<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999
REGISTRATION NO. 333-76091
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHAMPIONSHIP AUTO RACING TEAMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8980 38-3389456
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
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 H. 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:
<TABLE>
<S> <C>
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
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the only 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, other than securities offered only in connection with
dividend or interest reinvestment plans, please 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. [ ]
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.
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<PAGE> 2
PROSPECTUS (Not Complete)
Dated April 22, 1999
1,816,500 SHARES OF COMMON STOCK
CHAMPIONSHIP AUTO RACING TEAMS, INC.
$ PER SHARE
[CART LOGO]
[CART LOGO]
[CART LOGO]
------------------------
We own, operate and sanction the CART Championship -- the premier open-wheel
motorsports series in North America. We are responsible for organizing,
marketing and staging each of the races in the CART Championship.
The selling stockholders identified in this prospectus are offering the shares
in a firmly underwritten offering. We will not receive any of the proceeds from
the offering by our stock-holders. We have granted the underwriters an option to
purchase up to 272,475 shares of common stock from us at the Public Price less
Underwriting Discounts to cover any over-allotments in the offering by our
stockholders.
The Offering:
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Price.......... $ $
Underwriting
Discounts........... $ $
Proceeds to Selling
Stockholders........ $ $
</TABLE>
On April 21, 1999, the closing price of our common stock on
the New York Stock Exchange was $28.75 per share.
Trading Symbol:
MPH (New York Stock Exchange)
Website: CART.com
------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
JEFFERIES & COMPANY, INC.
J.C. BRADFORD & CO.
A.G. EDWARDS & SONS, INC.
, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE> 3
[CAMERA READY]
[RACE SCHEDULE GRAPHIC]
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and may not contain all of the information that you
should consider before investing in the common stock. You should read the entire
prospectus carefully.
OUR COMPANY
We own, operate and sanction the premier open-wheel motorsports series in North
America, the CART Championship, and are responsible for organizing, marketing
and staging each of the races in the CART Championship. With speeds of up to 240
miles per hour, and an average margin of victory during the 1998 race season of
less than three seconds, CART open-wheel racing is the fastest form of closed-
circuit auto racing available to motorsports audiences, providing intense
excitement and competition. We also own and sanction two developmental series
for the CART Championship -- the Indy Lights Championship and the Atlantic
Championship.
The 1999 CART Championship, which is sponsored by Federal Express and is known
as the FedEx Championship Series, will include 20 races staged in the following
five countries:
- United States
- Australia
- Brazil
- Canada
- Japan
For the 1999 season, we added an additional race in Chicago, Illinois and will
sanction a non-series event in Oahu, Hawaii. We added two new races in 1998, one
in Motegi, Japan and one in Houston, Texas.
The drivers and racing teams participating in CART racing events are among the
most recognized names in motorsports, with marquee drivers including:
- Michael Andretti
- Al Unser, Jr.
- Jimmy Vasser
- Paul Tracy
- Dario Franchitti
- Adrian Fernandez
- Bryan Herta
- Greg Moore
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
- Walter Payton
- Roger Penske
- Bobby Rahal
Federal Express and PPG Industries are co-series sponsors for the CART
Championship. Other major sponsors of the CART Championship include:
- MCI
- Budweiser
- Craftsman
- Honda
- Mercedes-Benz
- Motorola
- Parke-Davis
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<PAGE> 5
CART events are conducted on four different types of tracks:
- superspeedways
- ovals
- temporary street courses
- permanent road courses
This requires teams and drivers to master different courses and skills to
compete for the CART Championship.
Each race weekend in the CART Championship is an "event," offering spectators
the opportunity to enjoy a CART Championship series race as well as a full
weekend of entertainment. CART race weekends include additional races, practice
and qualifying rounds for all racing events, demonstrations and automotive and
general entertainment displays. Race weekends also 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 is the most watched sport internationally.
CART's races were televised in 195 countries in 1997 with aggregate television
audiences approaching 1 billion. During 1998, 2.5 million people attended CART
events. Total attendance at all motorsports events in the United States exceeded
16.8 million people in 1998. We believe the demographic profile of our growing
spectator base has considerable appeal to track owners, sponsors, television
networks and advertisers.
During the last four years, our revenues have increased from $29.7 million in
1995 to $62.5 million in 1998. We derive our revenues from five primary sources:
- sanctioning fees paid by track promoters
- corporate sponsorship fees
- television revenues
- engine leases and rebuilds
- royalties paid for licenses
GROWTH STRATEGY
Our growth strategy is to continue to increase revenues and net income by
expanding the worldwide audience for CART racing. We intend to capitalize on
CART's position as the premier open-wheel motorsports series in North America
and the thrill and excitement of the CART Championship to increase CART's brand
awareness. We believe that these factors will provide us with opportunities for
increased sanction and corporate sponsorship fees, television revenues and
royalties. To implement our strategy, we intend to:
INCREASE MARKET PENETRATION IN THE UNITED STATES. We continue to develop CART's
race schedule in key markets in the United States. As part of our plan, for the
1999 season, we added an additional series event in Chicago, Illinois and will
sanction a non-series event in Oahu, Hawaii. Because CART races take place on
superspeedways, ovals, temporary street courses and permanent road courses, we
have great flexibility in selecting future race venues.
EXPAND INTERNATIONAL AUDIENCE. We believe that the world market for motorsports
is predisposed to CART's style of exciting, competitive, open-wheel racing. The
CART Championship spanned five countries on four continents in 1998. We
typically receive higher sanction fees from promoters of international race
events and we continue to explore additional opportunities to export our
high-value, American racing product throughout the world. In addition, we are
seeking more international-based sponsors for the CART Championship and its race
teams.
EXPAND MEDIA EXPOSURE. We intend to expand our overall television presence on a
worldwide basis. Our acquisition of the Indy Lights Championship and the
Atlantic Championship, plus the addition of a
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<PAGE> 6
new race in Chicago, result in our owning over 85 hours of high quality
motorsports programming. In the United States, we will focus on improving our
television ratings on both network and cable and on developing race programming
focused on attracting new audiences to the sport. In 1999, we will broadcast a
record 13 of CART's 20 races on network television (ABC) in the United States,
with the balance of the races being televised on ESPN. We will continue to
expand press coverage for all three of our racing series, an area where we
achieved substantial growth in 1998. In 1999, we are re-launching our successful
web site, CART.com, with a new look and presentation that will increase the
immersive experience for visitors.
INCREASE LICENSING OPPORTUNITIES. We will continue to seek out opportunities to
bring the CART brand to a broader market. We currently provide "one stop
shopping" for potential licensees for our servicemarks and trademarks, as well
as 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.
ACQUIRE AND DEVELOP RELATED BUSINESSES AND PROPERTIES. We intend to selectively
pursue opportunities to acquire and apply the CART brand name to other
race-related businesses and properties. As the first step in this strategy, in
1998, we acquired the Indy Lights Championship and the Atlantic Championship. We
are also seeking opportunities to acquire and develop race experience products
which will provide potential and existing race fans with an affordable and
accessible opportunity to experience the sport, including simulation or virtual
reality products, indoor kart racing centers and race schools.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by the selling
stockholders............................ 1,816,500 shares
Common stock outstanding after the
offering................................ 15,224,041 shares
Use of proceeds........................... We will not receive any proceeds from the
sale of common stock by the selling
stockholders, but if the over-allotment
option is exercised in full we will
receive net proceeds of approximately $7.4
million (based upon the closing price of
$28.75 per share on April 21, 1999), which
we will use for general corporate
purposes.
</TABLE>
If all over-allotment shares are sold, we will issue 272,475 shares, so that
15,496,516 shares would be outstanding after this offering.
RECENT DEVELOPMENTS
For the quarter ended March 31, 1999, we generated revenues of $7.3 million, net
income of $1.6 million and diluted net income per share of $0.10. For the
comparable period in 1998, we generated revenues of $10.0 million, net income of
$2.9 million and diluted net income per share of $0.26. During the first quarter
of 1999, we staged one race in the CART Championship, compared to two races in
the first quarter of 1998. A substantial portion of our revenues and net income
are seasonal, based upon our race schedule. Consequently, changes in race
schedules from year to year, with races held in different quarters, result in
fluctuations in our quarterly results and affect comparability. The 1999 CART
Championship will include 20 races, compared to 19 races in the 1998 CART
Championship. We will hold eight races during the second quarter of 1999,
compared to seven races in the second quarter of 1998.
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<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the consolidated financial data for our business
as of and for the three years ended December 31, 1998. This data is derived from
our consolidated financial statements which have been audited by our independent
auditors, Deloitte & Touche LLP. The summary consolidated financial data below
should be read in conjunction with "Selected Consolidated Financial Data," our
consolidated financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sanction fees...................................... $21,078 $24,248 $30,444
Sponsorship revenue................................ 5,501 7,221 16,388
Television revenue................................. 4,373 5,604 5,148
Engine leases, rebuilds and wheel sales............ -- -- 2,214
U.S. 500 (1)....................................... 7,054 -- --
Other revenue...................................... 3,118 4,372 8,336
------- ------- -------
Total revenues........................................ 41,124 41,445 62,530
Total expenses (1)(2)................................. 41,921 62,721 42,071
Operating income (loss)............................... (797) (21,276) 20,459
Interest income (net)................................. 280 329 3,198
Income (loss) before income taxes..................... (517) (20,947) 23,657
Net income (loss)..................................... (338) (17,524) 15,089
Net income (loss) per share -- diluted................ $ (0.04) $ (1.72) $ 1.05
Weighted average common shares
outstanding -- diluted............................. 9,400 10,200 14,421
OTHER DATA:
Number of races in the CART Championship.............. 16 17 19
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 1,164 $15,080
Short-term investments.................................... -- 61,610
Working capital (deficit)................................. (5,325) 72,219
Total assets.............................................. 12,348 97,186
Total long-term debt (including current portion).......... 444 314
Total stockholders' equity (deficit)...................... (3,045) 86,219
</TABLE>
- ---------------
(1) In 1996, we 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 other things, 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 (including
purse awards) amounted to $8,246,000. We continue to sanction the event, but
since 1996 we have not acted as the promoter.
(2) Expenses for the years ended December 31, 1996 and 1997 include certain
payments to franchise race teams, including reimbursement of travel
expenses, directors fees, purse awards and other race related payments.
Effective January 1, 1998, we no longer reimburse the franchise race teams
for travel expenses, directors fees and race-related payments.
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<PAGE> 8
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in shares of common stock.
SUBSTANTIAL COMPETITION -- OUR RACING EVENTS FACE INTENSE COMPETITION FOR
ATTENDANCE, TELEVISION VIEWERSHIP AND SPONSORSHIP.
Our industry is highly competitive. We cannot assure you that we will be able to
maintain or improve our market position. Our racing events compete with other
events for television viewership, attendance and sponsorship funding. Our racing
events compete with racing events sanctioned by other racing bodies, including:
- Formula One
- National Association of Stock Car Automobile Racing ("NASCAR")
- Indy Racing League ("IRL")
- National Hot Rod Association ("NHRA")
- Sports Car Club of America ("SCCA")
In addition, our racing events compete with other sports, entertainment and
recreational events, including:
- Football
- Basketball
- Baseball
- Golf
RELIANCE ON PARTICIPATION BY TEAMS -- OUR FUTURE SUCCESS IS DEPENDENT UPON THE
CONTINUED PARTICIPATION OF RACING TEAMS IN CART-SANCTIONED RACE EVENTS.
If teams that currently participate in our events terminate their participation,
then that could adversely affect our financial and business results. The teams
participating in our events derive substantially all of their funding for race
operations from their sponsors. Generally, team sponsors measure advertising
exposure to determine future sponsorship commitments. A decrease in our
attendance or television viewership could adversely affect the level of funding
by some team sponsors. If sponsorship revenues are not available to teams, then
those teams may not have the necessary funding to participate in our events.
RELIANCE ON INDUSTRY SPONSORSHIPS -- A SIGNIFICANT DECLINE IN SPONSORSHIP,
PROMOTION AND ADVERTISING DOLLARS AVAILABLE TO US, OUR RACE PROMOTERS AND THE
RACING TEAMS PARTICIPATING IN OUR EVENTS IN THE FUTURE COULD ADVERSELY AFFECT
OUR FINANCIAL AND BUSINESS RESULTS.
We generate significant revenue each year from the sponsorship, promotion and
advertising of various companies and their products. The revenue generated from
such sponsorship, promotion and advertising substantially depends upon the level
of advertising expenditures by sponsors or prospective sponsors. The level of
advertising expenditures depends in part on the financial condition of such
companies and the availability and cost of alternative promotional outlets. It
also depends on their perception of the benefits of using us, our events or race
teams as an advertising medium. Television viewership and spectator attendance
for our events significantly impact the advertising and promotional value to
sponsors.
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RELIANCE ON PARTICIPATION BY SUPPLIERS -- WITHOUT THE PARTICIPATION OF SUPPLIERS
IN PROVIDING ENGINES, CHASSIS AND TIRES, WE MAY NOT BE ABLE TO CONTINUE SOME OF
OUR RACING SERIES.
We are dependent upon the continued participation of suppliers of engines, tires
and chassis to teams competing in our events. The engines and tires for our race
cars are designed specifically for our racing. We believe that the costs to some
industry suppliers are greater than the revenues generated from the sale or
lease of such products.
RELIANCE ON EVENT PROMOTERS -- WE DERIVE A SUBSTANTIAL PORTION OF OUR TOTAL
REVENUES FROM SANCTION FEES THAT ARE PAID TO US BY EACH PROMOTER.
If several promoters incur financial losses or restrictions that prohibit future
events from taking place or if such promoters elect not to promote our events in
the future, we believe this could adversely affect our financial and business
results.
LIMITATIONS ON SPONSORSHIP -- THE LOSS OF MOTORSPORTS INDUSTRY SPONSORSHIPS FROM
TOBACCO AND ALCOHOL COMPANIES COULD HAVE ADVERSE EFFECTS ON US.
Governmental authorities in many countries regulate advertising by companies in
the alcohol and tobacco industries. Companies involved in these industries have
been significant sponsors of race teams, racing series and events. Recently,
governmental authorities have taken steps to further restrict sponsorship by
tobacco companies. We do not derive significant sponsorship revenue from the
tobacco and alcohol industries, but many of the race teams participating in our
events derive a substantial portion of their operating revenues from such
industry sponsors. In addition, many of our race events are sponsored in part by
companies in the tobacco or alcohol industries, with such sponsorship fees paid
to the track promoters. If these race teams and track promoters lose sponsorship
fees from tobacco or alcohol industry sponsors without locating another sponsor,
then we could lose that team as a participant or that promoter and it could
adversely affect our financial and business results.
On November 23, 1998, Phillip Morris, Brown & Williamson, Lorillard, R.J.
Reynolds and the Liggett Group entered into a settlement agreement with 46
states and the District of Columbia (collectively, the "States"). The settlement
agreement restricts tobacco product advertising and marketing within the States.
Among other restrictions, the settlement agreement:
- prohibits tobacco product brand name sponsorship of concerts, events in
which the intended audience is comprised of a significant percentage of
youth under age 18, events in which any paid participants or contestants
are youths, or any athletic event between opposing teams in any football,
basketball, baseball, soccer or hockey league; and
- limits each participating manufacturer to one tobacco product brand name
sponsorship during any twelve-month period.
We cannot assure you that a tobacco company will choose a motorsports event as
its one annual event to sponsor. If a tobacco company does choose to do so, the
settlement agreement permits the use of a tobacco product brand name for a race
car series and a single race team within that series. If the tobacco company is
not a sponsor of the race series in which the race team is competing, it can use
the tobacco product brand name only for a single race team.
EXPANSION -- WE HAVE A LIMITED ABILITY TO EXPAND OUR RACE SCHEDULE.
Expansion of the number of races we stage each year will require additional
personnel and resolution of logistical issues such as transportation and
availability of equipment. Our ability to expand the race
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schedule will also be limited by the availability of funding and equipment to
teams for participation in additional events and by the teams' willingness to
participate in an expanded schedule.
INDIANAPOLIS 500 -- NON-PARTICIPATION BY CART TEAMS AND DRIVERS IN THE
INDIANAPOLIS 500 COULD HAVE AN ADVERSE EFFECT.
We are unable to predict what effect the continued non-participation by our
teams at the Indianapolis 500 will have on our financial and business results.
The IRL was formed in 1995 as a rival open-wheel racing league to compete
directly with us. The IRL was founded by affiliates of the Indianapolis Motor
Speedway. Since the creation of the IRL and certain rule changes at the
Indianapolis 500, almost all of the CART teams and drivers have not competed at
the Indianapolis 500. They believed that the rule changes were adverse to the
teams participating in CART events. The 1996 rule changes included 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 so that the cars competing in
CART-sanctioned events could not compete at the Indianapolis 500. The IRL
eliminated the reservation of starting positions in 1998.
The Indianapolis 500 is a major racing event in the United States. It 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. Corporations have
spent a considerable sum of money to sponsor racing teams participating at the
Indianapolis 500 and for advertising and promotions for such sponsorship. We do
not believe that we, or our teams, have lost significant sponsors due to
non-participation by CART teams and drivers at the Indianapolis 500.
GROWTH STRATEGY -- WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH
STRATEGY.
A factor in our growth strategy is to acquire and develop race related
businesses and properties. We cannot assure you that we will be able to identify
and acquire race-related businesses and properties. Our ability to effectively
manage our future growth and to successfully implement our growth strategy will
require us to successfully integrate the operations of acquired businesses and
properties with our operations. We will also need to enhance our operational,
financial and management systems. In addition, we will need to successfully
hire, train, retain and motivate additional employees. If we fail to manage our
growth effectively, then this could have an adverse affect on our financial and
business results.
LIABILITY FOR RACING-RELATED INCIDENTS -- WE FACE THE INHERENT RISKS AND
EXPOSURE TO CLAIMS IN THE EVENT THAT SOMEONE IS INJURED AT A CART-SANCTIONED
EVENT.
Racing events can be dangerous to participants and spectators. During a race at
the Michigan Speedway in July 1998, a driver was involved in a racing incident
that propelled a tire and suspension parts into the grandstands. Three
spectators were killed and six other spectators reported minor injuries. No
claims have been made against CART, and we do not believe that we would be held
liable for this incident if claims were made. We cannot assure you, however,
that no claims will be made against us or, if claims are made, what the outcome
of any such claims will be.
We have and will continue to have liability insurance to cover past and any
future racing incidents. We are also indemnified by track promoters for racing
incidents and obtain waivers from those participating in our events. To the
extent not covered by insurance, any claims and associated expenses related to
prior racing incidents, including the incident at Michigan Speedway, could
adversely affect our financial and business results. In addition, any claims and
associated expenses related to future potential racing
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incidents, to the extent not covered by insurance, could adversely affect our
financial and business results.
PRIOR LOSSES -- PRIOR TO BECOMING A PUBLIC COMPANY, WE EXPERIENCED LOSSES FROM
OPERATIONS.
Our ability to expand our business will be adversely affected if we are not
profitable. We have previously experienced losses from our operations. We cannot
assure you that we will continue to improve our profitability. Our historical
financial data reflect net losses of $338,000 for 1996 and $17.5 million for
1997. We had total revenues of $41.1 million in 1996 and $41.4 million in 1997.
We had net income of $15.1 million for 1998, with total revenues of $62.5
million. During 1997, in preparation for our initial public offering, we
incurred expenses for payments to franchise members totaling $19.4 million. As
of January 1, 1998, the franchise members agreed to discontinue these payments.
CONTROL -- OUR DIRECTORS AND OFFICERS CONTROL THE VOTING POWER.
Upon completion of the offering, our current directors and officers and those
affiliated with our race teams will own approximately 49.7% (48.8% if the
over-allotment option is exercised in full) of the outstanding shares of common
stock. As a group, they control the outcome of substantially all issues
submitted to our stockholders, including the election of directors. The
interests of this group could conflict with the interests of the other
stockholders.
CONFLICTS -- SOME OF OUR CURRENT STOCKHOLDERS AND DIRECTORS HAVE CONFLICTS OF
INTEREST.
Some of our current stockholders and most of our directors are affiliated with a
race team that participates in the CART Championship. These factors result in an
inherent conflict of interest for certain matters to be considered by the
stockholders or directors. In addition, some of our stockholders and directors
either control or are affiliated with others who control racing venues that
stage CART and other racing events. Therefore, a conflict of interest may arise
when we determine the location and dates of CART events and the amount of
sanction fees paid. Under Delaware law, all directors owe a fiduciary duty to
our stockholders.
KEY PERSONNEL -- WE ARE DEPENDENT ON OUR KEY PERSONNEL.
Our continued success will depend upon the availability and performance of
Messrs. Andrew Craig and Randy Dzierzawski, and the other members of our senior
management team. While we believe that our senior management team has
significant depth, if we lose key personnel or if we are unable to attract and
retain key employees in the future, then it could adversely affect our
operations and business plans. Although we have entered into employment
agreements with key executive officers, we cannot assure you that each of these
individuals will continue in his present capacity for a particular period of
time.
INTERIM RESULTS -- OUR QUARTERLY RESULTS ARE SUBJECT TO FLUCTUATION AND
SEASONALITY AS A RESULT OF THE SCHEDULING OF OUR RACES.
Historically, our revenues are higher in the second and third quarters of the
year due to the number of races that we stage in those quarters. The scheduling
of any race in the CART Championship can significantly affect our quarterly
results of operations when compared to a previous quarter if races are scheduled
during different quarters from year to year. You may be unable to usefully
compare our results in one quarter to our results in a prior period due to these
timing differences. This may affect your ability to analyze our results on a
quarterly basis and could also affect the market price of our
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<PAGE> 12
stock. You should see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Quarterly Results" for a
discussion of our quarterly results.
SALE OF SHARES -- SALES OF SHARES BY EXISTING STOCKHOLDERS COULD ADVERSELY
AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Sales of significant amounts of common stock in the public market, or the
perception that such sales may occur, could cause the market price of the common
stock to drop. After the offering, 15,224,041 shares (15,496,516 shares if the
over-allotment option is exercised in full) of common stock will be outstanding.
The shares offered hereby will be freely transferable after the offering unless
purchased by affiliates of CART, as defined in Rule 144 under the Securities Act
of 1933. In addition, a total of 5,442,163 shares are currently freely
transferable and substantially all of the remaining outstanding shares are
restricted but have been held for more than one year and may be sold pursuant to
Rule 144 under the Securities Act.
CART and certain of our directors and officers, as well as each of the selling
stockholders, have agreed with the underwriter not to dispose of any of their
common stock or securities convertible into or exchangeable for shares of common
stock during the period from the date of this prospectus continuing through the
date 180 days after the date of this prospectus except with the prior written
consent of the representatives. In addition, one additional major stockholder
has entered into a similar agreement for a 30-day period. The agreement does not
apply to sales of up to an aggregate of 90,000 shares by two of our officers at
any time after the 30-day period immediately following the date of this
prospectus.
LACK OF DIVIDENDS -- WE DO NOT INTEND TO PAY CASH DIVIDENDS.
We anticipate that all of our earnings in the near term will be used for the
development and expansion of our business. Our future dividend policy will
depend on our earnings; capital requirements; financial condition; restrictions
imposed under bank facilities; and other factors considered relevant by the
Board of Directors.
TAKEOVERS -- OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE AN ATTEMPT BY
OTHERS TO ACQUIRE CONTROL OF CART.
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
CART. Our certificate of incorporation and bylaws contain provisions that
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 also discourage or impede a tender offer, proxy
contest or other similar transaction involving control of CART, even if viewed
favorably by stockholders. In addition, the severance provisions included in
employment agreements with certain members of management could increase the cost
of an attempted change of control of CART. We also have adopted a stockholder
rights plan which may have the effect of impeding a hostile attempt to acquire
control of CART.
11
<PAGE> 13
FORWARD-LOOKING STATEMENTS
This prospectus, as well as reports, proxy statements and other information that
we have filed with the SEC, which are incorporated by reference in this
prospectus, include forward-looking statements that relate to, among other
items:
- the market for our races
- the effect of economic conditions on our business
- the impact of competition on our business
- our objective to grow through strategic acquisitions
- the popularity of racing
- our internal growth strategy
- our ability to manage and integrate acquired businesses
- anticipated trends and conditions in our industry
- our Year 2000 compliance
- trends in our future operating performance
We have based these forward-looking statements largely on our expectations as
well as assumptions we have made and information currently available to our
management. When used in this prospectus, the words "anticipate," "believe,"
"estimate," "expect" and similar expressions, as they relate to our company,
business or management, are intended to identify forward-looking statements.
Forward-looking statements are subject to a number of risks and uncertainties,
some of which are beyond our control. Actual results could differ materially
from those anticipated as a result of the factors described in "Risk Factors"
and other factors. Furthermore, in light of these risks and uncertainties, the
future events and circumstances discussed in this prospectus might not occur.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
12
<PAGE> 14
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares by the selling
stockholders.
If the underwriter's over-allotment option is exercised in full, we will receive
net proceeds (after deducting the underwriters' discounts and commissions and
estimated offering expenses) of approximately $7.4 million (based upon the
closing price of $28.75 per share on April 21, 1999). We intend to use any net
proceeds we receive from this offering for general corporate purposes. Pending
these uses, we expect to invest these funds in short-term, interest-bearing,
investment grade securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded on the New York Stock Exchange under the symbol
"MPH." The table below sets forth the high and low closing sales prices for our
common stock reported on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998:
First quarter (from initial public offering on March
10)................................................... $19.94 $18.25
Second quarter......................................... 21.31 16.56
Third quarter.......................................... 24.44 19.19
Fourth quarter......................................... 29.63 21.00
1999:
First quarter.......................................... $29.38 $25.56
Second quarter (through April 21)...................... 30.19 28.00
</TABLE>
As of April 8, 1999, there were 15,224,041 shares of common stock outstanding,
held of record by approximately 310 stockholders.
We intend to retain future earnings for the operation and expansion of our
business. We do 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 our results
of operations, financial condition, cash requirements, capital expenditure
requirements and other factors deemed relevant by the Board of Directors.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the three years
ended December 31, 1998 are derived from our consolidated financial statements
which have been audited by our independent auditors, Deloitte & Touche LLP. The
financial statements for the two years ended December 31, 1995 are derived from
our audited financial statements. The selected consolidated financial data below
should be read in conjunction with our consolidated financial statements and
related notes contained elsewhere in this prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Sanction fees........................... $16,299 $18,708 $21,078 $ 24,248 $30,444
Sponsorship revenue..................... 4,104 4,780 5,501 7,221 16,388
Television revenue...................... 2,343 3,177 4,373 5,604 5,148
Engine leases, rebuilds and wheel
sales................................. -- -- -- -- 2,214
U.S. 500 (1)............................ -- -- 7,054 -- --
Other revenue........................... 2,229 3,077 3,118 4,372 8,336
------- ------- ------- -------- -------
Total revenues...................... 24,975 29,742 41,124 41,445 62,530
Expenses:
Race and franchise fund payments (2).... 18,305 18,446 17,198 28,939 15,183
U.S. 500 (1)............................ -- -- 8,246 -- --
Race expenses (2)....................... 2,621 4,612 6,055 6,970 4,818
Costs of engine rebuilds and wheel
sales................................. -- -- -- -- 633
Administrative and indirect expenses
(2)................................... 3,977 5,832 8,570 14,295 20,658
Compensation expense.................... -- -- 1,167 12,200 --
Depreciation and amortization........... 202 306 685 549 779
Minority interest....................... -- -- -- (232) --
------- ------- ------- -------- -------
Total expenses...................... 25,105 29,196 41,921 62,721 42,071
------- ------- ------- -------- -------
Operating income (loss)................... (130) 546 (797) (21,276) 20,459
Interest income (net)..................... 212 235 280 329 3,198
------- ------- ------- -------- -------
Income (loss) before income taxes......... 82 781 (517) (20,947) 23,657
Income tax benefit (expense).............. 344 204 179 3,423 (8,568)
------- ------- ------- -------- -------
Net income (loss)......................... $ 426 $ 985 $ (338) $(17,524) $15,089
======= ======= ======= ======== =======
Net income (loss) per share:
Basic................................... $ .04 $ .10 $ (.04) $ (1.72) $ 1.06
======= ======= ======= ======== =======
Diluted................................. $ .04 $ .10 $ (.04) $ (1.72) $ 1.05
======= ======= ======= ======== =======
Weighted average common shares
outstanding:
Basic................................... 10,200 10,200 9,400 10,200 14,190
======= ======= ======= ======== =======
Diluted................................. 10,200 10,200 9,400 10,200 14,421
======= ======= ======= ======== =======
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................. $ 1,393 $ 2,046 $ 630 $ 1,164 $15,080
Short-term investments.................... -- -- -- -- 61,610
Working capital (deficit)................. (209) (1,182) (524) (5,325) 72,219
Total assets.............................. 2,974 5,613 6,600 12,348 97,186
Total long-term debt (including current
portion)................................ -- -- 574 444 314
Total stockholders' equity (deficit)...... (1,875) (1,250) (151) (3,045) 86,219
</TABLE>
- ---------------
(1) In 1996, we 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. We continue to sanction the event, but since 1996, we have not
acted as the promoter.
(2) Expenses for the years ended December 31, 1994, 1995, 1996 and 1997 include
certain payments to franchise race teams, including reimbursement of travel
expenses, directors fees, purse awards and other race related payments.
Effective January 1, 1998, we no longer reimburse the franchise race teams
for travel expenses, directors fees and race-related payments.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As you read the following, you should also refer to the consolidated financial
statements and related notes included elsewhere in this prospectus.
GENERAL
In December 1997, as part of our reorganization, each stockholder of CART, Inc.
exchanged their shares for stock of our company. Prior to our reorganization,
the franchise race teams received reimbursement of travel expenses, directors
fees and franchise payments in an aggregate amount equal to $8.5 million and
$19.4 million for the years ended December 31, 1996 and 1997, respectively. The
franchise teams signed an agreement on December 19, 1997 to discontinue these
payments after January 1, 1998. The agreement will expire in December 2000. This
agreement is a related party transaction because each franchise team owns shares
of our stock. We do not intend to resume making such payments to franchise race
teams unless we receive additional revenue that was not contracted for at the
end of 1997.
Below are selected income and expense items for the years ended December 31,
1996, 1997 and 1998. The percentage calculations are based on total revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1997 1998
--------------- ---------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sanction fees............................. $21,078 51.3% $ 24,248 58.5% $30,444 48.7%
U.S. 500 (1).............................. 7,054 17.1 -- -- -- --
Sponsorship revenue....................... 5,501 13.4 7,221 17.4 16,388 26.2
Television revenue........................ 4,373 10.6 5,604 13.5 5,148 8.2
Engine leases, rebuilds and wheel sales... -- -- -- -- 2,214 3.6
Other revenue............................. 3,118 7.6 4,372 10.6 8,336 13.3
------- ----- -------- ----- ------- -----
Total revenues........................ $41,124 100.0% $ 41,445 100.0% $62,530 100.0%
======= ===== ======== ===== ======= =====
Expenses:
Race and franchise fund payments (2)...... $17,198 41.8% $ 28,939 69.8% $15,183 24.3%
U.S. 500 (1).............................. 8,246 20.1 -- -- -- --
Race expenses (2)......................... 6,055 14.7 6,970 16.8 4,818 7.7
Cost of engine rebuilds and wheel sales... -- -- -- -- 633 1.0
Compensation expense...................... 1,167 2.8 12,200 29.4 -- --
Administrative and other indirect expenses
(2)..................................... 8,570 20.8 14,295 34.5 20,658 33.0
Depreciation and amortization............. 685 1.7 549 1.3 779 1.3
Minority interest in loss of
subsidiaries............................ -- -- (232) (0.5) -- --
------- ----- -------- ----- ------- -----
Total expenses........................ 41,921 101.9 62,721 151.3 42,071 67.3
------- ----- -------- ----- ------- -----
Operating income (loss)..................... (797) (1.9) (21,276) (51.3) 20,459 32.7
Interest income (net)....................... 280 0.7 329 0.8 3,198 5.1
------- ----- -------- ----- ------- -----
Income (loss) before income taxes........... (517) (1.2) (20,947) (50.5) 23,657 37.8
Income tax benefit (expense)................ 179 0.4 3,423 8.3 (8,568) (13.7)
------- ----- -------- ----- ------- -----
Net income (loss)........................... $ (338) (0.8)% $(17,524) (42.2)% $15,089 24.1%
======= ===== ======== ===== ======= =====
</TABLE>
- ---------------
(1) Our promotion of the U.S. 500 was a one-time event, and although we continue
to sanction the event, we no longer act as the promoter.
(2) Race expenses for 1996 and 1997 include our payments to franchise teams as
explained above.
15
<PAGE> 17
REVENUES
Following is an explanation of our individual revenue items:
Sanction Fees. We receive sanction fees from the promoters of each of the races
on the CART Championship schedule, as well as from selected races on the Indy
Lights and Atlantic schedule. The fees are based on contracts between the
promoters and CART. The contracts have terms which expire between 1999 and 2005.
Currently contracted sanction fees range from $977,500 to $4.5 million per
event.
U.S. 500. In 1996, due to the reservation of starting positions at the
Indianapolis 500 for IRL competitors, we promoted and sanctioned the inaugural
U.S. 500 at Michigan International Speedway on May 26. Because we promoted the
event, we did not receive sanction fee revenue from the event but did receive
revenue from admissions, hospitality, television, sponsorship and licensing. Our
promotion of the U.S. 500 was a one-time event, and although we continue to
sanction the event, we do not anticipate acting as the promoter of the U.S. 500
in the future.
Sponsorship Revenue. We receive corporate sponsorship revenue based on
negotiated contracts. We currently have corporate sponsorship 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.
Television Revenue. Our television revenue is derived from negotiated contracts
with:
- ESPN
- ESPN International
- Fittipaldi USA (Brazil)
- Gold Coast Motor Events Co. (Australia)
- Molstar (Canada)
A guaranteed rights fee is paid to us by each broadcast partner. Based on our
contract with ESPN/ESPN International, we receive 50% of the net profits
received by ESPN for distribution of the race programs, with an escalating
minimum guarantee provision. A provision of the ESPN contract requires that at
least 50% of the CART Championship events be broadcast on a major broadcasting
network in the United States. In 1996, 1997 and 1998, all CART Championship
races were broadcast on either ABC or ESPN. In addition, CART Championship races
are re-aired on ESPN and ESPN2. ESPN2 also broadcasts CART Championship
qualifying sessions and pre-race shows.
Engine Leases, Rebuilds and Wheel Sales. In March 1998, we purchased all of the
stock of ARS, which operates the Indy Lights Series. We own the engines that are
used in the series and lease the engines to the competitors for the season. The
teams pay us a fee to rebuild the engines. We also sell the wheels used on the
race cars. Based on the rules of the series, all teams are required to use our
engines and wheels.
Other Revenue. Other revenue includes membership and entry fees, contingency
awards money, royalties, commissions and other miscellaneous revenue items.
Membership and entry fees are payable on an annual basis by CART, Indy Lights
and Atlantic Championship competitors. In addition, we charge fees to
competitors for credentials for all team participants and driver license fees
for all drivers competing in the series. We pay contingency awards money to
competitors upon satisfaction of specific criteria. We receive royalty revenue
for the use of the CART servicemarks and trademarks on licensed merchandise that
is sold both at tracks and at off-track sites. We receive commission income from
the sale of chassis and parts to our support series teams.
16
<PAGE> 18
EXPENSES
Following is an explanation of the expense line items. For an explanation of
certain expenses discontinued in connection with our reorganization in 1997, you
should read "Business -- Franchise System and Race Teams."
Race and Franchise Fund Payments. We pay the racing teams for their on-track
performance. Race and franchise fund payments include the following for each
event:
- fixed franchise fund payment to each franchise competitor
- event purse which is paid based on finishing position
- contingency award payments
We also pay awards to the teams based on their cumulative performance for the
season, out of the year-end point fund. After our reorganization, franchise fund
payments were discontinued. We do not intend to resume making such payments to
franchise race teams unless we receive additional revenue that was not
contracted for at the end of 1997.
U.S. 500. In addition to the race purse, expenses for the U.S. 500 in 1996
included:
- sales costs for the sale of sponsorships
- track rental expenses
- compensation expenses for contract staff
- promotional and advertising costs
- administrative expenses incurred solely with respect to the U.S. 500
event
Race Expenses. We are responsible for officiating and administering all of our
events. 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
- race administration
Prior to our reorganization, each franchise race team was paid a travel fee to
attend and participate in each event. These payments were discontinued after
January 1, 1998. Overseas event organizers are responsible for costs related to
cargo, air passenger travel and lodging for our staff and race participants.
Cost of Engine Rebuilds and Wheel Sales. These costs are associated with
rebuilding the engines and the cost of the wheels used in the Indy Lights
Championship.
Administrative and Indirect Expenses. All operating costs not directly incurred
for a specific event, primarily wages, directors fees and other administrative
expenses, are recorded as administrative and indirect expenses.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Total revenues for 1998 were $62.5 million, an increase of $21.1
million from 1997. This was due to increased sanction fees, sponsorship, engine
leases, rebuilds and wheel sales and other revenue as described below, partially
offset by a reduction in television revenue as described below.
Sanction fees for 1998 were $30.4 million, an increase of $6.2 million, or 26%,
from 1997. Of this increase, $5.0 million was attributable to the addition of
new events in Motegi, Japan and Houston,
17
<PAGE> 19
Texas. The balance of the increase resulted from annual sanction fee escalation
for certain other events of $1.2 million.
Sponsorship revenue for 1998 was $16.4 million, an increase of $9.2 million, or
127%, from 1997. This increase was primarily attributable to a new sponsorship
agreement entered into with Federal Express, an agreement with ISL Worldwide
that guaranteed certain sponsorship income in 1998 and the additional
sponsorship revenues attributable to the acquisition of ARS in March 1998 and
Pro-Motion in April 1998.
Television revenue for 1998 was $5.1 million, a decrease of $456,000, or 8%,
from 1997. This decrease was due primarily to slightly lower revenues on the
profit sharing portion on our contract with ESPN due to having two fewer network
events in 1998.
Engine leases, rebuilds and wheel sales for 1998 were $2.2 million. There was no
corresponding revenue in the prior year as this revenue was earned by ARS, which
was acquired in March 1998.
Other revenue for 1998 was $8.3 million, an increase of $4.0 million, or 91%,
from 1997. Of this increase, $2.0 million was attributable to an increase in
membership and credential income, royalties and awards money. The balance of the
increase was attributable to the acquisition of ARS in March 1998 and Pro-Motion
in April 1998.
Expenses. Total expenses for 1998 were $42.1 million, a decrease of $20.7
million, or 33%, from 1997. This decrease was due to lower race and franchise
fund payments, race expenses and compensation expense as described below,
partially offset by an increase in administrative and indirect expenses, and
cost of engine rebuilds and wheel sales as described below.
Race and franchise fund payments for 1998 were $15.2 million, a decrease of
$13.8 million, or 48%, from 1997. This decrease was partially due to our
reorganization that was effective January 1, 1998. In 1997, certain payments
were made to franchise members that were discontinued for the 1998 season. The
decrease was partially offset by two additional races being held in 1998 and by
race distributions related to ARS and Pro-Motion that were not included in 1997
as these companies were acquired in 1998.
Race expenses for 1998 were $4.8 million, a decrease of $2.2 million, or 31%,
from 1997. This decrease was partially due to our reorganization that was
effective January 1, 1998. In 1997, certain payments were made to franchise
members that were discontinued for the 1998 season. The decrease was partially
offset by two additional races being held in 1998 and by race expenses related
to ARS and Pro-Motion that were not included in 1997 as these companies were
acquired in 1998.
Cost of engine rebuilds and wheel sales were $633,000. There was no
corresponding expense in the prior year as this expense was related to ARS,
which was acquired in March 1998.
Administrative and indirect expenses for 1998 were $20.7 million, an increase of
$6.4 million, or 45%, from 1997. This increase was primarily attributable to
additional marketing and advertising expenses, sales costs related to sponsor
sales for Federal Express and MCI, development of a creative services department
in 1998 and increased administrative expenses related to our expanded licensed
products venture. In addition, ARS and Pro-Motion administrative expenses
contributed to the increase, as there were no corresponding expenses in the
prior period since these companies were acquired in 1998.
Compensation expense was not incurred in 1998 compared to $12.2 million incurred
in 1997. This non-cash compensation expense related to the issuance of stock to
race teams at below fair market value.
Operating Income. Operating income for 1998 was $20.5 million, an increase of
$41.7 million from 1997.
18
<PAGE> 20
Interest Income (Net). Interest income (net) for 1998 was $3.2 million compared
to interest income (net) of $329,000 for 1997. The increase of $2.9 million was
primarily attributable to interest earned on the invested proceeds from the
initial public offering that occurred in March 1998.
Income Before Income Taxes. Income before income taxes for 1998 was $23.7
million, compared to a loss before income taxes of $21.0 million for 1997.
Income Tax Expense/Benefit. Income tax expense for 1998 was $8.6 million,
compared to an income tax benefit of $3.4 million for 1997.
Net Income/Loss. Net income for 1998 was $15.1 million compared to a net loss of
$17.5 million in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Total revenues for 1997 were $41.4 million, an increase of $321,000
from 1996. This was due to increased sanction fees and sponsorship, television
and other revenue as described below, partially offset by a reduction in revenue
of $7.1 million because we did not promote the U.S. 500 in 1997.
Sanction fees for 1997 were $24.2 million, an increase of $3.2 million, or 15%,
from 1996. Of this increase, $1.9 million was attributable to the addition of
new events in Madison, Illinois near St. Louis and Fontana, California near Los
Angeles. The balance of the increase resulted from annual sanction fee
escalation for certain other events of $1.3 million.
Sponsorship revenue for 1997 was $7.2 million, an increase of $1.7 million, or
31%, from 1996. This increase was primarily attributable to a new sponsorship
agreement entered into with MCI.
Television revenue for 1997 was $5.6 million, an increase of $1.2 million, or
28%, from 1996. This increase was due to the increase of approximately $500,000
in the ESPN rights fee, and an increase of $400,000 in rights fees from
Fittipaldi USA, our Brazilian television partner. There was also an increase in
the sale of commercial time for Inside CART and video footage sales of $379,000,
partially offset by a reduction in Canadian rights fees of $44,000.
Other revenue for 1997 was $4.4 million, an increase of $1.3 million, or 40%,
from 1996. This increase was primarily attributable to $934,000 of additional
revenue from a CART-sanctioned support series. The balance was attributable to
royalty income from licensed merchandise sales.
Expenses. Total expenses for 1997 were $62.7 million, an increase of $20.7
million, or 50%, from 1996. This increase was due to higher race and franchise
fund payments, race expenses, compensation expense and administrative and
indirect expenses as described below, partially offset by a reduction in
expenses of $8.2 million because we did not act as the promoter of the U.S. 500
in 1997.
Race and franchise fund payments for 1997 were $28.9 million, an increase of
$11.7 million, or 68%, from 1996. 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 of $1.8 million and additional payments related to team travel
expenses of $266,000.
Race expenses for 1997 were $7.0 million, an increase of $915,000, or 15%, from
1996. This increase was the result of the addition of the events in Madison,
Illinois and Fontana, California.
Administrative and indirect expenses for 1997 were $14.3 million, an increase of
$5.7 million, or 67%, from 1996. Of this increase, $3.5 million was attributable
to increases in advertising, marketing and market research incurred in
connection with implementation of our growth strategy. An additional $1.3
million reflected costs associated with the implementation of the sponsorship
agreement entered into
19
<PAGE> 21
with MCI, and $1.0 million related to the establishment of CART Licensed
Products, L.P., a new partnership formed to enhance CART's licensed product
sales.
Compensation expense for 1997 was $12.2 million, an increase of $11.0 million,
or 945%, from 1996. This non-cash compensation expense related to the issuance
of stock to race teams at below fair market value.
Operating Loss. Operating loss for 1997 was $21.3 million, an increase of $20.5
million from 1996.
Interest Income (Net). Interest income (net) for 1997 was $329,000 compared to
interest income (net) of $280,000 for 1996.
Loss Before Income Taxes. Loss before income taxes for 1997 was $20.9 million,
compared to loss before income taxes of $517,000 for 1996 for the reasons cited
above.
Income Tax Benefit. Income tax benefit for 1997 was $3.4 million, compared to an
income tax benefit of $179,000 for 1996 for the reasons cited above.
Net Loss. Net loss for 1997 was $17.5 million, compared to a net loss of
$338,000 in 1996 for the reasons cited above.
SEASONALITY AND QUARTERLY RESULTS
A substantial portion of our total revenues during the race season is expected
to remain seasonal, based on our race schedule. Our quarterly results vary based
on 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. We have provided
unaudited quarterly financial data for each of the four quarters of 1997 and
1998 in the following table. The information for each of these quarters is
prepared on the same basis as our consolidated financial statements and related
notes 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. You should read this
table with "Selected Consolidated Financial Data", and the consolidated
financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues
1997....................................... $ 5,363 $18,704 $ 15,507 $ 1,871
1998....................................... 10,031 20,034 20,010 12,455
Income (loss) before taxes
1997....................................... $ 1,272 $(1,695) $(17,659) $(2,865)
1998....................................... 4,481 7,800 6,277 5,099
Number of races
1997....................................... 1 8 8 0
1998....................................... 2 7 7 3
1999....................................... 1 8 9 2
</TABLE>
The revenues we receive for any race in the CART Championship can significantly
affect our quarterly results. Consequently, changes in race schedules from year
to year, with races held in different quarters, will result in fluctuations in
our quarterly results and affect comparability.
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
We have relied on the proceeds from our initial public offering and cash flow
from operations, supplemented by bank borrowings, to finance working capital,
investments and capital expenditures during the past year.
Our 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
we transport 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 our mobile
medical unit. Interest is payable monthly. As of December 31, 1998, the current
portion of this note was $130,000, and the long-term portion was $184,000.
We also have a $1.5 million revolving line of credit with a commercial bank. As
of December 31, 1998, there was no outstanding balance under the line of credit.
The line of credit contains no significant 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 our deposits with the bank.
In March 1998, we completed our initial public offering of 5,038,000 shares of
common stock. The initial offering price was $16.00 per share with proceeds to
us of approximately $75.0 million, net of underwriting discount.
In December 1997, we sold 1,399,998 shares of our stock for aggregate proceeds
of $1.8 million of which 1,200,000 shares were sold to three race teams for
$1.13 per share and 199,998 shares were sold to three race teams for $2.25 per
share. In January and February 1997, we sold 1,200,000 shares of our stock for
aggregate proceeds of $840,000 ($0.70 per share). In March 1998 we rescinded the
sale of 66,666 shares of stock we issued in December 1997 for an aggregate price
of $151,000. In January 1997, we redeemed 400,000 shares of stock for $210,000
($0.53 per share).
Our cash balance on December 31, 1998 was $15.1 million, a net increase of $13.9
million from December 31, 1997. This increase was primarily the result of net
cash provided by operations of $15.1 million and net financing activities of
$73.7 million, which was offset by net cash used in investing activities of
$74.9 million. Our cash balance on December 31, 1997 was $1.2 million compared
to $630,000 at December 31, 1996, a net increase of $534,000. The increase was
primarily the result of net cash provided by operations of $1.5 million and net
financing activities of $125,000, offset by net cash used in investing
activities of $1.1 million.
We anticipate capital expenditures of approximately $1.5 million during 1999. We
are currently negotiating with Robert Hollander, who resigned as president of
CART Licensed Products, L.P., to purchase his 45% interest in CART Licensed
Products, L.P. We believe that existing cash, short-term investments, cash flow
from operations and available bank borrowings will be sufficient for capital
expenditures and other cash needs.
The economic crisis in Brazil provides some uncertainty in terms of
collectability of future sanction fees and payments of the note receivable from
our Brazilian promoter. The note receivable is to be repaid in five equal
installments over the life of the sanction agreement with a stated 5% per annum
interest rate. Letters of credit to be issued annually by the City of Rio De
Janeiro substantially cover the sanction fees and the note receivable. In
addition, in February 1999 ISL Worldwide signed an agreement with the Brazilian
promoter where the two entities will be equal partners in promoting the
Brazilian event for the next four years beginning in 1999. We received the
initial sanction fee payment for 1999 and the letter of credit for the 1999
event has been issued.
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YEAR 2000 COMPLIANCE
General. The Year 2000 ("Y2K") compliance issue is primarily the result of
computer programs using a two-digit format, as opposed to four digits, to
indicate the year. Such computer systems will be unable to interpret dates
beyond the year 1999, which could cause a system failure or other computer
errors, leading to a disruption in the operation of such systems.
Project. Our Y2K project covers both traditional computer systems and
infrastructure and computer-based hardware, such as fax machines, postage
machines and phone systems. Our Y2K project has six phases:
- Awareness (Phase I)
- Assessment (Phase II)
- Detailed Analysis and Planning for Upgrades and Testing (Phase III)
- System Upgrades and Testing (Phase IV)
- Implementation (Phase V)
- Post Implementation (Phase VI)
Phases I, II and III have been completed. Phases IV and V are currently in
process and are approximately 50% complete. The Post Implementation Phase
includes our contingency plan where we will have developed fall back procedures,
and be ready to implement manual procedures for conducting company business,
record keeping, follow-up data entry and system recovery in the event of system
failure. The entire Y2K project is scheduled to be complete by June 30, 1999.
Risks. Based on our assessment of our major information technology systems, we
expect that all necessary modifications and/or replacements will be completed in
a timely manner to ensure that all systems are Y2K compliant. However, if we
fail to be in compliance, we do not currently anticipate any material disruption
in our operations. We believe that the worse case scenario would be for our
financial operations to maintain its current level of performance and customer
service. Additional administrative expense could be incurred if automated
functions would need to be performed manually. We do not believe race operations
would be subject to material adverse effects from the Y2K problem. Our 2000 race
season does not start until approximately two months after the 1999 year-end,
and we anticipate that any unforeseen Y2K problems that are encountered would be
resolved during this period. In addition, manual back-up systems for timing and
scoring and other important race operation functions are already in place as
part of our normal contingency planning.
Interfaces With Third Parties. Our Y2K project also considers the readiness of
significant vendors and suppliers. We do not have any suppliers or vendors that
are material to our operations as a whole. We are in the process of contacting
our vendors and suppliers concerning their Y2K compliance.
Costs. Our total costs relating to Y2K compliance are expected to be
approximately $35,000 to $50,000 and will be funded through our normal operating
budget. Such cost estimates are based upon presently available information and
may change as we continue with our Y2K project. Currently, we have incurred
approximately $20,000 in expenses related to the Y2K project.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued by the
Financial Accounting Standards Board. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. We have not
determined the impact on our consolidated financial statements disclosure. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our investment policy was designed to maximize safety and
liquidity while maximizing yield within those constraints. At December 31, 1998,
our investments consisted of commercial paper, corporate bonds, U.S. Agency
issues and repurchase agreements. The weighted average maturity of our portfolio
is 192 days. Because of the relatively short-term nature of our investments, our
interest rate risk is immaterial.
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AUTO RACING INDUSTRY OVERVIEW
Types of Auto Racing. Auto racing consists of several distinct categories, each
with its own organizing body and racing events. Internationally, the most
recognized form of auto racing is open-wheel racing, utilizing an
aerodynamically designed chassis and technologically advanced equipment. The
most established open-wheel racing series are:
- Formula One
- CART Championship
- IRL
- Formula 3000
- Indy Lights Championship
- Atlantic Championship
- -Formula One. The Formula One World Championship was founded in 1950. The
Federation Internationale de L'Automobile ("FIA") sanctions Formula One World
Championship events consisting of open-wheel races on road courses in Europe,
South America, Asia, Canada and Australia. The 1999 season will include 16
races. The 1998 Formula One calendar included 15 events in 13 different
countries.
- -CART. The CART Championship started in 1978 and is the premier open-wheel
motorsports series in North America. The CART Championship is sanctioned by
CART and will include 20 races this year. The 1998 season included 19 races.
CART events are staged on four different types of tracks:
- superspeedways
- ovals
- temporary street courses
- permanent road courses
Superspeedways are banked ovals of two miles or more in distance. 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 that 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. Racing on different types of tracks requires teams
and drivers to employ a variety of skills to master different courses to
compete for the CART Championship.
- -IRL. The IRL was formed as a rival United States open-wheel racing series to
compete with CART and began racing in 1996. The IRL sanctions its own events.
The IRL's events are staged solely on oval courses and will include 11 races
this year. The IRL's 1998 season consisted of 11 races, including the
Indianapolis 500.
- -Formula 3000. The FIA sanctions the International Formula 3000 Championship.
The Formula 3000 season takes place in Europe between April and September in a
twelve race series. Success in Formula 3000 has been the stepping stone for
many drivers into Formula One.
- -Indy Lights Championship. We sanction the Indy Lights Championship and have
designated it as the "Official Development Series of the CART Championship."
Similar to CART, the Indy Lights Championship is staged on four different types
of tracks. The Indy Lights Championship consisted of 14 races during the 1998
season in the United States and Canada, with 13 events run in conjunction with
CART events and one "stand alone" race.
- -Atlantic Championship. We also sanction the Atlantic Championship. The Atlantic
Championship is also a stepping stone to a career in international motorsports
competition. The 1998 Atlantic Championship consisted of 12 races in the United
States and Canada, with 10 events held in conjunction with CART events, one
race with an Indy Lights race and another race as a support series to a Formula
One race in Montreal, Canada.
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The largest auto racing category in the United States, in terms of attendance,
media exposure and sponsorships, is stock car racing. Stock car racing utilizes
equipment similar in appearance to standard passenger automobiles and races are
typically staged on oval courses. The most prominent organizing body in stock
car racing is NASCAR. Drag racing typically involves short sprint races on a
straight-line drag strip. The NHRA is the most prominent organizing body in drag
racing. Other, less prominent, racing segments include various types of sports
car racing and club racing.
- - 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 1998 Winston Cup and Busch
Grand National race series included 33 and 31 races, respectively; all of
which were held in the United States, with two exhibition events 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 Professional Sports Car Racing ("PSCR"). The NHRA sanctions drag
races in the United States. The Automobile Racing Club of America ("ARCA")
sanctions stock car races that are less prominent than those sanctioned by
NASCAR.
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
These events are all designed to maximize the spectators' entertainment
experience and enhance the value of the sponsorship experience.
Participants. The primary participants in motorsports are:
- spectators
- corporate sponsors
- track owners/race promoters
- drivers
- team owners
- sanctioning bodies
- -Spectators. After soccer, motorsports is the most watched sport worldwide.
Motorsports is among the fastest growing spectator sports in the United States.
Total attendance at all motorsports events in the United States in 1998
exceeded 16.8 million people. During 1998, approximately 2.5 million people
attended CART events. CART races were also televised in 195 countries in 1997,
with aggregate television audiences approaching 1 billion viewers.
- -Corporate Sponsors. Corporate sponsors are drawn to motorsports by the large
number of spectators and television viewers and their attractive demographics.
Corporate sponsors are active in all phases of the industry. We believe that
the demographic profile of our growing spectator base has considerable appeal
to sponsors, track owners, television networks and advertisers. The mean
household income of our spectators is estimated to be $55,600, compared to
$47,000 for an average United States household. We believe 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 and in printed materials. Corporate sponsors also receive
advertising, promotional and hospitality benefits at the track during the race
weekend. Finally, corporate sponsors
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benefit from the attractive values of the high-speed, high technology
competition that we provide. These values can be used to add new values and
points of difference to each sponsor's brands. Companies negotiate sponsorship
arrangements based on factors including a series' or event's audience size,
spectator demographics and a team's racing success.
- -Track Owners/Race Promoters. Race promoters, which include track owners,
government organizations and other groups, pay a fee to have an event
sanctioned at their race venue. Race promoters 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
- concessions and souvenir sales
- -Drivers. A majority of drivers contract independently with team owners, while
select drivers own their own teams. Principally, drivers receive income from
contracts with team owners, sponsorship fees and prize money. Successful
drivers may also receive income from personal endorsement fees, sales of
licensed merchandise and souvenir sales. The personality and success of a
driver can be an important marketing advantage for the sanctioning body and
team owners, because it can help attract audiences, 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 prize money won.
- -Sanctioning Bodies. Sanctioning bodies such as us sanction events at various
race venues in exchange for fees from race promoters. Sanctioning bodies are
responsible for all aspects of race management necessary to "manufacture" the
race event. They 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.
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 (ACCUS). It in turn is made up of
seven member sanctioning organizations:
- CART
- NASCAR
- United States Auto Club ("USAC")
- PSCR
- NHRA
- SCCA
- IRL
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BUSINESS
INTRODUCTION
We own, operate and sanction the premier open-wheel motorsports series in North
America, the CART Championship, and are responsible for organizing, marketing
and staging each of the races in the CART Championship. With speeds of up to 240
miles per hour, and an average margin of victory during the 1998 race season of
less than three seconds, CART open-wheel racing is the fastest form of closed-
circuit auto racing available to motorsports audiences, providing intense
excitement and competition. We also own and sanction two developmental series
for the CART Championship -- the Indy Lights Championship and the Atlantic
Championship.
The drivers and racing teams participating in CART racing events are among the
most recognized names in motorsports, with marquee drivers including:
- Michael Andretti
- Al Unser, Jr.
- Jimmy Vasser
- Paul Tracy
- Dario Franchitti
- Adrian Fernandez
- Bryan Herta
- Greg Moore
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
- Walter Payton
- Roger Penske
- Bobby Rahal
Federal Express and PPG Industries are co-series sponsors of the CART
Championship. Other major sponsors of the CART Championship include:
- MCI
- Budweiser
- Craftsman
- Honda
- Mercedes-Benz
- Motorola
- Parke-Davis
Open-wheel racing is the oldest continually scheduled motorsports competition in
the world, tracing its history to 1904. The 1999 CART Championship, which is
sponsored by Federal Express and is known as the FedEx Championship Series, will
include 20 races staged in five countries -- the United States, Australia,
Brazil, Canada, and Japan. Two new races were added in 1998, one in Motegi,
Japan and one in Houston, Texas. For the 1999 season, we added an additional
series event in Chicago, Illinois and will sanction a non-series event in Oahu,
Hawaii.
CART events are conducted on four different types of tracks -- superspeedways,
ovals, temporary street courses and permanent road courses. This requires teams
and drivers to master different courses and skills to compete for the CART
Championship.
Each race weekend in the CART Championship is an "event" offering spectators the
opportunity to enjoy a CART Championship series race as well as a full weekend
of entertainment. Race weekends include additional races, practice and
qualifying rounds for all racing events, demonstrations and automotive and
general entertainment displays. Race weekends also provide corporate sponsors
and other
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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, is the most watched sport internationally.
CART's races were televised in more than 195 countries in 1997 with aggregate
television audiences approaching 1 billion. During 1998, 2.5 million people
attended CART events. Total attendance at all motorsports events in the United
States exceeded 16.8 million people in 1998. We believe the demographic profile
of our 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 $55,600, as compared to $47,000 for an
average United States household.
During the last four years, our revenues have increased from $29.7 million in
1995 to $62.5 million in 1998. We derive our revenues from five primary sources:
- sanctioning fees paid by track promoters
- corporate sponsorship fees
- television revenues
- engine leases and rebuilds
- royalties paid for licenses
We were incorporated in Delaware in December 1997. Our principal executive
office is located at 755 West Big Beaver Road, Suite 800, Troy, Michigan 48084,
and our telephone number is (248) 362-8800.
GROWTH STRATEGY
Our growth strategy is to increase revenues and net income by expanding the
worldwide audience for CART racing. We intend to build brand awareness by
capitalizing on the thrill and excitement of CART racing as well as our position
as a premier open-wheel motorsports series. We believe that these factors will
provide us with opportunities for increased overall:
- sanction fees
- corporate sponsorship fees
- television revenues
- royalties
We intend to implement our growth strategy by:
- - INCREASING MARKET PENETRATION IN THE UNITED STATES. We will continue to
develop our race schedule in key markets in the United States. As part of our
plan, we will sanction a race in Chicago, Illinois during the 1999 season.
Because our races are conducted on superspeedways, ovals, temporary street
courses and permanent road courses, we believe we have great flexibility in
selecting future race venues.
- - EXPANDING OUR INTERNATIONAL AUDIENCE. We believe that the world market for
motorsports is predisposed to CART's style of exciting, competitive,
open-wheel racing. The CART Championship spanned five countries on four
continents in 1998, with events in the United States, Canada, Australia,
Brazil and Japan. We typically receive higher sanction fees from the race
promoters of international race events. Our management continues to explore
additional opportunities to export our high-value, American racing product
throughout the world and to include more international-based sponsors for the
CART Championship and our race teams.
- - EXPANDING OUR MEDIA EXPOSURE. We plan to expand our overall television
presence on a worldwide basis. The acquisition of Indy Lights and the
Atlantics series, plus the addition of a new race in Chicago, results in our
company being the rights owner for over 85 hours of high quality motorsports
programming. We intend to build the worldwide distribution base for all three
race series in the future. In the United States, we will focus on improving
our television ratings on both network and cable and on developing race
programming focused on new audiences for the sport.
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We will continue to expand press coverage for all three series -- an area
where we achieved substantial growth in 1998.
During 1998, we added E-Commerce and a business section to our successful web
site, CART.com and in 1999 we are re-launching the entire site with a new look
and presentation that increases the immersive experience for visitors.
- - INCREASING LICENSING OPPORTUNITIES. We will continue to seek out opportunities
to bring our brand to a broader market. We can provide "one stop shopping" for
potential licensees for our servicemarks and trademarks, 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.
- - ACQUIRING AND DEVELOPING RELATED BUSINESSES AND PROPERTIES. We will
selectively pursue opportunities to acquire and apply our brand name to other
race-related businesses and properties. We expect to vertically integrate
certain support-racing series to develop future racing talent in the United
States. We are also seeking opportunities to acquire and develop race
experience products which will provide potential and existing race fans with
an affordable and accessible opportunity to experience the sport. These may
include opportunities such as:
- Simulation or virtual reality products
- Indoor kart racing centers
- Race schools
As the first step in this strategy, in 1998 we acquired American Racing Series
("ARS"), which operates Indy Lights, and BP Automotive ("BP"), which provides
certain equipment to the participants of Indy Lights, as well as Pro-Motion
Agency which operates the Atlantic Championship series.
THE CART ADVANTAGE
The drivers, cars, venues and fans provide us with a world class product for
audiences and sponsors.
The Drivers. The diversity of our drivers adds to our worldwide appeal. In 1998,
24 of the 34 drivers who competed in at least one of our race events were born
outside of the United States. In total, these drivers represented 11 different
countries.
The Cars. The cars are developed by a variety of different chassis
manufacturers:
- Reynard
- Swift
- Eagle
- Lola
- Penske
These high-tech race cars are powered by state-of-the-art engines from:
- Mercedes-Benz
- Honda
- Ford
- Toyota
The cars ride on tires provided by Firestone and Goodyear.
The Venues. CART races are conducted on four different types of tracks:
- superspeedways
- ovals
- temporary street courses
- permanent road courses
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The variety of tracks require different set-ups for chassis, engines and tires,
requiring drivers and teams to adapt to the various courses.
The Fans. The primary means for a fan to interface with the CART Championship is
through direct attendance at events or by television viewership. Our spectators
are demographically attractive to sponsors and advertisers. They are generally
young individuals with education and income levels above the U.S. national
average. This makes sponsorship of CART, our teams and events an attractive
advertising and promotional investment. Our 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. This is an attractive demographic
for advertisers since this age group tends to watch less television than the
average American. In the United States, CART's television ratings have declined
in recent years and mirror the overall decline in television ratings for sports
events in the United States. A positive factor going forward in 1999 is that
CART will broadcast a record 13 of its 20 races via network television. The
balance of the races can be viewed on ESPN.
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
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 our Championship late in that inaugural year, and we crowned Rick
Mears as our first champion.
Since Mears' victory in the inaugural season, CART has had many other notable
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
- Alex Zanardi
Competitive, close racing is the hallmark of CART. In 1991, we had six different
winners in the first six races. In 1993, we had six different race winners and
13 different podium finishers. The 1994 through 1998 race seasons were equally
competitive. In 1998, we had seven different winners, including first-time
victories in the CART Championship for Dario Franchitti and Bryan Herta.
Due to starting position reservations and changes to equipment specifications,
CART teams have generally not competed in the Indianapolis 500 since 1995.
Although the IRL removed starting position reservations after the 1997
Indianapolis 500, CART teams generally do not participate in the Indianapolis
500. We continue to evaluate opportunities for an accommodation with the
Indianapolis Motor Speedway, but we can not assure you that a resolution will be
reached or of the timing of any such resolution. We are unable to predict what
effect, if any, the continued non-participation by CART teams at the
Indianapolis 500 will have on our future results.
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Since 1995, we have added races in the United States in:
- Homestead, Florida
- Madison, Illinois
- Fontana, California
- Houston, Texas
Internationally, we added a race in Rio de Janeiro, Brazil in 1996 and Motegi,
Japan in 1998. We have scheduled a new race in Chicago, Illinois for 1999.
In 1999, our races will serve the important United States markets of:
- Miami
- St. Louis
- Los Angeles
- Houston
- Chicago
In addition, a non-Championship series event has been added in 1999. The
Hawaiian Super Prix will be held on the island of Oahu in November 1999. The
Hawaiian Super Prix, a non-Championship series event, will feature the largest
single-day payout in the history of motorsports, $10 million, with $5 million
going to the winner. The top 12 finishers in the CART Championship, as well as
four additional entrants to be selected by the promoter, will compete for this
record payout. ShowTime will provide television coverage on a pay-per-view basis
in the United States.
FRANCHISE SYSTEM AND RACE TEAMS
We have operated CART as a "franchise system" since 1984. We offered franchises
for each competing car, with owners limited to a maximum of two franchise
memberships. The number of franchises we have awarded has varied, but we have
never awarded more than 25 franchises. To become a CART franchise member, a race
team must have competed in all CART Championship Series events for the prior
race year and be one of the 24 highest placed teams, based on points received
from competition.
The participation of race teams is critical to our ongoing success. Our
franchise system is the only race governing system to offer teams direct input
into race scheduling, rules and other racing activities. We believe that the
franchise system is a significant factor in encouraging entities who are
interested in auto racing to participate in our sanctioned events.
Prior to our becoming a public company, CART, Inc. was managed by a board of
directors composed of race team participants. We refer to this as the franchise
board. Each franchise owner was entitled to designate a member to the franchise
board. In addition, we paid certain benefits to franchise owners, including
reimbursement of travel expenses on a per race basis, directors fees and other
race-related expenses. The franchise and the stock were not transferable without
the approval of the franchise board and were subject to redemption.
Following our initial public offering, we have continued the franchise system
but without awarding any additional equity ownership in CART. Rather, the 24
race teams which have met participation requirements and have the highest total
of points from the prior season are permitted to designate a member to the
franchise board. The franchise board manages and oversees all racing-related
activities and makes all decisions with respect to specifications for engines
and chassis, race and venue participation, rules and related matters.
INDY LIGHTS CHAMPIONSHIP
On March 13, 1998, we acquired 100% of the outstanding common stock of ARS and
certain assets of BP. ARS operates the Indy Lights Championship series and BP
supplies certain equipment to the participants.
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CART racing team owner and founding member, U.E. "Pat" Patrick, formed the Indy
Lights Championship in 1986 as a series in which team owners could discover and
develop the next generation of CART talent. Mr. Patrick designed Indy Lights 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, creating a level playing field for drivers, team
managers and engineers.
We have designated the Indy Lights Championship the "Official Development Series
of the CART Championship," and we sanction its race events. During the 1998
season, a record nine different drivers, representing seven different race teams
and six different countries, won races, making 1998 one of the most competitive
seasons in the series' history. During 1998, the series had a total of 32
drivers, representing 13 countries, competing in at least one race in the Indy
Lights Championship. Graduates from the Indy Lights Championship who are
competing in the CART Championship include drivers:
- Paul Tracy
- Bryan Herta
- Greg Moore
- Adrian Fernandez
- Tony Kanaan
- Helio Castro-Neves
- Cristiano da Matta
- Naoki Hattori
- Shigeaki Hattori
- Luiz Garcia, Jr.
In 1998, four CART team owners, Steve Horne (Tasman Motorsports Group), Bruce
McCaw (PacWest Racing), Barry Green (Team KOOL Green) and Bobby Rahal (Team
Rahal), also had teams competing in the Indy Lights Championship.
Similar to the CART Championship, we stage the Indy Lights Championship races on
four different types of tracks. At certain venues we receive a sanction fee from
the promoter for staging the Indy Lights event. We believe that the Indy Lights
Championship can create significant revenue growth for us through:
- packaged sponsorships with our other race series
- extending our efforts to integrate category sponsorship
- additional sanction fees for "stand alone" Indy Lights events, both in
the United States and overseas
With the growth and popularity of the series, we believe that Indy Lights will
play a significant role in our future revenue growth.
ATLANTIC CHAMPIONSHIP
On April 10, 1998, we acquired 100% of the outstanding common stock of
Pro-Motion Agency. Pro-Motion Agency operates the Atlantic Championship
open-wheel series, a support series to CART.
The Atlantic Championship has a rich history of providing a stepping stone to a
career in international motorsports competition. Graduates from the Atlantic
Championship and its predecessors include drivers:
- Bobby Rahal
- Jimmy Vasser
- Michael Andretti
- Richie Hearn
- Patrick Carpentier
- Alex Barron
In 1989, Toyota Motor Sales, USA joined the series as title sponsor, creating
the Toyota Atlantic Championship. With the introduction of the race-tuned Toyota
4A-GE engine, Toyota along with their partner, TRD, USA, Inc. set the standard
for Atlantic competition worldwide. The Yokohama Tire
32
<PAGE> 34
Corporation also joined the series in 1989 as an associate sponsor and tire
supplier to the series. In 1997, KOOL entered the series as co-title sponsor
with Toyota.
SANCTION FEES
For each race in the CART Championship, we enter into a multi-year sanction
agreement with the promoter, which provides for payment of a sanction fee to
CART. For the year ended December 31, 1997, promoters paid us sanction fees of
approximately $24.2 million, averaging $1.4 million per event and representing
approximately 59% of our total revenues. For the year ended December 31, 1998,
promoters paid us sanction fees of approximately $30.4 million, an average of
$1.6 million per event, representing approximately 49% of our revenues.
International events typically have higher sanction fees than events in North
America. So, as we have expanded internationally, our average sanction fee has
increased. Additionally, as we grow our sport, the opportunity to grow our
sanction fees may rise both by increases in sanction fees to reflect increased
value and by the inclusion of new international and domestic race venues. We
also believe that the popularity of the CART Championship will provide
additional domestic and international race venues willing to pay sanction fees
higher than our current average sanction fee.
RACING EVENTS
When staging a CART event, we provide all aspects of race management necessary
to "manufacture" the race event, including the required expertise and personnel.
We provide these race management services to track promoters in exchange for the
sanction fee.
As competition, support and interest in the CART Championship have increased, we
have increased the number of events we stage each race season. The 1979 CART
Championship was comprised of 13 race events. In 1998, we managed 19 races -- 14
in the United States, two in Canada and one each in Australia, Brazil and Japan.
These races included:
- two superspeedway races
- six oval races
- seven temporary street course races
- four permanent road course races
The 1999 CART Championship will be comprised of 20 races in five different
countries. In 1999, we will stage a new race in Chicago, Illinois on a one-mile
oval at the Chicago Motor Speedway.
In 1998, the Indy Lights Championship was comprised of 14 races. Of the 14
races, 13 were held in conjunction with CART events, and one race was a "stand
alone" event. In 1999, the Indy Lights Championship will include 12 races, all
held in conjunction with CART events.
In 1998, the Atlantic Championship was comprised of 12 races. Of the 12 races,
10 were held in conjunction with CART events and two were "stand alone" events.
In 1999, the Atlantic Championship will consist of 12 races, two of which will
be "stand alone" events.
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<PAGE> 35
In the following table, we have provided the locations and venues for the 1999
CART Championship, Indy Lights Championship and Atlantic Championship, as well
as the event dates for the 1999 seasons and a description of the racing circuit:
<TABLE>
<CAPTION>
1999 INDY
CART LIGHTS ATLANTIC
LOCATION EVENT DATES RACE RACE TRACK DESCRIPTION
-------- ----------- ------ -------- -----------------
<S> <C> <C> <C> <C>
Homestead, Florida..................... 3/21 Yes No 1.5 mile oval
Metro-Dade Homestead Motorsports
Complex
Motegi, Japan.......................... 4/10 No No 1.5 mile oval
Twin Ring
Long Beach, California................. 4/18 Yes Yes 1.6 mile temporary street course
Long Beach
Nazareth, Pennsylvania................. 5/2 Yes Yes 1.0 mile tri-oval
Nazareth Speedway
Rio de Janeiro, Brazil................. 5/15 No No 1.8 mile oval
Emerson Fittipaldi Speedway at Nelson
Piquet International Raceway
Madison, Illinois...................... 5/29 No Yes 1.3 mile banked oval
Gateway International Raceway
West Allis, Wisconsin.................. 6/6 Yes Yes 1.0 mile oval
The Milwaukee Mile
Portland, Oregon....................... 6/20 Yes No 2.0 mile permanent road course
Portland International Raceway
Cleveland, Ohio........................ 6/27 Yes No 2.4 mile temporary street course
Burke Lakefront Airport
Elkhart, Wisconsin..................... 7/11 No Yes 4.0 mile permanent road course
Road America
Toronto, Ontario, Canada............... 7/18 Yes No 1.8 mile temporary street course
Toronto
Brooklyn, Michigan..................... 7/25 Yes No 2.0 mile tri-oval superspeedway
Michigan International Speedway
Detroit, Michigan...................... 8/8 Yes No 2.1 mile temporary street course
The Raceway on Belle Isle
Lexington, Ohio........................ 8/15 No Yes 2.3 permanent road course
Mid-Ohio Sports Car Course
Chicago, Illinois (1).................. 8/22 Yes Yes 1.0 mile oval
Chicago Motor Speedway
Vancouver, British Columbia, Canada.... 9/5 No Yes 1.7 mile temporary street course
Vancouver
Monterey, California................... 9/12 Yes Yes 2.2 mile permanent road course
Laguna Seca Raceway
Houston, Texas......................... 9/26 No Yes 1.7 mile temporary street course
Houston
Gold Coast, Queensland, Australia...... 10/17 No No 2.8 mile temporary street course
Surfers Paradise, Queensland
Fontana, California.................... 10/31 Yes No 2.0 mile banked oval superspeedway
California Speedway
Montreal, Quebec, Canada (6/12/99)..... -- -- Yes 2.7 mile temporary street course
Gilles-Villeneuve Circuit
Trois-Rivieres, Quebec, Canada
(8/1/99)............................. -- -- Yes 2.1 mile temporary street course
Trois-Rivieres
</TABLE>
- ---------------
(1) Added to race schedule for 1999.
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<PAGE> 36
A post-season invitational event will be held in Hawaii on November 13, 1999.
The Hawaiian Super Prix is not part of the CART Championship series. By
invitation of the race promoter, the event is open to the top 12 finishers of
the CART Championship, as well as 4 additional drivers to be selected by the
promoter. The Hawaiian Super Prix will be held at Barbers Point Airport, outside
of Honolulu, on the island of Oahu.
DRIVERS
During the 1998 season, 34 drivers competed in at least one of the CART race
events, including past champions:
- Michael Andretti
- Bobby Rahal
- Al Unser, Jr.
- Jimmy Vasser
- Alex Zanardi
In the following table, we have provided information regarding each of the
drivers who are expected to participate in the 1999 CART Championship:
<TABLE>
<CAPTION>
DRIVER BIRTH PLACE 1999 RACE TEAM
- ------ ----------- --------------
<S> <C> <C>
Michael Andretti* Bethlehem, Pennsylvania Newman/Haas Racing
Alex Barron San Diego, California All American Racers
Mark Blundell Barnet, Hertfordshire, England PacWest Racing Group
Raul Boesel Curitiba, Brazil Team KOOL Green
Patrick Carpentier Ville Lasalle, Quebec, Canada Player's Forsythe Racing
Helio Castro-Neves Sao Paulo, Brazil Hogan Racing
Cristiano da Matta Bela Harizonte, Brazil Arciero-Wells Racing
Gil de Ferran Paris, France Walker Racing
Adrian Fernandez Mexico City, Mexico Patrick Racing
Christian Fittipaldi Sao Paulo, Brazil Newman/Haas Racing
Dario Franchitti Edinburgh, Scotland Team KOOL Green
Luiz Garcia, Jr. Brazilia, Brazil Payton/Coyne Racing
Robby Gordon Cerritos, California Team Gordon
Mauricio Gugelmin Joinville, Brazil PacWest Racing Group
Naoki Hattori Mie Presecture, Japan Walker Racing
Shigeaki Hattori Okayma, Japan Bettenhausen Motorsports
Richie Hearn Glendale, California DellaPenna Motorsports
Bryan Herta Warren, Michigan Team Rahal
PJ Jones Torrance, California Patrick Racing
Michel Jourdain, Jr. Mexico City, Mexico Payton/Coyne Racing
Tony Kanaan Salvador, Bahia, Brazil Forsythe Championship Racing
Tarso Marques Curitiba, Brazil Marlboro Team Penske
Hidishi Matsuda Kochi-ken, Japan DellaPenna Motorsports
Juan Montoya Bogota, Columbia Target/Chip Ganassi Racing
Greg Moore British Columbia, Canada Player's Forsythe Racing
Max Papis Como, Italy Team Rahal
Scott Pruett Sacramento, California Arciero-Wells Racing
Gualter Salles Rio de Janeiro, Brazil Payton/Coyne Racing
Paul Tracy Scarborough, Ontario, Canada Team KOOL Green
Al Unser, Jr.* Albuquerque, New Mexico Marlboro Team Penske
Jimmy Vasser* Canoga Park, California Target/Chip Ganassi Racing
Dennis Vitolo Massapequa, New York Payton/Coyne Racing
</TABLE>
- ---------------
* Indicates past champion of the CART Championship.
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<PAGE> 37
CORPORATE SPONSORS
We receive sponsorship revenues under sponsorship contracts. In exchange for
sponsorship revenues, we provide our sponsors the opportunity to receive brand
and product exposure. For the year ended December 31, 1997, we received
sponsorship revenues of approximately $7.2 million, representing approximately
17% of our total revenues. For the year ended December 31, 1998, we received
sponsorship revenues of approximately $16.4 million, representing approximately
26% of our total revenues.
We believe that as we expand the audience for our events, we will see a
corresponding increase in sponsorship opportunities and sponsorship revenues. In
addition, we have taken a different approach to selling sponsorship from other
motorsports organizations 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 in 1997. Federal Express also became an
integrated sponsor as our official co-series sponsor in 1998.
Beginning with the 1998 race season, Federal Express became the co-series
sponsor of the CART Championship, which has been officially designated the
"FedEx Championship Series." Under our agreement, Federal Express acquired a
comprehensive range of marketing benefits, as well as opportunities to supply
services to CART, our teams and our race promoters. A significant feature of
this sponsorship arrangement is the combination of the marketing rights of both
CART and our race promoters to provide an exclusive sponsorship involvement
through the entire CART Championship. PPG Industries, our long-time title
sponsor, continues to be involved as a co-series sponsor of the series and
continues to be the name sponsor of the CART Championship winner's trophy -- the
"PPG Cup." PPG also continues with its successful pace car program at each race
event.
In June 1998, we entered into a nine-year agreement with ISL Worldwide. Under
the agreement, we appointed ISL as our exclusive worldwide marketing agent for
the sale of all sponsorships of our open wheel racing series, including:
- the CART Championship
- the Indy Lights Championship
- the Atlantic Championship
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<PAGE> 38
We have listed below some of our most significant sponsors for the 1999 CART
Championship:
<TABLE>
<CAPTION>
YEARS AS
SPONSOR OFFICIAL DESIGNATION SPONSOR
- ------- -------------------- --------
<S> <C> <C>
Federal Express Official Co-Series Sponsor 1
PPG Industries Official Co-Series Sponsor 19
MCI Telecommunications Official Communications Company 2
Budweiser Official Beer 4
Featherlite Trailers and Vantare Coach Official Trailer and Coach 4
Ford SVO Technology Official Safety Technology Provider 2
Holmatro Official Rescue Tool 7
Honda Motorcycles Official Motorcycle 3
Honda Power Equipment Official Power Equipment 3
K&K Insurance Official Insurance Provider 5
Mercedes-Benz Official Car 4
Racing Radios Official Two-Way Radio 9
Omega Official Watch and Timekeeper 2
Toyota Trucks Official Truck 3
The Valvoline Company Official Fuel and Oil 19
Sears Craftsman Tools Official Hand Tools 4
Sears Diehard Official Battery New
Motorola Official Communication Hardware New
Parke-Davis (Lipitor) Official Cholesterol Reducer New
</TABLE>
In addition to the sponsors listed above, we have entered into various
sponsorship agreements with other companies which supply us with products and
services. Official sponsors of the CART Championship pay money and provide
products and services to us in return for being designated as an official
sponsor. The payment obligations, as well as the amount of advertising exposure
and other benefits, vary significantly among sponsors based on the negotiated
terms of each sponsorship agreement. No sponsorship agreement provided more than
10% of our revenues during 1996, 1997 or 1998.
ATTENDANCE, VIEWERSHIP AND BROADCAST RIGHTS
Attendance. CART spectator attendance has grown dramatically in the 1990s, with
more than a 40% increase from 1991 to 1998, based upon figures compiled by
Goodyear Tire & Rubber Co. Race Reports. Average attendance per event declined
in 1998 due in large part to the number of races effected by adverse weather
conditions. In the following table, we have provided 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.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Attendance at
CART Events........ 1,803,601 1,890,327 1,964,180 2,015,417 2,259,751 2,366,440 2,491,050 2,529,995
Number of Race
Events............. 16 15 15 15 16 16 17 19
Average Attendance
per Event.......... 112,725 126,022 130,945 134,361 141,234 147,902 146,532 133,158
Total Attendance
Percentage
Change............. 0.1% 4.8% 3.9% 2.6% 12.1% 4.7% 5.3% 1.6%
</TABLE>
Viewership. In addition to the spectators at our race events, millions of people
around the world watch CART racing on television. According to the Nielsen
Season Summary for 1998, an aggregate of 23.9 million gross United States
households were delivered for the CART races, with gross United
37
<PAGE> 39
States viewership of approximately 31.5 million. Our races are televised in 195
countries and territories through terrestrial and satellite broadcasts, in 19
languages. Based upon an independent study conducted by Sponsorship Research
International, the 1997 CART Championship had an average of 58 million viewers
per race with cumulative worldwide viewership of 981.8 million.
Broadcast Rights. In 1994, we entered into a long-term agreement with ESPN,
which was amended in 1996 to extend through 2001. Under the agreement, ESPN
provides broadcast coverage of each CART Championship race, with at least 50% of
the races each year to be broadcast on one of the three major broadcast
networks -- ABC, CBS or NBC. In 1999, a record 13 races will be broadcast on
network television. Our agreement with ESPN states that we receive 50% of the
net profits received by ESPN for distribution of the race programs, with an
escalating minimum guarantee provision.
We retained the television rights for Brazil, Canada and Australia. We entered
into exclusive agreements with:
- Fittipaldi U.S.A., Inc. to provide television broadcasts in Brazil of the
CART Championship Series race events through the 2002 race season
- Molstar for the distribution of television broadcasts in Canada through
the 2001 race season
- Gold Coast Motor Events for the distribution of television broadcasts in
Australia through the 2000 race season
None of these three agreements represent a material amount of revenue for us.
CART LICENSED PRODUCTS
As a part of our initiative to increase CART's brand awareness and increase
licensing opportunities, we formed CART Licensed Products, L.P. ("CLP") in 1996.
CLP is a Georgia limited partnership. We own a 55% interest in CLP. The
remaining 45% interest is owned by Top Gear, Inc., a company owned by Mr. Robert
E. Hollander, who until January 1999 was president of CLP. We have a right to
acquire Top Gear's ownership interest and are currently negotiating with Mr.
Hollander to do so.
CLP pays approximately 60% of the royalties it receives to the owners of the
licensed property, including CART. The remaining 40% of revenues are used to
fund the operations of CLP.
CLP has executed licensing agreements with 36 companies including:
- Action Performance
- Microsoft
- Sony
- Sega
- Antigua
- Warner Brothers
- VIA Marketing
None of the licensing agreements are material to our financial results.
COMPETITION
Our 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
- IRL
- USAC
- NHRA
- SCCA
- PSCR
- ARCA
Racing events sanctioned by other organizations are often held on the same dates
as CART events, at separate tracks, and compete for corporate sponsorship and
spectators as well as television viewership.
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<PAGE> 40
In addition, we compete with other racing bodies to sanction racing events at
various motorsports facilities. We believe that our events are distinguished
from the racing events staged by other racing bodies by:
- the quality of the competition
- caliber of the events
- drivers and team owners participating in CART
- speed of the cars
We receive numerous requests to sanction racing events at venues throughout the
world. However, we can not assure you that we will maintain or improve our
position in light of such competition.
PROPERTIES
We lease our buildings in Troy, Michigan; Atlanta, Georgia; and Highland Park,
Illinois. We do not own any real property. Our leases are through the following
dates:
- Michigan, May 31, 2002
- Georgia, December 31, 2002
- Illinois, May 31, 2000
Our lease payments have no material effect on our consolidated financial
statements. We believe the leased space is adequate for our present needs.
39
<PAGE> 41
PRINCIPAL STOCKHOLDERS
The following table contains information concerning the beneficial ownership of
the common stock by (1) each director, (2) certain of the executive officers,
and (3) all directors and executive officers as a group. For purposes of this
table, direct ownership of shares is noted with a "d", indirect ownership is
noted with an "i" and vested options (stock options that may be exercised as of
June 5, 1999) are noted with a "vo".
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED BEING OWNED
PRIOR TO OFFERING OFFERED AFTER OFFERING
-------------------------- ------------- --------------------------
NAME (1) NUMBER PERCENT (2) NUMBER PERCENT (2)
-------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Andrew H. Craig......... 1,800(d) 1.3% 0 1,800(d) 1.3%
200,000(vo) 200,000(vo)
Gerald R. Forsythe
(3)................... 400,000(i) 2.6% 0 400,000(i) 2.6%
Chip Ganassi (4)........ 720,000(i) 4.7% 0 720,000(i) 4.7%
Carl A. Haas (5)........ 800,500(i) 5.3% 0 800,500(i) 5.3%
James F. Hardymon....... 10,000(vo) * 0 10,000(vo) *
Bruce R. McCaw (6)...... 800,000(i) 5.3% 0 800,000(i) 5.3%
Don Ohlmeyer, Jr........ 10,000(vo) * 0 10,000(vo) *
U.E. Patrick............ 100(d) 5.3% (7) 100(d) 2.7%
800,000(i) 400,000(i)
7,585(vo) 7,585(vo)
Robert W. Rahal......... 800,000(i) 5.3% (8) 720,000(i) 4.7%
Derrick Walker.......... 360,000(i) 2.4% (9) 210,000(i) 1.4%
Randy K. Dzierzawski.... 5,000(d) * 0 5,000(d) *
100,000(vo) 100,000(vo)
Carl Cohen.............. 100(d) * 0 100(d) *
Roger Bailey............ 1,000(d) * 0 1,000(d) *
29,450(vo) 29,450(vo)
All current directors
and executive officers
as a
group (13 persons)...... 8,000(d) 32.4% (10) 8,000(d) 28.3%
4,680,500(i) 4,050,500(i)
357,035(vo) 357,035(vo)
</TABLE>
- ---------------
* 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 is based on 15,224,041 shares outstanding and assumes no exercise
of the over-allotment option.
(3) The shares are held of record by Forsythe Racing, Inc.
(4) The shares are held of record by Chip Ganassi Racing Teams, Inc.
(5) The shares are held of record by Newman/Haas Racing. The address for
Newman/Haas Racing and Mr. Haas is 500 Tower Parkway, Lincolnshire,
Illinois 60069.
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<PAGE> 42
(6) The shares are held of record by PacWest Racing Group. The address for
PacWest Racing Group and Mr. McCaw is 4601 Methanol Lane, Indianapolis,
Indiana 46268.
(7) The shares are held of record by Patrick Racing, Inc. The address for
Patrick Racing, Inc. and Mr. Patrick is 8431 Georgetown Road, Indianapolis,
Indiana 46268. Of these shares, Patrick Racing, Inc. is selling 400,000
shares in this offering. See "Selling Stockholders" below.
(8) The shares are held of record by Team Rahal, Inc. The address for Team
Rahal, Inc. and Mr. Rahal is 4601 Lyman Drive, Hilliard, Ohio 43026. Of
these shares, Team Rahal, Inc. is selling 80,000 shares in this offering.
See "Selling Stockholders" below.
(9) The shares are held of record by Derrick Walker Racing, Inc. Of these
shares, Derrick Walker Racing, Inc. is selling 150,000 shares in this
offering. See "Selling Stockholders" below.
(10) An aggregate of 630,000 shares beneficially owned by Messrs. Patrick, Rahal
and Walker are being sold in this offering. See "Selling Stockholders"
below.
SELLING STOCKHOLDERS
The following table contains information concerning the beneficial ownership of
common stock by the selling stockholders in this offering. Each of the selling
stockholders is a racing team that participates in CART-sanctioned races. The
percentages are based on 15,224,041 shares outstanding and assumes no exercise
of the underwriter's option to purchase additional shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
-------------------- SHARES --------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
---- -------- ------- ------------- -------- -------
<S> <C> <C> <C> <C> <C>
All American Racers, Inc........... 420,000 2.8% 100,000 320,000 2.1%
DellaPenna Motorsports, Inc........ 360,000 2.4% 50,000 310,000 2.0%
Penske Racing, Inc................. 800,000 5.3% 700,000 100,000 *
Team Green, Inc.................... 360,000 2.4% 256,500 103,500 *
Patrick Racing, Inc................ 800,000 5.3% 400,000 400,000 2.6%
Dale Coyne Racing.................. 720,000 4.7% 80,000 640,000 4.2%
Team Rahal, Inc.................... 800,000 5.3% 80,000 720,000 4.7%
Derrick Walker Racing, Inc......... 360,000 2.4% 150,000 210,000 1.4%
</TABLE>
- ---------------
* Less than 1%.
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<PAGE> 43
UNDERWRITING
CART, the selling stockholders and the underwriters for the offering named below
have entered into an underwriting agreement with respect to the common stock
offered hereby. Subject to certain conditions, each underwriter has severally
agreed to purchase the number of shares of common stock indicated in the
following table. Jefferies & Company, Inc., J.C. Bradford & Co., L.L.C. and A.G.
Edwards & Sons, Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------------
<S> <C>
Jefferies & Company, Inc.............................
J.C. Bradford & Co., L.L.C. .........................
A.G. Edwards & Sons, Inc.............................
---------
Total...................................... 1,816,500
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to 272,475 additional
shares of common stock from CART to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by CART and by the selling
stockholders. Such amounts are shown assuming both no exercise and full exercise
of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY PAID BY
CART SELLING STOCKHOLDERS
---------------------------- ----------------------------
NO FULL NO FULL
EXERCISE EXERCISE EXERCISE EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total................................ $ $ $ $
</TABLE>
Shares of common stock sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the cover of this
prospectus. Any shares of common stock sold by the underwriters to securities
dealers may be sold at a discount from the initial public offering price of up
to $ per share. Any such securities dealers may resell any shares purchased
from the underwriters to certain other brokers or dealers at a discount of up to
$ per share from the initial public offering price. If all the shares of
common stock are not sold at the initial public offering price, the underwriters
may change the offering price and the other selling terms.
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<PAGE> 44
CART and certain of our directors and officers, as well as each of the selling
stockholders, have agreed with the underwriters not to dispose of any common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus through the date 180 days
after the date of this prospectus except with the prior written consent of
Jefferies & Company, Inc. One additional major stockholder has agreed to a
30-day lock-up period. The agreements with our officers do not apply to sales by
them of up to an aggregate of 90,000 shares of their common stock at any time
after the 30-day period immediately following the date of this prospectus.
In connection with the offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares of common stock than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares of common
stock sold by or for the account of such underwriter in stabilizing or short
covering transactions.
The activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on The New York Stock Exchange, in
the over-the-counter market or otherwise.
CART and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
We estimate that the expenses of the offering to be paid by us, excluding
underwriting discounts, will be approximately $33,000 and the expenses payable
by the selling stockholders will be approximately $177,000.
LEGAL MATTERS
Certain legal matters related to this offering will be passed upon for CART 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 as of December 31, 1998 and 1997 and for
the three-year period ended December 31, 1998, included in this prospectus and
the related financial statement schedule included elsewhere in the registration
statement, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and have been included herein in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
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<PAGE> 45
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. You may
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available from the SEC's website at http://www.sec.gov. In
addition, our common stock is traded on the New York Stock Exchange. As a
result, you can also read documents we file at the offices of the New York Stock
Exchange at 11 Wall Street, New York, New York 10005.
The SEC allows us to incorporate by reference the information we file with them,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we will make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
on or (1) after the date of the filing of this registration statement and prior
to its effectiveness or (2) after the date of this prospectus and prior to the
termination of the offering made hereby:
- our annual report on Form 10-K for the year ended December 31, 1998;
- our current report on Form 8-K dated April 21, 1999; and
- the description of the common stock contained in our Registration
Statement on Form 8-A filed pursuant to Section 12 of the Exchange Act
and all amendments thereto and reports filed for the purpose of updating
such description.
You may request a copy of these filings, at no cost, by writing or telephoning
Randy Dzierzawski, our Executive Vice President and Chief Financial Officer, at
the following address:
Championship Auto Racing Teams, Inc.
755 West Big Beaver Road, Suite 800
Troy, Michigan 48084
You can also access a copy of these filings by visiting our website at
http://www.CART.com.
This prospectus is part of a registration statement on Form S-3 we filed with
the SEC. You should rely only on the information provided in this prospectus and
any prospectus supplement and in our filings with the SEC that are incorporated
in this prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
prospectus.
This prospectus contains summaries of certain agreements entered into by CART
which have been filed as exhibits to the Registration Statement or incorporated
by reference in this prospectus. Such summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, such
exhibits. You should refer to each such exhibit for a complete description of
the matter involved.
44
<PAGE> 46
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CHAMPIONSHIP AUTO RACING TEAMS, INC.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1996, 1997 and
1998................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998....................... F-6
Notes to Consolidated Financial Statements................ F-8
</TABLE>
F-1
<PAGE> 47
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") at December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1998. 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 at
December 31, 1997 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Detroit, Michigan
February 5, 1999
F-2
<PAGE> 48
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,164 $15,080
Short-term investments.................................... -- 61,610
Accounts receivable (net of allowance for doubtful
accounts of $306 in 1998. No allowance for doubtful
accounts deemed necessary in 1997)..................... 3,156 4,708
Current portion of notes receivable....................... -- 824
Inventory................................................. -- 71
Prepaid expenses.......................................... 751 331
Deferred income taxes..................................... 4,683 119
------- -------
Total current assets.............................. 9,754 82,743
NOTES RECEIVABLE............................................ 49 3,350
PROPERTY AND EQUIPMENT -- Net............................... 2,236 5,026
GOODWILL (net of accumulated amortization of $105 in
1998)..................................................... -- 5,883
OTHER ASSETS (net of accumulated amortization of $24 and $41
in 1997 and 1998, respectively)........................... 309 184
------- -------
TOTAL ASSETS................................................ $12,348 $97,186
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,890 $ 1,946
Accrued liabilities:
Race expenses and point awards......................... 9,500 --
Royalties.............................................. 264 1,026
Payroll................................................ 431 482
Taxes.................................................. 491 1,733
Other.................................................. 21 934
Unearned revenue.......................................... 2,352 4,273
Current portion of long-term debt......................... 130 130
------- -------
Total current liabilities......................... 15,079 10,524
LONG-TERM DEBT.............................................. 314 184
DEFERRED INCOME TAXES....................................... -- 259
COMMITMENTS AND CONTINGENCIES (Note 10)..................... -- --
MINORITY INTEREST........................................... -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding at December 31,
1997 and 1998.......................................... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 10,199,998 and 15,171,666 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 102 151
Additional paid-in capital................................ 15,975 89,771
Accumulated deficit....................................... (19,122) (4,033)
Unrealized gain on investments............................ -- 330
------- -------
Total stockholders' equity (deficit).............. (3,045) 86,219
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)........ $12,348 $97,186
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 49
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
REVENUES:
Sanction fees............................................ $21,078 $ 24,248 $30,444
U.S. 500................................................. 7,054 -- --
Sponsorship revenue...................................... 5,501 7,221 16,388
Television revenue....................................... 4,373 5,604 5,148
Engine leases, rebuilds and wheel sales.................. -- -- 2,214
Other revenue............................................ 3,118 4,372 8,336
------- -------- -------
Total revenues................................... 41,124 41,445 62,530
EXPENSES:
Race and franchise fund payments......................... 17,198 28,939 15,183
U.S. 500................................................. 8,246 -- --
Race expenses............................................ 6,055 6,970 4,818
Cost of engine rebuilds and wheel sales.................. -- -- 633
Administrative and indirect expenses..................... 8,570 14,295 20,658
Compensation expense..................................... 1,167 12,200 --
Depreciation and amortization............................ 685 549 779
Minority interest in loss of subsidiaries................ -- (232) --
------- -------- -------
Total expenses................................... 41,921 62,721 42,071
------- -------- -------
OPERATING INCOME (LOSS).................................... (797) (21,276) 20,459
Interest income (net).................................... 280 329 3,198
------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES.......................... (517) (20,947) 23,657
INCOME TAX BENEFIT (EXPENSE)............................... 179 3,423 (8,568)
------- -------- -------
NET INCOME (LOSS).......................................... $ (338) $(17,524) $15,089
======= ======== =======
EARNINGS (LOSS) PER SHARE:
BASIC.................................................... $ (.04) $ (1.72) $ 1.06
======= ======== =======
DILUTED.................................................. $ (.04) $ (1.72) $ 1.05
======= ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC.................................................... 9,400 10,200 14,190
======= ======== =======
DILUTED.................................................. 9,400 10,200 14,421
======= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 50
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED STOCKHOLDERS'
--------------- PAID-IN ACCUMULATED GAIN ON EQUITY COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INVESTMENTS (DEFICIT) INCOME (LOSS)
------ ------ ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1996......... 8,800 $ 88 $ (78) $(1,260) -- $ (1,250)
Net loss and comprehensive
loss.......................... -- -- -- (338) -- (338) $ (338)
========
Compensation expense............ -- -- 1,167 -- -- 1,167
Stock redemption and repayment
of note receivable............ (2,000) (20) (340) -- -- (360)
Stock issuance.................. 1,200 12 618 -- -- 630
------ ---- ------- ------- ---- --------
BALANCES, DECEMBER 31, 1996....... 8,000 80 1,367 (1,598) -- (151)
Net loss and comprehensive
loss.......................... -- -- -- (17,524) -- (17,524) $(17,524)
========
Compensation expense............ -- -- 12,200 -- -- 12,200
Stock redemption................ (400) (4) (206) -- -- (210)
Stock issuance.................. 2,600 26 2,614 -- -- 2,640
------ ---- ------- ------- ---- --------
BALANCES, DECEMBER 31, 1997....... 10,200 102 15,975 (19,122) -- (3,045)
Net income...................... -- -- -- 15,089 -- 15,089 $ 15,089
Unrealized gain on
investments................... -- -- -- -- $330 330 330
--------
Comprehensive income............ $ 15,419
========
Stock redemption................ (67) (1) (150) -- -- (151)
Stock issuance.................. 5,038 50 73,372 -- -- 73,422
Issuance of options............. -- -- 574 -- -- 574
------ ---- ------- ------- ---- --------
BALANCES, DECEMBER 31, 1998....... 15,171 $151 $89,771 $(4,033) $330 $ 86,219
====== ==== ======= ======= ==== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 51
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (338) $(17,524) $15,089
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 685 549 779
Compensation expense...................................... 1,167 12,200 --
Net loss (gain) from sale of property and equipment....... (133) 160 92
Write-off of trademark.................................... 88 -- --
Deferred income taxes..................................... (226) (3,629) 4,823
Minority interest in loss of subsidiaries................. -- (232) --
Changes in assets and liabilities that provided (used)
cash:
Accounts receivable.................................... (1,481) (854) (1,552)
Prepaid expense........................................ (302) (328) (420)
Inventory.............................................. 37 16 (71)
Other assets........................................... (70) (23) 24
Accounts payable....................................... 134 959 56
Accrued liabilities.................................... 65 10,192 (6,532)
Unearned revenue....................................... (253) 21 1,921
------- -------- -------
Net cash provided by (used in) operating
activities...................................... (627) 1,507 15,049
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of subsidiaries.............................. -- -- (5,881)
Investments............................................... -- -- (61,280)
Notes receivable.......................................... -- (49) (4,125)
Acquisition of property and equipment..................... (1,094) (999) (3,602)
Proceeds from sale of property and equipment.............. 194 13 62
Acquisition of trademark.................................. (101) (63) (22)
------- -------- -------
Net cash used in investing activities............. (1,001) (1,098) (74,848)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 650 -- --
Payments on long-term debt................................ (76) (130) (130)
Redemption of common stock................................ (360) (210) (151)
Issuance of common stock (net of underwriting discount and
offering costs)........................................ 630 2,640 73,996
Proceeds from membership deposit.......................... 360 360 --
Payments on membership deposits........................... -- (1,320) --
Payments on franchise fund liability...................... (600) (1,440) --
Capital contributions to subsidiaries by minority
stockholder............................................ -- 225 --
Payments on line of credit................................ (392) -- --
------- -------- -------
Net cash provided by financing activities......... 212 125 73,715
------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (1,416) 534 13,916
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 2,046 630 1,164
------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 630 $ 1,164 $15,080
======= ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes......................................... $ 23 $ 15 $ 2,350
======= ======== =======
Interest............................................. $ 50 $ 43 $ 31
======= ======== =======
</TABLE>
F-6
<PAGE> 52
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES -- During
1996, 1997 and 1998, the Company received property and equipment worth
approximately $75,000, $79,000 and $69,000, 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. During 1998, the acquisition price of ARS
included 100,000 options granted to the sellers. The value of these options on
the date of grant was $574,000. The amount to be received by the Company for the
options will be approximately $504,000 (see Note 2). During 1998, the Company
recorded $496,000 as goodwill related to the additional purchase price of ARS
(see Note 2).
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 53
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. CART, Inc. ("CART") (a Michigan Corporation) was organized as a
not-for-profit corporation in 1978, with its main purpose 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.
In December 1997, Championship Auto Racing Teams, Inc., a Delaware corporation
was formed to serve as a holding company for CART and its subsidiaries (the
"Reorganization"). Each outstanding share of common stock of CART was acquired
in exchange for 400,000 shares of common stock of the Company. References to the
"Company" mean Championship Auto Racing Teams, Inc. and its subsidiaries.
PRINCIPLES OF CONSOLIDATION. The 1997 and 1998 consolidated financial statements
include the financial statements of the Company, CART and its wholly-owned
subsidiary corporations CART Properties, Inc. and CART Licensed Products, Inc.
In addition, the 1997 and 1998 consolidated financial statements include the
financial statements of CART Licensed Products, L.P., a 55% owned subsidiary. As
of March 13, 1998 and April 1, 1998, the consolidated financial statements also
include the financial statements of American Racing Series, Inc. ("ARS") and
Pro-Motion Agency Ltd. ("Pro-Motion"), respectively, wholly-owned subsidiaries
of the Company (see Note 2). All significant intercompany balances have been
eliminated in consolidation.
OPERATIONS. The Company is the sanctioning body responsible for organizing,
marketing and staging each of the racing events for the open-wheeled motorsports
series -- 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 and licensing 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 receives revenue from engine leases and rebuilds and wheel sales from
teams racing in the PPG-Dayton Indy Lights Championship ("Indy Lights"). 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.
INVENTORY. Inventory consists of wheels, parts and merchandise, which are stated
at the lower of cost or market on a first-in, first-out 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 20 years. Leasehold improvements are
amortized over the life of the related leases.
REVENUE RECOGNITION. Recognition of revenue from race sanction agreements is
deferred until the event occurs. Sponsorship revenue and engine lease revenue
are recognized on a monthly basis. Television
F-8
<PAGE> 54
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
revenue is recognized ratably over the race schedule. Engine rebuilds and wheel
sales are recognized as earned. Other revenues include membership and entry
fees, contingency awards money and royalty income and are recognized ratably
over the race schedule.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include investments with
original maturities of three months or less at the date of original acquisition.
SHORT-TERM INVESTMENTS. The Company's short-term investments are categorized as
available-for-sale, as defined by Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Unrealized holding gains and losses are reflected as a net amount
in a separate component of stockholders' equity until realized. For the purpose
of computing realized gains and losses, cost is identified on a specific
identification basis.
GOODWILL. Goodwill represents the excess of the purchase price of ARS and B.P.
Automotive, Ltd. ("BP") and Pro-Motion (see Note 2) over the fair value of the
net tangible and identifiable intangible assets of these acquisitions. Goodwill
is stated at cost and is amortized on a straight-line basis over 40 years.
MANAGEMENT ESTIMATES. The preparation of the consolidated 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,
1997 and 1998, 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 consolidated financial statements.
ACCOUNTING PRONOUNCEMENTS. In 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Unrealized gain on investments is the Company's only
component of other comprehensive income.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued by the Financial Accounting Standards Board. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company has not determined the impact on its
consolidated financial statement disclosure. SFAS No. 133 is effective for
fiscal years beginning after June 15, 1999.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1996 and 1997
consolidated financial statements in order for them to conform to the 1998
presentation.
2. INITIAL PUBLIC OFFERING AND ACQUISITIONS
INITIAL PUBLIC OFFERING. In March 1998, the Company completed its initial public
offering ("IPO") of 5,038,000 shares of common stock. The IPO provided proceeds
of $75.0 million, net of underwriting discounts, to the Company. A portion of
the net proceeds from the IPO were used to acquire ARS and BP for $10 million
(see "Acquisition of ARS and BP"); and to pay accrued point awards to franchise
race teams aggregating $9.5 million. The remaining net proceeds will be used for
working capital and general corporate purposes, including the expansion of the
Company's business through the acquisition or development of race related
businesses and properties.
ACQUISITION OF ARS AND BP. On March 13, 1998, the Company acquired 100% of the
outstanding common stock of ARS and certain assets of BP, an entity previously
owned by a director, race team
F-9
<PAGE> 55
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
owner and stockholder. ARS operates Indy Lights, a support series to CART. BP
supplies certain equipment to Indy Lights competitors and earns commission
income on the sale of chassis and spare parts to the teams. At closing of the
acquisition, the Company paid $7 million in cash and issued options to the
sellers to purchase 100,000 shares of the Company's common stock at an exercise
price of $16.00 per share which vests one year from closing if certain
performance criteria are met for 1998. In the event that ARS did not meet their
performance criteria for 1998, they had the option to make up the shortfall to
receive the options and elected to do so. The fair value of the options at the
date of grant was approximately $574,000. The sellers are expected to pay the
shortfall amount of approximately $504,000 to receive the options.
In addition, the Company will pay an additional purchase price of up to $3
million, in three equal payments, upon satisfaction by ARS of certain
performance criteria during 1998-2000. In the event that ARS does not meet its
performance criteria in a given year, the additional payment will be reduced one
dollar for every dollar that ARS is short of the performance criteria. However,
if ARS exceeds its performance in a following year, it can make up the shortfall
from the prior year. Based on 1998 performance criteria, the Company owes the
former shareholders of ARS a total of approximately $496,000 for 1998. The
excess of the initial purchase price of $7 million, plus any additional purchase
price payments, over the net book value of the net assets acquired 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 operating results of
ARS and BP have been included in the Company's consolidated financial statements
since the date of acquisition.
ACQUISITION OF PRO-MOTION. On April 10, 1998, the Company acquired 100% of the
outstanding common stock of Pro-Motion, an entity previously owned by a
director, race team owner and stockholder, for $534,000 in cash. Pro-Motion
operates the KOOL/Toyota Atlantic Championship open-wheel series, a support
series to CART. The excess of the initial purchase price over the net book value
of the net assets acquired 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 operating results of Pro-Motion have been included in the
Company's consolidated financial statements since the date of acquisition.
PRO FORMA RESULTS. The following unaudited pro forma summary for the year ended
December 31, 1997 and 1998 assume the acquisitions of ARS, BP and Pro-Motion
occurred as of January 1, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
-------- --------
(IN THOUSANDS, EXCEPT
EARNINGS PER SHARE)
<S> <C> <C>
Revenues............................................ $49,628 $63,863
Net income (loss)................................... (3,999) 15,196
Earnings per share:
Basic.......................................... $ (.38) $ 1.06
======= =======
Diluted........................................ $ (.38) $ 1.05
======= =======
</TABLE>
F-10
<PAGE> 56
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro forma adjustments of $19.4 million ($12.6 million net of tax) for 1997 have
also been made to reduce certain benefits paid to franchise members, including
the reimbursement of travel expenses for $2.2 million, director's fees for
$214,000 and other race related payments for $17 million in connection with the
Company's reorganization, effective January 1, 1998 (see Note 15).
3. SHORT-TERM INVESTMENTS
The following is a summary of the estimated fair value of available-for-sale
short-term investments by balance sheet classification:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
------------
DECEMBER 31, 1998 COST FAIR VALUE GAIN LOSS
- ----------------- ------- ---------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial paper........................ $33,168 $33,487 $319 $--
U.S. agencies securities................ 20,034 20,047 13 --
Corporate bonds......................... 8,078 8,076 -- 2
------- ------- ---- --
Total short-term
investments................ $61,280 $61,610 $332 $2
======= ======= ==== ==
</TABLE>
Contractual maturities range from less than one year to two years. The weighted
average maturity of the portfolio does not exceed one year.
4. NOTE RECEIVABLE
In May 1998, the Company entered into an agreement with a promoter whereby the
Company provided financing for certain expenses associated with a CART
sanctioned event in Brazil. The original amount of the note receivable of $4.1
million related to costs incurred by the Company during the 1998 event and will
be repaid in five equal annual installments of $824,000 over the life of the
sanction agreement through the year 2003. The receivable has a stated 5% per
annum interest rate and approximately $1.0 million of the receivable plus the
annual sanction fee will be substantially secured each year by a separate letter
of credit issued annually by the City of Rio de Janeiro, Brazil. The letter of
credit relating to the 1999 event has been issued. Based on estimated market
discount rates, the carrying value of this receivable approximates its fair
value.
F-11
<PAGE> 57
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- ------
(IN THOUSANDS)
<S> <C> <C>
Engines............................................... $ -- $2,296
Equipment............................................. 1,570 2,381
Furniture and fixtures................................ 329 359
Vehicles.............................................. 1,616 1,959
Other................................................. 228 121
------- ------
Total............................................... 3,743 7,116
Less accumulated depreciation......................... (1,507) (2,090)
------- ------
Property and equipment (net).......................... $ 2,236 $5,026
======= ======
</TABLE>
During 1997 and 1998, the Company received vehicles worth approximately $79,000
and $69,000, respectively, in exchange for sponsorship privileges to the
providers.
6. OPERATING LEASES
The Company has entered into various non-cancelable operating leases for office
space and equipment which expire through 2003. Total rent expense was
approximately $194,000, $345,000 and $421,000 for 1996, 1997 and 1998,
respectively.
Approximate future minimum lease payments under noncancelable operating leases
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year ending December 31:
1999..................................................... $ 443
2000..................................................... 440
2001..................................................... 352
2002..................................................... 118
2003..................................................... 2
------
Total...................................................... $1,355
======
</TABLE>
7. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax basis 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.
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.
F-12
<PAGE> 58
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences giving rise to deferred tax assets and
liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
------ -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts....................... $ -- $ 114
Accrued race expense and points award................. 3,446 --
Net operating loss carryforwards...................... 1,186 --
Alternative minimum tax credit carryforwards.......... 44 --
Pension liability..................................... 8 --
State taxes........................................... (22) 5
Other................................................. 21 --
------ -----
Total............................................ 4,683 119
Current portion....................................... 4,683 119
------ -----
Non-current portion................................... $ -- $ --
====== =====
Deferred tax liabilities:
Basis difference in fixed assets...................... $ -- $(195)
Amortization of goodwill.............................. -- (64)
------ -----
Total............................................ -- (259)
Current portion....................................... -- --
------ -----
Non-current portion................................... $ -- $(259)
====== =====
</TABLE>
The provision (credit) for income taxes consists of the following at December
31:
<TABLE>
<CAPTION>
1996 1997 1998
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current........................................ $ 25 $ 158 $3,745
Deferred (credit).............................. (204) (3,581) 4,823
----- ------- ------
Total................................... $(179) $(3,423) $8,568
===== ======= ======
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- ----
<S> <C> <C> <C>
Tax at U.S. federal statutory rate.................. (34.0)% (34.0)% 34.0%
State income tax.................................... -- -- 1.9
Meals and entertainment............................. 6.5 0.1 0.3
Compensation expense................................ -- 17.3 --
Other............................................... (7.1) 0.2 --
----- ----- ----
Total........................................ (34.6)% (16.4)% 36.2%
===== ===== ====
</TABLE>
Additional compensation expense recorded for consolidated financial statement
purposes in connection with common stock issued to race teams in December 1997,
exceeded the Company's deductible amount for federal income tax purposes.
F-13
<PAGE> 59
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
During 1991, the Company indicated its intent to terminate its defined benefit
pension plan. The plan assets were frozen and remained in trust until September
30, 1998, at which time the assets were distributed to the participants of the
plan. There was no liability at December 31, 1998. The Company incurred no
additional expense as a result of the termination.
In addition, the Company began a 401(k) savings plan (the "plan") in 1991.
Contributions to the plan are in the form of employee salary deferral, subject
to discretionary employer matching contributions. The Company's contributions to
the plan were approximately $25,000, $50,000 and $81,000 in 1996, 1997 and 1998,
respectively.
9. DEBT
At December 31, 1997 and 1998, the Company had an unused bank line of credit of
$1.5 million. There were no amounts outstanding at December 31, 1997 and 1998.
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, 1998, 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. The carrying amount of the note
payable approximates its fair value. Future payments under the above agreement
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1999.................................................. $130
2000.................................................. 130
2001.................................................. 54
----
Total....................................... 314
Less current portion.................................. 130
----
Long-term portion..................................... $184
====
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
REVENUE AGREEMENTS. The Company has entered into promoter, sponsorship and
television agreements that extend through various dates, with the longest date
expiring in the 2007 racing season. Under the promoter agreements, the Company
is obligated to sanction CART Championship racing events and provide related
race management functions. Under the sponsorship agreements, the Company grants
certain corporations official sponsorship status. In return the corporations
receive recognition and status rights, event rights and product category
exclusivity rights. Television agreements with various broadcast companies
include production, sales and worldwide distribution of the Company's events.
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.
EMPLOYMENT AGREEMENTS. The Company has employment agreements with several of its
officers. The employment agreements expire at various dates through December
2001. Certain of the employment
F-14
<PAGE> 60
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agreements provide for a multiple of the individual's base salary in the event
there is a termination of their employment as a result of a change in control in
the Company.
LITIGATION. In January 1996, a lawsuit was filed against the Company by one of
its stockholders and a related company. The lawsuit alleged antitrust and
anti-competitive 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 and included in administrative and indirect
expenses include approximately $1,734,000 related to litigation expense and the
settlement of lawsuits.
During a CART race at the Michigan Speedway in July 1998, a race car was
involved in a racing incident that propelled a tire and suspension parts into
the grandstands. Three spectators were killed and six other people reported
minor injuries. No claims have been made against the Company, and the Company
does not believe that it is liable for this incident. The Company requires each
promoter to indemnify the Company against any liability for personal injuries
sustained at such promoter's racing event. In addition, the Company requires
each promoter to carry a minimum of $10.0 million ($20.0 million in 1999) in
liability insurance, naming the Company as a named insured. The Company also
maintains a $15.0 million umbrella policy.
11. STOCK OPTION PLAN
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 initial public offering ("IPO") (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 are subject to the Stock Option Plan.
Options granted vest pro-rata over a three-year period. No stock option is
exercisable after ten years from the date of the grant, subject to certain
conditions and limitations. The purpose of the Stock Option Plan is to provide
the Participants (including officers and directors who are also key employees)
of the Company and its subsidiaries with an increased incentive to make
significant contributions to the long-term performance and growth of the Company
and its subsidiaries. Concurrent with the IPO, an aggregate 1,088,100 options to
acquire common stock were granted under the Stock Option Plan at the initial
offering price of $16.00 per share. In March 1999, 100,250 options were granted
to employees under the Stock Option Plan at an exercise price of $27.50 per
share.
In addition, in December 1997, the Board and the stockholders of the Company
approved a Director Option Plan permitting 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 10,000 shares of
Company common stock. In addition, each individual who is re-elected as an
Independent Director is automatically granted an option to purchase 5,000 shares
of Company 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
F-15
<PAGE> 61
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Independent Director are exercisable at a price equal to the fair market value
of the common stock on the date of grant. In addition, each Independent Director
may elect to receive stock options in lieu of any director's fees payable to
such individuals.
All Director NQSOs are immediately exercisable upon grant. The exercise price
for all options may be paid in cash, shares of common stock of the Company 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 ten years
from the date of grant. As of December 31, 1998, there were 10,000 Director
NQSOs issued and outstanding. In January 1999, an additional 10,000 Director
NQSOs were issued and outstanding.
In addition to the plans described above, 100,000 stock options were issued in
connection with the acquisition of ARS and BP (see Note 2).
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE
OF REMAINING EXERCISE
SHARES LIFE PRICE
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding December 31, 1997................. -- -- $ --
Granted............................................... 1,198,100 4.2 16.02
Exercised............................................. -- -- --
Forfeited............................................. 600 -- 16.02
--------- --- ------
Options outstanding December 31, 1998................. 1,197,500 4.2 $16.02
========= === ======
(10,000 are exercisable)
</TABLE>
The weighted average per share fair value of options granted at market value was
$5.74 in 1998.
At December 31, 1998, an additional 1,002,500 shares were reserved for issuance
under all Company plans.
SFAS No. 123 "Accounting for Stock Based Compensation" 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 $1.2 million and $12.2 million has been recorded for the years ended
1996 and 1997 respectively, related to certain shares that became eligible for
purchase based upon eligibility requirements met during 1996 and 1997.
As permitted by SFAS No. 123, the Company has chosen to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25") in accounting for its stock options granted to employees and
directors. Under APB No. 25, the Company does not recognize compensation expense
on the issuance of its stock options because the option terms are fixed and the
exercise price equals the market price of the underlying stock on the grant
date.
F-16
<PAGE> 62
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
However, as required by SFAS No. 123, the Company has calculated pro forma
information as if it had determined compensation cost based on the fair value at
the grant date for its stock options granted to employees and directors. In
accordance with SFAS No. 123, the fair value of option grants is estimated on
the date of grant using the Black-Scholes option-pricing model for pro forma
purposes with the following assumptions used for all grants: expected volatility
30%, expected dividend yield of 0%, risk free interest rate of 5%, and an
expected life of 5 years. Had the Company determined compensation cost based on
the fair value at the grant date for its stock under SFAS No. 123, net earnings
and diluted earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998
--------------------------
(IN THOUSANDS, EXCEPT
EARNINGS PER SHARE)
<S> <C>
NET EARNINGS
- ------------
As reported......................................... $15,089
=======
Pro forma........................................... $14,054
=======
DILUTED EARNINGS PER SHARE
- --------------------------
As reported......................................... $ 1.05
=======
Pro forma........................................... $ .97
=======
</TABLE>
12. COMMON STOCK
During 1996, the Company redeemed 2,000,000 shares of common stock for $1.4
million (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 1997, the Company redeemed 400,000 shares of common stock for
$330,000 (including $120,000 representing a refund of Membership Deposits or
Franchise Fund Liability). In January and February 1997, the Company issued
1,200,000 shares of common stock for $1.2 million (including $360,000
representing Membership Deposits). In December 1997, the Company issued
1,400,000 shares for $1.8 million.
In March 1998, at the request of a race team owner, the Company rescinded the
sale of an aggregate of 66,666 shares of common stock it issued in December 1997
at a total price of $151,000.
13. SEGMENT REPORTING
The Company has one reportable segment, racing operations.
This reportable segment encompasses all the business operations of organizing,
marketing and staging all of our open-wheel racing events.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company's long lived assets are
substantially used in the racing operations
F-17
<PAGE> 63
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
segment in the United States. The Company evaluates performances based on income
before income taxes.
<TABLE>
<CAPTION>
RACING
YEAR ENDED DECEMBER 31, OPERATIONS OTHER* TOTALS
- ----------------------- ---------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
1996
Revenues................................................. $41,124 $ -- $41,124
Interest income (net).................................... 280 -- 280
Depreciation and amortization............................ 685 -- 685
Segment loss before income taxes......................... (517) -- (517)
1997
Revenues................................................. $40,867 $ 578 $41,445
Interest income (expense) (net).......................... 331 (2) 329
Depreciation and amortization............................ 531 18 549
Segment loss before income taxes......................... (20,432) (515) (20,947)
1998
Revenues................................................. $61,056 $1,474 $62,530
Interest income (expense) (net).......................... 3,234 (36) 3,198
Depreciation and amortization............................ 750 29 779
Segment income before income taxes....................... 23,657 -- 23,657
</TABLE>
- ---------------
* Segment is below the quantitative thresholds for determining reportable
segments and commenced operations on January 1, 1997. This segment is related
to the Company's licensing royalties.
Reconciliations to consolidated financial statement totals at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Total assets for reportable segment......................... $11,599 $95,851
Other assets................................................ 749 1,335
------- -------
Total consolidated assets................................... $12,348 $97,186
======= =======
Total liabilities for reportable segment.................... $14,996 $ 9,617
Other liabilities........................................... 397 1,350
------- -------
Total consolidated liabilities.............................. $15,393 $10,967
======= =======
</TABLE>
Domestic and foreign revenues, which are allocated to each country based on
sanction fees, sponsorship revenues and television revenues, for each of the
three years ended December 31 were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States........................................... $30,355 $28,888 $42,105
Canada.................................................. 4,499 5,336 7,828
Other foreign countries................................. 6,270 7,221 12,597
------- ------- -------
Total................................................... $41,124 $41,445 $62,530
======= ======= =======
</TABLE>
F-18
<PAGE> 64
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. EARNINGS (LOSS) PER SHARE
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings. Shares contingently
issuable relate to shares that would have been outstanding under certain stock
option plans (see Note 11) upon the assumed exercise of dilutive stock options.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
----- -------- -------
(IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C>
Net income (loss)........................................ $(338) $(17,524) $15,089
===== ======== =======
Basic EPS:
Weighted average common shares outstanding............ 9,400 10,200 14,190
===== ======== =======
Net earnings (loss) per common share, basic........... $(.04) $ (1.72) $ 1.06
===== ======== =======
Diluted EPS:
Weighted average common shares outstanding............ 9,400 10,200 14,190
Shares contingently issuable.......................... -- -- 231
----- -------- -------
Shares applicable to diluted earnings................. 9,400 10,200 14,421
===== ======== =======
Net earnings (loss) per common share, diluted......... $(.04) $ (1.72) $ 1.05
===== ======== =======
</TABLE>
15. RELATED PARTY TRANSACTIONS
The Company receives sanction fees from seven related parties. Total sanction
fee revenue related to these entities for 1996, 1997 and 1998 was approximately
$3.9 million, $5.2 million and $8.1 million, respectively. No sanction fees from
a single related entity provided more than 10% of the Company's revenues in
1996, 1997 and 1998.
The Company rented track facilities from a related party. Total track rental
expense related to this entity for 1996, 1997 and 1998 was approximately $1.2
million, $0 and $62,000, respectively.
At December 31, 1997 and 1998, the Company has accounts receivable of
approximately $190,000 and $1.7 million, respectively, due from related parties.
The Company receives entry fees and other race-related income to participate in
the CART Championship from certain related parties. Such fees received from
certain franchise members amounted to $80,000, $150,000 and $1.3 million in
1996, 1997 and 1998, respectively.
The Company disburses purse winnings and awards to nine related parties. Total
purse winnings related to these entities for 1996, 1997 and 1998 were $10.8
million, $9.0 million and $10.8 million, respectively.
The Company paid for at-track rights to six related parties in order to satisfy
contractual obligations with certain sponsors. Total at-track rights related to
these entities for 1996, 1997 and 1998 were $0, $500,000 and $1.2 million,
respectively.
F-19
<PAGE> 65
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company paid royalties to nine related parties. Total royalties paid to
these entities for 1996, 1997 and 1998 were $0, $173,000 and $495,000,
respectively.
At December 31, 1997 and 1998, the Company has accounts payable and royalties
payable of approximately $6.6 million and $306,000, respectively, due to related
parties.
An officer of the Company is a principal in a law firm which received fees for
legal services provided to the Company. Such fees amounted to approximately
$129,000, $133,000 and $127,000 in 1996, 1997 and 1998, respectively.
In connection with the Reorganization, effective January 1, 1998, the Company
and the existing franchise race teams entered into an agreement on December 19,
1997 whereby reimbursements for travel expenses, directors fees and race-related
payments were discontinued. These payments approximated $8.5 million and $19.4
million for the years 1996 and 1997, respectively. Such agreement expires in
December 2000. Because each franchise member is also a stockholder of the
Company, the agreement constitutes a related party transaction.
16. SUBSEQUENT EVENTS (UNAUDITED)
Effective December 31, 1998, the president of CART Licensed Products, L.P.
resigned from his position. The Company is negotiating to purchase his 45
percent interest in CART Licensed Products, L.P.
F-20
<PAGE> 66
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 67
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL
ONLY THE COMMON STOCK OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
Forward-Looking Statements............. 12
Use of Proceeds........................ 13
Price Range of Common Stock and
Dividend Policy...................... 13
Selected Consolidated Financial Data... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 15
Auto Racing Industry Overview.......... 24
Business............................... 27
Principal Stockholders................. 40
Selling Stockholders................... 41
Underwriting........................... 42
Legal Matters.......................... 43
Experts................................ 43
Where You Can Find More Information.... 44
Index to Financial Statements.......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,816,500 SHARES
[CART LOGO]
CHAMPIONSHIP AUTO
RACING TEAMS, INC.
COMMON STOCK
PROSPECTUS
JEFFERIES & COMPANY, INC.
J.C. BRADFORD & CO.
A.G. EDWARDS & SONS, INC.
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 68
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:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 17,268
National Association of Securities Dealers, Inc. Fee........ $ 6,000
Accounting Fees and Expenses................................ $ 25,000
Printing Expenses........................................... $ 70,000
Blue Sky Filing Fees........................................ $ 5,000
Legal Fees and Expenses..................................... $ 80,000
Miscellaneous............................................... $ 6,732
--------
TOTAL....................................................... $210,000
========
</TABLE>
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
<PAGE> 69
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
(a) Exhibits
1.1 Form of Underwriting Agreement
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 Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.
(included in Exhibit 5.1)
24.1 Powers of Attorney (contained in the Signature Section of
the Original Registration Statement)
27.1 Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed as an exhibit to this Registration Statement (Registration
No. 333-76091)
** Incorporated by reference to exhibits to our Registration Statement on Form
S-1 (Registration No. 333-43141)
(b) Financial Statement Schedule
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(i) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(ii) For the purpose 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.
(b) 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 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 this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in such 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
hereby, 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-2
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Championship Auto Racing Teams, Inc., a corporation organized and
existing under the laws of the State of Delaware, certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3 and has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 28th day of April, 1999.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By: /s/ ANDREW H. CRAIG*
--------------------------------------
Andrew H. Craig, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment no. 1 to the registration statement has been signed on April 28, 1999
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ANDREW H. CRAIG* Chief Executive Officer, Director
- ----------------------------------------
Andrew H. Craig
/s/ RANDY K. DZIERZAWSKI* Chief Financial and Accounting Officer
- ----------------------------------------
Randy K. Dzierzawski
/s/ GERALD FORSYTHE* Director
- ----------------------------------------
Gerald Forsythe
/s/ FLOYD R. GANASSI, JR.* Director
- ----------------------------------------
Floyd R. Ganassi, Jr.
/s/ CARL A. HAAS* Director
- ----------------------------------------
Carl A. Haas
/s/ JAMES F. HARDYMON* Director
- ----------------------------------------
James F. Hardymon
/s/ BRUCE R. MCCAW* Director
- ----------------------------------------
Bruce R. McCaw
/s/ DON OHLMEYER, JR.* Director
- ----------------------------------------
Don Ohlmeyer, Jr.
/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 Power of Attorney
By: /s/ JACK A. BJERKE
--------------------------------------
Jack A. Bjerke, Attorney-in-Fact
</TABLE>
II-3
<PAGE> 71
SCHEDULE II
CHAMPIONSHIP AUTO RACING TEAMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED BALANCE
BEGINNING TO COSTS AT END OF
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS (1) PERIOD
----------- --------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts (deducted
from accounts receivable):
Year Ended December 31, 1998............... $-- $436 $130 $306
Year Ended December 31, 1997............... -- -- -- --
Year Ended December 31, 1996............... -- -- -- --
</TABLE>
- ---------------
(1) Accounts deemed to be uncollectible.
II-4
<PAGE> 1
Exhibit 1.1
CHAMPIONSHIP AUTO RACING TEAMS, INC.
(A DELAWARE CORPORATION)
1,816,500 SHARES
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
UNDERWRITING AGREEMENT
May __, 1999
JEFFERIES & COMPANY, INC.
J.C. BRADFORD & CO., L.L.C.
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 sale by the Selling
Stockholders, acting severally and not jointly, of an aggregate of 1,816,500
shares (the "Stockholder Shares") of the Company's common stock, par value $.01
per share (the "Common Stock"), and the purchase of the Stockholder Shares by
the Underwriters, acting severally and not jointly. The Company has agreed to
issue and sell up to 272,475 shares (the "Option Shares") of Common Stock to
cover over-allotments, if any. The Stockholder Shares and the Option Shares are
hereinafter collectively referred to as the "Shares."
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 and each date after the date hereof on which a
document incorporated by reference in the Registration Statement if filed.
"Preliminary Prospectus" shall mean any preliminary prospectus referred to in
Section 1(a)(i) below and any preliminary prospectus included in the
Registration
<PAGE> 2
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, including incorporated documents, exhibits and
financial statements, 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. Any reference herein to the Registration Statement, a Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Exchange Act on or before the Effective Date of the
Registration Statement or the issue date of such Preliminary Prospectus or the
Prospectus, as the case may be; and any reference herein to the terms "amend",
"amendment" or "supplement" with respect to the Registration Statement, any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the filing of any document under the Exchange Act after the Effective
Date of the Registration Statement, or the issue date of any Preliminary
Prospectus or the Prospectus, as the case may be, deemed to be incorporated
therein by reference.
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:
(i) the Company meets the requirements for use of Form S-3
under the Act and has filed with the Commission a registration
statement on such Form S-3 (Registration No. 333-76091), including a
related preliminary prospectus, and one or more amendments thereto,
including the related preliminary prospectus, each of which
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-2-
<PAGE> 3
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 (B)) 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 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-3-
<PAGE> 4
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 first table and the second, fourth, fifth
and sixth paragraphs following the second table in the section of the
Prospectus entitled "Underwriting";
(iv) the documents incorporated by reference in the
Registration Statement or the Prospectus pursuant to Item 12 of Form
S-3 under the Act, at the time they became effective or at the time
they were filed with the Commission, or to the extent such documents
were subsequently amended prior to the date hereof, at the time so
amended, complied and will comply in all material respects with the
requirements of the Exchange Act and, when read together and with the
other information in the Prospectus, do not and will not on the date
hereof and at the Closing Date 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 or are made, not misleading.
(v) 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, 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");
(vi) the only significant subsidiaries (as defined in the Act
Regulations) of the Company are the subsidiaries listed on Schedule
III hereto (the "Corporate Subsidiaries"). Each of the Corporate
Subsidiaries is a corporation, duly organized and validly existing in
good standing under the laws of its jurisdiction of incorporation 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 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. CART Licensed Products,
L.P., a Georgia limited partnership ("CLP"), is a limited partnership
duly organized, validly existing and in good standing under the laws
of the State of Georgia, has the 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 has
been duly registered and qualified as a foreign partnership to conduct
its business and is in good standing in each other jurisdiction where
the
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-4-
<PAGE> 5
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. The Corporate Subsidiaries and CLP are referred to
herein collectively as the "Subsidiaries" and individually as a
"Subsidiary";
(vii) 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 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;
(viii) the Company has the authorized capitalization set
forth in the Prospectus under the heading "Description of Capital
Stock"; all of the Company's authorized and outstanding capital stock
has been duly authorized, validly issued and is fully paid and
nonassessable and was 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 preemptive or other rights to subscribe for or to purchase, and
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;
(ix) all the outstanding shares of capital stock of each of
the Corporate 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 Corporate Subsidiaries, nor any
agreements or commitments to issue any of the same, and except as
otherwise set forth in the Registration
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-5-
<PAGE> 6
Statement and the Prospectus, all outstanding shares of capital stock
of the Corporate Subsidiaries and the partnership interest in CLP are
owned by the Company, directly or indirectly through another
Subsidiary, free and clear of any security interests, liens,
encumbrances, equities or other claims;
(x) each of the Company and the Subsidiaries has good and
marketable title to all real property and good and merchantable 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,
other than (a) those described in the Registration Statement and
Prospectus or those that do not materially adversely affect the value
of such properties and assets, and (b) those that do not interfere in
any material respect with use made or proposed to be made of such
properties and assets by the Company. 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 or are not material;
(xi) 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 Option Shares to the
Underwriters as provided herein. This Agreement has been duly
authorized, executed and delivered by the Company;
(xii) the Option 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 Option Shares; and, when such Option Shares are issued and
delivered against payment therefor as provided by this Agreement, the
Option Shares will have been validly issued, fully paid and
nonassessable and the issuance of such Option Shares will not be
subject to any preemptive or similar rights. All corporate action
required to be taken by the Company for the authorization, issuance
and sale of the Option Shares has been duly and validly taken;
(xiii) 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 Act Regulations;
(xiv) 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 statements of operations and consolidated balance sheets
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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-6-
<PAGE> 7
been compiled on a basis consistent with that of the audited financial
statements of the Company included 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;
(xv) the Shares conform in all material respects to the
descriptions thereof in the Registration Statement and Prospectus;
(xvi) neither the Company nor any of the Subsidiaries is in
violation of its charter or bylaws or other organizational documents.
Neither the Company nor any of the Subsidiaries is, nor with the
passage of time or the giving of notice or both would be, in violation
of any material law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries, or of
any judgment, order or decree of any court or governmental agency or
body or of any arbitrator having jurisdiction over the Company or any
of the Subsidiaries, 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 or any of
the Subsidiaries is a party or by which any of them may be bound, or
to which any of the property or assets of the Company or any of the
Subsidiaries is subject;
(xvii) there is no action, suit or proceeding pending before
or by any court, arbitrator or governmental agency or body or, to the
Company's knowledge, threatened against the Company or the
Subsidiaries or to which any of their respective property is subject
(A) that is required to be described in the Registration Statement or
the Prospectus but is not described as required or (B) that, if
adversely determined, could reasonably be expected to have a Material
Adverse Effect. 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;
(xviii) 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;
(xix) 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 by any court or governmental agency or body
or any stock exchange authorities ("Governmental Agency") or
threatened by others;
(xx) 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");
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-7-
<PAGE> 8
(xxi) 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 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 (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, singly or in the aggregate,
could have a Material Adverse Effect;
(xxii) 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;
(xxiii) 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, current 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;
(xxiv) 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-8-
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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;
(xxv) 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;
(xxvi) prior to the Option Shares Closing Date, the Option
Shares will be duly authorized for listing on the New York Stock
Exchange upon official notice of issuance;
(xxvii) neither the Company nor any Subsidiaries is involved
in any labor dispute or, to the knowledge of the Company, is any
dispute threatened;
(xxviii) neither the Company nor any Subsidiary nor, to the
best of its knowledge, any employee or agent of the Company or any
Subsidiary, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating
to political activity, or made any unlawful payment of funds of the
Company or any Subsidiary or received or retained any funds in
violation of any law, rule or regulation;
(xxix) 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;
(xxx) except for the shares of capital stock of the Corporate
Subsidiaries and the partnership interest in CLP, 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;
(xxxi) 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 or similar laws in applicable foreign jurisdictions in connection
with the purchase and distribution of the Shares by the Underwriters
or such as may be required by the National Association of Securities
Dealers, Inc. (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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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<PAGE> 10
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 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;
(xxxii) 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, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate
the sale or resale of the Shares;
(xxxiii) the statements set forth in the Registration
Statement or 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;
(xxxiv) 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; and
(xxxv) 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.
(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,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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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 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 Stockholder now has, and on the Closing Date
will have, valid title to the Shares to be sold by the Selling
Stockholder 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 Stockholder;
(iv) the Selling Stockholder has 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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<PAGE> 12
pursuant to this Agreement will be fully paid or provided for by such
Selling Stockholder;
(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 in connection with the purchase and distribution
of the Shares by the Underwriters or such as may be required by the
NASD;
(ix) other than as permitted by the Act and Act Regulations,
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 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 the Jefferies & Company, Inc.;
(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 Norwest Bank Minnesota, N.A.,
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 and Andrew Craig as such Selling Stockholder's
attorneys-in-fact (individually, an "Attorney-in-Fact", and
collectively, the "Attorneys-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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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<PAGE> 13
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 appointment by such Selling Stockholder of the Attorneys-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 Attorneys-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 Attorneys-in-Fact, or any 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 a Selling
Stockholder 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 such Selling Stockholder, 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 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 a purchase price of $ per share (the "Initial
Price"), the aggregate 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 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.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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<PAGE> 14
(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 Stockholder 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 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
Stockholder 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 Stockholder
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 Stockholder Shares Closing Date) of such purchase.
(c) Payment of the purchase prices for, and delivery of, 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 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
"Stockholder 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 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 Stockholder 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 Stockholder
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.
(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 Stockholder 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
Stockholder 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.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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<PAGE> 15
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;
(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;
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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(d) 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;
(e) 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 publicly
available information concerning the Company as you may reasonably request;
(f) the Company will not, and will cause each of its directors (other
than James F. Hardymon and Don Ohlmeyer, Jr.) and Randy K. Dzierzawski and
Andrew Craig 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.; provided that
the agreement entered into by Randy K. Dzierzawski and Andrew H. Craig shall
not apply to sales by them of not more than 30,000 and 60,000 shares of Common
Stock, respectively, at any time after the date 30 days after the date of the
Prospectus;
(g) the Company will comply with all the provisions of any
undertakings contained in the Registration Statement;
(h) 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;
(i) 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;
(j) 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; and
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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<PAGE> 17
(k) the Company will cause the Shares to be duly listed on the New
York Stock Exchange.
SECTION 4. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
severally and not jointly covenants with each of the Underwriters as follows:
(a) such Selling Stockholder 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;
(b) without prejudice to any rights such Selling Stockholder may have
against the Company, the Selling Stockholder shall pay all federal and other
taxes, if any, on the transfer or sale of the Shares being sold by the Selling
Stockholder to the Underwriters;
(c) such Selling Stockholder shall do or perform all things required
to be done or performed by the Selling Stockholder prior to the Stockholder
Shares Closing Date to satisfy all conditions precedent to delivery of and the
payment for the Shares to be sold by the Selling Stockholder pursuant to this
Agreement;
(d) such Selling Stockholder 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) such Selling Stockholder 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 Stockholder 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
(such fees of counsel not to exceed $5,000); (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; and
(vii) all other costs and expenses incident to the performances of its
obligations hereunder that are not otherwise specifically provided for in this
Section.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
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<PAGE> 18
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 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 their
obligations hereunder and to the following further conditions:
(a) the Registration Statement shall have become 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, 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 of minimum prices for trading on such
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-18-
<PAGE> 19
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 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 Option Shares to be sold by the Company 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 opinions 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
and Annex C;
(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 the Company 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-19-
<PAGE> 20
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 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 D 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
director of the Company (other than James F. Hardymon and Don Ohlmeyer, Jr.),
Randy K. Dzierzawski, Andrew Craig and from each of the Selling Stockholders,
addressed to the Underwriters, in which each such person agrees 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
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.; provided that the agreement entered into by Randy K. Dzierzawski
and Andrew H. Craig shall not apply to sales by them of not more than 30,000
and 60,000 shares of Common Stock, respectively, at any time after the date 30
days after the date of the Prospectus; 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 each person, if any, 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 person controlling such Underwriter may incur under the Act,
the Exchange Act or otherwise, as such expenses are incurred, insofar as such
loss,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-20-
<PAGE> 21
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 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, that this indemnity
agreement shall not apply to any loss, liability, claim, damage or expense to
the extent arising out of any untrue statement or omission or alleged untrue
statement or omission made 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 through the Representatives expressly for use
in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto). The foregoing indemnity with respect to any untrue statement or
alleged untrue statement contained in or omission or alleged omission from a
preliminary prospectus shall not inure to the benefit of the Underwriter (or
any person controlling such Underwriter) from whom the person asserting any
loss, liability, claim, damage or expense purchased any of the Shares which are
the subject thereof if the Company shall sustain the burden of proving that
such person was not sent or given a copy of the Prospectus (or such Prospectus
as amended or supplemented) at or prior to the written confirmation of the sale
of such Shares to such person and the untrue statement contained in or omission
from such preliminary prospectus was corrected in such Prospectus (or such
Prospectus as amended or supplemented) and the Company had previously furnished
copies thereof to such Underwriter. 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 first table and the second, fourth, fifth and
sixth paragraphs following the second table in the section of the Prospectus
entitled "Underwriting". The foregoing indemnity agreement shall be in addition
to any liability that the Company may otherwise have.
(b) Each Selling Stockholder agrees severally and not jointly to
indemnify, defend and hold harmless each Underwriter and each person, if any,
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 person controlling such Underwriter 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-21-
<PAGE> 22
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;
provided, however, that the liability of the Selling Stockholders pursuant
hereto shall not exceed an amount equal to the net proceeds received by the
Selling Stockholders for the sale of the Shares hereunder to the Underwriters.
(c) Each Underwriter agrees to indemnify, defend and hold harmless
each Selling Stockholder, the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company 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,
its directors, its officers who sign the Registration Statement or any person
controlling the Company 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
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 first table and the second, fourth, fifth and sixth paragraphs following
the second table in the section of the Prospectus entitled "Underwriting".
(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 all 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-22-
<PAGE> 23
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 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.
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 person who controls any Underwriter, or by or on behalf of the Company or
the Selling Stockholders
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-23-
<PAGE> 24
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 Stockholder
Shares Closing Date or the Option Shares Closing Date and the aggregate number
of Shares that such defaulting Underwriter or 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 Stockholder Shares Closing Date, this Agreement will not terminate as to
the Stockholder 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
-24-
<PAGE> 25
with a copy to: Jack A. Bjerke
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 East State Street, 18th Floor
Columbus, Ohio 43215
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, the Company and the
Selling Stockholders and their respective successors and legal representatives
and the controlling persons, officers and directors 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, officers
and directors referred to in Sections 7 and 8 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
-25-
<PAGE> 26
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, the Selling Stockholders and the Underwriters in accordance with
its terms.
Very truly yours,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By:
Name:
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.
J.C. BRADFORD & CO., L.L.C.
A.G. EDWARDS & SONS, INC.
As Representatives of
the Several Underwriters
JEFFERIES & COMPANY, INC.
By:
Name:
Title:
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
SIGNATURE PAGE
<PAGE> 27
<TABLE>
<CAPTION>
SCHEDULE I
NUMBER OF OPTION
TOTAL NUMBER OF STOCKHOLDER SHARES TO BE PURCHASED
UNDERWRITER SHARES TO BE PURCHASED IF MAXIMUM OPTION EXERCISED
- ------------------------------------------------------- ---------------------------- -----------------------------
<S> <C> <C>
Jefferies & Company, Inc.........................
J.C. Bradford & Co., L.L.C.......................
A.G. Edwards & Sons, Inc.........................
--------------- --------------
Total................................... 1,816,500 272,475
</TABLE>
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
SCHEDULE I
<PAGE> 28
<TABLE>
<CAPTION>
SCHEDULE II
TOTAL NUMBER OF
---------------
NAME STOCKHOLDER SHARES TO BE SOLD
---- -----------------------------
<S> <C>
Penske Racing, Inc............................... 700,000
Patrick Racing, Inc.............................. 400,000
Team Green, Inc.................................. 256,500
Derrick Walker Racing, Inc....................... 150,000
All American Racers, Inc......................... 100,000
Dale Coyne Racing, Inc........................... 80,000
Team Rahal, Inc.................................. 80,000
---------
Della Penna Motorsports, Inc..................... 50,000
=========
Total................................... 1,816,500
</TABLE>
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
SCHEDULE II
<PAGE> 29
<TABLE>
<CAPTION>
SCHEDULE III
JURISDICTION OF
---------------
NAME INCORPORATION/ORGANIZATION
---- --------------------------
<S> <C>
CART, Inc........................................... Michigan
CART Properties, Inc................................ Michigan
CART Licensed Products, Inc......................... Michigan
</TABLE>
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
SCHEDULE III
<PAGE> 30
ANNEX A
LOCK-UP AGREEMENT
May __, 1999
JEFFERIES & COMPANY, INC.
J.C. BRADFORD & CO., L.L.C.
A.G. EDWARDS & SONS, INC.
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard
Los Angeles, California 90025
Dear Sirs:
The undersigned understands that Jefferies & Company, Inc., J.C. Bradford
& Co., L.L.C. and A.G. Edwards & Sons, Inc., as Representatives of the several
underwriters (the "Underwriters"), have entered into an Underwriting Agreement
with Championship Auto Racing Teams, Inc. (the "Company"), providing for the
public offering (the "Public Offering") of the Company's common stock, par
value $0.01 per share (the "Common Stock"), pursuant to the Company's
Registration Statement on Form S-3 (Reg. No. 333-76091) (the "Registration
Statement").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned,
during the period commencing on the date of the Underwriting Agreement and
ending 180 days after the date of the final prospectus relating to the Public
Offering:
(i) agrees not to (x) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common
Stock (including, without limitation, shares of Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock which may
be deemed to be beneficially owned by the undersigned in accordance with
the rules and regulations of the Securities and Exchange Commission by
virtue of the undersigned's power to dispose, or direct the disposition
of, such shares or securities) or (y) enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether
any of the transactions described in clause (x) or (y) is to be settled by
the delivery of Common Stock, or such other securities, in cash or
otherwise), without the prior written consent of Jefferies & Company,
Inc., provided that the foregoing restrictions shall not apply to
intra-family transfers and transfers for estate planning purposes;
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX A - 1
<PAGE> 31
Jefferies & Company, Inc.
J.C. Bradford & Co., L.L.C.
A.G. Edwards & Sons, Inc.
May ___, 1999
Page 2
(ii) agrees not to make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common
Stock, without the prior written consent of Jefferies & Company, Inc.;
(iii) authorizes the Company to cause the transfer agent to decline to
transfer and/or to note stop transfer restrictions on the transfer books
and records of the Company with respect to any shares of Common Stock and
any securities convertible into or exercisable or exchangeable for Common
Stock for which the undersigned is the record holder and, in the case of
any such shares or securities for which the undersigned is the beneficial
but not the record holder by virtue of the undersigned's power to dispose,
or direct the disposition of, such shares or securities, agrees to use
reasonable efforts to cause the record holder to cause the transfer agent
to decline to transfer and/or to note stop transfer restrictions on such
books and records with respect to such shares or securities.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into the agreements set forth herein, and
that, upon request, the undersigned will execute any additional documents
necessary or desirable in connection with the enforcement hereof. All authority
herein conferred or agreed to be conferred shall survive the death or
incapacity of the undersigned and any obligations of the undersigned shall be
binding upon the heirs, personal representatives, successors, and assigns of
the undersigned.
Very truly yours,
____________________________
_______________________________
(Name - Please Type)
_________________________
_________________________
_________________________
(Address)
________________________
(Social Security No.)
Number of shares of Common Stock owned: ________________
Certificate Numbers: ________________
________________
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX A - 2
Number of shares of Common Stock issuable upon exercise of stock options:
_________
<PAGE> 32
ANNEX B
Form of Opinion of Counsel to the Company
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Company has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Underwriting Agreement.
(3) The Company is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(5) The authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus in the column entitled "Actual" under the caption
"Capitalization"; the shares of issued and outstanding capital stock have been
duly authorized and validly issued and are fully paid and non-assessable; and
none of the outstanding shares of capital stock of the Company was issued in
violation of the preemptive or to our knowledge other similar rights of any
securityholder of the Company.
(6) All offers and sales of the Company's capital stock prior to the date hereof
were made in compliance with or were the subject of an available exemption from
the registration provisions of the Act and any applicable state securities
laws, or any actions, in respect of any such offers or sales are effectively
barred by effective waivers or statutes of limitations.
(7) The Shares to be purchased by the Underwriters from the Company have been
duly authorized for issuance and sale to the Underwriters pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant
to the Underwriting Agreement against payment of the consideration set forth in
the Underwriting Agreement, will be validly issued and fully paid and
non-assessable and no holder of the Shares is or will be subject to personal
liability by reason of being such a holder.
(8) The issuance of the Shares is not subject to the preemptive or to our
knowledge other similar rights of any securityholder of the Company.
Each of the Corporate Subsidiaries has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; CLP is a limited
partnership
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX B - 1
<PAGE> 33
duly organized, validly existing and in good standing under the laws of the
State of Georgia, has the partnership power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign partnership to transact business
and is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; all of the issued and
outstanding capital stock of each of the Corporate Subsidiaries has been duly
authorized and validly issued, is fully paid and non-assessable and, to the
best of our knowledge, all outstanding shares of capital stock of the Corporate
Subsidiaries and the partnership interest in CLP are owned by the Company,
directly or indirectly through another Subsidiary, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity; none
of the outstanding shares of capital stock of any of the Subsidiaries was
issued in violation of the preemptive or to our knowledge similar rights of any
securityholder of such Subsidiary.
(9) The Underwriting Agreement has been duly authorized, executed and delivered
by the Company.
(10) The Registration Statement, including any Additional Registration
Statement, has been declared effective under the Act; any required filing of
the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge no
stop order suspending the effectiveness of the Registration Statement or any
Additional Registration Statement has been issued under the Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(11) The Registration Statement, including any Additional Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and the Prospectus as of their respective effective or issue dates
(other than the financial statements and supporting schedules and other
financial and statistical data included therein or omitted therefrom, as to
which we need express no opinion) complied as to form in all material respects
with the requirements of the Act and the Act Regulations.
(12) The form of certificate used to evidence the Common Stock complies in all
material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the New York Stock Exchange.
(13) To our knowledge, there is not pending or threatened any action, suit,
proceeding, inquiry or investigation, to which the Company or any Subsidiary is
a party, or to which the property of the Company or any subsidiary is subject,
before or brought by any court or governmental agency or body, domestic or
foreign, which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the transactions
contemplated by the Underwriting Agreement or the performance by the Company of
its obligations thereunder.
(14) The information in the Prospectus under "Description of Capital Stock --
Common Stock", "Description of Capital Stock -- Preferred Stock", "Business --
Franchise System and Race Teams", "Management--Limited Liability and
Indemnification of Directors" and in the Registration Statement under Item 14
and 15, to the extent that it constitutes matters of law, summaries of legal
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX B - 2
<PAGE> 34
matters, the Company's charter and bylaws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material respects.
(15) We have reviewed all agreements, contracts, indentures, leases or other
documents or instruments described in the Registration Statement and the
Prospectus under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Management," "Certain Relations and Related Transactions" and
"Shares Eligible for Future Sale" and such agreements, contracts, indentures,
leases or other documents or instruments are fairly summarized or described
therein in all material respects, and filed as exhibits to the Registration
Statement as required.
(16) To our knowledge, there are no statutes or regulations that are required
to be described in the Prospectus that are not described as required.
(17) To our knowledge, there are no franchises, contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(18) To our knowledge, neither the Company nor any Subsidiary is in violation
of its charter or by-laws and no default by the Company or any Subsidiary
exists in the due performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note lease or other agreement or instrument that is
described or referred to in the Registration Statement or the Prospectus or
filed or incorporated by reference as an exhibit to the Registration Statement.
(19) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority
or agency, domestic or foreign (other than under the Act and the Act
Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execute and delivery of the Underwriting Agreement or for the offering,
issuance, sale or delivery of the Shares.
(20) The execution, delivery and performance of the Underwriting Agreement and
the consummation of the transactions contemplated in the Underwriting Agreement
and the Registration Statement (including the issuance and sale of Shares, and
the use of the proceeds from the sale of the Shares as described in the
Prospectus under the caption "Use of Proceeds") and compliance by the Company
with its obligations under the Underwriting Agreement do not and will not,
whether with or without the giving of notice or lapse of time or both,
constitute a breach of, or default under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any Subsidiary pursuant to any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or any other agreement or
instrument, that is described or referred to in the Registration Statement or
filed or incorporated by reference as an Exhibit to the Registration Statement,
to which the Company or any subsidiary is a party or by which it or any of them
may be bound, or to which any of the property or assets of the Company or any
subsidiary is subject (except
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX B - 3
<PAGE> 35
for such breaches or defaults or liens, charges or encumbrances that would not
have a Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any Subsidiary,
or any applicable law, statute, rule, regulation, judgement, order, writ or
decree, know to us, of any government, government instrumentality or court,
domestic or foreign, having a jurisdiction over the Company or any Subsidiary
or any of their respective properties, assets or operations.
(21) The Company is not an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the 1940 Act.
(22) To our knowledge, no holders of securities of the Company have rights to
the registration thereof under the Registration Statement or, if any such
holders have such rights, such holders have waived such rights.
(23) The Rights under the Company's Shareholders Rights Plan to which holders
of the Shares will be entitled have been duly authorized and validly issued.
We have generally reviewed and discussed with your representatives and
with certain officers of, and independent public accountants for, the Company,
the information furnished, whether or not subject to our check and
verification. On the basis of such consideration, review and discussion,
nothing has come to our attention that has caused us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial and statistical data included or
incorporated by reference therein or omitted therefrom, as to which we need
make no statement), at the time such Registration Statement or any such
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto (except for financial statements and schedules
and other financial and statistical data included or incorporated by reference
therein or omitted therefrom, as to which we need make no statement), at the
time the Prospectus was issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely as to matters of fact
upon representations and warranties contained herein, and certificates of
officers of the Company, among other things, and may state that they express no
opinion as to the laws of any jurisdiction other than Ohio and federal law and
the General Corporation Law of the State of Delaware.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX B - 4
<PAGE> 36
ANNEX C
Form of Opinion of Counsel to the Selling Stockholders
(24) A Power of Attorney and a Custody Agreement have been duly executed and
delivered by each of the Selling Stockholders and constitute valid and binding
agreements of each such Selling Stockholder in accordance with their terms.
(25) The Underwriting Agreement has been duly executed and delivered by or on
behalf of each Selling Stockholder; the sale of the Shares to be sold by each
Selling Stockholder hereunder and the compliance by each Selling Stockholder
with all of the provisions of the Underwriting Agreement, the Power of Attorney
and the Custody Agreement and the consummation of the transactions therein
contemplated will not result in a breach or violation of any terms or
provisions of, or constitute a default under, any statute, indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known to such
counsel to which each such Selling Stockholder is a party or by which each 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 by-laws of such Selling Stockholder if such
Selling Stockholder is a corporation, the Partnership Agreement of such Selling
Stockholder if such Selling Stockholder is a partnership or any order, rule or
regulation known to such counsel of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder.
(26) No authorization, approval, consent or order of any court or governmental
agency is required to be obtained by any such Selling Stockholder for the sale
of the Shares by such Selling Stockholder to the Underwriters or for the
consummation by the Selling Stockholders of the transactions contemplated by
the Underwriting Agreement (other than the registration under the Act of such
shares, which has been obtained, or as may be required under the securities or
blue sky laws of the various states, as to which we need not express an
opinion).
(27) Immediately prior to such Time of Delivery, each Selling Stockholder had
good and valid title to the Shares to be sold at such Time of Delivery by such
Selling Stockholder under the Underwriting Agreement, to our knowledge after
due inquiry, free and clear of all liens, encumbrances, equities or claims, and
had full corporate or partnership right, power and authority to sell, assign,
transfer and deliver the Shares to be sold by such Selling Stockholder
thereunder.
(28) When delivered by the Selling Stockholder pursuant to the Underwriting
Agreement against payment of the consideration set forth therein, good and
valid title to such Shares, free and clear of all liens, encumbrances, equities
or claims, has been transferred to each of the several Underwriters who have
purchased such Shares in good faith and without notice of any such lien,
encumbrance, equity or claim or any other adverse claim within the meaning of
the Uniform Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon
a certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold
by such Selling Stockholder and with respect to each item of this opinion may
rely on opinions of counsel for the Selling Stockholders, provided that such
counsel
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX C - 1
<PAGE> 37
shall state that they believe that both you and they are justified in relying
upon such certificate and opinions.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX C - 2
<PAGE> 38
ANNEX D
Form of Comfort Letter
Pursuant to Section 6(j) 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 operations, 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 statements 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX D - 1
<PAGE> 39
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;
(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 operations, 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 operations 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
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX D - 2
<PAGE> 40
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,
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.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
UNDERWRITING AGREEMENT
ANNEX D - 3
<PAGE> 1
KEGLER, BROWN, HILL & RITTER
A LEGAL PROFESSIONAL ASSOCIATION
<TABLE>
<S> <C> <C> <C> <C>
DONALD A. ANTRIM RONALD L. MASON ATTORNEYS AND COUNSELORS AT LAW PAUL V. DANIELSON OF COUNSEL
JACK A. BJERKE LARRY J. McCLATCHEY CAPITOL SQUARE STEPHEN D. DUNSON
JOHN P. BRODY PAUL D. RITTER, JR. SUITE 1800 LORIANN E. FUHRER JOHN C. DEAL
WILLIAM J. BROWN O. JUDSON SCHEAF, III 65 EAST STATE STREET GREG R. GRABOVAC JAMES R. ELEY
STEPHEN E. CHAPPELEAR RICHARD W. SCHUERMANN, JR. COLUMBUS, OHIO 43215-4294 LAURA L. GRIBBIN JOHN L. GRAY
ROBERT G. COHEN ROBERT G. SCHULER TELEPHONE: (614) 462-5400 ERIKA L. HAUPT THOMAS D. KITCH
LAWRENCE F. FEHELEY AMY M. SHEPHERD FACSIMILE: (614) 464-2634 TODD M. KEGLER ROBERT D. MAROTTA
DONALD W. GREGORY S. MARTIJN STEGER WWW.KBHR.COM LYNDA G. LOOMIS TED M. MCKINNISS*
ALLEN L. HANDLAN ROGER P. SUGARMAN ---------- JOHN LOWE IV S. NOEL MELVIN
EDWARD C. HERTENSTEIN KEVIN L. SYKES DAVID M. McCARTY S. MICHAEL MILLER
PAUL R. HESS JOHN R. THOMAS THOMAS M. L. METZGER JOSEPH M. MILLIOUS
THOMAS W. HILL TIMOTHY T. TULLIS PATRICK M. O'NEILL LEIGH A. REARDON
DANIEL G. HILSON MELVIN D. WEINSTEIN MARK R. REITZ GEOFFREY STERN
GENE W. HOLLIKER R. DOUGLAS WRIGHTSEL BRAD A. SPRAYBERRY ----------
CHARLES J. KEGLER MICHAEL E. ZATEZALO T. A. WARD II
R. KEVIN KERNS CHRISTOPHER J. WEBER JOHN B. TINGLEY
ANTHONY C. WHITE - RETIRED
NICHOLAS E. WILKES CHALMERS P. WYLIE
SHAWNELL WILLIAMS 1920-1998
ASHLEY L. WILSON ----------
*RESIDENT IN
MARION OFFICE
</TABLE>
April 28, 1999
Championship Auto Racing Teams, Inc.
755 West Big Beaver Road
Suite 800
Troy, MI 48084
Dear Sirs:
In connection with the registration of 2,088,975 shares of common
stock, par value $.01 per share (the "Common Stock") of Championship Auto Racing
Teams, Inc., a Delaware corporation (the "Company") with the Securities and
Exchange Commission on a registration statement on Form S-3 (the "Registration
Statement"), relating to the sale of up to 1,816,500 shares of Common Stock by
the selling stockholders and up to 272,475 shares of Common Stock by the Company
pursuant to the over-allotment option granted to the underwriters, we have
examined such documents, records and matters of law as we have considered
relevant. Based upon such examination, it is our opinion that the shares of
Common Stock that have been registered and will be sold on behalf of the selling
stockholders have been validly issued, are fully paid and non-assessable.
Further, it is our opinion that the shares of Common Stock that may be issued by
the Company pursuant to the Registration Statement, when issued and paid for in
accordance with the Registration Statement and pursuant to the terms of the
underwriting agreement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
and the prospectus forming a part of the Registration Statement.
Very truly yours,
KEGLER, BROWN, HILL & RITTER CO., L.P.A.
By: /s/ Amy M. Shepherd
----------------------------------
Amy M. Shepherd, Vice President
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of Championship Auto Racing Teams,
Inc. Troy, Michigan.
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-76091 of Championship Auto Racing Teams, Inc. (the "Company") on Form S-3
of our report dated February 5, 1999, appearing in the Prospectus, which is a
part of this Registration Statement, and to the references to us under the
headings "Summary Consolidated Financial Data," "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
Championship Auto Racing Teams, Inc., listed in Item 16. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Detroit, Michigan
April 26, 1999
