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................................................... $ 426 $ 985 $ (338) $ 1,540 $(4,789) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation...................................................... 188 292 671 364 335 Amortization...................................................... 14 14 14 10 15 Compensation expense.............................................. -- -- 1,167 1,167 1,483 Net gain from sale of property and equipment...................... -- (77) (133) (101) -- Write-off of trademark............................................ -- -- 88 -- -- Deferred income taxes............................................. (358) (471) (226) (204) (3,705) Minority interest in loss of subsidiaries......................... -- -- -- -- (210) Changes in assets and liabilities that provided (used) cash: Accounts receivable............................................. (30) (447) (1,481) (3,824) (2,923) Prepaid expenses................................................ (56) (34) (302) 67 (732) Inventory....................................................... (147) (65) 37 29 (1) Other assets.................................................... (41) (11) (70) (113) (5) Accounts payable................................................ 390 192 134 3,634 1,315 Accrued liabilities............................................. 56 198 65 2,194 14,273 Unearned revenue................................................ 603 1,233 (253) (1,414) (1,198) ------ ------- ------- ------- ------- Net cash provided by (used in) operating activities........... 1,045 1,809 (627) 3,349 3,858 ------ ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment............................... (100) (1,365) (1,094) (641) (583) Proceeds from sale of property and equipment........................ -- 177 194 36 -- Acquisition of trademark............................................ -- -- (101) -- (42) ------ ------- ------- ------- ------- Net cash used in investing activities......................... (100) (1,188) (1,001) (605) (625) CASH FLOWS FROM FINANCING ACTIVITIES: Note receivable from stockholder.................................... -- (600) -- -- -- Proceeds from long-term debt........................................ -- -- 650 650 -- Payments on long-term debt.......................................... -- -- (76) (54) (108) Redemption of common stock.......................................... (480) (480) (360) -- (210) Issuance of common stock............................................ 280 720 630 60 840 Proceeds from membership deposit.................................... 240 480 360 360 360 Payments on membership deposits..................................... (200) (240) -- -- -- Proceeds from franchise fund liability.............................. 480 -- -- -- -- Payments on franchise fund liability................................ (200) (240) (600) -- (120) Capital contributions to subsidiaries by minority stockholder....... -- -- -- -- 225 Advances (Payments) on line of credit............................... -- 392 (392) (392) -- ------ ------- ------- ------- ------- Net cash provided by financing activities..................... 120 32 212 624 987 ------ ------- ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 1,065 653 (1,416) 3,368 4,220 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 328 1,393 2,046 2,046 630 ------ ------- ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $1,393 $ 2,046 $ 630 $ 5,414 $ 4,850 ====== ======= ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes........................................................ $ -- $ -- $ 23 $ 17 $ 15 ====== ======= ======= ======= ======= Interest............................................................ $ -- $ -- $ 50 $ 42 $ 37 ====== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES -- During 1995 and 1996, the Company received property and equipment worth approximately $110 and $75, respectively, in exchange for sponsorship privileges to the providers. In 1996, the Company redeemed 800,000 shares of common stock for $600,000 (including $240,000 representing a refund of membership deposits or franchise fund liability), which was used to offset a note receivable from a stockholder. The accompanying notes are an integral part of the Consolidated Financial Statements. F-12 68 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization. Championship Auto Racing Teams, Inc., ("CART") (a Michigan Corporation) (the "Company") was organized as a not-for-profit corporation in 1978, with its main function being to promote the sport of automobile racing, primarily open-wheel type racing cars. As of January 1, 1992, the entity became a profit corporation and continued to use the CART name. The Company has a total of twenty stockholders at December 31, 1996. These stockholders are also Board of Director members and team owners who participate in the Company's sanctioned events (the "Franchise Member"). Certain Franchise Members also serve as promoters of the Company's sanctioned events. As of January 1, 1997, the consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary corporations CART Properties, Inc. and CART Licensed Products, Inc. In addition, the consolidated financial statements include the financial statements of CART Licensed Products, L.P., a 55% owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. On December 19, 1997, the shareholders of the Company exchanged each of their shares for 400,000 shares of Championship Auto Racing Teams, Inc., (a Delaware corporation) (the "Reorganization") (See Note 9). Operations and Major Customer. The Company is the sanctioning body responsible for organizing, marketing and staging each of the racing events for the open-wheeled motorsports series in North America -- the CART Championship. The Company stages events at four different types of tracks, including superspeedways, ovals, temporary road courses and permanent road courses, each of which require different skills and disciplines from the drivers and teams. Substantially all of the Company's revenue is derived from sanction fees, sponsorship revenues, television revenues, licensing and royalties, each of which is dependent upon continued fan support and interest in CART race events. Sanction fee revenues are fees paid to the Company by track promoters to sanction a CART event at the race venue, and to provide the necessary race management. The Company receives sponsorship revenues from companies who desire to receive brand and product exposure in connection with CART races. Pursuant to broadcast agreements, the Company generates revenues for the right to broadcast the races, with revenues based upon viewership with a minimum guarantee. The Company also receives revenues from royalty fees paid for licenses to use servicemarks of the Company, various drivers, teams, tracks and industry sponsors for merchandising programs and product sales. The Company has one sponsor which accounted for approximately 13% of the Company's total revenues for the year ended December 31, 1995. There was no other sponsor or major customer that accounted for more than 10% of total revenues for 1994 and 1996. Inventory. Inventory consists of merchandise which is stated at the lower of cost or market on a first-in, first-out (FIFO) basis. Property and Equipment. Property and equipment are stated at cost and are depreciated using the straight-line and accelerated methods over their estimated useful lives which range from 3 to 7 years. Leasehold improvements are amortized over the life of the related lease. Revenue Recognition. Recognition of revenue from race sanction agreements is deferred until the event has occurred. Sponsorship revenue is recognized during the racing season to which the sponsorship agreement relates. Television revenue is recognized ratably over the race schedule. Other revenue includes membership and entry fees, contingency awards money, royalty income and other revenue and are recognized as earned. F-13 69 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cash and Cash Equivalents. Cash and cash equivalents include investments with original maturities of three months or less at the date of original acquisition. Trademarks. The Company incurred costs of approximately $101,000 during December 1996 relating to the development of a new corporate logo and trademarks. These costs are being amortized on a straight-line basis over 10 years. The unamortized costs associated with the previous corporate logo were written-off in 1996. Earnings (Loss) Per Share. Earnings (loss) per share are based on the weighted average number of common shares outstanding. The weighted average common shares used in the computation of earnings (loss) per share were 10,200,000; 10,200,000; 9,400,000 and 10,200,000, respectively, for the years ended December 31, 1994, 1995, 1996 and the nine months ended September 30, 1997, respectively. See Note 9 for a discussion of the Reorganization of the Company and the issuance of 1,400,000 shares on December 19, 1997. Fair Value of Financial Instruments. Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosures about the fair value of financial instruments whether or not such instruments are recognized on the balance sheet. Due to the short-term nature of the Company's financial instruments, other than debt, fair values are not materially different from their carrying values. Based on the borrowing rates available to the Company, the carrying value of debt approximated fair value as of December 31, 1995 and 1996. Membership Deposits and Franchise Fund Liability. Any Franchise Member who acquires stock subsequent to December 31, 1991 is required to make a conditionally refundable deposit. The deposit amount is determined annually by the Board of Directors and is $120,000 at December 31, 1996 ("New Member"). Any Franchise Member who acquired his stock prior to January 1, 1992 is not required to make such a deposit ("Old Member"). All Franchise Members must sign an agreement which obligates the member to participate, as defined by the Board of Directors, in all of the Company's events. If the participation requirement is met in a given year and the Franchise Member elects to sell his stock to the Company prior to signing the following year's participation agreement, the Franchise Member is entitled to a final "Franchise Fund Payment" (the "Payment"). The amount of the Payment is determined annually by the Board of Directors. For New Members, the minimum Payment represents a return of the membership deposit though such amount may exceed the original deposit. Incremental increases, as determined by the Board of Directors, in the Payment amount are charged to expense annually. Franchise Members forfeit their rights to return of the membership deposit and/or payment of the franchise fund liability if the minimum participation requirement is not met. See Note 9 for a discussion of the Reorganization of the Company. Management Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at December 31, 1995 and 1996, and the reported amounts of revenues and expenses during the periods presented. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements. Accounting Pronouncements. In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" was issued by the Financial Accounting Standards Board ("FASB"). SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS") and applies to all entities with publicly-held common shares or potential common shares. SFAS No. 128 replaces the presentation of primary EPS and fully-diluted EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding for the period. Similar to fully diluted EPS, diluted EPS reflects the potential dilution of securities that could share in the earnings. SFAS No. 128 is not expected to have a material effect on the Company's reported EPS amounts. SFAS No. 128 is effective for the Company's financial statements for the year ending December 31, 1997. F-14 70 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information was issued by the FASB. SFAS No. 131 establishes standards for the way that public business enterprises report financial and descriptive information about its reporting operating segments. The Company has not determined the impact on the Company's financial statement disclosure. SFAS No. 131 is effective for the Company's financial statements for the year ending December 31, 1998. Interim Information (Unaudited). The accompanying unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the nine-month period ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 2. INCOME TAXES Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Realization of the Company's deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. \The tax effects of temporary differences giving rise to deferred tax assets (liabilities) at December 31 are as follows:
1995 1996 ------ ------ (IN THOUSANDS) Deferred tax assets (liabilities): Franchise fund liability.......................................... $ 694 $ 522 Compensation expense.............................................. -- 415 Net operating loss carryforwards.................................. 59 15 Alternative minimum tax credit carryforwards...................... 44 83 Pension liability................................................. 11 2 Membership deposits............................................... 7 7 State taxes....................................................... -- (12) Other............................................................. 13 22 ----- ----- Total.......................................................... 828 1,054 Current portion................................................... -- 12 ----- ----- Noncurrent portion.................................................. $ 828 $1,042 ===== =====
The provision (credit) for income taxes consists of the following at December 31:
1994 1995 1996 ------ ------ ------ (IN THOUSANDS) Current.................................................... $ 14 $ 267 $ 25 Deferred................................................... (358) (471) (204) ----- ----- ----- Total...................................................... $ (344) $ (204) $ (179) ===== ===== =====
F-15 71 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company had net operating loss carryforwards of approximately $130,000 which were utilized during 1996. The Company also has tax credit carryforwards of approximately $83,000 as of December 31, 1996, which have an indefinite carryforward period. The reconciliation of income tax expense (benefit) computed at the U.S. federal statutory tax rate to the Company's effective income tax rate is as follows:
1994 1995 1996 ------ ------ ------ Tax at U.S. federal statutory rate............... 34.0% 34.0% 34.0% Lobbying expense................................. 24.0 -- -- Meals and entertainment.......................... 12.0 2.3 (6.5) Change in valuation allowance.................... (503.0) (62.1) -- Other............................................ 9.0 (0.3) 7.1 ----- ----- ----- Total............................................ (424.0)% (26.1)% 34.6% ===== ===== =====
The change in the valuation allowance during 1995 and 1996 is primarily due to utilization of net operating loss carryforwards. Based upon prior earnings history, it is expected that future taxable income will be more than sufficient to utilize the remaining deductible temporary differences. 3. DEBT At December 31, 1996, the Company had an unused bank line of credit of $1,500,000. At December 31, 1995, $392,000 had been advanced. There were no amounts outstanding at December 31, 1996. Advances on the line of credit are payable on demand, with interest at the bank's prime rate. The line of credit is secured by the Company's deposits with the bank. At December 31, 1996, the Company has a five-year note payable to a bank with an original face value of $650,000, with interest at 8.25%; payable in monthly installments of $11,000, plus interest through May 2001. The note payable is secured by the Company's mobile medical unit. Future payments under the above agreement are as follows:
(IN THOUSANDS) 1997........................................................... $130 1998........................................................... 130 1999........................................................... 130 2000........................................................... 130 2001........................................................... 54 ---- Total........................................................ 574 Less current portion........................................... 130 ---- Long-term portion.............................................. $444 ====
4. EMPLOYEE BENEFIT PLANS During 1991, the Company indicated its intent to terminate its defined benefit pension plan. The plan assets were frozen and remain in trust at December 31, 1996. The outstanding accrued liability (frozen benefit obligation of $238,000 less fair value of plan assets of $233,000) at December 31, 1996, was approximately $5,000. In addition, the Company began a 401(k) savings plan (the "plan") in 1991 to which it contributes 25% of the participating employee's contribution. The Company's contributions to the plan were approximately $23,000, $18,000 and $25,000 in 1994, 1995 and 1996, respectively. F-16 72 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. OPERATING LEASES The Company has entered into various noncancelable operating leases for office space and equipment which expire through 2002. Total rent expense was approximately $100,000, $159,000 and $194,000 for 1994, 1995 and 1996, respectively. Approximate future minimum lease payments under noncancelable operating leases are as follows:
(IN THOUSANDS) Year ending December 31: 1997................................................................... $209 1998................................................................... 217 1999................................................................... 217 2000................................................................... 95 2001................................................................... 91 ---- Total.................................................................... $829 ====
6. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31:
1995 1996 ------- ------- (IN THOUSANDS) Equipment......................................................... $ 786 $ 1,045 Vehicles.......................................................... 524 1,421 Furniture and fixtures............................................ 172 174 Leasehold improvements............................................ 56 56 Construction in progress.......................................... 524 -- Pop-off valves.................................................... 159 303 ------- ------- Total........................................................... 2,221 2,999 Less accumulated depreciation and amortization.................... (641) (1,070) ------- ------- Property and equipment -- net..................................... $ 1,580 $ 1,929 ======= =======
During 1995 and 1996, the Company received vehicles and computer equipment worth approximately $110,000 and $75,000, respectively, in exchange for sponsorship privileges to the providers. 7. COMMITMENTS AND CONTINGENCIES Television Agreements. The Company has entered into multi-year television arrangements with ESPN and ESPN International for the production, sales and worldwide distribution of the Company's events. ESPN has guaranteed the Company a rights fee payable through 2001. In addition, the Company receives 50% of the annual net revenues derived from ESPN's distribution of the Company's events. The Company has also entered into multi-year television arrangements with Molstar for the distribution of the Company's events in Canada, Fittipaldi USA in Brazil and Gold Coast Motor Events in Australia. The Company receives a fixed rights fee for these territories that are contracted for outside of the ESPN agreement. Insurance. The Company is self-insured for the deductible amount ($50,000) on an insurance policy which provides accident medical expense benefits for participants of CART sanctioned races. Losses above the deductible amount are covered by the insurance policy. F-17 73 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Promoter Agreements. The Company has entered into promoter contracts that extend through the year 2000 racing season, whereby it is obligated to sanction CART Championship racing events and provide related race management functions. Capital Stock. Prior to the Reorganization, the Company, at its option, may redeem the stock of existing stockholders at prices determined annually by the Company's Board of Directors, but in no event, less than the share value paid for the share being redeemed. See Note 9. During 1994, the Company redeemed 1,600,000 shares of common stock for $900,000 (including $420,000 representing a refund of Membership Deposits or Franchise Fund Liability). During 1995, the Company redeemed 1,600,000 shares of common stock for $960,000 (including $480,000 representing a refund of Membership Deposits or Franchise Fund Liability). During 1996, the Company redeemed 2,000,000 shares of common stock for $1,440,000 (including $480,000 representing a refund of Membership Deposits or Franchise Fund Liability), and sold 1,200,000 shares of common stock for $990,000 (including $360,000 representing Membership Deposits). A total of 800,000 of the shares of common stock were redeemed for $600,000 (including $240,000 representing a refund of Membership Deposits or Franchise Fund Liability), which was used to offset a note receivable from a stockholder as of December 31, 1995. In January 1996, a lawsuit was filed against the Company by one of its shareholders and a related company. The lawsuit alleged antitrust and anticompetitive violations as well as damage of reputation. In December 1996, the Company settled the lawsuit and other related litigation. Included in the settlement amount was the redemption of common stock and related Franchise Fund Liability. Expenses incurred in 1996 which were in connection with the lawsuit and other related litigation and a settlement payment of $1,734,000 are included in administrative and indirect expenses. SFAS No. 123 "Accounting for Stock Based Compensation" was issued in October 1995 and was effective for years beginning after December 15, 1995. That standard requires the recognition of compensation expense for equity investments that are issued for consideration other than employee services based upon the fair value of the common stock issued. The fair value of the Company's Common Stock has been measured on the date New Franchise Members become eligible to acquire such stock. Compensation expense of $1,167,000 has been recorded for the year ended 1996, related to certain shares that became eligible for purchase based upon eligibility requirements met during 1996. 8. RELATED PARTY TRANSACTIONS The Company receives sanction fees from two entities related through certain common ownership. Total sanction fee revenue related to these entities for 1994, 1995 and 1996 was approximately $2,575,000, $2,800,000 and $3,100,000, respectively. The Company rented track facilities from an entity related through certain common ownership. Total track rental expense related to this entity for 1996 was approximately $1,200,000. The Company has entered into an agreement with an entity related through certain common ownership whereby the Company has agreed to sanction the Indy Lights Championship. The agreement provides for sharing of sanction fees, television revenues and costs. The Company incurred expenses of $270,000 and $120,000 for 1995 and 1996, respectively. At December 31, 1995 and 1996, the Company has accounts receivable of approximately $36,000 and $194,000, respectively, due from entities related through certain common ownership. F-18 74 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. SUBSEQUENT EVENTS In January 1997, CART redeemed 400,000 shares of common stock for $330,000 (including $120,000 representing a refund of Membership Deposits or Franchise Fund Liability). In February and March 1997, the Company issued 1,200,000 shares of common stock for $1,200,000 (including $360,000 representing Membership Deposits). In December 1997, the Company issued 1,400,000 shares for $1,800,000. In December 1997, Championship Auto Racing Teams, Inc., a Delaware corporation was formed to serve as a holding company for the Company and its subsidiaries. Each outstanding share of common stock of the Company was acquired in exchange for 400,000 shares of common stock. All per share information included in these financial statements have been restated to reflect the effect of the Reorganization and the issuance of 1,400,000 shares in December 1997. 10. SUBSEQUENT EVENTS (UNAUDITED) The Company expects to register 4,333,000 shares of common stock in December 1997 for sale in an underwritten public offering (the "Offering"). Also, in connection with the Reorganization and the Offering, Membership Deposits and Franchise Fund Liability amounts due to the Franchise Members will be paid to the Franchise Members. In December 1997 the Company entered into a binding letter of intent to acquire all of the outstanding shares of stock of American Racing Series, Inc. ("ARS") and the assets of BP Automotive, Inc. ("BP") (entities related through certain common ownership) for $10,000,000 in cash and options to purchase 100,000 shares of the Company's Common Stock at the initial public offering price, (the "Indy Light Acquisition"). ARS operates Indy Lights and BP provides certain equipment to participants of Indy Lights. The Indy Lights Acquisition is anticipated to close concurrently with the Offering and a portion of the proceeds from the Offering will be used to fund the Indy Lights Acquisition. In connection with the Reorganization, effective January 1, 1998, the Company and the existing franchise members entered into an agreement on December 19, 1997 whereby reimbursements for travel expenses, directors fees and race-related payments will be discontinued. Such agreement expires in December 2000. In December 1997, the Board of Directors of the Company (the "Board") authorized, and the stockholders of the Company approved, a stock incentive plan for executive and key management employees of the Company and its subsidiaries, including a limited number of outside consultants and advisors, effective as of the completion of the Offering (the "Stock Option Plan"). Under the Stock Option Plan, key employees, outside consultants and advisors (the "Participants") of the Company and its subsidiaries (as defined in the Stock Option Plan) may receive awards of stock options (both Nonqualified Options and Incentive Options, as defined in the Stock Option Plan). A maximum of 2,000,000 shares of Common Stock will be subject to the Stock Option Plan. The purpose of the Stock Option Plan is to provide key employees (including officers and directors who are also key employees) and key non-employee consultants and advisors of the Company and its subsidiaries ("employees") with an increased incentive to make significant contributions to the long-term performance and growth of the Company and its subsidiaries. F-19 75 INDEPENDENT AUDITORS' REPORT To the Board of Directors of American Racing Series, Inc. and BP Automotive, Inc.: We have audited the accompanying combined balance sheets of American Racing Series, Inc. and BP Automotive, Inc. (the "Companies") (entities related through common ownership) as of December 31, 1995 and 1996, and the related combined statements of income, stockholders' equity (deficit), and cash flows for each of the two years in the period December 31, 1996. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined 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 combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the financial position of the Companies' as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the two years in the period December 31, 1996, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Detroit, Michigan December 19, 1997 F-20 76 AMERICAN RACING SERIES, INC. AND BP AUTOMOTIVE, INC. COMBINED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, ----------------- SEPTEMBER 30, 1995 1996 1997 ------ ------ ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents............................................ $ 68 $ 229 $ 430 Accounts receivable (less allowance of $28, $26 and $81 as of 1995, 1996, and 1997, respectively,).................................... 550 519 1,094 Inventory............................................................ 25 20 35 Note receivable...................................................... -- -- 88 Prepaid expenses and other current assets............................ 22 51 117 ------ ------ ------ Total current assets......................................... 665 819 1,764 PROPERTY AND EQUIPMENT -- Net.......................................... 1,000 856 758 OTHER ASSETS........................................................... 1 1 3 ------ ------ ------ TOTAL ASSETS........................................................... $1,666 $1,676 $ 2,525 ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable..................................................... $ 341 $ 415 $ 498 Accrued liabilities.................................................. 97 86 86 Purse Awards payable................................................. -- -- 95 Deposits............................................................. 132 107 275 Distribution payable................................................. -- 135 -- Unearned revenue..................................................... 90 280 775 Bank lines of credit................................................. 400 -- -- Notes payable to related party....................................... 525 750 -- ------ ------ ------ Total current liabilities.................................... 1,585 1,773 1,729 COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDERS' EQUITY (DEFICIT): Common stock......................................................... 47 46 46 Retained earnings (deficit).......................................... 34 (11) 861 Notes receivable -- stockholders..................................... -- (132) (111) ------ ------ ------ Total stockholders' equity (deficit).............................. 81 (97) 796 ------ ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)................... $1,666 $1,676 $ 2,525 ====== ====== ======
The accompanying notes are an integral part of the combined financial statements. F-21 77 AMERICAN RACING SERIES, INC. AND BP AUTOMOTIVE, INC. COMBINED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ----------------- ----------------- 1995 1996 1996 1997 ------ ------ ------ ------ (UNAUDITED) REVENUES: Engine leases.................................................. $1,101 $1,129 $ 847 $ 970 Engine rebuilds and wheel sales................................ 975 1,218 942 1,385 Sponsorship and commissions.................................... 2,793 2,416 1,606 2,287 Other revenue.................................................. 75 160 104 106 ------ ------ ------ ------ Total revenues......................................... 4,944 4,923 3,499 4,748 EXPENSES: Race expenses.................................................. 815 818 687 901 Race distributions............................................. 669 731 564 540 Cost of engine rebuilds and wheels sold........................ 758 898 670 742 Television..................................................... 418 4 4 88 Administrative and indirect expenses........................... 1,263 1,686 1,004 1,303 Depreciation and amortization.................................. 260 397 259 235 ------ ------ ------ ------ Total expenses.............................................. 4,183 4,534 3,188 3,809 INCOME BEFORE INCOME TAXES....................................... 761 389 311 939 INCOME TAX EXPENSE............................................... 181 -- -- -- ------ ------ ------ ------ NET INCOME....................................................... $ 580 $ 389 $ 311 $ 939 ====== ====== ====== ======
The accompanying notes are an integral part of the combined financial statements. F-22 78 AMERICAN RACING SERIES, INC. AND BP AUTOMOTIVE, INC. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (DOLLARS IN THOUSANDS)
COMMON STOCK RETAINED NOTE STOCKHOLDERS' ----------------- EARNINGS RECEIVABLE- EQUITY SHARES AMOUNT (DEFICIT) STOCKHOLDER (DEFICIT) ------ ------ -------- ----------- ------------- BALANCES, JANUARY 1, 1995......................... 475 $ 47 $ (436) $ -- $(389) Net income...................................... -- -- 580 -- 580 Distributions to stockholders................... -- -- (110) -- (110) --- --- ---- ---- ---- BALANCES, DECEMBER 31, 1995....................... 475 47 34 -- 81 Net income...................................... -- -- 389 -- 389 Stock redemption................................ (90) (1) (299) -- (300) Distributions to stockholders................... -- -- (135) -- (135) Issuance of notes receivable -- stockholders.... -- -- -- (132) (132) --- --- ---- ---- ---- BALANCES, DECEMBER 31, 1996....................... 385 46 (11) (132) (97) Net income (Unaudited).......................... -- -- 939 -- 939 Distributions to stockholders (Unaudited)....... -- -- (67) -- (67) Repayment of notes receivable -- stockholders (Unaudited).................................. -- -- -- 21 21 --- --- ---- ---- ---- BALANCES, SEPTEMBER 30, 1997 (Unaudited).......... 385 $ 46 $ 861 $(111) $ 796 === === ==== ==== ====
The accompanying notes are an integral part of the combined financial statements. F-23 79 AMERICAN RACING SERIES, INC. AND BP AUTOMOTIVE, INC. COMBINED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------- ------------------- 1995 1996 1996 1997 ------- ------- ------- ------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................. $ 580 $ 389 $ 311 $ 939 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization........................... 260 397 259 235 Net loss from disposal of property and equipment........ 6 200 -- -- Deferred income taxes................................... 87 -- -- -- Changes in assets and liabilities that provided (used) cash: Accounts receivable................................... (409) 31 (69) (575) Inventory............................................. 2 5 6 (15) Note receivable....................................... -- -- -- (88) Prepaid expenses and other current assets............. (20) (29) (6) (66) Other assets.......................................... -- -- -- (2) Accounts payable...................................... 103 74 (110) 83 Accrued liabilities................................... 89 (11) (13) -- Deposits.............................................. (6) (25) 43 168 Distribution payable.................................. -- 135 -- (135) Purse payable......................................... (5) -- 1 95 Unearned revenue...................................... (124) 190 756 495 ------- ------- ------- ------- Net cash provided by operating activities.......... 563 1,356 1,178 1,134 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment...................... (1,023) (453) (73) (137) Issuance of notes receivable -- stockholders............... -- (132) -- -- Payment of notes receivable -- stockholders................ -- -- -- 21 ------- ------- ------- ------- Net cash used in investing activities.............. (1,023) (585) (73) (116) CASH FLOWS FROM FINANCING ACTIVITIES: Payment for stock redemption............................... -- (300) (300) -- Proceeds from note payable to related party................ 675 1,100 325 720 Payments on notes payable to related party................. (275) (875) (775) (1,470) Advances on lines of credit................................ 150 Payments on lines of credit................................ -- (400) (400) -- Distributions to stockholders.............................. (110) (135) -- (67) ------- ------- ------- ------- Net cash provided by (used in) financing activities....................................... 440 (610) (1,150) (817) ------- ------- ------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS......... (20) 161 (45) 201 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............. 88 68 68 229 ------- ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 68 $ 229 $ 23 $ 430 ======= ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes............................................... $ 12 $ -- $ -- $ -- ======= ======= ======= ======= Interest................................................... $ 27 $ 22 $ 17 $ 59 ======= ======= ======= =======
The accompanying notes are an integral part of the combined financial statements. F-24 80 AMERICAN RACING SERIES, INC. AND BP AUTOMOTIVE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS -- American Racing Series, Inc. ("ARS") was incorporated in 1985 and is a racing league for Indy Lights cars which race in the PPG Dayton Indy Lights Championship (the "Championship"). ARS leases engines and provides engine rebuild services to the teams that race in the Championship. The leases for the engines are for a period of 1 year and are subject to annual renewal. BP Automotive ("BP") was incorporated in 1988 and provides wheels and parts for teams in the Indy Lights series. ARS and BP (the "Companies") (entities related through common ownership) conduct their business in the United States and Canada. PRINCIPLES OF COMBINATION -- The accompanying combined financial statements include the assets, liabilities and operations associated with ARS and BP. All significant inter-entity balances and transactions have been eliminated in combination. CASH EQUIVALENTS include investments with original maturities of three months or less at the date of original acquisition. INVENTORY consists of wheels and parts and are stated at the lower of cost or market on a first-in, first-out (FIFO) basis. PROPERTY AND EQUIPMENT are stated at cost and are depreciated using accelerated methods over their estimated useful lives which range from five to seven years. Leasehold improvements are amortized over the life of the related lease. REVENUE RECOGNITION -- Recognition of revenue from engine leases and sponsorship and commissions are recognized during the year to which the leases and sponsorship agreements relate. Engine rebuilds and wheel sales are recognized as earned. Other revenue includes rental income (related party), testing fees, interest income and other revenue and are recognized as earned. INCOME TAXES -- Since inception in 1988, BP elected by consent of its stockholders to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions BP will not pay federal corporate income tax on its taxable income; rather, the individual stockholders are liable for federal income tax on their respective share of BP's taxable income. Effective January 1, 1996, ARS has elected to be organized as a Subchapter S corporation for purpose of federal income taxes and these income taxes are the responsibility of the individual shareholders. Prior to 1996, ARS was a C corporation. FAIR VALUE OF FINANCIAL INSTRUMENTS -- Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosures about the fair value of financial instruments whether or not such instruments are recognized on the balance sheet. Due to the short-term nature of the Companies financial instruments, other than debt, fair values are not materially different from their carrying values. Based on the borrowings rates available to the Companies, the carrying value of debt approximated fair value as of December 31, 1995 and 1996. MANAGEMENT ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at December 31, 1995 and 1996, and the reported amounts of revenues and expenses during the periods presented. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements. F-25 81 AMERICAN RACING SERIES, INC. AND BP AUTOMOTIVE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) INTERIM INFORMATION (UNAUDITED) -- The accompanying unaudited interim combined financial statements reflect all adjustments which are, in the opinion of management of the Companies, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the nine-month period ended September 30, 1997, are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 2. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31:
1995 1996 ------ ------ (IN THOUSANDS) Engines.................................................................... $1,172 $1,123 Airplane and hanger........................................................ 970 1,062 Machinery and office equipment............................................. 81 84 Vehicles................................................................... 185 213 Molds and other............................................................ 69 134 ------ ------ Total............................................................ 2,477 2,616 Less accumulated depreciation and amortization............................. 1,477 1,760 ------ ------ Property and equipment -- net.............................................. $1,000 $ 856 ====== ======
3. INCOME TAXES On January 1, 1996, ARS elected S corporation status for federal income tax purposes. At December 31, 1995, ARS utilized its available deferred income tax benefits. The provision for income taxes consists of the following at December 31, 1995:
(IN THOUSANDS) Current............................................ $ 94 Deferred........................................... 87 --- Total.................................... $181 ===
ARS had net operating loss carryforwards of approximately $257,000 which were utilized during 1995. The reconciliation of income tax from income before income taxes computed at the U.S. federal statutory tax rate to ARS' effective income tax rate for the year ended December 31, 1995 is as follows: Tax at U.S. federal statutory rate...................................... 34.0% Meals and entertainment................................................. 1.0 Other................................................................... 5.0 ---- Total......................................................... 40.0% ====
4. BANK LINES OF CREDIT At December 31, 1996, the Companies have an unused bank line of credit of $300,000 and an unused revolving credit facility of $600,000. At December 31, 1995, $200,000 had been advanced on the line of credit and $200,000 had been advanced on the revolving credit facility. The line of credit is unsecured and is payable on demand, with monthly interest at the bank's prime rate (8.50% at December 31, 1995). The revolving credit facility is secured by certain assets of the Companies and is payable on demand, with monthly interest at the bank's prime rate (8.50% at December 31, 1995). The line of credit and revolving credit facility are guaranteed by a stockholder of the Companies. F-26 82 AMERICAN RACING SERIES, INC. AND BP AUTOMOTIVE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. OPERATING LEASES The Companies have entered into a noncancelable operating lease for office space, vehicles and office equipment which expire on various dates through 1999. Total lease expense was approximately $33,000 and $52,000 for 1995 and 1996, respectively. Approximate future minimum lease payments under noncancelable operating leases are as follows:
(IN THOUSANDS) Year ending December 31: 1997................................... $ 34 1998................................... 34 1999................................... 14 --- Total.......................... $ 82 ===
6. COMMITMENTS AND CONTINGENCIES At December 31, 1996, ARS has employment agreements with its President and Chief Executive Officer (CEO) and a key management employee. The employment agreements expire September 1, 1999 for the President and CEO and November 1, 1999 for its key management employee unless earlier terminated as provided in the agreements. The President and CEO and key management employee were entitled to receive annual base salaries which at December 31, 1996 were $200,000 and $100,000, respectively, plus certain fringe benefits. The key management employee has agreed not to compete with ARS during specified periods. 7. RELATED PARTY TRANSACTIONS At December 31, 1995 and 1996, the Companies have accounts receivable of approximately $4,000 and $2,000, respectively, due from entities related through certain common ownership. The Companies have notes payable due to related parties of $525,000 and $750,000 at December 31, 1995 and 1996, respectively. All amounts are due on demand and are non-interest bearing. The Companies have notes receivable due from stockholders of $132,000 at December 31, 1996. The notes are due on demand and interest accrues at a rate of 6% per annum. ARS receives rental income for the use of its airplane and hanger from an entity related through certain common ownership. Total rental income for 1995 and 1996 was approximately $10,000 and $64,000, respectively. ARS pays management and consulting fees to an entity related through certain common ownership and certain stockholders. Total management and consulting fees for 1995 and 1996 was approximately $74,000 and $276,000, respectively. 8. SUBSEQUENT EVENT (UNAUDITED) In December 1997, the Companies entered into a binding letter of intent to sell to Championship Auto Racing Teams, Inc. ("CART") all of the outstanding shares of stock of ARS and the assets of BP for $10,000,000 in cash and options to purchase 100,000 shares of CART common stock at the initial public offering (the "Offering") price (the "Indy Lights Acquisition"). The Indy Lights Acquisition is anticipated to close concurrently with the Offering and a portion of the proceeds from the Offering will be used to fund the Indy Lights Acquisition. F-27 83 ====================================================== NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATED IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................... 3 Risk Factors................................ 7 Use of Proceeds............................. 12 Capitalization.............................. 13 Dividend Policy............................. 13 Dilution.................................... 14 Selected Consolidated Financial Data........ 15 Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 17 Auto Racing Industry Overview............... 24 Business.................................... 26 Management.................................. 38 Certain Relationships and Related Transactions.............................. 45 Principal and Selling Stockholders.......... 47 Description of Capital Stock................ 49 Shares Eligible for Future Sale............. 51 Underwriting................................ 52 Legal Matters............................... 53 Experts..................................... 53 Additional Information...................... 54 Index to Unaudited Pro Forma Condensed Consolidated Financial Information, Consolidated Financial Statements, and Combined Financial Statements............. F-1
------------------------ UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================================== ====================================================== 4,573,000 SHARES [LOGO] CHAMPIONSHIP AUTO RACING TEAMS, INC. COMMON STOCK PROSPECTUS JEFFERIES & COMPANY, INC. A.G. EDWARDS & SONS, INC. , 1998 ====================================================== 84 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following is an estimated statement of expenses payable in connection with the issuance and sale of the securities being registered, other than underwriting discounts and commissions: Securities and Exchange Commission Registration Fee $ 25,257 National Association of Securities Dealers, Inc. Fee 9,504 Accounting Fees and Expenses 200,000 Printing and Engraving Expenses 200,000 Blue Sky Filing Fees 15,000 New York Stock Exchange Fees 170,000 Legal Fees and Expenses 250,000 Miscellaneous 80,239 -------- TOTAL $950,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under provisions of the Certificate of Incorporation and By-laws of the Company, each person who is or was a director or officer of the Company shall be indemnified by the Company as a matter of right to the full extent permitted by law. The effects of the Certificate of Incorporation, By-laws and General Corporation Law of Delaware may be summarized as follows: (a) Under Delaware law, to the extent that such a person is successful on the merits in defense of a suit or proceeding brought against him by reason of the fact that he is a director or officer of the Company, he shall be indemnified against expenses (including attorneys' fees) reasonably incurred in connection with such action. (b) If unsuccessful in defense of a third-party civil suit or a criminal suit, or if such suit is settled, such person shall be indemnified under such law against both (1) expenses (including attorneys' fees) and (2) judgments, fines and amounts paid in settlement if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action, had no reason to believe his conduct was unlawful. (c) If unsuccessful in a defense of a suit brought by or in the right of the Company, or if such suit is settled, such a person shall be indemnified under such law only against expenses (including attorneys' fees) incurred in the defense or settlement of such suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company except that if such a person is adjudged to be liable in a suit in the performance of his duty to the Company, he cannot be made whole even for expenses unless the court determines that he is fairly and reasonably entitled to indemnify for such expenses. (d) The Company may not indemnify a person in respect of a proceeding described in (b) or (c) above unless it is determined that indemnification is permissible because the person has met the prescribed standard of conduct by any one of the following: (i) the Board of Directors, by a majority vote of a quorum consisting of directors not at the time parties to the proceeding, (ii) if a quorum of directors not parties to the proceeding cannot be obtained, or, if obtainable but the quorum so directs, by independent legal counsel selected by the Board of Directors or the committee thereof, or (iii) by the stockholders. II-1 85 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. During the past three years, the Registrant has sold shares of its Common Stock and redeemed shares of its Common Stock. The following table sets forth the dates of sales, title and amounts of securities sold during the past three years by the Registrant: SHARES ISSUANCES (THE SHARES ISSUED REFLECT THE 400,000 FOR ONE SHARE EXCHANGE ON DECEMBER 19, 1997):
AMOUNT OF PRINCIPAL NUMBER OF SHARES DATE OF SALE CONSIDERATION UNDERWRITER EXEMPTION - ------------------- -------------------- -------------- --------------- --------------------------- 10,200,000 December 19, 1997 N/A None 3(a)(9)-- Share exchange in connection with corporate reorganization 1,200,000 December 19, 1997 $1,200,000 None 4(2)-- Sale to 3 accredited investors 200,000 December 19, 1997 $ 600,000 None 4(2)-- Sale to 3 accredited investors 1,200,000 January 29, 1997 $ 840,000 None 4(2)-- Sale to 3 accredited investors 1,200,000 February 16, 1997 $ 630,000 None 4(2)-- Sale to 3 accredited investors
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits 1.1 Form of Underwriting Agreement 2.1 Letter of Intent dated December 22, 1997 regarding the acquisition of American Racing Series, Inc. and the assets of BP Automotive, Inc. 3.1 Certificate of Incorporation of the Company filed December 8, 1997 3.2 Bylaws of the Company 4.1 Form of Common Stock Certificate* 5.1 Form of Legal Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A. 10.1 1997 Stock Option Plan 10.2 Director Stock Option Plan 10.3 Employment Agreement with Andrew Craig dated December 22, 1997 10.4 Employment Agreement with Randy K. Dzierzawski dated December 22, 1997 10.5 Form of Promoter Agreement 10.6 Promoter Agreement with Wisconsin State Park Speedway related to West Allis, Wisconsin dated June 5, 1996 10.7 Promoter Agreement with Texaco Houston Grand Prix L.L.C. related to Houston, Texas dated July 28, 1997 10.8 Sanction Agreement with American Racing Series, Inc. dated December 22, 1995 10.9 Loan Agreement with Comerica Bank dated April 30, 1997 10.10 Loan Agreement with Comerica Bank dated May 1,1996 10.11 Form of Sponsorship Agreement 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.
II-2 86 24.1 Powers of Attorney 24.2 Power of Attorney of the Company 27.1 Financial Data Schedule (b) Financial Statement Schedules None
- --------------- * To be filed as an Exhibit with Amendment No. 1. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denomination and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 87 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Detroit, State of Michigan, on the 23 day of December, 1997. CHAMPIONSHIP AUTO RACING TEAMS, INC. By: /s/ ANDREW CRAIG ------------------------------------ Andrew Craig, Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed on December 23, 1997 by the following persons in the capacities indicated:
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- /s/ ANDREW CRAIG Chief Executive Officer and Director - --------------------------------------------- Andrew Craig /s/ RANDY K. DZIERZAWSKI Chief Financial and Accounting Officer - --------------------------------------------- Randy K. Dzierzawski /s/ GERALD FORSYTHE* Director - --------------------------------------------- Gerald Forsythe /s/ CHIP GANASSI* Director - --------------------------------------------- Chip Ganassi /s/ CARL A. HAAS* Director - --------------------------------------------- Carl A. Haas /s/ BRUCE R. MCCAW* Director - --------------------------------------------- Bruce R. McCaw /s/ U.E. PATRICK* Director - --------------------------------------------- U.E. Patrick /s/ ROBERT W. RAHAL* Director - --------------------------------------------- Robert W. Rahal /s/ DERRICK WALKER* Director - --------------------------------------------- Derrick Walker * Signed pursuant to a power of attorney /s/ RANDY K. DZIERZAWSKI - --------------------------------------------- Randy K. Dzierzawski, Attorney-in-Fact
EX-1.1 2 EXHIBIT 1.1 1 EXHIBIT 1.1 CHAMPIONSHIP AUTO RACING TEAMS, INC. (A DELAWARE CORPORATION) 5,000,000 SHARES COMMON STOCK (PAR VALUE $.01 PER SHARE) --------------------- UNDERWRITING AGREEMENT January __, 1997 JEFFERIES & COMPANY, INC. A.G. EDWARDS & SONS, INC. As Representatives of the Several Underwriters c/o Jefferies & Company, Inc. 11100 Santa Monica Boulevard Los Angeles, California 90025 Dear Sirs: Championship Auto Racing Teams, Inc., a Delaware corporation (the "Company"), and certain selling Stockholders named in Schedule II hereto (the "Selling Stockholders") hereby confirm their agreement with you, as representatives (the "Representatives") of the underwriters named in Schedule I hereto (the "Underwriters"), with respect to the issuance and sale by the Company of an aggregate of 4,333,000 shares (the "Primary Shares") and the sale by the Selling Stockholders of [667,000] shares (the "Stockholder Shares") of the Company's common stock, par value $.01 per share (the "Common Stock"), and the purchase of the Primary Shares and the Stockholder Shares by the Underwriters, acting severally and not jointly. The Company also has agreed to sell up to 750,000 shares (the "Option Shares") of Common Stock to cover over-allotments, if any. The Primary Shares, the Stockholder Shares and the Option Shares are hereinafter collectively referred to as the "Shares." The Company and the Underwriters agree that up to _______ shares of the Primary Shares to be purchased by the Underwriters (the "Reserved Shares") shall be reserved for sale by the Underwriters to certain eligible employees and persons having business relationships with the Company, as part of the distribution of the Shares by the Underwriters, subject to the terms of this Agreement, the applicable rules, regulations and interpretations of the National Association of Securities Dealers, Inc. (the "NASD") and all other applicable laws, rules and regulations. To the extent that such Reserved Shares are not orally confirmed for purchase by such eligible employees 2 and persons having business relationships with the Company by the end of the first business day after the date of this Agreement, such Reserved Shares may be offered to the public as part of the public offering contemplated hereby. You have advised us that you desire to purchase the Shares and that you propose to make a public offering of the Shares as soon as you deem advisable after the Registration Statement referred to below becomes effective upon the terms set forth in the Prospectus referred to below. The terms that follow, when used in this Agreement, shall have the meanings indicated. The term "the Effective Date" shall mean each date that the Registration Statement and any post-effective amendment or amendments thereto became or become effective. "Preliminary Prospectus" shall mean any preliminary prospectus referred to in Section 1(a)(i) below and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information (as defined below). "Registration Statement" shall mean the registration statement referred to in Section 1(a)(i) below, as amended at the Representation Date (as defined below) (or, if not effective at the Representation Date, in the form in which it shall become effective) and, in the event any post-effective amendment thereto becomes effective prior to the Closing Date (as defined in Section 2 hereof), shall also mean such registration statement as so amended. Such term shall include Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A (as defined below). If the Company files an additional registration statement to register additional shares of Common Stock pursuant to Rule 462(b) (defined below) (the "Additional Registration Statement"), all references in this Underwriting Agreement to "Registration Statement" shall mean the Additional Registration Statement, as amended at the Effective Date, including the contents of the initial registration statement incorporated by reference therein and including all information (if any) deemed to be a part of the Additional Registration Statement as of its effective time pursuant to Rule 430A(b). The prospectus constituting a part of the Registration Statement (including the Rule 430A Information), as from time to time amended or supplemented, is hereinafter referred to as the "Prospectus", except that if any revised prospectus shall be provided to the Underwriters by the Company that differs from the prospectus on file at the Securities and Exchange Commission (the "Commission") at the Effective Date (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424 of the Act Regulations), the term "Prospectus" shall refer to each such revised prospectus from and after the time it is first provided to the Underwriters for such use. "Rule 158", "Rule 415", "Rule 424", "Rule 430A", "Rule 462" and "Regulation S-K" refer to such rules or regulation under the Securities Act of 1933, as amended (the "Act"; and the rules and regulations under the Act, the "Act Regulations"). "Rule 430A Information" means information with respect to the Shares and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. "Exchange Act" refers to the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. SECTION 1. Representations and Warranties. (a) The Company represents and warrants to the Underwriters as of the date hereof (such date being referred to as the "Representation Date") and as of the Closing Date, as follows: CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -2- 3 (i) the Company meets the requirements for use of Form S-1 under the Act and has filed with the Commission a registration statement on such Form (Registration No. 333-_______), including a related preliminary prospectus, and one or more amendments thereto, including the related preliminary prospectus, each of which has previously been furnished to the Underwriters, for the registration under the Act of the offering and sale of the Shares. Such registration statement and any post-effective amendment thereto, each in the form heretofore delivered to you, have been declared effective by the Commission in such form. No other document with respect to such registration statement has heretofore been filed with the Commission and no stop order suspending the effectiveness of such registration statement has been issued and no proceeding for that purpose has been initiated or threatened by the Commission. The Company will file with the Commission (A) prior to effectiveness of such registration statement, a further amendment to such registration statement (including the form of final prospectus), (B) after effectiveness of such registration statement, if applicable, an Additional Registration Statement pursuant to Rule 462(b) or (C) after effectiveness of such registration statement or such Additional Registration Statement, a final prospectus in accordance with Rules 430A and 424(b)(1) or (4) or Rule 434 of the Act Regulations. The Company has included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information in the case of clause (C)) required by the Act and the Act Regulations to be included in the Prospectus with respect to the Shares and the offering thereof. As filed, such amendment and form of final Prospectus, or such final Prospectus, shall contain all Rule 430A Information, together with all other such required information, with respect to the Shares and the offering thereof and, except to the extent the Underwriters shall agree in writing to a modification, shall be in all substantive respects in the form furnished to the Underwriters prior to the date hereof; (ii) no order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the Act Regulations, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Selling Stockholders or the Underwriters through Jefferies & Company, Inc. expressly for use therein; (iii) on the Effective Date, the Representation Date and the Closing Date, the Registration Statement did and will, and when the Prospectus is first filed (if required) in accordance with Rule 424(b) the Prospectus will, comply in all material respects with the applicable requirements of the Act and the Act Regulations and the Exchange Act; on the Effective Date, the Representation Date and the Closing Date, the Registration Statement did not and will not 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 not misleading; and, on the Effective Date, the Representation Date and the Closing Date, and CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -3- 4 on the date of any filing pursuant to Rule 424(b), the Prospectus did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Selling Stockholders or the Underwriters through Jefferies & Company, Inc. expressly for use therein. The Company agrees that the only information provided in writing by or on behalf of the Underwriters to the Company, expressly for use in the Registration Statement or the Prospectus, is that information contained in [the table and the second, fifth, sixth and eighth paragraphs following the table] in the section of the Prospectus entitled "Underwriting" and the last paragraph on the cover page of the Prospectus; (iv) the Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction where the nature or location of its properties (owned or leased) or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify would not have a Material Adverse Effect. As used herein, the term "Material Adverse Effect" shall mean an adverse effect on the financial condition, business, prospects, properties, net worth or results of operations of the Company or its Subsidiaries (as hereinafter defined) that would be, singly or in the aggregate, material to the Company and the Subsidiaries, taken as a whole, whether or not occurring in the ordinary course of business (a "Material Adverse Effect"); (v) the only significant subsidiaries (as defined in the Act Regulations) of the Company are the subsidiaries listed on Schedule III hereto (the "Subsidiaries"). Each of the Subsidiaries is a corporation, or in the case of CART Licensed Products, L.P. ("CLP"), a partnership, duly organized and validly existing in good standing under the laws of its jurisdiction of incorporation or organization with full corporate or partnership power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and in the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction where the nature or location of its properties (owned or leased) or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify would not have a Material Adverse Effect; (vi) each of the Company and the Subsidiaries has all necessary authorizations, approvals, orders, licenses, rights-of-way, operating rights, easements, certificates and permits of and from, and has made all declarations and filings with, all regulatory or governmental officials and bodies, all self-regulatory organizations and all courts and other tribunals ("Permits"), to own or lease its respective properties and to conduct its respective businesses described in the Prospectus and the Registration Statement, except where failure to have obtained or made the same would not have a Material Adverse CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -4- 5 Effect, and neither the Company nor any of the Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Permits; each of the Company and the Subsidiaries has fulfilled and performed all its current material obligations with respect to such Permits and no event has occurred that allows, or after notice or lapse of time, or both, would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such Permit; and each of the Company and the Subsidiaries is in compliance with all applicable laws, rules, regulations, orders and consents, the violation of which would have a Material Adverse Effect. The property and business of each of the Company and the Subsidiaries conform in all material respects to the descriptions thereof contained in the Prospectus and the Registration Statement; (vii) the Company has the authorized capitalization set forth in the Prospectus under the heading "Description of Capital Stock,"; all of the Company's outstanding capital stock has been duly authorized, validly issued and is fully paid and nonassessable and were not issued in violation of any preemptive or similar rights; and the capitalization of the Company conforms to the descriptions thereof and the statements made with respect thereto in the Registration Statement and the Prospectus as of the date set forth therein. There are no outstanding securities convertible into or exchangeable for, and no outstanding options, warrants or other rights to purchase, any shares of the capital stock of the Company, nor any agreements or commitments to issue any of the same, except as described in the Registration Statement and the Prospectus, and there are no restrictions upon the voting or transfer of, any capital stock of the Company pursuant to the Company's Certificate of Incorporation or Bylaws, or any agreement or other instrument to which the Company is a party, except as described in the Registration Statement and the Prospectus; (viii) all the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and are validly issued, fully paid and nonassessable and were not issued in violation of or subject to any preemptive or similar rights. Except as otherwise set forth in the Registration Statement and the Prospectus, there are no outstanding securities convertible into or exchangeable for, and no outstanding options, warrants or other rights to purchase, any shares of the capital stock of any of the Subsidiaries, nor any agreements or commitments to issue any of the same, and except as otherwise set forth in the Registration Statement and the Prospectus, all outstanding shares of capital stock and partnership interests of the Subsidiaries are owned by the Company, directly or indirectly through another Subsidiaries, free and clear of any security interests, liens, encumbrances, equities or other claims; (ix) each of the Company and the Subsidiaries has good and indefeasible title to all real property and good and marketable title to all personal property owned by it, including those properties described in the Registration Statement and Prospectus, in each case free and clear of all liens, charges, encumbrances and restrictions, except such as are described in the Registration Statement and Prospectus. Each of the Company and the Subsidiaries has valid, subsisting and enforceable leases for the properties described in the Registration Statement and the Prospectus as leased by it with such exceptions as are described in the Registration Statement and the Prospectus; CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -5- 6 (x) the Company has all requisite power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and to issue and deliver the Shares to the Underwriters as provided herein. This Agreement has been duly authorized, executed and delivered by the Company; (xi) the Shares to be issued and sold by the Company have been duly and validly authorized for issuance by the Company, and the Company has full corporate power and authority to issue, sell and deliver the Shares; and, when such Shares are issued and delivered against payment therefor as provided by this Agreement, the Shares will have been validly issued, fully paid and nonassessable, will conform to the description of the Shares contained in the Prospectus under the heading "Description of Capital Stock," and the issuance of such Shares will not be subject to any preemptive or similar rights; (xii) Deloitte & Touche LLP, who have certified certain financial statements of the Company and the Subsidiaries, are independent accountants with respect to the Company and the Subsidiaries as required by the Act and the rules and regulations of the Commission thereunder; (xiii) the consolidated financial statements and related notes and schedules included in the Registration Statement, the Preliminary Prospectus and the Prospectus present fairly the financial position of the Company and the Subsidiaries, on the basis stated in the Registration Statement, as of the respective dates thereof and the consolidated statement of income and consolidated balance sheet of the Company and the Subsidiaries, for the respective periods covered thereby; and such financial statements and the related schedules and notes have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") applied on a consistent basis throughout the entire period involved, except as otherwise disclosed in the Registration Statement, the Preliminary Prospectus and the Prospectus. The selected consolidated financial data included in the Registration Statement, the Preliminary Prospectus and the Prospectus presents fairly the information shown therein and has been compiled on a basis consistent with that of the audited financial statements of the Company included therein. The pro forma consolidated financial information in the Registration Statement, the Preliminary Prospectus and the Prospectus complies in all material respects with the applicable accounting requirements of Article 11 of Regulation S-X promulgated by the Commission and presents fairly the information shown therein; the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. No other financial statements or schedules of the Company and the Subsidiaries are required by the Exchange Act, the Act or the Act Regulations to be included in the Registration Statement, the Preliminary Prospectus or the Prospectus; (xiv) neither the Company, any of the Subsidiaries nor CLP is in violation of its charter or bylaws or other organizational documents. Neither the Company, any of the Subsidiaries nor CLP is, nor with the passage of time or the giving of notice or both would be, in violation of any law, ordinance, administrative or governmental rule or regulation CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -6- 7 applicable to the Company, any of the Subsidiaries or CLP, or of any judgment, order or decree of any court or governmental agency or body or of any arbitrator having jurisdiction over the Company, any of the Subsidiaries or CLP, or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any mortgage, loan agreement, note, bond, debenture, credit agreement or any other evidence of indebtedness or in any agreement, contract, indenture, lease or other instrument to which the Company, any of the Subsidiaries or CLP is a party or by which any of them may be bound, or to which any of the property or assets of the Company, any of the Subsidiaries or CLP is subject; (xv) there is no agreement, contract, indenture, lease or other document or instrument that is required to be described in the Registration Statement or Prospectus or to be filed as an exhibit to the Registration Statement that is not described or filed as required; (xvi) except for the Selling Stockholders, no person has any right to the registration of any security of the Company by reason of the filing of the Registration Statement with the Commission or the consummation of the transactions contemplated hereby, which right has not been waived or lapsed; (xvii) other than as set forth in the Registration Statement and the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of the Subsidiaries is a party or of which any property of the Company or any of the Subsidiaries is the subject; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by any court or governmental agency or body or any stock exchange authorities ("Governmental Agency") or threatened by others; (xviii) the Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (xix) except as disclosed in the Registration Statement and the Prospectus, the Company and each of the Subsidiaries owns or possesses, has applied for or can acquire on reasonable terms, the patents, patent rights, licenses, inventions, copyrights, knowhow (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, "Patent and Proprietary Rights") presently employed by it in connection with the business now operated by it, except where the failure to apply for or acquire any such Patent and Proprietary Rights would not, singly or in the aggregate, result in a Material Adverse Effect, and neither the Company nor any of the Subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Patent and Proprietary Rights, or of any facts which would render any Patent and Proprietary Rights invalid or inadequate to protect the interests of the Company therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -7- 8 finding) or invalidity or inadequacy, singly or in the aggregate, could have a Material Adverse Effect; (xx) as of the date of the Prospectus, neither the Company nor any of the Subsidiaries currently is planning any probable acquisitions for which disclosure of pro forma financial information would be required by the Act; (xxi) except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), since the respective dates as of which information is given therein (or any amendment or supplement thereto), (A) neither the Company nor any of the Subsidiaries (1) has issued any securities other than in connection with the exercise of any outstanding options, (2) incurred any material liability or obligations, direct or contingent, for borrowed money, (3) entered into any transaction, not in the ordinary course of business, that is material to the Company and the Subsidiaries, taken as a whole, (4) entered into any transaction with an affiliate of the Company (as the term "affiliate" is defined in Rule 405 of the Act Regulations) that would otherwise be required to be disclosed in the Prospectus or the Registration Statement, or (5) declared or paid any dividend on its capital stock, or made any other distribution to its equity holders and (B) there has not been any change in the capital stock or any increase in long-term debt of the Company and the Subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, prospects, current or future consolidated financial position, stockholders' equity or results of operations of the Company and the Subsidiaries, taken as a whole. Neither the Company nor any of the Subsidiaries has sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any organized labor dispute or court or governmental action, order or decree, except as otherwise set forth or contemplated in the Registration Statement and the Prospectus; (xxii) each of the Company and the Subsidiaries, directly or indirectly, maintains insurance covering its properties, operations, personnel and businesses, and in the Company's reasonable judgment, such insurance provides coverage against such losses and risks as is adequate in accordance with customary industry practice to protect the Company and its businesses. Neither the Company nor any of the Subsidiaries has received notice from any insurer or agent of such insurer that substantial capital improvements or other expenditures will have to be made in order to continue such insurance, and all such insurance is outstanding and duly in force; (xxiii) the Company has not distributed and, prior to the later to occur of (A) the Closing Date and (B) completion of the distribution of the Shares, will not distribute without your prior consent any offering material in connection with the offering and sale of the Shares other than the Registration Statement, the Prospectus or other materials, if any, permitted by the Act; CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -8- 9 (xxiv) prior to the Closing Date, the Shares will be duly authorized for listing on the [New York Stock Exchange] upon official notice of issuance; (xxv) neither the Company nor any Subsidiaries is involved in any labor dispute or, to the knowledge of the Company, is any dispute threatened; (xxvi) neither the Company nor any Subsidiaries nor, to the best of its knowledge, any employee or agent of the Company or any Subsidiaries, has made any payment of funds of the Company or any Subsidiaries or received or retained any funds of a character required to be disclosed in the Prospectus; (xxvii) each of the Company and the Subsidiaries has filed (or have obtained extensions thereto) all federal, state and local or foreign tax returns that are required to be filed, which returns are complete and correct in all material respects, and have paid all taxes shown on such returns and all assessments with respect thereto to the extent that the same have become due, except those taxes that are being contested or protested in good faith by the Company or its Subsidiaries; (xxviii) except for the shares of capital stock of the Subsidiaries, neither the Company nor any of the Subsidiaries owns any shares of stock or any other securities of any corporation or has any equity interest in any firm, partnership, association or other entity other than as reflected in the consolidated financial statements included in the Registration Statement and the Prospectus; (xxix) neither the execution or delivery of this Agreement, the offer, issuance, sale or delivery of the Shares nor the consummation by the Company of the terms of this Agreement (A) requires the consent, approval, authorization or order of any court or governmental agency or body except such as have been obtained under the Act or as may be required under state securities or "blue sky" laws of any jurisdiction in connection with the purchase and distribution of the Shares by the Underwriters or such as may be required by the NASD, (B) will conflict with, result in a breach of, or constitute a default under the terms of any indenture, agreement, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of the property or assets of any of them is subject, (C) will conflict with or violate any law, order, statute, regulation, consent or memorandum of understanding applicable to the Company or any of the Subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or any of the Subsidiaries, or (D) will conflict with or violate the charter or bylaws or other organizational documents of the Company or any of the Subsidiaries; (xxx) the Company has not taken, directly or indirectly, any action designed to cause or result in or that has constituted or that might reasonably be expected to constitute, -9- 10 the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares; (xxxi) the statements set forth in the Prospectus under the caption "Description of Capital Stock," insofar as they purport to constitute a summary of the terms of the Common Stock, and under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Management," and "Certain Relationships and Related Transactions," insofar as they purport to describe the provisions of the laws, agreements, contracts, indentures, leases or other documents or instruments referred to therein, are accurate and fair summaries of the material and relevant provisions thereof; (xxxii) each of the persons identified by the Company to the Underwriters to receive Reserved Shares is a citizen of the United States and currently is a resident of one of the United States; (xxxiii) each of the Company and the Subsidiaries (A) are in compliance with any and all applicable federal, state, local and foreign laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (B) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their business and (C) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not have a Material Adverse Effect; (xxxiv) there are no costs or liabilities, to the Company's knowledge after due inquiry, associated with the effect of Environmental Laws on the business, operations and properties of the Company and its Subsidiaries that would have a Material Adverse Effect; and (b) Each of the Selling Stockholders severally represents and warrants to, and agrees with, the Underwriters as of the Representation Date and as of the Closing Date, as follows: (i) the sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Power of Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the charter or bylaws of such Selling Stockholder if such Selling Stockholder is a corporation, the Partnership Agreement of such Selling Stockholder CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -10- 11 if such Selling Stockholder is a partnership; or any applicable statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (ii) the Selling Stockholders now have, and on the Closing Date will have, valid title to the Shares to be sold by the Selling Stockholders pursuant to this Agreement, free and clear of any security interests, liens, encumbrances, equities or other claims, including, without limitation, any restrictions or transfer (except for restrictions imposed by applicable federal or state securities laws) other than as specified on the certificate(s) representing such Shares, and, upon delivery of and payment for such Shares hereunder, the several Underwriters will acquire valid title to such Shares free and clear of any adverse claims, assuming that the Underwriters have acquired such Shares for value, in good faith and without notice of any adverse claim; (iii) this Agreement has been duly authorized, executed and delivered by or on behalf of the Selling Stockholders; (iv) the Selling Stockholders have not taken, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares, except for the lock-up arrangements described herein and in the Prospectus; (v) each Preliminary Prospectus that has been distributed by the Underwriters or the Company to prospective investors and the Prospectus, insofar as they include or reflect information with respect to such Selling Stockholder, has conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made; and neither the Registration Statement nor the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), nor any amendment or supplement thereto, insofar as they include or reflect information with respect to such Selling Stockholder, will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (vi) such Selling Stockholder is not aware that any of the representations or warranties the Company set forth in Section 2(a) above is untrue or inaccurate in any material respect; (vii) all stock transfer or other taxes (other than income taxes), if any, that are required to be paid in connection with the sale and transfer of the Stockholder Shares proposed to be sold by such Selling Stockholder to the several Underwriters pursuant to this Agreement will be fully paid or provided for by such Selling Stockholder; CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -11- 12 (viii) no consent, approval, authorization or order of, or any filing with, any court or governmental agency or body is required for the consummation by such Selling Stockholder of the transactions on its part contemplated in this Agreement, the Power of Attorney or the Custody Agreement, except as may be required under the Act or state securities or "blue sky" laws or similar laws in applicable foreign jurisdictions; (ix) other than as permitted by the Act and the rules and regulations of the Commission thereunder, such Selling Stockholder has not distributed and will not distribute any preliminary prospectus, the Prospectus or any other offering material in connection with the offering and sale of the Stockholder Shares proposed to be sold by the Selling Stockholder; (x) during the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Common Stock or any such substantially similar securities (other than pursuant to employee stock option or benefit plans existing on the date of this Agreement), without the prior written consent of the Underwriters; (xi) in order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof); (xii) certificates in negotiable form representing all of the Shares to be sold by such Selling Stockholder hereunder have been placed in custody under a Custody Agreement, in the form heretofore furnished to you (the "Custody Agreement"), duly executed and delivered by such Selling Stockholder to Randy K. Dzierzawski, as custodian (the "Custodian"), and such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the "Power of Attorney"), appointing Randy K. Dzierzawski as such Selling Stockholder's attorney-in-fact (the "Attorney-in-Fact") with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement; and (xiii) the Shares represented by the certificates held in custody for such Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Stockholder for such custody, and the CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -12- 13 appointment by such Selling Stockholder of the Attorney-in-Fact by the Power of Attorney, are to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership or corporation, or by the occurrence of any other event; if any individual Selling Stockholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Custody Agreements; and actions taken by the Attorney-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorney-in-Fact, or either of them, shall have received notice of such death, incapacity, termination, dissolution or other event. Any certificate signed by any officer of the Company or the Selling Stockholders delivered to the Underwriters or to counsel for the Underwriters pursuant to the terms of this Agreement shall be deemed a representation and warranty by the Company or the Selling Stockholders, as the case may be, to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to the Underwriters; Closing. (a) Subject to the terms and conditions set forth herein, and subject to adjustments as you may determine to avoid fractional shares: (i) the Company agrees to sell to each Underwriter, severally and not jointly, and, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, each Underwriter, severally and not jointly, agrees to purchase from the Company, at a purchase price of per share (the "Initial Price"), the aggregate number of Primary Shares that bears that same proportion to the aggregate number of Primary Shares to be issued and sold by the Company as the number of Primary Shares set forth opposite the name of such Underwriter in Schedule I (or such number of Primary Shares increased as provided in Section 9 hereof) bears to the aggregate number of Primary Shares to be sold by the Company and the Selling Stockholders. The Company will have no obligation to sell to the Underwriters any of such Primary Shares that are being issued and sold by the Company hereunder unless the Underwriters purchase all of the Primary Shares hereunder; and (ii) the Selling Stockholders agree, severally and not jointly, to sell to each Underwriter, severally and not jointly, and, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, each Underwriter, severally and not jointly, agrees to purchase from the Selling Stockholders at the Initial Price, the aggregate CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -13- 14 number of Stockholder Shares that bears the same proportion to the aggregate number of Stockholder Shares to be sold by the Selling Stockholder as the number of Stockholder Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Stockholder Shares increased as provided in Section 9 hereof) bears to the aggregate number of Stockholder Shares to be sold by the Company and the Selling Stockholders, and the Selling Stockholders will have no obligation to sell to the Underwriters any of the Stockholders Shares to be sold by the Selling Stockholders hereunder unless the Underwriters purchase all of such Stockholder Shares hereunder. (b) The Company grants to the Underwriters an option to purchase all or any part of the Option Shares at the Initial Price. Option Shares shall be purchased from the Company, severally and not jointly, for the accounts of the Underwriters in proportion to the number of Primary Shares set forth in Schedule I hereto opposite the name of such Underwriter. Such option may be exercised only to cover over-allotments in the sale of the Primary Shares and the Stockholder Shares by the Underwriters and may be exercised in whole or in part at any time on or before 12:00 noon, New York City time, on the business day before the Primary Shares Closing Date (as hereinafter defined), and only once thereafter within 30 days after the date of the Prospectus, in each case upon written or telegraphic notice, or oral or telephonic notice confirmed by written or facsimile notice, by the Underwriters to the Company no later than 12:00 noon, New York City time, on the business day before the Primary Shares Closing Date or at least two business days before the Option Shares Closing Date (as hereinafter defined), as the case may be, setting forth the number of Option Shares to be purchased and the time and date (if other than the Primary Shares Closing Date) of such purchase. (c) Payment of the purchase prices for, and delivery of, the Primary Shares and the Stockholders Shares to be purchased by the Underwriters shall be made at the offices of Jefferies & Company, Inc., 39 Broadway, New York, New York 10006, or at such other place as shall be agreed upon by the Underwriters and the Company, at 10:00 A.M., New York City time, on the third or fourth business day following the date of the Registration Statement becomes effective (or, if the Company elected to rely upon Rule 430A, the fourth business day after the date of execution of this Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Underwriters and the Company ( such time and date of payment and delivery being herein called the "Primary Shares Closing Date"). Payment shall be made to the Company and the Selling Stockholders, as the case may be, by wire transfer in same day funds payable to the order of the Company or the Selling Stockholders, as applicable, against delivery to the Underwriters of the Primary Shares or Stockholder Shares. (d) Payment of the purchase price for, and delivery of, the Option Shares to be purchased by the Underwriters shall be made at the office as set forth above or at such other place as shall be agreed upon by the Underwriters and the Company at the time and on the date (which may be the same as, but in no event shall be earlier than, the Primary Shares Closing Date) specified in the notice referred to in Section 2(b) (such time and date of delivery and payment being herein called the "Option Shares Closing Date"). The Primary Shares Closing Date and the Option Shares Closing Date are called, individually, the "Closing Date" and together, the "Closing Dates." Payment shall be made to the Company by wire transfer in same day funds payable to the order of the Company against delivery to the Underwriters of the Option Shares. CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -14- 15 (e) Certificates representing the Shares shall be issued in such denominations and registered in such names as the Underwriters may request in writing at least two business days before the Primary Shares Closing Date or, in the case of Option Shares, on the day of notice of exercise of the option as described in Section 2(b). The certificates representing the Shares will be made available for examination and packaging by the Underwriters not later than 1:00 P.M., New York City time, on the last business day prior to the Primary Shares Closing Date (or the Option Shares Closing Date in the case of the Option Shares) at such place as is designated by the Underwriters. SECTION 3. Covenants of the Company. The Company covenants with each of the Underwriters as follows: (a) the Company will use its best efforts to cause the Registration Statement, if not effective at the Representation Date, and any amendment thereof, to become effective, as promptly as possible after the filing thereof. The Company will not file any amendment to the Registration Statement or any amendment or supplement to the Prospectus to which the Underwriters shall reasonably object in writing after a reasonable opportunity to review such amendment or supplement. Subject to the foregoing sentences in this clause (a), if the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectus or supplement to the Prospectus is otherwise required under Rule 424(b), the Company will cause the Prospectus, properly completed, or such supplement thereto to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Underwriters of such timely filing. The Company will promptly advise the Underwriters (i) when the Registration Statement, if not effective at the Representation Date, and any amendment thereto, shall have become effective, (ii) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b), (iii) when any amendment to the Registration Statement shall have been filed or become effective, (iv) of any request by the Commission for any amendment of the Registration Statement or supplement to any Prospectus or for any additional information, (v) of the receipt by the Company of any notification of, or if the Company otherwise has knowledge of, the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company will use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the lifting thereof; (b) if, at any time when a prospectus relating to the Shares is required to be delivered under the Act or the Act Regulations, any event occurs as a result of which the Prospectus as then amended or supplemented would contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary to amend the Registration Statement or amend or supplement the Prospectus to comply with the Act or the Act Regulations, the Company promptly will prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 3, an amendment or supplement that will correct such statement or omission or effect such compliance; CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -15- 16 (c) the Company consents to the use of the Prospectus in accordance with the provisions of the Act and with the securities or blue sky laws of the jurisdictions in which the Shares are offered by the Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with the sales by any Underwriter or dealer. The Company will comply with all requirements imposed upon it by the Act, as now and hereafter amended, so far as necessary to permit the continuance of sales of or dealing in the Shares in accordance with the provisions hereof and the Prospectus; (d) as soon as practicable, but in any event not later than eighteen months after the Effective Date, the Company will make generally available to its security holders and to the Underwriters a consolidated earnings statement or statements of the Company and the Subsidiaries covering a twelve-month period beginning after the Effective Date that will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act Regulations; (e) the Company will furnish to the Representatives, without charge, four signed copies of the Registration Statement (including exhibits thereto and all documents incorporated by referenced therein) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, or the Act Regulations, as many copies of the Prospectus and all amendments and supplements thereto as the Underwriters may reasonably request; (f) during the period of five years hereafter, the Company will furnish to you, as soon as practicable after the end of each fiscal year, a copy of its annual report to Stockholders for such year; and the Company will furnish to you (i) as soon as available, a copy of each report or definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to the Stockholders, and (ii) from time to time, such other information concerning the Company as you may reasonably request, provided that prior to the Company's furnishing any such other information that is non-public, you shall enter into an agreement, in such form as the Company shall reasonably request, with respect to the confidentiality of such information; (g) the Company will not, and will cause each of its executive officers and directors to enter into agreements with the Underwriters in the form set forth in Annex A hereto to the effect that they will not, during the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Common Stock or any such substantially similar securities (other than pursuant to employee stock incentive plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement, or in connection with the acquisition of any business or property so long as the recipient of any Common Stock shall agree not to resell such Common Stock during the 180 day period), without the prior written consent of Jefferies & Company, Inc.; CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -16- 17 (h) the Company will comply with all the provisions of any undertakings contained in the Registration Statement; (i) the Company will apply the net proceeds from the offering and sale of the Shares to be sold by the Company in accordance with the description set forth in the "Use of Proceeds" section of the Prospectus; (j) the Company will cooperate with the Underwriters and their counsel in connection with endeavoring to obtain and maintain the qualification or registration, or exemption from qualification, of the Shares for offer and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Underwriters may designate; provided, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to taxation or general service of process in any jurisdiction where it is not now so subject; (k) the Company will not take, and will cause each of the Subsidiaries to not take, directly or indirectly, any action which is designed to or which constitutes or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company or facilitate the sale or resale or the Shares; (l) the Company will cause the Shares to be duly listed on the [New York Stock Exchange]; (m) the Company hereby agrees that it will ensure that the Reserved Shares will be restricted as required by the NASD or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of this Agreement. The Underwriters will notify the Company as to which persons will need to be so restricted. At the request of the Underwriters, the Company will direct the transfer agent to place a stop transfer restriction upon such securities for such period of time. Should the Company release, or seek to release, from such restrictions any of the Reserved Shares, the Company agrees to reimburse the Underwriters for any reasonable expenses (including, without limitation, legal expenses) they incur in connection with such release; and (n) the Company will comply with the reporting requirements of Rule 463 of the Act Regulations. SECTION 4. Covenants of the Selling Stockholders. The Selling Stockholders covenant with each of the Underwriters as follows: (a) the Selling Stockholders shall cooperate to the extent reasonably necessary to cause the Registration Statement, if not effective at the Representation Date, and any amendment thereof, to become effective, as promptly as possible after the filing thereof; CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -17- 18 (b) without prejudice to any rights the Selling Stockholders may have against the Company, the Selling Stockholders shall pay all federal and other taxes, if any, on the transfer or sale of the Shares being sold by the Selling Stockholders to the Underwriters; (c) the Selling Stockholders shall do or perform all things required to be done or performed by the Selling Stockholders prior to the Primary Shares Closing Date to satisfy all conditions precedent to delivery of and the payment for the Shares to be sold by the Selling Stockholders pursuant to this Agreement; (d) the Selling Stockholders will not at any time, directly or indirectly, take any action which is designed to or which constitutes or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company or facilitate the sale or resale or the Shares; and (e) the Selling Stockholders will advise the Representatives promptly, and if requested by the Representatives will confirm such advice in writing, of any change in the information relating to the Selling Stockholders contained in the Registration Statement under the caption "Selling Stockholders." SECTION 5. Payment of Expenses. The Company will pay, or reimburse if paid by the Underwriters, all actual and reasonable costs and expenses incident to the performance of the obligations of the Company and the Selling Stockholders under this Agreement, including (i) the fees, disbursements and expenses of counsel and accountants for the Company and the Selling Stockholders and all other expense in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus, the Prospectus, and any amendments or supplements thereto, and the mailing and delivery of copies thereof to the Underwriters and dealers, (ii) the cost of reproducing the Agreement Among Underwriters, this Agreement, the Selling Agreement, any Dealer Agreements, the Underwriters' Questionnaire and the Blue Sky Memorandum (in both preliminary and final form); (iii) all expenses in connection with qualification of the Shares for offering and sale under state securities laws as provided in Section 3(i) hereof, including filing and registration fees and the fees, disbursements and expenses of counsel for the Underwriters in connection with such qualification and in connection with Blue Sky surveys; (iv) the filing fees incident to securing any required review by the NASD; (v) the cost of preparing stock certificates; (vi) all fees of the Company's transfer agent and registrar; (vii) any fees for including the Shares on the [New York Stock Exchange]; [(vii) all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, in connection with matters related to the Reserved Shares which are designated by the Company for sales to employees and others;] and (viii) all other costs and expenses incident to the performances of its obligations hereunder that are not otherwise specifically provided for in this Section. [If this Agreement is terminated by the Underwriters because of any failure or refusal on the part of the Company or the Selling Stockholders to comply with the terms or fulfill any of the conditions of this Agreement, the Company shall reimburse the Underwriters for all of their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. The Company shall not in any event be liable to any of the Underwriters for CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -18- 19 consequential damages including loss of anticipated profits from the transactions covered by this Agreement.] SECTION 6. Conditions of the Underwriters' Obligation. The obligation of the Underwriters to purchase the Shares hereunder is subject to the continued accuracy of the representations and warranties of the Company and the Selling Stockholders herein contained, to the accuracy of the statements of the Company and the Selling Stockholders made in any certificates pursuant to the provision hereof, to the performance by the Company and the Selling Stockholders of its obligations hereunder and to the following further conditions: (a) the Registration Statement shall have come effective, and you shall have received notice thereof, not later than 3:00 p.m., Washington D.C. time, on the date hereof, or such later time and date as shall be approved by the Representatives and the Company and shall remain effective at the Closing Date. No stop order suspending the effectiveness of the Registration Statement shall have been issued under the Act or proceedings therefor initiated or threatened by the Commission. No order suspending the effectiveness of the Registration Statement or the qualification or registration of the Shares under the securities or blue sky laws of any jurisdiction shall be in effect or proceedings therefor initiated or threatened by the Commission or the authorities of any such jurisdiction. If the Company has elected to rely upon Rule 430A, the price of the Shares and any price-related or other information previously omitted from the effective Registration Statement pursuant to Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) within the prescribed time period, and, prior to the Closing Date, the Company shall have provided evidence satisfactory to the Underwriters of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirement of Rule 430A; (b) subsequent to the execution and delivery of this Agreement, there shall not have occurred: (i) any change, or any development involving a prospective change, in or affecting particularly the business, prospects, properties, condition (financial or other) or results of operations of the Company and the Subsidiaries, taken as a whole, which, in the reasonable judgment of the Underwriters, materially impairs the investment quality of the Shares and constitutes a Material Adverse Effect; (ii) any material loss or interference with the business or properties of the Company or the Subsidiaries from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, that is not set forth in the Registration Statement and the Prospectus, if in the reasonable judgment of the Underwriters any such development makes it impracticable or inadvisable to proceed with completion of the sale of and payment for the Shares; (c) on or after the date hereof there shall not have occurred any of the following: (i) any suspension or limitation of trading in securities generally on the New York Stock Exchange or The Nasdaq National Market, or any setting or minimum prices for trading on such exchange or system, or any suspension of trading of any securities of the Company on any exchange or system or in the over-the-counter market; (ii) any banking moratorium declared by federal or New York authorities; or (iii) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -19- 20 emergency if, in the reasonable judgment of the Underwriters, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the sale of and payment for the Shares; (d) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no litigation or other proceeding instituted against the Company or any of the Subsidiaries or any of their respective officers or directors in their capacities as such, before or by any federal, state or local court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, or arbitrator, in which litigation or proceeding an unfavorable ruling, decision or finding would have a Material Adverse Effect; (e) the Shares to be sold by the Company and the Selling Stockholder at such Time of Delivery shall have been duly approved for inclusion on the [New York Stock Exchange], subject to official notice of issuance; (f) each of the representations and warranties of the Selling Stockholders contained herein shall be true and correct at the Closing Date, as if made at the Closing Date, and all covenants and agreements contained herein to be performed on the part of the Selling Stockholders, and all conditions contained herein to be fulfilled or complied with by the Selling Stockholders at or prior to the Closing Date, shall have been duly performed, fulfilled or complied with, and the Representatives shall have received a certificate to such effect and as to such other matters as the Underwriters may reasonably request, dated the Closing Date and signed by or on behalf of the Selling Stockholders; (g) the Underwriters shall have received an opinion from Kegler, Brown, Hill & Ritter Co., L.P.A., counsel for the Company and the Selling Stockholders, satisfactory in form and substance to counsel for the Underwriters, dated as of each Closing Date, to the effect set forth in Annex B; (h) the Underwriters shall have received a favorable opinion, dated as of each Closing Date, of Vinson & Elkins L.L.P., counsel for the Underwriters, with respect to such matters as may be reasonably requested by the Underwriters, and you shall have provided such counsel with such papers and information as they may reasonably request to enable them to provide such opinion; (i) the conditions contained in subsections (a), (b), (d) and (e) of this Section 6 shall have been satisfied on and as of each Closing Date and the Company shall have furnished to the Underwriters a certificate of the Company, signed by the President and the principal financial or accounting officer of the Company, dated such Closing Date (A) to the effect that (i) the signers or such certificate have carefully examined the Registration Statement, the Prospectus, any supplement or amendment to the Prospectus, and this Agreement, (ii) that the representations and warranties of the Company in this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date and (iii) the Company has complied with all the agreements and satisfied all the conditions under this Agreement on its part to be performed or satisfied at or CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -20- 21 prior to the Closing Date and (B) as to the matters set forth in subsections (a), (b), (d) and (e) of this Section and such other matters as the Underwriter may reasonably request; (j) at the Representation Date and at each Closing Date, Deloitte & Touche LLP shall have furnished to the Underwriters and the Company and the Selling Stockholders a letter or letters, dated respectively as of the date of this Agreement and each Closing Date, in form and substance satisfactory to the Underwriters, to the effect set forth in Annex C hereto; (k) at the Representation Date, the Company shall have furnished to the Underwriters a letter substantially in the form of Annex A hereto from each executive officer and director of the Company and the Selling Stockholders, addressed to the Underwriters, in which each such person agrees not to offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce an offering of, any shares of Common Stock beneficially owned by such person or any securities convertible into, or exchangeable for, shares of Common Stock for a period of 180 days following the date of the Prospectus without the prior written consent of Jefferies & Company, Inc.; and (l) at the Closing Date, counsel for the Underwriters shall have been furnished with such information, certificates and documents as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Shares as contemplated herein and related proceedings, or to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained, or otherwise in connection with the offering contemplated hereby; and all opinions and certificates mentioned above or elsewhere in this Agreement shall be reasonably satisfactory in form and substance to the Underwriters and counsel for the Underwriters. If any condition specified in this Section 6 shall have not been fulfilled in all material respects when and as required to be fulfilled, this Agreement may be terminated by the Underwriters by notice to the Company and such termination shall be without liability of any party to any other party except as provided in Section 5. SECTION 7. Indemnification and Contribution. (a) The Company agrees to indemnify, defend and hold harmless each Underwriter and its respective officers, Stockholders, employees, directors and agents and any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any loss expense, damage, liability or claim (including the reasonable cost of investigating such claim) that, jointly or severally, any such Underwriter or any such officer, Stockholder, employee, director, agent or controlling person may incur under the Act, the Exchange Act or otherwise, as such expenses are incurred, insofar as such loss, expense, damage, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof) or any omission or alleged omission to state a material fact required to be stated in such Registration Statement or necessary to make the statements made therein not misleading or any untrue statement or alleged untrue statement of a material fact contained in a Prospectus (the term Prospectus for the purpose of this Section 7 being deemed to CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -21- 22 include any Preliminary Prospectus, the Prospectus, the Prospectus as amended or supplemented and any document filed under the Exchange Act and incorporated by reference into the Prospectus) or any omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, the Company will not be liable in any such case to the extent any such loss, expense, damage, liability or claim arises out of or is based upon any untrue statement or omission or alleged untrue statement or omission that has been made therein or omitted therefrom in reliance upon and in conformity with the information provided in writing to the Company by or on behalf of the Selling Stockholders or any Underwriter, expressly for use in the Registration Statement or the Prospectus. The Company agrees that the only such information provided in writing by or on behalf of any Underwriter to the Company, expressly for use in the Registration Statement or the Prospectus, is that information contained in the table and the second, fifth, sixth and eighth paragraphs following the table in the section of the Prospectus entitled "Underwriting" and the last paragraph on the cover page of the Prospectus. The foregoing indemnity agreement shall be in addition to any liability that the Company may otherwise have. (b) The Selling Stockholders agree to indemnify, defend and hold harmless each Underwriter and its respective officers, stockholders, employees and directors and any person who controls any Underwriter within the meaning of Section 15 of the Act from and against any loss, expense, liability or claim (including the reasonable cost of investigating such claim) that, jointly or severally, any such Underwriter or any such officer, stockholder, employee, director or controlling person may incur under the Act, the Exchange Act or otherwise, as such expenses are incurred, insofar as such loss, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact supplied by the Selling Stockholders for use in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof) or any omission or alleged omission to state a material fact required to be stated in such Registration Statement or necessary to make the statements made therein not misleading or any untrue statement or alleged untrue statement of a material fact contained in a Prospectus (the term Prospectus for the purpose of this Section 7 being deemed to include any Preliminary Prospectus, the Prospectus, the Prospectus as amended or supplemented and any document filed under the Exchange Act and incorporated by reference into the Prospectus) or any omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) Each Underwriter agrees to indemnify, defend and hold harmless the Selling Stockholders, the Company and their respective officers, stockholders, employees and directors and any person who controls either of them within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any loss, expense, damage, liability or claim (including the reasonable cost of investigating such claim) that the Selling Stockholders, the Company or any such officer, stockholder, employee, director or controlling person may incur under the Act, the Exchange Act or otherwise to the same extent as the provisions of Section 7(a) above, but only insofar as such loss, expense, damage, liability or claim arises out of or is based upon any untrue statement or omission or alleged untrue statement or omission made in reliance or in conformity with information relating to such Underwriter furnished in writing to the Company by or on behalf of such Underwriter, expressly for use in the Registration Statement or the Prospectus. The Selling CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -22- 23 Stockholders and the Company agree that the only information provided in writing by or on behalf of the Underwriters to the Company, expressly for use in the Registration Statement or the Prospectus, is that information contained in the table and the second, fifth, sixth and eighth paragraphs following the table in the section of the Prospectus entitled "Underwriting" and the last paragraph on the cover page of the Prospectus. (d) If any action is brought against an indemnified party under this Section 7, the indemnified party or parties shall promptly notify the indemnifying party in writing of the institution of such action (provided that the failure to give such notice shall not relieve the indemnifying party of any liability that it may have pursuant to this Agreement, unless and to the extent the indemnifying party did not otherwise learn of such action and such failure has resulted in the forfeiture of substantive rights or defenses by the indemnifying party) and the indemnifying party shall assume the defense of such action, including the employment of counsel and payment of reasonable expenses. The indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to take charge of the defense of such action within a reasonable time after notice of the institution of such action or (iii) the named parties to any such proceeding (including any impleaded parties) include both an indemnified party and an indemnifying party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between the named parties (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying party and paid as incurred; provided that the indemnifying party shall only be responsible for the fees and expenses of one counsel for the indemnified party or parties hereunder, in additional to any local counsel. Anything in this paragraph to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any such claim or action effected without its written consent, which consent shall not be unreasonably withheld. (e) If the indemnification provided for in this Section 7 is unavailable to an indemnified party under subsection (a), (b) or (c) of this Section 7 in respect of any losses, damages, expenses, liabilities or claims referred to therein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, damages, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, damages, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -23- 24 and commissions but before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault of the Company and the Selling Stockholders on the one hand and of the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company, the Selling Stockholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, damages, expenses, liabilities and claims referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action. (f) The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 7(e) above. Notwithstanding the provisions of this Section 7, (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discount received by it by reason of such untrue statement or alleged untrue statement or omission or alleged omission, (ii) no Selling Stockholder shall be required to contribute any amount in excess of the gross proceeds received by such Selling Stockholder from the sale of the shares pursuant to this Agreement, and (iii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (g) In connection with the offer and sale of the Reserved Shares, the Company agrees, promptly upon a request in writing to indemnify and hold harmless the Underwriters from and against any and all losses, liabilities, claims, damages and expenses incurred by them as a result of the failure of any person or entity to whom Reserved Shares are offered to pay for and accept delivery of Reserved Shares which, by the end of the first business day following the date of this Agreement, were subject to a properly confirmed agreement to purchase. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. The respective indemnity and contribution agreements contained in Section 7, and the covenants, representations and warranties of the Company and the Selling Stockholders contained in this Agreement or contained in certificates of officers of the Company and the Selling Stockholders submitted pursuant hereto, shall remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter or any of its respective officers, employees, directors, Stockholders, agents or any person who controls any Underwriters, or by or on behalf of the Company or the Selling Stockholders or any of the officers or directors or any controlling person of the Company or the Selling Stockholders, as the case may be, and will survive delivery of and payment for the Shares. SECTION 9. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Shares hereunder on either the Primary Shares Closing Date or the Option Shares Closing Date and the aggregate number of Shares that such defaulting Underwriter or CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -24- 25 Underwriters agreed but failed to purchase does not exceed 10% of the total number of Shares that the Underwriters are obligated to purchase on such Closing Date, the Representatives may make arrangements satisfactory to the Company and the Selling Stockholders for the purchase of such Shares by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Shares that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of Shares with respect to which such default or defaults occur exceeds 10% of the total number of Shares that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to the Representatives and the Company and the Selling Stockholders for the purchase of such Shares by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Stockholders, except as provided in this Section 9 (provided that if such default occurs with respect to the Option Shares after the Primary Shares Closing Date, this Agreement will not terminate as to the Primary Shares). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. SECTION 10. Notices. All notices and other communications hereunder will be in writing and shall be deemed to have been duly given if mailed or transmitted by standard form of telecommunication. Notices to the Underwriters shall be directed to the Underwriters in care of: Jefferies & Company, Inc. 11100 Santa Monica Boulevard Los Angeles, California 90025 Attention: Jerry Gluck, Esq. with a copy to: T. Mark Kelly Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, Texas 77002-6760 or, if sent to the Company, directed to: Championship Auto Racing Teams, Inc. 755 West Big Beaver Road, Suite 800 Troy, Michigan 48084 Attention: Andrew H. Craig with a copy to: Jack A. Bjerke Kegler, Brown, Hill & Ritter Co., L.P.A. 65 East State Street, 18th Floor Columbus, Ohio 43215 CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -25- 26 or, if sent to the Selling Stockholders, directed to: Jack A. Bjerke Kegler, Brown, Hill & Ritter Co., L.P.A. 65 East State Street, 18th Floor Columbus, Ohio 43215 SECTION 11. Parties. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company and the Selling Stockholders and their respective successors and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to provide any person, firm or corporation, other than the Underwriters and the Company and the Selling Stockholders and their respective successors and legal representatives and the controlling persons, officers, employees, directors and Stockholders referred to in Sections 7 and 8 and their respective heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein or therein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company and the Selling Stockholders and their respective successors and legal representatives, and such controlling persons, Stockholders, officers and directors and their respective heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Shares from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 12. Governing Law and Time. This Agreement shall be governed and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such State. Specified times of day refer to New York time, unless otherwise specified. SECTION 13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. CHAMPIONSHIP AUTO RACING TEAMS, INC. UNDERWRITING AGREEMENT -26- 27 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Company and the Underwriters in accordance with its terms. Very truly yours, CHAMPIONSHIP AUTO RACING TEAMS, INC. By: Name: Title: SELLING STOCKHOLDERS By: Name: Title: As Attorney-in-Fact acting on behalf of each of the Selling Stockholders named in Schedule II to this Agreement The foregoing Agreement is hereby confirmed and accepted as of the date first above written. JEFFERIES & COMPANY, INC. A. G. EDWARDS & SONS, INC. As Representatives of the Several Underwriters JEFFERIES & COMPANY, INC. By: Name: Title: 28 SCHEDULE I
NUMBER OF OPTION TOTAL NUMBER OF FIRM SHARES TO BE PURCHASED Underwriter SHARES TO BE PURCHASED IF MAXIMUM OPTION EXERCISED ----------- ---------------------- --------------------------- JEFFERIES & COMPANY, INC....................... A.G. EDWARDS & SONS, INC.......................
29 SCHEDULE II TOTAL NUMBER OF NAME STOCKHOLDER SHARES TO BE SOLD ---- ----------------------------- 30 SCHEDULE III
JURISDICTION OF NAME INCORPORATION/ORGANIZATION ---- -------------------------- CART, Inc.................................................................. Michigan CART Properties, Inc....................................................... Michigan CART Licensed Products, Inc................................................ Michigan CART Licensed Products, L.P................................................ Georgia (limited partnership)
31 ANNEX A Form of Lock-Up Agreement 32 ANNEX B Form of Opinion of Counsel to the Company and the Selling Stockholders 33 ANNEX C Form of Comfort Letter Pursuant to Section 7(e) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules (and, if applicable, financial forecasts and/or pro forma financial information) examined by them and included in the Prospectus or the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations thereunder; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited consolidated interim financial statements, selected financial data, pro forma financial information, financial forecasts and/or condensed financial statements derived from audited financial statements of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been separately furnished to the representatives of the Underwriters (the "Representatives"); (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus as indicated in their reports thereon copies of which have been separately furnished to the Representatives and on the basis of specified procedures including inquiries of officials of the Company who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, nothing came to their attention that caused them to believe that the unaudited condensed consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations; (iv) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus agrees with the corresponding amounts (after restatements where applicable) in the audited consolidated financial statements for such five fiscal years; (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K; 34 (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Company and its subsidiaries since the date of the latest audited financial statements included in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, or (ii) any material modifications should be made to the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus for them to be in conformity with generally accepted accounting principles; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included in the Prospectus; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived any unaudited condensed financial statements referred to in Clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited consolidated financial statements included in the Prospectus; (D) any unaudited pro forma combined financial statements included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest financial statements included in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or stockholders' equity or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included in the Prospectus, 35 except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest financial statements included in the Prospectus to the specified date referred to in Clause (E) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Representatives, except in each case for decreases or increases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report(s) included in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives, which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus, or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. EX-2.1 3 EXHIBIT 2.1 1 EXHIBIT 2.1 December 22, 1997 U.E. Patrick Chairman of the Board of Directors American Racing Series, Inc. 1395 Wheaton Avenue Troy, MI 48093 Dear Mr. Patrick: This letter will serve to confirm the intentions of Championship Auto Racing Teams, Inc., a Delaware corporation ("CART") to enter into a Definitive Purchase Agreement ("Purchase Agreement") to acquire all of the issued and outstanding shares of common stock of American Racing Series, Inc. ("ARS") and certain assets of BP Automotive, Ltd. ("B.P."). Consummation of the transactions discussed in this letter will be subject to the basic conditions precedent hereinafter set forth: 1. PURCHASE OF STOCK OF ARS - CART and the shareholders of ARS will enter into a mutually acceptable Definitive Purchase Agreement providing for the acquisition by CART of 100% of the issued and outstanding shares of stock in ARS. 2. ACQUISITION OF ASSETS OF B.P. - CART will enter into a mutually acceptable Purchase Agreement with respect to the acquisition of certain assets of B.P., as set forth on Exhibit A attached hereto and incorporated herein. 3. PURCHASE PRICE - The purchase price for the stock of ARS and the assets of B.P. payable by CART shall be $10,000,000. The purchase price is to be allocated to the parties based upon their mutual agreement and paid as follows: a. CART shall pay $7,000,000 at closing. b. The remaining $3,000,000 of the purchase price shall be paid to ARS shareholders and B.P. at $1,000,000 per year for three years, subject to the attainment of certain performance criteria as follows: (i) Five Hundred Twenty Two Thousand Five Hundred Dollars ($522,500.00) per year for three years for sponsorship agreements that are not currently contracted. ARS will be entitled to continue to solicit sponsors in all categories until September 1, 1998 to meet the guarantee. After September 1, 1998, ARS agrees to discontinue any sales efforts; (ii) Two Hundred Thousand Dollars ($200,000.00) related to promoter fees for the Penske tracks for the 1998 and 1999 seasons; 2 (iii) Engines leases and rebuilds based on 30 paid leases per year for two (2) years; (iv) Wheel sales of Fifty One Thousand Three Hundred Dollars ($51,300.00) per year for three years; (v) Parts and chassis commissions of Three Hundred Fifty Thousand Dollars ($350,000.00) per year for two (2) years; (vi) The annual average performance criteria guarantee for the items outlined above are as follows:
1998 1999 2000 ---- ---- ---- Engine Lease $1,380,000 $1,380,000 Rebuilds 1,440,000 1,440,000 Sponsorship 522,500 522,500 522,500 Promoter Fees Penske Tracks 200,000 200,000 Wheel Sales (net) 51,300 51,300 51,300 Commissions 350,000 350,000 ----------- ---------- -------- $3,943,800 $3,943,800 $573,800
(vii) In the event that there is an annual shortfall to the above number, the annual payments by CART will be reduced dollar for dollar by the shortfall. If the annual average is met on a multi-year basis, any previous shortfall to the One Million Dollar ($1,000,000.00) annual payment will be reimbursed to ARS stockholders and B.P. ARS will increase the Engine Lease payments and engine rebuilds by a reasonable amount for 1999. c. The shareholders of ARS and B.P. shall be granted options to purchase 100,000 shares of the common stock of CART at the initial public offering price. These options will vest one year from the date of the initial public offering, subject to ARS meeting the 1998 performance criteria of $3,943,800. If the performance criteria is not met, the shareholders and B.P. may pay CART the deficiency and thus meet the performance criteria. These options may be exercised at any time within 5 years after they vest. d. DIRECTED SHARES - The shareholders of ARS and B.P. shall be granted the right to purchase up to $1,000,000 of CART's common stock at the initial public offering price. 4. REPRESENTATIONS AND WARRANTIES - The shareholders of ARS and BP shall make standard representations and warranties customary to a transaction of this type, including, but not limited to: a. Conduct of the business pending closing; b. Organization and standing of ARS and BP; 2 3 c. ARS's capitalization share ownership and financial statements; d. B.P.'s share ownership and financial statements, including the accuracy of financial statements. e. Title to properties owned, absence of litigation, unasserted claims. f. Other typical disclosure, including no material adverse changes in the business, assets, liabilities, etc., and no other transactions other than in the normal course of business. 5. CONDITIONS PRECEDENT TO CLOSING. The Purchase Agreement shall provide that the obligations of the parties to consummate the Purchase Agreement will be subject to the satisfaction of certain conditions, including the following: a. Completion of the CART initial public offering. b. Representations and warranties contained in the Purchase Agreement will continue to be true and correct in all material respects as of the closing. c. No material adverse changes in the business condition of ARS or BP. 6. DISTRIBUTIONS PRIOR TO CLOSING. The parties agree that, prior to the closing of the Purchase Agreement, ARS shall distribute to its shareholders all cash, accounts receivable, accounts payable, the ARS airplane, the hanger and the partnership interests with respect to the Melbourne property. The cash distributed shall be adjusted to reflect any obligations that ARS may have with respect to engine deposits unearned income related to 1998 and beyond or other matters recorded on ARS's financial statements which reflect future obligations of ARS. 7. COVENANT NOT TO COMPETE. U.E. Patrick and Roger Bailey will enter into a covenant not to compete for a period of five (5) years from the Closing, which will provide that neither U.E. Patrick or Roger Bailey will form a race series that directly competes with ARS. 8. CLOSING AND EFFECTIVE DATE. Closing and the effective date will occur not later than 10 business days after the closing of the CART initial public offering. 9. TAX ELECTION. ARS agrees to a Section 338(h)(10) under the Internal Revenue Code on terms mutually acceptable to all parties. 10. ACCESS TO BOOKS AND RECORDS AND DUE DILIGENCE. Prior to the execution of the Definitive Purchase Agreement, ARS shareholders and B.P. shall afford CART's officers, attorneys, accountants and other authorized representatives free and full access, on reasonable notice, and during normal business hours to all management, personnel, offices, properties, books and records so that CART may have a reasonable opportunity to make such investigations as it desires into the management, business, properties and affairs of ARS and B.P. ARS and B.P. shall furnish to CART financial and operating data and other information, including legal documents regarding their business as CART reasonably requests. In the event that CART discovers issues related to the business of ARS or B.P. which adversely effect the business of ARS or the value thereof, CART shall have the right to terminate this letter of intent. 10. NON-SOLICITATION. Until the Definitive Purchase Agreement has been executed or 60 days from the date hereof, ARS and B.P. will not: (i) solicit from any outside sources, acquisition proposals relating to ARS or B.P. or their assets or stock; or (ii) entertain or discuss any acquisition proposals from any unsolicited outside sources relating to ARS or B.P. 3 4 This letter is intended to be a binding letter of intent, therefore constitute a legally binding enforceable contract among the parties pertaining to the subject matter hereof, which all parties agree to reduce to a definitive purchase agreement as expeditiously as possible, but no later than January 15, 1998. If you are in agreement with the foregoing, and this letter of intent is acceptable to you and the parties that you represent, please confirm by signing a copy of this letter and returning it to me no later than December 22, 1997. Sincerely yours, CHAMPIONSHIP AUTO RACING TEAMS, INC. By: /s/ RANDY DZIERZAWSKI -------------------------------------- Randy Dzierzawski, Vice President Accepted and agreed to this 22nd day of December, 1997. AMERICAN RACING SERIES, INC. By: /s/ U.E. Patrick --------------------------------------- U.E. Patrick Chairman of the Board of Directors /s/ U.E. Patrick --------------------------------------- U.E. Patrick, on behalf of himself, Steve Patrick, Mark Patrick, Rick Patrick, Sherry ` Patrick-Burke /s/ Roger Bailey --------------------------------------- Roger Bailey B.P. AUTOMOTIVE By: /s/ Roger Bailey --------------------------------------- Roger Bailey, President 4 EX-3.1 4 EXHIBIT 3.1 1 Exhibit 3.1 CERTIFICATE OF INCORPORATION OF CHAMPIONSHIP AUTO RACING TEAMS, INC. FIRST. The name of the corporation is Championship Auto Racing Teams, Inc. (the "Corporation"). SECOND. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH. (a) The total number of shares of stock which the Corporation shall have authority to issue is fifty-five million (55,000,000) shares of Capital Stock. (b) Of such authorized shares, fifty million (50,000,000) shares shall be designated "Common Stock" and have a par value of $.01 per share. (c) Of such designated shares, five million (5,000,000) shares shall be designated "Preferred Stock" and have a par value of $.01 per share. The Board of Directors of the Corporation is hereby expressly authorized, to the fullest extent now or hereafter permitted by the General Corporation Law of the State of Delaware, at any time and from time to time, to divide the shares of Preferred Stock into one or more series, to establish the number of shares to be included in each such series, to issue in whole or in part the shares of Preferred Stock or the shares of any series thereof, and to fix by resolution or resolutions the designation, powers (voting and otherwise), preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions, if any, of the Preferred Stock or of any series thereof that may be desired. 2 FIFTH. The name and mailing address of the incorporator is: The Corporation Trust Company Corporation Trust Center 1209 Orange Street Wilmington, DE 19801 SIXTH. The Corporation shall have perpetual existence. SEVENTH. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Elections of directors need not be by written ballot except and to the extent required by the bylaws of the Corporation. EIGHTH. Subject to the rights, if any, of the holders of Preferred Stock to take action by written consent, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. NINTH. The bylaws of the Corporation may be altered, amended, or repealed, or new bylaws may be adopted, only by (i) the affirmative vote of the holders of at least sixty-seven percent (67%) of the outstanding voting stock of the Corporation (in addition to any separate class vote that may be required pursuant to the terms of any then outstanding Preferred Stock of the Corporation), or (ii) by resolution of the Board of Directors duly adopted by a vote of not less than a majority of the directors then constituting the full Board of Directors. TENTH. (a) Directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified. (b) The number of directors which constitutes the whole Board of Directors of the Corporation shall be designated, or determined in the manner provided in, the Bylaws of the Corporation. 2 3 (c) Vacancies occurring on the Board of Directors for any reason may be filled by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors, or by a sole remaining director. ELEVENTH. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except that this Article Eleventh does not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended after the filing of this Certificate of Incorporation to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware. Any amendment or repeal of this Article Eleventh, or any adoption of any provision of this Certificate of Incorporation inconsistent with this Article Eleventh, shall be prospective only and shall not adversely affect any right or protection of a director of the Corporation existing at the time of such amendment or repeal or adoption of an inconsistent provision. TWELFTH. The Corporation shall not purchase any shares of the Corporation's Common Stock from any stockholder or stockholders acting as a group, who individually or collectively hold(s) five percent (5%) or more of the Corporation's outstanding Common Stock, not including any treasury stock (individually or collectively referred to in this Article Twelfth as the "Five Percent Holder(s)") at a price higher than the then current fair market value of the Corporation's Common Stock, based on the average of the closing prices of the preceding five (5) trading days, or on terms more favorable, when considered as a whole, than those otherwise available, unless (i) the Corporation makes an offer to all of its other stockholders to purchase from each stockholder the same percentage of that stockholder's Common Stock in the Corporation as the Corporation intends to purchase from the Five Percent Holder(s), at the same price and on the same terms as the Five Percent Holder(s) will receive; or (ii) the holders of a majority of the Corporation's outstanding Common Stock entitled to vote approve of the Corporation's purchase of its Common Stock from the Five Percent Holder(s), at the intended price and upon the intended terms, with the Five Percent Holder(s) not voting on such approval and the Common Stock in the Corporation which is held by the Five Percent Holder(s) not counted as outstanding in calculating the number of votes required for approval. THIRTEENTH. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of 3 4 them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of the General Corporation Law of the State of Delaware or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of the General Corporation Law of the State of Delaware order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. FOURTEENTH. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-seven percent (67%) of the combined voting power of all of the then outstanding shares of the Corporation entitled to vote shall be required to alter, amend or repeal Articles Eighth, Ninth, Eleventh, Twelfth or Fourteenth or any provision thereof, unless such alteration, amendment or repeal shall be approved by a vote of not less than two-thirds of the directors then constituting the full Board of Directors. FIFTEENTH. The Corporation reserves the right, at any time and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed herein, and all rights conferred upon the stockholders and directors herein are granted subject to this reservation. THE UNDERSIGNED, being the incorporator named above, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does hereby make this Certificate of Incorporation and certify that this is my act and deed and that the facts set forth herein are true and, accordingly, has signed this Certificate of Incorporation this ____ day of December, 1997. By: , Incorporator 4 EX-3.2 5 EXHIBIT 3.2 1 EXHIBIT 3.2 BY-LAWS OF CHAMPIONSHIP AUTO RACING TEAMS, INC. 2 TABLE OF CONTENTS PAGE 1. OFFICES...................................................................1 1.1 Registered Office...............................................1 1.2 Other Offices...................................................1 2. MEETINGS OF STOCKHOLDERS..................................................1 2.1 Place of Meetings...............................................1 2.2 Annual Meetings.................................................1 2.3 Special Meetings................................................1 2.4 Notice of Meetings..............................................2 2.5 Procedures for Proposing Consideration of Business..............2 2.6 Quorum..........................................................2 2.7 Adjournment.....................................................3 2.8 Vote Required...................................................3 2.9 Voting Rights...................................................3 2.10 Proxies........................................................4 2.11 List of Stockholders...........................................4 2.12 Organization of Meetings.......................................4 2.13 Inspectors.....................................................5 3. DIRECTORS.................................................................5 3.1 Number, Election, Term and Qualifications.......................5 3.2 Power and Authority.............................................5 3.3 Vacancies and Newly Created Directorships.......................6 3.4 Nominations for Election as a Director..........................6 3.5 Resignation.....................................................7 3.6 Removal.........................................................7 3.7 Place of Meetings...............................................7 3.8 Regular Meetings................................................7 3.9 Special Meetings................................................8 3.10 Quorum; Vote Required..........................................8 3.11 Telephonic Meetings............................................8 3.12 Organization...................................................8 3.13 Action Without Meeting.........................................9 3.14 Committees.....................................................9 3.15 Compensation..................................................10 4. NOTICES..................................................................10 i 3 4.1 Form of Notice.................................................10 4.2 Waiver of Notice...............................................10 4.3 Undeliverable Notices..........................................10 5. OFFICERS.................................................................11 5.1 Officers.......................................................11 5.2 Term...........................................................11 5.3 Officers Appointed by the President............................11 5.4 Compensation...................................................11 5.5 Removal and Vacancies..........................................11 5.6 Resignations...................................................12 5.7 Chairman of the Board..........................................12 5.8 President......................................................12 5.9 Vice President.................................................12 5.10 Secretary.....................................................12 5.11 Assistant Secretary...........................................13 5.12 Treasurer.....................................................13 5.13 Assistant Treasurer...........................................13 5.14 Additional Officers and Agents................................14 5.15 Delegation of Authority.......................................14 5.16 Voting of Securities Owned by This Corporation................14 6. STOCK AND STOCKHOLDERS...................................................14 6.1 Certificates...................................................14 6.2 Lost, Stolen or Destroyed Certificates.........................15 6.3 Transfers of Shares............................................15 6.4 Fixing Record Date.............................................16 6.5 Registered Stockholders........................................16 6.6 Transfer Agent and Registrar...................................17 7. DIVIDENDS................................................................17 7.1 Declaration....................................................17 7.2 Reserve........................................................17 8. INDEMNIFICATION..........................................................17 8.1 Right to Indemnification.......................................17 8.2 Right to Advance of Expenses...................................17 8.3 Right of Indemnitee to Bring Suit..............................18 8.4 Non-Exclusivity of Rights......................................18 8.5 Insurance......................................................18 8.6 Indemnification of Employees and Agents of the Corporation.....19 8.7 Survival of Indemnification Rights.............................19 ii 4 8.8 Certain Definitions............................................19 8.9 Amendment or Repeal............................................19 9. MISCELLANEOUS............................................................20 9.1 Loans to Officers..............................................20 9.2 Checks.........................................................20 9.3 Fiscal Year....................................................20 9.4 Seal...........................................................20 9.5 Certificate of Incorporation...................................20 10. AMENDMENTS..............................................................20 iii 5 BY-LAWS OF CHAMPIONSHIP AUTO RACING TEAMS, INC. 1. OFFICES 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. 1.2 OTHER OFFICES. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. 2. MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS. Each meeting of the stockholders of the Corporation shall be held at the principal offices of the Corporation, or at such other place, either within or without the State of Delaware, and on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in the waiver of notice thereof. 2.2 ANNUAL MEETINGS. An annual meeting of the stockholders of the Corporation, for the purpose of the election of directors and for such other business as shall be properly brought before the meeting, shall be held each calendar year, commencing in 1998, on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in the waiver of notice thereof. 2.3 SPECIAL MEETINGS. Except as otherwise provided by the General Corporation Law of the State of Delaware as it may from time to time be amended ("Delaware Law"), the Certificate of Incorporation of the Corporation as it may be from time to time be amended or restated ("Certificate of Incorporation") or these By-Laws, special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board (if any), (ii) the President, or (iii) the Board of Directors. A special meeting of the stockholders so called shall be 6 held at such place, on such date, and at such time as is designated by the Board of Directors and stated in the notice of the meeting or in the waiver of notice. Business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice. 2.4 NOTICE OF MEETINGS. Except as otherwise provided by Delaware Law, the Certificate of Incorporation, or these By-Laws, written notice of each meeting of the stockholders stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, which notice may be delivered either personally or by mail. If mailed, notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to such stockholder at his address as it appears on the records of the Corporation, unless he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, in which case it shall be directed to him at such other address. Notice of any meeting of the stockholders may be waived in a writing signed by the stockholders waiving notice, either before or after such meeting and, to the extent permitted by Delaware Law, will be deemed to be waived by any stockholder who is present, in person or by proxy, at such meeting, except when the stockholder attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. 2.5 PROCEDURES FOR PROPOSING CONSIDERATION OF BUSINESS. Unless proposed by a majority of the Board of Directors, no business shall be eligible for consideration at annual or special meetings of stockholders unless a written statement setting forth the business and the purpose therefor is delivered to the Board of Directors on a timely basis. To be timely, a stockholder's written statement shall be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to business to be considered at the annual meeting of the stockholders of the Corporation not less than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Corporation, and (ii) with respect to business to be considered at a special meeting of stockholders of the Corporation not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed to stockholders of the Corporation as provided in Section 2.4 or public disclosure of the date of the special meeting was made, whichever first occurs. 2.6 QUORUM. The presence, in person or by proxy, at any meeting of the stockholders of the holders of not less than a majority of the outstanding shares entitled to vote thereat shall constitute a quorum at such meeting for the transaction of business, except as otherwise provided by Delaware Law, the Certificate of Incorporation or these By-Laws. In the absence of a quorum at any meeting of the stockholders, either the chairman of the meeting or the holders of a majority of the outstanding shares present, in person or by proxy, and entitled to vote thereat, may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a 2 7 quorum shall be present, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 2.7 ADJOURNMENT. Any meeting of stockholders, whether or not a quorum is present, may be adjourned from time to time, either by the chairman of the meeting or by the vote of holders of sixty-seven percent (67%) of the outstanding shares present, in person or by proxy, and entitled to vote thereat, to reconvene at the same or some other place, and notice need not be given of the time and place of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. 2.8 VOTE REQUIRED. Except as otherwise required by Delaware Law, the Certificate of Incorporation or these By-Laws, at any meeting for the election of directors at which a quorum is present, the candidates receiving the greatest number of votes shall be elected as directors. All other matters submitted to the stockholders at any meeting at which a quorum is present shall be decided by the vote of the holders of a majority of the outstanding shares entitled to vote and present, in person or by proxy, at the meeting unless the matter is one upon which a different vote is required by express provision of Delaware Law, the Certificate of Incorporation or these By-Laws, in which case such express provision shall govern and control the vote required on such matter. Where a separate vote by class or series is required, except as otherwise provided by Delaware Law, the Certificate of Incorporation or these By-Laws, a majority of the outstanding shares of such class or series, present, in person or by proxy, at the meeting shall constitute a quorum entitled to take action with respect to that vote on that matter and, except as otherwise provided by Delaware Law, the Certificate of Incorporation or these By-Laws, the affirmative vote of the majority (or plurality, in the case of the election of directors) of the votes cast by the holders of shares of such class or classes or series shall be the act of such class or series. 2.9 VOTING RIGHTS. Except as otherwise provided by Delaware Law, the Certificate of Incorporation or these By-Laws, each stockholder in whose name shares stand on the stock records of the Corporation as of the record date, as provided in Section 6.4 of these By-Laws, shall at each meeting of the stockholders be entitled to one vote for each share held by such stockholder as of the record date. 3 8 2.10 PROXIES. Each stockholder entitled to vote at a meeting of the stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy may be granted by a writing executed by the stockholder or its authorized officer, director, employee or agent or by transmission or authorization of transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, subject to the conditions set forth in Section 212 of the Delaware Law, as it may be amended from time to time. Each proxy shall be filed with the Secretary of the Corporation prior to or at the time of the meeting. 2.11 LIST OF STOCKHOLDERS. The Secretary or other officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.12 ORGANIZATION OF MEETINGS. (a) At each meeting of stockholders, the Chairman of the Board, or, if a Chairman of the Board has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by the holders of a majority of the outstanding shares present, in person or by proxy, at the meeting and entitled to vote thereat shall act as chairman of the meeting. The Secretary, or, in his absence, an Assistant Secretary or, if an Assistant Secretary has not been appointed or is absent, a person appointed by the chairman of the meeting, shall act as secretary of the meeting. (b) The Board of Directors of the Corporation shall be entitled to make such rules or regulations for the conduct of meetings of the stockholders as it shall deem necessary, convenient or desirable. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, convenient or desirable for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman shall 4 9 permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. 2.13 INSPECTORS. The Board of Directors by resolutions or the President or Chairman of the Board, in advance of any stockholder meeting, shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meeting of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. 3. DIRECTORS 3.1 NUMBER, ELECTION, TERM AND QUALIFICATIONS. Except as otherwise provided in the Certificate of Incorporation, the authorized number of directors of the Corporation shall be fixed or changed from time to time and at any time exclusively by resolution adopted by the Board of Directors. Unless otherwise fixed by the Board of Directors, the authorized number of directors of the Corporation shall be [___]. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. The directors, other than the initial directors either named in the Certificate of Incorporation or elected by the incorporators, shall be elected at the annual meeting of the stockholders, except as provided in Section 3.3 hereof. If, for any reason, the directors shall not have been elected at an annual meeting of the stockholders, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose. Directors need not be stockholders or residents of the State of Delaware. 3.2 POWER AND AUTHORITY. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, which shall have and may exercise all the powers of the Corporation and do all such lawful acts and things as are not by Delaware Law, the Certificate of Incorporation or these By-Laws directed or required to be exercised or done by the stockholders. 5 10 3.3 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or otherwise, and newly created directorships resulting from any increase in the authorized number of directors, may be filled by a vote of a majority of the directors then in office, even though less than a quorum, or by a sole remaining director, and any director so chosen shall hold office for the remainder of the full term of the director replaced and until such director's successor is duly elected and qualified, or until his earlier death, resignation or removal, or for directors elected in response to a increase in the authorized number, until such director's successor is duly elected and qualified, or until his earlier death, resignation or removal. If at any time there are no directors in office, then an election of directors may be held in the manner provided by Delaware Law. 3.4 NOMINATIONS FOR ELECTION AS A DIRECTOR. Only persons who are nominated in accordance with the procedures set forth in these bylaws shall be eligible for election by stockholders as, and to serve as, directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 3.4, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3.4. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's written statement shall be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at the annual meeting of the stockholders of the Corporation not less than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Corporation, and (ii) with respect to an election to be held at a special meeting of stockholders of the Corporation for the election of directors not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed to stockholders of the Corporation as provided in Section 2.4 or public disclosure of the date of the special meeting was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (x) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serve as a director if elected), and (y) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of voting stock of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. In the event that a person is validly designated as a nominee to the Board of Directors in accordance with the procedures set forth in this Section 3.4 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the 6 11 stockholder who proposed such nominee, as the case may be, may designate a substitute nominee. Other than directors chosen pursuant to the provisions of Sections 3.1 or 3.3, no person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.4. The presiding officer of the meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these By-laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 3.4, a stockholder shall also comply with all applicable requirements under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 3.4. 3.5 RESIGNATION. Any director may resign at any time by delivering his written resignation to the Corporation, such resignation to be effective at the time specified therein or, if no such specification is made, immediately upon its receipt by the Corporation. Unless otherwise specified in the notice, acceptance of a resignation shall not be necessary to make it effective. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. 3.6 REMOVAL. Unless otherwise provided by Delaware Law or the Certificate of Incorporation, any director or the entire Board of Directors may be removed from office only for cause and only by the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote at an election of directors. 3.7 PLACE OF MEETINGS. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. 3.8 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held immediately following the adjournment of each annual meeting of stockholders at which directors are elected, and at the same place, unless a majority of the directors then elected and serving change such time or place, and notice of such meeting need not be given (unless the time or place is so changed). Additional regular meetings of the Board of Directors may be held at such other times and places as may from time to time be determined by resolution by the Board of Directors, and notice of any such additional regular meetings need not be given. 7 12 3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, if any, the President or any two (2) directors, and shall be held at such time and place as shall be stated in the notice of the meeting. Notice of any special meeting shall be given in person or by facsimile, telephone, electronic mail, hand delivery, telecopy or other similar method involving immediate receipt, at least twenty-four (24) hours before the meeting or by mail at least three (3) days prior to the meeting. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage prepaid, when delivered by expedited delivery service or when transmitted if sent by facsimile, telecopy or similar means. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Notice of any meeting may be waived in a writing signed by any director at any time before or after the meeting and will be deemed automatically waived by any director who attends such meeting, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 3.10 QUORUM; VOTE REQUIRED. Except as otherwise provided in the Certificate of Incorporation, at all meetings of the Board of Directors, the presence of a majority of the directors in office shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by Delaware Law, the Certificate of Incorporation or these By-Laws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 3.11 TELEPHONIC MEETINGS. Unless otherwise provided in the Certificate of Incorporation, any member of the Board of Directors, or of any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or of any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.12 ORGANIZATION. At each meeting of the Board of Directors, the Chairman of the Board, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary or another person appointed by the chairman of the meeting, shall act as secretary of the meeting. At each meeting of the Board of Directors, the chairman of the meeting shall establish the order of business of and the procedures at the meeting, subject to the Board of Directors determination. 8 13 3.13 ACTION WITHOUT MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if all members of the Board of Directors or of the committee, as the case may be, consent thereto in a writing or writings, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or of the committee. 3.14 COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternative members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors unless otherwise restricted by Delaware Law, the Certificate of Incorporation or these By-Laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and proceedings and report the same to the Board of Directors when required. Committees of the Board of Directors shall not, in any event, have any power or authority to amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares adopted by the Board of Directors as provided in Section 151(a) of the Delaware Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution or to amend the By-Laws of the Corporation. Further, no committee of the Board of Directors shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware Law, unless the resolution or resolutions designating such committee expressly so provides. 9 14 3.15 COMPENSATION. Unless otherwise provided in the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their reasonable expenses, if any, of attendance at each meeting of the Board of Directors and may in addition be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of committees of the Board of Directors may be paid compensation and reasonable expenses for attending committee meetings. 4. NOTICES 4.1 FORM OF NOTICE. Whenever, under any provision of Delaware Law, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder and no provision is made as to how such notice shall be given, it shall not be construed to mean solely personal notice, but such notice may be given in writing, (i) by mail, postage prepaid, addressed to such director or stockholder, at his address as it appears on the books or, in the case of a stockholder, the stock transfer records of the Corporation, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail, (ii) by overnight courier service, and such notice shall be deemed to be given the day following the day it is delivered to such service with all charges prepaid, (iii) by facsimile, telecopy, telegram or similar means, and such notice shall be deemed to be given the day it is transmitted with all charges prepaid, or (iv) by any other method permitted by law, such notice to be deemed to be given when received by the director or stockholder. 4.2 WAIVER OF NOTICE. Whenever any notice is required to be given to any stockholder, director or committee member under the provisions of Delaware Law, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to receive such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of notice to such person or persons. Attendance of a stockholder, director or committee member at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business on the ground that the meeting is not lawfully called or convened. 4.3 UNDELIVERABLE NOTICES. The giving of any notice required under any provision of Delaware Law, the Certificate of Incorporation or these By-Laws shall not be required to be given to any stockholder to whom (i) notice of two (2) consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such stockholder during the period between such two (2) consecutive annual meetings, or (ii) all, and at least two (2), payments (if sent by first 10 15 class mail) of dividends or interest on securities during a twelve (12) month period, have been mailed addressed to such person at his address as shown on the records of the Corporation and have been returned undeliverable. If any such stockholder shall deliver to the Corporation a written notice setting forth his then current address, the requirement that notice be given to such stockholder shall be reinstated. 5. OFFICERS 5.1 OFFICERS. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5, shall be elected or appointed by the Board of Directors and shall include a President, a Secretary and a Treasurer. The Board of Directors may also elect or appoint a Chairman of the Board (who must be a director), a Chief Executive Officer, a Chief Financial Officer, one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such other officers and agents as it shall deem necessary, convenient or desirable. Any number of offices may be held by the same person, unless prohibited by Delaware Law, the Certificate of Incorporation or these By-Laws. None of the officers of the Corporation, other than a Chairman of the Board, need be a director. 5.2 TERM. Each officer of the Corporation shall hold office at the pleasure of the Board of Directors, or until his successor is elected or appointed and qualified, or until his earlier death, resignation or removal. 5.3 OFFICERS APPOINTED BY THE PRESIDENT. The Board of Directors may empower the President to appoint such officers as the business of the Corporation may require. 5.4 COMPENSATION. The compensation of all officers of the Corporation shall be fixed by or in the manner designated by the Board of Directors. 5.5 REMOVAL AND VACANCIES. Any officer elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board of Directors and any officer appointed by the President may be removed at any time with or without cause by the President, but any such removal shall be without prejudice to the contractual rights, if any, of the person so removed. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors, or to the extent allowed by the Board of Directors pursuant to Section 5.3, by the President. 11 16 5.6 RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the contractual rights, if any, of the Corporation with the resigning officer. 5.7 CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors at which he is present, and shall have and perform such other duties as may from time to time be assigned by the Board of Directors. 5.8 PRESIDENT. The President shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders unless a Chairman of the Board has been appointed and is present, and the President shall have general and active management of the business, affairs, officers, employees and agents of the Corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have general authority to execute bonds, deeds, mortgages, contracts and other documents and instruments in the name and on behalf of the Corporation, except where required or permitted by law to be otherwise executed and except where the execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The President shall perform such other duties and have such other powers as are commonly incident to his office or may from time to time be assigned by the Board of Directors. 5.9 VICE PRESIDENT. In the absence of the President or in the event of his inability or refusal to act, the Vice President, if any, or in the event there is more than one (1) Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election or appointment, shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties commonly incident to his office and shall also perform such other duties and have such other powers as may from time to time be assigned by the Board of Directors or the President. 5.10 SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and shall record all the actions and proceedings of such meetings in a book to be 12 17 kept for that purpose and shall perform like duties for the standing committees when required. Except as otherwise provided in these By-Laws, the Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of all special meetings of the Board of Directors and of all committees that require notice. The Secretary shall perform such other duties and have such other powers as are commonly incident to his office and as may from time to time be assigned by the Board of Directors or the President, under whose supervision he shall be. The Secretary shall have custody of the corporate seal of the Corporation, if any, and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to affixing by his signature. 5.11 ASSISTANT SECRETARY. The Assistant Secretary, if any, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, or if there be no such determination, then in the order of their election, shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be assigned by the Board of Directors or the President. 5.12 TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep or cause to be kept full and accurate accounts of receipts and disbursements of the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors otherwise so requires, an account of all his transactions as Treasurer and of the financial condition and results of operations of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such form, in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. The Treasurer shall perform other duties and have such other powers as are commonly incident to his office and as may from time to time be assigned by the Board of Directors or the President. Any of the powers or duties of the Treasurer may be assigned to a Chief Financial Officer or Principal Accounting Officer appointed by the Board of Directors. 5.13 ASSISTANT TREASURER. The Assistant Treasurer, if any, or if there shall be more than one (1), the Assistant Treasurers in the order determined by the Board of Directors, or if there be no such 13 18 determination, then in the order of their election, shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as may be assigned from time to time by the Board of Directors or the President. 5.14 ADDITIONAL OFFICERS AND AGENTS. The Board of Directors may appoint such other officers and agents as it shall deem necessary, convenient or desirable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be designated from time to time by the Board of Directors. 5.15 DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provisions hereof. 5.16 VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject always to the specific directions of the Board of Directors, (i) any shares or other securities issued by any other corporation and owned or controlled by this Corporation may be voted in person at any meeting of security holders of such other corporation by the Chairman of the Board or President of this Corporation if either is present at such meeting, or in their absence by the Treasurer of this Corporation if he is present at such meeting, and (ii) whenever, in the judgment of the Chairman of the Board or President, it is desirable for this Corporation to execute a proxy or written consent in respect to any shares or other securities issued by any other corporation and owned by this Corporation, such proxy or consent shall be executed in the name of this Corporation by the Chairman of the Board or President, without the necessity of any authorization by the Board of Directors, affixation of corporate seal or countersignature or attestation by another officer, provided that if the President and Chairman of the Board are unable to execute such proxy or consent by reason of sickness, absence from the United States or other similar cause, the Treasurer may execute such proxy or consent. Any person or persons designated in the manner above stated as the proxy or proxies of this Corporation shall have full right, power and authority to vote the shares or other securities issued by such other corporation and owned by this Corporation the same as such shares or other securities might be voted by this Corporation. 6. STOCK AND STOCKHOLDERS 6.1 CERTIFICATES. Every stockholder shall be entitled to receive a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying the number of shares of stock of the Corporation owned by him. Any or all of the signatures on a 14 19 certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. However, as provided in Section 158 of the Delaware Law, the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertified shares. If the Corporation shall be authorized to issue more than one (1) class of stock or more than one (1) series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Delaware Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the Delaware Law or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 6.2 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a new certificate or certificates or uncertificated shares of stock of the Corporation in place of any certificate or certificates theretofore issued by the Corporation alleged by the owner thereof to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When issuing such new certificate or certificates or uncertificated shares, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such form, and in such sum as, it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed. 6.3 TRANSFERS OF SHARES. Shares of stock of the Corporation shall only be transferable upon the books of the Corporation by the holder thereof in person or by his duly authorized attorney or legal 15 20 representative. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares of stock of the Corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books; provided, however, that if the certificate contains any legend or other statement restricting or otherwise providing any condition on transfers of the shares represented thereby, the Corporation or the transfer agent of the Corporation shall effect such transfer only upon the terms of such legend or other statement and only if the Corporation or the transfer agent of the Corporation is satisfied, in its sole discretion, that all conditions to transfer have been satisfied. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. 6.4 FIXING RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or entitled to consent to corporate action in writing, without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may by resolution fix, in advance, a record date that does not precede the date upon which the resolution fixing such record date was adopted, and with respect to stockholder meetings, is not more than sixty (60) nor less than ten (10) days prior to the date of such meeting, and with respect to other actions is not more than sixty (60) days prior to any such other action. If no record date is fixed by the Board of Directors, the record date for all purposes shall be the close of business on the day on which the Board of Directors adopts the resolution relating thereto, except as otherwise required by Delaware Law, the Certificate of Incorporation or these By-Laws. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 6.5 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by Delaware Law. 16 21 6.6 TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint one or more transfer agents or transfer clerks and one or more registrars and may require all certificates of stock to bear the signature or signatures of any of them. 7. DIVIDENDS 7.1 DECLARATION. Dividends upon the capital stock of the Corporation, if any, may be declared by the Board of Directors at any regular or special meeting, subject to Delaware Law and the Certificate of Incorporation. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation, subject to the provisions of Delaware Law and the Certificate of Incorporation. 7.2 RESERVE. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves for working capital, to meet contingencies, for equalizing dividends, for repairing or maintaining any property of the Corporation, or for such other purposes as the Board of Directors shall deem in the best interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. 8. INDEMNIFICATION 8.1 RIGHT TO INDEMNIFICATION. Except as and to the extent otherwise provided in the Certificate of Incorporation, the Corporation shall indemnify its directors and officers in accordance with, and to the fullest extent not prohibited by, the Delaware Law, subject to individual contractual arrangements between the Corporation and any such persons. 8.2 RIGHT TO ADVANCE OF EXPENSES. The indemnification rights in Sections 8.1 and 8.6 of these By-Laws shall include the right to be paid by the Corporation the expenses (including attorneys' fees) incurred by an indemnitee in defending any such proceeding in advance of its final disposition (hereinafter, an "advancement of expenses"); provided, however, that, if the Delaware Law requires, an advancement of expenses shall be made only upon receipt by the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is not further right to appeal (hereinafter, a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section 8.2 or otherwise. 17 22 8.3 RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 8.1, 8.2 or 8.6 of these By-Laws is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful, in whole or in part, in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also for the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon applicable standard for indemnification set forth in the Delaware Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 8 or otherwise shall be on the Corporation. 8.4 NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the advancement of expenses conferred in this Article 8 shall not be deemed exclusive of any other rights to which any person may be entitled under Delaware Law, any other law, the Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise. 8.5 INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was an indemnitee against any liability asserted against such person and incurred by such person in any capacity, as an indemnitee, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the Delaware Law. 18 23 8.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification to any employee or agent of the Corporation to the fullest extent of the provisions of this Article 8 with respect to the indemnification of directors and officers of the Corporation. 8.7 SURVIVAL OF INDEMNIFICATION RIGHTS. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 8 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such person. 8.8 CERTAIN DEFINITIONS. For purposes of this Article 8, references to the "Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article 8 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 8.9 AMENDMENT OR REPEAL. Any amendment, repeal or other modification of any of the foregoing provisions of this Article 8 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. 19 24 9. MISCELLANEOUS 9.1 LOANS TO OFFICERS. The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a director of the Corporation or its subsidiaries whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in these By-Laws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at law. 9.2 CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. 9.3 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. 9.4 SEAL. The corporate seal, if any, shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 9.5 CERTIFICATE OF INCORPORATION. To the extent of any inconsistency between these By-Laws and the Certificate of Incorporation, the terms and provisions of the Certificate of Incorporation shall control for all purposes. 10. AMENDMENTS The Board of Directors and the stockholders of the Corporation shall have the power to make, alter, amend and repeal any or all of the provisions of these bylaws to the extent and upon the terms set forth in Article Ninth of the Certificate of Incorporation. 20 EX-5.1 6 EXHIBIT 5.1 1 EXHIBIT 5.1 KEGLER, BROWN, HILL & RITTER [LETTER HEAD] , 1998 Championship Auto Racing Teams, Inc. 755 West Big Beaver Road Suite 800 Troy, Michigan 48084 Gentlemen: We have acted as counsel for Championship Auto Racing Teams, Inc. (the "Company") in connection with the registration under the Securities Act of 1933, as amended, of up to 5,018,950 shares of Common Stock, par value $.01 per share (the "Shares") by the Company and up to 240,000 Shares by certain selling stockholders. In this connection , we have examined the Certificate of Incorporation, the Bylaws, the directors' and stockholders' minutes and the Registration Statement filed with the Securities and Exchange Commission, exhibits thereto, and such other documents as we have deemed necessary to the opinion hereinafter expressed. We are of the opinion that the Shares are duly authorized and, upon their sale as contemplated by the Registration Statement, will be validly issued, fully paid, and nonassessable. We hereby consent to the reference to Kegler, Brown, Hill & Ritter Co., L.P.A. appearing under the heading "Legal Matters" in the Registration Statement and any amendments thereto and the Prospectus of the Company relating to its public offering of the Shares. In giving such consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, KEGLER, BROWN, HILL & RITTER By: /s/ JACK A. BJERKE ------------------------------------- Jack A. Bjerke EX-10.1 7 EXHIBIT 10.1 1 EXHIBIT 10.1 CHAMPIONSHIP AUTO RACING TEAMS, INC. 1997 STOCK OPTION PLAN I. PURPOSE The purpose of this 1997 Stock Option Plan (the "Plan") is to enable Championship Auto Racing Teams, Inc. (the "Company"), and such of its subsidiaries (as defined in Section 424(f) of the Internal Revenue Code of 1986 (the "Code")) as the Board of Directors of the Company (the "Board") shall from time to time designate ("Participating Subsidiaries"), to attract and retain qualified employees, and to provide such persons with additional motivation to advance the interests of the Company and its Participating Subsidiaries. The Plan provides for the grant of Stock Options, Limited Rights and Supplemental Bonuses to employees of the Company. II. CERTAIN DEFINITIONS 2.1 "CHANGE OF CONTROL". The term "Change of Control" shall mean any of the following events: (A) any Person, as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than Company, any trustee or other fiduciary holding securities under an employee benefit plan of Company, or any company owned, directly or indirectly, by the stockholders of Company in substantially the same proportions as their ownership of stock of Company) is or becomes the "Beneficial Owner" as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of 25% or more of the combined voting power of Company's outstanding securities; (B) individuals who constitute the Board on the effective date of the Plan (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any Person becoming a director subsequent to such effective date whose election, or nomination for election by Company's stockholders, was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (B), considered as though such Person were a member of the Incumbent Board. (C) the stockholders of the Company shall approve a merger, consolidation, recapitalization, or reorganization of the Company, a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not obtained, other than (1) any such transaction which would result in at least 50% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being "Beneficially Owned" (as defined above) by 75% or more of the holders of outstanding voting securities of the Company immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction, or (2) a merger or consolidation effected to implement a recapitalization of Company (or similar transaction) in which no "Person" (as defined above) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or 2 (D) the stockholders of Company approve a plan of complete liquidation of Company or an agreement for the sale or disposition by Company of all or substantially all of Company's assets. Notwithstanding anything in the foregoing to the contrary, no Change of Control shall be deemed to have occurred with respect to any particular Employee by virtue of any transaction which results in such Employee, or a group of Persons which includes such Employee, acquiring, directly or indirectly, 25% or more of the combined voting power of the Company's outstanding securities. 2.2 "COMMON STOCK". Common Stock means Common Stock, par value $0.01 share of the Company. 2.3 "DISINTERESTED PERSON". A Disinterested Person is a person who, at the time he exercises discretion in administering the Plan, qualifies as a "disinterested person" under Rule 16b-3(c)(2) under the Exchange Act. 2.4 "EMPLOYEE". An Employee is an employee of the Company or any Participating Subsidiary. 2.5 "EXCHANGE ACT". "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. 2.6 "FAIR MARKET VALUE". The Fair Market Value of a share of Common Stock on any date shall be the closing price of Common Stock as reported in the Wall Street Journal for securities listed on the NASDAQ or the New York Stock Exchange for the date in question, or if no such closing price is available, the closing price on the next preceding date for which a closing price was so reported, unless otherwise specified by the Subcommittee. 2.7 "LIMITED RIGHT". A Limited Right is the right to receive payment, in cash, following a Change of Control, of an amount equal to the product computed by multiplying (i) the excess of (A) the higher of (x) the Minimum Price Per Share, if the Change of Control occurs as a result of a Transaction, tender offer or exchange offer, or (y) the highest Fair Market Value per share during the period commencing thirty days prior to the Change of Control and ending immediately prior to the date the Limited Right is exercised, over (B) the Option Price per share under the Stock Option to which such Limited Right relates, by (ii) the number of shares of Common Stock as to which such Limited Right is being exercised provided that, in the case of any ISO, the amount computed under part (A) of the foregoing formula shall be equal to the Fair Market Value of Common Stock on the date the Limited Right is in fact exercised, and provided further that, in the case of any other Limited Right that has not been outstanding at least seven months at the time the Change of Control occurs, the amount computed under part (A) of the foregoing formula shall be equal to the highest amount that could be computed under part (y) of such formula using a Fair Market Value that first became determinable six months or more after 3 the date of grant of the Limited Right (with such Fair Market Value otherwise determined in accordance with the foregoing formula). 2.8 "MINIMUM PRICE PER SHARE". Minimum Price Per Share means the highest gross price (before brokerage commissions and soliciting dealer's fees) paid or to be paid for a share of Common Stock (whether by way of exchange, conversion, distribution or upon liquidation or otherwise) in any Transaction, tender offer or exchange offer occurring prior to the date on which such Limited Right is exercised. If the consideration paid or to be paid in any such Transaction, tender offer or exchange offer shall consist, in whole or in part, of consideration other than cash, the Subcommittee shall take such action, as in its judgment it deems appropriate, to establish the cash value of such consideration, but such valuation shall not be less than the value, if any, attributed to such consideration in writing by any party to such Transaction, tender offer or exchange offer other than the Company. 2.9 "PARTICIPANT". A Participant is an Employee to whom a Stock Option, Limited Right or Supplemental Bonus is granted. 2.10 "STOCK OPTION". A Stock Option is the right granted under the Plan to an Employee to purchase, at such time or times and at such price or prices ("Option Price") as are determined by the Subcommittee, the number of shares of Common Stock determined by the Subcommittee. 2.11 "SUBCOMMITTEE". Subcommittee means the Committee described in Section IV. 2.12 "SUPPLEMENTAL BONUS". A Supplemental Bonus is the right to receive payment, in shares of Common Stock, cash or a combination of shares of Common Stock and cash, of an amount specified by the Subcommittee pursuant to Section 7.6. 2.13 "TRANSACTION". A Transaction is (A) any consolidation or merger of the Company in which the Company is not the surviving corporation other than a merger solely to effect a reincorporation or a merger of the Company as to which stockholder approval is not required pursuant to Sections 251(f) or 253 of the Delaware General Corporation Law, (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of 50% or more of the assets or earnings power of the Company, or (C) the adoption of any plan or proposal for the liquidation or dissolution of the Company. For purposes of this Plan, the Subcommittee may, by resolution, clarify the date as of which a Change of Control shall be deemed to have occurred. III. INCENTIVE STOCK OPTIONS AND NONSTATUTORY STOCK OPTIONS The Stock Options granted under the Plan may be either: (a) Incentive Stock Options ("ISOs") which are intended to be "incentive stock options" as that term is defined in Section 422 of the Code: or 3 4 (b) Nonstatutory Stock Options ("NSOs") which are intended to be options that do not qualify as "incentive stock options" under Section 422 of the Code. The individual Option Agreement(s) shall clearly designate whether the Stock Options granted are ISOs or NSOs. Subject to other provisions of the Plan, a Participant may receive ISOs and NSOs at the same time, provided that the ISOs and NSOs are clearly designated as such. Except as otherwise expressly provided herein, all of the provisions and requirements of the Plan relating to Stock Options shall apply to ISOs and NSOs. IV. ADMINISTRATION 4.1 SUBCOMMITTEE. The Plan shall be administered by a Subcommittee of the Compensation Committee of the Board. The Subcommittee shall consist of at least two members of the Board of Directors who are not employed by the Company and who shall be Disinterested Persons. Subject to the provisions of the Plan, the Subcommittee shall have full authority to administer the Plan, including authority to grant awards under the Plan and determine the terms thereof, to interpret and construe any provision of the Plan and any Stock Option, Limited Right or Supplemental Bonus granted thereunder, to adopt such rules and regulations for administering the Plan, including those it may deem necessary in order to comply with the requirements of the Code or in order that Stock Options that are intended to be ISOs will be classified as incentive stock options under the Code, or in order to conform to any regulation or to any change in any law or regulation applicable thereto and to make all other decisions and determinations under the plan. 4.2 ACTIONS OF SUBCOMMITTEE. All actions taken and all interpretations and determinations made by the Subcommittee in good faith (including determinations of Fair Market Value) shall be final and binding upon all Participants, the Company and all other interested persons. No member of the Subcommittee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, and all members of the Subcommittee shall, in addition to their rights as directors, be fully protected by the Company with respect to any such action, determination or interpretation. V. ELIGIBILITY AND PARTICIPATION 5.1 ELIGIBLE EMPLOYEES. Grants of Stock Options, Limited Rights and Supplemental Bonuses may be made to Employees. Any director of the Company or of a Participating Subsidiary who is also an Employee shall also be eligible, but directors who are not Employees shall not be eligible, to receive Stock Options, Limited Rights and Supplemental Bonuses under the Plan. The Subcommittee shall from time to time determine the Employees to whom Stock Options shall be granted, the number of shares of Common Stock subject to each Stock Option to be granted to each such Employee, the Option Price of such Stock Options and the terms and conditions of such Stock Options, subject to the provisions of this Plan. 5.2 OPTION PRICE. Except as otherwise provided in Section 7.8, the Option Price of any ISO or NSO shall not be less than the Fair Market Value of a share of Common Stock on the date 5 on which the Stock Option is granted and shall not be less than par value of Common Stock. If an ISO is granted to an Employee who then owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company, the Option Price of such ISO shall be at least 110% of the Fair Market Value of the Common Stock subject to the ISO on the date such ISO is granted, and such ISO shall not be exercisable after five years after the date on which it was granted. 5.3 OPTION AGREEMENT. Each Stock Option shall be evidenced by a written agreement ("Option Agreement") containing such terms and provisions as the Subcommittee may determine, subject to the provisions of this Plan. VI. SHARES OF COMMON STOCK SUBJECT TO THE PLAN 6.1 MAXIMUM NUMBER. The maximum aggregate number of shares of Common Stock that may be issued under the Plan shall be 2,000,000 shares, subject to adjustment as provided in Section 6.2. Such shares may be authorized and unissued shares or may be treasury shares. The aggregate Fair Market Value (determined as of the time the ISO is granted) of the Common Stock as to which all ISOs granted to an individual may first become exercisable in a particular calendar year may not exceed $100,000, provided that to the extent that Stock Options intended to be ISOs (together with all incentive stock options granted under other Company plans to such individual) become exercisable in a given year in excess of this limit, such Stock Options shall be deemed to be NSOs and shall be exercisable as such. If any shares of Common Stock subject to Stock Options are not purchased or otherwise paid for before such Stock Options expire or otherwise terminate, unless such Stock Options are surrendered upon exercise of Limited Rights, such shares may again be made subject to Stock Options or otherwise issued under the Plan. Shares shall be treated as issued under the Plan and counted against the limitation set forth in this Section 6.1, including with respect to the payment of Supplemental Bonuses, in a manner that complies with applicable requirements under Rule 16b-3 under the Exchange Act. 6.2 CAPITAL CHANGES. In the event any changes are made to the shares of Common Stock (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend in excess of one percent (1%) at any single time, stock split, combination of shares, exchange of shares, extraordinary cash dividend, change in corporate structure or otherwise), the Subcommittee shall, in order to prevent dilution or enlargement of Participants' rights, make appropriate adjustments in: (i) the number and kind of shares theretofore made subject to Stock Options, and in the Option Price of said shares; and (ii) the aggregate number of shares which may be issued under the Plan. If any of the foregoing adjustments shall result in a fractional share, the fraction shall be disregarded, and the Company shall have no obligation to make any cash or other payment with respect to such a fractional share. VII. EXERCISE OF STOCK OPTIONS 7.1 TIME OF EXERCISE. Subject to the provisions of the Plan, including without limitation Section 7.7, the Subcommittee, in its discretion, shall determine the time when a Stock Option, or a portion of a Stock Option, shall become exercisable, and the time when a Stock Option, or a portion of a Stock Option, shall expire. Such time or times shall be set forth in the 6 Option Agreement evidencing such Stock Option. An ISO shall expire, to the extent not exercised, no later than the tenth anniversary of the date on which it was granted, and an NSO shall expire, to the extent not exercised, no later than 10 years and one day after the date on which it was granted. The Subcommittee may accelerate the vesting of any Participant's Stock option by giving written notice to the Participant. Unless otherwise determined by the Subcommittee, the acceleration of the exercise period of a Stock Option shall not affect the expiration date of that Stock Option. 7.2 SURRENDER OF SHARES IN PAYMENT OF EXERCISE PRICE. The Subcommittee, in its sole discretion, may permit a Participant to surrender to the Company shares of the Common Stock as part or full payment for the exercise of a Stock Option. Such surrendered shares shall be valued at their Fair Market Value on the date of exercise. Unless otherwise determined by the Subcommittee, any such shares surrendered by the Participant shall have been held by him for at least six months prior to surrender. 7.3 USE OF PROMISSORY NOTE: EXERCISE LOANS. The Subcommittee may, in its sole discretion, impose terms and conditions, including conditions relating to the manner and timing of payments of the Option Price, on the exercise of Stock Options. Such terms and conditions may include, but are not limited to, permitting a Participant to deliver to the Company his promissory note as payment for the exercise of a Stock Option; provided that, with respect to any promissory note given as payment or partial payment for the exercise of an ISO, all terms of such note shall be determined at the time a Stock Option is granted and set forth in the Option Agreement. The Subcommittee, in its sole discretion, may authorize the Company to make a loan to a Participant in connection with the exercise of Stock Options, or authorize the Company to arrange or guaranty loans to a Participant by a third party, including in connection with broker assisted cashless exercises. The foregoing notwithstanding, a Participant shall pay at least the par value of the Common Stock to be acquired upon exercise of a Stock Option in the form of lawful consideration under the Delaware General Corporation Law prior to issuance of such shares. 7.4 STOCK RESTRICTION AGREEMENT. The Subcommittee may provide that shares of Common Stock issuable upon the exercise of a Stock Option shall, under certain conditions, be subject to restrictions whereby the Company has a right of first refusal with respect to such shares or a right or obligation to repurchase all or a portion of such shares, which restrictions may survive a Participant's term of employment with the Company. The acceleration of time or times at which the Stock Option becomes exercisable may be conditioned upon the Participant's agreement to such restrictions. 7.5 TERMINATION OF EMPLOYMENT BEFORE EXERCISE. If a Participant's employment with the Company or a Participating Subsidiary shall terminate for any reason other than the Participant's disability, any ISO then held by the Participant, to the extent then exercisable under the applicable Option Agreement(s), shall remain exercisable after the termination of his employment for a period of three months. If the Participant's employment is terminated because the Participant is disabled within the meaning of Section 22(e)(3) of the Code, any ISO then held by the Participant, to the extent then exercisable under the applicable Option Agreement(s), shall remain exercisable after the termination of his employment for a period of one year (but in no 6 7 event beyond ten years from the date of grant of the ISO). If the Stock Option is not exercised during the applicable period, it shall be deemed to have been forfeited and of no further force or effect. The period and extent to which an NSO may be exercised following termination of employment shall be determined by the Subcommittee. 7.6 GRANT OF SUPPLEMENTAL BONUSES. The Subcommittee, either at the time of grant or at any time prior to exercise of any NSO or Limited Right, may provide for a Supplemental Bonus from the Company or Participating Subsidiary in connection with a specified number of shares of Common Stock then purchasable, or which may become purchasable, under an NSO, or a specified number of Limited Rights which may be or become exercisable. A Supplemental Bonus shall be automatically payable upon the exercise of the NSO or Limited Right with regard to which such Supplemental Bonus was granted. A Supplemental Bonus shall not exceed the amount necessary to reimburse the Participant for the income tax liability incurred by him upon the exercise of the NSO or upon the exercise of such Limited Right, calculated using the maximum combined federal and applicable state income tax rates then in effect and taking into account the tax liability arising from the Participant's receipt of the Supplemental Bonus, all as determined by the Subcommittee. The Subcommittee may, in its discretion, elect to pay any part or all of the Supplemental Bonus in: (i) cash; (ii) shares of Common Stock; or (iii) any combination of cash and shares of Common Stock; provided that bonuses payable in respect of Limited Rights shall be payable only in cash. The Subcommittee's election shall be made by giving written notice to the Participant not later than 90 days after the related exercise, which notice shall specify the portion which the Subcommittee elects to pay in cash, shares of Common Stock or a combination thereof. In the event any portion is to be paid in shares of Common Stock, the number of shares to be delivered shall be determined by dividing the amount which the subcommittee elects to pay in shares of Common Stock by the Fair Market Value of one share of Common Stock on the date of exercise. Any fractional share resulting from any such calculation shall be disregarded. Said shares, together with any cash payable to the Participant, shall be delivered within said 90-day period. 7.7 OPTION VESTING UPON CHANGE OF CONTROL OF THE COMPANY. In the event of a Change of Control of the Company, the vesting of Stock Options granted pursuant to the Plan shall automatically be accelerated, so that all Stock Options outstanding at the time of such Change of Control will be exercisable immediately except as otherwise provided in Section 2.1. 7.8 STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the Plan may, in the discretion of the Subcommittee, be granted either alone or in addition to, in tandem with, or in substitution for, any other award granted under the Plan or any other plan of the Company or any Participating Subsidiary or any other right of a Participant to receive payment from the Company or any Participating Subsidiary. If an award is granted in substitution for another such award, the Committee shall require the surrender of such other award in consideration for the grant of the new award. Awards granted in addition to or in tandem with other awards may be granted either as of the same time as or a different time from the grant of such other awards. The per share Option Price of any Stock Option: 7 8 (A) Granted in substitution for an outstanding award shall be not less than the lesser of the Fair Market Value of a share of Common Stock at the date such substitute award is granted or such Fair Market Value at that date reduced to reflect the fair market value (as determined by the Subcommittee) at that date of the award required to be surrendered by the Participant as a condition to receipt of the substitute award; or (B) Retroactively granted in tandem with an outstanding award shall be not less than the lesser of the Fair Market Value of a share of Common Stock at the date of grant of the later award or at the date of grant of the earlier award. Except for the Option Price required to be paid upon the exercise of Stock Options and except as provided in this Section 7.8, only services may be required as consideration for the grant of any award under the Plan. VIII. LIMITED RIGHTS 8.1 GRANT OF LIMITED RIGHTS. The Subcommittee may in its discretion grant Limited Rights to a Participant concurrently with the grant of each ISO or at any time with respect to any NSO. Such Limited Rights shall be exercisable with respect to the number of shares of Common Stock which are, or may become, purchasable under any such Stock Option. The Subcommittee may, in its discretion, specify the terms and conditions of such rights, including without limitation the date or dates upon which such rights shall expire and become void and unexercisable, except that Limited Rights granted with respect to an ISO shall only be exercisable, and shall expire, at the time or times the ISO is exercisable and expires, respectively. In any event, a Limited Right shall not be exercisable within six months from the date of grant of the Limited Right. Each Participant to whom Limited Rights are granted shall be given written notice advising him of the grant of such rights and specifying the terms and conditions of the rights, which shall be subject to all the provisions of this Plan. 8.2 EXERCISE OF LIMITED RIGHTS. Subject to the limitations set forth in Section 8.1, a Limited Right may be exercised only during the period beginning on the first day following the occurrence of a Change of Control and ending on the sixtieth day following such date; provided, however, that if the Change of Control occurs prior to the expiration of six months after the date of grant of a Limited Right, then such Limited Right shall be exercisable for a period of 60 days following expiration of such six-month period. Upon the occurrence of a tender or exchange offer constituting a Change of Control, a Limited Right may be exercised in such manner regardless of whether the Board supports or opposes such tender or exchange offer. A Participant shall exercise his Limited Rights by delivering a written notice to the Subcommittee specifying the number of shares with respect to which he exercises Limited Rights and agreeing to surrender the right to purchase an equivalent number of shares of Common Stock subject to his Stock Option. If a Participant exercises Limited Rights, payment of his Limited Rights shall be made in accordance with Section 8.3 on or before the thirtieth day after the date of exercise of the Limited Rights. A Limited Right shall remain exercisable during the exercise periods specified in accordance with Section 8.1 and this Section in the event of a termination of employment of the Participant holding the Limited Right after a Change of Control. Notwithstanding the above, upon 8 9 a termination of the employment of the holder of the Limited Right before the occurrence of any Change of Control, the Limited Right shall expire immediately. 8.3 FORM OF PAYMENT. If a Participant elects to exercise Limited Rights as provided in Section 8.2, the Company shall pay to the Participant in cash the amount set forth in Section 2.7 hereof, calculated with respect to the shares as to which the Participant has exercised Limited Rights, within thirty days of the date of exercise of the Limited Rights. If such amount is not paid in full within the prescribed period, the Company shall be liable to such Participant for the costs of collection of such amount, including attorney's fees. 8.4 TERMINATION. When a Limited Right is exercised, the Stock Option to which it relates, if any, shall cease to be exercisable to the extent of the number of shares of Common Stock with respect to which such Limited Right was exercised. Upon the exercise or termination of a Stock Option, any Limited Right granted with respect thereto shall terminate to the extent of the number of shares as to which such Stock Option was exercised or terminated. IX. NO CONTRACT OF EMPLOYMENT Nothing in this Plan shall confer upon the Participant the right to continue in the employ of the Company, or any Participating Subsidiary, nor shall it interfere in any way with the right of the Company, or any such Participating Subsidiary, to discharge the Participant at any time for any reason whatsoever, with or without cause. Nothing in this Article IX shall affect any rights or obligations of the Company or any Participant under any written contract of employment. X. NO RIGHTS AS A STOCKHOLDER A Participant shall have no rights as a stockholder with respect to any shares of Common Stock subject to a Stock Option, until such Stock Option is exercised. Except as provided in Section 6.2, no adjustment shall be made in the number of shares of Common Stock issued to a Participant, or in any other rights of the Participant upon exercise of a Stock Option by reason of any dividend, distribution or other right granted to stockholders for which the record date is prior to the date of exercise of the Participant's Stock Option. XI. NON-TRANSFERABILITY No Stock Option, Limited Right or Supplemental Bonus right granted under this Plan, nor any other rights acquired by a Participant under this Plan, shall be assignable or transferable by a Participant, other than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined under the Internal Revenue Code or Title I of the Employee Retirement Income Security Act of 1974, and any ISO shall be exercisable, during his lifetime, only by him. In the event of a Participant's death, the Stock Option or any Limited Right or Supplemental Bonus right may be exercised by the Personal Representative of the Participant's estate or, if no Personal Representative has been appointed, by the successor or successors in interest determined under the Participant's will or under the applicable laws of descent and distribution. 9 10 XII. COMPLIANCE WITH RULE 16B-3 It is the intent of the Company that the Plan comply in all respects with Rule l*b-3 under the Exchange Act in connection with any award granted to a person who is subject to Section 16 of the Exchange Act. Accordingly, if any provision of the Plan or any agreement hereunder does not comply with the requirements of Rule 16b-3 as then applicable to any such person, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements with respect to such person. XIII. AMENDMENT The Company by action of the Board may amend, modify or terminate this Plan at any time or, by action of the Subcommittee may amend, modify or terminate any outstanding Option Agreement, except that any such amendment, modification or termination of the Plan shall be subject to the approval of the Company's stockholders within one year after such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Common Stock may be listed or quoted, or if the Board in its discretion determines that obtaining such stockholder approval is for any reason advisable. Moreover, no action may be taken by the Company without the consent of the affected Participant which will materially impair the rights of any Participant under any award then outstanding or which will prevent an ISO from continuing to qualify under Section 422 of the Code. XIV. REGISTRATION OF OPTIONED SHARES No Stock Option shall be exercisable unless the Company's sale of such optioned shares is pursuant to an applicable effective registration statement under the Securities Act of 1933, as amended, or unless, in the opinion of counsel to the Company, the Company's sale of such optioned shares would be exempt from the registration requirements of the Securities Act of 1933, as amended, and unless, in the opinion of such counsel, such sale would be exempt from the registration or qualification requirements of applicable state securities law. XV. WITHHOLDING TAXES The Company or a Participating Subsidiary may take such steps as the Subcommittee may deem necessary or appropriate for the withholding of any taxes which the Company or the Participating Subsidiary is required by any law or regulation or any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with any Stock Option, Limited Right or Supplemental Bonus, and to take such other action as the Subcommittee may deem necessary or advisable to enable the Company and Participants to satisfy obligations for the payment of tax liabilities in excess of such withholding obligations relating to any such award. This authority shall include authority to withhold or receive shares or other property and to make cash payments in respect thereof in satisfaction of Participant's tax obligations. 10 11 XVI. FINANCING ARRANGEMENTS The Subcommittee, in its discretion, may enter into arrangements with one or more banks, brokers or other financial institutions to facilitate the exercise, and the disposition of shares acquired upon exercise of Stock Options or Supplemental Bonuses, including, without limitation, arrangements for the simultaneous exercise of Stock Options (including a related Supplemental Bonus), and sale of the shares acquired upon such exercise. XVII. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan by the Board nor the submission of the Plan to stockholders of the Company for approval shall be construed as creating any limitations on the power or authority of the Board to adopt such other or additional incentive or other compensation arrangements of whatever nature as the Board may deem necessary or desirable or preclude or limit the continuation of any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any subsidiary now has lawfully put into effect, including, without limitation, any retirement, pension, savings and stock purchase plan, insurance, death and disability benefits and executive short-term incentive plans. XVIII. EFFECTIVE DATE This Plan was adopted by the Board of Directors and became effective on December 19, 1997 and was approved by the Company's stockholders at the stockholders' meeting in 1997 by the affirmative votes of the holders of a majority of shares present in person or represented by proxy, and entitled to vote at such meeting, or any adjournment thereof, or by the written consent of the holders of a majority of shares entitled to vote, in each case in accordance with applicable provisions of the Delaware General Corporation Law. Any Stock Options, Limited Rights, or Supplemental Bonus granted under the Plan prior to such approval of stockholders shall be effective when granted (unless, with respect to any such award, the Subcommittee specifies otherwise at the time of grant), but no such award may be exercised prior to such stockholder approval, and if stockholders fail to approve the Plan as specified hereunder, any such award shall be canceled. No ISO shall be granted subsequent to ten years after the effective date of the Plan. Unless earlier terminated by the Board, the Plan shall terminate when no shares of Common Stock remain reserved and available for issuance and the Company has no further obligation with respect to any award granted under the Plan. 12 DECEMBER __, 1997 CHAMPIONSHIP AUTO RACING TEAMS, INC. 1997 STOCK OPTION PLAN EMPLOYEE STOCK OPTION AND LIMITED RIGHT AGREEMENT Agreement made as of ___________________ by and between CHAMPIONSHIP AUTO RACING TEAMS, INC. (the "Company") and __________________ (the "Employee"). It is hereby agreed as follows: 1. GRANT OF OPTION AND LIMITED RIGHT; CONSIDERATION. The Company hereby confirms the grant, pursuant to Section VII of the Company's 1997 Stock Option Plan (the "Plan"), to the Employee on ________________ of a nonqualified stock option to purchase up to _______ shares of the Company's Common Stock, par value $0.01 per share (the "Shares"), at an exercise price of $_____ per share (the "Option"), together with the grant of a Limited Right pursuant to Section VIII of the Plan (the "Limited Right"). The Option granted hereunder is not intended to constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. The terms of the Option and Limited Right are subject to adjustment in certain circumstances, as provided in the Plan. The Employee shall be required to pay no consideration for the grant of the Option and Limited Right, except for his agreement to serve as an employee of the Company or any subsidiary and other agreements set forth herein. No right to a Supplemental Bonus is granted hereunder. 2. INCORPORATION OF PLAN BY REFERENCE. The Option and Limited Right have been granted to the Employee under the Plan, a copy of which is attached hereto. All of the terms, conditions, and other provisions of the Plan are hereby incorporated by reference into this Employee Stock Option and Limited Right Agreement (the "Agreement"). Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the Plan. If there is any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. 3. OTHER OPTION TERMS. Subject to all of the terms and conditions of the Plan and this Agreement, including acceleration of exercisability in the event of a Change of Control (as provided under Section 7.7 of the Plan), the Employee may purchase up to ______ Shares upon exercise of this Option on or after ______________, 1998, an additional ________ Shares upon exercise of this Option on or after _____________, 1999, and the remaining _______ Shares upon exercise of this Option on or after __________ , 2000. 13 This Option, to the extent it or the related Limited Right has not been previously exercised, shall expire at 5:00 p.m. (Pacific Time) on ___________, 2007 or, if earlier, at 5:00 p.m. (Eastern Time): (i) on the date 12 months after the Employee ceases to be employed by the Company or any Subsidiary due to death, disability, retirement at normal retirement age, early retirement with the consent of the Subcommittee, or due to involuntary termination by the Company; (ii) on the date of termination in the event the Employee ceases to be employed by the Company or any Subsidiary due to termination for "cause," as hereinafter defined; or (iii) on the date 12 months after termination in the event the Employee ceases to be employed by the Company or any Subsidiary due to termination by mutual agreement of the Company and the Employee, provided that Employee enters into a termination agreement in form and substance satisfactory to the Subcommittee; or (iv) on the date three months after the Employee ceases to be employed by the Company or any Subsidiary in the event of termination for any reason other than those set forth in (i) or (ii) above; PROVIDED, HOWEVER, that, except in the case of a termination subject to (iii) above, the Option shall be exercisable after the date of such termination of Employee's employment only to the extent the Option was exercisable at the date of such termination. The term "cause" when referring to termination by Company means only the following and any other termination shall be without cause: Employee's gross dereliction of his duties; (ii) theft or misappropriation of any property of Company by Employee or (iii) violation by Employee of the provisions of this Agreement; provided that, termination for violation by Employee of the provisions of this Agreement shall occur only after 30 days' advance written notice by Company to Employee containing reasonably specific details of the alleged breach and failure to cure the same within such 30 day period. The Option may be exercised in whole or in part (to the extent then exercisable) by delivery to and receipt by the Secretary of the Company at 755 W. Big Beaver, Suite 800, Troy, MI 48084, of a written notice, signed by the Employee, specifying that this Option is being exercised for the number of Shares which the Employee wishes to purchase, accompanied by payment in full of the exercise price in cash (including by check) or by surrender of shares of Common Stock acquired by the Employee at least six months prior to the exercise date (if the repurchase of shares by the Company is then permissible under applicable law), or a combination of a cash payment and such a surrender of shares, by means of a broker-assisted cashless exercise to the extent then permitted under Rules and Regulations adopted by the Subcommittee, or in 2 14 such other manner as may then be permitted under Rules and Regulations adopted by the Subcommittee. As soon as practicable after the valid exercise of the Option, the Company shall deliver to the Employee one or more stock certificates representing the Shares so purchased, with any requisite legend affixed. 4. OTHER TERMS OF THE LIMITED RIGHT. The Limited Right may only be exercised during the limited period of time following a Change of Control specified in the Section VIII of the Plan, and subject to the restrictions set forth therein. The Limited Right may be exercised in whole or in part (to the extent then exercisable) by delivery to and receipt by the Secretary of the Company at the address set forth above of a written notice, signed by the Employee, specifying that the Limited Right is being exercised with respect to a specified number of Shares subject to the Option. The exercise of the Limited Right with respect to an Option shall be deemed a surrender and cancellation of the Option or portion of the Option with respect to which the Limited Right is exercised, and the Limited Right shall not be exercisable with respect to any portion of an Option that has previously been exercised or surrendered or has previously expired. Payment of cash to the Employee upon exercise of the Limited Right shall be made in accordance with Section 8.3 of the Plan. Other provisions of the Agreement notwithstanding, the Employee, if he is then subject to Section 16(b) of the Exchange Act, may not exercise a Limited Right at any time that such exercise would cause such Employee to actually incur short-swing profits liability under Section 16(b). 5. NON-TRANSFERABILITY. No right or interest of the Employee in the Option or related Limited Right shall be pledged, encumbered, or hypothecated to or in favor of any third party or shall be subject to any lien, obligation, or liability of the Employee to any third party. The Option and related Limited Right shall not be transferable to any third party by the Employee otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined under the Internal Revenue Code or Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"). 6. COMPLIANCE WITH LAWS AND REGULATIONS. The obligation of the Company to deliver Shares upon the exercise of this Option is conditioned upon compliance by the Employee and by the Company with all applicable laws and regulations, including regulations of federal and state agencies. If requested by the Company, the Employee shall provide to the Company, as a condition to the valid exercise of this Option and the delivery of any certificates representing Shares, appropriate evidence, satisfactory in form and substance to the Company, that he is acquiring the Shares for investment and not with a view to the distribution of the Shares or any interest in the Shares, and a representation to the effect that the Employee shall make no sale or other disposition of the Shares unless (i) the Company shall have received an opinion of counsel satisfactory to it in form and substance that such sale or other disposition may be made without compliance with registration or other applicable requirements of federal and state laws and regulations, or (ii) all steps required to comply with such laws and regulations in connection with the sale or other disposition of the Shares have been taken and all necessary approvals have been received. The certificates representing the Shares may bear an appropriate legend giving notice of 3 15 the foregoing restrictions on transfer of the Shares, and any other restrictive legend deemed necessary or appropriate by the Subcommittee. 7. TAX WITHHOLDING. Whenever Shares are to be delivered upon exercise of the Option or cash is to be paid upon exercise of a Limited Right, the Company shall be entitled to require as a condition of delivery or payment that the Employee remit or, in appropriate cases, agree to remit when due an amount sufficient to satisfy all federal, state, and local withholding tax requirements relating thereto. The Employee will be entitled to elect to have the Company withhold from the Shares to be delivered upon the exercise of the Option, or to elect to deliver to the Company from shares of the Company's common stock owned separately by the Employee, a sufficient number of such shares to satisfy the Employee's federal, state, and local withholding tax obligations relating to the Option exercise to the extent then permitted under Rules and Regulations adopted by the Subcommittee and in effect at the time of the exercise of the Option. In such case, the Shares withheld or the shares surrendered will be valued at the Fair Market Value at the time of the exercise of the Option. 8. EMPLOYEE BOUND BY PLAN. The Employee hereby acknowledges receipt of the attached copy of the Plan and agrees to be bound by all the terms and provisions thereof (as presently in effect or hereafter amended), and by all decisions and determinations of the Subcommittee. 9. BINDING EFFECT: INTEGRATION: NO OTHER RIGHTS CREATED. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the Option, and supersedes any prior agreements or documents with respect to the Option. No amendment, alteration, suspension, discontinuation or termination of this Agreement which may impose any additional obligation upon the Company or impair the rights of the Employee with respect to the Option shall be valid unless in each instance such amendment, alteration, suspension, discontinuation or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and by the Employee. Neither this Agreement nor the grant of the Option and Limited Right shall constitute an employment agreement, nor shall either confer upon the Employee any right with respect to his continued status as a director of the Company. The Employee shall remain subject to termination of his status as a director to the same extent as though this Agreement did not exist and no grant of an Option or Limited Right were made. CHAMPIONSHIP AUTO RACING TEAMS, INC. BY: -------------------------------------- TITLE: President EMPLOYEE: ------------------------------------------ Attachment (copy of the Plan) EX-10.2 8 EXHIBIT 10.2 1 Exhibit 10.2 CHAMPIONSHIP AUTO RACING TEAMS, INC. DIRECTOR STOCK OPTION PLAN 2 TABLE OF CONTENTS
ARTICLE DESCRIPTION PAGE - ------- ----------- ---- 1. PURPOSE............................................................................2 2. ADMINISTRATION.....................................................................2 3. ELIGIBILITY........................................................................3 4. COMMON STOCK.......................................................................3 5. REQUIRED TERMS AND CONDITIONS OF NONQUALIFIED OPTIONS..............................4 6. EXPIRATION OF OPTION...............................................................5 7. METHOD OF EXERCISE.................................................................6 8. ADJUSTMENTS........................................................................7 9. OPTION AGREEMENTS..................................................................7 10. LEGAL AND OTHER REQUIREMENTS.....................................................8 11. NONTRANSFERABILITY...............................................................8 12. INDEMNIFICATION OF COMMITTEE.....................................................8 13. TERMINATION AND AMENDMENT OF PLAN................................................9 14. EFFECTIVE DATE OF PLAN...........................................................9
3 CHAMPIONSHIP AUTO RACING TEAMS, INC. DIRECTOR STOCK OPTION PLAN 1. PURPOSE The purpose of the Championship Auto Racing Teams, Inc., Director Stock Option Plan (the "Plan"), as hereinafter set forth, is to Championship Auto Racing Teams, Inc., a Delaware corporation (the "Company"), or any successor corporation, to attract, retain and reward non-employee Directors; to foster a wide-spread sense of ownership and commitment by offering them an opportunity to have long-term compensation, a greater proprietary interest in and closer identity with the Company and with its financial success; provided, however, that the exercise of Options shall be subject to the restrictions of Section 6. Proceeds of cash or property received by the Company from the sale of Common Stock pursuant to Options granted under the Plan will be used for general corporate purposes. The use of the terms "Options" herein shall refer to both Fixed Options and Elected Options. 2. ADMINISTRATION The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board"). Subject to the express provisions of the Plan, the Committee may interpret the Plan, prescribe, amend and rescind rules and regulations relating to it, provide for the terms of the Option Agreements for Fixed and Elected Options, and make such other determinations as it deems necessary or advisable for the administration of the Plan. The decisions of the Committee on matters within their jurisdiction under the Plan shall be conclusive and binding. No member of the Board or the Committee shall be liable for any action taken or determination made in good faith. 2 4 3. ELIGIBILITY Options are granted under this Plan only to nonemployee Directors, of the Company, or its subsidiaries and not Franchise Holders (referred to as "Participants"), who are current and active members of the Board of Directors of the Company or a subsidiary. Beginning in 1998, Participants are eligible for Options if they are non-employee Directors and not Franchise Holders. Directors of the Company following the adjournment of the Company's Annual Meeting of Shareholders for that year (the "Annual Meeting"), and will continue to participate each year thereafter so long as they are a Director immediately preceding such Annual Meeting and have been reelected or otherwise remain as a Director immediately thereafter. 4. COMMON STOCK Options may be granted under the Plan for a number of shares not to exceed, in the aggregate, ___________ shares of Common Stock of the Company, except as such number of shares shall be adjusted in accordance with the provisions of Section 8 hereof. Such shares may be either authorized but unissued shares or treasury shares. In the event that any Option granted under the Plan expires unexercised, or is surrendered by a participant for cancellation, or is terminated, or ceases to be exercisable for any other reason without having been fully exercised prior to the end of the period during which Options may be granted under the Plan, the shares theretofore subject to such Option, or to the unexercised portion thereof, shall again become available for new Options to be granted under the Plan to any eligible participant (including the holder of such former Option) at an Option price determined in accordance with Sections 5(a) and (b) hereof, which price may then be greater or less than the Option price of such former Option. 3 5 5. REQUIRED TERMS AND CONDITIONS OF NONQUALIFIED OPTIONS The Options granted under the Plan shall be in the following form: (a) SHARES UNDER FIXED OPTIONS Each Participant on the effective date of this Plan shall automatically be granted Options for ______ Shares. Each individual first elected to serve as a director of the Company after the effective date of this Plan shall, upon such election, automatically be granted Options for ______ Shares ("Fixed Options"). In addition, commencing immediately after the adjournment of the Company's Annual Meeting continuing on an annual basis immediately following the adjournment of each Annual Meeting, each Participant whose term did not expire at that Annual Meeting and who has then served as a director of the Company continuously since the previous Annual Meeting shall automatically be granted an additional Option for ______ Shares ("Fixed Options"). The exercise price per share of each Fixed Option to purchase Common Stock shall be equal to the Fair Market Value of the stock on the day of grant. (b) SHARES UNDER ELECTED OPTIONS Each Participant shall be eligible to receive additional Options, if, prior to March 1 of that year, the Participant files with the Secretary of the Company an irrevocable election to receive a stock option in lieu of the annual retainer to be earned in the following year beginning March 1 and ending February 28 (or February 29, as the case may be) (called "Elected Options"). The number of Elected Option shares granted to a Participant will be determined by a formula which provides that each Participant will receive an option equal to the nearest number of whole shares equivalent to the participant's Annual Retainer divided by the fair market value of the stock per share less $1.00. "Annual Retainer" is defined as the amount to which the participant will be entitled to receive for serving as a director during the Plan year (from one annual meeting until the next), but does not include fees directly associated with service on any committee of the Board of Directors. The exercise price of each Elected Option to purchase Common Stock shall be equal to one dollar ($1.00) per share less than the Fair Market Value of the stock on the day of grant. 4 6 (c) MAXIMUM TERM No Option shall be exercisable after the expiration of ten (10) years from the date it is granted. (d) TIME OF EXERCISE All Options granted under the Plan shall be immediately exercisable. (e) FAIR MARKET VALUE If the Company's Common Stock is listed on a national securities exchange at the date of grant, Fair Market Value per share shall mean the average of the highest and lowest selling price of a share on such exchange on such date or, if there were no sales on said date, then on the next prior business day on which there were sales. If the Company's Common Stock is traded other than on a national securities exchange at the date of the grant of the Option, Fair Market Value per share shall mean an amount not less than the average between the bid and asked price of a share on the Option date, as reported by NASDAQ or, if there is no bid and asked price on said date, then on the next prior business day on which there was a bid and asked price. If no such bid and asked price is available, then the Committee shall make a good faith determination of the Fair Market Value of a share, using any reasonable method of valuation. 6. EXPIRATION OF OPTION (a) GENERAL RULE Each Option shall expire on the earlier of the date set forth in the Option agreement (which shall not exceed the maximum term permitted by this Plan) or, if earlier on the applicable date specified in the following subsection of this Section 6. 3 (b) EXPIRATION UPON TERMINATION OF DIRECTORSHIP Each Option shall expire on the date that the directorship of the optionee with the Company terminates for any reason other than disability, death, retirement or death following retirement; provided, however, that the Committee, in its sole discretion, may permit such Participant to exercise the Option during a period of up to ninety (90) days following his/her directorship termination. 5 7 (c) EXPIRATION UPON DISABILITY OR DEATH If the participant ceases to be a Director of the Company by reason of disability (as determined by the Committee) or by reason of death, his/her Options, if any, shall expire on the first anniversary of such termination of directorship. (d) EXPIRATION UPON RETIREMENT If the participant ceases to be a Director of the Company due to retirement with the consent of the Company, his/her Options, if any, shall expire ninety (90) days after the date of such termination of directorship. If an optionee who has so retired dies prior to exercising in full an Option which has not expired pursuant to the preceding sentence, then notwithstanding the preceding sentence, his/her Options shall expire on the first anniversary of the date of the optionee's death. (e) EXPIRATION FOR CAUSE If the participant ceases to be a Director of the Company for cause, his/her Options, if any, shall expire on the date of termination. For purposes of the Plan, termination "for cause" shall mean termination because the optionee engaged in dishonest or fraudulent conduct in the performance of his/her duties for the Company or its subsidiaries. 7. METHOD OF EXERCISE Subject to any restrictions contained herein, Options may be exercised by the Participant giving written notice to the Secretary of the Company stating the number of shares of Common Stock with respect to which the Option is being exercised and tendering payment therefor. Payment for Common Stock, whether in cash, other shares of Common Stock or other property, shall be made in full at the time that an Option, or any part thereof, is exercised. 6 8 8. ADJUSTMENTS (a) The aggregate number of shares of Common Stock with respect to which Options may be granted hereunder, the number of shares of Common Stock subject to each outstanding Option and the Option price per share for each such Option may all be appropriately adjusted, as the Committee may determine, for any increase or decrease in the number of shares of issued Common Stock of the Company resulting from a subdivision or consolidation of shares whether through merger, consolidation, recapitalization, reorganization, payment of a share dividend or other increase or decrease in the number of such shares outstanding effected without receipt of consideration by the Company. (b) On the basis of information known to the Company, the Board or the Committee shall make all determinations under this Section 8, including whether a transaction involves a sale of substantially all the Company's assets, and all such determinations shall be conclusive and binding. 9. OPTION AGREEMENTS Each participant shall agree to such terms and conditions in connection with the exercise of an Option, including restrictions on the disposition of the Common Stock acquired upon the exercise thereof, as the Committee may deem appropriate. The certificates evidencing the shares of Common Stock acquired upon exercise of an Option may bear a legend referring to the terms and conditions contained in the respective Option agreement and the Plan, and the Company may place a stop transfer order with its transfer agent against the transfer of such shares. If requested to do so by the Committee at the time of exercise of an Option, each participant shall execute a certificate indicating that the participant is purchasing the Common Stock under such Option for investment and not with any present intention to sell the same. Upon the exercise of an Option, the Company shall have the right to deduct from any cash payments otherwise due to the participant any amounts required to be withheld under any Federal, state or local income tax laws. 9 10. LEGAL AND OTHER REQUIREMENTS The obligation of the Company to grant any option or to sell and deliver Common Stock under any Option granted under the Plan shall be subject to all applicable laws, regulations, rules and approvals, including, but not by way of limitation, securities laws, rules and regulations and the effectiveness of a registration statement under the Securities Act of 1933, if deemed necessary or appropriate by the Board, of the Common Stock reserved for issuance upon exercise of Options. A participant shall have no rights as a stockholder with respect to any shares covered by an Option granted to or exercised by the participant until the date of delivery of a stock certificate for such shares. No adjustment other than pursuant to Section 8 hereof shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is delivered. 11. NONTRANSFERABILITY During the lifetime of a participant, any Option granted shall be exercisable only by the participant or the participant's guardian or legal representative. No Option shall be assignable or transferable by the Participant, except by will or by the laws of descent or distribution. The granting of an Option shall impose no obligation upon the participant to exercise such Option or right. 12. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification as they may have as Directors or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys' fees actually and necessarily incurred with the defense of any action, suit or proceeding (or in connection with any appeal therein), to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted hereunder, and against all amounts paid by them in settlement thereof or paid by them in satisfaction of a judgment in any such action, suit or proceeding, so long as such Committee member acted in good faith, received no improper benefit, believed his/her conduct was in the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe his/her conduct was unlawful. Indemnification may take the form of paying attorneys' fees and expenses as they accrue and advancing attorneys' fees and expenses to the affected Committee member. 10 13. TERMINATION AND AMENDMENT OF PLAN No Options shall be granted under the Plan more than ten (10) years after the date the Plan was adopted by the Board. The Board, acting by a majority of its members without further action on the part of the stockholders, may from time to time alter, amend or suspend the Plan or any Option granted hereunder or may at any time terminate the Plan; provided, however, the Board may not: (1) (Except as provided in Section 8 hereof) change the total number of shares of Common Stock available for Options under the Plan; (2) Extend the duration of the Plan; (3) Increase the maximum term of Option; (4) Decrease the minimum Option price or otherwise materially increase the benefits accruing to participants under the Plan; or (5) Materially modify the eligibility requirements of the Plan; and provided further that no such action shall materially and adversely affect any outstanding Options without the consent of the respective optionees. 14. EFFECTIVE DATE OF PLAN The Plan shall become effective upon adoption by the Board; provided, however, that it shall be submitted for approval by the holders of a majority of the outstanding shares of Common Stock of the Company within twelve (12) months thereafter, and Options granted prior to such stockholder approval shall become null and void if such stockholder approval is not obtained. 9 EX-10.3 9 EXHIBIT 10.3 1 Exhibit 10.3 CHAMPIONSHIP AUTO RACING TEAMS, INC. EMPLOYMENT AGREEMENT ANDREW H. CRAIG --------------- This Employment Agreement (the "Agreement") is entered into as of December __, 1997 by Championship Auto Racing Teams, Inc., a Delaware corporation ("Company") and Andrew H. Craig ("Employee"). In consideration of the promises below, the parties agree as follows. 1. TITLE. Employee shall hold the title of President and Chief Executive Officer. 2. DUTIES. 2.1. GENERAL DUTIES. Employee shall undertake and render services as may from time to time be assigned to him by the Board of Directors or their designees. The duties shall be reasonably consistent with Employee's experiences. 2.2. OUTSIDE ACTIVITIES. Employee shall devote his full time to the performance of his duties, and agrees that his first duty of loyalty is to Company. Except with the express written consent of the Board of Directors, Employee shall not, directly or indirectly, alone or as a member of any partnership, or as an officer, director or employee of any other corporation, partnership or other organization, be actively engaged in any other duties or pursuits which interfere or compete with the performance of his duties under this Agreement. 3. TERM. This Agreement shall commence on January 1, 1998 and continue in force for three years until December 31, 2000, (the "Employment Period") unless sooner terminated by either party pursuant to Section 5 or Section 6 of this Agreement and except as provided in Section 6.3 of this Agreement. 4. COMPENSATION. As payment in full for services rendered to Company, Employee shall be entitled to receive from Company, and Company shall pay to Employee, salary and benefits as follows. 4.1. SALARY. Company shall initially pay to Employee base salary at a rate of $500,000 per annum ("Base Salary") payable bi-weekly or at such other time or times as Company may allow or provide to other similarly situated employees in accordance with policies adopted from time to time by the Board of Directors. Base Salary for any partial period of employment shall be prorated. All compensation shall be subject to deductions or withholding for taxes. The Base Salary shall be increased to $550,000 for the calendar year 1999 and to $600,000 for the calendar year 2000. 2 4.2. BONUS. After each anniversary of January 1, 1998, the Company shall pay Employee a Bonus, which shall be based on established objective goals to be agreed upon by the Company's Compensation Committee and the Employee. The goals shall be quantitative, definite, qualifiable and reasonably attainable. Notwithstanding information contained herein to the contrary, in the event Employee shall become totally and permanently disabled during the term of this agreement, a bonus of forty percent (40%) of Employee's Base Salary shall be due and payable, without regard to the bonus formula. Any bonus earned and payable to the Employee, pursuant to this section shall be paid to the Employee not later than January 31 of each year of this agreement. Payment shall be accompanied by a statement reflecting the bonus formula computation. Employee shall have the right to review the bonus computation so as to determine if the amount of the bonus is correct. 4.3. FRINGE BENEFITS. Employee shall be entitled to annual vacation and to receive employee and fringe benefits including but not limited to any compensation plan such as an incentive stock option, restricted stock or stock purchase plan or any employee benefit plan such as a thrift, pension, profit sharing, medical disability, accident, plan program or policy (the Company's "Plans") as Company may allow or provide to other similarly situated employees in accordance with policies adopted from time to time by the Board of Directors, and not less than Employee received at the effective date of this Agreement. 4.4. EXPENSES REIMBURSEMENT. Company shall reimburse Employee for expenses necessarily and reasonably incurred by him in travel which have been authorized in advance by the Chief Executive Officer or his designee. Employee shall submit such proofs of expense for which reimbursement is claimed in writing as Company may reasonably require. 4.5. SICKNESS AND DISABILITY. Except as set forth in Section 5 and Section 6, Employee shall receive full compensation for any period of illness or incapacity during the term of this Agreement. 4.6. HOLIDAYS. Employee shall be entitled to holidays recognized as State and/or National holidays and as Company may allow or provide in accordance with policies adopted from time to time by the Board of Directors. 5. TERMINATION OF EMPLOYMENT. The following provisions shall apply in the event of termination of Employee's employment for any reason other than a termination that occurs concurrent with or subsequent to a Change in Control as defined in Section 6.1. 5.1 RIGHT TO TERMINATE BY COMPANY. Company may terminate Employee's employment, through its Board of Directors, without cause upon 30 days' written Notice of Termination (as defined in Section 7 of this Agreement) or immediately upon Notice of Termination for Cause. The term "Cause" when referring to termination by Company means only the following and any other termination shall be without Cause: (i) Employee's gross dereliction of his duties; (ii) theft or misappropriation of property of Company by Employee; (iii) conviction of Employee of a felony or of any crime involving dishonesty or moral turpitude; or (iv) violation by Employee of the provisions of this Agreement; provided that, termination for violation by Employee of the provisions of this Agreement shall occur only after 30 days' 2 3 advance written notice by Company to Employee containing reasonably specific details of the alleged breach failure to cure the same within such 30 day period. 5.2 TERMINATION FOR DEATH OR DISABILITY. Employee's employment shall terminate upon the earliest of the events specified below: (i) the death of Employee: (ii) the Date of Termination (as defined in Section 7) specified in a written Notice of Termination by reason of physical or mental condition of Employee which shall substantially incapacitate him from performing his principal duties ("Disability") delivered by the Board of Directors to Employee at least 30 days prior to the specified Date of Termination, which shall be any date after the expiration of any 120 consecutive days during all of which Employee shall be unable, by reason o his Disability, to perform his principal duties, provided however, that such Notice of Termination shall be null and void if Employee fully resumes the performance of his duties under this Agreement prior to the Date of Termination set forth in the Notice of Termination. 5.3. RIGHT TO TERMINATE BY EMPLOYEE. Employee may terminate his employment for good reason or without good reason upon 30 days' written Notice of Termination. The term "Good Reason" when referring to termination by Employee means a material breach by Company of its obligations under this Agreement, or as provided in Section 6.4, including the payment of money, and only after 30 days' advance written notice of Termination containing reasonably specific details of the alleged breach and failure to cure the same within such 30 day period. Termination for any other reason shall be without Good Reason. 5.4. RESULTS OF TERMINATION BY COMPANY. (i) TERMINATION FOR CAUSE. On the Date of Termination for Cause of Employee's employment by Company, Company shall pay the Base Salary then in effect through the Date of Termination. (ii) TERMINATION WITHOUT CAUSE. On the Date of Termination Without Cause of Employee's employment by Company, Company shall pay the Base Salary then in effect throughout the Employment Period and Company shall maintain in full force and effect, for the continued benefit of Employee and Employee's dependents for a period terminating on the earliest of (a) the expiration of the Employment Period or (b) the commencement date of equivalent benefits from a new employer, all life, accidental death, medical and dental insurance plans or programs in which Employee was entitled to participate immediately prior to the Date of Termination, provided that Employee's continued participation is possible under the general terms and provisions of such plans and Employee continues to pay an amount equal to his regular contribution for such participation, if any. If, at the end of the Employment Period Employee has not previously received or is not then receiving equivalent benefits from new employer, Company shall arrange, at its sole cost and expense, to enable Employee to convert Employee and Employee's dependents' coverage under such plans to individual policies or programs upon 3 4 the same terms as employees of Company may apply for such conversions. In the event that Employee's participation in any such plan is barred, Company, at its sole cost and expense, shall arrange to have issued for the benefit of Employee and Employee's dependents individual policies of insurance providing benefits substantially similar (on an after-tax basis) to those which Employee and Employee's dependents equivalent benefits (on an after-tax basis); PROVIDED THAT Company shall be responsible for the payment of such benefits (on an after tax basis) for a period not to exceed two years following the end of the one year after the Termination Date. Employee shall not be required to pay any premiums or other charges in an amount greater than that which Employee would have paid in order to participate in such plans. 5.5 RESULTS OF TERMINATION FOR DEATH OR DISABILITY. (i) DEATH OF EMPLOYEE. If Employee's employment is terminated due to the death of Employee, Company shall pay the Base salary due Employee through the date on which death occurs; (ii) DISABILITY OF EMPLOYEE. If Employee's employment is terminated due to the disability of Employee as described in Section 5.2 (ii) of this of this Agreement, Company shall continue to pay Employee his Base Salary for the 180-day period following the specified Date of Termination. After this 180-day period, Company shall have the right to terminate the Employee's employment without prejudice to the right of the Employee to receive long term disability insurance benefits. The Employer shall, at its expense, provide Employee with a long term disability policy. Such insurance shall, upon the occurrence of a qualifying disability and completion and satisfaction of any and all other policy terms and conditions, provide for payment to the Employee of an amount not less than is provided in the Company's policy(s) on Employee as of the date of this Agreement, commencing six (6) months after the Employee becomes disabled and continuing for the duration of such disability or until age 65, whichever is shorter. In addition, the Employer shall secure an excess policy or the Company will pay the Employee such that his Base Salary and a 40% bonus shall be paid to Employee through December 31, 2000. 5.6. RESULTS OF TERMINATION BY EMPLOYEE. (i) TERMINATION WITHOUT GOOD REASON. Upon employee's termination without Good Reason of his employment, Company shall pay the Base Salary due Employee through the Date of Termination. (ii) TERMINATION FOR GOOD REASON. Upon Employee's termination of his employment for Good Reason, Company shall make the same payments to Employee as Company would be obligated to make under 5.4 (ii) of this Agreement if Employee's employment was terminated without Cause by Company. 5.7. OTHER COMPANY POLICIES. Upon termination of Employee's employment for any reason, Employee will be entitled to any additional rights pursuant to policies of 4 5 Company regarding employment termination established by the Board of Directors from time to time. 6. TERMINATION OF COMPANY'S OBLIGATION. If at any time within the 24 month period following termination of Employee's employment without Cause by Company pursuant to Section 5.1 of this Agreement or termination by Employee for Good Reason pursuant to Section 5.3 of this Agreement, Employee breaches any of his obligations under Sections 8, 9, 10, 11 and 12 of this Agreement, then Company's obligation to make payments under Sections 5.4 (ii) or 5.6 (i) of this Agreement shall cease as of the date such breach occurs. 7. CHANGE IN CONTROL 7.1. CHANGE IN CONTROL AND PROPOSED CHANGE IN CONTROL DEFINED. (i) No benefits shall be payable to Employee pursuant to the this Section 6 unless there shall have been a Change in Control of the Company as set for the below. For purposes of Company of a nature that This Agreement a "Change in Control" shall mean a Change in Control of Company of a nature that would be required to be reported in response to Item 1 (a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided that, without limitation, such a Change in Control shall be deemed to have occurred at such time as (a) any Person, as such term is used in Section 13 (d) and 14 (d) of the Exchange Act (other than Company, any trustee or other fiduciary holding securities under an employee benefit plan of Company, or any company owned, directly or indirectly, by the stockholders of Company in substantially the same proportions as their ownership of stock of Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25% or more of the combined voting power of Company's outstanding securities; (b) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by Company's shareholders, was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (b), considered as though such person were a member of the Incumbent Board. (c) the stockholders of Company approve a merger or consolidation of Company with any other company, other than (1) a merger or consolidation which would result in the voting securities of Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding by or being converted into voting securities of the surviving entity) more than 50% of the combined voting power of 5 6 the voting securities of Company or such surviving entity outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of Company (or similar transition) in which no "Person" (as defined above) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of Company approve a plan of complete liquidation of Company or an agreement for the sale or disposition by Company of all or substantially all of Company's assets. Notwithstanding anything in the foregoing to the contrary, no Change in Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in Employee, or a group of Persons which includes Employee, acquiring, directly or indirectly, 50% or more of the combined voting power of the Company's outstanding securities. (ii) For purposes of this Agreement, a "Proposed Change in Control" of Company shall be deemed to have occurred if: (a) Company enters in an agreement, the consummation of which would result in the occurrence of a Change in Control of Company; (b) any person (including Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in Control of Company; (c) any person (other than a trustee or other fiduciary holding securities under an employee benefit plan of Company, or a company owned, directly or indirectly, by the stockholders of Company in substantially the same proportions as their ownership of stock of Company), who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company's then outstanding securities, increases his beneficial ownership of such securities through either successive or simultaneous acquisition by a total of 3 percentage points or more over the percentage so owned by such person prior to such acquisition; or (d) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Proposed Change in Control of Company has occurred. 7.2. CONTINUED EMPLOYMENT. If a Proposed Change in Control occurs prior to the expiration of this Agreement, Employee agrees that he will remain in the employ of Company until the earliest of (a) a date which in 180 days from the occurrence of such Proposed Change in control of Company, (b) the termination of Employee's employment by reason of death or Disability as defined in Section 5.2 of this Agreement, or (c) the date on which Employee first becomes entitled under this Agreement to receive the benefits provided in Section 6.5 of this Agreement. 6 7 If a Proposed Change in Control occurs prior to the expiration of this Agreement, Company agrees that it will not terminate Employee's employment without Cause until the earliest of (a) a date on which the Board adopts a resolution to the effect that the actions leading to such Proposed Change in control have been abandoned or terminated, (b) the termination of Employee's employment by reason of Death or Disability as defined in Section 5.2 of this Agreement, or (c) the date on which Employee first becomes entitled under this Agreement to receive the benefits provided in Section 6.5 of this Agreement. 7.3 TERM OF AGREEMENT. If a Change in Control occurs prior to the expiration of this Agreement, this Agreement shall continue in effect for a period of not less than twenty-four (24) months beyond the month in which the Change in Control shall have occurred provided that (i) such Change in Control shall have occurred prior to the end of the Employment Period and (ii) if Employee's employment has not been terminated pursuant to Section 5 of this Agreement prior to the occurrence of such Change in Control. Notwithstanding anything in this Section 6.3 to the contrary, the provisions of this Section 6 shall terminate at the end of the month in which Employee attains "normal retirement age" under the provisions of any tax-qualified retirement plan of Company or any of its subsidiaries in which Employee is participating. 7.4. TERMINATION FOLLOWING CHANGE IN CONTROL. If a Change in Control shall have occurred, Employee shall be entitled to the benefits provided in Section 6.5 of this Agreement upon the termination of his employment within twenty-four (24) months after such Change in Control has occurred, unless such termination is (a) because of Employee's death, (B) by the Company for Cause, (c) because of Employee's Disability or (d) by Employee other than for Good Reason (as all such capitalized terms are hereinafter defined.). (i) DISABILITY. Termination by Company of Employee's employment based on Disability shall have the meaning as defined in Section 5.2 of this Agreement. (ii) TERMINATION BY COMPANY FOR CAUSE. Company may terminate Employee's employment for Cause, through its Board of Directors, immediately upon Notice of Termination. Termination by Company of Employee's employment for Cause shall have the meaning as defined in Section 5.1 of this Agreement. (iii) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may terminate his employment for Good Reason upon 90 day's written Notice of Termination. Termination by Employee of his employment for Good Reason shall have the meaning defined in Section 5.3 of this Agreement and, for the purposes of this Section 6, shall have the following additional meanings: (a) a change in Employee's status, position(s) or responsibilities as an officer of Company which, in his reasonable judgment, does not represent a promotion from his status, title, position(s) and responsibilities as in effect immediately prior to the Change in Control, or the assignment to him of any duties or responsibilities which, in his reasonable judgment, are inconsistent with such status, title or position(s), or any removal of him from or any failure to reappoint or reelect him to such position(s), except in 7 8 connection with the termination of his employment by Company for Cause, for Disability or as result of Employee's death or by Employee for Good Reason as defined in Section 5.3 of this Agreement: (b) a reduction by Company in Employee's Base Salary as in effect immediately prior to the Change in Control; (c) the failure by Company to continue in effect any Plan (as defined in Section 4.3 of this Agreement) in which he is participating at the time of the Change in Control (or Plans providing him with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by Company which would adversely affect hi ) continued participation in any of such Plans on at least as favorable a basis to him as is the case on the date of the Change in Control or which would materially reduce his benefits in the future under any of such Plans or deprive him of any material benefit enjoyed by him at the time of the Change in Control; (d) Company's requiring Employee to be based anywhere other than where Employee's office is located immediately prior to the Change in Control except for required travel on Company's business to an extent substantially consistent with the business travel obligations which Employee undertook on behalf of the Company prior to the Change in Control; (e) the failure by Company to obtain from any Successor (as hereinafter defined) the assent to this Agreement contemplated by Section 6.6 of this Agreement; and (f) any purported termination by Company of Employee's employment is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 of this Agreement which purported termination shall not be effective for purposes of this Agreement. (iv) TERMINATION BY COMPANY WITHOUT CAUSE. Company may terminate Employee's employment, through its Board of Directors, without Cause upon 90 days' written Notice of Termination. Termination by Company of Employee's employment without Cause shall have the meaning as defined in Section 5.1 of this Agreement. (v) TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. Employee may terminate his employment without Good Reason upon 90 days' written Notice of Termination. Terminating by Employee of Employee's employment without Good Reason shall have the meaning defined in Section 5.3 of this Agreement. 7.5. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (i) COMPENSATION UPON DISABILITY. During any period following a Change in Control that Employee fails to perform his duties as a result of Disability, Company shall make the payments set forth in Section 5.5 (ii) of this Agreement. 8 9 (ii) COMPENSATION UPON TERMINATION BY COMPANY FOR CAUSE. If Employee's employment shall be terminated by Company for Cause following a Change in Control, Company shall make the payments set forth in Section 5.4(i) of this Agreement. (iii) COMPENSATION UPON TERMINATION BY COMPANY WITHOUT CAUSE OR BY EMPLOYEE FOR GOOD REASON. If, within twenty-four (24) months after a Change in Control shall have occurred Employee's employment by Company shall be terminated (a) by Company without cause or (b) by Employee for Good Reason based on an event occurring concurrent with or subsequent to a Change in Control, then, at the time specified in Subsection (vii), Employee shall be entitled, without regard to any contrary provisions of any Plan, to the benefits as provided below: (a) the company shall pay Employee his full Base Salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both cash and stock components) which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to Employee (including amounts which previously had been deferred at Employee's request); (b) as severance pay and in lieu of any further salary for periods subsequent to the Date of Termination, Company shall pay to Employee at the time specified in subsection (vii), a single lump sum severance payment (the "Severance Payment") in an amount in cash equal to three times Employee's annual Base Salary at the rate in effect just prior to the time a Notice of Termination is given; (c) Company shall maintain in full force and effect, for the continued benefit of Employee and Employee's dependents for a period terminating on the earliest of (x) two years after the Date of Termination or (y) the commencement date of equivalent benefits from a new employer all life, accidental death, medical and dental insurance plans or programs in which Employee was entitled to participate immediately prior to the Date of Termination, provided that Employee's continued participation is possible under the general terms and provisions of such plans and Employee continues to pay an amount equal to his regular contribution for such participation, if any. If, at the end of two years after the Termination Date Employee has not previously received or is not then receiving equivalent benefits from a new employer, Company shall arrange, at its sole cost and expense, to enable Employee to convert Employee and Employee's dependents' coverage under such plans to individual policies or programs upon the same terms as employees of company may apply for such conversions. In the event that Employee's participation in any such plan is barred, Company at its sole cost and expense, shall arrange to have issued for the benefit of Employee and Employee's dependents individual policies of insurance providing benefits substantially similar (on an after-tax basis) PROVIDED THAT, Company shall be responsible for the payment of such benefits (on an after tax basis) to those which Employee otherwise would have been entitled to receive under such plans pursuant to this paragraph (c) or, if such insurance is not available at a reasonable cost to Company, Company shall otherwise provide Employee and Employee's dependents equivalent benefits (on an after tax basis) for a 9 10 period not to exceed five years following the end of the two years after the Termination Date. Employee shall not be required to pay any premiums or other charges in an amount greater than that which Employee would have paid in order to participate in such plans. Company shall pay Employee for any vacation time earned but not taken at the Date of Termination, at an hourly rate equal to Employee's annual Base Salary as in effect immediately prior to the time a Notice of Termination is given divided by 2080. Company shall pay to Employee all legal fees and expenses incurred by Employee as a result of such termination, including all such fees and expenses, if any, incurred in contesting or disputing any such termination in seeking to obtain or enforce any right or benefit provided by this Section 6 of this Agreement (other than any such fees or expenses incurred in connection with any such claim which is determined to be frivolous) or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). (iv) COMPENSATION UPON TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. If Employee's employment shall be terminated by Employee without Good Reason following a Change in Control, Company shall make the payments set forth in Section 5.6(ii) of this Agreement. (v) NO OFFSETS OR REDUCTIONS. Except as specifically provided above, the amount of any payment provided for in this Section 6.5 shall not be reduced offset or subject to recovery by Company by reason of any compensation earned by Employee as the result of employment by another employer after the Date of Termination, or otherwise. Employer's entitlements under Section 6.5 of this Agreement are in addition to, and not in lieu of, any rights, benefits or entitlements Employee may have under the terms or provisions of any Plan. (vi) COMPANY'S DEDUCTION OF PAYMENT. Notwithstanding anything in the foregoing to the contrary, Company shall not be obligated to pay any portion of any amount otherwise payable to Employee pursuant to this Agreement if the payment would cause any amount to be paid by Company to Employee to not be reasonably deductible by the Company solely by operation of Section 280G of the Internal Revenue Code of 1986, as amended, or any equivalent successor provision of law. (vii) TIME OF PAYMENT. The payments provided for in Subsection (iii) shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, Company shall pay to Employee on such day an estimate, as determined in good faith by Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by Company to Employee payable on the fifth 10 11 day after demand therefor by Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 7.6 SUCCESSORS; BINDING AGREEMENT. (i) SUCCESSORS. Company will require any Successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company to expressly assume and agree to perform Company's obligations under this Agreement in the same manner and to the same extent that Company would be required to perform it if not such succession had taken place. Failure of Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from Company in the same amount and on the same terms to which Employee would be entitled hereunder if Employee terminated his employment for Good Reason following a Change in Control of Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any Successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) BINDING AGREEMENT. This Agreement shall inure to the benefit of and be enforceable by Employee and Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amount would still be payable to him hereunder if Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. 7.7 ARBITRATION. Any dispute or controversy arising under or in connection with Section 6 of this Agreement shall be settled exclusively by arbitration in California by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that Employee shall be entitled to seek specific performance of Employee's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with the Agreement. Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 6.7. 7.8 SURVIVAL. The respective obligations of, and benefits afforded to, Company and Employee as provided in Section 6.5, 6.6 and 6.7 of this Agreement shall survive termination of this Agreement. 7.9 TERMINATION OF COMPANY'S OBLIGATION. If at any time within the 24 month period following termination of Employee's employment without Cause by Company pursuant to Section 6.4(iv) or termination by Employee for Good Reason pursuant to Section 6.4(iii) of this Agreement, Employee breaches any of his obligations under Sections 8, 9, 10, 11, and 12 of this Agreement, then Company's obligation to make payments under Section 6.5(iii) shall cease as of the date such breach occurs. 11 12 8. DEFINITIONS. For purposes of Section 5 and Section 6 of this Agreement, Notice of Termination and Date of Termination shall have the following meanings: 8.1 NOTICE OF TERMINATION. Any purported termination by Company or by Employee pursuant to Section 5 or Section 6 of this Agreement shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 18.3 of this Agreement. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and, except in the event of termination by Employee without Good Reason or termination by Company without Cause, such Notice of Termination shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provisions so indicated. 8.2 DATE OF TERMINATION. "Date of Termination" following a termination of Employee's employment by Company or Employee pursuant to Section 5 or Section 6 of this Agreement shall mean (i) if Employee's employment is to be terminated for Disability, thirty (30) days after Notice of Termination is delivered by the Board to Employee provided that such notice shall be given only after the expiration of any 120 consecutive days during all of which Employee shall be unable by reason of his disability to perform his principal duties (provided that such Notice of Termination shall be null and void if Employee fully resumes the performance of Employee's duties under this Agreement prior to the Date of Termination as set forth in the Notice); (ii) if Employee's employment is to be terminated by company for cause, the date on which a Notice of Termination is given; and (iii) if Employee's employment is terminated by Employee with Good Reason or without Good Reason or by Company without Cause, the date specified in the Notice of Termination, which shall be a date no earlier than thirty (30) days after the date on which Notice of Termination pursuant to Section 5 is given and no earlier than ninety (90) days after the date on which a Notice of Termination pursuant to Section 6 is given, unless an earlier date has been agreed to by the party receiving the Notice of Termination either in advance of, or after, receiving such Notice of Termination. Notwithstanding anything in the foregoing to the contrary, if the party receiving the Notice of Termination pursuant to Section 6 has not previously agreed to the termination, then within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination may notify the other party that a dispute exists concerning the termination, in which event the Date of Termination shall be the date set either by mutual written agreement of the parties or by the arbitrators in a proceeding as provided in Section 6.7 of this Agreement. 9. CONFIDENTIALITY. 9.1 DEFINITION OF CONFIDENTIAL INFORMATION. As used in this Agreement, the term "Confidential Information" means: (a) proprietary information of Company; (b) information marked or designated by Company as confidential; (c) information, whether or not in written form and whether or not designated as confidential, which is known to Employee as being treated by Company as confidential; and (d) information provided to Company by third parties which Company is obligated to keep confidential. Confidential Information includes but is not limited to, discoveries, ideas, designs, drawings, specifications, techniques, models, devises, data, 12 13 formula, programs, documentation, processes, know-how, customer lists, marketing plans, and financial and technical information. 9.2 ACKNOWLEDGMENT OF RECEIPT OF CONFIDENTIAL INFORMATION. Employee acknowledges that in the course of performing his duties for Company he will have access to Confidential Information, the ownership and confidential status of which are highly important to company, and Employee agrees in addition to the specific covenants contained herein to comply with all Company policies and procedures for the protection of such Confidential Information. 9.3 OWNERSHIP. Employee acknowledges that all Confidential Information is and shall continue to be the exclusive property of Company, whether or not prepared in whole or in part by him and whether or not disclosed to or entrusted to him in connection with employment by Company. 9.4 ACKNOWLEDGMENT OF IRREPARABLE HARM. Employee acknowledges that any disclosure of Confidential Information will cause irreparable harm to Company. 9.5 COVENANT OF NONDISCLOSURE. Employee agrees not to disclose Confidential Information, directly or indirectly, under any circumstances or by any means, to any third person without the express written consent of Company. 9.6 COVENANT OF NONUSE. Employee agrees that he will not copy, transmit, reproduce, summarize, quote, or make any commercial or other use whatsoever of Confidential Information, except as may be necessary to perform work done by him for Company. 9.7 SAFEGUARD OF CONFIDENTIAL INFORMATION. Employee agrees to exercise the highest degree of care in safeguarding Confidential Information against loss, theft, or other inadvertent disclosure and agree generally to take all steps necessary or requested by Company to insure maintenance of confidentiality. 9.8 EXCLUSIONS. This Agreement shall not apply to the following information: (a) information now and hereafter voluntarily disseminated by Company to the public or which otherwise becomes part of the public domain through lawful means; (b) information already known to Employee as documented by written records which predate this Agreement; (c) information subsequently and rightfully received from third parties and not subject to any obligation of confidentiality; (d) information independently developed by Employee. 9.9 WORK MADE FOR HIRE. Employee agrees that all creative work, including computer programs or models, prepared or originated by him for Company or during or within the scope of his employment by Company which may be subject to protection under Federal copyright Law, constitutes "work made for hire," all rights to which are owned by Company; and, in any event, Employee assigns to Company all intellectual property rights in such work whether by right of copyright, trade secret or otherwise and whether or not subject to protection by copyright laws. 13 14 10. COMPANY OWNERSHIP OF INVENTIONS. 10.1. COMPANY OWNERSHIP. Employee agrees that all inventions, discoveries, improvements, trade secrets, formula, techniques, processes, know-how and computer programs, whether or not patentable, and whether or not reduced to practice, conceived or developed during his employment by Company, either alone or jointly with others, which relate to or result from the actual or anticipated business, work, research, or investigation of Company or any affiliated company, or which result to a extent from use of Company or any affiliated company's premises or property, shall be owned exclusively by the Company, the Employee hereby assigns to Company all his right, title and interest in all such inventions, and Employee agrees that company shall be the sole owner of all domestic and foreign patents or other rights pertaining thereto, and further agree to execute all documents which Company reasonably determines to be necessary or convenient for use in applying for, perfecting, or enforcing patents or other intellectual any assignments, patent applications, or other documents which may be requested by Company. Notwithstanding the above, this provision does not apply to an invention for which no equipment, supplies, facilities, or trade secret of Company was used and which was developed entirely on the Employee's own time, unless (a) the invention relates (i) directly to the business of Company, or (ii) to Company's actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the Employee for Company. 10.2 EMPLOYEE INVENTIONS. All inventions, if any, of Employee made prior to Employee's employment by Company are excluded from the scope of this Agreement and a complete list of such inventions, if any, is attached to this Agreement as Exhibit A. Employee agrees to disclose to Company at the time of employment or thereafter, all inventions being developed by Employee for the purposes of determining Employee or Company rights to the invention. 11. VENTURES. If Employee, during the term of this Agreement, is engaged in or associated with the planning or implementing of any project, program or venture involving Company and any third party or parties, all rights in the project, program or venture shall belong to Company, and Employee shall not be entitled to any interest therein or to any commission, finder's fee or other compensation in connection therewith other than the salary to be paid to Employee as provided in this Agreement. 12. COVENANT OF GOOD FAITH. Employee agrees that the subject of this Agreement involves sensitive matters which go to the very heart of the corporate existence and well-being of Company and that it may be difficult for Company to protect adequately its interest through agreement or otherwise. Employee agrees to exercise the highest degree of good faith in his dealings with Company and to refrain from any actions which might reasonably be deemed to be contrary to its interests. 13. DELIVERY OF MATERIALS. Upon termination of his employment status, Employee will deliver to Company all materials, including without limitation documents, records, drawings, prototypes, models and schematic diagrams, which describe, depict, contain, constitute, reflect, record or in any way relate to inventions or Confidential Information, which are in Employee's possession or under his control, whether or not the materials were prepared by Employee. 14 15 14. SUBPOENAS. If Employee is served with any subpoena or other compulsory judicial or administrative process calling for production of Confidential Information or if Employee is otherwise required by law or regulation to disclose Confidential Information, Employee will immediately, and prior to production or disclosure, notify Company and provide it with such information as may be necessary in order that Company may take such action as it deems necessary to protect its interest. 15. REMEDIES. Employee acknowledges that breach of Sections 8, 9, 10, 11, 12, 13, 15 and 16 of this Agreement will cause irreparable harm to the Company and if Employee fails to abide by these obligations, Company will be entitled to specific performance, including immediate issuance of a temporary restraining order of preliminary injunction enforcing this Agreement, and to judgment for damages caused by Employee's breach, and to the rights and duties of Company and Employee, respectively, under this Agreement are in addition to, and not in lieu of, those rights and duties afforded to and imposed upon them by law or at equity. 16. TERMINATION CERTIFICATE. Upon termination of this Agreement, Employee will give a written statement in the form attached hereto as Exhibit A to Company certifying that he has complied with his obligations under Sections 9, 11 and 12 and acknowledging his continuing obligations under Section 8 to preserve and confidentiality of Company's confidential or secret knowledge or information, and under Section 13 to notify Company if he is served with a subpoena. 17. OTHER OBLIGATIONS. Employee acknowledges that Company from time to time may have agreements with other persons or with various governmental agencies that impose obligations or restrictions on Company regarding inventions or creative works made during the course of work thereunder or regarding the confidential nature or such work. Employee agrees to be bound by all such obligations and restrictions of which he is informed by Company and to take all action necessary to discharge the obligations of Company thereunder. 18. DURATIONS. The obligations set forth in Sections 8, 9, 10, 11, 12 and 13 of this Agreement will continue beyond the term of Employee's employment by Company for two years following such termination. 19. GENERAL PROVISIONS. 19.1 SEVERABILITY. The provisions of this Agreement are severable and if any provision hereof is held to be invalid, illegal, or unenforceable in any respect, it shall be enforced to the maximum extent permissible, and the remaining provision of the agreement shall not be affected thereby and in full force and effect. 19.2 ATTORNEY'S FEES/APPLICABLE LAW/VENUE. Except as provided in Section 6.5(iii)(E), in any action or suit arising out of this Agreement, the prevailing party shall be entitled to recover all reasonable attorneys' fees and expenses of litigation, including fees on appeal or in connection with any petition for review. The rights and obligations of the parties under this Agreement shall in all respects be governed by the laws of the State of Michigan exclusive of choice of law rules. 15 16 19.3 NOTICE. Any notice provided for hereunder may be delivered to the designated recipient either by personal delivery or by certified mail, return receipt requested. If mailed, the notice when enclosed in an envelope properly addressed to the proposed recipient at his address last of record with the notifying party and deposited postage paid in a mail depository of the United States post office, shall be deemed given when so mailed. Notice to Company shall be so delivered or addressed to an officer of Company other than Employee. 19.4 ASSIGNMENT. Employee acknowledges that the services to be rendered are unique and personal. This Agreement may not be assigned by Employee. 19.5 SUCCESSORS OF COMPANY. This Agreement shall inure to the benefit of and shall be binding upon Company, its successors, or assigns. 19.6 WAIVER. Company may waive any obligation Employee has under this Agreement, but such waiver will not affect Company's right to require strict compliance with the Agreement in the future. 19.7 ENTIRE AGREEMENT. THIS AGREEMENT SUPERSEDES ALL PREVIOUS AGREEMENTS, ORAL OR WRITTEN, BETWEEN COMPANY AND EMPLOYEE AND CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES, AND UNLESS OTHERWISE PROVIDED IN THIS AGREEMENT, NO MODIFICATION OR WAIVER OF ANY OF THE PROVISIONS OR ANY FUTURE REPRESENTATION, PROMISE, OR ADDITION SHALL BE BINDING UPON THE PARTIES UNLESS MADE IN WRITING AND SIGNED BY BOTH PARTIES. IN WITNESS WHEREOF, the parties have executed this contract on the date first set forth above. NOTICE TO EMPLOYEE THIS AGREEMENT MAY REQUIRE TRANSFER TO YOUR EMPLOYER OF CERTAIN INVENTIONS OR WORKS OF AUTHORSHIP. YOU MAY WISH TO CONSULT YOUR LEGAL COUNSEL FOR ADVICE. CHAMPIONSHIP AUTO RACING TEAMS, INC. By: /s/ Randy K. Dzierzawski ---------------------------------------- Randy K. Dzierzawski, Vice President EMPLOYEE By: /s/ Andrew H. Craig ---------------------------------------- Andrew H. Craig 16 EX-10.4 10 EXHIBIT 10.4 1 Exhibit 10.4 CHAMPIONSHIP AUTO RACING TEAMS, INC. EMPLOYMENT AGREEMENT RANDY K. DZIERZAWSKI -------------------- This Employment Agreement (the "Agreement") is entered into as of December __, 1997 by Championship Auto Racing Teams, Inc., a Delaware corporation ("Company") and Randy D. Dzierzawski ("Employee"). In consideration of the promises below, the parties agree as follows. 1. TITLE. Employee shall hold the title of Executive Vice President, Treasurer and Chief Financial Officer. 2. DUTIES. 2.1. GENERAL DUTIES. Employee shall undertake and render services as may from time to time be assigned to him by the Board of Directors or their designees. The duties shall be reasonably consistent with Employee's experiences. 2.2. OUTSIDE ACTIVITIES. Employee shall devote his full time to the performance of his duties, and agrees that his first duty of loyalty is to Company. Except with the express written consent of the Board of Directors, Employee shall not, directly or indirectly, alone or as a member of any partnership, or as an officer, director or employee of any other corporation, partnership or other organization, be actively engaged in any other duties or pursuits which interfere or compete with the performance of his duties under this Agreement. 3. TERM. This Agreement shall commence on January 1, 1998 and continue in force for three years until December 31, 2000, (the "Employment Period") unless sooner terminated by either party pursuant to Section 5 or Section 6 of this Agreement and except as provided in Section 6.3 of this Agreement. 4. COMPENSATION. As payment in full for services rendered to Company, Employee shall be entitled to receive from Company, and Company shall pay to Employee, salary and benefits as follows. 4.1. SALARY. Company shall initially pay to Employee base salary at a rate of $225,000 per annum ("Base Salary") payable bi-weekly or at such other time or times as Company may allow or provide to other similarly situated employees in accordance with policies adopted from time to time by the Board of Directors. Base Salary for any partial period of employment shall be prorated. All compensation shall be subject to deductions or withholding for 2 taxes. The Base Salary shall be increased to $250,000 for the calendar year 1999 and to $275,000 for the calendar year 2000. 4.2. BONUS. After each anniversary of January 1, 1998, the Company shall pay Employee a Bonus, which shall be based on established objective goals to be agreed upon by the Company's Compensation Committee and the Employee. The goals shall be quantitative, definite, qualifiable and reasonably attainable. Notwithstanding information contained herein to the contrary, in the event Employee shall become totally and permanently disabled during the term of this agreement, a bonus o twenty percent (20%) of Employee's Base Salary shall be due and payable, without regard to the bonus formula. Any bonus earned and payable to the Employee, pursuant to this section shall be paid to the Employee not later than January 31 of each year of this agreement. Payment shall be accompanied by a statement reflecting the bonus formula computation. Employee shall have the right to review the bonus computation so as to determine if the amount of the bonus is correct. 4.3. FRINGE BENEFITS. Employee shall be entitled to annual vacation and to receive employee and fringe benefits including but not limited to any compensation plan such as an incentive stock option, restricted stock or stock purchase plan or any employee benefit plan such as a thrift, pension, profit sharing, medical disability, accident, plan program or policy (the Company's "Plans") as Company may allow or provide to other similarly situated employees in accordance with policies adopted from time to time by the Board of Directors, and not less than Employee received at the effective date of this Agreement. 4.4. EXPENSES REIMBURSEMENT. Company shall reimburse Employee for expenses necessarily and reasonably incurred by him in travel which have been authorized in advance by the Chief Executive Officer or his designee. Employee shall submit such proofs of expense for which reimbursement is claimed in writing as Company may reasonably require. 4.5. SICKNESS AND DISABILITY. Except as set forth in Section 5 and Section 6, Employee shall receive full compensation for any period of illness or incapacity during the term of this Agreement. 4.6. HOLIDAYS. Employee shall be entitled to holidays recognized as State and/or National holidays and as Company may allow or provide in accordance with policies adopted from time to time by the Board of Directors. 5. TERMINATION OF EMPLOYMENT. The following provisions shall apply in the event of termination of Employee's employment for any reason other than a termination that occurs concurrent with or subsequent to a Change in Control as defined in Section 6.1. 5.1. RIGHT TO TERMINATE BY COMPANY. Company may terminate Employee's employment, through its Board of Directors, without cause upon 30 days' written Notice of Termination (as defined in Section 7 of this Agreement) or immediately upon Notice of Termination for Cause. The term "Cause" when referring to termination by Company means only the following and any other termination shall be without Cause: (i) Employee's gross dereliction of his duties; (ii) theft or misappropriation of an property of Company by Employee; (iii) 2 3 conviction of Employee of a felony or of any crime involving dishonesty or moral turpitude; or (iv) violation by Employee of the provisions of this Agreement; provided that, termination for violation by Employee of the provisions of this Agreement shall occur only after 30 days' advance written notice by Company to Employee containing reasonably specific details of the alleged breach failure to cure the same within such 30 day period. 5.2 TERMINATION FOR DEATH OR DISABILITY. Employee's employment shall terminate upon the earliest of the events specified below: (i) the death of Employee: (ii) the Date of Termination (as defined in Section 7) specified in a written Notice of Termination by reason of physical or mental condition of Employee which shall substantially incapacitate him from performing his principal duties ("Disability") delivered by the Board of Directors to Employee at least 30 days prior to the specified Date of Termination, which shall be any date after the expiration of any 120 consecutive days during all of which Employee shall be unable, by reason of his Disability, to perform his principal duties, provided however, that such Notice of Termination shall be null and void if Employee fully resumes the performance of his duties under this Agreement prior to the Date of Termination set forth in the Notice of Termination. 5.3. RIGHT TO TERMINATE BY EMPLOYEE. Employee may terminate his employment for good reason or without good reason upon 30 days' written Notice of Termination. The term "Good Reason" when referring to termination by Employee means a material breach by Company of its obligations under this Agreement, or as provided in Section 6.4, including the payment of money, and only after 30 days' advance written notice of Termination containing reasonably specific details of the alleged breach and failure to cure the same within such 30 day period. Termination for any other reason shall be without Good Reason. 5.4. RESULTS OF TERMINATION BY COMPANY. (i) TERMINATION FOR CAUSE. On the Date of Termination for Cause of Employee's employment by Company, Company shall pay the Base Salary then in effect through the Date of Termination. (ii) TERMINATION WITHOUT CAUSE. On the Date of Termination Without Cause of Employee's employment by Company, Company shall pay the Base Salary then in effect throughout the Employment Period and Company shall maintain in full force and effect, for the continued benefit of Employee and Employee's dependents for a period terminating on the earliest of (a) the expiration of the Employment Period or (b) the commencement date of equivalent benefits from a new employer, all life, accidental death, medical and dental insurance plans or programs in which Employee was entitled to participate immediately prior to the Date of Termination, provided that Employee's continued participation is possible under the general terms and provisions of such plans and Employee continues to pay an amount equal to his regular contribution for such participation, if any. If, at the end of the Employment Period Employee has not previously received or is not then receiving equivalent benefits from new employer, 3 4 Company shall arrange, at its sole cost and expense, to enable Employee to convert Employee and Employee's dependents' coverage under such plans to individual policies or programs upon the same terms as employees of Company may apply for such conversions. In the event that Employee's participation in any such plan is barred Company, at its sole cost and expense, shall arrange to have issued for the benefit of Employee and Employee's dependents individual policies of insurance providing benefits substantially similar (on an after-tax basis) to those which Employee and Employee's dependents equivalent benefits (on an after-tax basis); PROVIDED THAT Company shall be responsible for the payment of such benefits (on an after tax basis) for a period not to exceed two years following the end of the one year after the Termination Date. Employee shall not be required to pay any premiums or other charges in an amount greater than that which Employee would have paid in order to participate in such plans. 5.5 RESULTS OF TERMINATION FOR DEATH OR DISABILITY. (i) DEATH OF EMPLOYEE. If Employee's employment is terminated due to the death of Employee, Company shall pay the Base salary due Employee through the date on which death occurs; (ii) DISABILITY OF EMPLOYEE. If Employee's employment is terminated due to the disability of Employee as described in Section 5.2 (ii) of this of this Agreement, Company shall continue to pay Employee his Base Salary for the 90-day period following the specified Date of Termination. After this 90 period, Company agrees to pay to Employee during each month for the next six months an amount equal to the difference between Employee's monthly Base Salary and the amount which Employee receives or is entitled to receive from any long term disability insurance coverage provided for Employee by Company. 5.6. RESULTS OF TERMINATION BY EMPLOYEE. (i) TERMINATION WITHOUT GOOD REASON. Upon employee's termination without Good Reason of his employment, Company shall pay the Base Salary due Employee through the Date of Termination. (ii) TERMINATION FOR GOOD REASON. Upon Employee's termination of his employment for Good Reason, Company shall make the same payments to Employee as Company would be obligated to make under 5.4 (ii) of this Agreement if Employee's employment was terminated without Cause by Company. 5.7. OTHER COMPANY POLICIES. Upon termination of Employee's employment for any reason, Employee will be entitled to any additional rights pursuant to policies of Company regarding employment termination established by the Board of Directors from time to time. 5.8. TERMINATION OF COMPANY'S OBLIGATION. If at any time within the 24 month period following termination of Employee's employment without Cause by Company pursuant to Section 5.1 of this Agreement or termination by Employee for Good Reason pursuant to Section 5.3 of this Agreement, Employee breaches any of his obligations under Sections 8, 9, 10, 11 and 12 of this Agreement, then Company's obligation to make payments under Sections 5.4 (ii) or 5.6 4 5 (i) of this Agreement shall cease as of the date such breach occurs. 5 6 6. CHANGE IN CONTROL 6.1 CHANGE IN CONTROL AND PROPOSED CHANGE IN CONTROL DEFINED. (i) No benefits shall be payable to Employee pursuant to the this Section 6 unless there shall have been a Change in Control of the Company as set for the below. For purposes of Company of a nature that This Agreement a "Change in Control" shall mean a Change in Control of Company of a nature that would be required to be reported in response to Item 1 (a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided that, without limitation, such a Change in Control shall be deemed to have occurred at such time as (a) any Person, as such term is used in Section 13 (d) and 14 (d) of the Exchange Act (other than Company, any trustee or other fiduciary holding securities under an employee benefit plan of Company, or any company owned, directly or indirectly, by the stockholders of Company in substantially the same proportions as their ownership of stock of Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25% or more of the combined voting power of Company's outstanding securities; (b) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by Company's shareholders, was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (b), considered as though such person were a member of the Incumbent Board. (c) the stockholders of Company approve a merger or consolidation of Company with any other company, other than (1) a merger or consolidation which would result in the voting securities of Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding by or being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Company or such surviving entity outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of Company (or similar transition) in which no "Person" (as defined above) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of Company approve a plan of complete liquidation of Company or an agreement for the sale or disposition by Company of all or substantially all of Company's assets. 6 7 Notwithstanding anything in the foregoing to the contrary, no Change in Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in Employee, or a group of Persons which includes Employee, acquiring, directly or indirectly, 50% or more of the combined voting power of the Company's outstanding securities. (ii) For purposes of this Agreement, a "Proposed Change in Control" of Company shall be deemed to have occurred if: (a) Company enters in an agreement, the consummation of which would result in the occurrence of a Change in Control of Company; (b) any person (including Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in Control of Company; (c) any person (other than a trustee or other fiduciary holding securities under an employee benefit plan of Company, or a company owned, directly or indirectly, by the stockholders of Company in substantially the same proportions as their ownership of stock of Company), who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company's then outstanding securities, increases his beneficial ownership of such securities through either successive or simultaneous acquisition by a total of 3 percentage points or more over the percentage so owned by such person prior to such acquisition; or (d) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Proposed Change in Control of Company has occurred. 6.2. CONTINUED EMPLOYMENT. If a Proposed Change in Control occurs prior to the expiration of this Agreement, Employee agrees that he will remain in the employ of Company until the earliest of (a) a date which in 180 days from the occurrence of such Proposed Change in control of Company, (b) the termination of Employee's employment by reason of death or Disability as defined in Section 5.2 of this Agreement, or (c) the date on which Employee first becomes entitled under this Agreement to receive the benefits provided in Section 6.5 of this Agreement. If a Proposed Change in Control occurs prior to the expiration of this Agreement, Company agrees that it will not terminate Employee's employment without Cause until the earliest of (a) a date on which the Board adopts a resolution to the effect that the actions leading to such Proposed Change in control have been abandoned or terminated, (b) the termination of Employee's employment by reason of Death or Disability as defined in Section 5.2 of this Agreement, or (c) the date on which Employee first becomes entitled under this Agreement to receive the benefits provided in Section 6.5 of this Agreement. 7 8 6.3. TERM OF AGREEMENT. If a Change in Control occurs prior to the expiration of this Agreement, this Agreement shall continue in effect for a period of not less than twenty-four (24) months beyond the month in which the Change in Control shall have occurred provided that (i) such Change in Control shall have occurred prior to the end of the Employment Period and (ii) if Employee's employment has not been terminated pursuant to Section 5 of this Agreement prior to the occurrence of such Change in Control. Notwithstanding anything in this Section 6.3 to the contrary, the provisions of this Section 6 shall terminate at the end of the month in which Employee attains "normal retirement age" under the provisions of any tax-qualified retirement plan of Company or any of its subsidiaries in which Employee is participating. 6.4. TERMINATION FOLLOWING CHANGE IN CONTROL. If a Change in Control shall have occurred, Employee shall be entitled to the benefits provided in Section 6.5 of this Agreement upon the termination of his employment within twenty-four (24) months after such Change in Control has occurred, unless such termination is (a) because of Employee's death, (B) by the Company for Cause, (c) because of Employee's Disability or (d) by Employee other than for Good Reason (as all such capitalized terms are hereinafter defined.). (i) DISABILITY. Termination by Company of Employee's employment based on Disability shall have the meaning as defined in Section 5.2 of this Agreement. (ii) TERMINATION BY COMPANY FOR CAUSE. Company may terminate Employee's employment for Cause, through its Board of Directors, immediately upon Notice of Termination. Termination by Company of Employee's employment for Cause shall have the meaning as defined in Section 5.1 of this Agreement. (iii) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may terminate his employment for Good Reason upon 90 day's written Notice of Termination. Termination by Employee of his employment for Good Reason shall have the meaning defined in Section 5.3 of this Agreement and, for the purposes of this Section 6, shall have the following additional meanings: (a) a change in Employee's status, position(s) or responsibilities as an officer of Company which, in his reasonable judgment, does not represent a promotion from his status, title, position(s) and responsibilities as in effect immediately prior to the Change in Control, or the assignment to him of any duties or responsibilities which, in his reasonable judgment, are inconsistent with such status, title or position(s), or any removal of him from or any failure to reappoint or reelect him to such position(s), except in connection with the termination of his employment by Company for Cause, for Disability or as result of Employee's death or by Employee for Good Reason as defined in Section 5.3 of this Agreement: (b) a reduction by Company in Employee's Base Salary as in effect immediately prior to the Change in Control; 8 9 (c) the failure by Company to continue in effect any Plan (as defined in Section 4.3 of this Agreement) in which he is participating at the time of the Change in Control (or Plans providing him with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by Company which would adversely affect his continued participation in any of such Plans on at least as favorable a basis to him as is the case on the date of the Change in Control or which would materially reduce his benefits in the future under any of such Plans or deprive him of any material benefit enjoyed by him at the time of the Change in Control; (d) Company's requiring Employee to be based anywhere other than where Employee's office is located immediately prior to the Change in Control except for required travel on Company's business to an extent substantially consistent with the business travel obligations which Employee undertook on behalf of the Company prior to the Change in Control; (e) the failure by Company to obtain from any Successor (as hereinafter defined) the assent to this Agreement contemplated by Section 6.6 of this Agreement; and (f) any purported termination by Company of Employee's employment is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 of this Agreement which purported termination shall not be effective for purposes of this Agreement. (iv) TERMINATION BY COMPANY WITHOUT CAUSE. Company may terminate Employee's employment, through its Board of Directors, without Cause upon 90 days' written Notice of Termination. Termination by Company of Employee's employment without Cause shall have the meaning as defined in Section 5.1 of this Agreement. (v) TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. Employee may terminate his employment without Good Reason upon 90 days' written Notice of Termination. Terminating by Employee of Employee's employment without Good Reason shall have the meaning defined in Section 5.3 of this Agreement. 6.5. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (i) COMPENSATION UPON DISABILITY. During any period following a Change in Control that Employee fails to perform his duties as a result of Disability, Company shall make the payments set forth in Section 5.5 (ii) of this Agreement. (ii) COMPENSATION UPON TERMINATION BY COMPANY FOR CAUSE. If Employee's employment shall be terminated by Company for Cause following a Change in Control, Company shall make the payments set forth in Section 5.4(i) of this Agreement. (iii) COMPENSATION UPON TERMINATION BY COMPANY WITHOUT CAUSE OR BY EMPLOYEE FOR GOOD REASON. If, within twenty-four (24) months after a Change in Control shall 9 10 have occurred Employee's employment by Company shall be terminated (a) by Company without cause or (b) by Employee for Good Reason based on an event occurring concurrent with or subsequent to a Change in Control, then, at the time specified in Subsection (vii), Employee shall be entitled, without regard to any contrary provisions of any Plan, to the benefits as provided below: (a) the company shall pay Employee his full Base Salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both cash and stock components) which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to Employee (including amounts which previously had been deferred at Employee's request); (b) as severance pay and in lieu of any further salary for periods subsequent to the Date of Termination, Company shall pay to Employee at the time specified in subsection (vii), a single lump sum severance payment (the "Severance Payment") in an amount in cash equal to two times Employee's annual Base Salary at the rate in effect just prior to the time a Notice of Termination is given; (c) Company shall maintain in full force and effect, for the continued benefit of Employee and Employee's dependents for a period terminating on the earliest of (x) two years after the Date of Termination or (y) the commencement date of equivalent benefits from a new employer all life, accidental death, medical and dental insurance plans or programs in which Employee was entitled to participate immediately prior to the Date of Termination, provided that Employee's continued participation is possible under the general terms and provisions of such plans and Employee continues to pay an amount equal to his regular contribution for such participation, if any. If, at the end of two years after the Termination Date Employee has not previously received or is not then receiving equivalent benefits from a new employer, Company shall arrange, at its sole cost and expense, to enable Employee to convert Employee and Employee's dependents' coverage under such plans to individual policies or programs upon the same terms as employees of company may apply for such conversions. In the event that Employee's participation in any such plan is barred, Company at its sole cost and expense, shall arrange to have issued for the benefit of Employee and Employee's dependents individual policies of insurance providing benefits substantially similar (on an after-tax basis) PROVIDED THAT, Company shall be responsible for the payment of such benefits (on an after tax basis) to those which Employee otherwise would have been entitled to receive under such plans pursuant to this paragraph (c) or, if such insurance is not available at a reasonable cost to Company, Company shall otherwise provide Employee and Employee's dependents equivalent benefits (on an after tax basis) for a period not to exceed five years following the end of the two years after the Termination Date. Employee shall not be required to pay any premiums or other charges in an amount greater than that which Employee would have paid in order to participate in such plans. 10 11 Company shall pay Employee for any vacation time earned but not taken at the Date of Termination, at an hourly rate equal to Employee's annual Base Salary as in effect immediately prior to the time a Notice of Termination is given divided by 2080. Company shall pay to Employee all legal fees and expenses incurred by Employee as a result of such termination, including all such fees and expenses, if any, incurred in contesting or disputing any such termination in seeking to obtain or enforce any right or benefit provided by this Section 6 of this Agreement (other than any such fees or expenses incurred in connection with any such claim which is determined to be frivolous) or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). (iv) COMPENSATION UPON TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. If Employee's employment shall be terminated by Employee without Good Reason following a Change in Control, Company shall make the payments set forth in Section 5.6(ii) of this Agreement. (v) NO OFFSETS OR REDUCTIONS. Except as specifically provided above, the amount of any payment provided for in this Section 6.5 shall not be reduced offset or subject to recovery by Company by reason of any compensation earned by Employee as the result of employment by another employer after the Date of Termination, or otherwise. Employer's entitlements under Section 6.5 of this Agreement are in addition to, and not in lieu of, any rights, benefits or entitlements Employee may have under the terms or provisions of any Plan. (vi) COMPANY'S DEDUCTION OF PAYMENT. Notwithstanding anything in the foregoing to the contrary, Company shall not be obligated to pay any portion of any amount otherwise payable to Employee pursuant to this Agreement if the payment would cause any amount to be paid by Company to Employee to not be reasonably deductible by the Company solely by operation of Section 280G of the Internal Revenue Code of 1986, as amended, or any equivalent successor provision of law. (vii) TIME OF PAYMENT. The payments provided for in Subsection (iii) shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, Company shall pay to Employee on such day an estimate, as determined in good faith by Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by Company to Employee payable on the fifth day after demand therefor by Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 11 12 6.6 SUCCESSORS; BINDING AGREEMENT. (i) SUCCESSORS. Company will require any Successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company to expressly assume and agree to perform Company's obligations under this Agreement in the same manner and to the same extent that Company would be required to perform it if not such succession had taken place. Failure of Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from Company in the same amount and on the same terms to which Employee would be entitled hereunder if Employee terminated his employment for Good Reason following a Change in Control of Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any Successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) BINDING AGREEMENT. This Agreement shall inure to the benefit of and be enforceable by Employee and Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amount would still be payable to him hereunder if Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. 6.7 ARBITRATION. Any dispute or controversy arising under or in connection with Section 6 of this Agreement shall be settled exclusively by arbitration in California by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that Employee shall be entitled to seek specific performance of Employee's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with the Agreement. Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 6.7. 6.8 SURVIVAL. The respective obligations of, and benefits afforded to, Company and Employee as provided in Section 6.5, 6.6 and 6.7 of this Agreement shall survive termination of this Agreement. 6.9 TERMINATION OF COMPANY'S OBLIGATION. If at any time within the 24 month period following termination of Employee's employment without Cause by Company pursuant to Section 6.4(iv) or termination by Employee for Good Reason pursuant to Section 6.4(iii) of this Agreement, Employee breaches any of his obligations under Sections 8, 9, 10, 11, and 12 of this Agreement, then Company's obligation to make payments under Section 6.5(iii) shall cease as of the date such breach occurs. 7. DEFINITIONS. For purposes of Section 5 and Section 6 of this Agreement, Notice of Termination and Date of Termination shall have the following meanings: 12 13 7.1. NOTICE OF TERMINATION. Any purported termination by Company or by Employee pursuant to Section 5 or Section 6 of this Agreement shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 18.3 of this Agreement. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and, except in the event of termination by Employee without Good Reason or termination by Company without Cause, such Notice of Termination shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provisions so indicated. 7.2. DATE OF TERMINATION. "Date of Termination" following a termination of Employee's employment by Company or Employee pursuant to Section 5 or Section 6 of this Agreement shall mean (i) if Employee's employment is to be terminated for Disability, thirty (30) days after Notice of Termination is delivered by the Board to Employee provided that such notice shall be given only after the expiration of any 120 consecutive days during all of which Employee shall be unable by reason of his disability to perform his principal duties (provided that such Notice of Termination shall be null and void if Employee fully resumes the performance of Employee's duties under this Agreement prior to the Date of Termination as set forth in the Notice); (ii) if Employee's employment is to be terminated by company for cause, the date on which a Notice of Termination is given; and (iii) if Employee's employment is terminated by Employee with Good Reason or without Good Reason or by Company without Cause, the date specified in the Notice of Termination, which shall be a date no earlier than thirty (30) days after the date on which Notice of Termination pursuant to Section 5 is given and no earlier than ninety (90) days after the date on which a Notice of Termination pursuant to Section 6 is given, unless an earlier date has been agreed to by the party receiving the Notice of Termination either in advance of, or after, receiving such Notice of Termination. Notwithstanding anything in the foregoing to the contrary, if the party receiving the Notice of Termination pursuant to Section 6 has not previously agreed to the termination, then within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination may notify the other party that a dispute exists concerning the termination, in which event the Date of Termination shall be the date set either by mutual written agreement of the parties or by the arbitrators in a proceeding as provided in Section 6.7 of this Agreement. 8. CONFIDENTIALITY. 8.1. DEFINITION OF CONFIDENTIAL INFORMATION. As used in this Agreement, the term "Confidential Information" means: (a) proprietary information of Company; (b) information marked or designated by Company as confidential; (c) information, whether or not in written form and whether or not designated as confidential, which is known to Employee as being treated by Company as confidential; and (d) information provided to Company by third parties which Company is obligated to keep confidential. Confidential Information includes but is not limited to, discoveries, ideas, designs, drawings, specifications, techniques, models, devises, data, formula, programs, documentation, processes, know-how, customer lists, marketing plans, and financial and technical information. 13 14 8.2 ACKNOWLEDGMENT OF RECEIPT OF CONFIDENTIAL INFORMATION. Employee acknowledges that in the course of performing his duties for Company he will have access to Confidential Information, the ownership and confidential status of which are highly important to company, and Employee agrees in addition to the specific covenants contained herein to comply with all Company policies and procedures for the protection of such Confidential Information. 8.3 OWNERSHIP. Employee acknowledges that all Confidential Information is and shall continue to be the exclusive property of Company, whether or not prepared in whole or in part by him and whether or not disclosed to or entrusted to him in connection with employment by Company. 8.4 ACKNOWLEDGMENT OF IRREPARABLE HARM. Employee acknowledges that any disclosure of Confidential Information will cause irreparable harm to Company. 8.5 COVENANT OF NONDISCLOSURE. Employee agrees not to disclose Confidential Information, directly or indirectly, under any circumstances or by any means, to any third person without the express written consent of Company. 8.6 COVENANT OF NONUSE. Employee agrees that he will not copy, transmit, reproduce, summarize, quote, or make any commercial or other use whatsoever of Confidential Information, except as may be necessary to perform work done by him for Company. 8.7 SAFEGUARD OF CONFIDENTIAL INFORMATION. Employee agrees to exercise the highest degree of care in safeguarding Confidential Information against loss, theft, or other inadvertent disclosure and agree generally to take all steps necessary or requested by Company to insure maintenance of confidentiality. 8.8 EXCLUSIONS. This Agreement shall not apply to the following information: (a) information now and hereafter voluntarily disseminated by Company to the public or which otherwise becomes part of the public domain through lawful means; (b) information already known to Employee as documented by written records which predate this Agreement; (c) information subsequently and rightfully received from third parties and not subject to any obligation of confidentiality; (d) information independently developed by Employee. 8.9 WORK MADE FOR HIRE. Employee agrees that all creative work, including computer programs or models, prepared or originated by him for Company or during or within the scope of his employment by Company which may be subject to protection under Federal copyright Law, constitutes "work made for hire," all rights to which are owned by Company; and, in any event, Employee assigns to Company all intellectual property rights in such work whether by right of copyright, trade secret or otherwise and whether or not subject to protection by copyright laws. 9. COMPANY OWNERSHIP OF INVENTIONS. 9.1 COMPANY OWNERSHIP. Employee agrees that all inventions, discoveries, improvements, trade secrets, formula, techniques, processes, know-how and computer programs, whether or not patentable, and whether or not reduced to practice, conceived or developed during 14 15 his employment by Company, either alone or jointly with others, which relate to or result from the actual or anticipated business, work, research, or investigation of Company or any affiliated company, or which result to an extent from use of Company or any affiliated company's premises or property, shall be owned exclusively by the Company, the Employee hereby assigns to Company all his right, title and interest in all such inventions, and Employee agrees that company shall be the sole owner of all domestic and foreign patents or other rights pertaining thereto, and further agree to execute all documents which Company reasonably determines to be necessary or convenient for use in applying for, perfecting, or enforcing patents or other intellectual any assignments, patent applications, or other documents which may be requested by Company. Notwithstanding the above, this provision does not apply to an invention for which no equipment, supplies, facilities, or trade secret of Company was used and which was developed entirely on the Employee's own time, unless (a) the invention relates (i) directly to the business of Company, or (ii) to Company's actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the Employee for Company. 9.2. EMPLOYEE INVENTIONS. All inventions, if any, of Employee made prior to Employee's employment by Company are excluded from the scope of this Agreement and a complete list of such inventions, if any, is attached to this Agreement as Exhibit A. Employee agrees to disclose to Company at the time of employment or thereafter, all inventions being developed by Employee for the purposes of determining Employee or Company rights to the invention. 10. VENTURES. If Employee, during the term of this Agreement, is engaged in or associated with the planning or implementing of any project, program or venture involving Company and any third party or parties, all rights in the project, program or venture shall belong to Company, and Employee shall not be entitled to any interest therein or to any commission, finder's fee or other compensation in connection therewith other than the salary to be paid to Employee as provided in this Agreement. 11. COVENANT OF GOOD FAITH. Employee agrees that the subject of this Agreement involves sensitive matters which go to the very heart of the corporate existence and well-being of Company and that it may be difficult for Company to protect adequately its interest through agreement or otherwise. Employee agrees to exercise the highest degree of good faith in his dealings with Company and to refrain from any actions which might reasonably be deemed to be contrary to its interests. 12. DELIVERY OF MATERIALS. Upon termination of his employment status, Employee will deliver to Company all materials, including without limitation documents, records, drawings, prototypes, models and schematic diagrams, which describe, depict, contain, constitute, reflect, record or in any way relate to inventions or Confidential Information, which are in Employee's possession or under his control, whether or not the materials were prepared by Employee. 13. SUBPOENAS. If Employee is served with any subpoena or other compulsory judicial or administrative process calling for production of Confidential Information or if Employee is otherwise required by law or regulation to disclose Confidential Information, Employee will immediately, and prior to production or disclosure, notify Company and provide it with such information as may be necessary in order that Company may take such action as it deems necessary to protect its interest. 15 16 14. REMEDIES. Employee acknowledges that breach of Sections 8, 9, 10, 11, 12, 13, 15 and 16 of this Agreement will cause irreparable harm to the Company and if Employee fails to abide by these obligations, Company will be entitled to specific performance, including immediate issuance of a temporary restraining order of preliminary injunction enforcing this Agreement, and to judgment for damages caused by Employee's breach, and to the rights and duties of Company and Employee, respectively, under this Agreement are in addition to, and not in lieu of, those rights and duties afforded to and imposed upon them by law or at equity. 15. TERMINATION CERTIFICATE. Upon termination of this Agreement, Employee will give a written statement in the form attached hereto as Exhibit A to Company certifying that he has complied with his obligations under Sections 9, 11 and 12 and acknowledging his continuing obligations under Section 8 to preserve and confidentiality of Company's confidential or secret knowledge or information, and under Section 13 to notify Company if he is served with a subpoena. 16. OTHER OBLIGATIONS. Employee acknowledges that Company from time to time may have agreements with other persons or with various governmental agencies that impose obligations or restrictions on Company regarding inventions or creative works made during the course of work thereunder or regarding the confidential nature or such work. Employee agrees to be bound by all such obligations and restrictions of which he is informed by Company and to take all action necessary to discharge the obligations of Company thereunder. 17. DURATIONS. The obligations set forth in Sections 8, 9, 10, 11, 12 and 13 of this Agreement will continue beyond the term of Employee's employment by Company for two years following such termination. 18. GENERAL PROVISIONS. 18.1 SEVERABILITY. The provisions of this Agreement are severable and if any provision hereof is held to be invalid, illegal, or unenforceable in any respect, it shall be enforced to the maximum extent permissible, and the remaining provision of the agreement shall not be affected thereby and in full force and effect. 18.2 ATTORNEY'S FEES/APPLICABLE LAW/VENUE. Except as provided in Section 6.5(iii)(E), in any action or suit arising out of this Agreement, the prevailing party shall be entitled to recover all reasonable attorneys' fees and expenses of litigation, including fees on appeal or in connection with any petition for review. The rights and obligations of the parties under this Agreement shall in all respects be governed by the laws of the State of Michigan exclusive of choice of law rules. 18.3 NOTICE. Any notice provided for hereunder may be delivered to the designated recipient either by personal delivery or by certified mail, return receipt requested. If mailed, the notice when enclosed in an envelope properly addressed to the proposed recipient at his address last of record with the notifying party and deposited postage paid in a mail depository of the United States post office, shall be deemed given when so mailed. Notice to Company shall be so delivered or addressed to an officer of Company other than Employee. 16 17 18.4 ASSIGNMENT. Employee acknowledges that the services to be rendered are unique and personal. This Agreement may not be assigned by Employee. 18.5 SUCCESSORS OF COMPANY. This Agreement shall inure to the benefit of and shall be binding upon Company, its successors, or assigns. 18.6 WAIVER. Company may waive any obligation Employee has under this Agreement, but such waiver will not affect Company's right to require strict compliance with the Agreement in the future. 18.7 ENTIRE AGREEMENT. THIS AGREEMENT SUPERSEDES ALL PREVIOUS AGREEMENTS, ORAL OR WRITTEN, BETWEEN COMPANY AND EMPLOYEE AND CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES, AND UNLESS OTHERWISE PROVIDED IN THIS AGREEMENT, NO MODIFICATION OR WAIVER OF ANY OF THE PROVISIONS OR ANY FUTURE REPRESENTATION, PROMISE, OR ADDITION SHALL BE BINDING UPON THE PARTIES UNLESS MADE IN WRITING AND SIGNED BY BOTH PARTIES. IN WITNESS WHEREOF, the parties have executed this contract on the date first set forth above. NOTICE TO EMPLOYEE THIS AGREEMENT MAY REQUIRE TRANSFER TO YOUR EMPLOYER OF CERTAIN INVENTIONS OR WORKS OF AUTHORSHIP. YOU MAY WISH TO CONSULT YOUR LEGAL COUNSEL FOR ADVICE. CHAMPIONSHIP AUTO RACING TEAMS, INC. By: /s/ Andrew H. Craig, President ---------------------------------- Andrew H. Craig, President EMPLOYEE By: /s/ Randy K. Dzierzawski ---------------------------------- Randy K. Dzierzawski 17 EX-10.5 11 EXHIBIT 10.5 1 EXHIBIT 10.5 CHAMPIONSHIP AUTO RACING TEAMS, INC. FORM OF OFFICIAL ORGANIZER/PROMOTER AGREEMENT 2 CHAMPIONSHIP AUTO RACING TEAMS INC. FORM OF OFFICIAL ORGANIZER/PROMOTER AGREEMENT The undersigned hereby applies for the right to conduct an Indy Car World Series race Competition sanctioned or co-sanctioned by Championship Auto Racing Teams, Inc. ("CART") upon the following terms and conditions. It is understood that this is an application only until accepted and approved by CART in writing and that this Competition shall not be advertised or communicated to the public, press or any other media or business arrangement as having been approved by CART until this application has been so approved and until an official sanction has been granted by CART. 1. Track: Location: Organizer/Promoter: Address: To be furnished by Organizer/Promoter Telephone: Facsimile: Race Distance: Track Length and Type: Postponed Date: 2. The term "Competition" as used herein shall include the annual Indy Car race(s) designated hereinabove, as well as all time trials, practice runs and rain or postponed dates related thereto. The term "Event" as used herein shall include the Competition(s) as well as any other race(s), race-related activities or any other activities associated with the Competition(s), as approved by CART hereunder. The terms "Dollars" and "$" refer to the lawful currency of the United States of America. 3. Subject to compliance with all the terms and conditions set forth in this Agreement, Organizer/Promoter shall organize, promote and conduct a CART Indy Car race Competition at the track designated hereinabove in the following year(s): _____, _____ and ______. The dates for the races will be agreed upon by the parties. In the event Organizer/Promoter reasonably determines that the track will not be in race ready condition for the ______ Competition, Organizer/Promoter shall have the option to cancel the ______ Competition without further liability for that Competition, upon notice to CART of such intent by a date to be determined by mutual agreement. If Organizer/Promoter exercises this option in a timely manner, the Competitions covered by this Agreement shall be held in _____, _____ and _____ respectively, and this Agreement shall continue in full force and effect, except that the Organization and Rights Fee for the _____ Competition shall be that stated for _____, the Organization and Rights Fee for the _____ Competition shall be that stated for _____, and the Organization and Rights Fee for the _____ Competition shall be that stated for _____. In the event Organizer/Promoter exercises the foregoing option to cancel the _____ Competition and subsequently reasonably determines that the track will not be in race ready condition for _____ and notifies CART of such circumstance by a date to be determined by mutual agreement, 1 3 Organizer/Promoter shall have no further obligation as to that Competition and the parties shall thereupon commence the re-negotiation of this Agreement. Organizer/Promoter agrees not to organize, promote, conduct, authorize or permit the staging of any other major motor racing event(s) at the track(s) designated hereinabove without the approval of CART, within the following period of time either preceding or following any Competition hereunder: two (2) weeks. In addition, Organizer/Promoter shall not organize, promote, conduct, authorize, permit the staging of, or enter into negotiations for any other major racing event(s) involving open-wheeled racing cars, to be conducted at the track(s) designated hereinabove during any year covered by this Agreement, provided, however, that nothing contained herein shall preclude racing events involving the race cars commonly known as "NASCAR Modifieds" or NHRA race events. 4. Subsequent to paragraph 3, the total Organization and Rights Fee payable for the _____ Competition shall be ____________ Dollars ($___________), and shall be paid to CART as follows: A. Fifteen percent (15%), or ________________ Dollars ($___________) by January 1, _____. B. Thirty-five percent (35%), or _______________ Dollars ($_________) by July 1, _____. C. The balance due of _______________________ Dollars ($_________) thirty (30) days prior to the day of the race. 5. Subsequent to paragraph 3, the total Organization and Rights Fee payable for the 1997 Competition shall be ____________________________ Dollars ($___________), and shall be paid to CART as follows: A. Fifteen percent (15%), or __________________________ Dollars ($____________) by January 1, ____. B. Thirty-five percent (35%), or __________________________ Dollars ($_____________) by July 1, ____. C. The balance due of _________________________ Dollars ($____________) thirty (30) days prior to the day of the race. 6. Subsequent to paragraph 3, the total Organization and Rights Fee payable for the _____ Competition shall be ___________________________ Dollars ($_____________), and shall be paid to CART as follows: A. Fifteen percent (15%), or _______________________ Dollars ($__________) by January 1, ____. 2 4 B. Thirty-five percent (35%), or __________________________ Dollars ($___________) by July 1, _____. C. The balance due of _____________________ Dollars ($_________) thirty (30) days prior to the day of the race. 7. Organizer/Promoter expressly understands and agrees that said Organization and Rights Fees are intended to be net and are non-refundable except as expressly provided in this Agreement. Subject to the cancellation and termination provisions in paragraph 3, if said Organization and Rights Fees are not paid to CART in the manner and by the time provided above, CART shall have the option to declare this Agreement terminated, in which circumstance CART will be relieved from any further liability or responsibility hereunder, and in addition, Organizer/Promoter shall forthwith pay to CART and CART shall be entitled to enforce collection of the total amount required under this Agreement as liquidated damages and not as a penalty, together with all costs incurred by CART in connection therewith, including reasonable attorney fees, and interest at the rate of twelve (12%) percent per annum. If the _____ Competition is cancelled pursuant to paragraph 3, CART shall refund to Organizer/Promoter any partial rights fees payments made by Organizer/Promoter, notwithstanding paragraph 9B. 8. Organizer/Promoter shall not be responsible for any purse distribution whatsoever in respect to a Competition. CART must approve any and all awards given in conjunction with a Competition and/or for the PPG Indy Car World Series. Organizer/Promoter agrees to provide driver and entrant trophies in recognition and representative of the achievements of at least the first three (3) finishing positions in each Competition. 9. A. CART shall be responsible for providing not less than twenty (20) entrants for each Competition. If CART is unable to provide twenty (20) entrants for any Competition, Organizer/Promoter shall have the right to cancel such Competition, providing that Organizer/Promoter first informs CART in writing of such intent, and provided further that twenty (20) entries have not been received within seven (7) days after receipt by CART of such notice. If Organizer/Promoter under these circumstances exercises this cancellation right, it will be entitled to the return of the portion of the Organization and Rights Fee theretofore paid for such Competition, as shall be determined by mutual agreement of the parties. B. Either party hereto shall have the right to cancel a Competition due to a "force majeure". "Force majeure" shall mean any event or circumstances (whether arising from natural causes, human or governmental agency or otherwise) beyond the control of the parties including by way of illustration, but not by way of limitation, strikes, lock-outs or other labor disputes, civil strife, war, flood, fire, or acts of God. If there is an unexpected cancellation due to a "force majeure", Organizer/Promoter will be entitled to the return of the portion of the Organization and Rights Fee theretofore paid for such Competition, as shall be determined by mutual agreement of the parties, except that Organizer/Promoter agrees that 3 5 CART may retain a sum equivalent to the necessary expenses reasonably incurred by CART and its teams in preparing for such Competition, which expenses shall be mutually agreed by the parties provided, however, that if the parties are unable to agree informally as to the amount of such expenses, such dispute shall be submitted to binding arbitration and the result of such arbitration shall be enforceable by any court having jurisdiction. C. If Organizer/Promoter cancels or fails to stage a Competition for any reason other than those mentioned within this paragraph 9, or in paragraph 3, Organizer/Promoter shall forthwith pay to CART and CART shall be entitled to enforce collection of the total amount required under this Agreement as liquidated damages and not as a penalty, together with all costs incurred by CART in connection therewith, including reasonable attorney fees, and interest at the rate of twelve (12%) percent per annum. 10. Except as expressly provided herein, Organizer/Promoter owns and shall have exclusive control over all commercial rights to each Event including by way of illustration, but not by way of limitation, the right to sell and receive all the proceeds from Event sponsorships, signage, admission tickets, programs, novelties, concessions (including food and beverage), catering (including food and beverage), hospitality facilities, hotel rooms, expositions, displays, parking spaces, banquets and licenses to parades. 11. Organizer/Promoter shall assume and perform all organizational and promotional activities for each Event except as otherwise provided herein, including but not limited to business organization, promotional activity, management, marketing, general affairs, selling tickets, track maintenance and accommodations of the press, and further understands and agrees that CART disclaims any warranty expressed or implied, as to the potential success of any Event organized hereunder. 12. Organizer/Promoter shall organize and promote the races hereunder as major motor racing events. Organizer/Promoter shall have the right to on-site track entitlement, and revenues therefrom. On-site entitlement is to designate the title/name of the race at the venue, subject to CART approval which shall not be unreasonably withheld. All media releases, public announcements and public disclosures by either party or its employees or agents relating to this Agreement, including but not limited to promotional or marketing material, but not including any announcement intended solely for internal distribution at either party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of the disclosing party, shall be coordinated with and approved by the other in writing prior to the release thereof. 13. A. CART hereby grants Organizer/Promoter the non-exclusive right to use the IndyCar name and logo in its promotion of each Event during the term hereof, in accordance with all provisions contained in this Agreement. Any logo, design, mark or representation made, formulated, or developed in conjunction with such Event shall be subject to the prior written approval of CART. 4 6 B. Organizer/Promoter shall display in all advertising and publicity material including but not limited to news releases, posters, banners, program covers, brochures, tickets, passes and credentials relating to each Event the phrase: "PPG Indy Car World Series" and the logos of PPG and IndyCar (as approved and supplied by CART). CART reserves the right to change such phrase and logo. C. Organizer/Promoter shall include in its display of the IndyCar logo the symbol (R) to indicate that it is a registered mark. A sheet of camera ready art depicting these logos shall be provided by CART. Further, in promoting and advertising each Event, Organizer/Promoter shall promote the Competition as a part of the PPG Indy Car World Series or as otherwise designated by CART. Organizer/Promoter shall provide such verification of compliance with the provisions contained in this paragraph 13 as CART may reasonably request. D. Organizer/Promoter shall not use the names, logos or trademarks of CART or PPG for any purpose other than as herein defined. E. Upon the expiration or termination of this Agreement for any reason, Organizer/Promoter shall cease and desist any and all use of the names, logos or trademarks of CART or PPG or any colorable imitation, variation or adaptation thereof. F. CART and Organizer/Promoter shall promptly take such action as may be necessary to protect the names, logos and trademarks of CART and PPG against any infringement or threatened infringement or any common law "passing off". 14. Organizer/Promoter agrees that each Competition shall be organized, approved by CART and conducted in accordance with all applicable statutes, ordinances, regulations or other requirements of any government authority, and the IndyCar Rule Book as amended from time to time and as the same may be modified or supplemented by any other rules, regulations, bulletins or releases that may be applicable to such Competition. CART reserves the right to terminate this Agreement at any time without further liability for failure of Organizer/Promoter to abide by said requirements, regulations, rules, or the terms and conditions of this Agreement, by so notifying Organizer/Promoter in writing. Organizer/Promoter acknowledges receipt of a copy of the IndyCar Rule Book. 15. Organizer/Promoter represents and warrants that it has or will have sole control of the track and of the premises upon which the track is located, including all facilities thereon, and that Organizer/Promoter has full authority to conduct each Event thereon as provided for herein for the defined scheduled term of each Event. 16. Organizer/Promoter shall provide at its expense during each Event the track, race course, and facilities in good repair and ready for use, and Organizer/Promoter shall permit CART or its insurance broker or other designated representative to inspect the track, race course and/or 5 7 facilities before, during and after each Event. All repairs deemed necessary in order for the track to meet CART's safety requirements must be made at Organizer/Promoter's expense and the failure to make the necessary repairs may result in the postponement or cancellation of such Event, in CART's sole discretion. In implementing this provision CART will not act unreasonably. The track site, design and condition shall be subject to review and approval by the CART Vice President of Operations and Chief Steward. Organizer/Promoter shall consult with CART on the layout and design of the track, including but not limited to the pit area, safety barriers, and other facilities for the Competition. 17. Organizer/Promoter shall provide at its expense such facilities as CART deems adequate for the use of CART personnel and those directly associated with the Event, including but not limited to race control facilities, facilities for participant registration, television, scoring, race car inspection, compiling and distributing media information, a media work area, and facilities and services as may be reasonably required by those who supply products and/or services for the Event. Further details of these and other operational and facility requirements of Organizer/Promoter are agreed to as outlined in SCHEDULE A attached hereto and made a part hereof. 18. Organizer/Promoter shall at its expense furnish all facilities, personnel, equipment, and services for accommodating and controlling the public during each Event, for whose safety and comfort Organizer/Promoter is solely responsible and liable. 19. Organizer/Promoter shall provide at its expense all necessary personnel as required by CART for the conduct of each Competition hereunder(other than the CART staff and officials), and Organizer/Promoter shall assume all the responsibilities pertaining to workers, volunteers and subcontractors for each Event weekend. 20. Organizer/Promoter at its expense shall obtain and maintain insurance for each Event with an insurance company approved by CART. Such insurance must conform to the minimum coverages, specifications, limits, etc., as set forth in SCHEDULE B attached hereto and made a part hereof. If Organizer/Promoter fails to maintain such policies with the required minimum coverage throughout the Event, CART may cancel such Event immediately without prior notice to Organizer/Promoter, or CART may, in its discretion, obtain the required insurance from an approved insurance company, with acceptable terms, at Organizer/Promoter's expense. 21. Only those individuals approved by CART or Organizer/Promoter, including but not limited to drivers and pit crew and necessary fire, wrecker, ambulance and security crews, shall have access to or be allowed in the paddock, garage and pit areas, the racing surface, and other areas to which admission by the general public is normally prohibited during the Event, and Organizer/Promoter shall be solely responsible and provide sufficient security personnel in such areas to enforce this provision at all times during each Event. Such access must be in compliance with the IndyCar Rule Book and may not interfere with or adversely affect the Competition. 6 8 22. Organizer/Promoter shall honor CART's Unified Credential System and shall comply with the facility access provisions implemented by CART, as set forth in SCHEDULE C attached hereto and made a part hereof. 23. CART shall have the exclusive right to contract out or to take or cause to be taken by others, make, broadcast, rebroadcast, use, reproduce, transmit, copyright, sell, license or otherwise dispose of for any purpose whatsoever, television pictures, sound film and tape, motion pictures, still photographs, electronic images and sound of each Event. CART shall retain all national, international and local broadcast rights including broadcast television, cable and radio. Organizer/Promoter will assure that the presence of personnel and equipment for these or similar purposes shall not be inconsistent with the rights of CART herein provided and shall not interfere or conflict with the exercise of any such rights by CART as herein provided. 24. Organizer/Promoter recognizes and acknowledges that CART has entered or intends to enter into a television contract with a national broadcast or cable network for the coverage of each Competition hereunder. A. Detailed operational and facility requirements of Organizer/Promoter in respect to television and other on-site media are identified in SCHEDULE A. B. CART has arranged with the television production companies (subject to network approval) to provide the video portion of the program feed from the mobile unit to Organizer/Promoter, so that Organizer/Promoter may feed the video signal as a courtesy to the media center and hospitality suites. This feed is limited to on-site press and hospitality use only. Any other feeds to hotels, bars, or other establishment(s) whether on-site or off, are strictly prohibited. Organizer/ Promoter shall be responsible for the installation and maintenance of appropriate cable originating at the television compound which will then feed the system. Maintenance and operation of the system is the sole responsibility of Organizer/Promoter. C. CART and Organizer/Promoter agree that it is in the best interest of the sport, its promoters and sponsors to have the same on-site and television title sponsor. CART and Organizer/Promoter recognize and agree that all television entitlements are derived from a privilege granted by the television network and are subject to network approval. In the event Organizer/Promoter provides CART with a television entitlement sponsor, such sponsor must agree to: (i) purchase one (1) of several commercial unit package options for either network or cable coverage to be published by CART or its designee each year, (ii) enter into a negotiated agreement with CART or its designee, or (iii) guarantee a payment for entitlement in return for which Organizer/Promoter will receive eight (8) thirty (30) second commercial units in the telecast to package with its on-site title. The published rate option packages and payment option will be made available to Organizer/Promoter at least one (1) year in advance. 7 9 D. Organizer/Promoter may, at its option, and subject to approval by CART or its designee and the appropriate network, elect to guarantee over-the-air broadcast network coverage of its Event. In this event Organizer/Promoter will be required to provide a television title sponsor subject to: (i) purchase of one (1) of several published minimum commercial unit packages for either network or cable coverage, to be published by CART or its designee each year, (ii) enter into a negotiated agreement with CART or its designee, or (iii) guarantee a payment for entitlement to be determined each year. In the payment option (iii) Organizer/Promoter will receive eight (8) thirty (30) second commercial units in the telecast to package with its on-site title. Published rate option packages and payment options will be made available to Organizer/Promoter at least one (1) year in advance. E. Organizer/Promoter shall exercise its best efforts in assisting CART's undertaking to secure a television entitlement sponsor. In the event such joint undertaking is not successful, then CART or its designee shall have the option to secure a television entitlement sponsor which need not be the same as the on-site entitlement sponsor, provided that upon the exercise of this option, CART agrees to first consult with Organizer/Promoter in regard to such undertaking. F. CART and Organizer/Promoter agree that the policy and terms set forth as a condition of television coverage of this Event may change from time to time, and, therefore, the television agreement may supersede portions of this Agreement. In the event that the television agreement supersedes a portion of this Agreement, CART will immediately notify Organizer/Promoter and work toward a mutually agreed upon solution, provided, however, that if the parties are unable to agree informally, such dispute shall be submitted to binding arbitration and the result of such arbitration shall be enforceable by any court having jurisdiction. 25. Organizer/Promoter recognizes and acknowledges that CART has the right to contract for an official car and/or truck for the PPG Indy Car World Series. 26. PPG shall have the exclusive right to provide any and all pace cars throughout the entire Event. In addition, only PPG pace cars shall be allowed to participate in the parade laps immediately preceding the start of the Indy Car race. Further details of these and other responsibilities of Organizer/Promoter to PPG are agreed to as outlined in SCHEDULE D attached hereto and made a part hereof. 27. Organizer/Promoter agrees that the scheduled CART activities during each Event, including those associated with the Competition, PPG Pace Car on track activities, and CART's official support series, Indy Lights, shall have priority over any other race or other activity scheduled during such Event. Organizer/Promoter will not schedule any supporting races or ancillary activities on the same day as registration or inspection, or on any other day during an Event, without prior written approval of CART. Further details 8 10 of these and other scheduling considerations/requirements are agreed to as outlined in SCHEDULE E attached hereto and made a part hereof. 28. CART shall maintain control of the grid/pre-race activities which shall include but are not limited to the pole awards, driver introductions, etc. 29. CART shall maintain control of the Victory Circle proceedings. Details of these proceedings and the requirements of Organizer/Promoter in regard thereto are agreed to as outlined in SCHEDULE F attached hereto and made a part hereof. 30. Organizer/Promoter shall provide access to the PA system in order for CART to fulfill its contractual obligations to its sponsors and inform participants and spectators of activities during the Event. 31. A. CART merchandise, as supplied by CART or its licensed representative, will be afforded the opportunity to be sold from its own official concession stand to be located in a prominent, high-traffic location, generally near the paddock area. Selected items of merchandise may also be prominently offered for sale in the track concession sales booths. Merchandise sold from the CART booth will generate a royalty of twenty-five percent (25%) of the gross sales, after taxes, paid to Organizer/Promoter. Merchandise placed in the concessionaire booths will be done so on a consignment basis with the concessionaire given a forty (40%) percent discount on the retail price of all merchandise sold. Retail prices will be agreed upon in writing prior to the merchandise being placed in concessionaire booths. All accounting will be completed by noon of the day following the conclusion of each Event. All payments will be made and unsold merchandise returned at the same time. B. It is Organizer/Promoter's responsibility to insure that any and all concessions and/or merchandise reflecting the CART or IndyCar marks is properly licensed. In the event that CART discovers any unlicensed products, it will have the right to take appropriate action in its sole discretion. C. All IndyCar teams will be afforded the opportunity to sell their team merchandise within the area designated by Organizer/Promoter for such purpose. Participating teams will pay a rights fee for such opportunity, which fee shall be (i) consistent with the then current market price and (ii) no less favorable for any IndyCar team than the terms and conditions provided to other vendors located within the same area, under comparable circumstances. 32. In conjunction with the PPG Indy Car Winner's Circle Club endorsed by CART, Organizer/Promoter shall provide at its expense: A. Limited access to restricted areas for club members during group tours and club functions. 9 11 B. Inclusion of a PPG Indy Car Winner's Circle Club advertisement in the official race program. Camera ready art shall be provided by CART or its designee. C. Covered facility for meetings with a PA system, if not provided by PPG. 33. Organizer/Promoter shall cooperate with CART in its spectator research efforts, including but not by way of limitation allowing CART representatives access to spectators for personal interviews and questionnaire distribution and inclusion of a CART questionnaire in the official race program, for which camera ready art will be provided. 34. A. Subject to availability, Organizer/Promoter shall provide CART at no cost with space for up to sixteen (16) non-permanent signs. Signage does not have to be in prime television positions. CART will assume responsibility and cost for such signs. B. Organizer/Promoter shall provide CART, subject to mutually agreed upon pricing, up to eight (8) advertising pages in the Event program. One additional page in the program shall be provided without charge for CART's own use. C. Organizer/Promoter recognizes that each participating team has a race sponsor. Organizer/Promoter agrees that each teem may place its team name and sponsor(s) on both sides of the wall in the team's assigned pit box, subject to applicable governmental laws and regulations. 35. Organizer/Promoter acknowledges CART's hospitality requirements and shall exercise its best efforts in assisting CART's development of a suitable hospitality program, including the provision by Organizer/Promoter of a preferred location for a tent or other suitable accommodations. CART will assume responsibility and cost for food and beverage. 36. Each Competition shall appear on the FIA calendar as a full international FIA event. Organizer/Promoter agrees to file this listing through CART and reimburse CART for all applicable listing fees. In addition, Organizer/Promoter agrees to pay through CART the applicable National Motorsports Council assessments, as determined by the Council's Executive Committee. 37. Organizer/Promoter agrees to indemnify and hold harmless CART, its directors, officials and officers, agents and employees ("Indemnities") from any and all liabilities including liability resulting from negligence of the same and all costs and expenses, including attorneys fees incurred in the defense thereof, asserted or imposed upon CART, its directors, officials, official representatives, employees and officers arising out of or as a result of an Event hereunder, excluding liabilities, costs, or expenses arising out of the gross negligence or misconduct of Indemnities. 10 12 38. Organizer/Promoter agrees not to take any action adverse to the interest of CART and, in consideration of the acceptance and approval of this application, releases and discharges CART and its officials and representatives from all liability for personal injury that may be received, and from all claims and demands for damages to real or personal property or to any person growing out of or resulting from an Event hereunder, whether caused by any construction or condition or any track or track equipment, cars or debris, or resulting from any act or failure of any official or any person assisting the officials serving in connection therewith, excluding liabilities, costs, or expenses arising out of the gross negligence or misconduct of Indemnities. 39. Nothing contained herein shall be construed to place CART in the relationship of a partner or joint venturer with Organizer/Promoter, and Organizer/Promoter shall have no power to obligate or bind CART in any manner whatsoever other than as specifically provided for herein. Neither party undertakes by this Agreement to perform any obligations of the other, whether regulatory or contractual, or to assume any responsibility for the other's business or operations. 40. The validity, interpretation and construction of this Agreement shall be governed and construed by the laws of the State of Michigan. Any litigation commenced by a party to this Agreement as the result of any alleged breach of this Agreement shall be commenced in the circuit court for the County of Oakland, State of Michigan, or in the appropriate lower district court in said county, or in the U.S. District Court for the Eastern District of Michigan, and the parties hereby consent to such personal jurisdiction. Arbitration, if required, shall be conducted in Detroit, Michigan in accordance with the rules of the American Arbitration Association. 41. This Agreement is not transferable or assignable. Any transfer or assignment in violation of this provision shall be void. 42. Any notice or written communication required or permissible hereunder shall be sent by registered mail (or certified mail with return receipt), postage prepaid, addressed as follows: To CART: To Organizer/Promoter: Championship Auto Racing Teams, Inc. Promoter 755 W. Big Beaver Rd., Suite 800 Address Troy, MI 48084 City, State, Zip Code 43. This Agreement (including the Schedules annexed hereto) contains the entire agreement of the parties hereto and no representations, inducements, promises, or agreements, oral or otherwise, not embodied herein shall be of any force or effect. This Agreement may be modified only upon the written consent of the parties hereto. No waiver by either party, whether expressed or implied, of any provision of this Agreement or any breach or default shall constitute a continuing waiver thereof. Each and every of the rights, remedies and benefits provided by this Agreement shall be cumulative, and shall not be exclusive of any other said rights, remedies and benefits, or of any other rights, remedies and benefits allowed by law. 11 13 44. The following Schedules are attached hereto, incorporated herein by reference as though set forth in their entirety in this Agreement, and labelled as follows: SCHEDULE A - OPERATIONAL AND FACILITY REQUIREMENTS SCHEDULE B - INSURANCE REQUIREMENTS SCHEDULE C - UNIFIED CREDENTIAL SYSTEM AND FACILITY ACCESS PROVISIONS SCHEDULE D - PPG PROGRAM AND OFFICIAL CARS SCHEDULE E - EVENT ACTIVITIES SCHEDULE F - POST RACE PROCEDURES/ACTIVITIES Any person or organization having responsibility in the organization,. promotion or staging of any Competition, whether by contract or otherwise, shall co-sign this Agreement and shall be jointly responsible hereunder. Organizer/Promoter and the undersigned warrant and represent that Applicant has the full right and authority to enter into and perform this Agreement, and that the execution and delivery of this Agreement has been duly authorized by all necessary governmental and/or corporate action. Date:_____________ Applicant: Promoter By: _____________________________ Name Title 12 14 CART APPROVAL The foregoing application is hereby approved and accepted in accordance with the terms stated therein. Date: ____________________ Championship Auto Racing Teams, Inc. By: ________________________________ Its: _______________________________ CART sanction number granted: ____________________________________ Date: ____________________ ____________________________________ Authorized Signature 13 EX-10.6 12 EXHIBIT 10.6 1 EXHIBIT 10.6 CHAMPIONSHIP AUTO RACING TEAMS, INC. OFFICIAL ORGANIZER/PROMOTER AGREEMENT FOR MILWAUKEE, WISCONSIN Draft as of: June 5, 1996 2 CHAMPIONSHIP AUTO RACING TEAMS, INC. OFFICIAL ORGANIZER/PROMOTER AGREEMENT The undersigned hereby applies for the right to conduct an Indy Car World Series race Competition sanctioned or co-sanctioned by Championship Auto Racing Teams, Inc. ("CART"), upon the following terms and conditions. It is understood that this is an application only until accepted and approved by CART in writing and that this Competition shall not be advertised or communicated to the public, press or any other media or business arrangement as having been approved by CART until this application has been so approved and until an official sanction has been granted by CART. Track: Wisconsin State Park Speedway Location: West Allis, Wisconsin Organizer/Promoter: Carl Haas Racing Teams, Ltd. Address: 500 Tower Parkway 7722 W. Greenfield Avenue Lincolnshire, IL 60069 West Allis, WI 53214 Telephone: (708) 634-8210 (414) 453-5761 Facsimile: (708) 634-8208 (414) 453-9920 Race Distance: 200 miles, 200 laps Track Length and Type: 1-mile oval Postponed Date: Next clear day
1. A. The term "Competition" as used herein shall include the annual Indy Car race(s) designated hereinabove, as well as all time trials, practice runs and rain or postponed dates related thereto. B. The term "Event" as used herein shall include the Competition(s) as well as any other race(s), race-related activities or any other activities associated with the Competition(s), as approved by CART hereunder. C. The terms "Dollars" and "$" refer to the lawful currency of the United States of America. D. References in this Agreement to "PPG" shall be to PPG Industries, Inc., or any successor Series sponsor. 2. A. Subject to compliance with all the terms and conditions set forth in this Agreement, Organizer/Promoter shall organize, promote and conduct a CART Indy Car race Competition in the following year(s): 1995, 1996, 1997 and 1998. B. The date for the 1995 race will be June 4, 1995. The races to be conducted in 1996, 1997 and 1998 will be scheduled for the first Sunday in June (i.e., one week after the traditional Indianapolis 500 mile race date), 3 provided, however, that in the event the Indianapolis 500 mile race is postponed due to rain, it may be necessary to reschedule this Event in such year to a mutually agreeable date. In addition, the parties recognize that the preferred local start time for the race is 2:00 p.m. and agree that the start time will not be scheduled for earlier than 1:00 p.m. if television time is available on this date. C. Organizer/Promoter agrees not to organize, promote, conduct, authorize or permit the staging of any other major motor racing event(s) at the track(s) designated hereinabove, without the approval of CART, within two (2) weeks either preceding or following any Competition hereunder. D. The parties shall have a reciprocal right of first negotiation for the extension of this Agreement beyond the Events covered hereunder, through a reasonable period of good faith negotiation. In addition, such right of first negotiation shall specifically include a right of first refusal in the event the terms and conditions offered to a prospective replacement Organizer/Promoter or venue are less favorable to CART than those offered to Organizer/Promoter. 3. The total Organization and Rights Fee payable for the 1995 Competition shall be Seven Hundred Fifty Thousand ($750,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or One Hundred Twelve Thousand Five Hundred ($112,500.00) Dollars by January 1, 1995. B. Thirty-five (35%) percent, or Two Hundred Sixty Two Thousand Five Hundred ($262,500.00) Dollars by April 1, 1995. C. The balance due of Three Hundred Seventy Five Thousand ($375,000.00) Dollars not later than thirty (30) days prior to the date of the race. 4. The total Organization and Rights Fee payable for the 1996 Competition shall be Seven Hundred Fifty Thousand ($750,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or One Hundred Twelve Thousand Five Hundred ($112,500.00) Dollars by January 1, 1996. B. Thirty-five (35%) percent, or Two Hundred Sixty Two Thousand Five Hundred ($262,500.00) Dollars by April 1, 1996. C. The balance due of Three Hundred Seventy Five Thousand ($375,000.00) Dollars not later than thirty (30) days prior to the date of the race. 4 5. The total Organization and Rights Fee payable for the 1997 competition shall be Eight Hundred Thousand ($800,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or One Hundred Twenty Thousand ($120,000.00) Dollars by January 1, 1997. B. Thirty-five (35%) percent, or Two Hundred Eighty Thousand ($280,000.00) Dollars by April 1, 1997. C. The balance due of Four Hundred Thousand ($400,000.00) Dollars not later than thirty (30) days prior to the date of the race. 6. The total Organization and Rights Fee payable for the 1998 Competition shall be Eight Hundred Fifty Thousand ($850,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or One Hundred Twenty Seven Thousand Five Hundred ($127,500.00) Dollars by January 1, 1998. B. Thirty-five (35%) percent, or Two Hundred Ninety Seven Thousand Five Hundred ($297,500.00) Dollars by April 1, 1998. C. The balance due of Four Hundred Twenty Five Thousand ($425,000.00) Dollars not later than thirty (30) days prior to the date of the race. 7. Organizer/Promoter expressly understands and agrees that said Organization and Rights Fees are intended to be net and are non-refundable except as expressly provided in this Agreement. If said Organization and Rights Fees are not paid to CART in the manner and by the time provided above, CART shall have the option to declare this Agreement terminated, upon a fifteen (15) day notice of default/opportunity to cure, in which circumstance CART will be relieved from any further liability or responsibility hereunder, and in addition, Organizer/Promoter shall forthwith pay to CART and CART shall be entitled to enforce collection of the total amount required under this Agreement as liquidated damages and not as a penalty, together with all costs incurred by CART in connection therewith, including reasonable attorney fees, and interest at the rate of twelve (12%) percent per annum. 8. Organizer/Promoter shall not be responsible for any purse distribution whatsoever in respect to a Competition. CART must approve any and all awards given in conjunction with a Competition and/or for the PPG Indy Car World Series. Organizer/Promoter agrees to provide driver and entrant/owner trophies in recognition and representative of the achievements of at least the first three (3) finishing positions in each Competition. 9. A. CART shall be responsible for providing not less than eighteen (18) entrants for each Competition. If CART is unable to provide eighteen (18) entrants for any Competition, Organizer/Promoter shall have the right to 5 cancel such Competition, providing that Organizer/ Promoter first informs CART in writing of such intent, and provided further that eighteen (18) entries have not been received within seven (7) days after receipt by CART of such notice. If Organizer/Promoter under these circumstances exercises this cancellation right, it will be entitled to the return of the portion of the Organization and Rights Fee theretofore paid for such Competition. B. Either party hereto shall have the right to cancel a Competition due to a "force majeure". "Force majeure" shall mean any event or circumstances (whether arising from natural causes, human or governmental agency or otherwise) beyond the control of the parties including by way of illustration, but not by way of limitation, strikes, lock-outs or other labor disputes, civil strife, war, flood, fire, or acts of God. If there is an unexpected cancellation due to a "force majeure", Organizer/Promoter will be entitled to the return of the portion of the Organization and Rights Fee theretofore paid, except that Organizer/Promoter agrees that CART may retain a sum equivalent to the necessary expenses reasonably incurred by CART and its teams in preparing for such Competition, which expenses shall be mutually agreed by the parties provided, however, that if the parties are unable to agree informally as to the amount of such expenses, such dispute shall be submitted to binding arbitration and the result of such arbitration shall be enforceable by any court having jurisdiction. C. If Organizer/Promoter cancels or fails to stage a Competition for any reason other than those mentioned within this paragraph 9, Organizer/Promoter shall forthwith pay to CART and CART shall be entitled to enforce collection of the total amount required under this Agreement as liquidated damages and not as a penalty, together with all costs incurred by CART in connection therewith, including reasonable attorney fees, and interest at the rate of twelve (12%) percent per annum. 10. Except as expressly provided herein, Organizer/Promoter owns and shall have exclusive control over all commercial rights to each Event including by way of illustration, but not by way of limitation, the right to sell and receive all the proceeds from Event sponsorships, signage, admission tickets, programs, novelties, concessions (including food and beverage), catering (including food and beverage), hospitality facilities, hotel rooms, expositions, displays, parking spaces, banquets, and licenses to parades. 11. Organizer/Promoter shall assume and perform all organizational and promotional activities for each Event except as otherwise provided herein, including but not limited to business organization, promotional activity, management, marketing, general affairs, selling tickets, track maintenance and accommodations of the press, and further understands and agrees that CART disclaims any warranty expressed or implied, as to the potential success of any Event organized hereunder. 6 12. Organizer/Promoter shall organize and promote the races hereunder as major motor racing events. Organizer/Promoter shall have the right to on-site track entitlement, and revenues therefrom. On-site entitlement is to designate the title/name of the race at the venue, subject to CART approval which shall not be unreasonably withheld. All media releases, public announcements and public disclosures by either party or its employees or agents relating to this Agreement, including but not limited to promotional or marketing material, but not including any announcement intended solely for internal distribution at either party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of the disclosing party, shall be coordinated with and approved by the other in writing prior to the release thereof. 13. A. CART hereby grants Organizer/Promoter the non-exclusive right to use the IndyCar name and logo in its promotion of each Event during the term hereof, in accordance with all provisions contained in this Agreement. Any logo, design, mark or representation made, formulated, or developed in conjunction with such Event shall be subject to the prior written approval of CART. B. Organizer/Promoter shall display in all advertising and publicity material including but not limited to news releases, posters, banners, program covers, brochures, tickets, passes and credentials relating to each Event the phrase: "PPG Indy Car World Series" and the logos of PPG and IndyCar (as approved and supplied by CART). CART reserves the right to change such phrase and logo. C. Organizer/Promoter shall include in its display of the IndyCar logo the symbol (R) to indicate that it is a registered mark. A sheet of camera ready art depicting these logos shall be provided by CART. Further, in promoting and advertising each Event, Organizer/Promoter shall promote the Competition as a part of the PPG Indy Car World Series or as otherwise designated by CART. Organizer/Promoter shall provide such verification of compliance with the provisions contained in this paragraph 13 as CART may reasonably request. D. Organizer/Promoter shall not use the names, logos or trademarks of CART or PPG for any purpose other than as herein defined. E. Upon the expiration or termination of this Agreement for any reason, Organizer/Promoter shall cease and desist any and all use of the names, logos or trademarks of CART or PPG or any colorable imitation, variation or adaptation thereof. F. CART and Organizer/Promoter shall promptly take such action as may be necessary to protect the names, logos and trademarks of CART and PPG 7 against any infringement or threatened infringement or any common law "passing off". 14. Organizer/Promoter agrees that each Competition shall be organized, approved by CART and conducted in accordance with all applicable statutes, ordinances, regulations or other requirements of any government authority, and the IndyCar Rule Book as amended from time to time and as the same may be modified or supplemented by any other rules, regulations, bulletins or releases that may be applicable to such Competition. CART reserves the right to terminate this Agreement at any time without further liability for material failure of Organizer/Promoter to abide by said requirements, regulations, rules, or the terms and conditions of this Agreement, by so notifying Organizer/Promoter in writing, upon a five (5) day notice of default/opportunity to cure. CART shall notify Organizer/Promoter in writing of any alleged default and Organizer/Promoter shall have five (5) days after receipt of such notice to cure the default; provided, however, if the nature of the default is such that it cannot reasonably be cured within five (5) days, Organizer/Promoter shall not be deemed to be in default if it commences the cure within such five (5) day period and thereafter completes the curative action within a reasonable time. Organizer/Promoter acknowledges receipt of a copy of the IndyCar Rule Book. 15. Organizer/Promoter represents and warrants that it has or will have sole control of the track and of the premises upon which the track is located, including all facilities thereon, and that Organizer/Promoter has full authority to conduct each Event thereon as provided for herein for the defined scheduled term of each Event. 16. Organizer/Promoter shall provide at its expense during each Event the track, race course, and facilities in good repair and ready for use, and Organizer/Promoter shall permit CART or its insurance broker or other designated representative to inspect the track, race course and/or facilities before, during and after each Event. All repairs deemed reasonably necessary in order for the track to meet CART's safety requirements must be made at Organizer/Promoter's expense and the failure to make the necessary repairs may result in the postponement or cancellation of such Event, in CART's sole discretion. The track site, design and condition shall be subject to review and approval by the CART Vice President, Competition and Chief Steward. Organizer/Promoter shall consult with CART on the layout and design of the track, including but not limited to the pit area, safety barriers, and other facilities for the Competition. 17. Organizer/Promoter shall provide at its expense such facilities as CART deems reasonably adequate for the use of CART personnel and those directly associated with the Event, including but not limited to race control facilities, facilities for participant registration, television, scoring, race car inspection, compiling and distributing media information, a media work area, and facilities and services as may be reasonably required by those who supply products and/or services for the Event. Further details of these and other operational and facility requirements of Organizer/Promoter are agreed to as outlined in SCHEDULE A attached hereto and made a part hereof. 8 18. Organizer/Promoter shall at its expense furnish all facilities, personnel, equipment, and services for accommodating and controlling the public during each Event, for whose safety and comfort Organizer/Promoter is solely responsible and liable. 19. Organizer/Promoter shall provide at its expense all necessary personnel as required by CART for the conduct of each Competition hereunder (other than the CART staff and officials), and Organizer/Promoter shall assume all the responsibilities pertaining to workers, volunteers and subcontractors for each Event weekend. 20. Organizer/Promoter at its expense shall obtain and maintain insurance for each Event with an insurance company approved by CART. Such insurance must conform to the minimum coverages, specifications, limits, etc., as set forth in SCHEDULE B attached hereto and made a part hereof. If Organizer/Promoter fails to maintain such policies with the required minimum coverage throughout the Event, CART may cancel such Event immediately without prior notice to Organizer/Promoter, or CART may, in its discretion, obtain the required insurance from an approved insurance company, with acceptable terms, at Organizer/Promoter's expense. 21. Only those individuals approved by CART or Organizer/Promoter, including but not limited to drivers and pit crew and necessary fire, wrecker, ambulance and security crews, shall have access to or be allowed in the paddock, garage and pit areas, the racing surface, and other areas to which admission by the general public is normally prohibited during the Event, and Organizer/Promoter shall be solely responsible and provide sufficient security personnel in such areas to enforce this provision at all times during each Event. Such access must be in compliance with the IndyCar Rule Book and may not interfere with or adversely affect the Competition. 22. Organizer/Promoter shall honor CART's Unified Credential System and shall comply with the facility access provisions implemented by CART, as set forth in SCHEDULE C attached hereto and made a part hereof, and as the same may be amended by future discussions and concurrence between CART and its race promoters through the promoter group. 23. CART shall have the exclusive right to contract out or to take or cause to be taken by others, make, broadcast, rebroadcast, use, reproduce, transmit, copyright, sell, license or otherwise dispose of for any purpose whatsoever, television pictures, sound film and tape, motion pictures, still photographs, electronic images and sound of each Event. CART shall retain all national, international and local broadcast rights including broadcast television, cable and radio. Organizer/Promoter will assure that the presence of personnel and equipment for these or similar purposes shall not be inconsistent with the rights of CART herein provided and shall not interfere or conflict with the exercise of any such rights by CART as herein provided. 24. Organizer/Promoter recognizes and acknowledges that CART has entered or intends to enter into a television contract with a national broadcast or cable network for the coverage of each Competition hereunder. 9 A. Detailed operational and facility requirements of Organizer/Promoter in respect to television and other on-site media are identified in SCHEDULE A. B. CART has arranged with the television production companies (subject to network approval) to provide the video portion of the program feed from the mobile unit to Organizer/Promoter, so that Organizer/Promoter may feed the video signal as a courtesy to the media center and hospitality suites. This feed is limited to on-site press and hospitality use only. Any other feeds to hotels, bars, or other establishment(s) whether on-site or off, are strictly prohibited. Organizer/Promoter shall be responsible for the installation and maintenance of appropriate cable originating at the television compound which will then feed the system. Maintenance and operation of the system is the sole responsibility of Organizer/Promoter. C. CART and Organizer/Promoter agree that it is in the best interest of the sport, its promoters and sponsors to have the same on-site and television title sponsor. CART and Organizer/Promoter recognize and agree that all television entitlements are derived from a privilege granted by the television network and are subject to network approval. In the event Organizer/Promoter provides CART with a television entitlement sponsor, such sponsor must agree to: (i) purchase one (1) of several commercial unit package options for either network or cable coverage to be published by CART or its designee each year, (ii) enter into a negotiated agreement with CART or its designee, or (iii) guarantee a payment for entitlement in return for which Organizer/Promoter will receive eight (8) thirty (30) second commercial units to package with its on-site title. The published rate option packages and payment option will be made available to Organizer/Promoter at least one (1) year in advance. D. Organizer/Promoter may, at its option, and subject to approval by CART or its designee and the appropriate network, elect to guarantee over-the-air broadcast network coverage of its Event. In this event Organizer/Promoter will be required to provide a television title sponsor subject to: (i) purchase of one (1) of several published minimum commercial unit packages, (ii) enter into a negotiated agreement with CART or its designee, or (iii) guarantee a payment for entitlement to be determined each year. In the payment option (iii) Organizer/Promoter will receive eight (8) thirty (30) second units in the telecast to package with its on-site title. E. In the event Organizer/Promoter elects not to provide CART with a television entitlement sponsor or to guarantee over-the-air broadcast network coverage, then CART or its designee shall have the option to secure a television entitlement sponsor which need not be the same as the on-site entitlement sponsor. 10 F. CART and Organizer/Promoter agree that the policy and terms set forth as a condition of television coverage of this Event may change from time to time, and, therefore, the television agreement may supersede portions of this Agreement. In the event that the television agreement supersedes a portion of this Agreement, CART will immediately notify Organizer/Promoter and work toward a mutually agreed upon solution. 25. Organizer/Promoter recognizes and acknowledges that CART has the right to contract for an official car and/or truck for the PPG IndyCar World Series. 26. PPG shall have the exclusive right to provide any and all pace cars throughout the entire Event. In addition, only PPG pace cars shall be allowed to participate in the parade laps immediately preceding the start of the Indy Car race. Further details of these and other responsibilities of Organizer/Promoter to PPG are agreed to as outlined in SCHEDULE D attached hereto and made a part hereof. 27. Organizer/Promoter agrees that the scheduled CART activities during each Event, including those associated with the Competition, PPG Pace Car on track activities, and CART's official support series, Indy Lights, shall have priority over any other race or other activity scheduled during such Event. Organizer/Promoter will not schedule any supporting races or ancillary activities on the same day as registration or inspection, or on any other day during an Event, without prior written approval of CART. Further details of these and other scheduling considerations/requirements are agreed to as outlined in SCHEDULE E attached hereto and made a part hereof. 28. CART shall conduct mutually agreed upon grid/pre-race activities which shall include but are not limited to the pole awards, driver introductions, etc. 29. CART shall conduct mutually agreed upon Victory Circle proceedings. Details of these proceedings and the requirements of Organizer/Promoter in regard thereto are agreed to as outlined in SCHEDULE F attached hereto and made a part hereof. 30. CART shall have reasonable access to the PA system in order for CART to fulfill its contractual obligations to its sponsors and inform participants and spectators of activities during the Event. 31. A. CART merchandise, as supplied by CART or its licensed representative, will be afforded the opportunity to be sold from its own official concession stand to be located in a prominent, high-traffic location, generally near the paddock area. Selected items of merchandise may also be prominently offered for sale in the track concession sales booths. Merchandise sold from the CART booth will generate a royalty of twenty-five percent (25%) of the gross sales, after taxes, paid to Organizer/Promoter. Merchandise placed in the concessionaire booths will be done so on a consignment basis 11 with the concessionaire given a forty (40%) percent discount on the retail price of all merchandise sold. Retail prices will be agreed upon in writing prior to the merchandise being placed in concessionaire booths. All accounting will be completed by noon of the day following the conclusion of each Event. All payments will be made and unsold merchandise returned at the same time. B. It is Organizer/Promoter's responsibility to insure that any and all concessions and/or merchandise is properly licensed. In the event that CART discovers any unlicensed products, it will have the right to take appropriate action in its sole discretion. C. All IndyCar teams will be afforded the opportunity to sell merchandise within the confines of the race facility. All teams will be in a prominent, high-traffic location. Participating IndyCar teams will pay a rights fee for the location, which fee shall be (i) consistent with the then current market price and (ii) no less favorable for any IndyCar team than the terms and conditions provided to other vendors located within the same area. 32. In conjunction with the PPG IndyCar Winner's Circle Club endorsed by CART, Organizer/Promoter shall provide at its expense: A. Limited access to restricted areas for club members during group tours and club functions. B. Inclusion of a PPG IndyCar Winner's Circle Club advertisement in the official race program. Camera ready art shall be provided by CART or its designee. C. Covered facility for meetings with a PA system, if not provided by PPG. 33. Organizer/Promoter shall cooperate with CART in its spectator research efforts, including but not by way of limitation allowing CART representatives access to spectators for personal interviews and questionnaire distribution and inclusion of a CART questionnaire in the official race program, for which camera ready art will be provided. The results of such research shall be made available to Organizer/Promoter. 34. A. The parties agree that, commencing in 1996, CART shall have the right to designate up to eight (8) sponsorships utilizing the following entitlements to be provided by Organizer/Promoter for each sponsorship at no cost to CART except as otherwise stated: - designation as an Event sponsor on a totally exclusive basis; - inclusion in the Event press kit; - priority hospitality access; 12 - one (1) page of advertising in the Event Program (to be produced and supplied by the sponsor - 4 color camera ready art to be provided); - one (1) 10' x 10' Expo space; - six (6) public address system announcements (two per day); - twenty (20) grandstand admission tickets; and - four (4) 3' x 10' wall signs (to be provided by the sponsor). All costs associated with the design and production of the advertising page and wall signs shall be borne by CART. The parties acknowledge the following categories represent acceptable potential sponsorships: - payment systems; - mineral water; - confectionery; - savory snacks; - film; - camera; - electronics (i.e., television, hi-fi, audio, etc.); and - one additional mutually agreeable category. Except as provided in the following sentence, all revenues received from such sponsorships will be retained by CART. The collective revenues received from sponsorships in the electronics, film and camera categories shall be applied as follows: the first Seventy Five Thousand ($75,000.00) Dollars shall be retained by CART; the balance of the proceeds received after Seventy Five Thousand ($75,000.00) Dollars shall be divided equally between CART and Organizer/Promoter. B. One additional page in the program shall be provided without charge for CART's own use for an offered Sponsor Corporate Advertisement. CART questionnaire in the official race program, for which camera ready art will be provided. The results of such research shall be made available to Organizer/Promoter. C. Organizer/Promoter recognizes that each participating team has a race sponsor. Organizer/Promoter agrees that each team may place its team name and sponsor(s) on both sides of the wall in the team's assigned pit box, subject to applicable governmental laws and regulations. 35. Organizer/Promoter shall provide CART at no cost mutually agreed upon hospitality provisions for not less than forty (40) guests per day. Hospitality provisions will include food and beverage (at CART's expense). 13 36. Each Competition shall appear on the FIA calendar as a full international FIA event. Organizer/Promoter agrees to file this listing through CART and reimburse CART for all applicable listing fees. In addition, Organizer/Promoter agrees to pay through CART the applicable National Motorsports Council assessments, as determined by the Council's Executive Committee. 37. Organizer/Promoter agrees to indemnify and hold harmless CART, its directors, officials and officers, agents and employees, members and sponsors from any and all liabilities including liability resulting from the ordinary (but not gross) negligence of the same and all costs and expenses, including attorneys fees incurred in the defense thereof, asserted or imposed upon CART, its directors, officials, official representatives, employees, officers, members and sponsors arising out of or as a result of an Event hereunder. 38. Organizer/Promoter agrees not to take any action adverse to the interest of CART and, in consideration of the acceptance and approval of this application, releases and discharges CART and its officials and representatives from all liability for personal injury that may be received, and from all claims and demands for damages to real or personal property or to any person growing out of or resulting from an Event hereunder, whether caused by any construction or condition or any track or track equipment, cars or debris, or resulting from any act or failure of any official or any person assisting the officials serving in connection therewith. 39. Nothing contained herein shall be construed to place CART in the relationship of a partner or joint venturer with Organizer/Promoter, and Organizer/Promoter shall have no power to obligate or bind CART in any manner whatsoever other than as specifically provided for herein. Neither party undertakes by this Agreement to perform any obligations of the other, whether regulatory or contractual, or to assume any responsibility for the other's business or operations. 40. The validity, interpretation and construction of this Agreement shall be governed and construed by the laws of the State of Michigan. Any litigation commenced by a party to this Agreement as the result of any alleged breach of this Agreement shall be commenced in the circuit court for the County of Oakland, State of Michigan, or in the appropriate lower district court in said county, or in the U.S. District Court for the Eastern District of Michigan, and the parties hereby consent to such personal jurisdiction. 41. This Agreement is not transferable or assignable. Any transfer or assignment in violation of this provision shall be void. 42. Any notice or written communication required or permissible hereunder shall be sent by registered mail (or certified mail with return receipt), postage prepaid, addressed as follows: 14 To CART: To Organizer/Promoter: Championship Auto Racing Teams, Inc. Carl Haas Racing Teams, Inc. 755 W. Big Beaver Rd., Suite 800 500 Tower Parkway Troy, MI 48084 Lincolnshire, IL 60069 43. A. This Agreement (including the Schedules annexed hereto) contains the entire agreement of the parties hereto and no representations, inducements, promises, or agreements, oral or otherwise, not embodied herein shall be of any force or effect. This Agreement may be modified only upon the written consent of the parties hereto. B. No waiver by either party, whether expressed or implied, of any provision of this Agreement or any breach or default shall constitute a continuing waiver thereof. C. Each and every of the rights, remedies and benefits provided by this Agreement shall be cumulative, and shall not be exclusive of any other said rights, remedies and benefits, or of any other rights, remedies and benefits allowed by law. D. If any provision in this Agreement is held to be invalid or unenforceable, it shall be ineffective only to the extent of the invalidity, without affecting or impairing the validity and enforceability of the remainder of the provision or the remaining provisions of this Agreement. 44. The parties acknowledge the importance of each party's reputation, good will and public image and, accordingly, agree to maintain and enhance such image by restraining from taking any action contrary to the best interest of either party, or detracting from the reputation of either party. Each party shall refrain from making any statements about the other party that adversely affects, casts in an unfavorable light, or otherwise maligns the business or reputation of such other party or any of its principals. 45. At all times, the terms and conditions of this Agreement are confidential to CART, Organizer/Promoter, their parent companies and their respective subsidiaries, and shall not be disclosed to any other entity or individual without the other party's prior written consent. Notwithstanding the foregoing, disclosure may be made if necessary to enforce a party's rights under this Agreement, or if required by a governmental agency, in which case any and all documents, information, or materials disclosed shall be marked "confidential" and such party shall seek confidential treatment of such information. 46. The following Schedules are attached hereto, incorporated herein by reference as though set forth in their entirety in this Agreement, and labeled as follows: 15 Schedule A - Operational and Facility Requirements Schedule B - Insurance Requirements Schedule C - Unified Credential System and Facility Access Provisions Schedule D - PPG Program and Official Cars Schedule E - Event Activities Schedule F - Post Race Procedures/Activities Any person or organization having responsibility in the organization, promotion or staging of any Competition, whether by contract or otherwise, shall co-sign this Agreement and shall be jointly responsible hereunder. Organizer/Promoter and the undersigned warrant and represent that Applicant has the full right and authority to enter into and perform this Agreement, and that the execution and delivery of this Agreement has been duly authorized by all necessary governmental and/or corporate action. Date: June 1, 1994 /s/ Carl A. Haas ------------------------- ---------------------------------------- Applicant By: Carl A. Haas ---------------------------------------- Its: President ---------------------------------------- Date: June 1, 1994 ------------------------- ---------------------------------------- Co-Signer's Signature 16 CART APPROVAL The foregoing application is hereby approved and accepted in accordance with the terms stated therein. Date: Championship Auto Racing Teams, Inc. ------------------------- By: ------------------------------------- Its: ------------------------------------ CART sanction number granted: ---------------------------------------- Date: ------------------------- ---------------------------------------- Authorized Signature 17 SCHEDULE "A" OPERATIONAL AND FACILITY REQUIREMENTS I. MEDIA CENTER FACILITIES: Solid, climate controlled, weatherproof structures capable of supporting separate work area for IndyCar Media Relations, Event Media Relations, Support Event Media Relations, deadline media, non-deadline media, and a dedicated, separate media interview room. ELECTRIC/POWER REQUIREMENTS: Organizer/Promoter should provide CART Communications staff at least two (2) 10 volt, 20 amp, single phase circuits or equivalent with a minimum of eight (8) electrical outlets. Adequate power and at least one electrical outlet for each assignable seat for press in media center. TELEPHONE REQUIREMENTS: Twenty (20) direct and five (5) dedicated lines and instruments. EQUIPMENT: five (5) photocopy machines; ten (10) large screen television sets/monitors (including audio) with direct video feed from television production mobile units (one pair should be available for CART Communications staff); three (3) golf carts for exclusive use by CART. II. OPERATIONS FACILITIES: Solid, quite, climate controlled, weatherproof structure capable of accommodating a minimum of sixty (60) people. 18 ELECTRIC/POWER REQUIREMENTS: Radio Trailer 110v/115v 2 30 amp single phase or /220v 30 amp single phase Timing and Scoring 110v/115v 6 30 amp single phase Operations Trailer #1 110v/115v 30 amp single phase Operations Trailer #2 110v/115v 2 30 amp single phase Medical Coach 110v/115v 50 amp single phase IndyCar Coach 110v/115v 50 amp single phase Inspection Area 110v/115v 2 20 amp single phase EDS/Timing & Scoring Truck 110v/115v 50 amp single phase Delco Battery 110v/115v 2 30 amp single phase or 220v single phase DieHard Battery 110v/115v 2 30 amp single phase or 220v IndyCar Fuel Compound 110v/115v 4 25 amp single phase IndyCar Tire Compound 220v/240v 2 50 amp single phase Fuel Compound 110v/115v 30 amp single phase Scales 110v/115v 20 amp single phase
TELEPHONE REQUIREMENTS: As a minimum, the following areas must be supplied telephones which provide access to commercial telephone lines: Operations Trailer #2 - telephone and facsimile line Medical Coach IndyCar Coach Race Control Timing & Scoring Start/Finish Line EQUIPMENT: One (1) print quality hi-speed photo copier. Organizer/Promoter at its expense shall provide, install and maintain the equipment necessary to operate the Timing and Scoring system managed for CART by EDS in accordance with the specifications supplied by CART and EDS. Organizer/Promoter will provide EDS free of charge at the start/finish line, on the Timing and Scoring structure and at least one other prominent location, space to affix and display the "EDS" logo and/or "EDS Official Timing Technology Provider". 19 COMMUNICATION CIRCUITS: Land line communication system connecting all trackside stations, pit in, pit out, race control and start/finish line. Private land line communication circuit connecting timing and scoring, race control, pit center and starters stand. FUEL: Organizer/Promoter will provide gasoline for all safety, track maintenance vehicles and the jet dryer: Track Dryer Jet A or #1 diesel approximately 50 gallons (The parties recognize that Organizer/Promoter provides its own track dryer and, therefore, will be required to provide fuel under this provision only in the event that use of CART's track dryer is required.) Safety Vehicles gasoline approximately 200 gallons GENERAL: Minimum of three hundred fifty (350) pounds of ice each day from Thursday until Sunday of race weekend. Worker lunches and drinking water will be provided for each day of the Event weekend. The quantity will be supplied by CART. All areas and utilities shall be accessible for use by CART on or before 8:00 AM the Wednesday prior to the published race date. III. TELEVISION AND RADIO FACILITIES: Television Compound Area - Organizer/Promoter shall provide a level, hard-surfaced area approximately 150 feet x 150 feet for use by IndyCar Productions and network television production mobile units, broadcast equipment, and personnel. Compound should be located as follows: Street Course: As close as possible to the announcement booth or as close to the majority of camera positions as possible, but definitely outside the course. 20 Road Course: As close as possible to the announcement booth, as close to the majority of camera positions as possible, preferably outside the course. Oval Course: As close as possible to the announcement booth and allowing the most direct cable access to the majority of camera positions as possible, but definitely outside the course. Announcement Booths - Climate controlled. Booths should have a wide expanse of glare-proof (non-tinted) glass overlooking the pits and track. Sound deadening materials should be used in construction, including proper insulation, carpeting, panelling, and double-paned glass. The front window overlooking the track and pits should begin around 3.5 feet - 4 feet above the floor. Booth should also have windows on the sides of the booth facing the track, around 3-4 feet deep from the front of the booth, to provide sight lines up and down the track and pits. Where possible, back half of each booth should be elevated 4 inches - 6 inches (minimum) to allow raised sight lines for those working in rear of booth. A ledge/table should run the entire width of the front window wall, set under the window and should be well braced to support necessary video monitors, timing & scoring monitors, and audio equipment, etc. Ledge/table should extend two (2') feet into the room from the front-windowed wall, and where possible, should provide a removable cut-out against the wall, with a support brace under the cut-out, to allow monitors to be partially recessed on an angle within the ledge/table. Access panels, conduits, and cable troughs (minimum 6 in diameter), should be provided by promoter as necessary to allow cables to enter booth for video, audio, timing & scoring, and antennae feeds. Entry door should have a locking system installed, so that the room and equipment may be secured. A keyless or combination access system is preferred. Door should also have a mail slot for press releases, etc. As other international networks (more than three) may wish to originate commentary from the site of a CART Event, CART may request, and Organizer/Promoter agrees to provide, additional announcement booths. CART agrees to provide at least thirty (30) days notice to Organizer/Promoter in such cases. All reasonable costs, subject to competitive bidding, associated with the construction and provision of any additional booths and required facilities (i.e. telephone, power, etc.) for international networks shall be the responsibility of CART. U.S. Television Network: BOOTH SIZE: 15 feet x 15 feet booth. 21 LOCATION: Should be placed on the outside of the track and nearest to the start/finish line, providing the widest view of the track and pits. Where possible, booth should be located alone or at one end of any row of booths or suites. IndyCar Radio Network: BOOTH SIZE: 8 feet x 8 feet (minimum) booth. LOCATION: Preferred placement on the outside of the track and nearest to pit center, providing the widest view of the track and, then, the start/finish line and pits. International Networks: BOOTH SIZE: A minimum of three (3) 8 feet x 8 feet (minimum) booths. LOCATION: Preferred placement providing the widest view of the pits and, then, the track and start/finish. Where possible, location should be on the outside of the track. ELECTRIC/POWER REQUIREMENTS: Organizer/Promoter shall ensure necessary lighting (minimum of 125 foot candles) is available for television coverage during the Event. All power should be "shore" power, as opposed to generator power, where possible. If "shore" power is not available, generator power must meet the requirements of the network television production company, including but not limited to: back-up power, redundant systems, frequency controlled, and automatic switch-over features. Requirements to be provided before execution of this Agreement, as follows: TV COMPOUND - U.S. NETWORK Mobile Unit #1 208v 200 amp 3 phase Mobile Unit #2 208v 200 amp 3 phase Uplink Truck #1 208v 150 amp 3 phase Office Trailer #1 208v 150 amp 3 phase Office Trailer #2 208v 100 amp single phase Mobile Support Unit 208v 100 amp single phase In-Car Camera Truck 208v 60 amp single phase RF Camera Truck 208v 60 amp single phase Catering 110v 60 amp single phase
TV COMPOUND - INTERNATIONAL NETWORKS International M.U. 208v 200 amp 3 phase
22 Uplink Truck #2 208v 150 amp 3 phase Uplink Truck #3 208v 150 amp 3 phase
REMOTE LOCATIONS RF Receive Site 110v 20 amp single phase RF Receive Site 110v 20 amp single phase TV Interview Room 110v 20 amp single phase
ANNOUNCEMENT BOOTHS U.S. Network Production 110v 20 amp single phase U.S. Network Monitors 110v 20 amp single phase U.S. Network Audio 110v 20 amp single phase Radio Production 110v 20 amp single phase Radio Monitors 110v 20 amp single phase International #1 Production 110v 20 amp single phase International #1 Monitors 110v 20 amp single phase International #2 Production 110v 20 amp single phase International #2 Monitors 110v 20 amp single phase International #3 Production 110v 20 amp single phase International #3 Monitors 110v 20 amp single phase
EACH ADDITIONAL INTERNATIONAL BOOTH Additional Production 110v 20 amp single phase Additional Monitors 110v 20 amp single phase
Minimum four (4) outlets per electrical circuit. Air-Conditioning/heating systems must be on separate circuits from those shown above. TELEPHONE REQUIREMENTS: Television Compound Area - Organizer/Promoter shall ensure twenty-five (25) dry pair telephone lines are permanently installed in television compound. Announcement Booths - IndyCar Radio Network: A maximum of eight (8) dry pair telephone lines permanently installed in booth. International Networks: Eight (8) dry pair telephone lines permanently installed in each announce booth. 23 ACCESS: Organizer/Promoter shall accord all broadcast networks and/or their designees the right to install and maintain at, and remove from, the site of the Event and associated areas such wires, cables, and apparatus as the network or its designee deems necessary for recording and/or telecasting the Event (provided that there shall not be any interference with the use of or means of ingress or egress at the site or associated areas). INTERVIEW ROOM: Organizer/Promoter shall provide a small room (8 feet x 8 feet minimum) which may be used exclusively by the network production companies for driver interviews. Room should be climate controlled and quiet from other on track sounds and activities and should be located near the paddock, media center, or team hospitality area. In the event the Organizer/Promoter provides an office trailer for meetings or other use by IndyCar Operations, the side room of this trailer would be acceptable. SECURITY: Organizer/Promoter must provide sufficient security, with radio communications, for all broadcast equipment in the television compound and around the track, including camera, remote, and booth locations. Security should be available from the first evening of arrival through the morning of the last day of departure of all broadcast equipment. ADDITIONAL FACILITIES: CART may also require, and Organizer/Promoter agrees to provide, additional space to locate one (1) or more mobile announce booths to accommodate international networks, plus any required electrical power. All reasonable costs associated with the provision of power and other required facilities (i.e. telephone, etc.) for these additional international networks shall be the responsibility of CART. EQUIPMENT VENDORS: Broadcast crews will use best efforts to achieve highest quality, lowest cost for renting equipment from Organizer/Promoter's exclusive source. If this cannot be achieved, then the exclusive track source will not apply to production company's needs. IV. GENERAL As the execution of the Competition and broadcast coverage of CART events is vital to the success and growth of the Series and each Event, and as newer and additional technical facilities may be required to meet media, operational and broadcast production standards in order to enhance and upgrade the facility and broadcast quality, Organizer/Promoter agrees to provide 24 additional space, power, facilities, or other services as may be requested by CART. CART agrees to provide Organizer/Promoter as much advance notice as possible of these additional requirements. 25 SCHEDULE "B" INSURANCE REQUIREMENTS In an effort to protect the interest of track owners, Organizers/Promoters, sponsors, CART, its Members, Associate Members and participants, CART has established certain minimum criteria for insurance coverage which must be in effect for all CART Events. The insurance requirements for CART events consist of the following areas of insurance coverage: 1. Spectator and Participant Legal Liability Insurance; and 2. Participant Accident Insurance. The minimum specifications and requirements for acceptable coverage are: $10,000,000 LIABILITY INSURANCE (coverage must be primary) V. POLICY FORM The policy must be a Comprehensive General Liability form and may be either a manuscript Automobile Racing policy or a Commercial General Liability policy with endorsements that provide the amendments required to cover automobile racing events. Coverage provided must include, but shall not be limited to: 1. Spectator/Public Bodily Injury Liability 2. Participant Legal Liability - Participant Bodily Injury Liability - Participant to Participant Liability 3. Property Damage Liability a. Including participants' property except when in restricted areas. b. No more than a Fifty Dollar ($50.00) deductible. 4. Refreshments/Products Liability including Concession Hard Goods and Host Liquor Liability. 5. Personal Injury Liability, including false arrest, detentions, imprisonment or malicious prosecution, libel and slander; wrongful entry or eviction. 6. Mobile Equipment Liability 26 7. Incidental Medical Malpractice Liability including primary coverage for medical professionals. 8. Temporary and Air Ambulance Liability. 9. Off Premises Sign Liability. 10. Official Vehicle Physical Damage a. Two Hundred Fifty Dollar ($250.00) maximum deductible. 11. Contractual Liability VI. MINIMUM LIMITS OF COVERAGE CART reserves the right to change insurance limits as long as ninety (90) days notice is given to Organizer/Promoter. 1. 1996 Event - $10 million combined single limits per occurrence for Bodily Injury and Property damage with no aggregate limit. 2. 1996 Event - $5 million minimum for Participant Legal Liability. Subsequent Events subject to 50% of limits in place in paragraph 2A. 3. 1996 Event - $1 million Medical Malpractice Liability with $1 million aggregate per incident. Coverage to include Medical Professionals. (See paragraph 1[G]). VII. NAMED INSUREDS Must include: 1. CART, its officers, directors and employees; PPG Industries, Inc. 2. CART reserves the right to add additional named insureds provided however, that notice be given no later than sixty (60) days prior to the Event. VIII. PERSONS INSURED Must include: 27 All participants, race car owners, sponsors for this Competition, Event or the Series of which the Competition is a part, and CART Members and Associate Members. The definition of participants must include drivers, mechanics, pitmen, officials of the race, and those assisting the officials, event staff, announcers, emergency and safety crews and security personnel and all other persons allowed access to restricted areas. Such definition also applies to Indy Car and support series events. IX. WAIVER AND RELEASE FROM LIABILITY The insurance policy must require the utilization of a system at all CART Events which secures properly executed and signed "Waiver and Release from Liability" forms from all participants. The procedure for obtaining such executed waivers from CART participants shall be determined by CART. X. GENERAL SPECIFICATIONS 1. The insurer must be admitted or approved to write insurance in the state, province and country where the insured track is located. The broker or agent must be licensed to transact business in the state, province and country where the track is located. It is Organizer/Promoter's responsibility to inform all participants of all coverages and conditions available throughout the Event. 2. The insurer must have a minimum of a Best A rating, and the name of the insurer must be supplied to CART for the purposes of confirmation. 3. The insurer must formally agree to send duplicate notice of cancellation to CART in the event of cancellation a minimum of thirty (30) days in advance of the cancellation. The reason for the cancellation must be included with this notification. The insurer must also formally agree to immediately notify CART of each instance of the insured's failure to remit proper premium or other required payments. 4. The agent or broker must submit a narrative explanation of systems, procedures and authority for adjusting and paying liability and participant accident claims. PROCEDURES FOR OBTAINING APPROVAL OF AND UTILIZING INSURANCE COVERAGE 1. Any request or submission for approval of insurance coverage not meeting the minimum specifications and requirements or procedures will not be accepted. 28 2. To obtain approval for sources of insurance, Organizer/Promoter or its insurance broker must submit a certified true specimen copy of the proposed policy forms to CART at least ninety (90) days prior to the first date proposed to be insured by the insurance. 3. CART will notify the party submitting the request in writing of the acceptance or rejection of insurance submissions within fifteen (15) days of receipt of the submission. Only formal written approval of the acceptance of insurance coverage by CART shall be considered valid. 4. Upon acceptance, Organizer/Promoter must provide CART a certified true copy of the actual policy of insurance issued to track operators or Organizer/Promoter at the time of issuance and no later than thirty (30) days prior to the first day of the Event. 5. Should Organizer/Promoter fail to comply with the above requirements, CART shall have the right to purchase the insurance and obtain reimbursement from Organizer/Promoter. 6. PARTICIPANT ACCIDENT INSURANCE FOR CART PARTICIPANTS Organizer/Promoter shall reimburse CART for the cost of participant accident disability, medical and life insurance which minimum coverages for 1995 are as follows: Accidental Death and Dismemberment $ 50,000.00 Primary Accident Medical $ 150,000.00 Excess Major Medical $ 350,000.00 Weekly Disability (to 104 weeks) $ 250.00 Monthly Disability (to 48 months) $ 300.00
29 SCHEDULE "C" UNIFIED CREDENTIAL SYSTEM AND FACILITY ACCESS PROVISIONS CART SEASON CREDENTIALS (PLASTIC PICTURE IDENTIFICATION) A. TEAMS Each CART Owner Membership is entitled to a maximum of forty (40) CART picture I.D. license/credentials upon acceptance of application and payment of fees due CART. Additional license/credentials (41-100) may be purchased at a cost of $185.00 each per season. Revenues derived from such purchases less $25.00 per credential will be divided equally among all CART Organizer/Promoters. These license/credentials are to be issued to team members, i.e., owner, team manager, chief mechanic, crew members, designated team and/or sponsor public relations representative and any other associates the owner desires within the allotted maximum number. This credential will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the IndyCar race. B. DRIVERS Each driver will be issued a permanent CART picture license/credential. An additional picture license/credential will be issued to the driver's spouse or companion. Both credentials will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the IndyCar race. C. INDY LIGHTS OR CART OFFICIAL SUPPORT SERIES CART will provide credentials to Indy Light competitors, sponsors and suppliers pursuant to provisions in the contract between CART and American Racing Series. D. OFFICIALS Each CART official will be issued a permanent CART picture I.D. license/credential. This credential will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the IndyCar race. 30 E. SUPPLIERS AND AWARD POSTERS A reasonable number of suppliers and award posters will be issued credentials as determined by CART. These credentials will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the IndyCar race. Commencing in 1996, each CART authorized supplier and award poster shall be entitled to a maximum of five (5) credentials at no charge. Additional credentials may be purchased at a cost of $100.00 each per season. Revenues derived from such purchases less $10.00 per credential will be divided equally among all CART Organizer/Promoters. F. MEDIA CART will issue a limited number of credentials to nationally and internationally recognized print journalists and photographers covering the majority of Series Events on assignment for recognized media. They will clearly be marked "MEDIA" and "PHOTO" respectively. Television talent and key production staff are also credentialed and marked "TV". All media, photo and TV credentials will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the IndyCar race. G. SPONSORS A reasonable number of CART sponsors will be issued credentials as determined by CART. These credentials will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the IndyCar race. Commencing in 1996, each CART sponsor shall be entitled to a maximum of five (5) credentials at no charge. Additional credentials may be purchased at a cost of $500.00 each per season. Revenues derived from such purchase less $50.00 per credential will be divided equally among all CART Organizer/Promoters. 31 EVENT CREDENTIALS (PROVIDED BY THE ORGANIZER/PROMOTER) A. ISSUED BY CART: 1. ASSISTANTS Organizer/Promoter shall make Event credentials available to CART for those persons assisting CART Officials. These credentials shall be the same type of credentials as those issued by Organizer/Promoter to others assisting in the production of the Event and will permit access to the facility and restricted areas including the it areas at all times during any CART Event. At specified events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the IndyCar race. 2. SPONSORS For each Owner Membership accepted by CART the entrant may be entitled to a maximum of twenty (20) credentials per accepted membership for team sponsors. These credentials will permit access to the facility and restricted areas during CART activities. Access to the pit area will be terminated thirty (30) minutes prior to the start of and during the CART race. Each credential purchased hereunder shall apply to all CART sanctioned events during the season and shall be purchased at a cost equivalent to the sum of $45.00 for each permanent race circuit on the schedule and $55.00 for each temporary race circuit on the schedule. Revenues derived from such purchases will be divided equally among all CART Organizer/Promoters. 3. ADDITIONAL CREDENTIALS, PASSES, TICKETS AND PARKING Organizer/Promoter will provide CART with additional credentials, passes, tickets and parking to be utilized as stated below for distribution at the discretion of CART. a. CREDENTIALS AND PASSES General - Forty (40) corporate village suite passes or other mutually agreed upon passes and credentials; Three Hundred (300) credentials for distribution by CART; Drivers - Four (4) credentials to each participating IndyCar driver; U.S. Television Network - Promoter will provide all IndyCar Productions and network & international network television crews with specifically designated all access "NETWORK" TV credentials, which accord production personnel free and unrestricted access to the site of the Event and all associated areas, including all 32 media areas and activities, broadcast facilities, practice & qualifying and race pit activities, and all other areas, and also including hospitality and restricted trackside areas for the sole purpose of producing coverage of the Event. This "NETWORK" TV credential should be restricted for distribution to and use by IndyCar Productions and network television crews only. Individuals accredited by an CART Season Credential marked "TV" should receive access to the same areas as any credential issued by the promoter to the television production crews; International Television Networks - Same as U.S. Television Networks; designated "NETWORK" TV; IndyCar Radio Network - Promoter will provide the IndyCar Radio Network crews with general media credentials, but which specifically allow access to all media areas and activities, broadcast facilities, practice & qualifying and race pit activities, and, when requested by CART, access to restricted trackside areas. "NETWORK" TV credentials are acceptable, CART to coordinate; Indy Lights - Organizer/Promoter will provide Event credentials for Indy Lights sponsors, suppliers, and guests. CART to coordinate. b. TICKETS General - Fifty (50) tickets (prime location seating) for intended use by CART's TV network; Fifty (50) tickets (deluxe grandstand seating) for use by CART - received thirty (30) days prior to race day; c. PARKING General - Twenty-five (25) parking passes for corporate village suite guests; U.S. Television Network - Parking passes shall be provided by Organizer/Promoter up to a total of (10) ten. Ten (10) service vehicle passes to allow delivery and servicing of equipment to all areas of Event, excluding track access. For road & street courses, an additional three (3) on-track access passes for delivery and servicing of equipment under radio-controlled supervision of race control and track security. CART to coordinate; International Television Networks - Parking passes shall be provided by Organizer/Promoter up to a total of three (3) per attending network, preferably in general media or general network TV parking areas. One (1) parking pass to allow equipment delivery as close as possible to these booths. CART to coordinate; IndyCar Radio Network - Parking passes shall be provided by Organizer/Promoter up to a total of (3) three, preferably in general media or general network TV 33 parking areas. One (1) parking pass to allow parking or equipment delivery as close as possible to radio booth. CART to coordinate; Deadline Media - At least twenty-five (25) parking spaces for deadline media in the vicinity of the press area, which convenient overflow parking; Competitor Transporter Space - each entrant (i.e. each separately entered car/driver combination) will be allocates sufficient parking space in the paddock for one (1) transporter and work area (minimum 85 feet x 31 feet); Competitor Motor Coach/Hospitality Space - Each entrant (i.e. each separately entered car/driver combination) will be allocated sufficient parking space for (1) motor coach (minimum 50 feet x 15 feet); Additional space over and beyond the 50 feet x 15 feet will be charges to the teams; Owners/Drivers/Team Affiliates/CART Officials & Staff - Organizer/Promoter will designate a parking area which will accommodate owners, drivers, team affiliates and CART officials and staff. Such area will be located in close proximity to the paddock and/or garage area. Decaled vehicles supplied by CART's Official car and truck suppliers and IndyCar owners and drivers will have access to park in the paddock or motor coach areas. The number of passes required will be mutually agreed upon by Organizer/Promoter and CART's Manager of Customer Services/Registrar; CART Business Coach - Organizer/Promoter shall provide space in an area easily accessible from the pit and paddock for the parking of CART's business coach; Supplier and Manufacturers - Organizer/Promoter will provide parking and work areas in the paddock for suppliers and manufacturers that provide entrants with products and services; Indy Lights or CART Officials Support Series - Organizer/Promoter will provide an area in the paddock for Indy lights transporter parking, competitor work areas, administrative functions and technical inspection. An area close to the paddock for team parking will be available. B. ISSUED BY PROMOTER: 1. RACE PIT CREDENTIALS This Event credential, provided by Organizer/Promoter for issue by the organizer/Promoter and CART allows the bearer access to the facility, paddock/garage and the pit area at any time during a weekend racing Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes 34 prior to and during the IndyCar race. Persons with this credential must remain behind the pit wall during on track activity. The dress code will be in effect during races with scheduled pit stops. 2. PRACTICE & QUALIFYING CREDENTIALS This Event credential, provided by Organizer/Promoter for issue by Organizer/Promoter and CART allows the bearer access to the pit area during all on track activity except races when scheduled pit stops are a part of the race. Persons with this credential must remain behind the pit wall during on track activity. The bearer must leave the pit lane thirty (30) minutes prior to the start of a race with scheduled pit stops. 3. REDEEMABLE CREDENTIAL This credential provides the bearer general admission and paddock/garage area access, but does not allow admission into other restricted areas. To gain access to the pit area, the bearer must present the credential for validation or reissue and sign the proper waiver at a redemption center. The redemption center will be operated by CART or Organizer/Promoter and will be located in the infield, paddock or other area mutually agreed upon by CART and Organizer/Promoter. The purpose of this credential is to allow distribution of credentials to V.I.P.'s that would be issued a pit access credential prior to the Event. This system will ensure easy access to the facility and not allow pit access until the proper waiver is signed. 4. MEDIA Organizer/Promoter shall issue credentials to media personnel in accordance with the criteria established by CART and Organizer/Promoter to meet local market obligations. C. All credentials shall be plainly market "RACE PIT" or "PRACTICE & QUALIFYING PIT", "MEDIA", "PHOTO", etc. Terms such as "HOT PITS" or "COLD PITS" are not acceptable. RULES 1. Credentials are not transferable. 2. Persons in restricted areas may not enter team areas unless invited, must obey the instructions given by CART officials and security personnel in regards to their safety and well being and may not interfere in any way with the activities of CART participants or the Event. All credentialed persons are bound by the rules set forth in the IndyCar Rule Book which pertain to conduct and safety. 35 3. Persons not properly attired must leave the pit area thirty (30) minutes prior to the scheduled start of the race. Proper attire is defined as including the following tenets: A. Shorts are not permitted. B. Shirts fully covering the shoulders must be worn at all times. C. Open-toe shoes are not permitted. IMPLEMENTATION 1. All security, gate guards, pit workers, registrars and staff members with activities that may be affected by this policy, will be notified of this policy. 2. All CART Owners, Drivers, team Managers, Chief Mechanics and corporate Sponsors will be notified of this policy. 36 SCHEDULE "D" PPG PROGRAM AND OFFICIAL CARS PACE CARS The PPG pace cars will serve as the Official Pace Cars at all IndyCar Events sanctioned by CART and shall be the only pace cars referred to as "Official Pace Cars" in any advertising, publicity, or promotion of a CART Event by the Organizer/Promoter. Track announcers shall identify the PPG pace cars during the parade laps and continue to identify the starting PPG pace car when it starts the race and when it is on the track during caution flag periods. SIGNS AND FLAGS A. Organizer/Promoter shall furnish PPG at no charge with one (1) location for a painted sign, highly visible to the principal grandstands and to television cameras covering the race. PPG will assume responsibility and cost for painting the sign. B. PPG shall receive preferential treatment in placement of temporary banners, signs, and flags at each track for CART Events only. Where there is a tower, or two towers, PPG's banner shall be placed in a center location, separate and apart from all other signs and banners. PPG shall receive at no charge at least two (2) choice locations at each track. Additional placement of PPG signs and banners will be in such locations as may be determined by discussions between Organizer/Promoter and representatives of PPG. TICKETS AND CREDENTIALS Organizer/Promoter shall provide choice seating locations for PPG when it makes ticket purchase for its customers at the same rates, including discounts, provided any other corporation or group. Also, Organizer/Promoter shall provide PPG with a reasonable number of pit passes and parking stickers at no cost. PROGRAM Organizer/Promoter shall provide PPG with one (1) full-page, full color ad, for which PPG will furnish color separations, and one (1) full-page of editorial in their program at no cost to PPG. VICTORY LANE A banner bearing the words "PPG Indy Car World Series" shall appear above the banner of the race sponsor on all podiums or stands in Victory Lanes or Winners' Circles. Or, where a painted 37 podium is used, "PPG Indy Car World Series" logo shall appear just above the logo of the race sponsor in at least equal size. The backdrop built, maintained and transported by PPG shall serve as the official and only backdrop unless PPG's Racing Coordinator agrees for substitution of a special backdrop built by Organizer/Promoter to specifications and approval of the PPG racing Coordinator. NEWS RELEASES The CART-sanctioned PPG Indy Car World Series and/or PPG Cup shall be identified in all news releases and publicity issued by Organizer/Promoter, and such race shall be identified as part of the Series, i.e., "... second race in the PPG Indy Car World Series." DISPLAY IN WORK AREA Organizer/Promoter shall provide an area for the display and maintenance of the PPG Pace Car fleet as required by PPG and CART. PPG ON TRACK ACTIVITIES The Event schedule will include time for PPG on track activities. The scheduling (placement and allotted time) of these activities will be consistent with Paragraph 26 of the Organizer/Promoter Agreement and Schedule E. OFFICIAL CARS In the event that Organizer/Promoter is able to obtain an official car from a national automobile manufacturer and/or its local auto dealer, the parties agree to designate that car as the Official Car of the Event and Organizer/Promoter shall obtain any revenue derived as a result of the participation of the national automobile manufacturer and/or its local dealer as a sponsor. In the event that the national automobile manufacturer from which Organizer/Promoter obtains a car is a manufacturer of a participating PPG car (whether such car is obtained by the Organizer/Promoter directly from the manufacturer or from a local dealer), CART agrees that such official car, if represented in the PPG fleet, or if not so represented, such other model produced by said manufacturer which is represented in the PPG fleet as may be selected by such manufacturer shall be designated by CART as the Official Pace Car of such Event. 38 SCHEDULE "E" EVENT ACTIVITIES INDYCAR ACTIVITIES The appropriate (road course, oval or 500 mile) standard IndyCar schedule will be in effect at all Events. OFFICIAL SUPPORT SERIES AND PPG PACE CAR ACTIVITIES Indy Lights or CART's official support series shall be entitled to compete at this Event at no cost to CART or the support series. CART shall have the right to schedule, at any time during the Event, including race day, its official support series event as part of the overall CART activities. Standardized schedules similar to the IndyCar standard format schedules will be developed for PPG Pace Car on track activities and CART's official support series. OTHER SUPPORT RACE ACTIVITIES Any additional motor racing events must be approved by CART's Vice-President of Operations. These activities will be scheduled in a manner which will minimize any interference with any scheduled IndyCar, Indy Lights or CART's official support series and PPG Pace Car on track activities. Support activities should be selected to provide an appropriate complement to IndyCar activities and must be a balanced program and offer good entertainment value to the fans. A one half-hour break between scheduled competition activities is recommended. All on track support activities must be sanctioned by a recognized FIA affiliate. A formal sanction agreement executed between the sanctioning body and the event organizer must be on file with CART. This agreement must verify the performance and obligations of the sanctioning body and the event organizer and must not infer any organizational or operational responsibility to CART. These activities must be held in compliance with the sanctioning body's rules. The participant accident and liability insurance limits and carrier must be acceptable to CART. In addition, celebrity events must comply with the following: 1. All drivers must have successfully completed both classroom and on track instruction. 2. Race cars must meet the safety requirements prescribed by the sanctioning body of record and as a minimum must be equipped as follows: a. A seat that provides proper driver support in case of impact. b. A five (5) point competition seat belt and harness. c. Rollover protection i) roll cage for closed-wheel production-type or -based vehicles ii) roll hoop for sports race and open-wheel race cars 39 d. The electrical system must include an accessible master switch and an impact/rollover switch. Both of these devices must interrupt the current to all onboard circuits. 3. Historic and vintage car practice, qualifying, race or exhibition activities will not be scheduled as part of this Event. ENTERTAINMENT ACTIVITIES Parades, exhibitions, stunts and other entertainment activities must be scheduled in a manner which will not interfere with any racing activity. CART does not accept any organizational or operational responsibility for these activities. These activities must be held in compliance with any applicable local, state or federal guidelines or regulations. Event liability insurance must be in place to cover these activities. 40 SCHEDULE "F" POST RACE PROCEDURES/ACTIVITIES The following post-race Victory Circle procedures are to be followed by all drivers, teams, sponsors, promoters, track and security personnel, P.R. representatives and the media. Procedures may vary at individual tracks by prior arrangement between Organizer/Promoter and CART. In the event of such change, notification will be made in the Drivers Meeting and in the Press Room. The objectives of these procedures are to develop a uniform handling of the victory Circle procedure in order to provide for a safe conclusion to the Event, protect the integrity of the live television coverage of the Event, and to present the winning drivers to the fans and the media in a organized fashion that showcases the sport, and the sponsors who support it, in the most positive way possible. These procedures are meant to provide a guideline for the ideal handling of the conclusion of the Event. Some of these procedures or the order of them may be modified to take advantage of the physical properties of the Competition. It is not meant in any way to deter the spontaneity or enthusiasm associated with winning the race. VICTORY CIRCLE PROCEDURES 1. The backdrop supplied by PPG will be the exclusive backdrop used on the victory stand for all CART Competitions. The backdrop may not be covered over. Its appearance or function may not be changed without permission of the PPG Director of Racing. 2. Security sets temporary fencing across from the track at designated location near the finish line and along the side or sides of the track to form a "U" shape into which the cars will drive. Security will coordinate with the Assistant Technical Director. All personnel are reminded of the IndyCar Rule Book which prohibits the crossing of the track and pit areas while hot. 3. Accredited photographers move behind security on up track side to await the top three (3) cars. 4. The top three (3) cars stop perpendicular to security line side by side. Or, alternately, winning car pulls into permanent track Victory Circle where available. 5. Security sets temporary fencing across track behind top three (3) cars, totally surrounding the cars, however, establishing two (2) entry points on opposite ends of the Victory Circle for access. The following personnel will be admitted: CART officials, TV and radio crews, owners/teams, drivers's immediate family, key sponsor executives, senior track and security, limited other personnel as determined by CART. 41 6. CART TV Coordinator gives Goodyear Hat or appropriate tire manufacturer to winner for television interviews. Television interviews will be conducted in the following order with priority given to live shows over tape: a. Host TV broadcaster b. Foreign TV broadcaster c. Network radio - if live d. Local radio - if live e. IndyCar Productions Note that with three (3) drivers available, some interviews may occur simultaneously. Live television will have preference of interviewing drivers one, two and three without wait. Teams, P.R. representatives, sponsors and other should respect the integrity of the television broadcast and act appropriately. All three (3) drivers should be respected. No unauthorized hats, products, signs, etc. may be thrust in front of Television cameras. No hats may be exchanged during televisions interviews or in front of the camera. 7. PPG/Title Sponsor Victory Podium Truck, if applicable, moves into position during interviews. 8. After all television/radio interviews, top three (3) drivers proceed to Victory Podium Truck or permanent podium where available. Security will provide escort for drivers. In the event Television is still live, security will expedite same. 9. Drivers will be presented and interviewed by the track announcer on stage in the following order: 3-2-1 10. Trophies are presented by executive presenters according to agreement between Organizer/Promoter and CART. Event title sponsor hats are worn. Beauty queens should not be on stage unless stated in pre-existing agreements with title sponsor. 11. Winning owner(s) are present on podium for presentation of Trophy. 12. First round of photography. Executive presenters and/or owner(s) leave platform. 13. CART TV Coordinator effectuates changes of driver's hats for still photography session(s). This sequence will not appear on television. Hats will be accommodated in the following order: a. PPG Industries b. Team Sponsor(s) c. Limited number of additional sponsor(s) only by prior agreement-time permitting 14. Champagne will be discouraged unless there is a prior sponsorship agreement, and will not be sprayed until all photo sessions are concluded. 42 VICTORY LAP Drivers should be showcased to the fans. CART Pit Reporters may accompany drivers if sufficient space is available. Upon completion of Victory Lap drivers proceed to Press Room for interviews. Security will provide proper escort. EX-10.7 13 EXHIBIT 10.7 1 EXHIBIT 10.7 CHAMPIONSHIP AUTO RACING TEAMS, INC. OFFICIAL ORGANIZER/PROMOTER AGREEMENT HOUSTON, TEXAS EXECUTION COPY as of: July 28, 1997 2 CHAMPIONSHIP AUTO RACING TEAMS, INC. OFFICIAL ORGANIZER/PROMOTER AGREEMENT The undersigned hereby applies for the right to conduct a PPG CART World Series race Competition sanctioned or co-sanctioned by Championship Auto Racing Teams, Inc. ("CART"), upon the following terms and conditions. It is understood that this is an application only until accepted and approved by CART in writing and that this Competition shall not be advertised or communicated to the public, press or any other media or business arrangement as having been approved by CART until this application has been so approved and until an official sanction has been granted by CART. Track: City of Houston Temporary Circuit Location: George R. Brown Convention Center Organizer/Promoter: Texaco Houston Grand Prix LLC Address: 500 Tower Parkway Lincolnshire, IL 60069 Telephone: (708) 634-8210 Facsimile: (708) 634-8208 Race Distance: 200 Miles Track Length and Type: 1.68 Miles, Temporary Street Circuit Postponed Date: Rain tires will be used DEFINITIONS: A. The term "Competition" as used herein shall include the annual Indy car race(s) designated hereinabove, as well as all time trials, practice runs and rain or postponed dates related thereto. B. The term "Event" as used herein shall include the Competition(s) as well as any other race(s), race-related activities or any other activities associated with the Competition(s), as approved by CART hereunder. C. The terms "Dollars" and "$" refer to the lawful currency of the United States of America. D. References in this Agreement to "PPG" shall be to PPG Industries, Inc., or (where applicable) any successor Series title or co-title sponsor. 1. A. Subject to compliance with all the terms and conditions set forth in this Agreement, Organizer/Promoter shall organize, promote and conduct a PPG CART World Series race Competition in the following year(s): 1998, 1999, 2000, 2001, 2002 and 2003. 3 B. The date for the 1998 race will be October 4, 1998. CART and Organizer/Promoter will mutually agree as to the date for the subsequent race(s). However, subject to television availability (network and/or major cable), the dates for such subsequent races shall be in accordance with the following agreed dates: 1999 - September 26 or October 10 2000 - October 1 2001 - October 7 2002 - October 6 2003 - September 28 or October 5 C. Organizer/Promoter agrees not to organize, promote, conduct, authorize or permit the staging of any other major motor racing event(s) at the track(s) designated hereinabove, without the approval of CART, within the following period of time either preceding or following any Competition hereunder: thirty (30) days. D. Provided Organizer/Promoter is not in default hereunder, Organizer/Promoter shall have the exclusive right to organize and promote each and every CART sanctioned temporary street course Indy car race held in the State of Texas during each year covered by this Agreement. E. The parties shall have a reciprocal right of first negotiation for the extension of this Agreement beyond the Events covered hereunder, through a reasonable period of good faith negotiation. F. The parties acknowledge that this Agreement is subject to and contingent upon the approval of the Houston City Council, which Organizer/Promoter anticipates will be given forthwith. Unless Organizer/Promoter notifies CART in writing on or before August 22, 1997, that such approval has not been given, this contingency shall lapse, and this Agreement will continue in full force and effect. 2. The total Organization and Rights Fee payable for the 1998 Competition shall be One Million Two Hundred Fifty Thousand ($1,250,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or One Hundred Eighty Seven Thousand Five Hundred ($187,500.00) Dollars by January 1, 1998. B. Thirty-five (35%) percent, or Four Hundred Thirty Seven Thousand Five Hundred ($437,500.00) Dollars by July 1, 1998. C. The balance due of Six Hundred Twenty Five Thousand ($625,000.00) Dollars not later than thirty (30) days prior to the date of the race. 4 3. The total Organization and Rights Fee payable for the 1999 Competition shall be One Million Four Hundred Fifty Thousand ($1,450,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or Two Hundred Seventeen Thousand Five Hundred ($217,500.00) Dollars by January 1, 1999. B. Thirty-five (35%) percent, or Five Hundred Seven Thousand Five Hundred ($507,500.00) Dollars by July 1, 1999. C. The balance due of Seven Hundred Twenty Five Thousand ($725,000.00) Dollars not later than thirty (30) days prior to the date of the race. 4. The total Organization and Rights Pee payable for the 2000 Competition shall be One Million Nine Hundred Fifty Thousand ($1,950,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or Two Hundred Ninety Two Thousand Five Hundred ($292,500.00) Dollars by January 1, 2000. B. Thirty-five (35%) percent, or Six Hundred Eighty Two Thousand Five Hundred ($682,500.00) Dollars by July 1, 2000. C. The balance due of Nine Hundred Seventy Five Thousand ($975,000.00) Dollars not later than thirty (30) days prior to the date of the race. 5. The total Organization and Rights Fee payable for the 2001 Competition shall be Two Million Four Hundred Fifty Thousand ($2,450,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or Three Hundred Sixty Seven Thousand Five Hundred ($367,500.00) Dollars by January 1, 2001. B. Thirty-five (35%) percent, or Eight Hundred Fifty Seven Thousand Five Hundred ($857,500.00) Dollars by July 1, 2001. C. The balance due of One Million Two Hundred Twenty Five Thousand ($1,225,000.00) Dollars not later than thirty (30) days prior to the date of the race. 6. The total Organization and Rights Fee payable for the 2002 Competition shall be Two Million Seven Hundred Thousand ($2,700,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or Four Hundred Five Thousand ($405,000.00) Dollars by January 1, 2002. 5 B. Thirty-five (35%) percent, or Nine Hundred Forty Five Thousand ($945,000.00) Dollars by July 1, 2002. C. The balance due of One Million Three Hundred Fifty Thousand ($1,350,000.00) Dollars not later than thirty (30) days prior to the date of the race. 7. The total Organization and Rights Fee payable for the 2003 Competition shall be Two Million Seven Hundred Thousand ($2,700,000.00) Dollars and shall be paid to CART as follows: A. Fifteen (15%) percent, or Four Hundred Five Thousand ($405,000.00) Dollars by January 1, 2003. B. Thirty-five (35%) percent, or Nine Hundred Forty Five Thousand ($945,000.00) Dollars by July 1, 2003. C. The balance due of One Million Three Hundred Fifty Thousand ($1,350,000.00) Dollars not later than thirty (30) days prior to the date of the race. 8. A. Organizer/Promoter expressly understands and agrees that said Organization and Rights Fees are intended to be net and are non-refundable except as expressly provided in this Agreement. If said Organization and Rights Fees are not paid to CART in the manner and by the time provided above, CART shall have the option to declare this Agreement terminated, in which circumstance CART will be relieved from any further liability or responsibility hereunder, and in addition, Organizer/Promoter shall forthwith pay to CART and CART shall be entitled to enforce collection of the total amount required under this Agreement as liquidated damages and not as a penalty, together with all costs incurred by CART in connection therewith, including reasonable attorney fees, and interest at the rate of twelve (12%) percent per annum. B. Organizer/Promoter shall not be responsible for any purse distribution whatsoever in respect to a Competition. CART must approve any and all awards given in conjunction with a Competition and/or for the PPG CART World Series. Organizer/Promoter agrees to provide driver and owner trophies in recognition and representative of the achievements of at least the first three (3) finishing positions in each Competition. 9. A. CART shall be responsible for providing not less than eighteen (18) entrants for each Competition. If CART is unable to provide eighteen (18) entrants for any Competition, Organizer/Promoter shall have the right to cancel such Competition, providing that Organizer/Promoter first informs CART in writing of such intent, and provided further that eighteen (18) entries have not been received within seven (7) days after receipt by CART of such notice. If Organizer/Promoter under 6 these circumstances exercises this cancellation right, it will be entitled to the return of the portion of the Organization and Rights Fee theretofore paid for such Competition. B. Either party hereto shall have the right to cancel a Competition due to a "force majeure". "Force majeure" shall mean any event or circumstances (whether arising from natural causes, human or governmental agency or otherwise) beyond the control of the parties including by way of illustration, but not by way of limitation, strikes, lock-outs or other labor disputes, civil strife, war, flood, fire, or acts of God. If there is an unexpected cancellation due to a 'force majeure", Organizer/Promoter will be entitled to the return of the portion of the Organization and Rights Fee theretofore paid, except that Organizer/Promoter agrees that CART may retain a sum equivalent to the necessary expenses reasonably incurred by CART and its teams in preparing for such Competition, which expenses shall be mutually agreed by the parties provided, however, that if the parties are unable to agree informally as to the amount of such expenses, such dispute shall be submitted to binding arbitration and the result of such arbitration shall be enforceable by any court having jurisdiction. C. If Organizer/Promoter cancels or fails to stage a Competition for any reason other than those mentioned within this paragraph 9, Organizer/Promoter shall forthwith pay to CART and CART shall be entitled to enforce collection of the total amount required under this Agreement as liquidated damages and not as a penalty, together with all costs incurred by CART in connection therewith, including reasonable attorney fees, and interest at the rate of twelve (12%) percent per annum. 10. Except as expressly provided herein, Organizer/Promoter owns and shall have exclusive control over all commercial rights to each Event including by way of illustration, but not by way of limitation, the right to sell and receive all the proceeds from Event sponsorships, signage, admission tickets, programs, novelties, concessions (including food and beverage), catering (including food and beverage), hospitality facilities, hotel rooms, expositions, displays, parking spaces, banquets and licenses to parades. 11. Organizer/Promoter shall assume and perform all organizational and promotional activities for each Event except as otherwise provided herein, including but not limited to business organization, promotional activity, management, marketing, general affairs, selling tickets, track maintenance and accommodations of the press, and further understands and agrees that CART disclaims any warranty expressed or implied, as to the potential success of any Event organized hereunder. 12. Organizer/Promoter shall organize and promote the races hereunder as major motor racing events. Organizer/Promoter shall have the right to on-site track entitlement, and revenues therefrom. On-site entitlement is to designate the title/name of the race at the venue, subject to CART approval which shall not be unreasonably withheld. CART shall approve the name "Texaco Houston Grand Prix", or any similar name. All media 7 releases, public announcements and public disclosures by either party or its employees or agents relating to this Agreement, including but not limited to promotional or marketing material, but not including any announcement intended solely for internal distribution at either party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of the disclosing party, shall be coordinated with and approved by the other in writing prior to the release thereof. 13. A. CART hereby grants Organizer/Promoter the non-exclusive right to use the CART name and logo in its promotion of each Event during the term hereof, in accordance with all provisions contained in this Agreement. Any logo, design, mark or representation made, formulated, or developed in conjunction with such Event shall be subject to the prior written approval of CART. B. Organizer/Promoter shall display in all advertising and publicity material including but not limited to news releases, posters, banners, program covers, brochures, tickets, passes, credentials and print and television advertising relating to each Event the phrase: "PPG CART World Series" and the logos of PPG and CART (as approved and supplied by CART). CART reserves the right to change such phrase and logo, including the identity of the title sponsor of the Series. Provided Organizer/Promoter notifies CART of its production schedule no later than January 1 of each year, in the event of a notification by CART to Organizer/Promoter of a change in phrase and/or logo after January 1 of any year, the reproduction of publicity materials already produced by the Organizer/Promoter prior to notification of such change shall be a the discretion of Organizer/Promoter, unless CART agrees to pay Organizer/Promoter the cost of the stock in inventory which would be unusable, should it elect to enforce reproduction of publicity materials already produced at the time of notification of such change. C. Organizer/Promoter shall include in its display of the CART logo the symbol to indicate that it is a registered mark. A sheet of camera ready art depicting these logos shall be provided by CART. Further, in promoting and advertising each Event, Organizer/Promoter shall promote the Competition as a part of the PPG CART World Series or as otherwise designated by CART. Organizer/Promoter shall provide such verification of compliance with the provisions contained in this paragraph 13 as CART may reasonably request. D. Organizer/Promoter shall not use the names, logos or trademarks of CART or PPG for any purpose other than as herein defined. E. Upon the expiration or termination of this Agreement for any reason, Organizer/Promoter shall cease and desist any and all use of the names, logos or trademarks of CART or PPG or any colorable imitation, variation or adaptation thereof. 8 F. CART and Organizer/Promoter shall promptly take such action as may be necessary to protect the names, logos and trademarks of CART and PPG against any infringement or threatened infringement or any common law "passing off". 14. Organizer/Promoter agrees that each Competition shall be organized, approved by CART and conducted in accordance with all applicable statutes, ordinances, regulations or other requirements of any government authority, the FIA (CART shall determine in its sole discretion the applicability of FIA requirements), and the CART Rule Book as amended from time to time and as the same may be modified or supplemented by any other rules, regulations, bulletins or releases that may be applicable to such Competition. CART reserves the right to terminate this Agreement at any time without further liability in the event of a material breach by Organizer/Promoter of said requirements, regulations, rules, or the terms and conditions of this Agreement, by so notifying Organizer/Promoter in writing, upon a five (5) business day notice of default/opportunity to cure, except where such breach requires immediate remedial action as reasonably determined by CART. CART shall notify Organizer/Promoter in writing of any alleged default and Organizer/Promoter shall have five (5) business days after receipt of such notice to cure the default; provided, however, if the nature of the default is such that it cannot reasonably be cured within five (5) business days, Organizer/Promoter shall not be deemed to be in default if it commences the cure within such five (5) business day period and thereafter completes the curative action within a reasonable time. Organizer/Promoter acknowledges receipt of a copy of the CART Rule Book. 15. Organizer/Promoter represents and warrants that it has or will have sole control of the track and of the premises upon which the track is located, including all facilities thereon, and that Organizer/Promoter has full authority to conduct each Event thereon as provided for herein for the defined scheduled term of each Event. 16. A. Organizer/Promoter shall provide at its expense during each Event the track, race course, and facilities in good repair and ready for use, and Organizer/Promoter shall permit CART or its insurance broker or other designated representative, and the FIA (CART shall determine in its sole discretion the applicability of FIA requirements) to inspect the track, race course and/or facilities before, during and after each Event. Except as provided in paragraph 16C, all repairs deemed necessary in order for the track to meet CART's safety requirements must be made at Organizer/Promoter's expense and the failure to make the necessary repairs may result in the postponement or cancellation of such Event, in CART's sole discretion. The track site, design and condition shall be subject to review and approval by CART. Organizer/Promoter shall consult with CART on the layout and design of the track, including but not limited to the pit area, safety barriers, and other facilities for the Competition. B. Annually, seven (7) months prior to the next Event, Organizer/Promoter shall submit an engineering drawing(s) of proposed changes to the race circuit and other facilities for CART's approval. CART will have thirty (30) days to 9 acknowledge approval or request changes. CART shall have the right to inspect the circuit for the purpose of verifying that the circuit is being constructed in accordance with the drawings as submitted and approved. Within sixty (60) days after the execution of this Agreement, CART and Organizer/Promoter shall mutually agree on the specific track and facility improvements to be implemented for the 1998 Event, and a written summary thereof shall be prepared and appended hereto. Thereafter, a similar process shall occur within sixty (60) days following each Event, in respect to improvements to be implemented for the following year's Event. C. Any changes to the safety system requested by CART will be identified and communicated by CART to Organizer/Promoter within one hundred twenty (120) days after the conclusion of the 1998 Event and each subsequent Event hereunder. Absent unforeseeable supervening circumstances, the parties agree that the cost of such changes to be implemented for any Event hereunder shall not exceed ten percent (10%) of the Organization and Rights Fee for such Event. The foregoing cost limitation shall be construed to exclude Organizer/Promoter's capital improvements/investments (i.e., fencing, barriers, gravel traps, etc.), as well as changes to the safety system requested by any third party (i.e., not mandated by CART). 17. A. Organizer/Promoter shall provide at its expense such facilities as CART deems adequate for the use of CART personnel and those directly associated with the Event, including but not limited to race control facilities, facilities for participant registration, television, scoring, race car inspection, compiling and distributing media information, a media work area, and facilities and services as may be reasonably required by those who supply products and/or services for the Event. Further details of these and other operational and facility requirements of Organizer/Promoter are agreed to as outlined in SCHEDULE A attached hereto and made a part hereof. B. Organizer/Promoter at its expense shall provide, install and maintain the equipment necessary to operate CART's Timing and Scoring system, in accordance with the specifications supplied by CART, provided however, that Organizer/Promoter shall not be responsible for the costs of the initial installation of additional timing lines beyond those utilized in 1996 at other temporary street circuits. On street courses, this shall also include the annual set up and tear down of all antennas and cabling. Organizer/Promoter will provide CART's timing and scoring provider free of charge at the start/finish line, on the Timing and Scoring structure and at least one other prominent location, space to affix and display the logo and/or officially designated status of CART's timing and scoring provider. Organizer/Promoter shall not sell or secure any timekeeping sponsorship which would be in effect during any CART Event. 18. Organizer/Promoter shall at its expense furnish all facilities, personnel, equipment, and 10 services for accommodating and controlling the public during each Event, for whose safety and comfort Organizer/Promoter is solely responsible and liable. 19. Organizer/Promoter shall provide at its expense all necessary personnel as required by CART for the conduct of each Competition hereunder(other than the CART staff and officials), and Organizer/Promoter shall assume all the responsibilities pertaining to workers, volunteers and subcontractors necessary to properly staff the facility for the purposes of the Competition and the public for each Event weekend. 20. Organizer/Promoter at its expense shall obtain and maintain insurance for each Event and all scheduled activities with an insurance company approved by CART. Such insurance must conform to the minimum coverages, specifications, limits, etc., as set forth in SCHEDULE B attached hereto and made a part hereof. If Organizer/Promoter fails to maintain such policies with the required minimum coverage throughout the Event, CART may cancel such Event immediately without prior notice to Organizer/Promoter, or CART may, in its discretion, obtain the required insurance from an approved insurance company, with acceptable terms, at Organizer/ Promoter's expense. 21 Only those individuals approved by CART or Organizer/Promoter, including but not limited to drivers and pit crew and necessary fire, wrecker, ambulance and security crews, shall have access to or be allowed in the paddock, garage and pit areas, the racing surface, and other areas to which admission by the general public is normally prohibited during the Event, and Organizer/Promoter shall be solely responsible and provide sufficient security personnel in such areas to enforce this provision at all times during each Event. Such access must be in compliance with the CART Rule Book and may not interfere with or adversely affect the Competition. 22. Organizer/Promoter shall honor CART's Unified Credential System and shall comply with the facility access provisions implemented by CART, as set forth in SCHEDULE C attached hereto and made a part hereof, and as the same may be amended by future discussions and concurrence between CART and its race promoters through the promoter group. 23. CART shall have the exclusive right to contract out or to take or cause to be taken by others, make, broadcast, rebroadcast, use, reproduce, transmit, copyright, sell, license or otherwise dispose of for any purpose whatsoever, television pictures, sound film and tape, motion pictures, still photographs, electronic images and sound of each Event, including the non-exclusive right to market for commercial purposes the name, identity, likeness and logo(s) of the track, on a composite basis with other tracks where CART races are conducted. CART shall retain all national, international and local broadcast rights including broadcast television, cable and radio. Organizer/Promoter will assure that the presence of personnel and equipment for these or similar purposes shall not be inconsistent with the rights of CART herein provided and shall not interfere or conflict with the exercise of any such rights by CART as herein provided. 11 24. Organizer/Promoter recognizes and acknowledges that CART has entered or intends to enter into a television contract with a national broadcast or cable network for the coverage of each Competition hereunder. A. Detailed operational and facility requirements of Organizer/Promoter in respect to television and other on-site media are identified in SCHEDULE A. B. CART has arranged with the television production companies (subject to network approval) to provide the video portion of the program feed from the mobile unit to Organizer/Promoter, so that Organizer/Promoter may feed the video signal as a courtesy to the media center and hospitality suites. This feed is limited to on-site press and hospitality use only. Any other feeds to hotels, bars, or other establishment(s) whether on-site or off, are strictly prohibited. Organizer/Promoter shall be responsible for the installation and maintenance of appropriate cable originating at the television compound which will then feed the system. Maintenance and operation of the system is the sole responsibility of Organizer/Promoter. C. CART and Organizer/Promoter agree that it is in the best interest of the sport, its promoters and sponsors to have the same on-site and television title sponsor. CART and Organizer/Promoter recognize and agree that all television entitlements are derived from a privilege granted by the television network and are subject to network approval. In the event Organizer/Promoter provides CART with a television entitlement sponsor, such sponsor must agree to: (i) purchase one (1) of several commercial unit package options for either network or cable coverage to be published by CART or its designee each year, (ii) enter into a negotiated agreement with CART or its designee, or (iii) guarantee a payment for entitlement in return for which Organizer/Promoter will receive eight (8) thirty (30) second commercial units to package with its on-site title. The published rate option packages and payment option will be made available to Organizer/Promoter at least one (1) year in advance. D. Organizer/Promoter may, at its option, and subject to approval by CART or its designee and the appropriate network, elect to guarantee over-the-air broadcast network coverage of its Event. In this event Organizer/Promoter will be required to provide a television title sponsor subject to: (i) purchase of one (1) of several published minimum commercial unit packages, (ii) enter into a negotiated agreement with CART or its designee, or (iii) guarantee a payment for entitlement to be determined each year. In the payment option (iii) Organizer/Promoter will receive eight (8) thirty (30) second units in the telecast to package with its on-site title. E. In the event Organizer/Promoter elects not to provide CART with a television entitlement sponsor or to guarantee over-the-air broadcast network coverage, then CART or its designee shall have the option to secure a television entitlement 12 sponsor which need not be the same as the on-site entitlement sponsor. F. CART and Organizer/Promoter agree that the policy and terms set forth as a condition of television coverage of this Event may change from time to time, and, therefore, the television agreement may supersede portions of this Agreement. In the event that the television agreement supersedes a portion of this Agreement, CART will immediately notify Organizer/Promoter and work toward a mutually agreed upon solution. G. Notwithstanding any other provisions contained in this Agreement, Organizer/Promoter acknowledges and agrees to the following with respect to the scheduling and televising of the 1998 Event (and future events that require a race date that takes place in the fall): (i) October 4, 1998 is the only available date as mandated by Organizer/Promoter on which the 1998 race can be held; (ii) such date is not a readily available spot for either network or cable television coverage; (iii) CART has secured network coverage of the 1998 Event on a time buy basis, contingent upon CART's undertaking that, if the broadcast loses money, any such loss will be offset against CART's distributive share otherwise payable under its ESPN television agreement; (iv) the amount of any such offset, if any, shall be reimbursed by Organizer/Promoter to CART promptly upon receipt of an appropriately detailed accounting and invoice; and (v) there is no guarantee as to affiliate clearances with respect to such network broadcast. 25. Organizer/Promoter recognizes and acknowledges that CART has the right to contract for official sponsors for the PPG CART World Series, which need not coincide with specific Event sponsors, as well as to grant other official product designations on a Series wide basis, in CART's sole discretion. 26. PPG shall have the exclusive right to provide any and all pace cars throughout the entire Event. In addition, only PPG pace cars shall be allowed to participate in the parade laps immediately preceding the start of the Indy car race. Further details of these and other responsibilities of Organizer/Promoter to PPG are agreed to as outlined in SCHEDULE D attached hereto and made a part hereof. 27. Organizer/Promoter agrees that the scheduled CART activities during each Event, including those associated with the Competition, PPG Pace Car on track activities, and CART's official support series, Indy Lights, shall have priority over any other race or other activity scheduled during such Event. Organizer/Promoter will not schedule any supporting races or ancillary activities on the same day as registration or inspection, or on any other day during an Event, without prior written approval of CART. Further details of these and other scheduling considerations/requirements are agreed to as outlined in SCHEDULE E attached hereto and made a part hereof. 28. CART shall conduct grid/pre-race activities which shall include but are not limited to the pole awards, other contingency award activities, driver introductions, etc. 13 29. CART shall conduct mutually agreed upon Victory Circle proceedings. Details of these proceedings and the requirements of Organizer/Promoter in regard thereto are agreed to as outlined in SCHEDULE F attached hereto and made a part hereof. 30. CART shall have reasonable access to the PA system in order for CART to fulfill its contractual obligations to its sponsors and inform participants and spectators of activities during the Event. 31. A. CART merchandise, as supplied by CART or its licensed representative, will be afforded the opportunity to be sold from its own official concession stand to be located in a prominent, high-traffic location, generally near the paddock area. CART or its licensed representative shall pay to Organizer/Promoter $1,500.00 for each CART concession stand provided by Organizer/Promoter. Selected items of merchandise may also be prominently offered for sale in the track concession sales booths. Merchandise placed in the track concessionaire booths will be done so on a consignment basis with the concessionaire given a forty (40%) percent discount on the retail price of all merchandise sold. Retail prices will be agreed upon in writing prior to the merchandise being placed in concessionaire booths. All accounting will be completed by noon of the day following the conclusion of each Event. All payments will be made and unsold merchandise returned at the same time. B. It is Organizer/Promoter's responsibility to insure that any and all concessions and/or merchandise is properly licensed. In the event that CART discovers any unlicensed products, it will have the right to take appropriate action in its sole discretion. C. All CART Indy car teams will be afforded the opportunity to sell merchandise within the confines of the race facility. All teams will be in a prominent, high-traffic location. Participating teams will pay a rights fee for the location, which fee shall be (i) consistent with the then current market price and (ii) no less favorable than the terms and conditions provided to other vendors located within the same area. 32. In conjunction with the CART Winner's Circle Club, Organizer/Promoter shall provide at its expense: A. Limited access to restricted areas for club members during group tours and club functions. B. Inclusion of a CART Winner's Circle Club advertisement in the official race program. Camera ready art shall be provided by CART or its designee. 14 C. Covered facility for meetings with a PA system. 33. Organizer/Promoter shall cooperate with CART in its spectator research efforts, including but not by way of limitation allowing CART representatives access to spectators for personal interviews and questionnaire distribution and inclusion of a CART questionnaire in the official race program, for which camera ready art will be provided. The results of such research shall be made available to Organizer/Promoter. 34. A. CART shall have the right to designate up to seven (7) exclusive sponsorships utilizing the following entitlements to be provided by Organizer/Promoter for each sponsorship at no cost to CART except as otherwise stated: - Series-wide product category exclusivity; - Twenty Thousand ($20,000.00) Dollar hospitality credit which can be applied to facility, food and beverage; - Acknowledgment by Organizer/Promoter as an Event sponsor, with such recognition to include all entitlements normally afforded an associate Event sponsor; - Inclusion in the Event press kit; - One full page, four-color advertisement in the Event souvenir program; - One page of editorial in the Event souvenir program; - One 40' x 40' expo/sampling space; - Twenty (20) big screen messages (street courses only); - Twenty (20) public address announcements over Event weekend; - One Hundred (100) grandstand admission tickets; - One Hundred (100) restricted area credentials; - Track side signage, which receives significant exposure to the global audience; CART and Organizer/Promoter to agree on size and placement; All costs associated with the design and production of the advertising page and wall signs shall be borne by Sponsor. For each such sponsorship sold by CART, Organizer/Promoter shall receive One Hundred Thousand ($100,000.00) Dollars in return for the above listed entitlements. The parties acknowledge the following categories represent acceptable potential sponsorships: - payment systems - confectionery - snacks - film - camera - electronics (i.e., television, hi-fi, audio, etc.) - long distance 15 B. Organizer/Promoter shall provide CART with two (2) pages in the Event Program without charge for CART's own use. CART's placement of advertising within the Program shall be sensitive to Organizer/Promoter's existing commercial and promotional relationships. C. Organizer/Promoter recognizes that each participating team has a race sponsor. Organizer/Promoter agrees that each team may place its team name and sponsor(s) on both sides of the wall in the team's assigned pit box, subject to applicable governmental laws and regulations. 35. Organizer/Promoter shall provide CART at no cost a chalet or other mutually agreed upon hospitality provisions for not less than forty (40) guests per day. Hospitality provisions will include food and beverage (alcoholic and non-alcoholic) as associated with such hospitality provisions. Organizer/Promoter shall also provide CART at no cost ten (10) passes for guests of CART's choice to a pit row suite. 36. If appropriate as determined by CART in its sole discretion, each Competition shall appear in the FIA calendar as a full international FIA event. Organizer/Promoter agrees to file this listing through CART and reimburse CART for all applicable listing fees. In addition, Organizer/Promoter agrees to pay through CART the applicable National Motorsports Council assessments, as determined by the Council's Executive Committee. 37. Organizer/Promoter agrees to indemnify and hold harmless CART, its directors, officials and officers, participants, agents and employees, members and sponsors from any and all liabilities and all costs and expenses, including attorneys fees incurred in the defense thereof, asserted or imposed upon CART, its directors, officials, official representatives, employees, officers, members and sponsors arising out of or as a result of an Event hereunder, or in any way related to third party claims of any nature in any way related to previous discussions and negotiations with any third party regarding the staging of a CART race event in Houston, Texas. 38. Organizer/Promoter agrees not to take any action adverse to the interest of CART and, in consideration of the acceptance and approval of this application, releases and discharges CART and its officials and representatives from all liability for personal injury that may be received, and from all claims and demands for damages to real or personal property or to any person growing out of or resulting from an Event hereunder, whether caused by any construction or condition or any track or track equipment, cars or debris, or resulting from any act or failure of any official or any person assisting the officials serving in connection therewith. 39. Nothing contained herein shall be construed to place CART in the relationship of a partner or joint venturer with Organizer/Promoter, and Organizer/Promoter shall have no power to obligate or bind CART in any manner whatsoever other than as specifically provided 16 for herein. Neither party undertakes by this Agreement to perform any obligations of the other, whether regulatory or contractual, or to assume any responsibility for the other's business or operations. 40. The validity, interpretation and construction of this Agreement shall be governed and construed by the laws of the State of Michigan. Any litigation commenced by a party to this Agreement as the result of any alleged breach of this Agreement shall be commenced in the circuit court for the County of Oakland, State of Michigan, or in the appropriate lower district court in said county, or in the U.S. District Court for the Eastern District of Michigan, and the parties hereby consent to such personal jurisdiction. 41. This Agreement is not transferable or assignable. Any transfer or assignment in violation of this provision shall be void. 42. Any notice or written communication required or permissible hereunder shall be sent by registered mail (or certified mail with return receipt), postage prepaid, addressed as follows: To CART: To Organizer/Promoter: Championship Auto Racing Teams, Inc. Texaco Houston Grand Prix LLC 755 W. Big Beaver Rd, Suite 800 500 Tower Parkway Troy, MI 48084 Lincolnshire, IL 60069 43. A. This Agreement (including the Schedules annexed hereto) contains the entire agreement of the parties hereto and no representations, inducements, promises, or agreements, oral or otherwise, not embodied herein shall be of any force or effect. This Agreement may be modified only upon the written consent of the parties hereto. B. No waiver by either party, whether expressed or implied, of any provision of this Agreement or any breach or default shall constitute a continuing waiver thereof. C. Each and every of the rights, remedies and benefits provided by this Agreement shall be cumulative, and shall not be exclusive of any other said rights, remedies and benefits, or of any other rights, remedies and benefits allowed by law. D. If any provision in this Agreement is held to be invalid or unenforceable, it shall be ineffective only to the extent of the invalidity, without affecting or impairing the validity and enforceability of the remainder of the provision or the remaining provisions of this Agreement. 44. The parties acknowledge the importance of each party's reputation, good will and public image and, accordingly, agree to maintain and enhance such image by restraining from 17 taking any action contrary to the best interest of either party, or detracting from the reputation of either party. Each party shall refrain from making any statements about the other party that adversely affects, casts in an unfavorable light, or otherwise maligns the business or reputation of such other party or any of its principals. 45. At all times, the terms and conditions of this Agreement are confidential to CART, Organizer/Promoter, their parent companies and their respective subsidiaries, and shall not be disclosed to any other entity or individual without the other party's prior written consent. Notwithstanding the foregoing, disclosure may be made if necessary to enforce a party's rights under this Agreement, or if required by a governmental agency, in which case any and all documents, information, or materials disclosed shall be marked "confidential" and such party shall seek confidential treatment of such information. 46. The following Schedules are attached hereto, incorporated herein by reference as though set forth in their entirety in this Agreement, and labeled as follows: SCHEDULE A - OPERATIONAL, MEDIA, AND OTHER FACILITY/SUPPLY REQUIREMENTS SCHEDULE B - INSURANCE REQUIREMENTS SCHEDULE C - UNIFIED CREDENTIAL SYSTEM AND FACILITY ACCESS PROVISIONS SCHEDULE D - PPG PROGRAM AND OFFICIAL CARS SCHEDULE E - EVENT ACTIVITIES SCHEDULE F - POST RACE PROCEDURES/ACTIVITIES Any person or organization having responsibility in the organization, promotion or staging of any Competition, whether by contract or otherwise, shall co-sign this Agreement and shall be jointly responsible hereunder. Organizer/Promoter and the undersigned warrant and represent that Applicant has the full right and authority to enter into and perform this Agreement, and that the execution and delivery of this Agreement has been duly authorized by all necessary governmental and/or corporate action. Date 7/29/97 Texaco Houston Grand Prix LLC By: /s/ Carl A. Haas Its: Managing Member Date:______________________________ ______________________________ Co-Signer's Signature CART APPROVAL The foregoing application is hereby approved and accepted in accordance with the terms stated therein. Date: 7/29/97 Championship Auto Racing Teams, Inc. By: /s/ Andrew H. Craig Its: President and CEO 18 SCHEDULE "A" OPERATIONAL, MEDIA, AND OTHER FACILITY/SUPPLY REQUIREMENTS Pursuant to paragraph 17A of the Agreement, Organizer/Promoter shall provide at its expense except as otherwise specifically provided the following additional items. The specific items listed in this Schedule A reflect minimum requirements for certain areas, and should not be construed as inclusive of all necessary items Organizer/Promoter must provide. A. MEDIA CENTER FACILITIES Total capacity to be capable of accommodating a minimum of 120 people. Solid, climate controlled, weatherproof structures capable of supporting separate work area for CART Media Relations, Event Media Relations, Support Event Media Relations, deadline media, non-deadline media, and a dedicated separate media interview room. EQUIPMENT: Four (4) photocopy machines, three (3) of which shall be print quality high speed photocopiers with collating and stapling capability; Minimum of ten (10) large screen television sets/monitors (including audio) with direct video feed to on-track racing activities. B. ACCREDITATION FACILITIES LOCATION: - easily accessible by public transport - adequate car parking - within 15 minutes walking distance to the track 19 SIZE: - minimum of 12' x 30' working area - separate area for office and/or storage of computer cases - 20 ft. Minimum of table/desk space - seating for a minimum of 10 people - ample space inside/under cover to allow for queuing of guests - entrance and exit doors TEMPERATURE: - heating/air conditioning control to maintain adequate temperature for computers SIGNAGE: - directing people to registration area - "entrance" and "exit" signs to provide smooth flow - external signage upon leaving showing way to parking areas and entrances - identifying separate series within one credential area SECURITY: - all doors, windows to be lockable - in the case of a temporary structure an internal fully secure facility should be provided and/or overnight security. CLEANING: - the facility should be cleaned at the end of each day. C. OPERATIONS FACILITIES: Solid, quiet, climate controlled, weatherproof structure capable of accommodating a minimum of sixty (60) people. EQUIPMENT: One (1) print quality hi-speed photo copier with collating and stapling capability. (Option - CART may invoice Organizer/Promoter in an agreed amount in lieu of 20 Organizer/Promoter supplying this machine.) Three (3) golf carts for exclusive use by CART. One (1) for the Communications staff, one (1) for the CART C.E.O., and one (1) for CART broadcast services. COMMUNICATION CIRCUITS: Land line communication system connecting all trackside observer stations, pit in, pit out, pit center, race control and starter stand. Private land line communication circuit connecting timing and scoring, race control, pit center and starter stand. FUEL: Organizer/Promoter will provide fuel for all safety vehicles and the jet dryer: Track Dryer - Jet A - approximately 500 gallons Safety Vehicles - gasoline - approximately 200 gallons GENERAL: Minimum three hundred fifty (350) pounds of ice each day from Thursday until Sunday of race weekend (including any rain dates). Worker lunches and drinking water will be provided for each day of the Event weekend. CART will identify the quantity to be supplied. All areas and utilities shall be accessible for use by CART on or before 8:00 AM the Wednesday prior to the published race date. D. TELEVISION AND RADIO FACILITIES: Television Compound Area - Organizer/Promoter shall provide a level, hard-surfaced area approximately 150 feet x 150 feet for use by CART Productions and network television production mobile units, broadcast equipment, and personnel. Compound should be located as follows: Street Course: As close as possible to the announcement booth or as close to the majority of camera positions as possible, but definitely outside the course. Road Course: As close as possible to the announcement booth or as close to the 21 majority of camera positions as possible, but definitely outside the course. Oval Course: As close as possible to the announcement booth and allowing the most direct cable access to the majority of camera positions as possible, but definitely outside the course. Announcement Booths - Climate controlled. An Announcement Booth should be climate controlled, with air conditioning and insulation in the Booth. Booths should have a wide expanse of glare-proof (non-tinted) glass overlooking the pits and track. Sound deadening materials should be used in construction, including proper insulation, carpeting, panelling, and double-paned glass. The front window overlooking the track and pits should begin around 3.5 feet - 4 feet above the floor. Booth should also have windows on the sides of the booth facing the track, around 3-4 feet deep from the front of the booth, to provide sight lines up and down the track and pits. Where possible, back half of each booth should be elevated 4 inches - 6 inches (minimum) to allow raised sight lines for those working in rear of booth. A ledge/table should run the entire width of the front window wall, set under the window and should be well braced to support necessary video monitors, timing & scoring monitors, and audio equipment, etc. Ledge/table should extend two (2') feet into the room from the front-windowed wall, and where possible, should provide a removable cut-out against the wall, with a support brace under the cut-out, to allow monitors to be partially recessed on an angle within the ledge/table. Access panels, conduits (minimum 6 inch diameter), and cable troughs should be provided by promoter as necessary to allow cables to enter booth for video, audio, timing & scoring, and antennae feeds. Entry door should have a locking system installed, so that the room and equipment may be secured. A keyless or combination access system is preferred. Door should also have a mail slot for press releases, etc. Organizer/Promoter agrees to provide at its expense, a U.S. Television Network Booth, three (3) International Television Network Booths and a CART Radio Network Booth. As other international networks (more than three) may wish to originate commentary from the site of a CART event, CART may request, and Organizer/Promoter agrees to provide, additional announcement booths. CART agrees to provide at least thirty (30) days notice to Organizer/Promoter in such cases. All reasonable costs, subject to competitive bidding, associated with the construction and provision of any additional booths and required facilities (i.e. telephone, power, etc.) for international networks shall be the responsibility of the international networks. U.S. Television Network: 22 BOOTH SIZE: 15 feet x 15 feet booth. LOCATION: Should be placed on the outside of the track and nearest to the start/finish line, providing the widest view of the track and pits. Where possible, booth should be located alone or at one end of any row of booths or suites. CART Radio Network: BOOTH SIZE: 8 feet x 8 feet booth. LOCATION: Preferred placement on the outside of the outside of the track and nearest to pit center, providing the widest view of the track and, then, the start/finish line and pits. International Television Networks: BOOTH SIZE: A minimum of three (3) 8 feet x 8 feet (minimum) booths. LOCATION: Preferred placement providing the widest view of the pits and, then, the track and start/finish. Where possible, location should be on the outside of the track. ACCESS: Organizer/Promoter shall accord all broadcast networks and/or their designees the right to install and maintain at, and remove from, the site of the Event and associated areas such wires, cable, and apparatus as the network or its designee deems necessary for recording and/or telecasting the Event (provided that there shall not be any interference with the use of or means of ingress or egress at the site or associated areas). SECURITY: Organizer/Promoter must provide security, with radio communications, mutually agreed by the parties as sufficient, for all broadcast equipment in the television compound and around the track, including camera, remote, and booth locations. Security should be available from the first evening of arrival through the morning of the last day of departure of all broadcast equipment. Upon compliance with the security provisions contained in this paragraph. Organizer/Promoter shall not be liable for any claims based on the lack of sufficient security. ADDITIONAL FACILITIES: CART may also require, and Organizer/Promoter agrees to provide, additional space to 23 locate one (1) or more mobile announce booths to accommodate international networks, plus any required electrical power. All reasonable costs associated with the provision of power and other required facilities (i.e. telephone, etc.) for these additional international networks shall be the responsibility of the international networks. Location of the mobile booths will be mutually agreed upon. Other networks may mount cameras, in a manner not to interfere with the world feed, that would allow US and international networks to focus on different drivers. Most likely these positions would be near or across from pit lane. The location of these camera positions will be mutually agreed upon by Organizer/Promoter, the networks and CART. The networks would agree to provide at least 30 days notice of intent to supplement world feed cameras. EQUIPMENT VENDORS: Broadcast crews will use best efforts to achieve highest quality, lowest cost for renting equipment from Organizer/Promoter's exclusive source. If this cannot be achieved, then the exclusive track source will not apply to production company's needs. E. WINNERS CIRCLE FACILITIES: - A fenced, separate area, preferably away from pit lane - Photographers riser, placed proportionately to the podium - Raised podium - Two separate entrances: One for drivers, team owners and presenters only (if necessary, TV); the other for VIP's, sponsors and photographers F. CHAPEL Organizer/Promoter shall provide appropriate space and facilities for use as a chapel during all CART Events at a maximum cost to CART of $1,000.00. G. ELECTRIC/POWER REQUIREMENTS GENERAL: All power supplied shall be 60-cycle and should be clean and stable dependable power, as opposed to generator power, where possible. If "shore" power is not available, dedicated generator power must meet the requirements of the network television production company, including but not limited to: back-up power, redundant systems, frequency 24 controlled, and automatic switch-over features. Organizer/Promoter shall provide an adequate supply of electrical power to service all areas, consistent with the applicable function or activity therein. MEDIA CENTER: Organizer/Promoter shall provide CART Communications staff at least two (2) 110 volt, 20 amp, single phase circuits or equivalent with a minimum of eight (8) electrical outlets. Adequate power and at least one electrical outlet for each assignable seat for press in media center. ACCREDITATION FACILITIES: Organizer/Promoter shall provide at least one (1) 110 volt 30 amp, single phase circuit, exclusive of climate control and lighting, with a minimum of four (4) main power outlets. OPERATIONS: Radio Trailer 220v/240v 2 60 amp single phase 30 amp single phase Timing and Scoring 110v/115v 6 30 amp single phase Operations Trailer #1 220v/240v 60 amp single phase Operations Trailer #2 220v/240v 60 amp single phase Medical Center 220v/240v 100 amp single phase CART Business Coach 220v/240v 60 amp single phase Timing & Scoring Truck 110v/115v 50 amp single phase Battery Compound 220V/240V 60 amp single phase CART Fuel Compound 110v/115v 4 25 amp single phase (one common ground pursuant to local code) CART Tire Compound 220v/240v 2 60 amp single phase Scales 110v/115v 20 amp single phase * Each Entrant Pit 110v/115v 30 amp single phase * Each Entrant Pit 110v/115v 20 amp single phase Chief Stewards Trailer 220v/240v 50 amp single phase (* Entrant is defined as a race car with an assigned driver) TELEVISION AND RADIO: Organizer/Promoter shall ensure necessary lighting (minimum of 125 foot candles) is available for television coverage during the Event. 25 TV COMPOUND - U.S. NETWORK Mobile Unit #1 208v 200 amp 3 phase Mobile Unit #2 208v 200 amp 3 phase Uplink Truck #1 208v 150 amp 3 phase Office Trailer #1 208v 150 amp Single phase Office Trailer #2 208v 100 amp Single phase Mobile Support 208v 100 amp Single phase In-Car Camera 208v 60 amp Single phase RF Camera Truck 208v 60 amp Single phase TV COMPOUND - INTERNATIONAL NETWORKS Inet Mobil Unit 208v 200 amp 3 phase Uplink #2 208v 150 amp 3 phase Uplink #3 208v 150 amp 3 phase Uplink #4 208v 150 amp 3 phase REMOTE LOCATIONS RF Receive Site US #1 110v 20 amp Single phase RF Receive Site US #2 110v 20 amp Single phase RF Receive Site INET #1 110v 20 amp Single phase RF Receive Site INET #2 110v 20 amp Single phase ANNOUNCEMENT BOOTHS U.S. Network Production 110v 20 amp single phase U.S. Network Monitors 110v 20 amp single phase U.S. Network Audio 110v 20 amp single phase Radio Production 110v 20 amp single phase Radio Monitors 110v 20 amp single phase International #1 Production 110v 20 amp single phase International #1 Monitors 110v 20 amp single phase International #2 Production 110v 20 amp single phase International #2 Monitors 110v 20 amp single phase International #3 Production 110v 20 amp single phase International #3 Monitors 110v 20 amp single phase EACH ADDITIONAL INTERNATIONAL BOOTH 26 Additional Production 110v 20 amp Single phase Additional Monitors 110v 20 amp single phase Minimum of four (4) outlets per electrical circuit. Air-Conditioning/heating systems must be on separate circuits from those shown above. Without separate air-conditioning circuit, broadcast may be jeopardized. H. TELEPHONE REQUIREMENTS MEDIA CENTER: Twenty-five (25) direct and five (5) dedicated lines and instruments. The 25 direct lines may be restricted to local and "800" number access. The five dedicated lines are to be unrestricted and will be used exclusively by the CART Communications Staff. All charges related to telephone requirements are the responsibility of Organizer/Promoter. ACCREDITATION FACILITIES: - Two lines, one for telephone and one for facsimile OPERATIONS: As a minimum, the following areas must be supplied telephones which provide access to commercial telephone lines: Registration Operations Trailer - telephone and facsimile line Medical Center CART Business Coach Race Control Timing & Scoring (2 lines) Start/Finish line Chief Steward Trailer TELEVISION AND RADIO: Television Compound Area - Organizer/Promoter shall ensure twenty-five (25) pair telephone lines are permanently installed in television compound. 27 Announcement Booths - CART Radio Network: A maximum of eight (8) pair telephone lines permanently installed in booth, as in the past. International Networks: Eight (8) pair telephone lines permanently installed in each announce booth. I. GENERAL As the execution of the Competition and broadcast coverage of CART events is vital to the success and growth of the Series and each Competition, and as newer and additional technical facilities may be required to meet media, operational and broadcast production standards in order to enhance and upgrade the facility and broadcast quality, Organizer/Promoter agrees to provide reasonable additional space, power, facilities, or other services as may be requested by CART, on such terms as Organizer/Promoter and CART may agree. CART agrees to provide Organizer/Promoter as much advance notice as possible of these additional requirements. 28 SCHEDULE "B" INSURANCE REQUIREMENTS In an effort to protect the interest of track owners, Organizers/Promoters, sponsors, CART, its Members, Associate Members and participants, CART has established certain minimum criteria for insurance coverage which must be in effect for all CART Events. The insurance requirements for CART events consist of the following areas of insurance coverage: Spectator and Participant Legal Liability Insurance; and Participant Accident Insurance. The minimum specifications and requirements for acceptable coverage are: $10,000,000 LIABILITY INSURANCE (coverage must be primary) 1. POLICY FORM The policy must be a Comprehensive General Liability form and may be either a manuscript Automobile Racing policy or a Commercial General Liability policy with endorsements that provide the amendments required to cover automobile racing events. Coverage provided must include, but shall not be limited to: A. Spectator/Public Bodily Injury Liability B. Participant Legal Liability - Participant Bodily Injury Liability - Participant to Participant Liability C. Property Damage Liability 1. Including participants' property except when in restricted areas. 2. No more than a Fifty Dollar ($50.00) deductible. D. Refreshments/Products Liability including Concession Hard Goods and Host Liquor Liability. E. Personal Injury Liability, including false arrest, detention, imprisonment or malicious prosecution, libel and slander; wrongful entry or eviction. 29 F. Mobil Equipment Liability G. Incidental Medical Malpractice Liability including primary coverage for medical professionals. H. Temporary and Air Ambulance Liability. I. Off Premises Sign Liability J. Official Vehicle Physical Damage - Two Hundred Fifty Dollar ($250.00) maximum deductible. K. Contractual Liability 2. MINIMUM LIMITS OF COVERAGE CART reserves the right to change insurance limits as long as ninety (90) days notice is given to Organizer/Promoter. A. 1997 Event - $10 million combined single limits per occurrence for Bodily Injury and Property Damage with no aggregate limit. B. 1997 Event - $5 million minimum for Participant Legal Liability. Subsequent Events subject to 50% of limits in place in paragraph 2A. C. 1997 Event - $1 million Medical Malpractice Liability with $1 million aggregate per incident. Coverage to include Medical Professionals. (See paragraph 1 [G}). 3. NAMED INSUREDS Must include: A. CART, its officers, directors and employees; PPG Industries, Inc. B. CART reserves the right to add additional named insureds provided however, that notice be given no later than sixty (60) days prior to the Event. 4. PERSONS INSURED Must include: All participants, entrants, sponsors for this Competition, Event or the Series of which the Competition is a part, and CART Members and Associate Members. The definition of participants must include drivers, mechanics, pitmen, officials of the race, and those 30 assisting the officials, event staff, announcers, emergency and safety crews and security personnel and all other persons allowed access to restricted areas. Such definition also applies to CART and support series events. 5. WAIVER AND RELEASE FROM LIABILITY The insurance policy must require the utilization of a system at all CART Events which secures properly executed and signed "Waiver and Release from Liability" forms from all participants. The procedure for obtaining such executed waivers from CART participants shall be determined by CART. 6. GENERAL SPECIFICATIONS A. The insurer must be admitted or approved to write insurance in the state, province and country where the insured track is located. The broker or agent must be licensed to transact business in the state, province and country where the track is located. It is Organizer/Promoter's responsibility to inform all participants of all coverages and conditions available throughout the Event. B. The insurer must have a minimum of a "Best A rating", and the name of the insurer must be supplied to CART for the purposes of confirmation. C. The insurer must formally agree to send duplicate notice of cancellation to CART in the event of cancellation a minimum of thirty (30) days in advance of the collection. The reason for the cancellation must be included with this notification. The insurer must also formally agree to immediately notify CART of each instance of the insured's failure to remit proper premium or other required payments. D. The agent or broker must submit a narrative explanation of systems, procedures and authority for adjusting and paying liability and participant accident claims. PROCEDURES FOR OBTAINING APPROVAL OF AND UTILIZING INSURANCE COVERAGE 1. Any request or submission for approval of insurance coverage not meeting the minimum specifications and requirement so procedures will not be accepted. 2. To obtain approval for sources of insurance, Organizer/Promoter or its insurance broker must submit a certified true specimen copy of the proposed policy forms to CART at least ninety (90) days prior to the first date proposed to be insured by the insurance. 3. CART will notify the party submitting the request in writing of the acceptance or 31 rejection of insurance submissions within fifteen (15) days receipt of the submission. Only formal written approval of the acceptance of insurance coverage by CART shall be considered valid. 4. Upon acceptance, Organizer/Promoter must provide CART a certified true copy of the actual policy of insurance issued to track operators or Organizer/Promoter at the time of issuance and no later than thirty (3) days prior to the first day of the Event. 5. Should Organizer/Promoter fail to comply with the above requirements, CART shall have the right to purchase the insurance and obtain reimbursement from Organizer/Promoter. 6. PARTICIPANT ACCIDENT INSURANCE FOR CART PARTICIPANTS Organizer/Promoter shall reimburse CART for the cost of participant accident disability, medical and life insurance which minimum overages for 1997 are as follows: Accidental Death and Dismemberment $ 50,000.00 Primary Accident Medical $ 150,000.00 Excess Major Medical $ 350,000.00 Weekly Disability (to 104 weeks) $ 250.00 Monthly Disability (to 48 months) $ 300.00
32 SCHEDULE "C" UNIFIED CREDENTIAL SYSTEM AND FACILITY ACCESS PROVISIONS CART SEASON CREDENTIALS (PLASTIC PICTURE IDENTIFICATION) Picture identification cards will be issued to CART participants as provided in this Agreement. Persons issued this credential may only use this credential as expressly allowed for by the CART Rule Book, and only applies as to their need or function. Any change in costs agreed to by the Promoters' Association and CART will supersede the costs included in this Schedule "C". A. Teams Each CART Owner Membership is entitled to a maximum of forty (40) CART picture I.D. license/credentials upon acceptance of application and payment of fees due CART. Additional license/credentials (41-100) may be purchased at a cost of $185.00 each per season. Revenues derived from such purchases less $25.00 per credential will be divided equally among all CART Organizer/Promoters; These license/credentials are to be issued to team members, i.e., owner, team manager, chief mechanic, crew members, designated team and/or sponsor public relations representative and any other associates the owner desires within the allotted maximum number. This credential will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (3) minutes prior to and during the CART race. B. Drivers Each driver will be issued a permanent CART picture license/credential. An additional picture license/credential will be issued to the driver's spouse or companion. Both credentials will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (3) minutes prior to and during the CART race. C. Indy Lights or CART Official Support Series CART will provide credentials to Indy Light competitors, sponsors and suppliers pursuant to provisions in the contract between CART and American Racing Series, which currently includes the following entrant credentials: 33 1 - 12 Team Credentials (12) Complimentary 13 - 17 (5) at $145 per credential 18 - 25 (8) at $250 per credential Revenues derived from such purchases shall be divided equally among all CART Organizer/Promoters. D. Officials Each CART official will be issued a permanent CART picture I.D. license/credential. This credential will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the CART race. E. Suppliers and Award Providers A reasonable number of suppliers and award providers will be issued credentials as determined by CART. These credentials will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will be issued t allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the CART race; Each CART authorized supplier and award provider shall be entitled to a maximum of five (5) credentials at no charge. Additional credentials may be purchased at a cost of $100.00 each per season. Revenues derived from such purchases less $10.00 per credential will be divided equally among all CART Organizer/Promoters. F. Media CART will issue a limited number of credentials to nationally and internationally recognized journalists and photographers covering the majority of Series Events on assignment for recognized media. They will clearly be marked "MEDIA" and "PHOTO" respectively. All media and photo credentials will permit access to the facility and restricted areas including the pit area and media center at all times during any CART Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the CART race. G. Television Production Television talent, key production staff and season-long television production crew members are 34 credentialed and marked "Network TV". All "Network TV" credentials will permit free and unrestricted access to the facility and all associated areas including the pit area and media center at all times during any CART event. Individuals accredited by this CART Season Credential marked "Network TV" should receive access to the same areas as any Event credential issued by CART or the promoter to the television production crews. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the CART race. H. Sponsors A reasonable number of CART sponsors will be issued credentials as determined by CART. These credentials will permit access to the facility and restricted areas including the pit area at all times during any CART Event. At specified Events, a limited number of special credentials will issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the CART race; Each CART sponsor shall be entitled to a maximum of five (5) credentials at no charge. Additional credentials may be purchased at a cost of $500.00 each per season. Revenues derived from such purchase less $50.00 per credential will be divided equally among all CART Organizer/Promoters. EVENT CREDENTIALS (PROVIDED BY THE ORGANIZER/PROMOTER) A. Issued by CART: 1. Assistants Organizer/Promoter shall make Event credentials available to CART for those persons assisting CART Officials. These credentials shall be the same type of credentials as those issued by Organizer/Promoter to others assisting in the production of the Event and will permit access to the facility and restricted areas including the pit areas at all times during any CART Event. At specified events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the CART race. 2. Sponsors For each Owner Membership accepted by CART the entrant may be entitled to a maximum of twenty (20) credentials per accepted membership for team sponsors. These credentials will permit access to the facility and restricted areas during CART activities. Access to the pit area will be terminated thirty (30) minutes prior to the start of and during the CART race. Each credential purchased hereunder shall apply to all CART sanctioned events during the season and shall be purchased at a cost equivalent to the sum of $45.00 for each permanent race circuit on 35 the schedule and $55.00 for each temporary race circuit on the schedule. Revenues derived from such purchases will be divided equally among all CART Organizer/Promoters. 3. Additional Credentials, Passes, Tickets and Parking Organizer/Promoter will provide CART with additional credentials, passes, tickets and parking to be utilized as stated below for distribution at the discretion of CART. (a) Credentials and Passes General - Three Hundred (300) credentials for distribution by CART; Access to the pit area will be terminated thirty (30) minutes prior to the start of and during the CART race; Drivers - Four (4) credentials to each participating CART driver; Broadcast Partners (U.S. and International Television and CART Radio) - Organizer/Promoter will provide all broadcast partners with specifically designated all access "Network TV" credentials, which accord production personnel free and unrestricted access to the site of the event and associated areas otherwise restricted to the general public. These areas are to include the media center, pit lane, paddock, television compound, camera locations, announce booths, hospitality areas, and trackside access for the sole purpose of producing television coverage of the Event. This "Network TV" credential should be restricted for distribution to and use by authorized workers only under the direction of CART. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the CART race; Indy Lights - Organizer/Promoter will provide Events credentials for Indy Lights sponsors, suppliers, and guests. CART to coordinate. (b) Tickets General - One Hundred Fifty (150) tickets (deluxe grandstand seating) for use by CART - to be received thirty (30) days prior to race day; Television Network - Fifty (50) tickets (prime seating location) for intended use by CART's TV Network, to be received thirty (30) days prior to race day. (c) Parking U.S. Television Network - Parking passes shall be provided by Organizer/Promoter up to a total of (64) sixty-four; Forty (40) should allow parking adjacent or as close as possible to television compound, with another twenty (20) providing convenient access to overflow parking; Four (4) service vehicle passes shall also be provided to allow delivery and servicing of equipment to all areas of Event. CART to coordinate. Notwithstanding the foregoing requirements of general application, the parties acknowledge Organizer/Promoter's space limitations, and such 36 requirements shall be subject to mutual agreement between Organizer/Promoter and CART for these Events; International Television Networks - Parking passes shall be provided by Organizer/Promoter up to a total of (17) for ESPN International. Ten (10) should allow parking adjacent or as close as possible to the television compound with another five (5) providing convenient access to overflow parking. Two (2) "service" vehicle passes shall also be provided to allow delivery and servicing of equipment to all areas of event. Additionally, four (4) parking passes shall be provided for each other attending international network (excluding ESPN International), preferably located as conveniently as possible to the television compound. CART to coordinate. Notwithstanding the foregoing requirements of general application, the parties acknowledge Organizer/Promoter's pace limitations, and such requirements shall be subject to mutual agreement between Organizer/Promoter and CART for these Events; CART Radio Network - Parking passes shall be provided by Organizer/Promoter up to a total of (4) four, including three (3) preferably in a location as close as possible to the radio announce booth, and one (1) "service" vehicle pass to allow for delivery or servicing of equipment to all areas of event. CART to coordinate. Media - At least forty (40) parking spaces shall be provided by Organizer/Promoter for media personnel credentialed by CART in the vicinity of the media center, with convenient overflow parking; Competitor Transporter Space - Each entrant (i.e., each separately entered car/driver combination) will be allocated sufficient parking space in the paddock area for one (1) transporter and work area (minimum 85 feet x 31 feet); Competitor Motor Coach/Hospitality Space - Each entrant (i.e., each separately entered car/driver combination) will be allocated sufficient parking space for one (1) motor coach (minimum 55 feet x 15 feet); Additional space over and beyond the 55 feet x 15 feet will be charged to the teams, consistent with the CART/Promoter Motorhome Policy; Owners/Drivers/Team Affiliates/CART Officials & Staff - Organizer/Promoter will designate a parking area which will accommodate owners, drivers, team affiliates and CART officials and staff. Such area will be located in close proximity to the paddock and/or garage area. CART owners and drivers will have access to park in the paddock or motor coach areas. The number of passes required will be mutually agreed upon by Organizer/Promoter and CART's Registration Manager; CART Business Coach - Organizer/Promoter shall provide space in an area easily accessible from the pit and paddock for the parking of CART's business coach; Suppliers and Manufacturers - Organizer/Promoter will provide parking and work areas in the paddock for suppliers and manufacturers that provide entrants with products and services; 37 Indy Lights or CART Official Support Series - Organizer/Promoter will provide an area in the paddock for Indy Lights transporter parking, competitor work areas, administrative functions and technical inspection. An area close to the paddock for team parking will be available. B. Issued by Promoter: 1. Race Pit Credentials This Event credential, provided by Organizer/Promoter for issue by the Organizer/Promoter and CART allows the bearer access to the facility, paddock/garage and the pit area at any time during a weekend racing Event. At specified Events, a limited number of special credentials will be issued to allow only necessary and appropriate personnel access to the pit area thirty (30) minutes prior to and during the CART race. Persons with this credential must remain behind the pit wall during on track activity. The dress code will be in effect during races with scheduled pit stops. 2. Practice & Qualifying Credentials This Event credential, provided by Organizer/Promoter for issue by Organizer/Promoter and CART allows the bearer access to the pit area during all on track activity except races when scheduled pit stops are a part of the race. Persons with this credential must remain behind the pit wall during on track activity. The bearer must leave the pit lane thirty (30) minutes prior to the start of a race with scheduled pit stops. 3. Redeemable Credential This credential provides the bearer general admission and paddock/garage area access, but does not allow admission into other restricted areas. To gain access to the pit area, the bearer must present the credential for validation or reissue and sign the proper waiver at a redemption center. The redemption center will be operated by CART or Organizer/Promoter and will be located in the infield, paddock or other area mutually agreed upon by CART and Organizer/Promoter. The purpose of this credential is to allow distribution of credentials to V.I.P.'s that would be issued a pit access credential prior to the Event. This system will ensure easy access to the facility and not allow pit access until the proper waiver is signed. 4. Other Access Identifiers There are some other access identifiers that are used in conjunction with the above three credentials to allow access into specific restricted areas (trackside access, media center access, etc.) that are provided by Organizer/Promoter for issue by Organizer/Promoter and CART. Organizer/Promoter agrees to provide a list to CART, two (2) weeks in a advance of the Event, of all local and regional TV broadcasters accredited by Organizer/Promoter, for the Media Center area. 38 C. All credentials shall be plainly marked "RACE PIT" or "PRACTICE & QUALIFYING PIT", "MEDIA", "PHOTO", etc. Terms such as "HOT PITS" OR "COLD PITS" are not acceptable. RULES 1. Credentials are not transferable. 2. Persons in restricted areas may not enter team areas unless invited, must obey the instructions given by CART officials and security personnel in regards to their safety and well being and may not interfere in any way with the activities of CART participants or the Event. All credentialed persons are bound by the rules set forth in the CART Rule Book which pertain to conduct and safety. 3. Persons not properly attired must leave the pit area thirty (30) minutes prior to the scheduled start of the race. Proper attire is defined as including the following tenets: A. Shorts are not permitted. B. Shirts fully covering the shoulders must be worn at all times. C. Open-toe shoes are not permitted. IMPLEMENTATION 1. All security guards, gate guards, pit workers, registrars and staff members with activities that may affected by this policy, will be notified of this policy. 2. All CART Owners, Drivers, Team Managers, Chief Mechanics and corporate Sponsors will be notified of this policy. 39 SCHEDULE "D" PPG PROGRAM AND OFFICIAL CARS PACE CARS The PPG pace cars will serve as the Official Pace Cars at all CART Events sanctioned by CART and shall be the only pace cars referred to as "Official Pace Cars" in any advertising, publicity, or promotion of a CART Event by the Organizer/Promoter. Track announcers shall identify the PPG pace cars during the parade laps and continue to identify the starting PPG pace car when it starts the race and when it is on the track during caution flag periods. SIGNS AND FLAGS A. Organizer/Promoter shall furnish PPG at no charge with one (1) location for a painted sing, highly visible to the principal grandstands and to television cameras covering the race. PPG will assume responsibility and cost for painting the sign. B. PPG shall receive preferential treatment in placement of temporary banners, signs, and flags at each track for CART Events only. Where there is a tower, or two towers, PPG's banner shall be placed in a center location, separate and apart from all other signs and banners. PPG shall receive at no charge at least two (2) choice location at each track. Additional placement of PPG signs and banner will be in such locations at may be determined by discussions between Organizer/Promoter and representatives of PPG. TICKETS AND CREDENTIALS Organizer/Promoter shall provide choice seating locations for PPG when it makes ticket purchases for its customers at the same rates, including discounts, provided any other corporation or group. Also, Organizer/Promoter shall provide PPG with a reasonable number of pit passes and parking stickers at no cost. PROGRAM Organizer/Promoter shall provide PPG with one (1) full-page, full color ad, for which PPG will furnish color separations, and one (1) full-page of editorial in their program at no cost to PPG. 40 SCHEDULE "E" EVENT ACTIVITIES CART ACTIVITIES The appropriate (road course, oval or 500 mile) standard CART schedule will be in effect at all Events. OFFICIAL SUPPORT SERIES AND PPG PACE CAR ACTIVITIES Indy Lights or CART's official support series shall be entitled to compete at this Event at no cost to CART or the support series. CART shall have the right to schedule, at any time during the Event, including race day, its official support series event as part of the overall CART activities. Standardized schedules similar to the CART standard format schedules will be developed for PPG Pace Car on track activities and CART's official support series. OTHER SUPPORT RACE ACTIVITIES Any additional motor racing events must be approved by CART's Vice President, Competition. These activities will be scheduled in a manner which will minimize any interference with any scheduled CART, Indy Lights or CART's official support series and PPG Pace Car on track activities. Support activities should be selected to provide an appropriate complement to CART activities and must be a balanced program and offer good entertainment value to the fans. A one half-hour break between scheduled competition activities is recommended. All on track support activities must be sanctioned by a recognized FIA affiliate. A formal sanction agreement executed between the sanctioning body and the event organizer must be on file with CART. This agreement must verify the performance and obligations of the sanctioning body and the event organizer and must not infer any organization or operational responsibility to CART. These activities must be held in compliance with the sanctioning body's rules. The participant accident and liability insurance limits and carrier must be acceptable to CART. In addition, celebrity events must comply with the following: 1. All drivers must have successfully completed both classroom and on track instruction. 2. Race cars must meet the safety requirements prescribed by the sanctioning a) A seat that provides proper driver support in case of impact. b) A five (5) point competition seat belt and harness. c) Rollover protection: - roll cage for closed-wheel production-type or - based vehicles; - roll hoop for sports race and open-wheel race cars. 41 d) The electrical system must include an accessible master switch and an impact/rollover switch. Both of these devices must interrupt the current to all onboard circuits. 3. Historic and vintage car practice, qualifying, race or exhibition activities will not be scheduled as part of this Event. 4. Only one race competition per CART sanctioned event weekend will be scheduled for any support race category. 5. Commitments to live television coverage or time certain scheduling of support activities should not be planned, as such commitments will be interrupted by any delay in the schedule. ENTERTAINMENT ACTIVITIES Parades, exhibitions, stunts and other entertainment activities must be scheduled in a manner which will not interfere with any racing activity. CART does not accept any organizational or operational responsibility for these activities. These activities must be held in compliance with any applicable local, state or federal guidelines or regulations. Event liability insurance must be in place to cover these activities. 42 owners/teams and CART officials. 6. CART Promotions Coordinator gives appropriate tire manufacturer hat to winner for television interviews. Television interviews will be conducted in the following order with priority given to live shows over tape: A. Host TV broadcaster B. Foreign TV broadcaster C. Network radio-if live D. Local radio-if live E. CART Productions Note that with three (3) drivers available, some interviews may occur simultaneously. Live television will have preference of interviewing drivers one, two and three without wait. All other driver interviews may be conducted following trophy presentation. Teams, P.R. representatives, sponsors and others should respect the integrity of the television broadcast and act appropriately. All three (3) drivers should be respected. No unauthorized hats, products, signs, etc. may thrust in front of Television cameras. No hats may be exchanged during televisions interviews or in front of the camera. 7. PPG/Title Sponsor Victory Podium Truck, if applicable, moves into position during interviews. 8. After all television/radio interviews, top three (3) drivers proceed to Victory Podium Truck or permanent podium where available. Security will provide escort for drivers. In the event Television is still live, security will expedite same. 9. Drivers will be presented and interviewed by the track announcer on stage in the following order: 3-2-1 10. Organizer/Promoter may designate and present additional awards as agreed by CART. Such agreement will not be unreasonable withheld. Any additional award presentation must follow the Event trophy presentation to the three (3) drivers and winning team owners. 11. Trophies are presented by executive presenters designated by Organizer/Promoter. Event title sponsor hats are worn. Beauty queens should not be on stage unless stated in preexisting agreements with title sponsor, or otherwise in accordance with the promotional model program as agreed upon by CART and the Organizers/Promoters. 12. Winning owners(s) are present on podium for presentation of Trophy. 13. First round of photography. Executive presenters and/or owners(s) leave platform. 14. CART Promotions Coordinator effectuates changes of driver's hates for still photography 43 session(s). This sequence will not appear on television. Hats will be accommodated in the following order: A. PPG Industries B. Team Sponsor(s) C. Limited number of additional sponsor(s) only by prior agreement-time permitting 15. Organizer/Promoter retains the right to provide champagne which will not be sprayed until all photo sessions are concluded. VICTORY LAP Drivers should be showcased to the fans. CART News Managers may accompany drivers if sufficient space is available. Upon completion of Victory Lap drivers proceed to Press Room for interviews. Security will provide proper escort. The Victory Lap is optional at the discretion of Organizer/Promoter. EX-10.8 14 EXHIBIT 10.8 1 EXHIBIT 10.8 ARS Agreement Draft #6 E.C. December 21, 1995 AGREEMENT THIS AGREEMENT made this 22nd day of December, 1995, by and between Championship Auto Racing Teams, Inc., a Michigan corporation, of 755 W. Big Beaver Road, Suite 800, Troy, Michigan 48084, herein referred to as "CART", and American Racing Series, Inc., a Michigan corporation, of 1396 Wheaton Avenue, Suite 700, Troy, Michigan 48083, herein referred to as "ARS". W I T N E S S E T H: 1. OFFICIAL SUPPORT SERIES. CART hereby designates ARS as the exclusive organizer of a series of open wheel automobile races to comprise and be conducted as the Official Support Series of CART, herein referred to as the Indy Lights Series. The Indy Lights Series shall be sanctioned exclusively by CART in accordance with the IndyCar Rule Book and the current Indy Lights Rules Supplement and shall be recognized as its Official Support Series, and as the primary source from which to license drivers for participating in the IndyCar Series, giving due credence to all other qualifications and requirements considered by CART in passing on driver license applications. 2. TERM. The term of this Agreement shall commence with the 1996 racing season and continue through the 1998 racing season, except as otherwise provided in this Agreement. Provided ARS is in compliance with all the terms and conditions of this Agreement, ARS shall have the option to extend this Agreement on the same terms for an additional term of three (3) years, i.e., for the years 1999, 2000 and 2001, by notification to CART of such intent no later than January 1, 1998. 3. SCHEDULE OF EVENTS. The Indy Lights Series races shall be scheduled by CART and shall include not less than twelve (12) IndyCar events, unless a lower number is requested by ARS. If ARS wishes to run more than twelve (12) events or any event not held in conjunction with a CART 2 ARS Agreement Draft #6 E.C. December 21, 1995 event, then the parties will discuss and agree in good faith respecting the additional arrangements or where applicable adjustments to this Agreement necessary for such event(s), including but not limited to race promoter agreements, officiating staff, television production arrangements, and safety and medical team coverage. CART shall place the Indy Lights Series events on the IndyCar event schedule at no promoter cost to ARS. No financial renumeration, concession or adjustment to this Agreement will be made should ARS elect for any reason to run at less than twelve (12) IndyCar events. ARS intends to present a starting field of at least twenty (20) cars, and shall use its best efforts to assure no less than fifteen (15) cars at each event. 4. SCHEDULE OF ACTIVITIES. Each Indy Lights Series race shall be scheduled for seventy-five (75) miles in duration (subject to Rule 6.25 in the Indy Lights Rules Supplement to the 1995 IndyCar Rule Book), and shall be scheduled to start not more than two and one-half (2 1/2) hours prior to the start of the IndyCar race when held in conjunction with CART events, unless mutually agreed to the contrary. Furthermore, Indy Lights Series competitors will receive a minimum of one (1) hour of track time on each of the Friday and Saturday of the IndyCar event for practice and qualifying and an additional fifteen (15) minutes for final practice on Saturday or warm-up on Sunday. If possible, the Indy Lights Series on track activities shall be scheduled adjacent to the IndyCar on track activities. Specifics of the schedule of activities are as follows (subject to prevailing "two-thirds rule" as recognized by event promoters for support event activities): A. Road Course Events: - Minimum of two (2) one-half hour on track sessions on Friday (Friday practice/qualifying format to be consistent with IndyCar procedures); - Minimum of two (2) one-half hour on track sessions on Saturday (Saturday practice/qualifying format to be consistent with IndyCar procedures). 2 3 ARS Agreement Draft #6 E.C. December 21, 1995 B. Oval Course Events: - Minimum of two (2) one-half hour practice sessions on Friday; - Minimum of one-half hour practice and one (1) hour qualifying sessions on Saturday. 5. RACE NAME ENTITLEMENT. Partly in recognition of the obligation being imposed upon the event promoter to include the Indy Lights Series at no cost, the parties recognize that the event promoter shall have the right to sell the Indy Lights Series race title, provided, however, that the name shall include reference to "Indy Lights", as well as the identity of a series sponsor or sponsors as ARS may designate. In addition, CART shall exercise its approval rights as to such on-site entitlement in a similar manner as with the on-site entitlement of the Indy Car race, including a reasonable effort to avoid any entitlement that may conflict with an existing ARS sponsor. 6. DISTRIBUTION OF REVENUES. A. Entry fees paid by Indy Lights Series competitors and all associated licensing and registration fees shall be paid to CART. The following costs directly related to the Indy Lights Series shall be paid from such gross receipts: 1. Direct insurance costs for liability, driver life, participant accident, catastrophic medical; 2. Officials' fees and expenses for those officials whose function is allocated primarily to the Indy Lights Series; 3. Television production charges of $15,000.00 per race. The parties agree that the resulting "net receipts" will be divided equally between CART and ARS. In addition, each party shall contribute fifty percent (50%) of their respective allocation toward the Indy 3 4 ARS Agreement Draft #6 E.C. December 21, 1995 Lights Series prize fund for the following season, as illustrated in Exhibit "A" attached hereto. B. The distribution of revenues provisions set forth in paragraph 6A shall also apply to the money CART received in conjunction with the 1995 Indy Lights Series, except that the only costs to be deducted by CART from the gross receipts will be for insurance and for the Series Chief Steward. 7. TELEVISION. A. ARS hereby appoints CART as its exclusive agent for negotiating the sale of the television rights to the Indy Lights Series. CART shall use its best efforts in obtaining as much television exposure as possible, and the parties acknowledge that the amount of revenues obtained shall be regarded as secondary to maximizing the coverage of the races. Net revenues from the sale of television rights will be divided equally between the parties. B. The parties hereto acknowledge that when Indy Lights Series races are not held in conjunction with a CART event, television production cannot be provided within the scope of the normal production arrangements. CART and ARS will cooperate to ensure that the race promoter takes responsibility for the supply of a live feed at the promoter's expense. 8. RACE ADMINISTRATION. Except as otherwise mutually agreed, CART shall be responsible for each of the following race-related items: A. CART shall administer the credentialling, licensing and registration of Indy Lights Series participants, at no cost to ARS. B. The parties shall provide by mutual agreement for on site race personnel and support, including the provision by CART of the following specific officials and/or functions to be assigned by CART for Indy Lights Series activities, at no cost to ARS, except as provided in paragraph 8I below: 4 5 ARS Agreement Draft #6 E.C. December 21, 1995 - Series Chief Steward, Indy Lights; - Technical Coordinator; - Six (6) permanent Technical Workers; - Starter; - Timing and Scoring Coordinator; - Pace Car Coordinator; - Complete timing and scoring service with applicable equipment and EDS Service; - Three (3) Stewards (including Chief Steward). No increase in the number of officials will occur without the prior written approval of ARS. C. Subject to paragraph 3 above, Indy Lights Series participants shall receive full coverage by the CART safety and medical team at all Indy Lights Series races and CART sanctioned Indy Lights tests. D. CART shall provide a minimum of two (2) scoring monitors in pit lane during all phases of Indy Lights Series competitions. E. CART shall include the Indy Lights Rules Supplement in its official IndyCar Rule Book. F CART shall conduct and oversee all phases of Indy Lights Series race competitions, consistent with past practices. G. CART shall use its best efforts to locate the Indy Lights Series paddock as close to the IndyCar area as possible, subject to existing established practices where applicable. H. Paddock Parking Passes: 1. Each entered Indy Lights Series team owner will receive no less than one (1) Team Owner Parking Pass (area to be designated by the event promoter) to allow the team to access the Indy Lights Series paddock area for event activities; 2. Each entered driver will receive one (1) Driver Parking Pass to allow 5 6 ARS Agreement Draft #6 E.C. December 21, 1995 access to the Indy Lights Series paddock area; 3. ARS will receive a maximum of ten (10) credentials and a reasonable number of parking passes for the use of its full time staff. I. ARS shall be responsible for the supply and associated cost of all equipment specifically required for the sole purpose of carrying out technical inspections on Indy Lights race cars. 9. INSURANCE. CART agrees to name ARS, its directors, officials, officers, agents, sponsors, and employees as an additional insured in any and all event insurance policies including, but not limited to, participant accident, participant to participant liability, spectator liability and the like. 10. ANNOUNCEMENT OF RACE RESULTS. CART shall use its best efforts to have the results of the Indy Lights Series races announced during the television broadcast of the Indy Car races. 11. TEST DAYS. CART shall arrange for sanctioned "open test" days for the Indy Lights Series teams, to be held in conjunction with IndyCar sanctioned tests, with the incremental increase in costs to be divided consistent with past practices. 12. SPONSOR CONFLICTS. ARS agrees not to contract with any sponsor for the Indy Lights Series that may conflict with any CART contract or agreement, without the prior written approval of CART. 13. SALE OF ARS. A. CART may submit an offer to purchase ARS at any time during the term of this Agreement. ARS may accept, reject, or propose a counter offer to any such offer, in its sole discretion. B. If ARS receives a bona fide offer from any third party to acquire the business of ARS, through the purchase of its stock or assets, merger, consolidation, or any other fundamental corporate 6 7 ARS Agreement Draft #6 E.C. December 21, 1995 reorganization, or any other method, CART shall have an exclusive right of first refusal to acquire same, provided that the business and operational structure of CART has not substantially changed from that existing when this Agreement is signed. ARS shall submit to CART in writing the specific terms of such offer and CART shall have ten (10) business days after receiving the bona fide offer within which to accept the same, provided, however, that such time shall be extended for a reasonable period if necessary (not to exceed thirty (30) days) for the CART CEO to submit the offer to the CART Board if necessary to obtain approval, and to communicate any pertinent feedback to ARS. If CART does not accept such proposal within such time, ARS shall be free to contract with such third party but not on terms different than those offered to CART without again giving CART an additional ten (10) business day right of first refusal concerning some. 14. ASSIGNABILITY. Neither party may assign its rights and/or obligations under this Agreement. 15. INDEMNITY. ARS agrees to indemnify and hold harmless CART, its directors, officials and officers, agents and employees from any and all liabilities and all costs and expenses, including attorney fees incurred in the defense thereof, asserted or imposed on CART, its directors, official representatives, employees and officers, arising out of or as a result of the Indy Lights Series. 16. CONFIDENTIALITY.. A. All media releases, public announcements, including competition related announcements and public disclosures by either party or its employees or agents relating to this Agreement, including but not limited to promotional or marketing material, but not including any announcement intended solely for internal distribution by either party or any disclosure required by legal, accounting, or regulatory requirements beyond the reasonable control of the disclosing party, or 7 8 ARS Agreement Draft #6 E.C. December 21, 1995 any announcements which solely make incidental references to the Indy Lights Series as the Official Support Series of CART shall be coordinated with and approved by the other party prior to the release thereof. B. CART and ARS agree to safeguard the confidentiality of any information obtained in the performance of this Agreement regarding the products, accessories, designs and developments of the other party. It is agreed that each party remains the owner of its information and documents and that such information and documents can be used by the other party only for the purpose of performing under the terms of this Agreement. The disclosure of any such information or documents to any third party requires prior written approval of the owner of such information and requires the prior agreement of such third party to safeguard the confidentiality. Notwithstanding the foregoing, disclosure may be made if necessary to enforce a party's rights under this Agreement, or if required by a governmental agency, in which case any and all documents, information, or materials disclosed shall be marked "confidential" and such party shall seek confidential treatment of such information. 17. AUTHORITY TO CONTRACT. Each party warrants and represents that it has the full right and authority to enter into and perform this Agreement and to grant all rights granted herein, (subject in all cases to any applicable legal limitations or restrictions), and that the execution and delivery of this Agreement has been duly authorized by all necessary corporate action. 18. ENTIRE AGREEMENT: WAIVERS AND AMENDMENTS. This Agreement sets forth the entire agreement between the parties and supersedes all prior agreements and understandings between the parties, their officers, directors, or employees relating to the subject matter hereof. None of the terms of this Agreement may be waived or modified except as expressly agreed to, in writing, by both parties. 8 9 ARS Agreement Draft #6 E.C. December 21, 1995 19. NOTICES. Except as otherwise provided, any notice or other communication required or permitted to be given under this Agreement will be sufficient if it is in writing and delivered personally, telegraphed, telecopied or telexed, or mailed (by certified, registered or first class mail or by recognized overnight courier), postage prepaid, and will be deemed given when so delivered personally, telegraphed, telecopied or telexed, or if mailed by certified, registered, first class mail or by recognized overnight courier, one day after the date of mailing, as follows (or to any other address provided by a party in accordance with this Section): If to CART: Championship Auto Racing Teams, Inc. 755 W. Big Beaver Road, Suite 800 Troy, MI 48084 Facsimile: (810) 362-8810 Attention: Mr. Andrew Craig and Mr. Randy Dzierzawski If to ARS: American Racing Series, Inc. 1395 Wheaton Avenue Troy, MI 48083 Facsimile: (810) 528-8119 Attention: Mr. U.E. (Pat) Patrick Mr. Roger Bailey 20. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Michigan. 21. HEADINGS. The headings in this Agreement are for reference purposes only and will not in any way affect the meaning or interpretation of this Agreement. 22. SEVERABILITY. If any provision of this Agreement is determined to be illegal or invalid, such illegality or invalidity will have no effect on the other provisions of this Agreement, which will remain valid, operative and enforceable. 9 10 ARS Agreement Draft #6 E.C. December 21, 1995 23. RELATIONSHIP OF THE PARTIES. Nothing in this Agreement will be deemed to create a partnership or joint venture among any one or more of the parties. 24. CANCELLATION. Either party may unilaterally cancel this Agreement upon the occurrence of any of the following on behalf of the non-canceling party, provided, however, the canceling party must give notice in writing by certified mail to the non-canceling party, specifying the ground or grounds for termination and permitting said party thirty (30) days in which to cure the purported ground or grounds of termination: A. Either party becomes insolvent or enters federal bankruptcy or reorganization proceedings; or B. A receiver, trustee, guardian or marshall is appointed to manage the affairs of either party; or C. Either party should, for reasons totally beyond its cause or control, be completely and permanently prevented from reasonably complying with its duties hereunder; or D. Either party fails to perform any of the material terms and conditions herein; or E. Any of the material representations made by either party to the other which led to this Agreement proves to be false. IN WITNESS WHEREOF, this Agreement is executed by the parties hereto as of the date first above written. AMERICAN RACING SERIES, INC. CHAMPIONSHIP AUTO RACING TEAMS, INC. By: /s/ Roger Bailey By: /s/ Andrew H. Craig ----------------------------------- --------------------------------- Its: President Its: President and CEO 10 11 ARS Agreement Draft #6 E.C. December 21, 1995 EXHIBIT A Income = A Insurance costs = B Officials costs = C TV Production costs = D Net Distribution Formula: A-(B+C+D) = Net Distribution Net Distribution (25%) 50%-------50% 50%------- 50% (25%) to IndyCar to ARS (25%) 50% 50%(25%) to Prize Fund 11 EX-10.9 15 EXHIBIT 10.9 1 EXHIBIT 10.9 MASTER REVOLVING NOTE VARIABLE RATE-MATURITY DATE-OPTIONAL ADVANCES (BUSINESS AND COMMERCIAL LOANS ONLY) - -------------------- ----------------- --------------------- ---------------- AMOUNT NOTE DATE MATURITY DATE TAX ID # $1,500,000.00 April 30, 1997 - -------------------- ----------------- --------------------- ---------------- On the Maturity Date, as stated above, for value received, the undersigned promise(s) to pay to the order of Comerica Bank ("Bank"), at any office of the Bank in the State of Michigan, ***** One Million Five Hundred Thousand and 00/100 ***** Dollars (U.S.) (or that portion of it advanced by the Bank and not repaid as later provided) with interest until maturity, whether by acceleration or otherwise, or until Default, as later defined, at a per annum rate equal to the Bank's prime rate from time to time in effect plus -0-% per annum and after that at a rate equal to the rate of interest otherwise prevailing under this Note plus 3% per annum (but in no event in excess of the maximum rate permitted by law). The Bank's "prime rate" is that annual rate of interest so designated by the Bank and which is changed by the Bank from time to time. Interest rate changes will be effective for interest computation purposes as and when the Bank's prime rate changes. Interest shall be calculated on the basis of a 360-day year for the actual number of days the principal is outstanding. Accrued interest on this Note shall be payable on the first day of each month commencing June 1, 1996, until the Maturity Date (set forth above) when all amounts outstanding under this Note shall be due and payable in full. If the frequency of interest payments is not otherwise specified, accrued interest on this Note shall be payable monthly on the first day of each month. If any payment of principal or interest under this Note shall be payable on a day other than a day on which the Bank is open for business, this payment shall be extended to the next succeeding business day and interest shall be payable at the rate specified in this Note during this extension. A late payment charge equal to 5% of each late payment may be charged on any payment not received by the Bank within 10 calendar days after the payment due date, but acceptance of payment of this charge shall not waive any Default under this Note. The principal amount payable under this Note shall be the sum of all advances made by the Bank to or at the request of the undersigned, less principal payments actually received in cash by the Bank. The books and records of the Bank shall be the best evidence of the principal amount and the unpaid interest amount owing at any time under this Note and shall be conclusive absent manifest error. No interest shall accrue under this Note until the date of the first advance made by the Bank; after that interest on all advances shall accrue and be computed on the principal balance outstanding from time to time under this Note until the same is paid in full. At no time shall the Bank be under any obligation to make any advances to the undersigned pursuant to this Note (notwithstanding anything expressed or implied in this Note or elsewhere to the contrary, including without limit if the Bank supplies the undersigned with a borrowing formula) and the Bank, at any time and from time to time, without notice, and its sole discretion, may refuse to make advances to the undersigned without incurring any liability due to this refusal and without affecting the undersigned's liability under this Note for any and all amounts advanced. This Note and any other indebtedness and liabilities of any kind of the undersigned (or any of them) to the Bank, and any and all modifications, renewals or extensions of it, whether joint or several, contingent or absolute, now existing or later arising, and however evidenced (collectively "Indebtedness") are secured by and the Bank is granted a security interest in all items deposited in any account of any of the undersigned with the Bank and by all proceeds of these items (cash or otherwise), all account balances of any of the undersigned from time to time with the Bank, by all property of any of the undersigned from time to time in the possession of the Bank and by any other collateral, rights and properties described in each and every deed of trust, mortgage, security agreement, pledge, assignment and other security or collateral agreement which has been, or will at any time(s) later be, executed by any (or all) of the undersigned to or for the benefit of the Bank (collectively "Collateral"). Notwithstanding the above, (i) to the extent that any portion of the Indebtedness is a consumer loan, that portion shall not be secured by any deed of trust or mortgage on or other security interest in any of the undersigned's principal dwelling or in any of the undersigned's real property which is not a purchase money security interest as to that portion, unless 2 expressly provided to the contrary in another place, or (ii) if the undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or mortgage covering California real property, that deed of trust or mortgage shall not secure this Note or any other indebtedness of the undersigned (or any of them), unless expressly provided to the contrary in another place. If the undersigned (or any of them) or any guarantor under a guaranty of all or part of the Indebtedness ("guarantor") (i) fails(s) to pay any of the Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (ii) fail(s) to comply with any of the terms or provisions of any agreement between the undersigned (or any of them) or any such guarantor and the Bank; or (iii) become(s) insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy, or a reorganization, arrangement or creditor composition proceeding, (if a business entity) cease(s) doing business as a going concern, (if a natural person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any general partner of it dies, becomes incompetent or becomes the subject of a bankruptcy proceeding or (if a corporation or a limited liability company) is the subject of a dissolution, merger or consolidation; or (a) if any warranty or representation made by any of the undersigned or any guarantor in connection with this Note or any of the Indebtedness shall be discovered to be untrue or incomplete; or (b) if there is any termination, notice of termination, or breach of any guaranty, pledge, collateral assignment or subordination agreement relating to all or any part of the Indebtedness; or (c) if there is any failure by any of the undersigned or any guarantor to pay when due any of its indebtedness (other than to the Bank) or in the observance or performance of any term, covenant or condition in any document evidencing, securing or relating to such indebtedness; or (d) if the Bank deems itself insecure believing that the prospect of payment of this Note or any of the Indebtedness is impaired or shall fear deterioration, removal or waste of any of the Collateral; or (e) if there is filed or issued a levy or writ of attachment or garnishment or other like judicial process upon the undersigned (or any of them) or any guarantor or any of the Collateral, including without limit, any accounts of the undersigned (or any of them) or any guarantor with the Bank, then the Bank, upon the occurrence of any of these events (each a "Default"), may at its option and without prior notice to the undersigned (or any of them), declare any or all of the Indebtedness to be immediately due and payable (notwithstanding any provisions contained in the evidence of it to the contrary), sell or liquidate all or any portion of the Collateral, set off against the Indebtedness any amounts owing by the Bank to the undersigned (or any of them), charge interest at the default rate provided in the document evidencing the relevant Indebtedness and exercise any one or more of the rights and remedies granted to the Bank by any agreement with the undersigned (or any of them) or given to it under applicable law. All payments under this Note shall be in immediately available United States funds, without setoff or counterclaim. If this Note is signed by two or more parties (whether by all as makers or by one or more as an accommodation party or otherwise), the obligations and undertakings under this Note shall be that of all and any two or more jointly and also of each severally. This Note shall bind the undersigned, and the undersigned's respective heirs, personal representatives, successors and assigns. The undersigned waive(s) presentment, demand, protest, notice of dishonor, notice of demand or intent to demand notice of acceleration or intent to accelerate, and all other notices and agree(s) that no expansion or indulgence to the undersigned, any guarantor or any other party, whether with or without notice, shall affect the obligations of any of the undersigned. The undersigned waive(s) all defenses or right to discharge available under Section 3-605 of the Michigan Uniform Commercial Code and waive(s) all other suretyship defenses or right to discharge. The undersigned agree(s) that the Bank has the right to sell, assign, or grant participations or any interest in, any or all of the Indebtedness, and that, in connection with this right, but without limiting its ability to make other disclosures to the full extent allowable, the Bank may disclose all documents and information which the Bank now or later has relating to the undersigned or the Indebtedness. The undersigned agree(s) that the Bank may provide information relating to this Note or relating to the undersigned to the Bank's parent, affiliates, subsidiaries and service providers. The undersigned agree(s) to reimburse the holder or owner of this Note upon demand for any and all costs and expenses (including without limit, court costs, legal expenses and reasonable attorney fees, whether inside or outside counsel is used, whether or not suit is instituted and, if suit is instituted, whether at the trial court level, appellate level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in collecting or attempting to collect this Note or incurred in any other matter or proceeding relating to the Note. The undersigned acknowledge(s) and agree(s) that there are no contrary agreements, oral or written, establishing a term of this Note and agree(s) that the terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an officer of the Bank expressly stating that the writing constitutes an amendment, waiver or modification of the terms of this Note. As used in this Note, the word "undersigned" means, individually and collectively, each maker, accommodation party, indorser and other party signing this Note in a similar capacity. If any provision of this Note is unenforceable in whole or part for any reason, the remaining provisions shall continue to be effective. THIS NOTE IS MADE IN THE STATE OF MICHIGAN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. 2 3 THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25% PER ANNUM, OR THE HIGHEST APPLICABLE USURY CEILING, WHICHEVER IS LESS. THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS. Championship Auto Racing Teams, Inc. By: /s/ Randy K. Dzierzawski Its: Senior Vice President - ------------------------------------ ------------------------------- ------------------------- Obligor Name Typed/Printed Signature Of Title (if applicable) By: /s/ Andrew H. Craig Its: President and CEO ------------------------------- ------------------------- Signature Of Title (if applicable) By: Its: ------------------------------- ------------------------- Signature Of Title (if applicable) By: Its: ------------------------------- ------------------------- Signature Of Title (if applicable)
3 EX-10.10 16 EXHIBIT 10.10 1 EXHIBIT 10.10 COMERICA FIXED RATE-INSTALLMENT NOTE
- --------------------------- -------------------------- -------------------------- -------------------------- OBLIGOR NOTE # NOTE DATE TAX ID # 15-0381659-3 May 1, 1996 - --------------------------- -------------------------- -------------------------- -------------------------- AMOUNT MATURITY DATE $650,000.00 Troy, Michigan May 1, 2001 - --------------------------- ------------------------------------------------------ --------------------------
For Value Received, the undersigned promise(s) to pay to the order of Comerica Bank ("Bank"), at any office of the Bank in the State of Michigan, ***** Six Hundred Fifty Thousand and 00/100 ***** Dollars (U.S.) in installments of $10,833.33 each PLUS [STRIKE ONE] interest on the unpaid principal balance from the date of this Note at the rate of 8.25% per annum until maturity, whether by acceleration or otherwise, or until Default, as later defined, and after that at a default rate equal to the rate of interest otherwise prevailing under this Note plus 3% per annum (but in no event in excess of the maximum rate permitted by law). Interest shall be calculated for the actual number of days the principal is outstanding on the basis of a 360-day year if this Note evidences a business or commercial loan or a 365/366-day if a consumer loan. Installments of principal and accrued interest due under this Note shall be payable on the first day of each month, commencing June 1, 1996, and the entire remaining unpaid balance of principal and accrued interest shall be payable on May 1, 2001. If the frequency of principal and interest installments is not otherwise specified, installments of principal and interest due under this Note shall be payable monthly on the first day of each month. If this Note or any installment of principal or interest under this Note shall become payable on a day other than a day on which the Bank is open for business, this payment shall be extended to the next succeeding business day and interest shall be payable at the rate specified in this Note during this extension. A late installment charge equal to 5% of each late installment may be charged on any installment payment not received by the Bank within 10 calendar days after the installment due date, but acceptance of payment of this charge shall not waive any Default under this Note. The Bank does not have to accept any prepayment of principal under this Note except as described below or as required under applicable law. The undersigned may prepay principal of this Note in increments of $25,000.00 at any time as long as the Bank is provided written notice of the prepayment at least five business days prior to the date of prepayment. The notice of prepayment shall contain the following information: (a) the date of prepayment (the "Prepayment Date") and (b) the amount of principal to be prepaid. On the Prepayment Date, the undersigned will pay to the Bank, in addition to the other amounts then due on this Note, the Prepayment Amount described below. The Bank, in its sole discretion, may accept any prepayment of principal even if not required to do so under this Note and may deduct from the amount to be applied against principal the other amounts required as part of the Prepayment Amount. The Prepaid Principal Amount (as defined below) will be applied to this Note in the reverse order of which the principal payments would have been due under this Note's principal amortization schedule. In other words, if this Note requires multiple principal payments, then as opposed to prepaying the next principal payment due, the Prepaid Principal Amount will be applied beginning with the final principal payment due on this Note. If the Bank exercises its right to accelerate the payment of the Note prior to maturity, the undersigned will pay to the Bank, in addition to the other amounts then due on this Note, on the date specified by the Bank as the Prepayment Date, the Prepayment Amount. The Bank's determination of the Prepayment Amount will be conclusive in the absence of obvious error or fraud. If requested in writing by the undersigned, the Bank will provide the undersigned a written statement specifying the Prepayment Amount. The following (the "Prepayment Amount") shall be due and payable in full on the Prepayment Date: 2 (a) If the face amount of this Note exceeds Seven Hundred Fifty Thousand Dollars ($750,000) (regardless of what the outstanding principal balance may be on the Prepayment Date) then the Prepayment Amount is the sum of: (i) the amount of principal which the undersigned has elected to prepay or the amount of principal which the Bank has required the undersigned to prepay because of acceleration, as the case may be (the "Prepaid Principal Amount"), (ii) interest accruing on the Prepaid Principal Amount up to, but not including, the Prepayment Date, (iii) Five Hundred Dollars ($500) plus (iv) the present value, discounted at the Reinvestment Rates (as defined below), of the positive amount by which (A) the interest the Bank would have earned had the Prepaid Principal Amount been paid according to the Note's amortization schedule at the Note's interest rate exceeds (B) the interest the Bank would earn by reinvesting the Prepaid Principal Amount at the Reinvestment Rates. (b) If the face amount of this Note is Seven Hundred Fifty Thousand Dollars ($750,000) or less (regardless of what the outstanding principal balance may be on the Prepayment Date), then the Prepayment Amount is the sum of: (i) the amount of principal which the undersigned has elected to prepay or the amount of principal which the Bank has required the undersigned to prepay because of acceleration, as the case may be (the "Prepaid Principal Amount"), (ii) interest accruing on the Prepaid Principal Amount up to, but not including, the Prepayment Date, plus (iii) an amount equal to one percent (1%) of the Prepaid Principal Amount multiplied by the number of calendar years remaining until the maturity date of this Note, but in no event less than two percent (2%) of the Prepaid Principal Amount. For purposes of this computation, any portion of a calendar year remaining until the maturity date of this Note shall be deemed to be a full calendar year. "Reinvestment Rates" mean the per annum rates of interest equal to one half percent (1/2%) above the rates of interest reasonably determined by the Bank to be in effect not more than seven days prior to the Prepayment Date in the secondary market for United States Treasury Obligations in amount(s) and with maturity(ies) which correspond (as closely as possible) to the principal installment amount(s) and the payment date(s) against which the Prepaid Principal Amount will be applied. This Note and any other indebtedness and liabilities of any kind of the undersigned (or any of them) to the Bank, and any and all modifications, renewals or extensions of it, whether joint or several, contingent or absolute, now existing or later arising, and however evidenced (collectively "Indebtedness") are secured by and the Bank is granted a security interest in all items deposited in any account of any of the undersigned with the Bank and by all proceeds of these items (cash or otherwise), all account balances of any of the undersigned from time to time with the Bank, by all property of any of the undersigned from time to time in the possession of the Bank and by any other collateral, rights and properties described in each and every mortgage, security agreement, pledge, assignment and other security or collateral agreement which has been, or will at any time(s) later be, executed by any (or all) of the undersigned to or for the benefit of the Bank (collectively "Collateral"). Notwithstanding the above, to the extent that any portion of the consumer Indebtedness is a consumer loan, that portion shall not be secured by any mortgage on or other security interest in the undersigned's principal dwelling which is not a purchase money security interest as to that portion, unless expressly provided to the contrary in another place. If the undersigned (or any of them) or any guarantor under a guaranty of all or part of the Indebtedness ("guarantor") (a) fail(s) to pay this Note or any of the Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (b) fail(s) to comply with any of the terms or provisions of any agreement between the undersigned (or any of them) or any guarantor and the Bank; or (c) become(s) insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy, or a reorganization, arrangement or creditor composition proceeding, (if a business entity) cease(s) doing business as a going concern, (if a natural person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any general partner of it dies, becomes incompetent or becomes the subject of a bankruptcy proceeding or (if a corporation) is the subject of a dissolution, merger or consolidation; or (d) if any warranty or representation made by any of the undersigned or any guarantor in connection with this Note or any of the Indebtedness shall be discovered to be untrue or incomplete; (e) 2 3 or if there is any termination, notice of termination, or breach of any guaranty, pledge, collateral assignment or subordination agreement relating to all or any part of the Indebtedness; or (f) if there is any failure by any of the undersigned or any guarantor to pay when due any of its indebtedness (other than to the Bank) or in the observance or performance of any term, covenant or condition in any document evidencing, securing or relating to such indebtedness; or (g) if the Bank deems itself insecure believing that the prospect of payment of this Note or any of the Indebtedness is impaired or shall fear deterioration, removal or waste of any of the Collateral; or (h) if there is filed or issued a levy or writ of attachment or garnishment or other like judicial process upon the undersigned (or any of them) or any guarantor or any of the Collateral, including without limit, any accounts of the undersigned (or any of them) or any guarantor with the Bank, then the Bank, upon the occurrence of any of these events (each a "Default"), may at its option and without prior notice to the undersigned (or any of them), declare any or all of the Indebtedness to be immediately due and payable (notwithstanding any provisions contained in the evidence of it to the contrary), sell or liquidate all or any portion of the Collateral, set off against the Indebtedness any amounts owing by the Bank to the undersigned (or any of them), charge interest at the default rate provided in the document evidencing the relevant Indebtedness and exercise any one or more of the rights and remedies granted to the Bank by any agreement with the undersigned (or any of them) or given to it under applicable law. All payments under this Note shall be in immediately available United States funds, without setoff or counterclaim. If this Note is signed by two or more parties (whether by all as makers or by one or more as an accommodation party or otherwise), the obligations and undertakings under this Note shall be that of all and any two or more jointly and also of each severally. This Note shall bind the undersigned, and the undersigned's respective heirs, personal representatives, successors and assigns. The undersigned waive(s) presentment, demand, protest, notice of dishonor, notice of demand or intent to demand, notice of acceleration or intent to accelerate, and all other notices, and agree(s) that no extension or indulgence to the undersigned (or any of them) or release, substitution or nonenforcement of any security, or release or substitution of any of the undersigned, any guarantor or any other party, whether with or without notice, shall affect the obligations of any of the undersigned. The undersigned waive(s) all defenses or right to discharge available under Section 3-606 of the Uniform Commercial Code and waive(s) all other suretyship defenses or right to discharge. The undersigned agree(s) that the Bank has the right to sell, assign, or grant participations, or any interest, in any or all of the Indebtedness, and that, in connection with this right, but without limiting its ability to make other disclosures to the full extent allowable, the Bank may disclose all documents and information which the Bank now or later has relating to the undersigned or the Indebtedness. The undersigned agree(s) to reimburse the holder or owner of this Note for any all costs and expenses (including without limit, court costs, legal expenses and reasonable attorney fees, whether inside or outside counsel is used, whether or not suit is instituted and, if suit is instituted, whether at the trial court level, appellate level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in collecting or attempting to collect this Note or incurred in any other matter or proceeding relating to this Note. The undersigned acknowledge(s) and agree(s) that there are no contrary agreements, oral or written, establishing a term of this Note and agree(s) that the terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an officer of the Bank expressly stating that the writing constitutes an amendment, waiver or modification of the terms of this Note. As used in this Note, the word "undersigned" means, individually and collectively, each maker, accommodation party, indorser and other party signing this Note in a similar capacity. If any provision of this Note is unenforceable in whole or part for any reason, the remaining provisions shall continue to be effective. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN. 3 4 THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS. For Corporations or Partnerships Championship Auto Racing Teams, Inc. By: /s/ Randy K. Dzierzawski Its: Senior Vice President - ------------------------------------ ------------------------ --------------------- Obligor Name Typed/Printed Signature Of Title 755 West Big Beaver Ste 800 By: Its: - ------------------------------------ ------------------------ --------------------- Street Address Signature Of Title Troy MI 48084 By: Its: - ----------------------------------- ------------------------ --------------------- City State Zip Code Signature Of Title
For Individuals, Sole Proprietorships, Trusts, or Estates Name(s) of Obligor(s) (Type or Print): Signature(s) of Obligor(s): ------------------------ --------------------- - ----------------------------------- ------------------------ --------------------- Street Address - ----------------------------------- ------------------------ --------------------- City State Zip Code
For Bank Use Only Loan Officer Initials Loan Group Name PTF METRO B Loan Officer I.D. No. Loan Group No. 1075 91237 4 EX-10.11 17 EXHIBIT 10.11 1 Exhibit 10.11 FORM OF AGREEMENT THIS AGREEMENT made this ______ day of___________________, 1997 by and between Sponsor, Inc. of __________________________________________, herein referred to as "Sponsor" and Championship Auto Racing Teams, Inc., 755 W. Big Beaver Road, Suite 800, Troy, Michigan 48084 herein referred to as "CART". 1. Official Supplier Designation. During the term of this Agreement, Sponsor shall be, and shall have the right to hold itself out as an Official Supplier of CART including the following specific exclusive designation: "_______________________." Sponsor shall have the right to use the above designation for the purposes of advertising, publicity and promotion, provided, however, that approval of CART is obtained prior to any publication utilizing the CART name, logo, or any of its marks. Approved use of the CART name and logo may be on a stand-alone basis or in a composite logo format. 2. Use of Proprietary Rights. A. Both Sponsor and CART recognize the need of maintaining uniformly high standards of ethical advertising of a quality and dignity consonant with the reputation and standing of the two parties to this Agreement. Accordingly, neither Sponsor nor CART will publish, nor cause or permit to be published, any advertising relating to the sponsorship which is likely to impair the goodwill of Sponsor or CART. B. CART recognizes that it is not authorized to use any of Sponsor's trademarks and trade names for the purpose of promoting CART or the sponsorship in conjunction with CART trademarks, trade names or corporate name without the prior written approval of Sponsor, which approval shall not be unreasonably withheld, and that use of Sponsor's trademarks and trade names must be in accordance with Sponsor's Corporate Guidelines for use of said trademarks and trade names. CART shall not file, register, or record with any federal, state, local government, or agency thereof, any name, design or form which may conform to or be confused with a Sponsor trademark. CART acknowledges Sponsor's exclusive ownership of, and the validity of, the Sponsor trademarks and all registrations thereof, and shall not contest during the term of this Agreement or at any time thereafter Sponsor's exclusive ownership of, and the validity of, the Sponsor trademarks and all registrations thereof. The parties agree to cooperate with each other and with Sponsor in preventing any acts of trademark infringement or unfair competition with respect to any Sponsor trademark, but Sponsor shall have sole control over all actions and legal proceedings to suppress infringement of, and unfair competition with respect to any Sponsor trademark. C. Except as expressly provided herein, neither party is granted any ownership interest in or license to use the marks or intellectual property rights of the other party. 2 3. Term of Agreement. The term of this Agreement shall commence on ________________, 19____ and shall terminate on _______________, _____. The parties agree to negotiate in good faith to extend this Agreement beyond ______________, _____. If such negotiations do not result in the extension of this Agreement by ____________, _____, then CART shall be free to negotiate with third parties in regard to the subject matter of this Agreement for __________ and beyond, provided, however, that Sponsor shall have a right of first refusal to match the terms and conditions that may be presented by a third party to CART in regard to an official car program for _________, such right of first refusal to be exercised by Sponsor, if at all, within a reasonable period of time after notice of such third party offer. 4. Announcement of Agreement. This arrangement shall be announced in a manner mutually agreeable by the parties. Additionally, a special press release issued jointly by CART and Sponsor shall announce this program. This release shall be sent to CART's national and regional news release recipient list which covers press, radio and television, business, society and entertainment editors, teams, drivers, officials, owners and sponsors. In addition to being available and distributed to all media centers on the Fed Ex Championship Series schedule, the release shall be distributed via the CART publicity department's media fax and mailing system. 5. General Publicity and Recognition. A. The official supplier designation as the Official _______ of CART shall be acknowledged and publicized by CART in its general press releases, publicity materials and other appropriate published materials during the term hereof, in similar manner as other official suppliers. B. The following CART publications shall include composite sponsor and supplier recognition: Media Guide, Resource Guide, Fan Guide, Race Event Souvenir Programs, Rule Book, Official "Season in Review" Book, and Awards Banquet Program. In addition, the CART Media Guide and Web Site shall include an editorial feature publicizing Sponsor's role as an Official Supplier of CART. The text of such editorial content shall be supplied by Sponsor in a timely manner. C. Sponsor identification and/or official supplier recognition shall also be accorded (i) within the CART executive offices; and (ii) through a supplier message on CART's voice mail system. D. Sponsor shall also exercise its best efforts to publicize this designation and its association with CART and agrees to consult with CART in conjunction with such efforts. Sponsor agrees to utilize its Official Designation in all race related advertising. E. The CART Sponsor Showcase is a moveable trailer which has been designed to display promotional materials of all official CART sponsors, including a portion dedicated to Sponsor and shall be featured by CART at a variety of public events (in some cases not at the site of the CART Event). Sponsor shall also have the right to three (3) days annual use of the CART Sponsor Showcase subject to availability and presentation of a promotional support plan. Bookings for use of the display should be agreed upon by January 31 of each year of this Agreement. When booking dates are agreed upon, CART shall deliver the display to the location designated by Sponsor. Transport of 3 the display shall be borne entirely by CART. Sponsor agrees to provide its display in a timely manner, for inclusion in the CART Sponsor Showcase. 6. On-Site Presence and Hospitality. A. Appropriate official product supplier recognition shall be embodied in six (6) 30-second composite public address system announcements within the course of each race event weekend, or other mutually agreeable public communication over the event weekend. B. During the term of this Agreement, Sponsor shall have the right to participate as a corporate member of CART and receive the benefits of such membership, which shall include twelve (12) annual hard cards and up to fifteen (15) paper credentials (including pit passes) on an as needed basis, which shall be made available to designated Sponsor guests. So as to assure proper handling of these guest passes, Sponsor agrees to provide to CART at least seven (7) days notice of its intent to use these guest passes and the identity of the guests for which these passes shall be made available. It is understood that these credentials may not provide specific seat availability but instead allow limited access to the race track and surrounding facility. C. Sponsor identification and/or official supplier recognition shall be provided (i) on the CART transporters; (ii) on selected CART officials' uniforms; and (iii) through a track bannering program in areas controlled by CART, i.e., CART hospitality tent, CART "official" hotel, CART registration and CART motorcoach hospitality. D. At each event, CART shall arrange and coordinate (i) twenty (20) free admission/grandstand tickets (where available); (ii) PPG pace car ride for two (2) persons; (iii) on-site V.I.P. expedited servicing of credentials; (iv) hospitality photo support services at the request of Sponsor; and (v) assistance in the development of hospitality packages at race venues. E. Sponsor Public Relations and photographic personnel will be provided full credentials and access to all CART sanctioned event locations normally available to fully accredited working press and photographers. 7. Advertising Opportunities. Sponsor shall have priority advertising purchasing rights (subject to availability and at an incremental cost) for: A. Television airtime in the race broadcast; B. Radio airtime in the race broadcast; C. Advertising package in souvenir event programs; D. Official CART Book; E. Advertising in the Official "Season in Review" Book; F. Advertising in all advertorials commissioned by CART. It is further understood that Sponsor's parent company and affiliates shall be permitted to obtain the priority advertising purchasing rights as set forth in paragraph 7 from CART. 4 8. Additional Support Services and Marketing Opportunities. CART shall provide Sponsor the following support items and additional benefits: A. Services of the CART Client Services Group; B. Access to ongoing CART attitude and awareness research study with the option to co-fund specific research questions; C. Access to CART specialist research services; D. Opportunity to participate in CART Supplier workshops; E. Access to CART video and photo archives at cost; F. Right to use the CART mark on nonsalable premiums with no royalty due to CART; G. Sponsor will be recognized as an Official Sponsor of the CART Awards Banquet, which provides for a table of ten (10), signage, and appropriate recognition during the activities; H. Sponsor shall have the right to maintain a hot-link to the Sponsor's home page on the World Wide Web from the CART Internet Web Site. 9. Consideration. A. Sponsor shall pay an annual rights fee of ________________________ ($_____________) Dollars during the term hereof, according to the following payment schedule: - ($ ) Dollars by January 1 ------------ --------- of each year of this Agreement; - ($ ) Dollars by April 1 of ------------ --------- each year of this Agreement; - ($ ) Dollars by July 1 of ------------ --------- each year of this Agreement; - ($ ) Dollars by October 1 ------------ --------- of each year of this Agreement. CART shall submit an appropriate invoice for payment thirty (30) days prior to the date the respective payments are due. B. Sponsor shall sell reasonable quantities of additional product to CART and its teams at its best available delivered price in the market, consistent with past practices. 10. Confidentiality. A. All media releases, public announcements, and public disclosures by either party or its employees or agents relating to this Agreement, including, but not limited to promotional or marketing material, but not including any announcement intended solely for internal distribution by either party or any disclosure required by legal, accounting, or regulatory requirements beyond the reasonable control of the disclosing party, or any announcements which solely make incidental references to Sponsor as the "Official __________ of CART" shall be coordinated with and approved 5 by the other party prior to the release thereof. B. CART and Sponsor agree to safeguard the confidentiality of any information obtained in the performance of this Agreement regarding the products, accessories, designs and developments of the other party. It is agreed that each party remains the owner of its information and documents and that such information and documents can be used by the other party only for the purpose of performing under the terms of this Agreement. The disclosure of any such information or documents to any third party requires prior written approval of the owner of such information and requires the prior agreement of such third party to safeguard the confidentiality. Notwithstanding the foregoing, disclosure may be made if necessary to enforce a party's rights under this Agreement, or if required by a governmental agency, in which case any and all documents, information, or materials disclosed shall be marked "confidential" and such party shall seek confidential treatment of such information. 11. Authority to Contract. Each party warrants and represents that it has the full right and authority to enter into and perform this Agreement and to grant all rights granted herein, and that the execution and delivery of this Agreement has been duly authorized by all necessary corporate action. CART acknowledges that only the President or Vice President of Sponsor are authorized, on behalf of Sponsor, to execute this Agreement or any modifications or amendments thereto, or any notice of prior termination thereof. Contracts, agreements, promises, representations, understandings, or arrangements of any nature, with respect to this Agreement, which shall have the effect of waiving performance of any of the provisions of the Agreement or making any amendment or modification or any other change in, or addition to, this Agreement or imposing definite obligations on either Sponsor or CART not otherwise specifically imposed by this Agreement, may be made only in writing by the President or Vice President of Sponsor. Sponsor will not be bound by any contracts, agreements, promises, representations, understandings, or arrangements of any nature, whether or not in writing, made by any other person. 12. Assignment. Neither party may assign this Agreement, or sublicense any or all of its rights and obligations hereunder, without first obtaining the written consent of the other party. 13. Entire Agreement; Waivers and Amendments. This Agreement sets forth the entire agreement between the parties and supersedes all prior agreements and understandings between the parties, their officers, directors, or employees relating to the subject matter hereof. None of the terms of this Agreement may be waived or modified except as expressly agreed to, in writing, by both parties. 14. Notices. Except as otherwise provided, any notice or other communication required or permitted to be given under this Agreement will be sufficient if it is in writing and delivered personally, telegraphed, telecopied or telexed, or mailed (by certified, registered or first class mail or by recognized overnight courier), postage prepaid, and will be deemed given when so delivered personally, telegraphed, telecopied or telexed, or if mailed by certified, registered, first class mail or by recognized overnight courier, one day after the date of mailing, as follows (or to any other address provided by a party in accordance with this Section): 6 If to CART: Championship Auto Racing Teams, Inc. 750 W. Big Beaver Road, Suite 800 Troy, MI 48084 Facsimile: (248) 362-8810 Attention: Andrew Craig and Randy Dzierzawski With a copy to: Michael J. Mills, Esq. 1700 North Woodward Avenue, Suite A Bloomfield Hills, MI 48034 Facsimile: (248) 647-7461 If to Sponsor: Name Address City, State, Zip Code With a copy to: General Counsel Name Address City, State, Zip Code 15. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Michigan. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. 17. Headings. The headings in this Agreement are for reference purposes only and will not in any way affect the meaning or interpretation of this Agreement. 18. Severability. If any provision of this Agreement is determined to be illegal or invalid, such illegality or invalidity will have no effect on the other provisions of this Agreement, which will remain valid, operative and enforceable. 19. Relationship of the Parties. Nothing in this Agreement will be deemed to create a partnership or joint venture among any one or more of the parties. 20. Cancellation. Either party may unilaterally cancel this Agreement upon the occurrence of any of the following on behalf of the non-canceling party, provided, however, the canceling party must give notice in writing by certified mail to the non-canceling party, specifying the ground or grounds for termination and permitting said party thirty (30) days in which to cure the purported ground or grounds of termination: A. Either party becomes insolvent or enters federal bankruptcy or reorganization proceedings; or 7 B. A receiver, trustee, guardian or marshal! is appointed to manage the affairs of either party; or C. Either party should, for reasons totally beyond its cause or control, be completely and permanently prevented from reasonably complying with its duties hereunder; or D. Either party fails to perform any of the material terms and conditions herein; or E. Any of the material representations made by either party to the other which led to this Agreement proves to be false. Should Sponsor invoke the above cancellation provisions, all money paid by Sponsor in connection with this Agreement shall be forthwith returned to Sponsor in full, less monies sufficient to pay any reasonable charges any debts already incurred by CART before termination, subject to verification by Sponsor. Return of such monies shall thereupon constitute mutual release from any further obligation or responsibility of any kind whatsoever hereunder, other than those provisions listed in this Agreement. 21. Indemnity Provisions. A. Sponsor agrees to indemnify and hold harmless CART and its authorized agent(s), or either of them, from and against any and all expenses, damages, claims, suits, actions, judgments and costs, including reasonable attorneys' fees, arising out of Sponsor's negligence, willful misconduct in connection with this Agreement, and/or alleged defect in design, manufacture or assembly of _____________ products supplied by Sponsor under this Agreement, provided that Sponsor is given prompt written notice of any such action or claim. B. CART agrees to indemnify and hold harmless Sponsor and its authorized agent(s), or either of them, from and against any and all expenses, damages, claims, suits, actions, judgments and costs, including reasonable attorneys' fees, arising out of or in connection with any event under this Agreement hereunder, other than negligence, willful misconduct or breach of contract by Sponsor, provided that CART is given prompt written notice of any such action or claim. C. Following the receipt of such notice required under subsections A or B above, the indemnifying party shall have the option, upon written notice of same to the other, to contest any such claim or action and to have exclusive control of the defense thereof. IN WITNESS WHEREOF, this Agreement is executed by the parties hereto as of the date first above written. SPONSOR CHAMPIONSHIP AUTO RACING TEAMS, INC. By: By: ----------------------------- -------------------------- Its: Its: ----------------------------- -------------------------- EX-23.1 18 EXHIBIT 23.1 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Championship Auto Racing Teams, Inc. on Form S-1 of (a) our report on the financial statements of Championship Auto Racing Teams, Inc. dated January 20, 1997 (December 19, 1997 as to Note 9) and (b) our report on the combined financial statements of American Racing Series, Inc. and BP Automotive, Inc. dated December 19, 1997 appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Selected Consolidated Financial Data" and "Experts" in such Prospectus. Deloitte & Touche LLP Detroit, Michigan December 23, 1997 EX-23.2 19 EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF KEGLER, BROWN, HILL & RITTER CO., L.P.A. We hereby consent to reference to us under the heading "Legal Matters" in the registration statement on Form S-1 of Championship Auto Racing Teams, Inc. In giving such consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder. KEGLER, BROWN, HILL & RITTER CO., L.P.A. By: /s/ AMY M. SHEPHERD ------------------------------- Amy M. Shepherd, Vice President December 23, 1997 EX-24.1 20 EXHIBIT 24.1 1 EXHIBIT 24.1 POWER OF ATTORNEY CHAMPIONSHIP AUTO RACING TEAMS, INC. KNOW ALL MEN BY THESE PRESENTS: That the undersigned hereby appoints Andrew H. Craig, Randy K. Dzierzawski, Jack A. Bjerke and Amy M. Shepherd, and any of them, any of whom may act without the joinder of the others, as his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him, and in his stead, in his capacity as an officer or director, or both, of Championship Auto Racing Teams, Inc., a Delaware corporation, to sign a Registration Statement on Form S-1 or other form registering under the Securities Act of 1933, as amended, its shares of common stock and any and all amendments thereto, including post-effective amendments to the Registration Statement, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have signed this Power of Attorney on the ____ day of December, 1997. December 22, 1997 /s/ Andrew H. Craig ---------------------------------- Andrew H. Craig /s/ Randy K. Dzierzawski ---------------------------------- Randy K. Dzierzawski /s/ Gerald Forsythe ---------------------------------- Gerald Forsythe /s/ Chip Ganassi ---------------------------------- Chip Ganassi /s/ Carl Haas ---------------------------------- Carl Haas /s/ Bruce Mccaw ---------------------------------- Bruce Mccaw /s/ U.E. Patrick ---------------------------------- U.E Patrick /s/Robert Rahal ---------------------------------- Robert Rahal /s/ Derrick Walker ---------------------------------- Derrick Walker EX-24.2 21 EXHIBIT 24.2 1 EXHIBIT 24.2 SECRETARY'S CERTIFICATE The undersigned hereby certifies that: He is now and at all times herein mentioned has been the duly elected, qualified and acting Secretary of Championship Auto Racing Teams, Inc. a duly organized and existing Delaware corporation, and in charge of the minute books and corporate records of said corporation. Attached hereto and marked Exhibit A is a true copy of resolutions duly adopted by the Board of Directors of said corporation on December 17, 1997; and said resolutions have not been modified or rescinded and are at the date of this Certificate in full force and effect. IN WITNESS WHEREOF, the undersigned has executed this certificate and affixed the corporate seal of said corporation on this 19th day of December, 1997. /s/ Michael J. Mills ----------------------------- Michael J. Mills, Secretary 2 EXHIBIT A RESOLVED FURTHER, that Andrew H. Craig is authorized to sign the registration statement and execute a power of attorney on behalf of the Company and as the Company's President and Chief Executive Officer (Principal Executive Officer), and that Randy K. Dzierzawski is authorized to sign the registration statement and execute a power of attorney as the Company's Chief (and Principal) Financial Officer and Chief Accounting Officer, which powers of attorney appoint Andrew H. Craig, Randy K. Dzierzawski, Jack A. Bjerke, and Amy M. Shepherd and each of them, as Attorney-in-Fact and agents to execute all necessary documents required to be filed with the Securities and Exchange Commission or any state in connection with the registration of the Stock. EX-27.1 22 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 4,850 0 5,225 0 17 16,006 3,671 1,494 18,461 18,297 0 0 0 88 3,472 18,461 0 39,903 0 0 47,268 0 0 (7,365) (2,576) (4,789) 0 0 0 (4,789) (.47) (.47)
EX-27.2 23 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 630 0 2,302 0 16 3,383 2,999 1,070 6,600 3,907 0 0 0 80 1,367 6,600 0 41,454 0 0 41,971 0 0 (517) (179) (338) 0 0 0 (338) (.04) (.04)
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