The following selected consolidated financial data, as of and for the five
years ended December 31, 2002, are derived from our audited consolidated
financial statements. The selected consolidated financial data below should be
read in combination with our consolidated financial statements and related notes
contained elsewhere in this document and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Revenues:
Sanction fees $36,607 $47,226 $38,902 $35,689 $30,444
Sponsorship revenue 10,150 12,314 21,063 19,150 16,388
Television revenue 4,538 5,228 5,501 5,018 5,148
Race promotion revenue 1,417 -- -- -- --
Engine leases, rebuilds and wheel sales -- 1,286 2,122 2,054 2,214
Other revenue 4,533 4,209 7,460 6,865 8,336
------- ------- ------- ------- -------
Total revenues 57,245 70,263 75,048 68,776 62,530
Expenses:
Race distributions (1) 19,797 18,599 15,370 15,334 15,183
Race expenses 10,823 10,618 9,869 6,670 4,818
Race promotion expense 9,687 -- -- -- --
Costs of engine rebuilds and wheel sales -- 348 652 610 633
Television expense 10,975 -- -- -- --
Administrative and indirect expenses (2) 27,756 35,605 25,275 20,646 20,658
Bad debt-sponsorship partner (3) -- -- 6,320 -- --
Litigation expenses (4) -- 3,547 -- -- --
Relocation Expense 1,422 -- -- -- --
Asset impairment and strategic charges (5) -- 8,548 -- -- --
Depreciation and amortization 1,436 1,493 1,352 1,048 779
------- ------- ------- ------- --------
Total expenses 81,896 78,758 58,838 44,308 42,071
------ ------ ------ ------ ------
Operating income (loss) (24,651) (8,495) 16,210 24,468 20,459
Realized gain (loss) on sale of investments 26 -- -- -- --
Interest income (net) 3,762 7,033 7,463 5,255 3,198
------- ------- ------- ------- -------
Income (loss) before income taxes (20,863) (1,462) 23,673 29,723 23,657
Income tax expense (benefit) (7,302) 512 (8,520) (10,865) (8,568)
------- -------- ------- ------- -------
Net income (loss) before effect of accounting change $(13,561) $ (950) $15,153 $18,858 $15,089
======== ======== ======= ======= =======
Cumulative effect of accounting change $ (956) $ -- $ -- $ -- $ --
Net income (loss) after effect of accounting change $(14,517) $ (950) $15,153 $18,858 $15,089
======== ======== ======= ======= =======
Earnings (loss) per share before cumulative effect of
accounting change:
Basic $ (0.92) $ (0.06) $ 0.97 $ 1.22 $ 1.06
======== ======== ======= ======= =======
Diluted $ (0.92) $ (0.06) $ 0.97 $ 1.22 $ 1.06
======== ======== ======= ======= =======
Net earnings (loss) per share:
Basic $ (0.99) $ (0.06) $ 0.97 $ 1.22 $ 1.06
======== ======== ======= ======= =======
Diluted $ (0.99) $ (0.06) $ 0.97 $ 1.19 $ 1.05
======== ======== ======= ======= =======
Weighted average shares outstanding:
Basic 14,718 15,289 15,624 15,427 14,190
======== ======== ======= ======= =======
Diluted 14,738 15,289 15,657 15,908 14,421
======== ======== ======= ======= =======
16
AS OF DECEMBER 31,
------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Cash and cash equivalents $ 6,773 $27,765 $19,504 $7,216 $15,080
Short-term investments 79,489 87,621 98,206 91,758 61,610
Working capital (deficit) 92,288 111,604 119,953 99,480 72,219
Total assets 114,451 132,941 144,101 124,887 97,186
Long-term debt (including
current portion) -- -- -- -- 314
Total stockholders' equity $103,018 $117,936 $133,894 $114,330 $86,219
(1) Distributions for the year ended December 31, 2001 and December 31, 2002
include reimbursement of overseas travel expenses to race teams.
(2) Administrative and indirect expenses for the years ended December 31, 2001
and 2000 include severance payments to former employees of $4,329 and
$2,758, respectively.
(3) Bad debt expense relates to a charge associated with our sponsorship
agreement with ISL Marketing AG. You should read "Management's Discussion
and Analysis of Financial Condition and Results of Operations," for a
discussion of this bad debt expense.
(4) Litigation expense relates to the settlement with Texas Motor Speedway
("TMS") for the postponement of a race at TMS during 2001.
(5) Asset impairment and strategic charges relates to the discontinuance of
operations of the Dayton Indy Lights Championship effective at the
conclusion of the 2001 race season.
17
ITEM 7: 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 contained in this report as well as Item
6, "Selected Consolidated Financial Data."
DISCONTINUANCE OF INDY LIGHTS
The financial results below include the operations of American Racing
Series ("ARS") which operated the Indy Lights Championship series. At the end of
the 2001 season, we discontinued the operations of ARS and the Indy Lights
Championship series. (See Footnote 9 to our consolidated financial statements
included in Item 15 of this report.) All revenues and expenses related to the
Indy Lights Championship series ceased for 2002 and beyond.
GENERAL
Below are selected income and expense items for the years ended December
31, 2002, 2001 and 2000. The percentage calculations are based on total
revenues.
The following discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
18
Significant accounting estimates include accounting for allowance for
doubtful accounts for trade accounts receivable, impairment of fixed assets and
goodwill, income taxes and certain accrued liabilities.
We believe that the estimates, assumptions and judgments involved in the
accounting policies described below will not have a material impact on our
financial statements. These areas are subject to the risks and uncertainties we
describe in this report. Actual results, therefore, could differ from those
estimated.
Revenue Recognition
One of our most critical accounting policies is revenue recognition. We
recognize our revenues as they are earned, but the determination of when they
are earned depends on the source of the revenue. Our policy for each revenue
source is outlined below.
SANCTION FEE REVENUE. Generally, sanction fees are paid in advance of the
race and are recorded as deferred revenue. Revenue from sanction fees is not
recognized until the event is completed. In 2002, we entered into agreements
with certain promoters where all or or a portion of the contracted sanction fee
was reduced in exchange for a percentage of the profits from the event. The
sanction fee received and our share of any profits from these events is
recognized as sanction fee revenue when the event is completed.
SPONSORSHIP REVENUE. Generally, sponsorship agreements call for quarterly
payments, and each payment is recorded as deferred revenue when paid. Revenue is
recorded ratably over the life of the sponsorship agreement.
ENGINE LEASE, REBUILDS AND WHEEL SALES. Engine lease revenue, relating to
our discontinued Indy Lights series, was recognized ratably over the period
covered by the agreement. Engine rebuilds and wheel sales were recognized when
the product was delivered to the customer.
In 2003, we purchased the engines that will be used for the 2003 and 2004
Champ Car World Series race season. Each team is required to use these engines
in order to compete in the series. We will lease the engines to the teams for
$100,000 per car per year. The revenue will be realized ratably over the life of
the agreement.
TELEVISION REVENUE. We receive television revenue in the form of rights
fees and advertising sales. Revenue is not recognized until earned which is when
the show airs. Television revenue arising from minimum guarantees and rights
fees is recognized ratably over the race schedule. Advertising sales relate to
specific shows and is recognized when the show and advertisements air. Payments
related to television revenue that are received prior to when earned are
recorded as deferred revenue until earned.
RACE PROMOTION REVENUE. Consists of all commercial rights such as ticket
sales, event sponsorship, hospitality and all other revenues related to
promoting an event. Payments received prior to the event are recorded as
deferred revenue. Revenue is recorded when the event is completed.
OTHER REVENUES. Other revenues include membership and entry fees,
contingency awards money, royalty income and other miscellaneous revenues.
Membership and entry fees and contingency award money are recognized ratably
over the race schedule. Royalty income is recognized as the related product
sales occur or on a monthly basis based on a minimum guarantee.
Expense recognition
RACE PROMOTION EXPENSES. General and administrative expenses related to
races we promote are recognized when incurred. Expenses directly related to the
event are recognized when the event occurs. Any losses are recognized when
known.
19
Impairment
We adopted FASB Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Intangible Assets," effective January 1, 2002. The statement
requires companies to stop amortizing goodwill and certain intangible assets
with an indefinite useful life. The statement also requires that we test our
goodwill and intangible assets for impairment upon adoption of the statement and
periodically thereafter. Our goodwill was associated with our acquisitions of
Pro-Motion Agency, Inc. and CART Licensed Products, LP, on April 10, 1998 and
January 1, 1999, respectively. Upon adoption of the statement, we recorded a
one-time, non-cash charge of $1.5 million, or $956,000 net of tax benefit of
$514,000, to write-off the value of the goodwill. The write-off of goodwill
results from the use of discounted cash flows in assessment of fair value for
each reporting unit as required by SFAS No. 142. Under SFAS No. 142, goodwill
impairment is deemed to exist if the carrying value of a reporting unit exceeds
its estimated fair value.
During 2001, we determined that the goodwill and certain long-lived assets
associated with ARS were impaired due to our strategic decision to discontinue
the operations of ARS at the conclusion of the 2001 season. As a result, we
recorded an impairment charge for the goodwill and long-lived assets.
Litigation
We are involved in litigation as a part of our normal course of business
(refer to Item 3: Legal Proceedings). Management's intention is to vigorously
defend ourselves against any litigation. When a complaint is filed by or against
the Company, we disclose the complaint in our financial statements. When a claim
against us is probable and estimable, we record the expense. When we are the
party filing the claim, we do not record income until a settlement for the claim
for damages is received.
REVENUES
We derive revenues primarily from (i) sanction fees, (ii) sponsorship,
(iii) television rights and (iv) race promotion. Following is an explanation of
our individual revenue items:
SANCTION FEES. We receive sanction fees from the promoters of our races
(other than races we promote). The fees are based on contracts between the
promoters and CART. We have entered into agreements with certain promoters of
the Champ Car World Series for a reduction in the previously contracted sanction
fees. In return, we will receive a share of the net income from the event. The
agreements provide for us to receive a majority of any net income from the event
until the reduction of the original sanction fee is recouped, and then we will
share equally with the promoter any remaining net income which will also be
included in sanction fees. Therefore, there is less visibility and less
predictability for CART's earnings than in the previous financial model as
CART's revenues will be affected by the success of these races.
SPONSORSHIP REVENUE. We receive corporate sponsorship revenue based on
negotiated contracts. For 2003, we anticipate having corporate sponsorship
contracts with 13 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.
Beginning in 2003, we have developed an Entrant Support Program. The new
program is part of an enhanced incentive program we developed with our teams,
whereby we will provide financial support to new and existing teams to run in
the Champ Car World Series and, in exchange, each team will provide logo space
on its cars for Champ Car-designated sponsors to advertise. Sponsorship fees
paid by these corporate sponsors will be retained by us to offset the financial
support we are providing to the teams. The program will combine a number of
20
sponsorship opportunities in one package, which we believe will be attractive to
sponsors. The program will combine Champ Car World Series event and team
sponsorship opportunities, along with advertising in television and print media.
TELEVISION REVENUE. In 2001, our television revenue was derived from
negotiated contracts with:
- ESPN
- ESPN International
- Fittipaldi USA (Brazil)
- Gold Coast Motor Events Co. (Australia)
- Molstar (Canada)
A guaranteed rights fee was paid to us by each broadcast partner. Based on
our contract with ESPN/ESPN International, we received an escalating minimum
guarantee or 50% of the net profits received by ESPN if they exceeded the
minimum guarantee, for distribution of the race programs. Our television
agreement with ESPN and ESPN International expired December 31, 2001.
In 2002, we had contracts for domestic television rights with:
- Fox
- Speed Channel
- CBS
We had seven races broadcast on CBS, one race broadcast on FOX and the
balance of the races were broadcast on Speed Channel. We bought the air-time and
paid for production (See "Television Expenses") for the CBS and Fox races and
received the advertising inventory. We, along with our agents, were responsible
for selling the advertising time. Speed Channel produced and provided the air
time, at their cost, for races to be broadcast on their network. In addition,
Speed Channel aired Champ Car practice and qualifying, a half-hour pre-race show
and a weekly magazine show. Speed Channel retained the advertising inventory and
income for all shows aired on their network.
In 2002, International television rights were with:
- Fittipaldi USA (Brazil)
- Gold Coast Motor Events Co. (Australia)
- Molstar (Canada)
- Promotion Entertainment of Mexico LLC (Mexico)
- Sports Television Incorporated (Japan)
- Octagon CSI
A rights fee was paid to us by each international broadcast partner for
rights to air the CART race either live, time-delayed or as a highlight package,
in the country where they held our rights.
In 2003, we have contracts for our domestic television rights with CBS and
Speed Channel. We plan to broadcast six races on CBS and the balance on Speed
Channel. We will buy the air-time and pay for production for the CBS races.
Speed Channel will provide the air-time for the races aired on their network,
including Champ Car practice and qualifying and a half-hour pre-race show. We
will pay for production for the races to be broadcast on their network. We will
receive the advertising inventory for all shows aired on both networks and we
will be responsible for selling the advertising.
In 2003, International television rights are with:
21
- Fittipaldi USA (Brazil)
- Gold Coast Motor Events Co. (Australia)
- Molstar (Canada)
- Promotion Entertainment of Mexico LLC (Mexico)
- Octagon CSI (all others)
A rights fee will be paid to us by each international broadcast partner for
rights to air the Champ Car race either live, time-delayed or as a highlight
package, in the country where they hold our rights.
RACE PROMOTION REVENUE. In 2002, we promoted the races in Chicago, Illinois
and Miami, Florida. In 2003, we anticipate promoting six of our races. Race
promotion revenue includes all the commercial rights associated with promoting a
Champ Car event, such as admissions, event sponsorship and hospitality sales. We
intend to partner with experienced race promoters to promote these events and we
will be responsible for selling all of the commercial rights of the event.
ENGINE LEASES, REBUILDS AND WHEEL SALES. ARS, which operated the Indy
Lights series, owned the engines that were used in the series and leased the
engines to the competitors for the season. The teams paid us a fee to rebuild
the engines. We also sold the wheels used on the race cars. Based on the rules
of the series, all teams were required to use our engines and wheels. We
discontinued the operations of the Indy Lights series at the conclusion of the
2001 race season.
In 2003, we purchased the engines that will be used for the 2003 and 2004
Champ Car World Series race season. Each team is required to use these engines
in order to compete in the series. We will lease the engines to the teams for
$100,000 per car per year.
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 Toyota
Atlantics 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 receive royalty revenue for the use of the
CART service marks 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.
EXPENSES
Our expenses are incurred primarily in, (i) distributions to our race
teams: prize money, participation payments and team assistance, (ii) race
operations: expenses directly related to sanctioning the events (iii) race
promotion: expenses related to races we promote (iv) television: expenses
directly related to buying air time and production of our domestic and
international television programming and (v) administrative and indirect:
expenses related to administration, marketing, sales and public relations.
Following is an explanation of the individual expense line items:
RACE DISTRIBUTIONS. We pay the racing teams for their on-track performance.
Race distributions include the following for each event:
- event purse which is paid based on finishing position
- contingency award payments
- year-end point fund, which is paid on year end finishing position
- participation payments
- entrant support payments
- team assistance
We pay awards to the teams, based on their cumulative performance for the
season, out of the year-end point fund. Participation payments will be made in
2003 to each of our entries (to a
22
maximum of 20 cars) on a per car, per race basis. In addition, entrant support
payments will be made to participating teams as part of a financial incentive
plan to attract and retain teams to compete in our series. The payments will be
made to teams in exchange for logo advertising space on their cars. We will have
the opportunity to sell and retain the revenue from the advertising. Beginning
in 2003, we will provide assistance to certain teams to ensure that there are a
sufficient number of race cars competing in our series. We will spend up to
$30.0 million in team assistance, spread out over the race season, to make sure
there are a sufficient number of healthy competitors for the 2003 season. In
exchange for the team assistance we receive certain sponsorship rights from the
team.
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:
- medical services
- race administration
- race officiating and rules compliance
- registration
- safety
- technical inspection
- timing and scoring
RACE PROMOTION EXPENSES. In 2002, we co-promoted two races. In 2003, we
plan to promote six of our own events. Race promotion expenses relate to all
costs associated with staging a Champ Car event include track rental, personnel
costs and promotion of the event.
COST OF ENGINE REBUILDS AND WHEEL SALES. These costs were associated with
rebuilding the engines and the cost of the wheels used in the Indy Lights
series, which we discontinued at the conclusion of the 2001 race season.
TELEVISION EXPENSES. In 2002, we bought the air time at approximately
$235,000 per hour and paid approximately $3.4 million for production for our CBS
and FOX races. We also incurred expenses for our international production of
$2.3 million. For domestic television rights with respect to the CBS and FOX
broadcasts, we received the advertising inventory which we and our agents sold,
to partially offset these expenses. We also received a guaranteed rights fee
from our international broadcast partners to partially offset these costs. (See
"Television Revenue")
In 2003, we will again buy the air time at approximately $240,000 per hour
for our CBS races. Speed Channel will provide the air time for the races aired
on their network, including Champ Car practice and qualifying and a half-hour
pre-race show. We will pay for production costs associated with the races to be
broadcast on their network. We will also incur expenses for our international
production for all of our races.
ADMINISTRATIVE AND INDIRECT EXPENSES. Administrative and indirect expenses
include all operating costs not directly incurred for a specific event:
- administration
- marketing and advertising
- sponsorship sales and service
- public relations
RESULTS OF OPERATIONS
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
REVENUES. Total revenues for 2002 were $57.2 million, a decrease of $13.0
million, or 18%, from 2001. This was due to a decrease in sanction fee revenues,
sponsorship revenue,
23
television revenue and engine leases, rebuilds and wheel sales, partially offset
by race promotion revenue and other revenue as described below.
Sanction fees for 2002 were $36.6 million, a decrease of $10.6 million, or
22%, from 2001. The decrease was partially due to a decrease in the number of
races for which we received a sanction fee, in 2001, we staged 20 races and
received a sanction fee from each, compared to 2002 when we received a sanction
fee with respect to 17 races. In 2002, we promoted the race in Chicago and the
race in Miami and did not receive sanction fees for these events; the results
for these events are reported in race promotion revenue and race promotion
expense. In 2001, we also received sanction fees from races in Nazareth, PA,
Brooklyn, MI, Detroit, MI, Houston, TX and Lausitz, Germany. We did not race at
those venues in 2002 and therefore did not receive sanction fees. This was
partially offset in 2002 with new races in Denver, CO, Montreal, Canada and
Mexico City, Mexico for which we received sanction fees. In 2002, we also
entered into amended agreements with certain promoters pursuant to which we
reduced the originally contracted sanction fee in exchange for a percentage of
profits from the event. The sanction fees and/or percentage of profits we
received were less than the sanction fees received in the previous year at the
races in Corby, England, Elkhart Lake, WI, Portland, OR and Cleveland, OH.
Sponsorship revenue for 2002 was $10.2 million, a decrease of $2.2 million,
or 18%, from 2001. This decrease was primarily attributable to the loss of
sponsorship income from the Indy Lights series which we discontinued at the end
of the 2001 race season, as well as a reduction in sponsorship fees from one of
our sponsors, pursuant to a renegotiation clause in the applicable sponsorship
contract.
Television revenue for 2002 was $4.5 million, a decrease of $690,000, or
13%, from 2001. The decrease was due to a change in our television agreements
from the previous year. In 2001, we received a guaranteed rights fee for both
our domestic and international television rights. In 2002, we purchased the
air-time, and we received the advertising revenue for our races broadcast on
network television. We also received rights fees for the international
broadcasts of all of our races. The advertising revenue and rights fees received
in 2002 were less than the guaranteed rights fee received in 2001. The
corresponding expenses are reported below in television expenses.
Race promotion revenue for 2002 was $1.4 million, with no corresponding
amount in 2001. The revenue was due to our promotion of the Chicago race which
was our first self-promoted race.
There were no engine leases, rebuilds and wheel sales for 2002, a decrease
of $1.3 million from the same period in the prior year. This decrease was due to
the discontinuance of the Indy Lights Championship.
Other revenue for 2002 was $4.5 million, an increase of $324,000, or 8%,
from 2001. Other revenue includes membership and entry fees, contingency awards
money, royalty income, commission on parts sales and other miscellaneous
revenue. The increase was primarily due to an insurance settlement reimbursement
of $500,000. The increase was partially offset by decreased membership and entry
fees, and a decrease in award banquet revenue.
EXPENSES. Total expenses for 2002 were $81.9 million, an increase of $3.1
million, or 4%, from 2001. This increase was due to higher race distributions,
race expenses, television expenses, race promotion expenses and relocation
expense, partially offset by a reduction in depreciation and amortization, cost
of engine rebuilds and wheel sales and administrative and indirect expenses,
litigation and asset impairment and strategic charges as described below.
Race distributions for 2002 were $19.8 million, an increase of $1.2,
million or 6%, from 2001. The increase was primarily due to a $10,000 per race
participation payment that we made to all of our teams beginning in 2002. In
addition, during 2002 we have provided $2.0 million in assistance to certain
teams in order to ensure their necessary participation in our series. The
increase was also due to an increase in the purse and year-end points fund for
the Toyota Atlantics Series. The increase was partially offset by travel
payments made to teams in 2001 for European
24
travel that were not made in 2002 and a decrease in Champ Car and Indy Lights
purse payments due to holding one less Champ Car race in 2002 and discontinuing
the Indy Lights Championship at the conclusion of the 2001 race season.
Race expenses for 2002 were $10.8 million, an increase of $205,000, or 2%,
from 2001. This increase is primarily due to freight expenses related to the
race in Rockingham, England. In 2001, the freight expenses related to
transporting the cars and equipment to Europe were paid by the promoters. In an
amendment to the original agreement for the Rockingham race, CART agreed to pay
these freight charges. The increase is also due to increased salaries, fees and
travel expenses in regards to the competition and safety departments. The
increase was partially offset by the discontinuance of the Indy Lights
Championship.
Race promotion expenses for 2002 were $9.7 million, with no corresponding
amount in 2001. The expense was due to our promotion of the Chicago and Miami
races.
There was no cost of engine rebuilds and wheel sales for 2002, a decrease
of $348,000 from the same period in the prior year. This decrease was due to the
discontinuance of the Indy Lights Championship.
Television expense for 2002 was $11.0 million with no corresponding expense
in the prior period. The increase was due to a change in our television
agreements from the previous year. In 2001, we received a guaranteed rights fee
for both our domestic and international television rights with no corresponding
expense. In 2002, we bought the air-time and paid for production expenses for
our network races. In addition, we incurred expenses to provide an international
feed for all of our races.
Administrative and indirect expenses for 2002 were $27.8 million, a
decrease of $7.8 million, or 22%, from 2001. This decrease was primarily
attributable to a decrease in severance expense, marketing and advertising,
professional fees for strategic planning, TV consulting and employee recruitment
and the discontinuance of the Indy Lights Championship, partially offset by an
increase in bad debt expense, legal fees, public relations and the advance
program. Our new advance program team visits selected race venues prior to the
event weekend and invites local media and corporate guests to participate in
activities at the track in order to generate excitement in the market prior to
the event.
Litigation expense for 2001 was $3.5 million. There was no corresponding
expense from the current year. The charge was a result of a settlement with the
Texas Motor Speedway for the cancellation of a race that was to be held in April
2001.
Relocation expenses for 2002 were $1.4 million with no corresponding
expense in the prior year. This expense relates to our headquarters moving from
Troy, Michigan to Indianapolis, Indiana.
Asset impairment and strategic charges for 2001 were $8.5 million. There
was no corresponding expense in the current year. These charges related to the
formal exit plan for the discontinuance of the Indy Lights series. The charges
related to the impairment of goodwill ($5.6 million) and property and equipment
($2.0 million) and $885,000 relating to provisions for doubtful accounts,
severance payments and other settlement charges.
Depreciation and amortization for 2002 was $1.4 million, compared to
depreciation and amortization of $1.5 million for 2001.
OPERATING LOSS. Operating loss for 2002 was $24.7 million, compared to
operating loss of $8.5 million for 2001 due to the items discussed above.
25
INTEREST INCOME (NET). Interest income (net) for 2002 was $3.8 million,
compared to interest income (net) of $7.0 million for 2001. The decrease of $3.2
million was primarily attributable to a decrease in interest rates and available
cash balances.
LOSS BEFORE INCOME TAXES. Loss before income taxes for 2002 was $20.9
million, compared to a loss before income taxes of $1.5 million for 2001 due to
the items discussed above.
INCOME TAX BENEFIT. Income tax benefit for 2002 was $7.3 million, compared
to an income tax benefit of $512,000 in 2001. The effective tax rate for 2002 of
35% was comparable to that in 2001 of 35%.
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Loss before cumulative
effect of accounting change for 2002 was $13.6 million compared to net loss
before cumulative effect of accounting change of $950,000 for the same period in
the prior year.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Cumulative effect of accounting
change for 2002 was $1.5 million, or $956,000 net of tax benefit of $514,000.
There was no corresponding amount in the same period in the prior year. The
amount relates to our implementation of Statement of Financial Accounting
Standard No. 142 pursuant to which we wrote off our impaired goodwill.
NET LOSS. Net loss for 2002 was $14.5 million, compared to a net loss of
$950,000 in 2001 due to the items discussed above.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
REVENUES. Total revenues for 2001 were $70.3 million, a decrease of $4.8
million, or 6%, from 2000. This was due to a decrease in sponsorship revenue,
television revenue, engine leases, rebuilds and wheel sales and other revenue,
partially offset by an increase in sanction fees as described below.
Sanction fees for 2001 were $47.2 million, an increase of $8.3 million, or
21% from 2000. This increase was due to higher sanction fees from three new
races held in 2001, Monterrey, Mexico; Lausitz, Germany and Corby, England,
compared to the races they replaced in Rio de Janeiro, Brazil, St. Louis,
Missouri, and Miami, Florida. The increase was also attributable to annual
sanction fee escalations.
Sponsorship revenue for 2001 was $12.3 million, a decrease of $8.7 million,
or 42%, from 2000. This decrease was primarily attributable to the loss of
guaranteed income from our former sponsor partner. The decrease was also
partially due to a $1.0 million reduction in sponsorship fees from one of our
sponsors, pursuant to a renegotiation clause in the applicable sponsorship
contract.
Television revenue for 2001 was $5.2 million, a decrease of $273,000, or
5%, from 2000. The decrease was due primarily to advertising revenue from our TV
Magazine show "Inside CART" received in 2000. The show did not air in 2001.
Engine leases, rebuilds and wheel sales for 2001 was $1.3 million, a
decrease of $836,000, or 39%, from 2000. This decrease was due to having fewer
Indy Lights entries in 2001 when compared to the prior year.
Other revenue for 2001 was $4.2 million, a decrease of $3.3 million, or
44%, from 2000. The decrease was partially attributable to a decrease in royalty
revenues and sales from licensed merchandise of $210,000 and a decrease in entry
fees and related income from our two support series of $315,000 due to fewer
entries. In addition, the decrease was partially attributable to certain
non-recurring revenue received in 2000 that was not received in the
corresponding period in 2001. The non-recurring revenue was from an insurance
settlement of $1.4 million (net of
26
expenses) received from Frontier Insurance Company related to settlement of
litigation concerning a performance bond that was provided with respect to the
Hawaiian Super Prix, pace car revenues of $539,000, movie rights fees of
$200,000, team testing revenue of $143,000 and other miscellaneous income.
EXPENSES. Total expenses for 2001 were $78.8 million, an increase of $19.9
million, or 34%, from 2000. This increase was due to higher race distributions,
race expenses, administrative and indirect expenses, litigation expenses, asset
impairment and strategic charges and depreciation and amortization, partially
offset by a reduction in cost of engine rebuilds and wheel sales and bad debt
expense as described below.
Race distributions for 2001 were $18.6 million, an increase of $3.2 million
or 21%, from 2000. This increase is due to distributions related to travel
reimbursements to teams for overseas travel. These payments were not made in
2000.
Race expenses for 2001 were $10.6 million, an increase of $749,000, or 8%,
from 2000. This increase is primarily due to added personnel, travel and
operating expenses in our race departments.
Cost of engine rebuilds and wheel sales were $348,000, a decrease of
$304,000, or 47%, from 2000. This decrease is due to decreased Indy Lights
entrants in 2001, as described above.
Administrative and indirect expenses for 2001 were $35.6 million, an
increase of $10.3 million, or 41% from 2000. This increase was partially
attributable to $4.3 million in severance payments to former employees,
including our President/CEO, television feed expenses for Germany and England
and expenses related to our live Eurosport broadcast of $1.3 million, a $500,000
charitable contribution to the September 11th relief funds and an increased
investment in strategic planning, personnel and marketing and advertising that
are focused on building our strategic plan and branding awareness.
Bad debt-sponsorship partner was not incurred in 2001, compared to $6.3
million incurred in 2000. The expense resulted from the uncertainty of
collectability of guaranteed minimum sponsorship revenues from ISL Marketing AG
(ISL) for 2000. In 1998, ISL signed a nine (9) year contract to become our
exclusive marketing agent for solicitation of sponsorship agreements. The
contract guaranteed a minimum amount of sponsorship revenue for each year of the
agreement. Following discussions with ISL, we determined that ISL did not intend
to fulfill its commitment with respect to the remaining years of the agreement
under its original terms and collectability of the guarantee for 2000 was
uncertain. In June 2001, ISL declared bankruptcy in Switzerland.
Asset impairment and strategic charges for 2001 were $8.5 million. There
was no corresponding expense in the prior year. These charges related to the
formal exit plan for the discontinuance of the Indy Lights series. The charges
related to the impairment of goodwill ($5.6 million) and property and equipment
($2.0 million) and $885,000 relating to provisions for doubtful accounts,
severance payments and other settlement charges.
Litigation expense for 2001 was $3.5 million. There was no corresponding
expense from the prior year. The charge was a result of a settlement with the
Texas Motor Speedway for the cancellation of a race that was to be held in April
2001.
Depreciation and amortization for 2001 (exclusive of the impairment of
goodwill and write-down of property and equipment in connection with Indy
Lights) was $1.5 million, compared to depreciation and amortization of $1.4
million for 2000.
OPERATING LOSS. Operating loss for 2001 was $8.5 million, compared to
operating income of $16.2 million for 2000 due to the items discussed above.
27
INTEREST INCOME (NET). Interest income (net) for 2001 was $7.0 million,
compared to interest income (net) of $7.5 million for 2000. The decrease of
$430,000 was primarily attributable to a decrease in interest rates.
LOSS BEFORE INCOME TAXES. Loss before income taxes for 2001 was $1.5
million, compared to income before income taxes of $23.7 million for 2000 due to
the items discussed above.
INCOME TAX BENEFIT. Income tax benefit for 2001 was $512,000, compared to
income tax expense of $8.5 million in 2000. The effective tax rate for 2001 of
35% was comparable to that in 2000 of 36%.
NET LOSS. Net loss for 2001 was $950,000, compared to net income of $15.2
million in 2000 due to the items discussed 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. 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. We have provided unaudited quarterly revenues for each of the
four quarters of 2002 and 2001 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 report 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 report.
QUARTER ENDED
-------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- --------- -------
(DOLLARS IN THOUSANDS)
Total revenues
2002 $ 5,603 $ 19,292 $ 18,537 $ 13,813
2001 $ 6,439 $ 19,785 $ 29,559 $ 14,480
Number of races
2002 1 6 8 4
2001 1 6 9 4
LIQUIDITY AND CAPITAL RESOURCES
We have relied on our cash reserves generated in previous years to finance
working capital, investments and capital expenditures during the past year. We
anticipate that in 2003, we will use available funds to fund certain
expenditures that are planned for the year 2003 as discussed below. We believe
that existing cash, cash flow from operations and available bank borrowings will
be sufficient for capital expenditures and other cash needs.
We have a $1.5 million revolving line of credit with a commercial bank. As
of December 31, 2002, 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.
Our cash balance on December 31, 2002 was $6.8 million, a net decrease of
$21.0 million from December 31, 2001. This decrease was primarily the result of
net cash used in operating activities of $22.0 million and net cash proceeds in
investing activities of $708,000.
28
Capital spending for 2002 was approximately $7.0 million. In October 2002,
the Company paid $4.0 million for the purchase of engines for use in our series
in 2003 and 2004. Also in 2002, we acquired additional race equipment, leasehold
improvements related to our new headquarters in Indianapolis, IN, semi-trailers
for our advance program, technical inspection equipment, timing and scoring
equipment and other miscellaneous equipment. We anticipate capital expenditures
of approximately $2.0 million in 2003. The capital expenses will be for computer
equipment, a new semi-trailer, timing and scoring equipment, safety truck
conversions and competition related equipment for technical inspection and data
acquisition.
In April 2002, we entered into a lease for our new corporate headquarters
in Indianapolis, Indiana. The lease commenced on May 1, 2002 and expires October
31, 2010. The total amount due through the life of the lease is $2.6 million.
We have implemented a stock repurchase program that was authorized by our
Board of Directors in April 2001. The program allows us to repurchase up to
2,500,000 shares of our outstanding stock, of which 1,054,000 shares have been
repurchased for an aggregate of $15.5 million through December 31, 2001. We did
not repurchase any shares in the 12 months ended December 31, 2002. Repurchases
under the program will be made at the discretion of management based upon
market, business, legal, accounting and other factors. Currently, the company
has no intention to purchase any of its outstanding shares.
The following table summarizes our contractual obligations.
Payments due by Period
----------------------
Less Than 1-3 4-5 After 5
Contractual Obligations Total 1 Year Years Years Years
---------------------------------------------------------------------------------------------------------------
Operating Leases $ 3,111,613 $ 422,496 $ 846,952 $ 868,127 $ 974,038
Team Assistance Payments 30,000,000 30,000,000 -- -- --
Entrant Support Program 13,770,000 13,770,000 -- -- --
Television Buys 7,050,000 3,525,000 3,525,000 -- --
Other Long-Term Obligations 3,878,060 3,325,051 551,153 1,856 --
----------- ----------- ---------- ----------- ----------
Total Contractual Cash Obligations $57,809,673 $51,042,547 $4,923,105 $ 869,983 $ 974,038
=========== =========== ========== =========== ==========
On March 7, 2003, we acquired 100% of the equity in Raceworks, LLC. The
purchase price was $1.2 million, including $473,000 of cash and a promissory
note of $722,000, without interest, and assumption of liabilities of $4.6
million.
FUTURE TRENDS IN OPERATING RESULTS
An important part of our overall strategy is to make our races major events
in large urban markets. In markets where there are no established race tracks,
we will establish street races. These races may be promoted by us or we may
partner with experienced race promoters to stage these events.
In 2002, we promoted the races in Chicago and Miami. In addition, we
entered into one new agreement and amended four existing sanction agreements
with promoters to include revenue sharing arrangements with promoters at their
events.
In 2003, we will promote six of our events: Cleveland, OH, Portland, OR,
Miami, FL, Lexington, OH, Kent, UK and Lausitz, Germany and we have entered into
agreements with promoters that include revenue sharing arrangements for five
events. The financial success of each of the events we promote or in which we
share in revenues, is dependent on the sale of tickets, sponsorship,
hospitality, signage and other commercial rights associated with the events. Our
increased focus on these activities means that our revenues related to our
sanction fee and race promotion income will be subject to a number of factors,
including consumer and corporate spending and the overall economic conditions
affecting advertising and promotion in the motorsports and entertainment
business.
29
Since we funded substantially all of the expenses associated with the race
in Miami, we have recognized such expense in excess of revenues received from
the race of $5.5 million in 2002. On March 7, 2003, we acquired 100% of the
equity in Raceworks, LLC. The purchase price was $1.2 million, including
$473,000 of cash and a promissory note of $722,000, without interest, and
assumption of liabilities of $4.6 million. Beginning in 2002, we started funding
the events we will promote in 2003. We will continue in 2003 to fund these
events.
With the four tracks where we amended our sanction agreement to share in
the net revenue for the events, we received net sanctioning fees of $4.6
million, which represented an aggregate 35% reduction in sanctioning fees
compared to 2001 fees for the same events.
In 2002, our television contracts required us to purchase airtime and
produce the shows at our expense for the races we broadcast on CBS and Fox. We
retained the advertising revenues for these races. Our costs for 2002 were $11.1
million for purchasing the air time and productions expenses for domestic and
international programming. These television expenses were offset by our sales of
television advertising and rights fees of $4.9 million.
In 2003, our television contracts require us to purchase airtime on CBS and
we will pay for production for our shows on CBS and Speed Channel. We will
retain the advertising revenues for all of our races. The estimated cost for
purchasing airtime and production for domestic and international programming is
$16.1 million. We are unable to predict the sales of our television advertising
for domestic programming or our sale of rights fees for our international
programming for 2003. The amount of advertising will be based upon a number of
economic factors over which we have no control. The overall state of the
economy, the popularity of our sport and other factors make it more uncertain as
to the ultimate profitability or loss related to our television package.
In August 2002, the Company announced an entry support program to retain
and attract teams for the 2003 season and beyond. This program will provide up
to $42,500 in cash payments to teams, per race, for each car entered in the 2003
Championship, up to a maximum of twenty (20) cars. These payments are in
addition to prize money and other non-monetary benefits that accrue to teams
participating in the Champ Car Series. In return for receipt of these funds,
each team will allocate to CART advertising space on its race cars and other
equipment, which CART will use in packaging advertising that it will market to
potential sponsors. The advertising packages offered to sponsors would include
not only advertising on racecars, but also television, at-track advertising and
additional media opportunities. We are unable to predict how successful our
efforts will be in marketing these packages.
The Company announced in October 2002, a commitment to spend up to an
additional $30.0 million in team assistance to ensure that there is adequate
participation by race teams in the 2003 season. We have entered into contractual
agreements with 18 teams who have committed to be full season participants in
the 2003 Champ Car World Series. We anticipate that an additional one or two
teams will participate in selected events. We believe that it was necessary to
provide this additional funding to ensure that there would be 18 to 20
competitive racecars in the field for the 2003 season. Without this additional
funding, it was unlikely that there would have been 18 teams, which would result
in defaults under certain of the Company's agreements with promoters and
television. This could result in the Company not being able to complete the 2003
race season. In exchange for this assistance, the teams provide us with
associate sponsor or in some instances primary sponsorship opportunities with
their team to offset these costs. We are unable to predict how successful our
efforts will be in marketing these packages. In addition, if the teams' efforts
to sell sponsorship reach certain levels, they are required to repay a
percentage of the assistance they have received from us.
In October 2002, the Company purchased 100 race engines from Cosworth
Racing, Inc. for a total purchase price of $4.0 million and agreed to pay for
track support in the amount of
30
$1.5 million. The Company in turn has leased these engines to each team on the
basis of $100,000 per entrant per race season.
In light of current events and the overall state of the economy, we are
uncertain whether we or our teams will be able to maintain the same levels of
sponsorship income that we have reported in the past or secure additional
sponsorship. In addition, we are unable to determine what effect these factors
will have on our new television package and our ability to sell television
advertising for our races. We are also unable to assess what impact a decrease
in the disposable income of our fans will have on our promoters and, ultimately,
our races.
As we have previously reported, we are party to several lawsuits. We cannot
predict the outcome of the litigation, and at this time, management is unable to
estimate the impact that ultimate resolution of these matters may have on the
Company's financial position or future results of operations.
OFF-BALANCE SHEET ARRANGEMENTS
In October 2002, we provided a deposit of $550,000 and a letter of credit
in the amount of $1.7 million in regards to the production of conversion kits
for race car chassis for the 2003 season. The letter of credit guarantees that
at least 20 of the kits would be purchased by our race teams. As the kits are
purchased, the letter of credit will be reduced accordingly. If 20 kits were not
purchased by our teams, we would have been required to purchase the remaining
kits and continue to sell the kits to teams as they are needed. All 20 race kits
have been purchased by our race teams; consequently, the deposit was refunded on
February 27, 2003 and the letter of credit will be canceled.
We have guaranteed a $2 million loan from the Miami Sports Entertainment
Authority to Raceworks, LLC, an entity that holds the license to race in Miami.
The loan is for the purchase of capital items needed to construct the race
track. The loan is a 5 year agreement, payable in $200,000 installments per
year, beginning in October 2002, with a balloon payment in the final year. The
initial installment was paid by CART in the fourth quarter of 2002.
RELATED PARTY TRANSACTIONS
We have historically entered into transactions with related parties,
because several of our directors and one of our significant shareholders are
team owners. We believe that it is necessary and appropriate to have team owners
involved as directors or significant shareholders of the Company because of
their unique knowledge of our business. We believe that all the transactions
which we have entered into with our directors or significant shareholders, are
comparable to the terms that we have in the past or could in the future enter
into with third parties with respect to each of these transactions. In order to
avoid conflicts of interest, any of our directors who are affiliated with an
entity that is entering into a transaction with us have not and will not vote on
any matters related to such transactions and may, in certain circumstances,
refrain from participating in any discussions related to such transactions.
The related party transactions under "Purse Distributions, Entry Support
Program and Lease Arrangements" are all payments or transactions that are made
on the identical basis to all race teams, whether they are affiliated with
directors or significant shareholders or not affiliated. The payments payable to
related parties under the caption "Team Assistance Program" relate to further
assistance that the Company is providing to race teams to assure their
participation in the 2003 race season. The amounts payable to each race team
vary, depending upon the team's ability to raise third party sponsorship, the
number of cars that the team will race in 2003, their budget and other factors.
The Company has determined that these payments are necessary in order to assure
a proper field for 2003 and believes that the amounts payable to each of the
race teams affiliated with a director is consistent with arrangements that the
Company could enter into with third parties. Both of these programs were
developed to insure the necessary participation in the series. Without this
additional funding, it is unlikely that there would have been 18 teams,
31
which would result in defaults under certain of the Company's agreements with
promoters and television and could have resulted in severe financial
consequences to the Company.
PURSE DISTRIBUTIONS, ENTRY SUPPORT PROGRAM AND TEAM ASSISTANCE. We have
entered into, and we will continue to enter into, transactions with entities
that are affiliated with our directors and/or 5% stockholders who are owners of
our race teams. Race teams that participate in the Champ Car World Series
receive purse distributions on a per race basis and from the year end point
fund, which amounts have been paid based solely upon their performance in
specific races. All of these payments are made to our race teams regardless of
the affiliation with our directors or significant stockholders. During 2002, we
also paid a participation payment to our race teams, including those affiliated
with directors (or directors who have resigned during the year) and/or 5%
stockholders. The following table provides information with respect to payments
made during 2002 by us to race teams that are or were affiliated with directors
and/or significant stockholders of CART:
RACE TEAM/AFFILIATED PERSON PURSE DISTRIBUTIONS PARTICIPATION PAYMENTS
--------------------------- ------------------- ----------------------
Newman/Haas Racing/Carl A. Haas $ 2,677,500 $ 380,000
Team Green/Barry E. Green 2,013,500 570,000
Chip Ganassi Racing Teams, Inc./Chip Ganassi 2,185,000 540,000
Forsythe Racing, Inc./Gerald R. Forsythe 1,532,250 380,000
Patrick Racing, Inc./U.E. Patrick 317,250 190,000
Derrick Walker Racing, Inc./Derrick Walker 317,750 190,000
In 2003, we will lease engines and provide financial assistance to every
team that participates in the Champ Car World Series, including teams affiliated
with our directors and/or 5% stockholders. The financial assistance payments
relate to two programs instituted for the 2003 season, the Entry Support Program
(ESP) and the Team Assistance Program. ESP will provide up to $42,500 in cash
payments to teams, per race, for each car entered into the series.
The Company has entered into a sponsorship agreement with Ford Motor
Company, which provides in part, that Ford will lease to each of the teams Ford
vehicles for their use in 2003. For ease of administration, Ford has leased
these vehicles to the Company and the Company has subleased the vehicles to each
team on a net net basis. There is no net cost or benefit to the Company related
to this arrangement.
The Company purchased one hundred (100) race engines from Cosworth Racing,
Inc. for a total purchase price of $4.0 million and agreed to pay for track
support in the amount of $1.5 million. The Company in turn has leased these
engines to each team on the basis of $100,000 per entrant per year.
The following table lists the estimated amount of engine lease income we
will receive and Entry Support Payments we will make to related parties for the
2003 race season.
ENGINE LEASE INCOME ESP PAYMENTS
RACE TEAM/AFFILIATED PERSON FROM TEAMS TO TEAMS
--------------------------- ---------- --------
Newman/Haas Racing/Carl A. Haas $200,000 $1,530,000
Forsythe Racing, Inc./Gerald R. Forsythe 200,000 1,530,000
Patrick Racing, Inc./U.E. Patrick 100,000 765,000
Derrick Walker Racing, Inc./Derrick Walker 200,000 1,530,000
TEAM ASSISTANCE PROGRAM. The Team Assistance Program will supply an
additional $30.0 million in team assistance spread over the 2003 race season as
described above. The following table sets forth the Team Assistance Program
payments to teams affiliated with directors and/or 5% stockholders.
32
RACE TEAM/AFFILIATED PERSON TEAM ASSISTANCE PAYMENTS
--------------------------- ------------------------
Newman/Haas Racing/Carl A. Haas* $ 2,000,000
Patrick Racing, Inc./U.E. Patrick* 1,400,000
Derrick Walker Racing, Inc./Derrick Walker 5,925,000
* These agreements would put the Company over the $30.0 million in total team
assistance the board of directors approved. The board has approved these
contracts contingent on reducing the overall team assistance so as not to exceed
$30.0 million.
PROMOTER AGREEMENTS
Some of our directors or stockholders either control or are affiliated with
others who control racing venues which stage CART and other racing events. We
have entered into the following agreements with entities associated with
directors or 5% stockholders:
Carl A. Haas, a director of the Company and a race team owner, is a
principal owner of Carl Haas Racing Teams, Ltd. and Texaco Houston Grand Prix
L.L.C. ("HGP"), each of which have entered into Promoter Agreements with respect
to Champ Car World Series races at the Wisconsin State Park Speedway in
Milwaukee, Wisconsin and at a temporary road course in Houston, Texas. In the
second quarter of 2002 the Promoter Agreement for the Milwaukee race was renewed
for the 2002 event with the promoter having the option to extend for the 2003
and 2004 years. The sanction fees payable to CART under this agreement is
similar to those paid by independent race promoters. Pursuant to the Promoter
Agreement, entities affiliated with Mr. Haas have paid sanction fees to CART of
$1.7 million. We are currently in negotiations regarding the option for the 2003
and 2004 events. In addition, we have incurred a total of $100,000 in sales
costs and $100,000 in marketing expenses in relation to our race at Wisconsin
State Park Speedway during 2002. The promoter agreement in regards to the
Houston, Texas event provided for races to be held starting in 1998 through
2003. The Houston, Texas race was not held in 2002 and will not be held in 2003
due to construction on the temporary circuit in downtown Houston. Therefore, the
promoter agreement has been terminated by mutual agreement. Carl Haas Racing
Teams, Ltd. paid a $500,000 termination fee to CART and CART has received an
option to acquire certain assets of HGP, used in operating the Houston event,
for $750,000. This option was exercised and payment was made in January 2003.
Gerald R. Forsythe, a race team owner and 24.9% stockholder, is a principal
owner of the entities which entered into Promoter Agreements with respect to
Champ Car World Series races in Monterrey, Mexico and Mexico City, Mexico. These
entities affiliated with Mr. Forsythe have paid sanction fees to CART in the
aggregate amount of $6.1 million for 2002. We are currently renegotiating the
remaining years of the agreements.
In addition, we have paid a total of $200,000 in sales costs and $200,000
in marketing expenses to these entities during 2002.
In order to change the date of the Mexico City race as requested by Mr.
Forsythe's affiliated entity, we have paid another promoter $250,000. Mr.
Forsythe's affiliated entity reimbursed us for $125,000 of that expense.
Gerald R. Forsythe is also a principal owner of an entity which entered
into a Promoter Agreement with respect to Champ Car World Series races in
Rockingham, England. The agreement provided for a race to be held beginning in
2001 through 2006. Following the cancellation of the race scheduled to be run in
Germany, officials at Rockingham expressed concern regarding the viability of
running a single event in Europe. In order to assure that the Rockingham event
could move forward in 2002, we negotiated an amendment to the Promoter Agreement
which reduced the sanction fee to $2.8 million and we assumed certain costs,
33
including freight and transportation, in the amount of $900,000. In addition,
the terms of the future years of the agreement, 2003-2006, were subject to
renegotiation. This renegotiation has subsequently resulted in the cancellation
of the remaining years of the agreement. In addition, we have paid a total of
$100,000 in sales costs and $400,000 in marketing expenses to this entity during
2002.
Floyd R. Ganassi Jr., a former director of the Company and a race team
owner, is a principal owner of Chicago Motor Speedway, LLC and has entered into
a Promoter Agreement with respect to a Champ Car World Series race at Chicago
Motor Speedway in Cicero (Chicago), Illinois. Pursuant to the terms thereof, a
Championship race was to be held through 2003. The Chicago Motor Speedway, LLC
was to pay sanction fees to CART of $2.0 million for 2002 and $2.1 million for
2003. In 2002, the Chicago Motor Speedway, LLC announced the suspension of all
race events at Chicago Motor Speedway. We then entered into an agreement with
the Chicago Motor Speedway, LLC where we rented the track for $850,000 in 2002
and promoted the race ourselves.
OTHER TRANSACTIONS
In addition to the above, we have entered into the following transactions
with related parties:
Mr. Forsythe is also a principal owner of the entity that holds our Mexican
television rights through 2004. In return for these rights, we received a
minimum guarantee of $300,000 in 2002 and will receive a minimum guarantee of
$325,000 and $350,000 for each of the two years ending 2003 and 2004,
respectively. In addition, we will receive 70% of the net profits, if any, until
we reach $500,000, $550,000 and $600,000 for each of the three years ending
2002, 2003 and 2004, respectively.
Mr. Ganassi is also principal owner of Target Chip Ganassi Racing, Inc.,
which entered into an agreement by which Target Chip Ganassi Racing Inc. ran a
third car for a portion of the 2002 season. Pursuant to the terms thereof, we
paid Target Chip Ganassi Racing, Inc. $1.7 million for running the third car,
and we received the right to sell certain sponsorship space on that car.
Ralph Sanchez, a director of the Company, is a principal owner of RAS
Development, Inc. which has entered into a five year lease agreement with the
Company for office space in Miami, Florida. Payments for this lease total
$80,292, $97,957, $99,081, $100,045, $101,008 and $16,861 for 2003, 2004, 2005,
2006, 2007 and 2008, respectively.
PAYMENTS TO CART
In addition to the payments described above, CART receives revenues from
its race teams, including those affiliated with CART directors and/or 5%
stockholders, for entry fees, equipment leases and other payments based solely
on participation in CART events and CART's self-promoted event. During 2002,
race teams affiliated with CART directors and/or 5% stockholders made such
payments to CART as follows:
Team Green/Barry E. Green $ 187,360
Forsythe Racing, Inc./Gerald R. Forsythe 106,636
Chip Ganassi Racing Teams, Inc./Chip Ganassi 94,805
Newman/Haas Racing/Carl A. Haas 142,368
Patrick Racing, Inc./U.E. Patrick 71,500
Derrick Walker Racing, Inc./Derrick Walker 50,050
FACTORS THAT MAY AFFECT OPERATING RESULTS
Reliance on Participation by Teams - Our future success is dependent upon
the continued participation of racing teams in CART-sanctioned race events. A
minimum number of teams are
34
required to participate in order to provide a quality racing event. If teams
that currently participate in our events terminate their participation, or if we
are unable to attract new teams then that could adversely affect our financial
and business results. Certain sanction agreements with promoters require a
minimum number of cars in a particular CART-sanctioned race event. Two of these
agreements require a minimum of 20 cars, and if less than 20 cars will
participate, then the promoter may have the right to cancel the event or reduce
the sanction fee. If the promoter intends to exercise their right to cancel the
event, due to the minimum car count not being met, they are required to give us
written notice of their intent to cancel the event and we have seven days from
receipt of the written notice to provide the additional entries as required by
the contract.
Historically, the teams participating in our events derive substantially
all of their funding for race operations from their sponsors and engine
manufacturers (see "Reliance on Participation by Suppliers"). 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. In 2003, most of
our events will be televised domestically on Speed Channel and seven events are
anticipated to be on the CBS network. If sponsorship revenues are not available
to teams, then those teams may not have the necessary funding to participate in
our events.
In 2002, due to general economic conditions and other factors, certain
teams did not have sufficient funding to participate in our series. To ensure
that a sufficient number of teams would compete in our series, we will provide
financial incentives to certain teams to ensure their participation in our
series for 2003. We may not be able to continue such financial incentives beyond
the 2003 season, and therefore certain teams may not be able to participate in
our series in the future if they are unable to obtain sufficient funding through
sponsors and other alternatives.
Beginning in 2003, certain teams and drivers that participated in our
series in 2002, elected to participate in our rival series beginning in 2003. We
are unable to assess what impact the loss of these teams and drivers will have
on our series.
We can not assure you that the current race teams will participate in
future years or that we will be able to provide funding for teams to participate
in future years. In addition, teams may elect to participate in a competing
series rather than CART.
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, spectator attendance and race venues for our events
significantly impact the advertising and promotional value to sponsors. The
economic slowdown over the past 36 months has had a negative effect on our
ability to attract new sponsors and renew existing sponsors.
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. In 2002, one tire manufacturer supplied tires to competitors in the
Champ Car Series, and we will have one tire manufacturer in 2003.
35
We had three major engine manufacturers in 2002. We have purchased the
engines that will be used by the teams for the 2003 and 2004 seasons and we will
lease the engines to the teams. Although we are currently in discussions with
several engine manufacturers to provide engines beginning in 2005, we cannot
assure you we will be successful in attracting engine manufacturers to our
series and this could affect our financial and business results.
We believe that the costs to some industry suppliers are greater than the
revenues generated from the sale or lease of such products, and therefore, they
must derive advertising or technical benefits from such participation.
Historically, the engine manufacturers have provided monetary incentives to
certain teams that use their engines. These benefits will not be available in
2003 and 2004, and this will increase the costs to the teams which could result
in teams not having sufficient funding to compete in 2003 and 2004.
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")
- International Motor Sports Association ("IMSA")
In addition, our racing events compete with other sports, entertainment and
recreational events, including:
- Football
- Basketball
- Baseball
- Golf
RELIANCE ON EVENT PROMOTERS -- WE DERIVE A SUBSTANTIAL PORTION OF OUR TOTAL
REVENUES FROM SANCTION FEES WHICH ARE PAID TO US BY PROMOTERS. 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. In 2002, we restructured our sanction fees with several promoters to
share the risks and rewards.
CART PROMOTED EVENTS - WE ARE THE PROMOTER OF CERTAIN EVENTS AND WITH
RESPECT TO CERTAIN OTHER EVENTS, OUR SANCTION FEE IS BASED IN PART ON THE
SUCCESS OF THE EVENT. The events are dependent on the sale of tickets,
sponsorship, hospitality, signage and other commercial rights associated with
the event for its financial success. If we fail to promote or co-promote these
events effectively, then this could have an adverse affect on our financial and
business results because our sanction fees have been decreased or replaced with
revenue sharing arrangements and race promotion revenues.
OUR FINANCIAL RESULTS DEPEND SIGNIFICANTLY ON CONSUMER SPENDING. Our
financial success depends significantly on a number of factors relating to
discretionary consumer spending, including factors such as:
- employment
36
- business conditions
- interest rates
- taxation rates
These factors can impact attendance at our events and the amount of money
spent on merchandise and concessions.
POSTPONEMENT AND/OR CANCELLATION OF EVENTS COULD EFFECT OUR FINANCIAL
RESULTS. If one or more of our events is postponed or canceled because of
factors such as weather, terrorist attacks, war or the bankruptcy of one of our
promoters, we could incur increased expenses or lost revenue due to the
postponement or cancellation of such event. If the event is postponed, we could
incur increased expenses related to conducting the rescheduled event. If an
event is canceled, we could lose revenues from sanction fees and television
advertising and, in the case of a CART co-promoted or promoted event, lose
revenue from the ticket sales, sponsorship, hospitality, signage and other
commercial rights associated with the event, while still incurring expenses for
such event.
NEW RACE VENUES - WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE NEW RACE
VENUES AND EXTEND OR RENEW CURRENT VENUES. The 2003 Champ Car World Series is
anticipated to include two races at new venues, one of which is in Europe. Our
operational success depends upon the success of our racing events. If these new
events and new venues are not successfully implemented, then our financial and
business results will be adversely affected.
TELEVISION CONTRACTS - If we are not successful in selling advertising for
our race broadcasts, our financial results will be adversely affected. We have
entered into television contracts with Speed Channel and CBS to air our races.
Speed Channel will provide air time on their network and we will purchase the
air-time on CBS. We will produce the shows at our expense, and we will retain
the advertising inventory.
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. 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 certain of the race teams participating in our events
derive a substantial portion of their operating revenues from such industry
sponsors. In addition, several 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.
In 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 in one series during any twelve-month period.
37
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.
WEATHER - BAD WEATHER COULD ADVERSELY AFFECT US. Poor weather conditions
could have a negative affect on us. Weather conditions affect fan attendance,
which can affect venues where we act as a promoter or co-promoter. In addition,
we cannot run our race cars on oval tracks that are wet, and delays or
cancellation of events due to inclement weather could also have a negative
financial impact on our operations.
INDIANAPOLIS 500 - PARTICIPATION BY CART TEAMS AND DRIVERS IN THE
INDIANAPOLIS 500 COULD HAVE AN ADVERSE EFFECT. 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 are unable to predict what
effect the continued limited participation by our teams at the Indianapolis 500
will have on our financial and business results.
GROWTH STRATEGY - WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH
STRATEGY. A factor in our growth strategy is to stage races in the largest urban
markets domestically and internationally. These races may be in partnership with
experienced race promoters and/or may also be owned and promoted by us. We
cannot assure you that we will be able to find suitable partners and/or venues
in which to stage races in the markets we desire to be in. Our ability to manage
our future growth and to successfully implement this growth strategy could
require enhanced 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. We have
and will continue to have liability insurance to cover past and any future
racing incidents. There is no assurance, however, that the insurance will be
adequate or available at all times and in all circumstances. 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 could adversely
affect our financial and business results. In addition, any claims and
associated expenses related to future potential racing incidents, to the extent
not covered by insurance, could adversely affect our financial and business
results.
In 1999, two of our drivers died in racing related incidents. In 2000, we
were named as defendants in lawsuits filed by representatives of each of the
drivers. For additional information, you should read Item 3: Legal Proceedings.
CONFLICTS - SOME OF OUR CURRENT STOCKHOLDERS AND DIRECTORS HAVE CONFLICTS
OF INTEREST. Some of our current stockholders and directors are affiliated with
a race team that participates in the Champ Car World Series. These stockholders
and directors, affiliated with race teams receive prize money, entry support
payments and may receive other team assistance payments. 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 which
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.
38
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 Champ Car World Series 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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Intangible Assets." The statement requires companies to stop amortizing goodwill
and certain intangible assets with indefinite useful lives. Instead, goodwill
and intangible assets with indefinite useful lives will be tested for impairment
upon adoption of the statement and annually thereafter. The Company will perform
its annual impairment review for intangible assets during the fourth quarter of
each year, commencing with the fourth quarter of 2002. The Company determined
its goodwill was impaired and recognized a loss of $1.5 million in the second
quarter of 2002.
On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The statement is intended to update, clarify and simplify existing
accounting pronouncements. Management does not believe this statement will have
a material effect on its consolidated financial statements.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. Management does not believe this statement will have a material effect on
its consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon
issuance of certain guarantees, a guarantor must recognize a liability for the
fair value of the obligation assumed under the guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements regarding certain guarantees and product warranties. The recognition
provisions of FIN 45 will be effective for guarantees issued or modified after
December 31, 2002. The Company does not expect the recognition provisions of FIN
45 will have a material impact on the Company's consolidated financial
statements.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." This statement amends SFAS
Statement No. 123, "Accounting for Stock-Based Compensation" and provides
alternative methods of transition for a voluntary change to the fair value based
methods of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.
39
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46")
"Consolidation of Variable Interest Entity". The term "variable interest" is
defined in FIN 46 as "contractual, ownership or other pecuniary interests in an
entity that change with changes in the entity's net asset value." Variable
interests are investments or other interests that will absorb a portion of an
entity's expected losses if they occur or receive portions of the entity's
expected residual returns if they occur. The Company does not expect the
recognition provisions of FIN 46 will have a material impact on the Company's
financial position or results of operations.
With the exception of historical information contained in this Form 10-K,
certain matters discussed are forward-looking statements. These forward-looking
statements involve risks that could cause the actual results and plans for the
future to differ from these forward-looking statements. The factors listed below
and other factors not mentioned, could cause the forward-looking statements to
differ from actual results and plans:
- competition in the sports and entertainment industry
- participation by race teams
- continued industry sponsorship
- regulation of tobacco and alcohol advertising and sponsorship
- competition by the IRL
- liability for personal injuries
- success of television contract
- renewal of sanction agreements
- participation by suppliers
- success of co-promoted and self-promoted races
- current uncertain economic environment and weak advertising market
- impact of engine specifications
ITEM 7A: 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,
2002, our investments consisted of corporate bonds, U.S. Agency issues, letters
of credit, and money market funds. The weighted average maturity of our
portfolio is 278 days. At December 31, 2001, our investments consisted of
corporate bonds, U.S. Agency issues, letters of credit, and money market funds.
The weighted average maturity of the portfolio was 136 days. Because of the
relatively short-term nature of our investments, our interest rate risk is not
considered significant.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and related notes are included in Item 15
of this document.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
40
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item will be contained in our definitive Proxy
Statement for our 2003 Annual Meeting of Stockholders to be filed on or before
April 30, 2003, and such information is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information required by this Item will be contained in our definitive Proxy
Statement for our 2003 Annual Meeting of Stockholders to be filed on or before
April 30, 2003, and such information is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by this Item will be contained in our definitive Proxy
Statement for our 2003 Annual Meeting of Stockholders to be filed on or before
April 30, 2003, and such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be contained in our definitive Proxy
Statement for our 2003 Annual Meeting of Stockholders to be filed on or before
April 30, 2003, and such information is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) Within the 90 days prior to the date of filing of this report, we carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including
its consolidated subsidiaries) required to be included in our periodic SEC
filings.
(b) There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.
41
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of Documents Filed as Part of this Report:
(1) Consolidated Financial Statements start on page F-1
(2) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts is on page S-1
(3) Exhibits
3.1 Certificate of Incorporation of the Company filed December 8, 1997 (1)
3.2 Bylaws of the Company (1)
10.1 2001 Long Term Stock Incentive Plan (6)
10.5 Form of Promoter Agreement (1)
10.6 Promoter Agreement with Wisconsin State Park Speedway related to West
Allis, Wisconsin dated June 5, 1996 (1)
10.7 Promoter Agreement with Texaco Houston Grand Prix L.L.C. related to Houston,
Texas dated July 28, 1997 (1)
10.11 Form of Sponsorship Agreement (1)
10.15 Promoter Agreement with Ganassi Group, L.L.C. related to Chicago, Illinois
dated April 7, 1998 (2)
10.19 Promoter Agreement with Monterrey Grand Prix related to Monterrey, Mexico
dated March 30, 2000 (3)
10.20 Promoter Agreement with Rockingham Motor Speedway related to Rockingham,
England dated July 3, 2000 (4)
10.21 Employment Agreement with Joseph F. Heitzler dated December 4, 2000 (5)
10.22 First Amendment to Championship Auto Racing Teams, Inc. Employment
Agreement with Joseph F. Heitzler, dated December 4, 2001 (6)
10.23 Employment Agreement with Christopher R. Pook as of December 18, 2001 (6)
10.24 Promoter Agreement with Grupo Automouilistico Nacional y Deportiuo, S. de
R.L. de C.V. related to Mexico City, Mexico dated November 20, 2001 (6)
10.25 Television Agreement Promotion Entertainment of Mexico, LLC related to
Mexican television rights dated February, 28, 2002 (6)
10.26 Letter of Agreement with Chicago Motor Speedway, LLC related to
the lease of Chicago Motor Speedway (the track) dated February 21, 2002 (6)
10.27 Amendment to the Sanction Agreement by and between the Company and
Rockingham Motor Speedway dated as of August 16, 2002 (7)
10.28 Form of Engine Lease Agreement
10.29 Form of Entrant Support and Participation Agreement
10.30 Form of FORD Vehicle Agreement
10.31 Team Assistance Agreement with Newman/Haas Racing, Inc.
10.32 Team Assistance Agreement with Newman/Haas Racing, Inc.
10.33 Team Assistance Agreement with Patrick Racing, Inc.
10.34 Team Assistance Agreement with Walker Racing, Inc. dated February 14, 2003
10.35 Team Assistance Agreement with Walker Racing, Inc. dated February 14, 2003
10.36 Chassis Upgrade Agreement with Walker Racing, Inc. dated January 29, 2003
10.37 Show Car Agreement with Walker Racing, Inc. dated February 19, 2003
10.38 Race Car Lease Agreement with Walker Racing, Inc. dated February 25, 2003
10.39 Office Lease Agreement with RAS Development, Inc. dated March 2003
42
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP.
99.1 Certification Pursuant to 18 U.S.C Section 1350
99.2 Certification Pursuant to 18 U.S.C Section 1350
(b) Reports on Form 8-K We did not file a form 8-K during the three months
ended December 31, 2002.
(1) Incorporated by reference to exhibit filed as part of our Registration
Statement on Form S-1 (Registration No. 333-43141)
(2) Incorporated by reference to exhibit filed with our Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998.
(3) Incorporated by reference to exhibit filed with our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000.
(4) Incorporated by reference to exhibit filed with our Annual Report on Form
10-K for the year ended December 31, 2000.
(5) Incorporated by reference to exhibit filed with our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001.
(6) Incorporated by reference to exhibit filed with our Annual Report on Form
10-K for the year ended December 31, 2001.
(7) Incorporated by reference to exhibit filed with our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATED: March 26, 2003 CHAMPIONSHIP AUTO RACING TEAMS, INC.
------------------------------------
Registrant
By: /s/ Christopher R. Pook
------------------------------
Christopher R. Pook
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ Christopher R. Pook Chief Executive Officer March 26, 2003
----------------------------------------- and Director
Christopher R. Pook
/s/ Thomas L. Carter Chief Financial and March 26, 2003
----------------------------------------- Accounting Officer
Thomas L. Carter
/s/ Mario Andretti Director March 26,2003
-----------------------------------------
Mario Andretti
/s/ Carl A. Haas Director March 26, 2003
-----------------------------------------
Carl A. Haas
/s/ James A. Henderson Director March 26, 2003
-----------------------------------------
James A. Henderson
/s/ Rafael A. Sanchez Director March 26, 2003
-----------------------------------------
Rafael A. Sanchez
/s/ Frederick T. Tucker Director March 26, 2003
-----------------------------------------
Frederick T. Tucker
/s/ Derrick Walker Director March 26, 2003
-----------------------------------------
Derrick Walker
44
CERTIFICATIONS
I, Christopher R. Pook, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Championship Auto
Racing Teams, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Christopher R. Pook
-----------------------
Christopher R. Pook
Chief Executive Officer
45
CERTIFICATIONS
I, Thomas L. Carter, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Championship Auto
Racing Teams, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Thomas L. Carter
--------------------
Thomas L. Carter
Chief Financial Officer
46
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
CHAMPIONSHIP AUTO RACING TEAMS, INC.
Independent Auditors' Report........................................... F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001........... F-3
Consolidated Statements of Operations for the Years
Ended December 31, 2002, 2001 and 2000........................... F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 2002, 2001 and 2000................. F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2002, 2001 and 2000........................... F-6
Notes to Consolidated Financial Statements............................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Championship Auto Racing Teams,
Inc.:
We have audited the accompanying consolidated balance sheets of Championship
Auto Racing Teams, Inc. (the "Company") as of December 31, 2002 and 2001, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2002.
Our audits also included the financial statement schedule listed in the Index at
Item 15. These financial statements and financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on the financial statements and consolidated financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Championship Auto Racing Teams,
Inc. as of December 31, 2002 and 2001, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America. Also, 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.
As discussed in Note 1 to the consolidated financial statements, in 2002, the
Company changed its method of accounting for goodwill and other intangible
assets.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
February 27, 2003
(March 7, 2003 as to Note 18)
F-2
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31,
------------------
2002 2001
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,773 $ 27,765
Short-term investments 79,489 87,621
Accounts receivable (net of allowance for doubtful accounts
of $1,282 and $7,388 in 2002 and 2001, respectively) 4,657 5,195
Inventory -- 70
Prepaid expenses and other current assets 1,474 2,805
Income tax refundable 10,087 --
Deferred income taxes 1,184 2,856
-------- --------
Total current assets 103,664 126,312
PROPERTY AND EQUIPMENT-NET 10,403 4,832
GOODWILL (net of accumulated amortization of $133 in 2001) -- 1,470
OTHER ASSETS (net of accumulated amortization
of $116 and $116 in 2002 and 2001, respectively) 384 327
-------- --------
TOTAL ASSETS $114,451 $132,941
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,703 $ 3,009
Accrued liabilities:
Royalties 173 222
Payroll 2,455 4,298
Taxes 743 110
Other 4,879 5,558
Deferred revenue 1,423 1,511
-------- --------
Total current liabilities 11,376 14,708
DEFERRED INCOME TAXES 57 297
COMMITMENTS AND CONTINGENCIES (Note 10) -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding at
December 31, 2002 and 2001 -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 14,718,134 and 14,718,134 shares issued
and outstanding at December 31, 2002 and 2001, respectively 147 147
Additional paid-in capital 87,765 87,765
Retained earnings 14,511 29,028
Accumulated other comprehensive income 595 996
-------- --------
Total stockholders' equity 103,018 117,936
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $114,451 $132,941
======== ========
See accompanying notes to consolidated financial statements.
F-3
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001 2000
---- ---- ----
REVENUES:
Sanction fees $ 36,607 $ 47,226 $38,902
Sponsorship revenue 10,150 12,314 21,063
Television revenue 4,538 5,228 5,501
Race promotion revenue 1,417 -- --
Engine leases, rebuilds and wheel sales -- 1,286 2,122
Other revenue 4,533 4,209 7,460
--------- -------- -------
Total revenues 57,245 70,263 75,048
EXPENSES:
Race distributions 19,797 18,599 15,370
Race expenses 10,823 10,618 9,869
Race promotion expense 9,687 -- --
Cost of engine rebuilds and wheel sales -- 348 652
Television expense 10,975 -- --
Administrative and indirect expenses (includes severance expense
of $0, $4,329 and $2,758 for 2002, 2001 and 2000, respectively) 27,756 35,605 25,275
Bad debt-sponsorship partner (Note 11) -- -- 6,320
Asset impairment and strategic charges (Note 9) -- 8,548 --
Litigation expenses (Note 10) -- 3,547 --
Relocation expense 1,422 -- --
Depreciation and amortization 1,436 1,493 1,352
--------- -------- -------
Total expenses 81,896 78,758 58,838
--------- -------- -------
OPERATING INCOME (LOSS) (24,651) (8,495) 16,210
Realized gain on sale of investments 26 -- --
Interest income 3,762 7,033 7,463
--------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES (20,863) (1,462) 23,673
INCOME TAX EXPENSE (BENEFIT) (7,302) (512) 8,520
--------- -------- -------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (13,561) (950) 15,153
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (NET OF TAX) (956) -- --
--------- -------- -------
NET INCOME (LOSS) $ (14,517) $ (950) $15,153
========= ======== =======
EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE:
BASIC $ (0.92) $ (0.06) $ 0.97
========= ======== =======
DILUTED $ (0.92) $ (0.06) $ 0.97
========= ======== =======
NET EARNINGS (LOSS) PER SHARE:
BASIC $ (0.99) $ (0.06) $ 0.97
========= ======== =======
DILUTED $ (0.99) $ (0.06) $ 0.97
========= ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 14,718 15,289 15,624
========= ======== =======
DILUTED 14,718 15,289 15,657
========= ======== =======
See accompanying notes to consolidated financial statements.
F-4
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK ADDITIONAL RETAINED
------------ PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
------ ------ ------- ---------
BALANCES, JANUARY 1, 2000 15,586 $ 156 $99,671 $14,825
Net income -- -- -- 15,153
Unrealized gain on investments -- -- -- --
Comprehensive income -- -- -- --
Exercise of options 179 2 3,459 --
-------- ------ ------- -------
BALANCES, DECEMBER 31, 2000 15,765 158 103,130 29,978
Net loss -- -- -- (950)
Unrealized gain on investments -- -- -- --
Comprehensive loss -- -- -- --
Exercise of options 7 -- 109 --
Acquisition and retirement of
common stock (1,054) (11) (15,474) --
-------- ------ ------- -------
BALANCES, DECEMBER 31, 2001 14,718 147 87,765 29,028
Net loss -- -- -- (14,517)
Unrealized loss on investments -- -- -- --
Reclassification adjustment -- -- -- --
Comprehensive loss -- -- -- --
-------- ------ ------- -------
BALANCES, DECEMBER 31, 2002 14,718 $ 147 $87,765 $14,511
======== ====== ======= =======
ACCUMULATED OTHER
COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
INCOME (LOSS) EQUITY INCOME (LOSS)
------------- ------ -------------
BALANCES, JANUARY 1, 2000 $ (322) $ 114,330
Net income -- 15,153 $ 15,153
Unrealized gain on investments 950 950 950
-------------
Comprehensive income -- -- $ 16,103
=============
Exercise of options -- 3,461
------ ---------
BALANCES, DECEMBER 31, 2000 628 133,894
Net loss -- (950) $ (950)
Unrealized gain on investments 368 368 368
-------------
Comprehensive loss -- -- $ (582)
=============
Exercise of options -- 109
Acquisition and retirement of
common stock -- (15,485)
------ ---------
BALANCES, DECEMBER 31, 2001 996 117,936
Net loss -- (14,517) $(14,517)
Unrealized loss on investments (384) (384) (384)
Reclassification adjustment (17) (17) (17)
-------------
Comprehensive loss -- -- $(14,918)
------ --------- ============
BALANCES, DECEMBER 31, 2002 $ 595 $ 103,018
====== =========
See accompanying notes to consolidated financial statements.
F-5
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(14,517) $ (950) $ 15,153
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Cumulative effect of accounting change (net of tax) 956 -- --
Depreciation and amortization 1,436 1,493 1,352
Bad debt-sponsorship partner -- -- 6,320
In-kind revenue -- -- (1,084)
Net loss (gain) from sale/disposal of property and equipment 16 1,975 (29)
Impairment of goodwill -- 5,628 --
Deferred income taxes 1,946 (1,208) (2,014)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 538 383 (3,118)
Inventory 70 81 160
Prepaid expenses and other assets 1,274 (2,240) (188)
Refundable income tax (10,087) -- --
Accounts payable (1,306) 1,034 (156)
Accrued liabilities (1,938) 6,320 1,100
Deferred revenue (88) (941) (2,429)
Deposits -- (778) 778
-------- -------- --------
Net cash provided by (used in) operating activities (21,700) 10,797 15,845
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (138,698) (60,950) (90,255)
Proceeds from sale of investments 146,429 71,903 84,757
Notes receivable -- 2,682 622
Acquisition of property and equipment (7,050) (880) (2,353)
Proceeds from sale of property and equipment 27 86 235
Acquisition of trademark -- (1) (24)
-------- -------- --------
Net cash provided by (used in) investing activities 708 12,840 (7,018)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock -- 109 3,461
Repurchase of common stock -- (15,485) --
-------- -------- --------
Net cash provided by (used in) financing activities -- (15,376) 3,461
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20,992) 8,261 12,288
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,765 19,504 7,216
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,773 $ 27,765 $ 19,504
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 1 $ 3,189 $ 8,934
======== ======== ========
Interest $ -- $ 5 $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES--During
2000, the Company received property and equipment of approximately $1.1 million
in exchange for sponsorship privileges to the providers.
See accompanying notes to consolidated financial statements.
F-6
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 for-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.
The Company is the sanctioning body responsible for organizing, marketing
and staging each of the racing events for the open-wheel motorsports series --
the Champ Car World Series. The Company also acts as a promoter at certain
events. 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.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the
Company include the financial statements of Championship Auto Racing Teams, Inc.
and its wholly-owned subsidiaries - CART, Inc., American Racing Series, Inc.
("ARS"), Pro-Motion Agency, Ltd. and CART Licensed Products, Inc. At the end of
the 2001 season, the Company discontinued the operations of American Racing
Series, Inc. All significant intercompany balances have been eliminated in
consolidation.
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 shorter of the life of the leases or the remaining useful
life of the leasehold improvements.
REVENUE RECOGNITION. Substantially all of the Company's revenue is derived
from sanction fees, promotion revenues, sponsorship revenues, television
revenues, and engine leases, each of which is dependent upon continued fan
support and interest in Champ Car race events. Sanction fee revenues are fees
paid to the Company by track promoters to sanction a Champ Car event at the race
venue and to provide the necessary race management. In 2002, the Company
self-promoted certain events. Revenues received for events the Company promotes
are recorded as promotion revenues. The Company receives sponsorship revenues
from companies who desire to receive brand and product exposure in connection
with Champ Car 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 for contracts through 2001 and for certain
international contracts in 2002. In 2002, the Company bought the air-time and
paid for production for certain races and received the advertising inventory for
certain races. 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.
Recognition of revenue from race sanction agreements is deferred until the
event occurs. Sponsorship revenue and engine lease revenue are recognized
ratably over the period covered by the agreement. Barter revenue is recognized
at the time of the event. Television revenue is recognized ratably over the race
schedule. Other revenues include membership and entry fees, contingency awards
money, rights fees and royalty income. Membership and entry fees and contingency
award money are recognized ratably over the race schedule. Royalty income is
recognized as the related product sales occur or on a monthly basis based on a
minimum guarantee.
F-7
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 as accumulated
other comprehensive income until realized. For the purpose of computing realized
gains and losses, cost is identified on a specific identification basis.
GOODWILL. In June 2001, the FASB issued SFAS No. 142, "Goodwill and
Intangible Assets". The statement requires companies to stop amortizing goodwill
and certain intangible assets with indefinite useful lives. Instead, goodwill
and intangible assets with indefinite useful lives will be tested for impairment
upon adoption of the statement and annually thereafter. The Company performs its
annual impairment review for intangible assets during the fourth quarter of each
year, commencing with the fourth quarter of 2002. As a result of adoption, the
Company no longer records amortization expense related to goodwill or intangible
assets with indefinite useful lives.
The Company adopted SFAS No. 142, effective January 1, 2002, which resulted
in a one-time, non-cash charge of $1.5 million, or $956,000 net of tax benefit
of $514,000, to write-off the value of its goodwill. The goodwill was recorded
under the purchase method of accounting for the purchases of Pro-Motion Agency,
Inc. and CART Licensed Products, LP, on April 10, 1998 and January 1, 1999,
respectively. Such charge is non-recurring in nature and is reflected as a
cumulative effect of an accounting change in the accompanying consolidated
statements of operations. Previous to the adoption of SFAS No. 142, the Company
had accounted for its goodwill and intangible assets in accordance with the
accounting standards existing at the time, and the Company's analyses did not
result in recognition of any impairment loss prior to the adoption of SFAS No.
142, except as discussed in Note 9.
Under SFAS No. 142, goodwill impairment is deemed to exist if the carrying
value of a reporting unit exceeds its estimated fair value. In calculating the
impairment charge, the fair values of the reporting units were estimated using a
discounted cash flow methodology.
A reconciliation of net loss and loss per share, adjusted to exclude
amortization expense, net of tax, for the period prior to adoption and the
cumulative effect of accounting change recognized in the current year, is as
follows:
(In Thousands,
Except Per Share Data)
For The Years Ended
December 31, 2002 December 31, 2001 December 31, 2000
------------------- ------------------ -----------------
Reported net loss $ (14,517) $ (950) $ 15,153
Add back: Goodwill amortization, net of tax - 27 --
Add back: Trademark amortization, net of tax - 17 18
Cumulative effect of accounting change, net of tax 956 -- --
------------------- ------------------ -----------------
Adjusted net loss $ (13,561) $ (906) $ 15,171
=================== ================== =================
Basic and Diluted:
Reported net loss per share $ (0.99) $ (0.06) $ 0.97
Amortization, net of tax -- -- --
Cumulative effect of accounting change, net of tax 0.07 -- --
------------------- ------------------ -----------------
Adjusted loss per share $ (0.92) $ (0.06) $ 0.97
=================== ================== =================
MANAGEMENT ESTIMATES. The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America 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, 2002 and 2001, and the
reported amounts of revenues and expenses during the periods presented. The
actual outcome of the estimates could differ from the
F-8
estimates made in the preparation of the consolidated financial statements.
FINANCIAL INSTRUMENTS. The fair values and carrying amounts of certain of
the Company's financial instruments, primarily accounts receivable, accounts
payable and accrued liabilities, are approximately equivalent due to the
short-term nature of the instruments.
ACCOUNTING PRONOUNCEMENTS. In July 2001, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
141, "Accounting for Business Combinations." The statement changes the
accounting for business combinations by, among other things, prohibiting the
prospective use of pooling-of-interests accounting. The Company adopted this
statement on January 1, 2002 and there was no impact on the financial statements
upon adoption.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of."
This statement retains the impairment loss recognition and measurement
requirements of SFAS No. 121. In addition, it requires that one accounting model
be used for long-lived assets to be disposed of by sale, and broadens the
presentation of discontinued operations to include more disposal transactions.
The Company adopted this statement on January 1, 2002, and there was no impact
on the financial statements upon adoption.
On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The statement is intended to update, clarify and simplify existing
accounting pronouncements. The Company adopted this statement in May 2002, and
there was no impact on the financial statements upon adoption.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. Management does not believe this statement will have a material effect on
its consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantee Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon
issuance of certain guarantees, a guarantor must recognize a liability for the
fair value of the obligation assumed under the guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements regarding certain guarantees and product warranties. The recognition
provisions of FIN 45 will be effective for guarantees issued or modified after
December 31, 2002. The Company does not expect the recognition provisions of FIN
45 will have a material impact on the Company's financial position or results of
operations.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46")
"Consolidation of Variable Interest Entity". The term "variable interest" is
defined in FIN 46 as "contractual, ownership or other pecuniary interests in an
entity that change with changes in the entity's net asset value." Variable
interests are investments or other interests that will absorb a portion of an
entity's expected losses if they occur or receive portions of the entity's
expected residual returns if they occur. The Company does not expect the
recognition provisions of FIN 46 to have a material impact on the Company's
financial position or results of operations.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." This statement amends SFAS
Statement No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
methods of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting
F-9
for stock-based employee compensation and the effect of the method used on
reported results.
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.
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, for the year ended December 31, 2002, 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 of 71%, expected dividend yield of 0%,
risk-free interest rate of 3% and an expected life of 10 years. For the year
ended December 31, 2001, 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
of 30%, expected dividend yield of 0%, risk-free interest rate of 4% and an
expected life of 10 years. For the year ended December 31, 2000, the fair value
of option grants was 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 of 27%, expected dividend yield of 0%,
risk-free interest rate of 5% and an expected life of 10 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 (loss) and diluted earnings (loss) per
share would have been reduced to the pro forma amounts indicated below for the
years ended December 31:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET EARNINGS (LOSS) 2002 2001 2000
------------ ------------ ------------
As reported $(14,517) $ (950) $15,153
Total stock-based employee compensation expense determined under
the fair value based method, net of related tax effects (56) (837) (720)
-------- ------ -------
Pro forma $(14,573) $(1,787) $14,433
======== ======= =======
DILUTED EARNINGS (LOSS) PER SHARE
As reported $ (0.99) $ (0.06) $ 0.97
Total stock-based employee compensation expense determined under
the fair value based method, net of related tax effects -- (0.06) (0.05)
-------- ------ -------
Pro forma $ (0.99) $ (0.12) $ 0.92
======== ======= =======
RECLASSIFICATIONS. Certain reclassifications have been made to the 2001 and
2000 consolidated financial statements in order for them to conform to the 2002
presentation.
2. SHORT-TERM INVESTMENTS
The following is a summary of the estimated fair value of
available-for-sale short-term investments by balance sheet classification at
December 31:
GROSS UNREALIZED
(IN THOUSANDS) COST FAIR VALUE GAIN LOSS
---------- ---------- ---------- ----------
2002
Letters of credit $ 30 $ 30 $ -- $ --
Corporate bonds 2,538 2,556 18 --
U.S. agencies securities 76,003 76,903 900 2
---------- ---------- ---------- ----------
Total short-term investments $78,571 $79,489 $ 918 $ 2
========== ========== ========== ==========
2001
Letters of credit $ 8,167 $ 8,167 $ -- $ --
Corporate bonds 507 511 4 --
U.S. agencies securities 77,951 78,943 992 --
---------- ---------- ---------- ----------
Total short-term investments $86,625 $87,621 $ 996 $ --
========== ========== ========== ==========
F-10
Proceeds from sales of investments were approximately $146.4 million and
$71.9 million in 2002 and 2001, respectively. In 2002 and 2001, gross gains and
losses on such sales were not significant.
Contractual maturities range from less than one year to two years. The
weighted average maturity of the portfolio does not exceed one year.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
(IN THOUSANDS) USEFUL LIFE
2002 2001 (IN YEARS)
------------- -------------- ---------------------------
Engines $ 4,000 $ 2,456 * 2
Equipment 7,242 4,890 5-20
Furniture and fixtures 425 413 10
Vehicles 4,065 3,553 5-7
Other 268 215 5 (except leasehold
improvements)
------------- --------------
Total 16,000 11,527
Less accumulated depreciation (5,597) (6,695)
------------- --------------
Property and equipment (net) $ 10,403 $ 4,832
============= ==============
* 2001 engines are no longer in service and have been fully depreciated and
disposed.
4. CAPITAL STOCK
In 2002, there were no repurchases or retirements of common stock.
During the year ended December 31, 2001, the Company repurchased and
retired 1,054,000 shares of its common stock for an aggregate cost of $15.5
million, pursuant to its stock repurchase program authorized by the Board of
Directors in April 2001. The program allows the Company to repurchase up to 2.5
million shares of its outstanding common stock from time to time in open market
or privately negotiated transactions. Repurchases under the program will be made
at the discretion of management based upon market, business, legal, accounting
and other factors. Currently, the Company has no intention to purchase any of
its outstanding shares.
5. OPERATING LEASES
The Company has entered into various non-cancelable operating leases for
office space and equipment which expire through 2010. Total rent expense for
these operating leases were approximately $491,173, $638,000 and $594,000 for
2002, 2001 and 2000, respectively.
Approximate future minimum lease payments under non-cancelable operating
leases are as follows:
Years Ending December 31: (In Thousands)
2003 $ 503
2004 521
2005 523
2006 529
2007 540
2008 and thereafter 991
-------
Total $ 3,607
=======
F-11
6. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
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, except for the state tax net operating loss carryforward.
The tax effects of temporary differences giving rise to deferred tax assets
and liabilities at December 31 are as follows:
2002 2001
---- ----
(IN THOUSANDS)
Current deferred tax assets (liabilities):
Allowance for doubtful accounts $ 586 $ 2,853
Net capital loss carryforwards 45 55
State taxes -- (52)
Deferred compensation 874 --
Unrealized investment gains (321) --
----------- ----------
Net current deferred tax asset $ 1,184 $ 2,856
=========== ==========
Non-current deferred tax assets (liabilities):
Basis difference in fixed assets $ (678) $ (628)
State tax net operating loss carryforward 682 --
Valuation allowance, state tax net operating loss carryforward (682) --
Goodwill 438 (64)
Charitable contribution carryforwards 150 186
Tax credit carryforwards -- 209
State taxes (34) --
Indianapolis lease deferral 67 --
----------- ----------
Net non-current deferred tax liability $ (57) $ (297)
=========== ==========
The provision (benefit) for income taxes consists of the following for the years
ended December 31:
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:
2002 2001 2000
------------- -------------- ------------
Tax at U.S. federal statutory rate (35.0%) (35.0%) 35.0%
State income tax, net of federal benefit (0.9) (0.3) 1.9
Meals and entertainment 0.6 8.9 0.5
Tax exempt interest -- -- (1.2)
Valuation allowance 3.0 --
Other (2.7) (8.6) (0.2)
------------- -------------- ------------
Total (35.0%) (35.0%) 36.0%
============= ============== ============
7. EMPLOYEE BENEFIT PLANS
The Company offers a 401(k) savings plan. 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
$81,000, $86,000, and $95,000 in 2002, 2001, and 2000, respectively.
8. DEBT
At December 31, 2002 and 2001, the Company had an unused bank line of
credit of $1.5 million. There were no amounts outstanding at December 31, 2002
and 2001. 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.
9. ASSET IMPAIRMENT AND STRATEGIC CHARGES
During the third quarter of 2001, the Board of Directors of the Company
adopted a formal exit plan with respect to the discontinuance of the Dayton Indy
Lights Championship ("DILC") effective at the conclusion of the 2001 race
season. This decision resulted from an in-depth analysis of the Company's
development series conducted by management of the Company and Bain & Company, an
independent consulting company. The analysis was initiated to determine the
future viability of the DILC, operated by ARS. This analysis included
discussions with DILC team owners and employees and discussions with Toyota
Atlantics Championship ("TAC") team owners and employees. The TAC is operated by
Pro-Motion. The analysis was completed in July, 2001.
The Company reviewed the financial and operational performance of the DILC
and the TAC. Based upon such analysis, and based upon the information gathered
in discussions with team owners and employees, management of the Company
concluded that due to the current environment for open-wheel racing in the
United States, CART can only support one development series at this level. CART
had many discussions with sponsors of the DILC and the TAC and concluded that
the support of Toyota with the TAC and the equipment contracts in place for TAC
supported the decision to discontinue the DILC at the conclusion of the 2001
race season to focus its support and efforts on one development series.
In 2001, the Company recorded charges of $8.5 million related to the formal
exit plan for the discontinuance of operations of the DILC. The Company recorded
charges of $7.6 million related to the impairment of goodwill ($5.6 million) and
a write-down of the carrying value of property and equipment ($2.0 million). The
carrying value of the property and equipment that has been impaired primarily
relates to engines owned by ARS and used in the DILC. The Company has fully
depreciated and disposed of the engines.
The Company also recorded charges of $885,000 in 2001 resulting from
management's estimate of certain expenses following the decision by the Company
to discontinue the DILC operations. These charges included provisions for
doubtful accounts, severance payments and other settlement charges.
F-13
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 2008 racing season. Under the promoter agreements, the Company
is obligated to sanction Champ Car World Series 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, time buys, sales and worldwide distribution of the
Company's events.
TEAM ASSISTANCE. Beginning in 2003 the Company will provide assistance to
certain teams to ensure that there are a sufficient number of race cars
competing in the Company's series. The Company will spend up to $30.0 million in
team assistance, spread out over the race season, to make sure there are a
sufficient number of healthy competitors for the 2003 season. In exchange for
the team assistance the Company receives certain sponsorship rights from the
team.
ENTRANT SUPPORT PROGRAM. Beginning in 2003, the Company will provide
financial assistance to teams that participate in the Champ Car World Series,
including teams affiliated with our directors and/or 5% stockholders. The
Entrant Support Program ("ESP") will provide up to $42,500 in cash payments to
teams, per race, for each car entered into the series. In exchange for ESP
payments, the Company receives certain sponsorship rights from the team.
TELEVISION TIME BUYS. In 2003, the Company will buy the air time at
approximately $240,000 per hour for the Company's CBS races. The Company
anticipates having six two-and-one-half-hour shows in 2003.
OFF BALANCE SHEET ARRANGEMENTS. In October 2002, the Company provided a
deposit of $550,000 and a letter of credit in the amount of $1.7 million for the
production of conversion kits for race car chassis for the 2003 season. The
letter of credit guarantees that at least 20 of the kits would be purchased by
the Company's race teams. As the kits are purchased, the letter of credit will
be reduced accordingly. All 20 race kits have been purchased by the Company's
race teams, and therefore, the deposit was refunded on February 27, 2003 and the
letter of credit was canceled.
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 2005. Certain of the employment 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.
GUARANTY. The Company has unconditionally guaranteed the full and prompt
payment of a loan of Raceworks, LLC (see Note 18). This guaranty will remain in
effect until the guaranteed obligation terminates, which is currently estimated
to be July 2007. The maximum potential amount of future payments (undiscounted)
the Company could be required to make under the guaranty include principal and
accrued interest of $1,824,000 as of December 31, 2002, and reasonable costs of
collections incurred by the lender, which cannot be reasonably estimated.
The Company has not incurred any liability relative to its obligation under
the guaranty as of December 31, 2002
LITIGATION. On September 8, 2000, a complaint for damages was filed against
the Company in the Superior Court of the State of California, County of
Monterey. This lawsuit was filed by the heirs of Gonzolo Rodriguez, a race car
driver who died on September 11, 1999 while driving his race car at the Laguna
Seca Raceway in a practice session for the CART race event. The suit seeks
damages in
F-14
an unspecified amount for negligence and wrongful death. On November 5, 2001, a
release signed by Mr. Rodriguez was upheld by the Court and the causes of action
for negligence were dismissed based on the defendants' motion for summary
judgment. The remaining count in the lawsuit was for willful and/or reckless
conduct. On March 13, 2003 a jury verdict completely exonerating the Company was
received.
On October 30, 2000, a complaint for damages was filed against the Company
in the Superior Court of the State of California, County of San Bernardino. This
lawsuit was filed by the estate of Greg Moore, a race car driver who died on
October 31, 1999 while driving his race car at the California Speedway during
the CART race event. The suit sought actual and punitive damages from the
Company in an unspecified amount for breach of duty, wanton and reckless
misconduct, breach of implied contract, battery, wrongful death and negligent
infliction of emotional distress. On a motion for Summary Judgment, the
complaint was dismissed on all counts on October 16, 2002. An appeal of the
dismissal was filed. Management does not believe that the outcome of this
lawsuit will have a material adverse affect on the Company's financial position
or future results of operations.
On November 8, 2001, two former team owners, DellaPenna Motorsports and
Precision Preparation, Inc., filed suit against the Company in the Circuit Court
for the County of Wayne, State of Michigan, each alleging damages in excess of
$1.0 million for breach of contract, promissory estoppel, misrepresentation, and
tortious interference with contract and business expectancy. The Company intends
to vigorously defend itself in this lawsuit and does not believe the lawsuit has
merit. The suit is currently in the discovery phase. Management does not believe
that the outcome of this lawsuit will have a material adverse affect on the
Company's financial position or future results of operations.
On March 26, 2002, the Company filed a complaint against Joseph F.
Heitzler, a former director and former chairman, chief executive officer and
president of the Company in U.S. District Court, Eastern District of Michigan,
Southern Division. The complaint alleges that Mr. Heitzler breached his
employment contract, breached his fiduciary duties and intentionally or
recklessly omitted to disclose information to the Company in order to induce the
continuation of Mr. Heitzler's employment agreement. The suit seeks damages of
an unspecified amount. This lawsuit has been removed to California. On March 28,
2002, Mr. Heitzler filed a complaint against the Company in the Superior Court
of the State of California, County of Los Angeles. The suit seeks compensatory,
exemplary and punitive damages in excess of $2.0 million for breach of contract,
fraud, negligent misrepresentation, breach of covenant of good faith and fair
dealing and declaratory relief. An amended complaint adding a count for tortious
breach of contract in violation of public policy was filed on April 9, 2002. The
Company intends to vigorously defend itself in this lawsuit. Management does not
believe that the outcome of these lawsuits will have a material adverse affect
on the Company's financial position or future results of operations.
On July 9, 2002 a Demand for Arbitration was filed against the Company with
the American Arbitration Association in Indianapolis, Indiana by Engine
Developments Ltd. The Demand alleges that the Company breached an agreement to
purchase engines and seeks unspecified damages. The claim is currently in the
discovery stage. Management does not believe that an agreement was ever entered
into and intends to vigorously defend itself. Management does not believe that
the outcome of this Demand for Arbitration will have a material adverse affect
on the Company's financial position or future results of operations.
The Company is involved in other litigation not specifically identified
above and does not believe the outcome of any of this litigation will have a
material adverse affect on its financial position or future results of
operation.
11. BAD DEBT - SPONSORSHIP PARTNER
Bad debt expense in 2000 of $6.3 million relates to a charge associated
with the Company's sponsorship agreement with ISL Marketing AG ("ISL"). In 1998,
ISL signed a nine (9) year contract to become the Company's exclusive marketing
agent for solicitation of sponsorship agreements. The contract guaranteed the
Company a minimum amount of sponsorship revenue for each year of the agreement.
Following discussions with ISL, it was determined that ISL did not intend to
fulfill its
F-15
commitment with respect to the remaining years of the agreement under its
original terms and collectability of the guarantee for 2000 was uncertain. In
June 2001, ISL declared bankruptcy in Switzerland.
12. SEVERANCE EXPENSE
During 2001, the Company recorded severance expense relating to the
voluntary and involuntary resignation of certain employees, including the
Company's President/CEO. These expenses amounted to $4.3 million and are
included in administrative and indirect expenses.
In June 2000, the Company's President/CEO announced his resignation. The
former President/CEO entered into a severance agreement where the Company
recorded a one-time severance payment of $2.8 million.
At December 31, 2002 and 2001, severance payments of $2.3 million and $3.8
million, respectively, are accrued.
13. STOCK OPTION PLANS
1997 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 "1997 Stock Option Plan"). Under the 1997 Stock Option Plan, key employees,
outside consultants and advisors (the "Participants") of the Company and its
subsidiaries (as defined in the 1997 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 1997 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
1997 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.
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 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, 2002 and 2001, there were 25,000 and
72,500, respectively, Director NQSOs issued and outstanding.
No further options will be granted under either the 1997 Stock Option Plan
or the Director's Stock Option Plan.
F-16
The following table summarizes information about stock options under the
1997 Stock Option Plan and Directors Stock Option Plan during 2002, 2001 and
2000 as follows:
WEIGHTED
AVERAGE WEIGHTED
NUMBER OF REMAINING LIFE AVERAGE
1997 DIRECTOR & STOCK OPTION PLAN SHARES LIFE EXERCISE PRICE
------------------------------------------------------------------------------------------------------
Options outstanding December 31, 1999 1,166,288 3.4 $17.20
(357,559 are exercisable)
Granted 439,650 9.6 21.28
Exercised (178,899) -- 16.00
Forfeited* (721,550) -- 16.26
------------------ ---------------- ----------------
Options outstanding December 31, 2000 705,489 7.6 $20.99
(274,157 are exercisable)
Exercised (6,667) -- 16.00
Forfeited (96,250) -- 24.18
------------------ ---------------- ----------------
Options outstanding December 31, 2001 602,572 6.6 $20.50
(402,477 are exercisable)
Forfeited 337,302 -- 21.16
------------------ ---------------- ----------------
Options outstanding December 31, 2002 265,270 4.1 19.67
================== ================ ================
(256,287 are exercisable)
*600,000 options were forfeited in exchange for a severance payment made to the
Company's former CEO.
The weighted average exercise price of exercisable options at December 31,
2002 was $19.67. Options outstanding at December 31, 2002 range in exercise
price from $16.00 to $29.00.
At December 31, 2002, 2001 and 2000, an additional 0, 0 and 1,173,185,
respectively, shares were reserved for issuance under the 1997 Stock Option Plan
and Directors Stock Option Plan.
2001 STOCK OPTION PLAN. In May 2001, the Company's Board of Directors
authorized and the stockholders of the Company approved a 2001 Long Term Stock
Incentive Plan ("2001 Stock Option Plan"), which provides for grants of stock
options to eligible participants including employees, officers, directors,
consultants and other key persons. The 2001 Long Term Stock Incentive Plan
authorizes the grant to participants of options to purchase up to 1,500,000
shares of the Company's common stock.
No officer may be granted more than 500,000 options during any one fiscal
year. Options are granted only to employees, officers, directors, consultants
and other persons providing key services to the Company or a subsidiary and the
purchase price of each option granted cannot be less than 100% of the fair
market value of the common stock on the date of grant.
Options granted under the Plan are incentive stock options or non-qualified
stock options as defined under the Internal Revenue Code of 1986, as amended.
The shares issued upon the exercise of options granted may be previously
unissued shares, reacquired shares, or shares bought in the market. The purchase
price for all shares purchased pursuant to options exercised must be either paid
in cash, or paid in full in common stock of the Company valued at fair market
value on the date of exercise, or a combination of cash and common stock.
The term of each option may not exceed ten years and, additionally, may not
exceed twelve months following the termination of providing services to the
Company, unless modified by the Compensation Committee.
F-17
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE FAIR
2001 STOCK OPTION PLAN OF SHARES LIFE PRICE VALUE
---------------------------------------------- ------------- -------------- ------------ -------------
Options outstanding December 31, 2000 -- -- -- --
(0 are exercisable)
Granted 851,250 9.8 $15.35 $7.47
Forfeited 2,800 -- 14.68 --
Options outstanding December 31, 2001 848,450 9.8 $15.30 --
(40,000 are exercisable)
Granted 553,250 9.5 $7.38 $5.71
Forfeited 265,650 -- $15.26 --
Options outstanding December 31, 2002 1,136,050 9.2 $11.49 --
(217,016 are exercisable)
The weighted average price of exercisable options at December 31, 2002 was
$14.14. Options outstanding at December 31, 2002 range in exercise price from
$4.90 to $16.64. At December 31, 2002, 363,950 shares were reserved for issuance
under the 2001 Stock Option Plan.
14. 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 the Company's 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 segment in the United States.
YEARS ENDED DECEMBER 31,
------------------------
(In Thousands) RACING OPERATIONS OTHER* TOTALS
-------------- ----------------- ------ ------
2002
Revenues $ 57,146 $ 99 $ 57,245
Interest income 3,749 13 3,762
Depreciation and amortization 1,361 75 1,436
Segment loss before income taxes (20,725) (138) (20,863)
2001
Revenues $69,915 $ 348 $ 70,263
Interest income 7,013 20 7,033
Depreciation and amortization 1,395 98 1,493
Segment loss before income taxes (1,421) (41) (1,462)
2000
Revenues $ 74,425 $ 623 $ 75,048
Interest income 7,447 16 7,463
Depreciation and amortization 1,250 102 1,352
Segment income (loss) before income taxes 24,135 (462) 23,673
*Segment is below the quantitative thresholds for presentation as a reportable
segment. This segment is related to the Company's licensing royalties.
Reconciliations to the consolidated balance sheets totals at December 31
are as follows:
(In Thousands)
2002 2001
------------- ------------
Total assets for reportable segment $ 114,194 $ 131,901
Other assets 257 1,040
------------- ------------
Total consolidated assets $ 114,451 $ 132,941
============= ============
F-18
Domestic and foreign revenues, which are allocated to each country based on
sanction fees, sponsorship revenues and television revenues, the three years
ended December 31 were as follows:
(In Thousands)
------------
2002 2001 2000
---------- ---------- -----------
United States $ 33,820 $ 40,717 $ 53,261
Canada 6,500 7,032 7,618
Mexico 6,704 2,590 --
Other foreign countries 10,221 19,924 14,169
-------- -------- --------
Total $ 57,245 $ 70,263 $ 75,048
======== ======== ========
Revenues from one promoter in 2002 were $6.5 million, which exceeded 10% of
total revenues.
15. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share ("EPS") excludes dilution and is computed by
dividing net income (loss) 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 13) upon the assumed exercise of dilutive stock options.
YEARS ENDED DECEMBER 31,
------------------------
2002 2001 2000
---- ---- ----
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Net income (loss) $ (14,517) $ (950) $ 15,153
============ =========== ============
Basic EPS:
Weighted average common shares outstanding 14,718 15,289 15,624
============ =========== ============
Net earnings (loss) per common share, basic $ (0.92) $ (0.06) $ 0.97
============ =========== ============
Diluted EPS:
Weighted average common shares outstanding 14,718 15,289 15,624
Shares contingently issuable -- -- 33
------------ ----------- ------------
Shares applicable to diluted earnings 14,718 15,289 15,657
============ =========== ============
Net earnings (loss) per common share, diluted $ $(0.92) $ (0.06) $ 0.97
============ =========== ============
In 2002, due to a loss from operations, 20,000 incremental shares relating
to the dilutive effect of stock options were excluded from the calculation of
diluted loss per share due to their anti-dilutive effect. In 2001, 1,000
incremental shares were excluded from the calculation of diluted loss per share
due to their anti-dilutive effect.
16. RELATED PARTY TRANSACTIONS
The Company has entered into, and will continue to enter into transactions
with entities that are affiliated with the Company's directors and/or 5%
stockholders (related parties).
The Company receives sanction fees from promoters affiliated with related
parties. Total sanction fee revenue related to these entities for 2002, 2001 and
2000 was approximately $10.6 million, $12.7 million and $6.4 million,
respectively. No sanction fees from a single related entity provided more than
10% of the Company's revenues in 2002, 2001 and 2000.
The Company rented track facilities from promoters affiliated with related
parties. Total track rental expense related to these entities for 2002, 2001,
and 2000 was approximately $853,000, $59,000 and $28,000, respectively.
F-19
At December 31, 2002 and 2001, the Company has accounts receivable of
approximately $566,000 and $1.7 million, respectively, due from related parties.
The receivables relate to billings associated with sanction fees and
miscellaneous team and promoter charges.
The Company receives entry fees and other race-related income to
participate in the Champ Car Series from teams affiliated with related parties.
Such fees received from teams amounted to $655,000, $710,000 and $1.4 million in
2002, 2001 and 2000, respectively.
The Company disburses purse winnings, awards and participation payments to
teams affiliated with related parties. Total purse winnings and awards related
to these teams for 2002, 2001 and 2000 were $11.3 million, $6.4 million and
$10.1 million, respectively.
In 2003, the Company has committed to lease engines and provide financial
assistance to teams affiliated with related parties. Total engine lease income
and financial assistance related to the entities will be $700,000 and $14.7
million, respectively.
The Company paid for at-track rights to promoters affiliated with related
parties in order to satisfy contractual obligations with certain sponsors. Total
at-track rights related to these entities for 2002, 2001 and 2000 were $400,000,
$500,000 and $800,000, respectively.
The Company paid for marketing expenses to promoters affiliated with
related parties. Total marketing expenses related to these promoters for 2002,
2001 and 2000 were $700,000, $616,000 and $0, respectively.
In 2001, the Company subsidized overseas travel expense for teams
affiliated with related parties. Total travel reimbursements for those teams
were $1.7 million.
The Company pays royalties to teams and promoters affiliated with related
parties. Total royalty expense for these entities for 2002, 2001 and 2000 were
$46,000, $40,000 and $69,000, respectively.
At December 31, 2002 and 2001, the Company has accounts payable and
royalties payable of approximately $46,000 and $442,000, respectively, due to
teams and promoters affiliated with related parties.
In 2001, the Company repurchased 80,000 shares at the market price of
$14.50 per share from a Director of the Company. The repurchase was made in
compliance with the Company's repurchase program that was authorized by the
Board of Directors in April 2001.
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
$125,000, $126,000 and $172,000 in 2002, 2001 and 2000, respectively.
F-20
17. SUMMARIZED QUARTERLY DATA (UNAUDITED)
Following is a summary of the quarterly results of operations for the years
ended December 31, 2002 and 2001.
(In Thousands, Except Earnings Per Share) First Second Third Fourth Total
-------------------------------------------------------------------------------------------------------------------------------
2002
Total revenues $ 5,603 $19,292 $ 18,537 $ 13,813 $ 57,245
Operating income (loss) (2,001) (6,759) (13,667) (2,224) (24,651)
Net income (loss) before effect of accounting change (594) (3,668) (8,310) (989) (13,561)
Cumulative effect of accounting change 956) -- -- -- (956)
-------- ------- -------- -------- --------
Net income (loss) after effect of accounting change $ (1,550) $(3,668) $ (8,310) $ (989) $(14,517)
======== ======= ======== ======== ========
Earnings (loss) per share before cumulative effect
of accounting change:
Basic $ (0.04) $ (0.25) $ (0.56) $ (0.07) $ (0.92)
======== ======= ======== ======== ========
Diluted $ (0.04) $ (0.25) $ (0.56) $ (0.07) (0.92)
======== ======= ======== ======== ========
Earnings (loss) per share after before cumulative
effect of accounting change:
Basic $ (0.11) $ (0.25) $ (0.56) $ (0.07) $ (0.99)
======== ======= ======== ======== ========
Diluted $ (0.11) $ (0.25) $ (0.56) $ (0.07) $ (0.99)
======== ======= ======== ======== ========
(In Thousands, Except Earnings Per Share) First Second Third Fourth Total
-------------------------------------------------------------------------------------------------------------------------------
2001
Total revenues $ 6,439 $19,785 $ 29,559 $ 14,480 $ 70,263
Operating income (loss) (1,849) 4,157 (4,439) (6,364) (8,495)
-------- ------- -------- -------- --------
Net income (loss) $ 81 $ 3,949 $ (1,710)(1) $ (3,270) $ (950)
======== ======= ======== ======== ========
Basic earnings (loss) per share $ 0.01 $ 0.25 $ (0.11) $ (0.21) $ (0.06)
======== ======= ======== ======== ========
Diluted earnings (loss) per share $ 0.01 $ 0.25 $ (0.11) $ (0.21) $ (0.06)
======== ======= ======== ======== ========
(1) Includes asset impairment and strategic charges of $8.5 million relating to
the discontinuance of our Indy Lights series and litigation expense of $3.5
million that was a result of a settlement with Texas Motor Speedway for the
cancellation of a race that was to be held in April 2001.
18. ACQUISITION OF RACEWORKS, LLC
On March 7, 2003, the Company acquired 100 percent (100%) of the membership
interests in Raceworks, LLC ("Raceworks"). The aggregate purchase price was $1.2
million including $473,000 of cash and a promissory note of $722,000 without
interest. Raceworks is a motorsports promotion company and holds a revocable
license agreement to annually conduct a street race in downtown Miami through
2017, with an option to extend for an additional ten (10) years.
F-21
SCHEDULE II
CHAMPIONSHIP AUTO RACING TEAMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS)
CHARGED BALANCE
BEGINNING TO COSTS DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD AND EXPENSES (1) OF PERIOD
------------------------------------------- ------------ ------------ ----------- -----------
Allowance for doubtful
accounts (deducted from
accounts receivable):
Year Ended December 31, 2002... $ 7,388 $ 1,223 $ 7,329 $ 1,282
Year Ended December 31, 2001... 6,539 1,077 328 7,388
Year Ended December 31, 2000... 250 6,546 257 6,539
Allowance for doubtful
notes (deducted from
notes receivable):
Year Ended December 31, 2002... $ 219 $ 0 $ 198 $ 21
Year Ended December 31, 2001... 0 219 0 219
(1) Accounts deemed to be uncollectible.
S-1
Exhibit 10.28
CART, INC.
AND
[CUSTOMER TEAM NAME]
CART ENGINE LEASE AGREEMENT 2003 ONE [1] CAR CONTRACT
ENGINE LEASE AGREEMENT
This engine lease agreement is entered into on the ____ day of _________,
2002, by and between CART, Inc., a Michigan corporation ("CART") located at 5350
Lakeview Parkway Drive South, Indianapolis, Indiana 46268 and Fittipaldi-Dingman
Racing, whose principal place of business is __________________________________
(the "Team").
RECITALS
A. Cosworth Racing, Inc. ("Cosworth") has developed a 2.65 turbocharged
racing engine known as XFE for use in the CART Racing Series and CART
has purchased a number of the XFE race engines for the 2003 and 2004
race seasons.
B. Team wishes to enter into a lease agreement with CART whereby, under the
terms and conditions hereof, CART will lease to Team, Cosworth XFE
engines.
Therefore, in consideration of the mutual covenants and obligations
contained herein, the parties agree as follows:
I. ENGINE LEASE.
CART agrees to lease to Team three (3) XFE engines (the "Engine")
specifically for use in the 2003 Race Season ("Engine"). The Engines provided to
Team shall be received from a pool of engines owned by CART and maintained by
Cosworth. Team understands that it will not always be in possession of the same
Engines, but will always be in possession of up to three (3) Engines that meet
the specifications set forth on Schedule 1. Under no circumstances shall Team be
entitled to be in possession of more than three (3) Engines and, Team will
always have possession or the immediate right to acquire three (3) Engines.
II. ENGINE SERVICE AGREEMENT.
Team and CART agree that the engines leased hereunder will be maintained by
Cosworth and Team agrees that it has or will, upon execution of this Agreement,
enter into an "CART Customer Engine Service Agreement" with Cosworth on the
terms and conditions acceptable to CART, Cosworth and the Team. The engines will
be serviced by Cosworth as provided in the CART Customer Engine Service
Agreement which shall govern the use and maintenance of the engines.
III. INSTALLATION KIT.
CART will provide to Team at no additional cost, one (1) Installation Kit
as described on Schedule 1 attached hereto (the "Installation Kit"). Such
Installation Kit shall be returned to CART upon termination of this Agreement.
IV. ENGINE ABUSE AND CRASH DAMAGE.
Engine abuse shall mean the occurrence of any of the circumstances
described in the CART Engine Customer Service Agreement. Crash damage shall
include any damage caused to an engine, while in the possession of Team, which
results from either damage which is
1
incurred in connection with racing activities, transportation of the engines or
any other damage which occurs while the engine is in the possession of the Team.
Team agrees that it will be responsible for and pay for all engine abuse
and crash damage by arranging with Cosworth to have the engine either replaced
or fixed as is necessary.
V. PAYMENT.
Team shall pay to CART a one time lease payment for the 2003 Racing Season
in the amount of One Hundred Thousand Dollars ($100,000), payable in four (4)
equal installments of $25,000 on the first day of January, April, July and
October of 2003.
VI. DELIVERY AND RETURN OF ENGINES.
CART will arrange with Cosworth for the delivery and return of all race
engines. Since the engines will be from an engine pool and be maintained by
Cosworth on behalf of CART, Team agrees to comply with Cosworth's requirements
with respect to delivery and return of the engines.
VII. TERM.
The term of this Agreement shall commence on the execution of this
Agreement and shall terminate on November 30, 2003.
VIII. TEAM'S OBLIGATIONS.
Team will provide an adequately funded competitive team for and will make
one entry in each CART race for 2003 and comply with all of the terms and
conditions of the CART, Inc. 2003 Entrant Support and Participation Agreement.
The Team will comprise the requisite competent skilled driver, technicians and
other key personnel.
The Team will: a) not run or test the engine outside of the Team's car; b)
not open, break the seals, modify, strip, repair or rebuild the whole or any
part of the engine or the Installation Kit; c) obtain Cosworth's prior written
approval to any electrical or other modification to the Team's car that may
effect the engine's performance; d) take all reasonable and proper care of the
engines and the Installation Kit and indemnify CART against loss of or damage to
the engines or the Installation Kit howsoever caused; and e) not during the term
of this Agreement run any engine in a CART race other than the Engine.
IX. SPONSORSHIP.
Team agrees that it will display "Cosworth" decals as provided in the CART
Customer Engine Service Agreement and engine badge decals as required by CART.
X. WARRANTIES AND LIABILITIES.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY OR OTHERWISE, NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE OF ANY
KIND OR NATURE WHATSOEVER REGARDING THE ENGINE, INSTALLATION KIT OR LEASE KIT
HAS BEEN, IS OR WILL BE MADE BY OR ON BEHALF OF CART INCLUDING, BUT NOT LIMITED
TO, ANY REPRESENTATION OR
2
WARRANTY OF THE CAPACITY, CONDITION, SUITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, PERFORMANCE, RELIABILITY, USE, QUALITY OR MERCHANTABILITY FOR ANY
PARTICULAR PURPOSE AND ANY AND ALL SUCH REPRESENTATIONS AND WARRANTIES HEREBY
ARE WAIVED BY TEAM AND EXCLUDED FROM THIS AGREEMENT, IT BEING UNDERSTOOD AND
AGREED THAT THE SUPPLIED ITEMS ARE PROVIDED "AS IS" AND "WITH ALL FAULTS." CART
SHALL NOT HAVE ANY OBLIGATION OR LIABILITY TO TEAM IN TORT, CONTRACT OR OTHER
THEORY FOR ANY LOSS, INJURY OR DAMAGE THROUGH TEAM, ITS EMPLOYEES, DRIVERS,
AGENTS OR CONTRACTORS AS A RESULT OF ANY DEFECT IN OR THE PROVISION FOR USE OF
ANY OF THE ITEMS WHICH ARE THE SUBJECT OF THIS AGREEMENT.
TO THE EXTENT PERMITTED BY LAW, TEAM HEREBY WAIVES ANY RIGHTS NOW OR
HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE CART TO SELL,
LEASE OR OTHERWISE USE ANY ENGINES OR RELATED EQUIPMENT IN MITIGATION OF DAMAGES
OF CART OR WHICH MAY OTHERWISE LIMIT OR MODIFY ANY OF THE RIGHTS REMEDIES OF
CART.
TO THE EXTENT PERMITTED BY LAW, TEAM HEREBY WAIVES ANY AND ALL RIGHTS
CONFERRED UPON A LESSEE AS PROVIDED IN STATE LAW.
XI. RELEASE AND INDEMNIFICATION
No officer or employee of CART will be liable to the Team in any
circumstances for any loss, expense or damage of any kind (direct, indirect,
financial or consequential and whether arising from negligence or otherwise)
arising from any act or omission of his during the performance of his employment
or other duties. All officers and employees of CART from time to time will be
entitled to the benefit of the exemptions, limitations, terms and conditions in
this Agreement, and for this purpose only CART enters into this Agreement as
their agent.
The Team agrees that the risk of personal injury or death to individuals as
a result of racing the car powered by the Engine (whether a test or race) is
substantial but it is a normal and ordinary risk insured against by the Team.
Team shall defend, indemnify and hold harmless, CART, its parent,
subsidiaries, and affiliated entities and the respective officers, directors,
shareholders, employees, agents, distributors, dealers, successors and assigns,
from and against any and all losses, claims, actions, suits, proceedings,
damages, costs and expenses, including reasonable attorneys fees, arising out of
or in connection with or related to the Team's racing and testing activities
including, without limitation, damage or injury to, or death of, any Team
employee, driver, agent or contractor; the performance or non-performance by or
any breach or default of, team under this agreement, including, but not limited
to, any of Team's testing or racing activities contemplated hereby, except that
Team's indemnification obligation hereunder shall not apply to any losses
resulting from the gross negligence or wilful misconduct of CART.
The Parties recognise that the section is reasonable having regard to the
unique environment of CART racing and the totality of the commercial
arrangements between them including (without limitation) the amounts payable by
the Team to CART hereunder and to the fact that if CART were to accept
additional or more expensive liability than that prescribed in such clauses CART
would require to be paid, and the Team would agree to pay higher amounts.
3
XII. FORCE MAJEURE
Neither party will be liable to the other party for non-performance or
delay in performance of any of its obligations under this Agreement due to
causes reasonably beyond its control including without limitation fire, flood,
strikes, labour troubles or other industrial disturbances, government
regulation, war, terrorism, civil commotion and riots. Upon the occurrence of
such force majeure condition the affected party will immediately notify the
other party with as much detail as possible and will promptly inform the other
party of any further developments. Immediately after the cause is removed, the
affected party will proceed with the performance of such obligations with all
due speed.
XIII. INSURANCE.
The Team will (at its own expense) insure the engines and the Installation
Kit throughout the period that the Team is in possession or the Engines and
Installation Kit are under its control and such insurance being with an
insurance company acceptable to CART providing: 1.) indemnity with respect to
all risks of material loss or damage except when the Engines and Installation
Kit are being used for racing or testing to a value of $150,000 per Engine and
full replacement value of the Installation Kit of $30,000; and 2.) an indemnity
with respect to third party liability in an amount equal to $5,000,000 per
occurrence. Under no circumstances may title to the Engines pass to the
insurance company, even in the event of a total loss claim.
XIV. OWNERSHIP.
The Engine and Installation Kit is and shall at all times be and remain,
the sole exclusive property of CART. Team shall have no right, title or interest
therein, except as expressly set forth in this Agreement.
XV. MAINTENANCE AND REPAIRS.
Team shall maintain the Engine and Installation Kit in good order and
condition of repair, safety, cleanliness, and appearance, ordinary wear and tear
excepted and shall properly make all repairs and replacements necessary and
appropriate to so maintain the Engine and Installation Kit.
XVI. TERMINATION.
This Agreement may be terminated by CART at any time or from time to time
upon one (1) day's notice if any of the following occur:
A. Team fails to enter into and abide by the terms and conditions of
the CART Customer Engine Service Agreement with Cosworth;
B. Fails to enter any CART Race without the prior written approval of
CART; or
C. Breaches any of the terms or conditions of this Agreement.
4
XVII. ASSIGNMENT OR SUBLEASE.
Except as otherwise expressly permitted in this Agreement, Team shall not
license, sublease, sell, assign, convey, transfer, lend or encumber the Engine
or Installation Kit. Team shall not assign this Agreement without first
obtaining CART's express written consent to such assignment, which may be
withheld at CART's sole discretion.
XVIII. NON-WAIVER.
No failure by CART to exercise any option hereunder or to enforce its
rights or seek its remedies upon any default, and no acceptance by CART of any
payments occurring before or after any default, shall affect or constitute a
waiver of CART's rights to exercise that option, enforce that right, or seek
that remedy with respect to that default or any prior or subsequent default.
XIX. NO THIRD PARTY BENEFIT.
This Agreement is intended for the benefit of CART and Team and, except as
otherwise provided in this Agreement, their respective successors and assigns,
and nothing contained in this Agreement shall be construed as creating any right
or benefits in or to any third party.
XX. NOTICES.
Any notice or request required or desired to be given to either party shall
be in writing and shall be deemed given when delivered personally to that party
or deposited in the United States mail, first class, postage prepaid, addressed
to that party at the address set forth at the beginning of this Agreement or, in
either case, to such other addresses as that party may theretofore have
designated in notice to the party giving notice.
XXI. GOVERNING LAW.
This Agreement has been negotiated and executed in the State of Indiana. It
is the intention of all parties to this Agreement that all questions concerning
the intention, validity, or meaning of this Agreement or related to the rights
and obligations of the parties with respect to performance hereunder shall be
construed and resolved in accordance with the laws of the State of Indiana.
XXII. COMPLETE AGREEMENT.
This document (including all schedules and exhibits attached to this
Agreement, which are hereby incorporated herein by reference) contains the
entire agreement between the parties and supercedes any prior discussions,
representations, warranties, or agreements between them respecting the subject
matter hereof. No changes, alterations, modifications, additions, or
qualifications to this Agreement shall be made or be binding unless made in
writing and signed by each of the parties.
5
In witness whereof, this Agreement is entered into on the date first set
forth above.
CART, INC. TEAM
By:____________________________________ By:____________________________________
Name:__________________________________ Name:__________________________________
Title:_________________________________ Title:_________________________________
6
Schedule 1 - Installation kit
Each full season entry will receive included in the lease fee a single, two part
installation kit each year. This kit will service one chassis only and kits for
any spare cars must be purchased.
MECHANICAL INSTALLATION KIT (LOLA PART NUMBERS TABULATED, REYNARD BRACKETED)
CART, INC.
2003
ENTRANT SUPPORT AND PARTICIPATION AGREEMENT
This Agreement is entered into between the undersigned race team
("Applicant") and CART, Inc. ("CART") as follows. Applicant hereby applies for a
financial support and participation package for the 2003 racing season as herein
described (the "Program"). This Agreement is subject to approval by the Board of
Directors of Championship Auto Racing Teams, Inc. Applicant understands that
CART expressly reserves the right to reject this Agreement for any reason and,
furthermore, that the Program is limited to only twenty (20) Applicants.
1. OBJECTIVES. The parties are desirous of maintaining and enhancing the
viability, stability and financial success of the CART Series (the "Series")
and the race teams participating therein.
2. FINANCIAL SUPPORT PACKAGE. Applicant shall be entitled to financial support
intended to help defray the expenses incurred through active and competitive
participation in the Series, subject to the terms and conditions set forth
herein.
A. The financial support package for 2003 under this Program shall include
the components as set forth in Exhibits A and B attached hereto.
B. Participation in the Program in accordance with all terms and conditions
set forth herein shall, subject to compliance with all other applicable
requirements, entitle Applicant to receive a 2004 Franchise Membership at
no cost.
3. OBLIGATIONS OF APPLICANT.
A. Applicant hereby commits to participate (as defined in CART's
participation guidelines attached as Exhibit C hereto) in each and every
CART Series event in 2003, including Spring Training, pre-race transporter
parades as well as other promotional and on-track activities as mandated
from time to time by CART. Applicant applies for a financial support
package for the following entrant:
B. Applicant consents to CART disclosing, communicating and publicizing
Applicant's commitment to participate in Series events as stated herein.
C. Applicant shall provide CART with signage placement rights on an area of
Applicant's race car(s) registered for Series participation, to be
reasonably prescribed by CART as part of CART's Contingency Program. Such
area, for 2003, shall initially be the area on the side of the tub of the
race car from the leading edge of the side pod forward to the forward most
part of the tub as depicted on Exhibit "D" attached hereto.
D. Applicant agrees to abide by all the terms and conditions contained in the
Restated CART, Inc. By-Laws, as amended from time to time as well as all
provisions of the CART Series Rule Book, as amended or supplemented from
time to time including but not limited to the CART Contingency Program.
Applicant agrees to contract with its drivers in order to compel their
compliance with the terms of the Program as published by CART. Applicant
agrees that failure to comply with the terms of the Program may subject it
to penalties pursuant to Chapter 10 of the CART Rulebook.
E. Applicant shall enter into a lease agreement with CART for the lease of
the Cosworth engine and into a service agreement with Cosworth for the
rebuilding, service and support of the Cosworth engines.
F. Applicant agrees that its failure to observe or perform any of its
obligations as stated in this Agreement shall constitute a material breach
of this Agreement.
4. TERM AND TERMINATION; DEFAULT.
A. The term of this Agreement shall commence upon the execution hereof by
CART and shall continue through the conclusion of the 2003 Series, unless
earlier terminated as herein provided.
B. Either party may terminate this Agreement forthwith by written notice:
(i) if the other party fails to observe or perform any of its material
obligations hereunder or breaches any of the warranties contained
herein; or
(ii) if the other party becomes bankrupt or insolvent or enters into
liquidation (other than a voluntary liquidation for the purposes of
reconstruction, amalgamation or similar reorganization) or enters
into any arrangement or composition with its creditors, or has a
receiver or administrator appointed over all or part of its property
or assets; or
(iii) if the other party breaches the terms and conditions of the lease
agreement referred to in Section 3E above.
C. Termination of this Agreement shall be without prejudice to any existing
rights and/or claims that the terminating party may have against the
other, and shall not relieve such other party from fulfilling the
obligations accrued prior to such termination.
D. Upon termination of this Agreement by CART based on material breach of
this Agreement, (i) Applicant shall forfeit eligibility to receive the
payments or benefits identified in Exhibit A, and (ii) Applicant shall be
liable for liquidated damages which shall be defined as all amounts
identified in Exhibit A theretofore received by or paid on behalf of
Applicant as provided in Paragraphs 1 and 2 of Exhibit A. The parties
acknowledge that because of the difficulties and inconvenience in
attempting to establish the damage to CART if Applicant breaches this
Agreement, the parties agree to the aforesaid damages as liquidated
damages and not as a penalty, which is the parties' reasonable estimate of
fair compensation for the foreseeable losses that might result from the
breach. Applicant understands and agrees that Section 7.4.6 of the CART
Series Rule Book regarding debts due CART shall apply to such liquidated
damages.
5. REPRESENTATIONS AND WARRANTIES.
A. Upon execution by the respective parties, Applicant and CART each
represent and warrant to the other that it has full right, power, and
authority to enter into this Agreement and execute and deliver this
Agreement and perform the transactions contemplated herein and that the
execution and delivery of this Agreement and the consummation thereby will
not result in the breach of any agreement or undertaking by which it or
its affiliated entities are bound, or violate any order, injunction or
decree of any court, administrative agency or governmental body.
B. Applicant represents and warrants that it has appropriate financial
capability to operate a race team, suitable equipment and qualified
personnel to participate in each and every Series event in 2003, and the
ability to pay its debts in the normal course of business by way of
sponsorship contracts or other means. Applicant shall make its books,
records, and sponsorship contracts available for inspection by CART or its
designee during normal business hours upon reasonable request and such
inspection may be imposed by CART as a precondition to the execution of
this Agreement. The evaluation of the criteria as described in this
Section 5B shall be at CART's sole discretion. Such books, records, and
sponsorship contracts shall be kept strictly confidential.
6. MISCELLANEOUS.
A. ASSIGNMENT. Applicant acknowledges that, if this Agreement is accepted,
the rights and duties of Applicant belong solely to Applicant, and that
CART has entered into this Agreement in reliance on the individual or
collective character, racing ability and the business and financial
capacity of Applicant and the principals thereof. This Agreement is not
transferable or assignable by Applicant. CART maintains the right to
assign this Agreement to race teams other than Applicant's race team in
the event that Applicant does not comply with any provision of this
Agreement or satisfy any of the criteria set forth in this Agreement.
B. RELATIONSHIP OF THE PARTIES. This Agreement does not constitute either
party the agent of the other, or create a partnership, joint venture or
similar relationship between the parties, and neither party shall have the
power to bind the other party in any manner whatsoever.
C. CONFIDENTIALITY. Except as provided in Paragraph 3B, the parties
acknowledge that the terms and conditions of this Agreement are
confidential and agree to take whatever measures are reasonably necessary
to preserve such confidentiality, unless disclosure is required by law.
Nevertheless, such information may be disclosed to the parties' attorneys,
agents, consultants, financial advisers and others with a need to know in
the ordinary course of business, provided that such persons are placed
under a similar obligation of confidentiality.
D. INTEGRATION. This Agreement, together with its Exhibits, which forms an
integral part of this Agreement, is intended to be the sole and complete
statement of obligation of the parties as to the subject matter hereof and
supersedes all previous understandings, negotiations and proposals as to
such subject matter. This Agreement may not be altered, amended or
modified except in writing signed by a duly authorized representative of
the parties hereto.
E. REMEDIES. The rights, remedies and benefits provided by this Agreement
shall be cumulative, and shall not be exclusive of any other said rights,
remedies and benefits, or of any other rights, remedies and benefits
allowed by law.
F. REPUTATION OF PARTIES. The parties acknowledge the importance of each
party's reputation, good will and public image and, accordingly, agree to
maintain and enhance such image by restraining from taking any action
contrary to the best interest of either party, or detracting from the
reputation of either party. Each party shall refrain from making any
statements about the other party that adversely affects, casts in an
unfavorable light, or otherwise maligns the business or reputation of such
other party or any of its principals.
G. ARBITRATION: Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in
Indianapolis, Indiana in accordance with the rules of the American
Arbitration Association, and judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
prevailing party in such arbitration shall be allowed to recoup any and
all attorneys? fees, interests and costs therein.
H. FORCE MAJEURE.
(i) If participation by Applicant at a Series event is rendered
impossible based upon verified equipment damage or mechanical
failure, safety considerations, driver injury, or other event or
circumstances beyond the control of the Applicant including act of
God, accident, fire, strike or other labor dispute, such failure to
participate shall not be deemed to be a breach of this Agreement by
Applicant to perform its obligations hereunder during the duration of
such force majeure event.
(ii) If the staging of any Series race event is prevented or cancelled due
to act of God, accident, fire, strike or other labor dispute, riot or
civil commotion, terrorism, government action, inclement weather, or
for any other reason beyond the control of CART, or otherwise
cancelled by the promoter of such race event, such cancellation shall
not be deemed to be a breach of this Agreement by CART and CART shall
not be obligated in any manner to Applicant with respect to such
cancelled Series race event.
IN WITNESS WHEREOF, Applicant has duly executed this Agreement.
(TEAM):
Signature ______________________________
Print Name _____________________________
Title __________________________________
Date ___________________________________
ACCEPTANCE
This Agreement is hereby accepted by CART based on the information contained
herein.
Dated:__________________________________
By:_____________________________________
Print Name:_____________________________
Title:__________________________________
EXHIBIT A
2003 CART FULL SEASON ENTRANT SUPPORT PROGRAM ("ESP") BENEFITS
1. Total Appearance Money Paid to 2003 CART ESP Teams $42,500 per race
- The appearance money shall be paid on a per race basis separately from race
winnings at the rate of $42,500 per race. For CART ESP Teams, assuming a 20
race season, the appearance money payment shall be a total of $850,000 for
the year and 19 races would pay $807,500 for the year and 18 races would
pay $765,000 for the year. A minimum of 18 race payments shall be made and
a maximum of 20 race payments shall be made, depending upon the number of
races conducted by CART in the 2003 racing season.
- The combined appearance money includes the sum of ESP Appearance Money of
$450,000 total ($22,500 per race) for the season plus ESP Contingency
Program Money of $400,000 total ($20,000 per race) for a combined total of
$850,000 paid to each ESP team ($42,500 per race per ESP Team).
- Contingency Program compliance is mandatory for all CART ESP Teams and the
$20,000 per race Contingency Program Money is contingent on compliance with
the terms of the Contingency Program.
2. 2003-2004 Engine Program Related Support
ESP Engine/Track Support $275,000
- CART shall pay Cosworth directly, on behalf of its CART ESP Teams, for the
purchase of engines for the CART engine pool as well as for track support
for each CART ESP Team, in the 2003 and 2004 seasons.
3. Non-Cash Benefits Provided to CART ESP Teams
Waiver of Crash Box Lease $10,000 Value
Waiver of Pop-Off Valve or Rev Limit Monitor Lease $20,000 Value
Waiver of Spring Training/Testing Fees (3 open tests) $30,000 Value
Waiver of Season Entry Fee $25,000 Value
--------------------------------------------------------------------------------
Total (Non-Cash) Benefit $85,000 Value
- The waivers of the crash box lease, pop-off valve lease, spring training
fee, testing fees and season entry fee represent cash savings to the CART
ESP Teams over programs previously paid for by CART teams.
4. Ancillary (Non-Cash Benefits) Outside the CART ESP Benefits
Approximate Negotiated Tire Discount (to be determined) $250,000 Value
Approximate Overseas Freight, Hotel, Airfare $400,000 Value
Waiver of 1 x Hospitality Space Per Event (16 events) $80,000 Value
--------------------------------------------------------------------------------
Total Ancillary Benefits Outside ESP Benefits $730,000
- The benefits in this Section 4 are ancillary benefits that CART uses its
best efforts to provide, however, such benefits are in addition to but not
part of the ESP benefits. The negotiated tire discount is intended to
represent a discount, from the full freight cost a team would pay for
tires, if the team complies with the terms of the CART/Tire Supplier
Agreement. Overseas freight, hotel and airfare are customarily paid by
CART's promoters and CART negotiates, to the best of its ability, to defray
these costs from team budgets. CART uses its best efforts to negotiate one
(1) hospitality space per team at no charge for each event.
5. Summary of Benefits Provided to CART ESP Teams
Appearance Money Paid to 2003 CART ESP Teams (20 race example) $850,000
ESP Engine/Track Support Paid to Cosworth (2003-2004) $275,000
Non-Cash Benefits Provided to CART ESP Teams (value) $85,000
Total Ancillary Benefits Outside ESP Benefits (value) $730,000
--------------------------------------------------------------------------------
Total Approximate Benefit (both cash, non-cash and ancillary) $1,940,000
EXHIBIT B
2003 FULL SEASON ENTRANT SUPPORT PROGRAM ("ESP") TEAM COSTS
Summary of ESP Engine Program Costs Paid By CART ESP Teams
Engine Lease paid to CART
(4 x $25,000 payments on 1/1, 3/1, 5/1, 7/1) $100,000
Engine Rebuild Costs (paid by ESP Teams to Cosworth) $1,275,000
--------------------------------------------------------------------------------
Total Team Costs for ESP Engine Program $1,375,000
- Ancillary costs associated with the Cosworth engine program such as, but
not limited to, costs for damage to engines for over-revs, turbo chargers,
exhaust systems, damage to engines caused by a crash of a race car,
domestic freight and other charges are not included in the $1,275,000 fee
to Cosworth but shall be set forth in a common Customer Engine Service
Agreement between Cosworth and individual CART ESP Teams.
EXHIBIT C
PARTICIPATION GUIDELINES
Bona fide participation shall be determined for all purposed (i.e., distribution
of funds, franchise eligibility, franchise retention, etc.) in connection with
the following criteria and procedures.
1. In order to establish bona fide participation in a CART sanctioned Champ
Car event, a CART licensed race team (Entrant shall comply with each of
the following requirements:
A. The Entrant must be properly entered, including race ready car(s) and
driver ("Entry").
B. The Entrant must possess suitable equipment, resources and qualified
personnel necessary to compete in every phase of the event.
C. The Entry must participate in at least one (1) practice or qualifying
session with a recorded lap time not greater than one hundred fifteen
(115%) percent of the average of the fastest lap times posted to each
of the two (2) fastest qualifiers, if such average is 45.000 seconds or
less or one hundred ten (110%) percent if such average is greater than
45.000 seconds. This requirement shall be deemed to have been met upon
fulfillment of the race participation requirements set forth in
subparagraph E (i) and (ii) below.
D. The Entry must make an official qualification attempt.
E. If eligible for a starting position, the Entry must:
i Start the race with the intent of running the entire race; and
ii Complete not less than twenty (20%) percent of the scheduled
distance of the race (subject to paragraph two below).
2. The Vice President of Racing Operations and the Chief Steward shall have
the duty to determine bona fide participation in accordance with these
Guidelines and may grant a waiver to one (1) or more of the aforesaid
participation requirements (for all purposes or for such limited purpose
as may be prescribed in such waiver), on a case by case basis, based on:
A. Verified equipment damage or mechanical failure;
B. Safety considerations;
C. In the event an Entrant is ready, willing and able to participate in an
overseas race event, an inability to do so as a result of not being
selected to participate in accordance with the eligibility criteria
established for these events;
D. An Entry's disqualification (Rule Book reference 10.4) resulting from a
rules violation imposed by CART officials;
E. Driver injury; or
F. Any other reason beyond the reasonable control of the Entrant.
3. In the event it is determined that a franchise Entry or full season
nonfranchise Entry fails to exhibit bona fide participation in a CART
sanctioned Champ Car event (including Spring Training), CART shall
promptly provide a written notice of such determination to the Entrant.
4. The Entrant may, upon request, review the facts and circumstances with the
Vice President of Racing Operations and Chief Steward, informally, and may
also seek review of such determination through the protest and appeal
provisions set forth in the CART Rule Book, including time requirements
and the payment of fees. Protests are heard by the stewards. Appeals are
heard by the Membership Committee.
5. Upon the timely exhaustion of all protest and appeal procedures, the
Entrant may appeal the decision of the Membership Committee to the
Franchise Board for a final determination by written notice of appeal
received by the Vice President of Racing Operations within three (3) legal
business days following the announcement of the decision of the Membership
Committee. A concurrence of not less than sixteen (16) votes cast by the
Franchise Board during a regularly scheduled meeting is required to
reverse the decision of the Membership Committee.
6. The interpretation and application of these Guidelines are subject to and
shall be consistent with the CART Restated By-Laws, as amended.
EXHIBIT D
[CART LOGO] ASSOCIATE SPONSOR DECAL PLACEMENT
[PHOTO]
Exhibit 10.30
SUB-LEASE
This Sub-Lease Agreement is made the ____ day of February, 2003 by and
between CART, Inc., of 5350 Lakeview Parkway South Drive, Indianapolis, IN 46268
("CART") and _______________ of ______________________________ ("TEAM").
WHEREAS, CART has entered into an agreement with Ford Motor Company
("Ford") to provide three (3) leased cars ("Cars") to the Team; and
WHEREAS, CART is the lessee under a lease with Ford for said Cars; and
WHEREAS Team is willing to Sub-Lease from CART the Cars in order to have
use of the Cars for up to a two (2) year period of time.
For and in consideration of the mutual covenants and promises hereinafter
set forth, the parties hereto agree as follows:
1. CART agrees to lease the Cars identified on Schedule A, attached hereto,
from Ford and Sub-Lease to the Team pursuant to the terms of this
Agreement.
2. The Team will be sub-leasing the cars under the terms of this Agreement
and under the terms of the Base lease agreement between CART and Ford
("Base Lease"), a copy of which is attached. Team is required to perform
all of the duties and obligations required under the Base lease
agreement, including but not limited to securing insurance and
performing maintenance obligations.
3. Team will be required to provide the insurance necessary under the base
Lease, and shall include CART as an additional insured under said
insurance policies.
4. Team agrees to indemnify, defend and hold harmless CART, its parent,
subsidiaries, affiliate companies and respective officers, directors,
employees and authorized agents, from and against any and all expenses,
damages, claims, suits, actions, judgments and costs, including
reasonable attorneys' fees, arising out of or in connection with the use
by Team of the Cars that are the subject of this Sub-Lease. Said
indemnity and hold harmless provisions shall apply even if CART is
claimed to have been or proven to have been negligent. It is the intent
of this Agreement that CART shall have no liability, whatsoever for
Team's use of the Cars.
5. In the event Team fails to enter a racecar in any CART Event for the
2003 or 2004 Season, Team must immediately return the Cars to CART. By
December 31, 2003, if Team has not filed with CART its intention to run
in 2004, Team must immediately return the Cars to CART.
6. Consideration for this Sub-Lease is One ($1.00) Dollar, paid by Team to
CART, receipt of which is hereby acknowledged.
7. The term of this Sub-Lease shall run concurrent with the Base lease and
will be terminated at the same time the Base lease is terminated with
regard to the Cars sub-leased hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the duly authorized representatives on the date first written above.
CART, Inc. TEAM
By:____________________________________ By:____________________________________
Its:___________________________________ Its:___________________________________
Date:__________________________________ Date:__________________________________
Exhibit 10.31
AGREEMENT
This Agreement ("Agreement") is made and entered into this __ day of
_________, 2003 between CART, Inc., a Michigan corporation, having its place of
business at 5350 Lakeview Parkway South Drive, Indianapolis, IN 46268 ("CART")
and Newman/Haas Racing, 500 Tower Pkwy., Lincolnshire, IL 60069 ("TEAM").
W I T N E S S E T H:
WHEREAS, CART has sanctioned the Bridgestone Presents the Champ Car World
Series Powered by Ford ("Championship Series") in 2003 ("Race Year");
WHEREAS, CART desires to induce TEAM to enter a second race car exclusively
in the Championship Series in the Race Year and TEAM is interested in entering a
second race car upon the terms and conditions set forth herein;
WHEREAS, CART desires to obtain endorsement and promotional services, and
TEAM is willing to advertise and promote the Championship Series on the terms
and conditions hereafter set forth; and
WHEREAS, the parties desire to establish a mutually beneficial relationship
in accordance with the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. TEAM shall prepare and enter and expend its mutual efforts to qualify
and race a second race car exclusively in the Championship Series, in
all of the races in the Race Year.
2. In consideration for TEAM's agreement to race in each of the races, and
in consideration of TEAM's providing promotional benefits through
advertising on the second race car and other below enumerated
promotional services, CART agrees to pay TEAM the sum of One Million
($1,000,000.00) Dollars during the 2003 race season. The payments will
be made in twenty (20) equal installments. The payments shall be made
during the week following each of the races in the race season. If
there are less than twenty (20) races in the race season, the monies
remaining after the last race of the season shall be paid in a lump
sum.
3. TEAM understands that the payment of the funds set forth in paragraph 2
above is intended to supplement TEAM's revenue so that TEAM has enough
funding to field a team during the Race year. In the event that TEAM
receives net sponsorship revenue that totals more than Six Million Five
Hundred ($6,500,000.00) Dollars, TEAM will reimburse CART fifty (50%)
percent of all excess amounts until CART has been reimbursed the amount
set forth in paragraph 2 above. For purposes of this Agreement, net
sponsorship revenue shall include all amounts given to TEAM under this
Agreement and the Entrant Support and Participation Agreement and
reduced by commissions paid and out of pocket expenses required by the
sponsorship contract. In addition, any refund to CART will be reduced
by expenses incurred by TEAM under paragraph 5. So long as this
Agreement remains in effect, and for a period of one (1) year
thereafter, TEAM agrees to maintain complete and accurate books and
records containing information necessary to calculate the amount of
sponsorship funds connected. Upon at least ten (10) days written notice
by CART, TEAM shall allow its books and records to be examined and
audited by CART at reasonable times.
4. TEAM agrees to abide by all the rules and regulations of CART and the
series including but not limited to execution of the Entrant Support
and Participant Agreement.
5. TEAM agrees that it shall provide the following promotional services to
CART:
A. CART Sponsor will be designated as an Associate Sponsor provided
such CART Sponsor does not conflict with sponsor of TEAM unless this
requirement is waived by TEAM.
B. Identification Elements - These items will be provided for in 2003:
(i) Logo identification on the team transporters; in a location as
determined by TEAM
(ii) Logo identification on the fire suits and uniforms; in a
location as determined by TEAM
(iii) Website link to CART.com
C. Signage
(i) A maximum four spaces on the second race car, on both sides of
the front nose and if available, in the sole discretion of the
TEAM, on portions of the sidepod top and the engine cowling.
(ii) Logo on Team/Driver Uniforms
a. Driver's race suit
b. Driver's cap - CART Sponsor signage displayed on the side
or back of the cap. Any changes initiated by CART after the
initial cap order will be at CART's expenses.
c. Driver's "off track" clothing - CART Sponsor displayed on
driver's casual wear, at CART Sponsor expense.
d. Crew helmets - CART Sponsor signage displayed in a location
as determined by TEAM
e. Crew fire suits
f. Crew caps - CART Sponsor signage displayed on the side or
back of the cap. Any changes initiated by CART after the
initial cap order will be at CART's expense.
(iii) Logo on team equipment
a. CART Sponsor logo on scoring stand, refueling station, and
other team pit equipment as reasonably acceptable to TEAM
b. CART Sponsor logo on team transporters - Color and design
of graphics on team transporters determined by TEAM
(iv) Pit banner signage during race events, based on availability
(v) Provided such does not interfere with TEAM activities, TEAM
will provide Driver appearances for CART Sponsors at CART
Sponsor designated locations for PR purposes and autographs
totaling 8 appearances for all CART Sponsors during the racing
season. If the location is away from the race track or test
track CART Sponsor will reimburse TEAM for Drivers travel
expenses
(vi) Coordinated Public Relations Program
a. Sponsor recognition in all interviews; print, television,
radio, and digital mediums
b. Usage of driver/car/team for advertising needs
c. Media releases announcing team and sponsorship activities
d. Recognition on web page as an associate sponsor
e. Associate sponsor recognition on all Team printed material.
After initial printing any changes are at CART's expense.
f. Dedicated Public Relations department
D. Team must supply hospitality, race tickets and credentials for CART
Sponsor and its guests as set forth below:
(i) A reasonable number of motor home invitations at all CART
races
(ii) Two (2) annual credentials per sponsor, with a maximum of 6 in
total
(iii) Two (2) grandstand tickets per sponsor at each event with a
maximum of four in total for the season.
6. The term of this Agreement shall commence upon the date both parties
have executed this Agreement and shall continue until the end of the
2003 Race Year unless terminated prior thereto pursuant to the terms
hereof.
7. TEAM will not disclose, publish or disseminate confidential information
(which shall be defined as the terms of this Agreement) to anyone other
than those of their employees, attorneys and accountants with a need to
know and TEAM agrees to take such reasonable precautions as may be
necessary to prevent any unauthorized use, disclosure, publication,
dissemination of confidential information which shall include the terms
of this Agreement. In the event TEAM violates the provisions of this
paragraph, CART has the right to declare this Agreement null and void
and TEAM shall be required to refund any monies paid through that date.
Further, any press releases or public statements regarding the
relationship of the parties must be approved by CART.
8. The parties acknowledge the importance of each party's reputation, good
will and public image and, accordingly, agree to maintain and enhance
such image by restraining from taking any action contrary to the best
interest of either party, or detracting from the reputation of either
party. Each party shall refrain from making any statements about the
other party that adversely affects, casts in an unfavorable light, or
otherwise maligns the business or reputation of such other party or any
of its principals.
9. TEAM will maintain throughout the length of this Agreement, commercial
general liability insurance (including but not limited to advertising
liability and contractual liability coverage applicable to the terms of
the indemnification provisions of this Agreement) covering claims for
personal and bodily injury, and property damage arising out of the
staging and performance of the races, with limits of at least Three
Million ($3,000,000.00) Dollars combined single limit per occurrence.
Each party shall specifically name CART as an additional insured.
10. TEAM agrees to indemnify, defend and hold harmless CART and any
sponsor's of CART whose logo may appear on TEAM's car from and against
any and all expenses, damages, claims, suits, actions, judgments, and
costs, including reasonable attorneys' fees arising out of or in
connection with the running of a car in any race during the Race year.
CART will have the Sponsor hold the TEAM harmless regarding any
advertising disseminated by the Sponsor.
11. This Agreement shall be governed and construed in accordance with the
laws of the State of Indiana. If a dispute arises under this Agreement
which cannot be resolved first through good faith negotiations, such
dispute shall be submitted to arbitration and resolved by a single
arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Such arbitration shall
take place at the office of the American Arbitration Association
located in Indianapolis, IN. The award of decision rendered by the
arbitrator shall be final, binding
and conclusive and judgment may be entered upon such award by any
court. This provision shall survive the termination and/or expiration
of this Agreement.
12. This writing constitutes the entire Agreement between the parties
hereto regarding the subject matter hereof and may not be changed or
modified except by a writing signed by the party or parties to be
changed thereby.
13. This Agreement does not constitute and shall not be construed as a
consulting, partnership or joint venture between TEAM and CART. Neither
party shall have any right to obligate or bind the other party in any
manner whatsoever, and nothing herein contained shall give, or is
intended to give, any rights of any kind to any third party.
14. The failure of either party at any time or times to demand strict
performance by the other of any of the terms, covenants or conditions
set forth herein shall not be construed as a continuing waiver or
relinquishment thereof and each may at any time demand strict and
complete performance by the other of said terms, covenants and
conditions.
15. This Agreement has been jointly drafted by the respective
representatives of CART and TEAM and no party shall be considered as
being responsible for such drafting for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft
of this Agreement shall be taken into account in construing the
Agreement.
16. It is hereby understood and agreed to by CART and TEAM that any
statement or notice required to be given hereunder shall be deemed
given if mailed, certified mail, return receipt requested to the
following addresses:
If to CART: CART, Inc.
5350 Lakeview Parkway South Drive
Indianapolis, IN 46268
Attn: J. Carlisle Peet, III
If to TEAM: Newman/Haas Racing
500 Tower Pkwy.
Lincolnshire, IL 60069
Attn: Carl A. Haas
17. This Agreement may be terminated in the event that:
(i) Either party to this Agreement files a petition in bankruptcy or
a petition in bankruptcy is filed against either party to this
Agreement that is not removed within thirty (30) days from the
date such petition is filed; a general assignment of either
party's assets is
made for the benefit of creditors; or CART dissolved or
liquidates pursuant to Delaware state law or otherwise.
(ii) Either party to this Agreement breaches any of the material
representations, warranties or covenants contained in this
Agreement, which breach is not cured by the breaching party
within thirty (30) days after receiving written notice of such
breach from the other party.
If the Agreement is terminated by TEAM pursuant to the terms of this
Paragraph 17, TEAM shall be entitled to retain all sums paid to it by
CART through the date of termination.
If the Agreement is terminated by CART pursuant to the terms of this
Paragraph 17, CART shall be entitled to immediately terminate any
future payments to TEAM.
18. Titles to articles, paragraphs and subparagraphs are for information
purposes only and shall not be considered a substantive part of the
Agreement.
19. This Agreement and any subsequent amendments may be executed in one or
more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement. This
Agreement and any subsequent amendments may be signed and delivered by
facsimile transmission, which delivery shall have the same binding
effect as delivery of the document containing the original signature.
At the request of any party, any document delivered by facsimile
signature shall be followed by or re-executed by all parties in
original form, provided that the failure of any party to do so will not
invalidate the signature delivered by facsimile transmission.
20. In the event that any provisions of this Agreement are found to be
invalid or unenforceable by any court of competent jurisdiction, such
provision may be deemed severed and any such finding shall not
invalidate or render unenforceable any other provisions hereof.
21. Each party shall comply with all governmental laws, ordinances, and
regulations applicable to the performance of this Agreement over which
said party has jurisdiction and control.
22. This Agreement may be unilaterally terminated by CART in the event CART
is unable to field eighteen (18) entrants in the 2003 Race Year or in
the event CART ceases to sanction races during the Race Year. In the
event of such termination, this Agreement shall be null and void with
no further obligations or liability on the part of either party. It is
further agreed and understood that this Agreement must be approved by
the Board of Directors of CART's parent company.
23. CART acknowledges that one of the indirect owners of TEAM is a current
member of the Board of Directors of Championship Auto Racing Teams,
Ltd., a Delaware corporation ("CHAMP"), CART's parent corporation.
CART, for itself and on behalf of CHAMP, acknowledges that Carl A. Haas
has excluded himself from voting on the decision making process with
regard to, whether or not CART should enter into a program to offer
sponsorship money to various Teams. Furthermore, CART, for itself and
on behalf of CHAMP, acknowledges that Carl A. Haas has not been
involved in any of the negotiations on behalf of CART or CHAMP with
regard to the transaction proposed under this Agreement and that the
substance of the transaction contemplated by this Agreement is similar
to those offer to other Teams. CART, for itself and on behalf of CHAMP,
acknowledges that at all times, Haas has disclosed the fact that he has
an interest in TEAM and that he would not be involved in the decision
on behalf of CART or CHAMP to enter into this Agreement. By approving
this Agreement, the Board of Directors of CHAMP specifically
acknowledge and agree to the terms of this paragraph.
CART, Inc.
By:____________________________________
Its:___________________________________
NEWMAN/HAAS RACING
By:____________________________________
Its:___________________________________
Exhibit 10.32
AGREEMENT
This Agreement ("Agreement") is made and entered into this __ day of
_______, 2003 between CART, Inc., a Michigan corporation, having its place of
business at 5350 Lakeview Parkway South Drive, Indianapolis, IN 46268 ("CART")
and Newman/Haas Racing, 500 Tower Pkwy., Lincolnshire, IL 60069 ("TEAM").
W I T N E S S E T H:
WHEREAS, CART has sanctioned the Bridgestone Presents the Champ Car World
Series Powered by Ford ("Championship Series") in 2003 ("Race Year");
WHEREAS, CART desires to induce TEAM to enter a race car exclusively in the
Championship Series in the Race Year and TEAM is interested in entering a race
car upon the terms and conditions set forth herein;
WHEREAS, CART desires to obtain endorsement and promotional services, and
TEAM is willing to advertise and promote the Championship Series on the terms
and conditions hereafter set forth; and
WHEREAS, the parties desire to establish a mutually beneficial relationship
in accordance with the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. TEAM shall prepare and enter and expend its mutual efforts to qualify
and race one (1) race car exclusively in the Championship Series, in
all of the races in the Race Year.
2. In consideration for TEAM's agreement to race in each of the races, and
in consideration of TEAM's providing promotional benefits through
advertising on the race car and other below enumerated promotional
services, CART agrees to pay TEAM the sum of One Million
($1,000,000.00) Dollars during the 2003 race season. The payments will
be made in twenty (20) equal installments. The payments shall be made
during the week following each of the races in the race season. If
there are less than twenty (20) races in the race season, the monies
remaining after the last race of the season shall be paid in a lump
sum.
3. TEAM understands that the payment of the funds set forth in paragraph 2
above is intended to supplement TEAM's revenue so that TEAM has enough
funding to field a team during the Race year. In the event that TEAM
receives net sponsorship revenue that totals more than Six Million Five
Hundred ($6,500,000.00) Dollars, TEAM will reimburse CART fifty (50%)
percent of all excess amounts until CART has been reimbursed the amount
set forth in paragraph 2 above. For purposes of this Agreement, net
sponsorship revenue shall include all amounts given to TEAM under this
Agreement and the Entrant Support and Participation Agreement and
reduced by commissions paid and out of pocket expenses required by the
sponsorship contract. In addition, any refund to CART will be reduced
by expenses incurred by TEAM under paragraph 5. So long as this
Agreement remains in effect, and for a period of one (1) year
thereafter, TEAM agrees to maintain complete and accurate books and
records containing information necessary to calculate the amount of
sponsorship funds connected. Upon at least ten (10) days written notice
by CART, TEAM shall allow its books and records to be examined and
audited by CART at reasonable times.
4. TEAM agrees to abide by all the rules and regulations of CART and the
series including but not limited to execution of the Entrant Support
and Participant Agreement.
5. TEAM agrees that it shall provide the following promotional services to
CART:
A. CART Sponsor will be designated as an Associate Sponsor provided
such CART Sponsor does not conflict with sponsor of TEAM unless this
requirement is waived by TEAM.
B. Identification Elements - These items will be provided for in 2003:
(i) Logo identification on the team transporters; in a location as
determined by TEAM
(ii) Logo identification on the fire suits and uniforms; in a
location as determined by TEAM
(iii) Website link to CART.com
C. Signage
(i) A maximum four spaces on the race car, on both sides of the
front nose and if available, in the sole discretion of the
TEAM, on portions of the sidepod top and the engine cowling.
(ii) Logo on Team/Driver Uniforms
a. Driver's race suit
b. Driver's cap - CART Sponsor signage displayed on the side
or back of the cap. Any changes initiated by CART after the
initial cap order will be at CART's expenses.
c. Driver's "off track" clothing - CART Sponsor displayed on
driver's casual wear, at CART Sponsor expense.
d. Crew helmets - CART Sponsor signage displayed in a location
as determined by TEAM
e. Crew fire suits
f. Crew caps - CART Sponsor signage displayed on the side or
back of the cap. Any changes initiated by CART after the
initial cap order will be at CART's expense.
(iii) Logo on team equipment
a. CART Sponsor logo on scoring stand, refueling station, and
other team pit equipment as reasonably acceptable to TEAM
b. CART Sponsor logo on team transporters - Color and design
of graphics on team transporters determined by TEAM
(iv) Pit banner signage during race events, based on availability
(v) Provided such does not interfere with TEAM activities, TEAM
will provide Driver appearances for CART Sponsors at CART
Sponsor designated locations for PR purposes and autographs
totaling 8 appearances for all CART Sponsors during the racing
season. If the location is away from the race track or test
track CART Sponsor will reimburse TEAM for Drivers travel
expenses
(vi) Coordinated Public Relations Program
a. Sponsor recognition in all interviews; print, television,
radio, and digital mediums
b. Usage of driver/car/team for advertising needs
c. Media releases announcing team and sponsorship activities
d. Recognition on web page as an associate sponsor
e. Associate sponsor recognition on all Team printed material.
After initial printing any changes are at CART's expense.
f. Dedicated Public Relations department
D. Team must supply hospitality, race tickets and credentials for CART
Sponsor and its guests as set forth below:
(i) A reasonable number of motor home invitations at all CART
races
(ii) Two (2) annual credentials per sponsor, with a maximum of 6 in
total
(iii) Two (2) grandstand tickets per sponsor at each event with a
maximum of four in total for the season.
6. The term of this Agreement shall commence upon the date both parties
have executed this Agreement and shall continue until the end of the
2003 Race Year unless terminated prior thereto pursuant to the terms
hereof.
7. TEAM will not disclose, publish or disseminate confidential information
(which shall be defined as the terms of this Agreement) to anyone other
than those of their employees, attorneys and accountants with a need to
know and TEAM agrees to take such reasonable precautions as may be
necessary to prevent any unauthorized use, disclosure, publication,
dissemination of confidential information which shall include the terms
of this Agreement. In the event TEAM violates the provisions of this
paragraph, CART has the right to declare this Agreement null and void
and TEAM shall be required to refund any monies paid through that date.
Further, any press releases or public statements regarding the
relationship of the parties must be approved by CART.
8. The parties acknowledge the importance of each party's reputation, good
will and public image and, accordingly, agree to maintain and enhance
such image by restraining from taking any action contrary to the best
interest of either party, or detracting from the reputation of either
party. Each party shall refrain from making any statements about the
other party that adversely affects, casts in an unfavorable light, or
otherwise maligns the business or reputation of such other party or any
of its principals.
9. TEAM will maintain throughout the length of this Agreement, commercial
general liability insurance (including but not limited to advertising
liability and contractual liability coverage applicable to the terms of
the indemnification provisions of this Agreement) covering claims for
personal and bodily injury, and property damage arising out of the
staging and performance of the races, with limits of at least Three
Million ($3,000,000.00) Dollars combined single limit per occurrence.
Each party shall specifically name CART as an additional insured.
10. TEAM agrees to indemnify, defend and hold harmless CART and any
sponsor's of CART whose logo may appear on TEAM's car from and against
any and all expenses, damages, claims, suits, actions, judgments, and
costs, including reasonable attorneys' fees arising out of or in
connection with the running of a car in any race during the Race year.
CART will have the Sponsor hold the TEAM harmless regarding any
advertising disseminated by the Sponsor.
11. This Agreement shall be governed and construed in accordance with the
laws of the State of Indiana. If a dispute arises under this Agreement
which cannot be resolved first through good faith negotiations, such
dispute shall be submitted to arbitration and resolved by a single
arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Such arbitration shall
take place at the office of the American Arbitration Association
located in Indianapolis, IN. The award of decision rendered by the
arbitrator shall be final, binding
and conclusive and judgment may be entered upon such award by any
court. This provision shall survive the termination and/or expiration
of this Agreement.
12. This writing constitutes the entire Agreement between the parties
hereto regarding the subject matter hereof and may not be changed or
modified except by a writing signed by the party or parties to be
changed thereby.
13. This Agreement does not constitute and shall not be construed as a
consulting, partnership or joint venture between TEAM and CART. Neither
party shall have any right to obligate or bind the other party in any
manner whatsoever, and nothing herein contained shall give, or is
intended to give, any rights of any kind to any third party.
14. The failure of either party at any time or times to demand strict
performance by the other of any of the terms, covenants or conditions
set forth herein shall not be construed as a continuing waiver or
relinquishment thereof and each may at any time demand strict and
complete performance by the other of said terms, covenants and
conditions.
15. This Agreement has been jointly drafted by the respective
representatives of CART and TEAM and no party shall be considered as
being responsible for such drafting for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft
of this Agreement shall be taken into account in construing the
Agreement.
16. It is hereby understood and agreed to by CART and TEAM that any
statement or notice required to be given hereunder shall be deemed
given if mailed, certified mail, return receipt requested to the
following addresses:
If to CART: CART, Inc.
5350 Lakeview Parkway South Drive
Indianapolis, IN 46268
Attn: J. Carlisle Peet, III
If to TEAM: Newman/Haas Racing
500 Tower Pkwy.
Lincolnshire, IL 60069
Attn: Carl A. Haas
17. This Agreement may be terminated in the event that:
(i) Either party to this Agreement files a petition in bankruptcy or a
petition in bankruptcy is filed against either party to this
Agreement that is not removed within thirty (30) days from the
date such petition is filed; a general assignment of either
party's assets is
made for the benefit of creditors; or CART dissolved or liquidates
pursuant to Delaware state law or otherwise.
(ii) Either party to this Agreement breaches any of the material
representations, warranties or covenants contained in this
Agreement, which breach is not cured by the breaching party within
thirty (30) days after receiving written notice of such breach
from the other party.
If the Agreement is terminated by TEAM pursuant to the terms of this
Paragraph 17, TEAM shall be entitled to retain all sums paid to it by
CART through the date of termination.
If the Agreement is terminated by CART pursuant to the terms of this
Paragraph 17, CART shall be entitled to immediately terminate any
future payments to TEAM.
18. Titles to articles, paragraphs and subparagraphs are for information
purposes only and shall not be considered a substantive part of the
Agreement.
19. This Agreement and any subsequent amendments may be executed in one or
more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement. This
Agreement and any subsequent amendments may be signed and delivered by
facsimile transmission, which delivery shall have the same binding
effect as delivery of the document containing the original signature.
At the request of any party, any document delivered by facsimile
signature shall be followed by or re-executed by all parties in
original form, provided that the failure of any party to do so will not
invalidate the signature delivered by facsimile transmission.
20. In the event that any provisions of this Agreement are found to be
invalid or unenforceable by any court of competent jurisdiction, such
provision may be deemed severed and any such finding shall not
invalidate or render unenforceable any other provisions hereof.
21. Each party shall comply with all governmental laws, ordinances, and
regulations applicable to the performance of this Agreement over which
said party has jurisdiction and control.
22. This Agreement may be unilaterally terminated by CART in the event CART
is unable to field eighteen (18) entrants in the 2003 Race Year or in
the event CART ceases to sanction races during the Race Year. In the
event of such termination, this Agreement shall be null and void with
no further obligations or liability on the part of either party. It is
further agreed and understood that this Agreement must be approved by
the Board of Directors of CART's parent company.
23. CART acknowledges that one of the indirect owners of TEAM is a current
member of the Board of Directors of Championship Auto Racing Teams,
Ltd., a Delaware corporation ("CHAMP"), CART's parent corporation.
CART, for itself and on behalf of CHAMP, acknowledges that Carl A. Haas
has excluded himself from voting on the decision making process with
regard to, whether or not CART should enter into a program to offer
sponsorship money to various Teams. Furthermore, CART, for itself and
on behalf of CHAMP, acknowledges that Carl A. Haas has not been
involved in any of the negotiations on behalf of CART or CHAMP with
regard to the transaction proposed under this Agreement and that the
substance of the transaction contemplated by this Agreement is similar
to those offer to other Teams. CART, for itself and on behalf of CHAMP,
acknowledges that at all times, Haas has disclosed the fact that he has
an interest in TEAM and that he would not be involved in the decision
on behalf of CART or CHAMP to enter into this Agreement. By approving
this Agreement, the Board of Directors of CHAMP specifically
acknowledge and agree to the terms of this paragraph.
CART, Inc.
By:_____________________________________
Its:____________________________________
NEWMAN/HAAS RACING
By:_____________________________________
Its:____________________________________
Exhibit 10.33
AGREEMENT
This Agreement ("Agreement") is made and entered into this ___ day of
_________, 2003 between CART, Inc., a Michigan corporation, having its place of
business at 5350 Lakeview Parkway South Drive, Indianapolis, IN 46268 ("CART")
and Patrick Racing, Inc. 8431 Georgetown Rd., Suite 400, Indianapolis, IN 46268
("TEAM").
W I T N E S S E T H:
WHEREAS, CART has sanctioned the Bridgestone Presents the Champ Car World
Series Powered by Ford ("Championship Series") in 2003 ("Race Year");
WHEREAS, CART desires to induce TEAM to enter a race car (car #20)
exclusively in the Championship Series in the Race Year and TEAM is interested
in entering a race car upon the terms and conditions set forth herein;
WHEREAS, CART desires to obtain endorsement and promotional services, and
TEAM is willing to advertise and promote the Championship Series on the terms
and conditions hereafter set forth; and
WHEREAS, the parties desire to establish a mutually beneficial relationship
in accordance with the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. TEAM shall prepare and enter and expend its best efforts to qualify and
race one (1) race car exclusively in the Championship Series, in all of
the races in the Race Year.
2. In consideration for TEAM's agreement to race in each of the races, and
in consideration of TEAM's providing promotional benefits through
advertising on the race car and other below enumerated promotional
services, CART agrees to pay TEAM the sum of One Million Four Hundred
Thousand ($1,400,000.00) Dollars during the 2003 race season. The
payments will be made in nineteen (19) equal installments. The payments
shall be made during the week following each of the races in the race
season. If there are less than nineteen (19) races in the race season,
the monies remaining after the last race of the season shall be paid in
a lump sum.
3. TEAM understands that the payment of the funds set forth in paragraph 2
above is intended to supplement TEAM's revenue so that TEAM has enough
funding to field a team during the Race year. In the event that TEAM
receives sponsorship revenue that totals more than Seven Million
($7,000,000.00) Dollars net (less commissions), TEAM will reimburse
CART fifty (50%) percent of all excess amounts until CART has been
reimbursed the amount set forth in paragraph 2 above. For purposes of
this Agreement, net sponsorship revenue less commissions shall include
all amounts given to TEAM under this Agreement and the Entrant Support
and Participation Agreement. So long as this Agreement remains in
effect, and for a period of one (1) year thereafter, TEAM agrees to
maintain complete and accurate books and records containing information
necessary to calculate the amount of net sponsorship (less commissions)
funds collected. Upon at least ten (10) days written notice by CART,
TEAM shall allow its books and records to be examined and audited by
CART at reasonable times.
4. TEAM agrees to abide by all the rules and regulations of CART and the
series including but not limited to execution of the Entrant Support
and Participant Agreement.
5. TEAM agrees that it shall provide the following promotional services to
CART:
A. CART may assign to TEAM a "CART Sponsor" for purposes of this
Agreement. The CART Sponsor will be a single entity that has
provided CART sponsorship revenue. CART will not assign the CART
sponsor to any other team. A CART Sponsor may be rejected by TEAM if
such sponsorship violates or conflicts with any existing TEAM
sponsorship agreement that TEAM has entered into prior to the CART
Sponsor being presented to TEAM.
B. Identification Elements (at the sole cost of the CART Sponsor -
These items will be provided for in 2003:
(i) Logo identification on the team transporter and logistic
trailers
(ii) Logo identification on the racing transporter, fire suits and
uniforms
(iii) Website link to CART.com
C. Signage: (at the sole cost of the CART Sponsor and subject to any
existing sponsorship agreements with TEAM, which shall take
priority).
(i) On at least Four spaces on the race car, including the front
and rear wings and or portions of the sidepod top and the
engine cowling if available.
(ii) Prominent Logo on Team/Driver Uniforms (placement and size
subject to TEAM's reasonable discretion).
a. Driver's cap - CART Sponsor signage prominently displayed
b. Driver's "off track" clothing - CART Sponsor prominently
displayed on driver's casual wear
c. Crew helmets - CART Sponsor signage prominently displayed
d. Crew fire suits - Color and design of fire suit determined
by CART Sponsor
e. Crew caps - CART Sponsor signage prominently displayed
(iii) Prominent Logo on team equipment
a. CART Sponsor logo on scoring stand, refueling station, and
other team pit equipment
b. CART Sponsor logo on team transporters - Color and design
of graphics on team transporters determined by CART Sponsor
(iv) Prominent Pit banner signage during race events
(v) Coordinated Public Relations Program
a. Sponsor recognition in all interviews; print, television,
radio, and digital mediums
b. Usage of driver/car/team for advertising needs
c. Media releases announcing team and sponsorship activities
d. Recognition on web page as a primary sponsor
e. Primary sponsor recognition on all Team printed material
f. Dedicated Public Relations department
D. Team must supply hospitality for CART Sponsor and its guest as set
forth below:
(i) All CART Events where TEAM has its hospitality unit
(ii) Five (5) annual credentials each year
(iii) Five (5) paddock credentials and pit passes at each event
(iv) Five (5) grandstand tickets at each event
(v) Two (2) Suite tickets at each event
6. The term of this Agreement shall commence upon the date both parties
have executed this Agreement and shall continue until the end of the
2003 Race Year unless terminated prior thereto pursuant to the terms
hereof.
7. Except with the written approval of CART, TEAM will not disclose,
publish or disseminate confidential information (which shall be defined
as the terms of this Agreement) to anyone other than those of their
employees, attorneys and accountants with a need to know and TEAM
agrees to take such reasonable precautions as may be necessary to
prevent any unauthorized use, disclosure, publication, dissemination of
confidential information which shall include the terms of this
Agreement. In the event TEAM violates the provisions of this paragraph,
CART has the right to declare this Agreement null and void and TEAM
shall be required to refund any monies paid through that date. Further,
any press releases or public statements regarding the relationship of
the parties must be approved by CART.
8. The parties acknowledge the importance of each party's reputation, good
will and public image and, accordingly, agree to maintain and enhance
such image by restraining from taking any action contrary to the best
interest of either party, or detracting from the reputation of either
party. Each party shall refrain from making any statements about the
other party that adversely affects, casts in an unfavorable light, or
otherwise maligns the business or reputation of such other party or any
of its principals.
9. TEAM will maintain throughout the length of this Agreement, commercial
general liability insurance (including but not limited to advertising
liability and contractual liability coverage applicable to the terms of
the indemnification provisions of this Agreement) covering claims for
personal and bodily injury, and property damage arising out of the
staging and performance of the races, with limits of at least Three
Million ($3,000,000.00) Dollars combined single limit per occurrence.
Each party shall specifically name CART as an additional insured.
10. TEAM agrees to indemnify, defend and hold harmless CART and any
sponsor's of CART whose logo may appear on TEAM's car from and against
any and all expenses, damages, claims, suits, actions, judgments, and
costs, including reasonable attorneys' fees arising out of or in
connection with the running of a car in any race during the Race year.
11. This Agreement shall be governed and construed in accordance with the
laws of the State of Indiana. If a dispute arises under this Agreement
which cannot be resolved first through good faith negotiations, such
dispute shall be submitted to arbitration and resolved by a single
arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Such arbitration shall
take place at
the office of the American Arbitration Association located in
Indianapolis, IN. The award of decision rendered by the arbitrator
shall be final, binding and conclusive and judgment may be entered upon
such award by any court. This provision shall survive the termination
and/or expiration of this Agreement.
12. This writing constitutes the entire Agreement between the parties
hereto regarding the subject matter hereof and may not be changed or
modified except by a writing signed by the party or parties to be
changed thereby.
13. This Agreement does not constitute and shall not be construed as a
consulting, partnership or joint venture between TEAM and CART. Neither
party shall have any right to obligate or bind the other party in any
manner whatsoever, and nothing herein contained shall give, or is
intended to give, any rights of any kind to any third party.
14. The failure of either party at any time or times to demand strict
performance by the other of any of the terms, covenants or conditions
set forth herein shall not be construed as a continuing waiver or
relinquishment thereof and each may at any time demand strict and
complete performance by the other of said terms, covenants and
conditions.
15. This Agreement has been jointly drafted by the respective
representatives of CART and TEAM and no party shall be considered as
being responsible for such drafting for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft
of this Agreement shall be taken into account in construing the
Agreement.
16. It is hereby understood and agreed to by CART and TEAM that any
statement or notice required to be given hereunder shall be deemed
given if mailed, certified mail, return receipt requested to the
following addresses:
If to CART: CART, Inc.
5350 Lakeview Parkway South Drive
Indianapolis, IN 46268
Attn: J. Carlisle Peet, III
If to TEAM: Patrick Racing, Inc.
8431 Georgetown Rd., Suite 400
Indianapolis, IN 46268
17. This Agreement may be terminated in the event that:
(i) Either party to this Agreement files a petition in bankruptcy or
a petition in bankruptcy is filed against either party to this
Agreement that is not removed within thirty (30) days from the
date such petition is filed; a general assignment of either
party's assets is made for the benefit of creditors; or CART
dissolved or liquidates pursuant to Delaware state law or
otherwise.
(ii) Either party to this Agreement breaches any of the material
representations, warranties or covenants contained in this
Agreement, which breach is not cured by the breaching party
within thirty (30) days after receiving written notice of such
breach from the other party.
If the Agreement is terminated by TEAM pursuant to the terms of this
Paragraph 17, TEAM shall be entitled to retain all sums paid to it by
CART through the date of termination.
If the Agreement is terminated by CART pursuant to a breach of the
terms of this Agreement as defined in 17(ii) CART shall be entitled to
immediately terminate any future payments to TEAM and shall be entitled
to a refund by TEAM of all monies previously paid under this Agreement.
If CART terminates this Agreement pursuant to Paragraph 17(i), it shall
be entitled to immediately terminate any further payments to TEAM.
18. Titles to articles, paragraphs and subparagraphs are for information
purposes only and shall not be considered a substantive part of the
Agreement.
19. This Agreement and any subsequent amendments may be executed in one or
more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement. This
Agreement and any subsequent amendments may be signed and delivered by
facsimile transmission, which delivery shall have the same binding
effect as delivery of the document containing the original signature.
At the request of any party, any document delivered by facsimile
signature shall be followed by or re-executed by all parties in
original form, provided that the failure of any party to do so will not
invalidate the signature delivered by facsimile transmission.
20. In the event that any provisions of this Agreement are found to be
invalid or unenforceable by any court of competent jurisdiction, such
provision may be deemed severed and any such finding shall not
invalidate or render unenforceable any other provisions hereof.
21. Each party shall comply with all governmental laws, ordinances, and
regulations applicable to the performance of this Agreement over which
said party has jurisdiction and control.
22. This Agreement may be unilaterally terminated by CART in the event CART
is unable to field eighteen (18) entrants in the 2003 Race Year or in
the event CART ceases to sanction races during the Race Year. In the
event of such termination, this Agreement shall be null and void with
no further obligations or liability on the part of either party. It is
further agreed and understood that this Agreement must be approved by
the Board of Directors of CART's parent company.
CART, Inc.
By:_____________________________________
Its:____________________________________
PATRICK RACING, INC.
By:_____________________________________
Its:____________________________________
EXHIBIT 10.34
AGREEMENT
This Agreement ("Agreement") is made and entered into this 14th day of
February, 2003 between CART, Inc., a Michigan corporation, having its place of
business at 5350 Lakeview Parkway South Drive, Indianapolis, IN 46268 ("CART")
and Walker Racing, 4305 Championship Drive, Indianapolis, IN 46268 ("TEAM").
W I T N E S S E T H:
WHEREAS, CART has sanctioned the 2002 FedEx Championship Series and will be
sponsoring the same type of series ("Championship Series") in 2003 ("Race
Year");
WHEREAS, CART desires to induce TEAM to enter a second race car exclusively
in the Championship Series in the Race Year and TEAM is interested in entering a
second race car upon the terms and conditions set forth herein;
WHEREAS, CART desires to obtain advertising and promotional services from
TEAM entry, referred to as race car entry number five (5), and TEAM is willing
to advertise and promote the Championship Series on the terms and conditions
hereafter set forth; and
WHEREAS, the parties desire to establish a mutually beneficial relationship
in accordance with the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. TEAM shall prepare and enter and expend its mutual efforts to qualify
and race a second race car exclusively in the Championship Series, in
all of the races in the Race Year.
2. In consideration for TEAM's agreement to race in each of the races, and
in consideration of TEAM's providing promotional benefits through
advertising on the race car and other below enumerated promotional
services, CART agrees to pay TEAM the sum of Two Million
($2,000,000.00) Dollars during the 2003 race season. The payments will
be made The payments will be made as follows:
a. $750,000.00 upon signing (which has been paid);
b. $300,000.00 on March 15, 2003;
c. $250,000.00 on April 15, 2003;
d. $200,000.00 on May 15, 2003;
e. $250,000.00 on June 15, 2003;
f. $250,000.00 on July 15, 2003;
3. TEAM understands that the payment of the funds set forth in paragraph 2
above is intended to supplement TEAM's revenue so that TEAM has enough
funding to field a team during the Race year. In the event that TEAM
receives sponsorship revenue that totals more than Six Million Five
Hundred ($6,500,000.00) Dollars, TEAM will reimburse CART fifty (50%)
percent of all excess amounts until CART has been reimbursed the amount
set forth in paragraph 2 above. For purposes of this Agreement,
sponsorship revenue shall include all amounts given to TEAM under this
Agreement and the Entrant Support and Participation Agreement. So long
as this Agreement remains in effect, and for a period of one (1) year
thereafter, TEAM agrees to maintain complete and accurate books and
records containing information necessary to calculate the amount of
sponsorship funds connected. Upon at least ten (10) days written notice
by CART, TEAM shall allow a senior CART management person to review all
sponsorship contracts for the 2003 Season which has been raised for
TEAM race car entry number five (5).
4. Advertising spaces and promotional revenues sold to CART referred to in
paragraph 6 herein, may be purchased by TEAM provided such advertising
and promotions are not in use by CART, subject to CART's approval.
5. TEAM agrees to abide by all the rules and regulations of CART and the
series including but not limited to execution of the Entrant Support
and Participant Agreement.
6. TEAM agrees that it shall provide the following advertising and
promotional services to CART:
a. Advertising elements provided by TEAM shall be designated and
referred to as an "Associate Sponsorship". TEAM agrees that once an
associate sponsor or sponsors have been accepted by TEAM, no other
competing company will be assigned by the TEAM car entry benefiting
from this Agreement.
b. Identification Elements -
i. Logo identification on the race car in the following locations
and sizes:
- Front nose section (6 inches x 4 inches)
- Mid forward chassis location (12 inches x 4 inches)
- Engine cover (16 inches x 5 inches)
ii. Logo identification on the team transporter and race pit
equipment.
iii. Logo identification on Team/Driver uniforms.
iv. TEAM will further provide and promote CART logos on race cars,
transport vehicles, pit wall banner, driver and team uniforms,
team cars and a team website as well as link to cart.com.
v. Provide to CART and the associate sponsor, the team and driver
name and likeness for reasonable use for promotional purposes
related to the involvement by the sponsors in the Cart Racing
Series.
vi. Provide hospitality to the associate sponsor's guests at events
where the TEAM has such service. Five guests will receive
credentials, grandstand seating and access to team hospitality
when available. In addition, TEAM will supply to associate
sponsor's senior management, five (5) hard card full-season
credentials.
7. The term of this Agreement shall commence upon the date both parties
have executed this Agreement and shall continue until the end of the
2003 Race Year unless terminated prior thereto pursuant to the terms
hereof.
8. TEAM will not disclose, publish or disseminate confidential information
(which shall be defined as the terms of this Agreement) to anyone other
than those of their employees, attorneys and accountants with a need to
know and TEAM agrees to take such reasonable precautions as may be
necessary to prevent any unauthorized use, disclosure, publication,
dissemination of confidential information which shall include the terms
of this Agreement. In the event TEAM violates the provisions of this
paragraph, CART has the right to declare this Agreement null and void
and TEAM shall be required to refund any monies paid through that date.
Further, any press releases or public statements regarding the
relationship of the parties must be approved by CART.
9. The parties acknowledge the importance of each party's reputation, good
will and public image and, accordingly, agree to maintain and enhance
such image by restraining from taking any action contrary to the best
interest of either party, or detracting from the reputation of either
party. Each party shall refrain from making any statements about the
other party that adversely affects, casts in an unfavorable light, or
otherwise maligns the business or reputation of such other party or any
of its principals.
10. TEAM agrees that it will include in its diver's contract the following
language "Driver agrees that CART has a right of first refusal to meet
any offer Driver receives at the
expiration of this Agreement. CART must exercise this right within ten
(10) days of receipt from Driver of a bona fide offer."
11. TEAM will maintain throughout the length of this Agreement, commercial
general liability insurance (including but not limited to advertising
liability and contractual liability coverage applicable to the terms of
the indemnification provisions of this Agreement) covering claims for
personal and bodily injury, and property damage arising out of the
staging and performance of the races, with limits of at least Three
Million ($3,000,000.00) Dollars combined single limit per occurrence.
Each party shall specifically name CART as an additional insured.
12. TEAM agrees to indemnify, defend and hold harmless CART and any
sponsor's of CART whose logo may appear on TEAM's car from and against
any and all expenses, damages, claims, suits, actions, judgments, and
costs, including reasonable attorneys' fees arising out of or in
connection with the running of a car in any race during the Race year.
13. This Agreement shall be governed and construed in accordance with the
laws of the State of Indiana. If a dispute arises under this Agreement
which cannot be resolved first through good faith negotiations, such
dispute shall be submitted to arbitration and resolved by a single
arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Such arbitration shall
take place at the office of the American Arbitration Association
located in Indianapolis, IN. The award of decision rendered by the
arbitrator shall be final, binding and conclusive and judgment may be
entered upon such award by any court. This provision shall survive the
termination and/or expiration of this Agreement.
14. This writing constitutes the entire Agreement between the parties
hereto regarding the subject matter hereof and may not be changed or
modified except by a writing signed by the party or parties to be
changed thereby.
15. This Agreement does not constitute and shall not be construed as a
consulting, partnership or joint venture between TEAM and CART. Neither
party shall have any right to obligate or bind the other party in any
manner whatsoever, and nothing herein contained shall give, or is
intended to give, any rights of any kind to any third party.
16. The failure of either party at any time or times to demand strict
performance by the other of any of the terms, covenants or conditions
set forth herein shall not be construed as a continuing waiver or
relinquishment thereof and each may at any time demand strict and
complete performance by the other of said terms, covenants and
conditions.
17. This Agreement has been jointly drafted by the respective
representatives of CART and TEAM and no party shall be considered as
being responsible for such drafting for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft
of this Agreement shall be taken into account in construing the
Agreement.
18. It is hereby understood and agreed to by CART and TEAM that any
statement or notice required to be given hereunder shall be deemed
given if mailed, certified mail, return receipt requested to the
following addresses:
If to CART: CART, Inc.
5350 Lakeview Parkway South Drive
Indianapolis, IN 46268
Attn: J. Carlisle Peet, III
If to TEAM: Walker Racing
4305 Championship Drive
Indianapolis, IN 46268
Attn: Derrick Walker
19. This Agreement may be terminated in the event that:
(i) Either party to this Agreement files a petition in bankruptcy or a
petition in bankruptcy is filed against either party to this
Agreement that is not removed within thirty (30) days from the
date such petition is filed; a general assignment of either
party's assets is made for the benefit of creditors; or CART
dissolved or liquidates pursuant to Delaware state law or
otherwise.
(ii) Either party to this Agreement breaches any of the material
representations, warranties or covenants contained in this
Agreement, which breach is not cured by the breaching party within
thirty (30) days after receiving written notice of such breach
from the other party.
If the Agreement is terminated by TEAM pursuant to the terms of this
Paragraph 18, TEAM shall be entitled to retain all sums paid to it by
CART through the date of termination.
If the Agreement is terminated by CART pursuant to the terms of this
Paragraph 18, CART shall be entitled to immediately terminate any
future
payments to TEAM and shall be entitled to a refund by TEAM of all
monies previously paid under this Agreement.
20. Titles to articles, paragraphs and subparagraphs are for information
purposes only and shall not be considered a substantive part of the
Agreement.
21. This Agreement and any subsequent amendments may be executed in one or
more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement. This
Agreement and any subsequent amendments may be signed and delivered by
facsimile transmission, which delivery shall have the same binding
effect as delivery of the document containing the original signature.
At the request of any party, any document delivered by facsimile
signature shall be followed by or re-executed by all parties in
original form, provided that the failure of any party to do so will not
invalidate the signature delivered by facsimile transmission.
22. In the event that any provisions of this Agreement are found to be
invalid or unenforceable by any court of competent jurisdiction, such
provision may be deemed severed and any such finding shall not
invalidate or render unenforceable any other provisions hereof.
23. Each party shall comply with all governmental laws, ordinances, and
regulations applicable to the performance of this Agreement over which
said party has jurisdiction and control.
24. This Agreement may be unilaterally terminated by CART in the event CART
is unable to field eighteen (18) entrants in the 2003 Race Year or in
the event CART ceases to sanction races during the Race Year. In the
event of such termination, this Agreement shall be null and void with
no further obligations or liability on the part of either party.
25. This Agreement replaces the Agreement between the parties dated January
31, 2003. That Agreement is null and void.
CART, Inc.
By: /s/ David Clare
------------------------------------
Its: Chief Operating Officer
WALKER RACING
By: /s/ Derrick Walker
------------------------------------
Its: President
Exhibit 10.35
AGREEMENT
This Agreement ("Agreement") is made and entered into this 14th day of
February, 2003 between CART, Inc., a Michigan corporation, having its place of
business at 5350 Lakeview Parkway South Drive, Indianapolis, IN 46268 ("CART")
and Walker Racing, 4305 Championship Drive, Indianapolis, IN 46268 ("TEAM").
W I T N E S S E T H:
WHEREAS, CART has sanctioned the Bridgestone Presents the Champ Car World
Series Powered by Ford ("Championship Series") in 2003 ("Race Year");
WHEREAS, CART desires to induce TEAM to enter a race car exclusively in the
Championship Series in the Race Year and TEAM is interested in entering a race
car upon the terms and conditions set forth herein;
WHEREAS, CART desires to obtain advertising and promotional services from
TEAM entry, referred to as race car entry number fifteen (15), and TEAM is
willing to advertise and promote the Championship Series on the terms and
conditions hereafter set forth; and
WHEREAS, the parties desire to establish a mutually beneficial relationship
in accordance with the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. TEAM shall prepare and enter and expend its mutual efforts to qualify
and race a second race car exclusively in the Championship Series, in
all of the races in the Race Year.
2. In consideration for TEAM's agreement to race in each of the races, and
in consideration of TEAM's providing promotional benefits through
advertising on the race car and other below enumerated promotional
services, CART agrees to pay TEAM the sum of Three Million Nine Hundred
Twenty Five ($3,925,000.00) Dollars during the 2003 race season. The
payments will be made as follows:
a. $750,000.00 upon signing;
b. $300,000.00 on March 15, 2003;
c. $200,000.00 on April 15, 2003;
d. $200,000.00 on May 15, 2003;
e. $200,000.00 on June 15, 2003;
f. $450,000.00 on July 15, 2003;
g. $600,000.00 on August 15, 2003;
h. $800,000.00 on September 15, 2003;
i. $400,000.00 on October 15, 2003; and
j. $25,000.00 on November 15, 2003.
3. It is understood and agreed that TEAM has a potential sponsor in Park
and Fly. In the event TEAM secures Two Million Five Hundred Thousand
($2,500,000.00) Dollars in sponsorship from said sponsor, TEAM will
notify CART and refund One Million Nine Hundred Twenty Five Thousand
($1,925,000.00) Dollars of said sponsorship.
4. TEAM understands that the payment of the funds set forth in paragraph 2
above is intended to supplement TEAM's revenue so that TEAM has enough
funding to field a team during the Race year. In the event that TEAM
receives sponsorship revenue that totals more than Six Million Five
Hundred ($6,500,000.00) Dollars, TEAM will reimburse CART fifty (50%)
percent of all excess amounts until CART has been reimbursed the amount
set forth in paragraph 2 above. For purposes of this Agreement,
sponsorship revenue shall include all amounts given to TEAM under this
Agreement and the Entrant Support and Participation Agreement. So long
as this Agreement remains in effect, and for a period of one (1) year
thereafter, TEAM agrees to maintain complete and accurate books and
records containing information necessary to calculate the amount of
sponsorship funds connected. Upon at least ten (10) days written notice
by CART, TEAM shall allow a senior CART management person to review all
sponsorship contracts for the 2003 Season which has been raised for
TEAM race car entry number five (5).
5. Advertising spaces and promotional revenues sold to CART referred to in
paragraph 6 herein, may be purchased by TEAM provided such advertising
and promotions are not in use by CART, subject to CART's approval.
6. TEAM agrees to abide by all the rules and regulations of CART and the
series including but not limited to execution of the Entrant Support
and Participant Agreement.
7. TEAM agrees that it shall provide the following advertising and
promotional services to CART:
a. Advertising elements provided by TEAM shall be designated and
referred to as an "Associate Sponsorship". TEAM agrees that once an
associate sponsor or sponsors have been accepted by TEAM, no other
competing company will be assigned by the TEAM car entry benefiting
from this Agreement.
b. Identification Elements -
i. Logo identification on the race car in the following locations
and sizes:
- Front nose section (6 inches x 4 inches)
- Mid forward chassis location (12 inches x 4 inches)
- Engine cover (16 inches x 5 inches)
ii. Logo identification on the team transporter and race pit
equipment.
iii. Logo identification on Team/Driver uniforms.
iv. TEAM will further provide and promote CART logos on race cars,
transport vehicles, pit wall banner, driver and team uniforms,
team cars and a team website as well as link to cart.com.
v. Provide to CART and the associate sponsor, the team and driver
name and likeness for reasonable use for promotional purposes
related to the involvement by the sponsors in the Cart Racing
Series.
vi. Provide hospitality to the associate sponsor's guests at events
where the TEAM has such service. Five guests will receive
credentials, grandstand seating and access to team hospitality
when available. In addition, TEAM will supply to associate
sponsor's senior management, five (5) hard card full-season
credentials.
8. The term of this Agreement shall commence upon the date both parties
have executed this Agreement and shall continue until the end of the
2003 Race Year unless terminated prior thereto pursuant to the terms
hereof.
9. TEAM will not disclose, publish or disseminate confidential information
(which shall be defined as the terms of this Agreement) to anyone other
than those of their employees, attorneys and accountants with a need to
know and TEAM agrees to take such reasonable precautions as may be
necessary to prevent any unauthorized use, disclosure, publication,
dissemination of confidential information which shall include the terms
of this Agreement. In the event TEAM violates the provisions of this
paragraph, CART has the right to declare this Agreement null and void
and TEAM shall be required to refund any monies paid through that date.
Further, any press releases or public statements regarding the
relationship of the parties must be approved by CART.
10. The parties acknowledge the importance of each party's reputation, good
will and public image and, accordingly, agree to maintain and enhance
such image by restraining from taking any action contrary to the best
interest of either party, or detracting from the reputation of either
party. Each party shall refrain from making any statements about the
other party that adversely affects, casts in an unfavorable light, or
otherwise maligns the business or reputation of such other party or any
of its principals.
11. TEAM agrees that it will include in its diver's contract the following
language "Driver agrees that CART has a right of first refusal to meet
any offer Driver receives at the expiration of this Agreement. CART
must exercise this right within ten (10) days of receipt from Driver of
a bona fide offer."
12. TEAM will maintain throughout the length of this Agreement, commercial
general liability insurance (including but not limited to advertising
liability and contractual liability coverage applicable to the terms of
the indemnification provisions of this Agreement) covering claims for
personal and bodily injury, and property damage arising out of the
staging and performance of the races, with limits of at least Three
Million ($3,000,000.00) Dollars combined single limit per occurrence.
Each party shall specifically name CART as an additional insured.
13. TEAM agrees to indemnify, defend and hold harmless CART and any
sponsor's of CART whose logo may appear on TEAM's car from and against
any and all expenses, damages, claims, suits, actions, judgments, and
costs, including reasonable attorneys' fees arising out of or in
connection with the running of a car in any race during the Race year.
14. This Agreement shall be governed and construed in accordance with the
laws of the State of Indiana. If a dispute arises under this Agreement
which cannot be resolved first through good faith negotiations, such
dispute shall be submitted to arbitration and resolved by a single
arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Such arbitration shall
take place at the office of the American Arbitration Association
located in Indianapolis, IN. The award of decision rendered by the
arbitrator shall be final, binding and conclusive and judgment may be
entered upon such award by any court. This provision shall survive the
termination and/or expiration of this Agreement.
15. This writing constitutes the entire Agreement between the parties
hereto regarding the subject matter hereof and may not be changed or
modified except by a writing signed by the party or parties to be
changed thereby.
16. This Agreement does not constitute and shall not be construed as a
consulting, partnership or joint venture between TEAM and CART. Neither
party shall have any right to obligate or bind the other party in any
manner whatsoever, and nothing herein contained shall give, or is
intended to give, any rights of any kind to any third party.
17. The failure of either party at any time or times to demand strict
performance by the other of any of the terms, covenants or conditions
set forth herein shall not be construed as a continuing waiver or
relinquishment thereof and each may at any time demand strict and
complete performance by the other of said terms, covenants and
conditions.
18. This Agreement has been jointly drafted by the respective
representatives of CART and TEAM and no party shall be considered as
being responsible for such drafting for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft
of this Agreement shall be taken into account in construing the
Agreement.
19. It is hereby understood and agreed to by CART and TEAM that any
statement or notice required to be given hereunder shall be deemed
given if mailed, certified mail, return receipt requested to the
following addresses:
If to CART: CART, Inc.
5350 Lakeview Parkway South Drive
Indianapolis, IN 46268
Attn: J. Carlisle Peet, III
If to TEAM: Walker Racing
4305 Championship Drive
Indianapolis, IN 46268
Attn: Derrick Walker
20. This Agreement may be terminated in the event that:
(i) Either party to this Agreement files a petition in bankruptcy or a
petition in bankruptcy is filed against either party to this
Agreement that is not removed within thirty (30) days from the
date such petition is filed; a general assignment of either
party's assets is made for the benefit of creditors; or CART
dissolved or liquidates pursuant to Delaware state law or
otherwise.
(ii) Either party to this Agreement breaches any of the material
representations, warranties or covenants contained in this
Agreement, which breach is not cured by the breaching party within
thirty (30) days after receiving written notice of such breach
from the other party.
If the Agreement is terminated by TEAM pursuant to the terms of this
Paragraph 19, TEAM shall be entitled to retain all sums paid to it by
CART through the date of termination.
If the Agreement is terminated by CART pursuant to the terms of this
Paragraph 19, CART shall be entitled to immediately terminate any
future payments to TEAM and shall be entitled to a refund by TEAM of
all monies previously paid under this Agreement.
21. Titles to articles, paragraphs and subparagraphs are for information
purposes only and shall not be considered a substantive part of the
Agreement.
22. This Agreement and any subsequent amendments may be executed in one or
more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement. This
Agreement and any subsequent amendments may be signed and delivered by
facsimile transmission, which delivery shall have the same binding
effect as delivery of the document containing the original signature.
At the request of any party, any document delivered by facsimile
signature shall be followed by or re-executed by all parties in
original form, provided that the failure of any party to do so will not
invalidate the signature delivered by facsimile transmission.
23. In the event that any provisions of this Agreement are found to be
invalid or unenforceable by any court of competent jurisdiction, such
provision may be deemed severed and any such finding shall not
invalidate or render unenforceable any other provisions hereof.
24. Each party shall comply with all governmental laws, ordinances, and
regulations applicable to the performance of this Agreement over which
said party has jurisdiction and control.
25. This Agreement may be unilaterally terminated by CART in the event CART
is unable to field eighteen (18) entrants in the 2003 Race Year or in
the event CART ceases to sanction races during the Race Year. In the
event of such termination, this Agreement shall be null and void with
no further obligations or liability on the part of either party.
CART, Inc.
By: /s/ David Clare
------------------------------------
Its: Chief Operating Officer
WALKER RACING
By: /s/ Derrick Walker
------------------------------------
Its: President
Exhibit 10.36
January 29, 2003
Mr. Derrick Walker
Walker Racing
4035 Championship Drive
Indianapolis, IN 46268
Dear Mr. Walker:
The purpose of this letter is to memorialize our understanding with regard
to the arrangement made between your company and CART with regard to the
upgrading of four (4) Honda/Reynard chassis to Ford/Reynard conversions. With
regard to this upgrading, CART has agreed to pay your company Four Hundred
Thousand ($400,000.00) Dollars. Two Hundred Thousand ($200,000.00) Dollars has
already been paid in the form of a deposit, and Two Hundred Thousand
($200,000.00) Dollars is to be delivered on February 03, 2003.
It is understood and agreed that this transaction will take place within
the time frames herein but that the details of this transaction must be approved
by the CART Board of Directors. In the event that the CART Board of Directors
denies approval for this transaction, you agree that this transaction may be
rescinded.
If this meets with your approval, please execute in the space provided
below.
Thank you for your consideration.
Sincerely,
CART, Inc. AGREED AND ACCEPTED:
/s/ Thomas L. Carter /s/ Derrick Walker
-------------------------------------- --------------------------------------
Thomas L. Carter Walker Racing
Vice President/CFO By: Derrick Walker
TLC/cma
Exhibit 10.37
[CART(TM) LETTERHEAD]
CART, Inc. - 5350 West Lakeview Parkway South Drive -
Indianapolis, Indiana 46268 USA
Phone (317) 715-4100 - Fax (317) 715-4101
www.cart.com
February 19, 2003
Mr. Derrick Walker
Walker Racing
4035 Championship Drive
Indianapolis, IN 46268
Dear Mr. Walker:
This letter is intended to memorialize the Agreement between CART, Inc. and
Walker Racing by which CART agrees to exchange a large quantity of Reynard parts
for one (1) show car. The exchange of the parts and show car shall pass
simultaneously. Both the show car and the parts are being exchanged in an "as
is" condition. No warranties or representations are made by either party as to
the fitness of merchantability.
If you are in agreement with the above description of the transaction,
please execute this letter in the space provided below. This transaction is
subject to approval by the Board of Directors of the parent company of CART,
Inc. and will not become effective until such approval is secured.
Thank you for your consideration.
Sincerely,
CART, Inc. AGREED AND ACCEPTED:
/s/ David Clare /s/ Derrick Walker
-------------------------------------- --------------------------------------
David Clare Walker Racing
Chief Operating Officer By: Derrick Walker
DC/cma
Exhibit 10.38
LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into this 25th day of February, 2003 by and
between CART, Inc., a Michigan corporation ("CART"), located at 5350 Lakeview
Parkway South Drive, Indianapolis, IN 46268 and Walker Racing, located at 4305
Championship Drive, Indianapolis, IN 46268 (the "Team").
WHEREAS, the Team wishes to enter into a Lease Agreement with CART under
the terms and conditions hereof, whereby CART will lease to Team a race car and
components identified on Exhibit "A", attached hereto (the "Car").
WHEREAS, CART is in possession of said Car and is agreeable to leasing the
Car to Team under the terms and conditions herein.
WHEREAS, it is in the best interest of both parties to reduce to writing
mutual covenants and agreements regarding the use of the Car by Team.
For and in consideration of the mutual covenants and promises hereinafter
set forth, the parties hereto agree as follows:
1. CART hereby leases to Team the Car which is described in Exhibit "A"
attached hereto.
2. The term of this Lease shall coincide with the 2003 CART Race Season
("Race Season"). The Lease shall expire one (1) week after the end of
the Race Season.
3. The Car leased hereunder shall be used solely for racing in the CART
series.
4. Teams shall pay to CART and CART shall accept as rental, the sum of One
($1.00) Dollar for the term of this Lease Agreement.
5. Teams shall secure general public liability insurance naming CART as an
additional party insured, and limits that will adequately protect the
respective parties, but no less than Three Million ($3,000,000.00)
Dollar limit in the aggregate for the term.
6. Teams covenants:
a. to use the Car for no other purpose than to race in the 2003 CART
Series; and
b. to indemnify and hold CART harmless of any claims, including a
reimbursement for attorneys fees and defense costs which Team may
incur as a result of being sued, arising out of Team's use of the
Car.
7. Team agrees that if it desires to race in the 2004 CART Season, Team
must purchase the Car from CART for Fifty Thousand ($50,000.00)
Dollars. Said purchase shall be consummated immediately following the
last race of the Race Season, and payment must be made by Team to CART
within one (1) week of the last race of the Race Season. In the event
that Team decides at a later date that it wishes to enter a car in the
2004 CART season, then it must purchase the Car at that time for the
same amount. Absent said purchase, Team shall not be permitted to enter
into the 2004 CART Season.
8. Team shall maintain the Car in good order and repair, safety and
appearance, ordinary wear and team excepted and shall promptly make all
repairs and replacements necessary and appropriate to so maintain the
Car.
9. In the event the Car is involved in an on-track crash causing damage
beyond repair of the Car, this Lease shall terminate, and all further
obligations under this Lease shall cease.
10. Notwithstanding anything in this Agreement to the contrary or
otherwise, no representation or warranty, express or implied, statutory
or otherwise of any kind or nature whatsoever regarding the Car has
been, is or will be made by or on behalf of CART including, but not
limited to, any representation or warranty of the capacity, condition,
suitability or fitness for a particular purpose, performance,
reliability, use, quality or merchantibility for any particular purpose
and any and all such representations and warranties hereby are waived
by Team and excluded from this Agreement, it being understood and
agreed that the supplied items are provided "as is" and "with all
faults". CART shall not have any obligation or liability to team in
tort, contract or other theory for any loss, injury or damage through
team, its employees, drivers, agents or contractors as a result of any
defect in or the provision for use of any of the items which are the
subject of this Agreement.
11. Team shall defend, indemnify and hold harmless, CART, its parent,
subsidiaries, and affiliated entities and the respective officers,
directors, shareholders, employees, agents, distributors, dealers,
successors and assigns, from and against any and all losses, claims,
actions, suits, proceedings, damages, costs and expenses, including
reasonable attorneys fees, arising out of or in connection with or
related to the Car or Team's racing and testing activities including,
without limitation damage or injury to, or death of, any Team employee,
driver, agent or contractor; the performance or non-performance by or
any breach or default of, Team under this Agreement, including, but not
limited to, any of Team's testing or racing activities contemplated
hereby.
IN WITNESS WHEREOF, the parties by appropriate corporate officers affix
the day and year first written above.
CART, Inc. WALKER RACING
By: /s/ David Clare By: /s/ Derrick Walker
------------------------------------ -----------------------------------
David Clare, Chief Operating Officer Derrick Walker, President
Exhibit 10.39
LANDLORD: RAS DEVELOPMENT INC., a Florida corporation
c/o BAP Realty
2601 South Bayshore Drive, 10th Floor
Miami, Florida 33133
TENANT: CART, Inc., a Delaware corporation
5350 Lakeview Parkway South Drive, Bldg. 36
Inner Park - Park 100
Indianapolis, IN 46268
And
Until Rent Commencement Date:
341 East Flagler Street
Miami, Florida 33131
From and after Rent Commencement Date:
232 Andalusia Avenue
Suite 3C
Coral Gables, Florida 33134
DATE OF EXECUTION: March __, 2003
OFFICE LEASE
LEASE SUMMARY
The following is a summary of basic lease provisions with respect to
the Lease. It is an integral part of the Lease, and terms defined or dollar
amounts specified in this Summary shall have the meanings or amounts as stated,
unless expanded upon in the text of the Lease and its Exhibits, which are
attached to and made a part of this Summary.
1. Date of Lease Execution: March __, 2003
2. "Landlord": RAS Development, Inc.
3. Landlord's Address: 2601 South Bayshore Drive, 10th Floor
Miami, Florida 33133
4. "Tenant": CART, INC., a Delaware corporation
5. Tenant's Address: 5350 Lakeview Parkway South Drive, Bldg. 36
Inner Park - Park 100
Indianapolis, IN 46268
And
Until Rent Commencement Date:
341 East Flagler Street
Miami, Florida 33131
From and after Rent Commencement Date:
232 Andalusia Avenue
Suite 3C
Coral Gables, Florida 33134
6. Premises (section 1.1): Suite 3C, located on the third floor of
the building and outlined on the floor
plan attached hereto on Exhibit "A"
7. Building (section 1.1): 232 Andalusia, 232 Andalusia Avenue,
Coral Gables, Florida
8. Rentable Area of
Premises (section 1.1): Approximately 3,216 rentable square feet
9. Permitted Use of
Premises (section 3.1): Administrative and sales offices for Grand
Prix of the Americas, Downtown Miami,
subsidiary of CART, and general office uses
10. Term of Lease
(section 1.1): Five (5) years
"Commencement Date": The date of the Lease
"Rent Commencement Date": The earlier of
(i) the date of actual occupancy of the
Premises by Tenant or (ii) the date
immediately following Landlord substantial
completion of the improvements to the
premises as per Exhibit "D".
"Expiration Date": Five (5) years after the
Rent Commencement Date
11. Option to Renew (Rider 1): Two (2) terms of Five (5) years each
12. "Minimum Rent" for the
first Lease Year
(section 2.2): $7,504.00 per month, plus sales tax
13. Prepaid Rent
(section 2.2): $8,029.28 (includes sales tax) (due upon
execution of Lease; to be applied to first
month that Minimum Rent is due)
14. Security Deposit
(section 2.6): $16,058.56 (includes sales tax) (2 months
Minimum Rent plus sales tax)
15. No. of Parking Spaces
(section 11.1): Four (4) assigned parking spaces located at
the south side of the Building accessed by
the alley at a parking rental of $50.00 per
space per month, plus sales tax.
Parking rental during renewal term(s) shall
be at prevailing market rates in Coral
Gables, Florida, but not less than $50.00
per space, per month, plus sales tax.
16. Broker(s) (section 13.12) Mesa Properties, Inc. for the Tenant and
BAP Realty for the Landlord
THIS LEASE (the "Lease"), dated the _____ day of March, 2003, is made
between RAS DEVELOPMENT INC., a Florida corporation (the "Landlord"), and CART,
INC. (the "Tenant").
ARTICLE I. TERM.
1.1 Grant; Term. In consideration of the performance by Tenant of its
obligations under this Lease, Landlord leases to Tenant, and Tenant leases from
Landlord, for the Term, the "Premises," which Premises are shown outlined on the
floor plan attached hereto and made a part hereof as Exhibit "A." The Premises
are located in that certain office/retail building (the "Building"), located at
232 Andalusia Avenue, Coral Gables, Florida, as more particularly described in
Exhibit "B" attached hereto and made a part hereof (the "Property"). The
rentable area of the Premises (which includes a proportionate share of the
common areas of the Building) is stipulated for all purposes to be as set forth
in the Lease Summary. Tenant acknowledges and agrees that the rentable area of
the Premises as specified in the Lease Summary shall not be adjusted upon
completion of the Building and/or the Premises, even if it is determined that
the rentable area of the Premises as actually constructed is different that the
amount specified in the Lease Summary.
The "Term" of the Lease is the period from the Commencement Date as
specified in the Lease Summary, through the Expiration Date, as specified in the
Lease Summary.
ARTICLE II. RENT.
2.1 Covenant to Pay. Tenant shall pay to Landlord all sums due hereunder
from time to time (which are collectively referred to as "rent") from the Rent
Commencement Date without prior demand, together with all applicable Florida
sales tax thereon; however, unless otherwise provided in this Lease, payments
other than Tenant's regular monthly payments of Minimum Rent, Tenant's Share of
Excess Expenses and Tenant's Share of Excess Taxes shall be payable by Tenant to
Landlord within ten (10) business days following demand. All rent required to be
paid by Tenant to Landlord shall be payable at Landlord's address indicated on
the Lease Summary. Minimum Rent and additional rent for any "Lease Year"
consisting of less than twelve (12) months shall be prorated on a per diem
basis, based upon a period of 365 days. "Lease Year" means the twelve (12) full
calendar months commencing on the Rent Commencement Date. However, the final
Lease Year may contain less than twelve (12) months due to expiration or sooner
termination of the Term. Tenant agrees that its covenant to pay rent and all
other sums under this Lease is an independent covenant and that all such amounts
are payable without counterclaim, set-off, deduction, abatement, or reduction
whatsoever, except as expressly provided for in this Lease.
2.2 Minimum Rent. Tenant shall pay Minimum Rent for the first Lease Year of
the Term in the amount specified in the Lease Summary. The Minimum Rent for the
each subsequent Lease Year of the Term shall be as follows: Year 2: an amount
equal to 102% of the following amount: Minimum Rent payable by Tenant for the
immediately prior Lease Year less the Operating Costs and Taxes for such prior
Lease Year, plus sales tax.
Year 3: an amount equal to 103% of the following amount: Minimum Rent
payable by Tenant for the immediately prior Lease Year less the Operating Costs
and Taxes for such prior Lease Year, plus sales tax.
Year 4: an amount equal to 104% of the following amount: Minimum Rent
payable by Tenant for the immediately prior Lease Year less the Operating Costs
and Taxes for such prior Lease Year, plus sales tax.
Year 5: an amount equal to 105% of the following amount: Minimum Rent
payable by Tenant for the immediately prior Lease Year less the Operating Costs
and Taxes for such prior Lease Year, plus sales tax.
Minimum Rent, except for the first installment to be prepaid, shall be payable
throughout the Term in equal monthly installments in advance on the first day of
each calendar month of each year of the Term. Tenant shall pay all sales and use
taxes, levied or assessed against all rental payments due under the Lease
simultaneously with each such rental payment.
2.3 Services to be Furnished by Landlord.
(a) Subject to Tenant's obligation to pay Tenant's Share of Excess
Expenses as provided in Section 2.4 of this Lease, Landlord will provide water,
sewer, electric and HVAC services to the Leased Premises at Landlord's expense.
Landlord will provide heating and air-conditioning in season during Normal
Business Hours, at such temperatures and in such amounts as are considered by
Landlord to be standard or as required by governmental authority; provided,
however, heating and air-conditioning service at times other than for Normal
Business Hours for the Building shall be furnished only upon the written request
of Tenant delivered to Landlord prior to 3:00 p.m. at least one (1) business day
in advance of the date for which such usage is requested. Tenant shall bear the
entire cost of such additional service at a cost of $30.00 per hour. "Normal
Business Hours" for the Building shall mean 7:00 a.m. to 7:00 p.m. Mondays
through Fridays and 8:00 a.m. to 1:00 p.m. Saturdays, exclusive of normal
business holidays.
(b) If Tenant's use of the Leased Premises results in extraordinary
consumption of water, sewer, electric or HVAC services, Landlord will have the
right to charge Tenant for the extraordinary costs incurred by Landlord as a
result of Tenant's extraordinary consumption of water, sewer, electric or HVAC
services. Tenant will reimburse Landlord for such charges within five (5) days
after Landlord sends Tenant written notice of such charges. Any charges incurred
by Landlord as a result of Tenant's extraordinary consumption of water, sewer,
electric or HVAC services will be considered additional rent under this Lease.
(c) Landlord will provide janitorial service to the Leased Premises on
a daily basis Monday through Friday (normal business holidays excluded). The
janitorial services to be provided include vacuuming, sweeping, dusting,
cleaning of bathrooms, and trash removal.
(d) Elevator service in common with other Building tenants for ingress
to and egress from the Premises.
(e) Landlord shall not be obligated to provide any Building security.
(f) Unless due to the willful misconduct or gross negligence of
Landlord, Landlord shall not be liable for, and Tenant shall not be entitled to
any reduction or abatement of rent (or any other claim) by reason of Landlord's
failure to furnish any of the foregoing services or utilities when such failure
is caused by accident, breakage, repairs, strikes, lock-outs or other labor
disturbances or labor disputes of any character, or by any other similar or
dissimilar cause, beyond the reasonable control of Landlord. Landlord shall not
be liable under any circumstances for loss of or injury to property, however
occurring, through or in connection with or incidental to the failure to furnish
any of the foregoing.
2.4 Excess Expenses.
(a) In addition to the Minimum Rent, as the same is adjusted, Tenant
shall pay to Landlord as additional rent, Tenant's pro rata share of the amount
by which the annual "Operating Costs" (as hereinafter defined) (such increase in
the Operating Costs hereinafter referred to as the "Excess Expenses") incurred
by Landlord during each successive calendar year exceed the Operating Costs
incurred during the "Base Year" (as hereinafter defined). Tenant's Share is 19%.
Notwithstanding anything to the contrary contained herein, except for those
Operating Costs attributable to casualty, liability and fidelity insurance,
Tenant's obligation to pay Tenant's Share of the Excess Expenses shall not
exceed 103% of the amount Tenant was obligated to pay for Tenant's Share of the
Excess Expenses in the immediately prior Lease Year.
(b) Tenant's obligation to pay Tenant's Share of the Excess Expenses
shall commence on the date which is twelve (12) months after the Rent
Commencement Date. For purposes of this Lease, the term "Base Year" is deemed to
be the calendar year 2003.
(c) The Operating Costs shall be determined in accordance with
generally accepted accounting principles. The "Operating Costs" shall include
all costs of ownership, operation, maintenance, repair and management of the
Building and the Property and all appurtenances thereto as determined in
accordance with generally accepted accounting principles. The Operating Costs
shall include, but not be limited to, the following: (1) all utilities,
including water, sewer and electricity; (2) casualty, liability and fidelity
insurance; (3) cleaning services; (4) landscaping; (5) alterations and
improvements to the Property made by reason of the applicable law, regulations
or ordinances; (6) management fees or, if an independent property manager is not
employed by Landlord, a sum which is not in excess of the then prevailing rates
for management fees of other comparable buildings in the area in which the
Building is located; (7) replacements or additions to the Property made during
the Term which shall be charged ratably over the remaining useful life of said
replacement or addition; (8) reasonable administrative expenses; (9) costs of
repairs, replacements and general maintenance; (10) amortization of capital
improvements made to the Building which will improve operating efficiency; (11)
wages, salaries, payroll costs, and benefits paid to on behalf of Landlord's
employees attributable to the operation and maintenance of the
-2-
Building; and (12) all other charges properly allocable to the repair, operation
and maintenance of the Building in accordance with generally acceptable
accounting principles. Operating Costs shall not include the following:
(1)Expenses for repairs or other work occasioned by condemnation or fire or
other casualty, to the extent reimbursed by condemnation or insurance proceeds;
(2) leasing commissions; (3) interest or amortization of mortgages secured by
the Building and/or the Property; (4) any expense fully reimbursed to Landlord
by Tenant or any other tenant of the Building, or any expense billed to and paid
directly by same for their own account or on Landlord's behalf; (5) expenses for
repairs or replacements to the Building and the Property to the extent that such
repairs or replacements are reimbursed by insurance proceeds; (6) legal expenses
incurred in connection with leasing the Building or enforcement of Building
leases; and (7) advertising expenses and expenses of renovating space incurred
in procuring new tenant's.
(d) Promptly following the beginning of each calendar year occurring
during the term of this Lease subsequent to the Base Year, and during any
extension or renewal of the Lease Term, Landlord shall deliver to Tenant a
statement setting forth (i) Landlord's projection of the Operating Costs for the
then current calendar year and (ii) Tenant's Share of the Excess Expenses, based
on the portion of such calendar year during which this Lease is in effect.
Tenant's Share of the projected Excess Expenses shall be payable as additional
rent in equal monthly installments due on the first day of each calendar month
for the remaining months of such calendar year.
(e) Commencing with Landlord's statement delivered at the beginning of
the second full calendar year occurring during the term of this Lease, Landlord
shall also set forth (i) the actual amount of the Operating Costs incurred
during the preceding calendar year, and (ii) any underpayment or overpayment by
Tenant based on Tenant's monthly payment(s) (if any) of Tenant's Share of the
projected Excess Expenses made during the preceding calendar year. In the event
of any underpayment by Tenant, Tenant shall pay the full amount of such
deficiency to Landlord within thirty (30) days of receipt of Landlord's
statement. Any overpayment by Tenant shall, at Landlord's option, either be (i)
paid to Tenant within thirty (30) days of delivery of Landlord's statement or
(ii) applied to the next ensuing payment of Minimum Rent due.
(g) Prior to the expiration date of the Lease Term, Landlord shall
deliver to Tenant a statement setting forth (i) Tenant's Share of the actual
Operating Costs incurred during the final calendar year of the Lease Term, up to
and including the expiration date of the Lease Term, and (ii) any underpayment
or overpayment of Tenant's Share of the projected Excess Expenses made during
that final calendar year. In the event of any underpayment, Tenant shall pay the
full amount thereof to Landlord on or before the date of expiration of the Lease
Term. If Tenant has overpaid, Landlord shall reimburse Tenant the full amount of
such overpayment not later than the expiration date of the Lease Term.
(h) Each statement given by Landlord pursuant to the provisions of
this Section 2.4 shall be conclusive and binding upon Tenant unless within
thirty (30) days after receipt of the statement Tenant shall notify Landlord
that it disputes the correctness of such statement, specifying the particular
respects in which it is claimed to be incorrect. Pending resolution of the
dispute, Tenant shall pay additional rent in accordance with the statement but
such payment shall be without prejudice to Tenant's position. If the dispute is
determined in Tenant's favor, Landlord shall promptly credit the Tenant the
amount of Tenant's overpayment of additional rent resulting from compliance with
Landlord's statement. If resolution of the dispute indicates that Tenant
underpaid, Tenant shall promptly pay Landlord the amount of such underpayment
(no interest shall be due thereon, provided Tenant paid all additional rent due
in accordance with this Rider). Landlord shall provide Tenant reasonable records
for the purpose of verifying the Excess Operating Costs.
2.5 Excess Taxes.
(a) In addition to the Minimum Rent and Tenant's Share of Excess
Expenses, as the same is adjusted, Tenant shall pay to Landlord as additional
rent, Tenant's Share of the amount by which the annual "Taxes" (as hereinafter
defined) incurred by Landlord during each successive calendar year exceed the
Taxes incurred during the Base Year (such increase being hereinafter referred to
as the "Excess Taxes").
(b) Tenant's obligation to pay Tenant's Share of the Excess Taxes
shall commence on the date which is twelve (12) months after the Rent
Commencement Date.
(c) "Taxes" shall be defined as all real or personal property taxes
(or payments in lieu of such taxes), excises, levies, fees, or charges, general
and special, ordinary and extraordinary, unforeseen as well as foreseen, of any
kind
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which are assessed, levied, charged, confirmed, or imposed by any public
authority upon operations or the rent provided for in the Lease. (It is agreed
that Tenant will be responsible for ad valorem taxes on its personal property
and on the value of leasehold improvements to the Premises.)
(d) Promptly following the beginning of each calendar year occurring
during the term of this Lease subsequent to the Base Year, and during any
extension or renewal of the Lease Term, Landlord shall deliver to Tenant a
statement setting forth (i) Landlord's projection of the Taxes for the then
current calendar year and (ii) Tenant's Share of the Excess Taxes, based on the
portion of such calendar year during which this Lease is in effect. Tenant's
Share of the projected Excess Taxes shall be payable as additional rent in equal
monthly installments due on the first day of each calendar month for the
remaining months of such calendar year.
(e) Commencing with Landlord's statement delivered at the beginning of
the second full calendar year occurring during the term of this Lease, Landlord
shall also set forth (i) the actual amount of the Taxes incurred during the
preceding calendar year, and (ii) any underpayment or overpayment by Tenant
based on Tenant's monthly payment(s) (if any) of Tenant's Share of the projected
Excess Taxes made during the preceding calendar year. In the event of any
underpayment by Tenant, Tenant shall pay the full amount of such deficiency to
Landlord within thirty (30) days of receipt of Landlord's statement. Any
overpayment by Tenant shall, at Landlord's option, either be (i) paid to Tenant
within thirty (30) days of delivery of Landlord's statement or (ii) applied to
Tenant's Share of the Excess Taxes as projected for the ensuing calendar year.
(f) Prior to the expiration date of the Lease Term, Landlord shall
deliver to Tenant a statement setting forth (i) Tenant's Share of the actual
Taxes incurred during the final calendar year of the Lease Term, up to and
including the expiration date of the Lease Term, and (ii) any underpayment or
overpayment of Tenant's Share of the projected Excess Taxes made during that
final calendar year. In the event of any underpayment, Tenant shall pay the full
amount thereof to Landlord on or before the date of expiration of the Lease
Term. If Tenant has overpaid, Landlord shall reimburse Tenant the full amount of
such overpayment not later than the expiration date of the Lease Term.
2.6 Payment of Personal Property Taxes. Tenant shall pay, when due, all
taxes attributable to the personal property, trade fixtures, business,
occupancy, or sales of Tenant or any other occupant of the Premises and to the
use of the Building by Tenant or such other occupant.
2.7 Rent Past Due. If any payment due from Tenant shall be overdue for five
(5) days after written notice is given by Landlord to Tenant, a late charge of
five (5%) percent of the delinquent sum may be charged by Landlord. If any
payment due from Tenant shall remain overdue for more than fifteen (15) days
after written notice is given by Landlord to Tenant, an additional late charge
in an amount equal to the lesser of the highest rate permitted by law or one and
one-half (1 1/2%) percent per month (eighteen (18%) percent per annum) of the
delinquent amount may be charged by Landlord, such charge to be computed for the
entire period for which the amount is overdue and which shall be in addition to
and not in lieu of the five (5%) percent late charge or any other remedy
available to Landlord.
2.8 Landlord's Lien. Nothing contained in this Lease shall be deemed to
waive any statutory lien rights available to Landlord.
2.9 Security Deposit. The Security Deposit shall be held by Landlord
without liability for interest and as security for the performance by Tenant of
Tenant's covenants and obligations under this Lease, it being expressly
understood that the Security Deposit shall not be considered an advance payment
of rental or a measure of Tenant's liability for damages in case of default by
Tenant. Landlord may commingle the Security Deposit with Landlord's other funds.
Landlord may, from time to time, without prejudice to any other remedy, use the
Security Deposit to the extent necessary to make good any arrearages of rent or
to satisfy any other covenant or obligation of Tenant hereunder. Following any
such application of the Security Deposit, Tenant shall pay to Landlord on demand
the amount so applied in order to restore the Security Deposit to its original
amount. If Tenant is not in default at the termination of this Lease, the
balance of the Security Deposit remaining after any such application shall be
returned by Landlord to Tenant.
2.10 Prepaid Rent. The amount of prepaid rent set forth in item 13 of the
Lease Summary shall be applied to the first month rent due by Tenant hereunder.
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ARTICLE III. USE OF PREMISES.
3.1 Permitted Use. The Premises shall be used and occupied only for the use
specified in the Lease Summary. Tenant shall carry on its business on the
Premises in a reputable manner and shall not do, omit, permit, or suffer to be
done or exist upon the Premises anything which shall result in a nuisance,
hazard, or bring about a breach of any provision of this Lease or any applicable
municipal or other governmental law or regulation. Tenant shall observe all
reasonable rules and regulations established by Landlord from time to time for
the Building. The rules and regulations in effect as of the date hereof are
attached to and made a part of this Lease as Exhibit "C." The name for the
Building, which Landlord may from time to time adopt, and every name or mark
adopted by Landlord in connection with the Building shall be used by Tenant only
in association with the business carried on in the Premises during the Term and
Tenant's use thereof shall be subject to such reasonable regulation as Landlord
may from time to time impose.
3.2 Compliance with Laws. The Premises shall be used and occupied in a
safe, careful, and proper manner so as not to contravene any present or future
governmental or quasigovernmental laws, regulations, or orders, or the
requirements of Landlord's or Tenant's insurers. If due to Tenant's use of the
Premises, repairs, improvements, or alterations are necessary to comply with any
of the foregoing (other than structural alterations), Tenant shall pay the
entire cost thereof.
3.3 Signs. Tenant shall not erect, install, display, inscribe, paint, or
affix any signs, lettering, or advertising medium upon or above any exterior
portion of the Premises, except with the prior written consent of Landlord, and
subject to any applicable requirements of the City of Coral Gables, Florida (the
"City"). Tenant may install any sign it chooses inside the Premises provided any
such sign is not visible from anywhere outside the Premises, or from the common
areas of the Building. Landlord will provide, at Landlord's expense, a directory
listing in the main lobby and suite signage on the door of the Premises
consistent with the standard signage within the Building; provided, the cost of
such signage may be included in Operating Expenses.
3.4 Environmental Provisions. Tenant warrants and represents that it will
not use or employ Landlord's and/or the Building property, facilities,
equipment, or services to handle, transport, store, treat, or dispose of any
hazardous waste or hazardous substance, whether or not it was generated or
produced on the Premises; and, Tenant further warrants and represents that any
activity on or relating to the Premises shall be conducted in full compliance
with all applicable environmental laws. Tenant agrees to defend, indemnify, and
hold harmless Landlord against any and all claims, costs, expenses, damages,
liability, and the like (including, without limitation, attorneys' fees and
costs), which Landlord may hereafter be liable for, suffer, incur, or pay
arising under any applicable laws and resulting from or arising out of any
breach of the warranties and representations contained in this section 3.4, or
by any act, activity, or violation of any applicable environmental laws by
Tenant, its agents, employees, or assigns. Tenant's liability under this section
3.4 shall survive the expiration or any termination of this Lease. To best of
Landlord's knowledge, based solely upon the environmental audit of the land upon
which the Building (the "Land") is situate prepared by EAF Engineering, Inc.
dated July 27, 2001 (the "Existing Environmental Audit"), there are no hazardous
substances at, on or under the Land in excess of permitted levels under
applicable environmental laws, other than as may be disclosed in the Existing
Environmental Audit.
ARTICLE IV. ACCESS AND ENTRY.
4.1 Right of Examination. Landlord shall be entitled at all reasonable
times and upon reasonable advance notice (but no notice is required in
emergencies) to enter the Premises to examine them or to make such repairs,
alterations, or improvements thereto as Landlord considers necessary or
reasonably desirable. Landlord reserves to itself the right to install,
maintain, use, and repair pipes, ducts, conduits, vents, wires, and other
installations leading in, through, over, or under the Premises and for this
purpose, Landlord may take all material into and upon the Premises which is
required therefor. Tenant shall not unduly obstruct any pipes, conduits, or
mechanical or other electrical equipment so as to prevent reasonable access
thereto. Landlord reserves the right to use all exterior walls and roof area.
Landlord shall exercise its rights under this section, to the extent possible in
the circumstances, in such manner so as to minimize interference with Tenant's
use and enjoyment of the Premises. Landlord shall retain duplicate keys to all
doors of the Premises. Tenant shall provide Landlord with new keys should Tenant
receive Landlord's consent to change the locks.
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4.2 Right to Show Premises. Landlord and its agents have the right to enter
the Premises at all reasonable times and upon reasonable advance notice to show
them to prospective purchasers, lenders, or anyone having a prospective interest
in the Building, and, during the last six (6) months of the Term (or the last
six (6) months of any renewal term if this Lease is renewed), to show them to
prospective tenants. Landlord agrees that Landlord shall not materially
interfere with the operation of Tenant's business at the Premises in connection
with showing the Premises to prospective purchasers, lenders, or anyone having a
prospective interest in the Building.
ARTICLE V. INITIAL CONSTRUCTION; MAINTENANCE, REPAIRS, AND ALTERATIONS.
5.1. Landlord's Construction Obligations. The "Building Standard and Tenant
Improvements" set forth on Exhibit "D" have been or will be constructed and
installed in the Premises by Landlord as provided in the Work Letter attached
hereto as Exhibit "D" and incorporated herein for all purposes.
5.2 Maintenance and Repairs by Landlord. Landlord covenants to keep the
following in good repair as a prudent owner: (i) the structure of the Building
including exterior walls and roofs; (ii) the mechanical, electrical, HVAC, and
other base building systems (except such as may be installed by or be the
property of Tenant or as may be serving only the Premises); and (iii) the
entrances, sidewalks, and other facilities from time to time comprising the
common areas. The cost of such maintenance and repairs shall be included in
Operating Costs. So long as Landlord is acting in good faith, Landlord shall not
be responsible for any damages caused to Tenant by reason of failure of any
equipment or facilities serving the Building or delays in the performance of any
work for which Landlord is responsible pursuant to this Lease; provided, such
damages are not due to Landlord's gross negligence. Notwithstanding any other
provisions of this Lease, if any part of the Building is damaged or destroyed or
requires repair, replacement, or alteration as a result of the act or omission
of Tenant, its employees, agents, invitees, licensees, or contractors, Landlord
shall have the right to perform same and the cost of such repairs, replacement,
or alterations shall be paid by Tenant to Landlord upon demand. In addition, if,
in an emergency, it shall become necessary to make promptly any repairs or
replacements required to made by Tenant, Landlord may re-enter the Premises and
proceed forthwith to have the repairs or replacements made and pay the costs
thereof. Upon demand, Tenant shall reimburse Landlord for the cost of making the
repairs.
5.3 Maintenance and Repairs by Tenant. Tenant shall, at its sole cost,
repair and maintain the Premises (including, without limitation, floor and wall
coverings), exclusive of base building mechanical and electrical systems, all to
a standard consistent with a first class office building, with the exception
only of those repairs which are the obligation of Landlord pursuant to this
Lease. All repair and maintenance performed by Tenant in the Premises shall be
performed by contractors or workers designated or approved by Landlord, which
shall not be unreasonably withheld or delayed. At the expiration or earlier
termination of the Term, Tenant shall surrender the Premises to Landlord in as
good condition and repair as Tenant is required to maintain the Premises
throughout the Term, reasonable wear and tear excepted.
5.4 Approval of Tenant's Alterations. No alterations (including, without
limitation, repairs, replacements, additions, or modifications to the Premises
by Tenant), other than minor or cosmetic alterations costing $500.00 per
alteration or less which are interior and nonstructural, shall be made to the
Premises without Landlord's written approval, which, as to exterior or
structural alterations may be withheld in Landlord's sole discretion. Any
alterations by Tenant shall be performed at the sole cost of Tenant, by
contractors and workers approved by Landlord, which shall not be unreasonably
withheld or delayed, in a good and workerlike manner, and in accordance with all
applicable laws and regulations. As to nonstructural, interior alterations and
improvements which have no effect on the mechanical, electrical, plumbing, HVAC
or life safety systems, such consent shall not be unreasonably withheld or
delayed. In addition, as to any proposed alterations or improvements, Tenant may
expressly request whether Landlord will require the removal of such alteration
or improvement upon expiration of the Term. If Landlord approves the proposed
alteration or improvement, Landlord's approval also will expressly respond to
such request.
5.5 Removal of Improvements and Fixtures. All leasehold improvements (other
than unattached, movable trade fixtures which can be removed without damage to
the Premises) shall at the expiration or earlier termination of this Lease
become Landlord's property. Tenant may, during the Term, in the usual course of
its business, remove its trade fixtures, provided that Tenant is not in default
under this Lease beyond applicable notice and cure periods; and Tenant shall, at
the expiration or earlier termination of the Term, at its sole cost, remove such
of the leasehold improvements (except for improvements installed by Landlord
prior to the Commencement Date) and trade fixtures in the Premises as Landlord
shall
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require to be removed and restore the Premises to the condition existing prior
to such removal. Tenant shall at its own expense repair any damage caused to the
Building by such removal. If Tenant does not remove its trade fixtures at the
expiration or earlier termination of the Term, the trade fixtures shall, at the
option of Landlord, become the property of Landlord and may be removed from the
Premises and sold or disposed of by Landlord in such manner as it deems
advisable without any accounting to Tenant.
5.6 Liens. Tenant shall promptly pay for all materials supplied and work
done on behalf of tenant in respect of the Premises so as to ensure that no lien
is recorded against any portion of the Building or against Landlord's or
Tenant's interest therein. If a lien is so recorded, Tenant shall discharge it
promptly by payment or bonding. If any such lien against the Building or
Landlord's interest therein is recorded and not discharged by Tenant as above
required within fifteen (15) days following recording, Landlord shall have the
right to remove such lien by bonding or payment and the cost thereof shall be
paid immediately from Tenant to Landlord. Landlord and Tenant expressly agree
and acknowledge that no interest of Landlord in the Premises or the Building
shall be subject to any lien for improvements made by Tenant in or for the
Premises, and Landlord shall not be liable for any lien for any improvements
made by Tenant, such liability being expressly prohibited by the terms of this
Lease. In accordance with applicable laws of the State of Florida, Landlord has
filed or may file in the Public Records of Miami-Dade County, Florida, a notice
containing a true and correct copy of this paragraph, and Tenant hereby agrees
to inform all contractors and material suppliers performing work in or for or
supplying materials to the Premises of the existence of said notice.
5.7 Utilities. The failure or the interruption or termination of any
utility services, in whole or in part, unless such failure, interruption or
termination is caused by Landlord's gross negligence or willful misconduct,
shall not render Landlord liable in any respect nor be construed as an eviction
of Tenant, nor work an abatement of rent, nor relieve Tenant from the obligation
to fulfill any covenant or agreement hereof.
ARTICLE VI. INSURANCE AND INDEMNITY.
6.1 Tenant's Insurance. Tenant shall, throughout the Term (and any other
period when Tenant is in possession of the Premises), maintain at its sole cost
the following insurance:
(a) All risks property insurance, naming Landlord and any mortgagee of
Landlord as additional insured parties. Such insurance shall insure (i) property
of every kind owned by Tenant in an amount not less than the full replacement
cost thereof (new), with such cost to be adjusted no less than annually.
(b) Commercial general liability insurance. Such policy shall contain
inclusive limits per occurrence of not less than the $1,000,000 and include
Landlord and any mortgagee of Landlord as additional insureds.
(c) Worker's compensation and employer's liability insurance in compliance
with applicable legal requirements.
All policies referred to above shall: (i) be taken out with insurers
licensed to do business in Florida and reasonably acceptable to Landlord; (ii)
be in a form reasonably satisfactory to Landlord; (iii) be non-contributing
with, and shall apply only as primary and not as excess to any other insurance
available to Landlord or any mortgagee of Landlord; (iv) contain an undertaking
by the insurers to notify Landlord by certified mail not less than thirty (30)
days prior to any material change, cancellation, or termination, and (v) with
respect to subsection (a), contain replacement cost, demolition cost, and
increased cost of construction endorsements. Certificates of insurance or, if
required by Landlord, copies of such insurance policies certified by an
authorized officer of Tenant's insurer as being complete and current, shall be
delivered to Landlord promptly upon request. If A) Tenant fails to take out or
to keep in force any insurance referred to in this section 6.1, or should any
such insurance not be approved by Landlord, and B) Tenant does not commence and
continue to diligently cure such default within two (2) business days after
written notice by Landlord to Tenant specifying the nature of such default, then
Landlord has the right, without assuming any obligation in connection therewith,
to effect such insurance at the sole cost of Tenant and all outlays by Landlord
shall be paid by Tenant to Landlord without prejudice to any other rights or
remedies of Landlord under this Lease. Tenant shall not keep or use in the
Premises any article which may be prohibited by any fire or casualty insurance
policy in force from time to time covering the Premises or the Building.
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6.2 Loss or Damage. Landlord shall not be liable for any death or injury
arising from or out of any occurrence in, upon, at, or relating to the Building
or damage to property of Tenant or of others located on the Premises or
elsewhere in the Building, nor shall it be responsible for any loss of or damage
to any property of Tenant or others from any cause, unless such death, injury,
loss, or damage results from the gross negligence or willful misconduct of
Landlord. Without limiting the generality of the foregoing, Landlord shall not
be liable for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, falling ceiling tile, falling fixtures, steam, gas,
electricity, water, rain, flood, or leaks from any part of the Premises or from
the pipes, sprinklers, appliances, plumbing works, roof, windows, or subsurface
of any floor or ceiling of the Building or from the street or any other place or
by dampness, or by any other cause whatsoever, unless such death, injury, loss,
or damage results from the gross negligence or willful misconduct of Landlord.
Tenant agrees to indemnify Landlord and hold it harmless from and against any
and all loss (including loss of rent payable in respect to the Premises),
claims, actions, damages, liability, and expense of any kind whatsoever
(including attorneys' fees and costs at all tribunal levels), unless caused by
the gross negligence or willful misconduct of Landlord, arising from any
occurrence in, upon, or at the Premises, or the occupancy, use, or improvement
by Tenant or its agents or invitees of the Premises or any part thereof, or
occasioned wholly or in part by any act or omission of Tenant its agents,
employees, and invitees or by anyone permitted to be on the Premises by Tenant.
6.3 Landlord's Insurance. Landlord shall throughout the Term carry: (i)
"all risks" insurance on the Building and the machinery and equipment contained
therein or servicing the Building and owned by Landlord (excluding any property
with respect to which Tenant and other tenants are obliged to insure pursuant to
section 6.1 or similar sections of their respective leases); (ii) public
liability and property damage insurance with respect to Landlord's operations in
the Building; and (iii) such other forms of insurance as Landlord or its
mortgagee reasonably considers advisable. Such insurance shall be in such
reasonable amounts and with such reasonable deductibles as would be carried by a
prudent owner of a similar building, having regard to size, age, and location.
6.4 Waiver of Subrogation. Landlord and Tenant each hereby waives on behalf
of itself and its insurers (none of which shall ever be assigned any such claim
or be entitled thereto due to subrogation or otherwise) any and all rights of
recovery, claim, action, or cause of action, against the other, its agents,
officers, or employees, for any loss or damage that may occur to the Premises,
or any improvements thereto or the Building of which the Premises are a part, or
any improvements thereto, or any personal property of such party therein, by
reason of fire, the elements, or any other causes which are, or could or should
be insured against under the terms of the standard fire and extended coverage
insurance policies referred to in this Lease, regardless of whether such
insurance is actually maintained and regardless of the cause or origin of the
damage involved, including negligence of the other party hereto, its agents,
officers, or employees.
ARTICLE VII. DAMAGE AND DESTRUCTION.
7.1 Damage to Premises. If the Premises are partially destroyed due to fire
or other casualty, Landlord shall diligently repair the Premises, to the extent
of its obligations under section 5.2. In such event, (i) if less than 20% of the
Premises are partially destroyed due to fire or other casualty, Minimum Rent and
additional rent shall abate proportionately to the portion of the Premises, if
any, rendered untenantable from the date of destruction or damage until
Landlord's repairs have been substantially completed and (ii) if 20% or more of
the Premises are partially destroyed due to fire or other casualty, Minimum Rent
and additional rent shall abate entirely from the date of destruction or damage
until Landlord's repairs have been substantially completed. If the Premises are
totally destroyed due to fire or other casualty, Landlord shall diligently
repair the Premises to the extent only of its obligations pursuant to section
5.2, and Minimum Rent and additional rent shall abate entirely from the date of
destruction or damage to such date which is the earlier of (i) the date
tenantable, or (ii) thirty (30) days after Landlord's repairs have been
substantially completed. Upon being notified by Landlord that Landlord's repairs
have been substantially completed, Tenant shall diligently perform all other
work required to fully restore the Premises for use in Tenant's business, in
every case at Tenant's cost and without any contribution to such cost by
Landlord, whether or not Landlord has at any time made any contribution to the
cost of supply, installation, or construction of leasehold improvements in the
Premises. Tenant agrees that during any period of reconstruction or repair of
the Premises, it will continue the operation of its business within the Premises
to the extent reasonably practicable. If all or any part of the Premises shall
be damaged by fire or other casualty and the fire or other casualty is caused by
the fault or neglect of Tenant or Tenant's agents, guest, or invitees, rent
shall not abate.
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7.2 Termination for Damage. Notwithstanding section 7.1, if damage or
destruction which has occurred to the Premises or the Building is such that in
the reasonable opinion of Landlord such reconstruction or repair cannot be
completed within one hundred twenty (120) days of the happening of the damage or
destruction, either Landlord or Tenant may, at its option, terminate this Lease
on notice to the other party given within thirty (30) days after such damage or
destruction and Tenant shall immediately deliver vacant possession of the
Premises in accordance with the terms of this Lease.
ARTICLE VIII. ASSIGNMENT, SUBLEASES, AND TRANSFERS.
8.1 Transfer by Tenant. Tenant shall not enter into, consent to, or permit
any Transfer, as hereinafter defined, without the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld or
delayed. For purposes of this Lease, "Transfer" means an assignment of this
Lease in whole or in part; a sublease of all or any part of the Premises; any
transaction whereby the rights of Tenant under this Lease or to the Premises are
transferred to another; any mortgage or encumbrance of this Lease or the
Premises or any part thereof or other arrangement under which either this Lease
or the Premises become security for any indebtedness or other obligations; and
if Tenant is a corporation or a partnership, the transfer of a controlling
interest in the stock of the corporation or partnership interests, as
applicable. If there is a permitted Transfer, Landlord may collect rent or other
payments from the transferee and apply the net amount collected to the rent or
other payments required to be paid pursuant to this Lease but no acceptance by
Landlord of any payments by a transferee shall be deemed a waiver of any
provisions hereof regarding Tenant. Notwithstanding any Transfer, Tenant shall
not be released from any of its obligations under this Lease. In addition,
Landlord shall be entitled to receive all net profits arising out of an
assignment or sublease, such profits to be determined by subtracting all rent
and additional rent due from Tenant with respect to the time period and square
footage applicable to the assignment or sublease, plus the brokerage fees,
attorneys' fees, costs of alterations incurred by Tenant pursuant to such
assignment or sublease, from the total consideration to be paid by the
transferee.
8.2 Assignment by Landlord. Landlord shall have the unrestricted right to
sell, lease, convey, or otherwise dispose of the Building or any part thereof
and this Lease or any interest of Landlord in this Lease. To the extent that the
purchaser or assignee from Landlord assumes the obligations of Landlord under
this Lease, Landlord shall thereupon and without further agreement be released
of all further liability under this Lease. If Landlord sells its interest in the
Premises, it shall deliver the security deposit to the purchaser and Landlord
will thereupon be released from any further liability with respect to the
security deposit or its return to Tenant and the purchaser shall become directly
responsible to Tenant.
ARTICLE IX. DEFAULT.
9.1 Defaults. A default by Tenant shall be deemed to have occurred
hereunder, if and whenever: (i) any Minimum Rent or Tenant's Share of Excess
Expenses or Tenant's Share of Excess Taxes is not paid within five (5) business
days after written notice from Landlord; (ii) any other additional rent is in
arrears and is not paid within ten (10) business days after written notice from
Landlord; (iii) Tenant has breached any of its obligations in this Lease (other
than the payment of rent) and Tenant fails to remedy such breach within thirty
(30) days (or such shorter period as may be provided in this Lease), or if such
breach cannot reasonably be remedied within thirty (30) days (or such shorter
period), then if Tenant fails to immediately commence to remedy and thereafter
proceed diligently to remedy such breach, in each case after notice in writing
from Landlord; (iv) Tenant becomes bankrupt or insolvent; (v) any of Landlord's
policies of insurance with respect to the Building are cancelled or adversely
changed as a result of Tenant's use or occupancy of the Premises; or (vi) the
business operated by Tenant in the Premises shall be closed by governmental or
court order for any reason.
9.2 Remedies. In the event of any default hereunder by Tenant, then without
prejudice to any other rights which it has pursuant to this Lease or at law or
in equity, Landlord shall have the following rights and remedies, which are
cumulative and not alternative:
(a) Landlord may cancel this Lease by notice to Tenant and retake
possession of the Premises for Landlord's account, or may terminate Tenant's
right to possession (without terminating this Lease), for the account of Tenant.
In either event, Tenant shall then quit and surrender the Premises to Landlord.
Tenant's liability under all of the provisions of this Lease shall continue
notwithstanding any expiration and surrender, or any re-entry, repossession, or
disposition hereunder.
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(b) After an eviction order has been issued, Landlord may enter the
Premises as agent of Tenant to take possession of any property of Tenant on the
Premises, to store such property at the expense and risk of Tenant or to sell or
otherwise dispose of such property (other than Tenant's business records at the
Premises) in such manner as Landlord may see fit without notice to Tenant.
Re-entry and removal may be effectuated by summary dispossess proceedings, by
any suitable action or proceeding, or otherwise. Landlord shall not be liable in
any way in connection with its actions pursuant to this section, to the extent
that its actions are in accordance with applicable law.
(c) If Tenant's right to possession is terminated (without terminating this
Lease) under subsection (a) above, Tenant shall remain liable (in addition to
accrued liabilities) to the extent legally permissible for all rent and all of
the charges Tenant would have been required to pay until the date this Lease
would have expired had such cancellation not occurred. Tenant's liability for
rent shall continue notwithstanding re-entry or repossession of the Premises by
Landlord. In addition to the foregoing, Tenant shall pay to Landlord such sums
as the court which has jurisdiction thereover may adjudge as reasonable
attorneys' fees with respect to any successful lawsuit or action instituted by
Landlord to enforce the provisions of this Lease.
(d) Landlord may relet all or any part of the Premises for all or any part
of the unexpired portion of the Term of this Lease or for any longer period, and
may accept any rent then attainable; grant any concessions of rent, and agree to
paint or make any special repairs, alterations, and decorations for any new
Tenant as it may deem advisable in its sole and absolute discretion. Landlord
shall be under no obligation to relet or to attempt to relet the Premises,
except as expressly set forth below; provided, however, Landlord shall be
obligated to mitigate Landlord's damages only to the extent required under
applicable law.
(e) If Tenant's right to possession is terminated (without terminating this
Lease) under subsection (a) above, and Landlord so elects, the rent hereunder
shall be accelerated and Tenant shall pay Landlord damages in the amount of any
and all sums which would have been due for the remainder of the Term (reduced to
present value using a discount factor equal to the stated prime lending rate on
the date of Tenant's default by Landlord's then existing mortgagee or, if there
is no mortgagee, by NationsBank, Citibank, or First Union, as chosen by
Landlord). Prior to or following payment in full by Tenant of such discounted
sum promptly upon demand, Landlord shall use good faith efforts to relet the
Premises. If Landlord receives consideration as a result of a reletting of the
Premises relating to the same time period for which Tenant has paid accelerated
rent, such consideration actually received by Landlord, less any and all of
Landlord's cost of repairs, alterations, additions, redecorating, and other
expenses in connection with such reletting of the Premises, shall be a credit
against such discounted sum, and such discounted sum shall be reduced if not yet
paid by Tenant as called for herein, or if Tenant has paid such discounted sum,
such credited amount shall be repaid to Tenant by Landlord (provided said credit
shall not exceed the accelerated amount).
(f) Landlord may remedy or attempt to remedy any default of Tenant under
this Lease for the account of Tenant and to enter upon the Premises for such
purposes. No notice of Landlord's intention to perform such covenants need be
given Tenant unless expressly required by this Lease. Landlord shall not be
liable to Tenant for any loss or damage caused by acts of Landlord in remedying
or attempting to remedy such default and Tenant shall pay to Landlord all
expenses incurred by Landlord in connection with remedying or attempting to
remedy such default. Any expenses incurred by Landlord shall accrue interest
from the date of payment by Landlord until repaid by Tenant at the highest rate
permitted by law.
9.3 Costs. Tenant shall pay to Landlord on demand all costs incurred by
Landlord, including attorneys' fees and costs at all tribunal levels, incurred
by Landlord in enforcing any of the obligations of Tenant under this Lease. In
addition, upon any default by Tenant, Tenant shall be also liable to Landlord
for the expenses to which Landlord may be put in re-entering the Premises;
repossessing the Premises; painting, altering, or dividing the Premises;
combining the Premises with an adjacent space for any new tenant; putting the
Premises in proper repair; protecting and preserving the Premises by placing
watchmen and caretakers therein; reletting the Premises (including attorneys'
fees and disbursements, marshall's fees, and brokerage fees, in so doing); and
any other expenses reasonably incurred by Landlord. Notwithstanding anything to
the contrary contained in this Lease, in the event of any litigation between
Landlord and Tenant arising out of this Lease or Tenant's use and occupancy of
the Premises, the prevailing party shall be entitled to recover its costs and
expenses incurred in such litigation, including attorneys' fees, at all levels,
including appeals.
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9.4 Additional Remedies; Waiver. The rights and remedies of Landlord set
forth herein shall be in addition to any other right and remedy now and
hereinafter provided by law. All rights and remedies shall be cumulative and
non-exclusive of each other. No delay or omission by Landlord in exercising a
right or remedy shall exhaust or impair the same or constitute a waiver of, or
acquiescence to, a default.
9.5 Default by Landlord. In the event of any default by Landlord, Tenant's
exclusive remedy shall be an action for damages or injunction, but prior to any
such action Tenant will give Landlord written notice specifying such default
with particularity, and Landlord shall have a period of thirty (30) days
following the date of such notice in which to cure the default (provided,
however, that if such default reasonably requires more than thirty (30) days to
cure, Landlord shall have a reasonable time to cure such default, provided
Landlord commences to cure within such thirty (30) day period and thereafter
diligently prosecutes such cure to completion). Notwithstanding any provision of
this Lease, Landlord shall not at any time have any personal liability under
this Lease. In the event of any breach or default by Landlord of any term or
provision of this Lease, Tenant agrees to look solely to the equity or interest
then-owned by Landlord in the Building (including the proceeds of insurance,
condemnation, and sale), and in no event shall any deficiency judgment be sought
or obtained against Landlord.
ARTICLE X. ESTOPPEL CERTIFICATE; SUBORDINATION.
10.1 Estoppel Certificate. Within ten (10) days after written request by
Landlord, Tenant shall deliver in a form supplied by Landlord, an estoppel
certificate to Landlord as to the status of this Lease, including whether this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect as modified and
identifying the modification agreements); the amount of Minimum Rent and
additional rent then being paid and the dates to which same have been paid;
whether or not there is any existing or alleged default by either party with
respect to which a notice of default has been served, or any facts exist which,
with the passing of time or giving of notice, would constitute a default and, if
there is any such default or facts, specifying the nature and extent thereof;
and any other matters pertaining to this Lease as to which Landlord shall
request such certificate. Landlord, and any prospective purchaser, lender, or
ground lessor shall have the right to rely on such certificate.
10.2 Subordination; Attornment. This Lease and all rights of Tenant shall
be subject and subordinate to any and all mortgages, security agreements, or
like instruments resulting from any financing, refinancing, or collateral
financing (including renewals or extensions thereof), and to any and all ground
leases, made or arranged by Landlord of its interests in all or any part of the
Building), from time to time in existence against the Building, whether now
existing or hereafter created. Such subordination shall not require any further
instrument to evidence such subordination. However, on request, Tenant shall
further evidence its agreement to subordinate this Lease and its rights under
this Lease to any and all documents and to all advances made under such
documents. The form of such subordination shall be made as required by Landlord,
its lender, or ground lessor. Tenant shall promptly on request attorn to any
mortgagee, or to the future owner(s) of the Building, or the purchaser at any
foreclosure or sale under proceedings taken under any mortgage, security
agreement, like instrument, or ground lease, and shall recognize such mortgagee,
owner, or purchaser as Landlord under this Lease.
ARTICLE XI. CONTROL OF BUILDING BY LANDLORD.
11.1 Use and Maintenance of Common Areas. Tenant and those doing business
with Tenant for purposes associated with Tenant's business on the Premises,
shall have a non-exclusive license to use the common areas for their intended
purposes during normal business hours in common with others entitled thereto and
subject to any reasonable rules and regulations imposed by Landlord. Landlord
shall keep the common areas in good repair and condition and shall clean the
common areas when necessary. Landlord shall not be liable for any damage to
automobiles of any nature whatsoever to, or any theft of, automobiles or other
vehicles or the contents thereof, while in or about the parking areas. Tenant
acknowledges that its right to use its assigned parking spaces, if any, may be
subject to such rules and regulations as reasonably imposed from time to time.
Tenant acknowledges that all common areas of the Building shall at all times be
under the exclusive control and management of Landlord, and that all parking
areas shall at all times be under the exclusive control and management of
Landlord. For purposes of this Lease, "common areas" shall mean those areas,
facilities, utilities, improvements, equipment, and installations of the
Building which serve or are for the benefit of the tenants of more than one
component of the Building and which are not designated or intended by Landlord
to be leased, from time to time, or which
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are provided or designated from time to time by Landlord for the benefit or use
of all tenants in the Building, their employees, customers, and invitees, in
common with others entitled to the use or benefit of same.
11.2 Alterations by Landlord. Landlord may (i) alter, add to, subtract
from, construct improvements on, re-arrange, and construct additional facilities
in, adjoining, or proximate to the Building; (ii) relocate the facilities and
improvements in or comprising the Building or erected on the land; (iii) do such
things on or in the Building as required to comply with any laws, by-laws,
regulations, orders, or directives affecting the land or any part of the
Building; and (iv) do such other things on or in the Building as Landlord, in
the use of good business judgment determines to be advisable, provided that
notwithstanding anything contained in this section 11.2, access to the Premises
shall be available at all times and so long as Landlord's exercise of its rights
pursuant to this section 11.2 does not unreasonably interfere with Tenant's use
of the Premises. Landlord shall not be in breach of its covenants for quiet
enjoyment or liable for any loss, costs, or damages, whether direct or indirect,
incurred by Tenant due to any of the foregoing.
11.3 Parking.
(a) During the Lease Term, subject to the rules and regulations promulgated
by Landlord from time to time. Landlord shall provide for the use of Tenant four
(4) assigned and marked parking spaces (the "Spaces") in the parking area. The
Spaces shall be subject to a monthly rental charge payable by Tenant to Landlord
(or at Landlord's option, to Landlord's contractor managing the parking area) in
the amount of Fifty and No/100 Dollars ($50.00) per month for each of the
Spaces, plus sales tax, the total amount of such parking rental to be payable to
Landlord as additional rent at the same time and in the same manner as the
monthly installments of Minimum Rent. The said monthly rental rate for the
Spaces shall be subject to change at prevailing market rates for covered parking
spaces in Coral Gables, Florida at any time upon thirty (30) days' written
notice to Tenant, and in the event of non-payment thereof, Landlord shall have
all the rights and remedies provided hereunder with respect to a default by
Tenant. During any renewal terms, the parking monthly rental rate per Space
shall be increased to prevailing market rates for covered parking spaces in
Coral Gables, Florida, but not less than $50.00 per Space, per month, plus sales
tax.
(b) In the event that for any reason whatsoever Landlord is not permitted
by governmental law, ordinance, or otherwise, to charge monthly rent for the
Spaces as provided in this Paragraph, then the Minimum Rent shall be increased
by an amount equal to the total annual parking rental otherwise payable by
Tenant.
(c) Landlord shall have a right to designate the location of Tenant's
parking and alter such designation upon reasonable notice to Tenant, provided
that the location of the parking shall be either within the Building or on land
adjacent to the Building. Landlord shall also have the right to establish or
modify the methods used to control parking in the parking areas, including,
without limitation, the installation of certain control devices or the hiring of
parking attendants or a managing agent.
(d) Landlord shall have no liability whatsoever for any property damage or
personal injury which might occur as a result of or in connection with the use
of the Spaces by Tenant, its employees, agents, invitees, and licensees, and
Tenant hereby agrees to indemnify and hold Landlord harmless from and against
any and all costs, claims, expenses, or causes of action which Landlord may
incur in connection with or arising out of Tenant's use of the Spaces.
ARTICLE XII. CONDEMNATION.
12.1 Total or Partial Taking. If the whole of the Premises, or such portion
thereof as will make the Premises unusable for the purposes leased hereunder,
shall be taken by any public authority under the power of eminent domain or sold
to public authority under threat or in lieu of such taking, the Term shall cease
as of the day possession or title shall be taken by such public authority,
whichever is earlier ("Taking Date"), whereupon the rent shall be paid up to the
Taking Date with a proportionate refund by Landlord of any rent paid for a
period subsequent to the Taking Date. If less than the whole of the Premises, or
less than such portion thereof as will make the Premises unusable for the
purposes leased hereunder in Tenant's reasonable opinion, the Term shall cease
only as to the part so taken as of the Taking Date, and Tenant shall pay rent up
to the Taking Date, with appropriate credit by Landlord (toward the next
installment of rent due from Tenant) of any rent paid for a period subsequent to
the Taking Date. Minimum Rent and other charges payable to Landlord shall be
reduced in proportion to the amount of the Premises taken.
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12.2 Award. In the event of any total or partial taking of the Premises or
the Building, Landlord and Tenant shall each be entitled to receive and retain
such separate rewards and portions of lump sum awards as may be allocated to
their respective interests in any condemnation proceedings.
ARTICLE XIII. GENERAL PROVISIONS.
13.1 Delay. Whenever a period of time is herein prescribed for the taking
of any action by Landlord or Tenant, Landlord or Tenant, as applicable, shall
not be liable or responsible for, and there shall be excluded from the
computation of such period of time, any delays due to strikes, riots, acts of
God, shortages of labor or materials, war, governmental laws, regulations, or
restrictions, or any other cause whatsoever beyond the control of Landlord or
Tenant, as applicable. The foregoing provisions of this section 13.1 are
inapplicable to any payments of money due under this Lease.
13.2 Holding Over. If Tenant remains in possession of the Premises after
the end of the Term without having executed and delivered a new lease or an
agreement extending the Term, there shall be no tacit renewal of this Lease or
the Term, and Tenant shall be deemed to be occupying the Premises as a
tenant-at-sufferance at a monthly Minimum Rent payable in advance on the first
day of each month equal to 150% of the monthly amount of rent payable during the
last month of the Term, and otherwise upon the same terms as are set forth in
this Lease, so far as they are applicable to a tenancy-at-sufferance.
13.3 Waiver; Partial Invalidity. If either Landlord or Tenant excuses or
condones any default by the other of any obligation under this Lease, this shall
not be a waiver of such obligation in respect of any continuing or subsequent
default and no such waiver shall be implied. All of the provisions of this Lease
are to be construed as covenants even though not expressed as such. If any such
provision is held or rendered illegal or unenforceable it shall be considered
separate and severable from this Lease and the remaining provisions of this
Lease shall remain in force and bind the parties as though the illegal or
unenforceable provision had never been included in this Lease.
13.4 Recording. Neither Tenant nor anyone claiming under Tenant shall
record this Lease or any memorandum hereof in any public records without the
prior written consent of Landlord.
13.5 Notices. Any notice, consent, or other instrument required or
permitted to be given under this Lease shall be in writing and shall be
delivered in person, or sent by certified mail, return receipt requested, or
overnight express mail courier, postage prepaid, addressed (i) if to Landlord,
at the address set forth on the Lease Summary, with a copy to Weiss Serota
Helfman Pastoriza & Guedes, P.A., 2665 S. Bayshore Drive, Suite 420, Miami,
Florida 33133, Attn: Elaine M. Cohen, Esq.; and (ii) if to Tenant, at the
Premises or, prior to Tenant's occupancy of the Premises, at the address set
forth on the Lease Summary. Any such notice or other instruments shall be deemed
to have been given and received on the day upon which personal delivery is made
or, if mailed, then forty-eight (48) hours following the date of mailing. Either
party may give notice to the other of any change of address and after the giving
of such notice, the address therein specified is deemed to be the address of
such party for the giving of notices.
13.6 Successors; Joint and Several Liability. The rights and liabilities
created by this Lease extend to and bind the successors and assigns of Landlord
and the heirs, executors, administrators, and permitted successors and assigns
of Tenant. No rights, however, shall inure to the benefit of any transferee
unless such Transfer complies with the provisions of Article VIII. If there is
at any time more than one Tenant or more than one person constituting Tenant,
their covenants shall be considered to be joint and several and shall apply to
each and every one of them.
13.7 Captions and Section Numbers. The captions, section numbers, article
numbers, and table of contents appearing in this Lease are inserted only as a
matter of convenience and in no way affect the substance of this Lease.
13.8 Extended Meanings. The words "hereof," "hereto," "hereunder," and
similar expressions used in this Lease relate to the whole of this Lease and not
only to the provisions in which such expressions appear. This Lease shall be
read with all changes in number and gender as may be appropriate or required by
the context. Any reference to Tenant includes, when the context allows, the
employees, agents, invitees, and licensees of Tenant and all others over whom
Tenant might
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reasonably be expected to exercise control. This Lease has been fully reviewed
and negotiated by each party and their counsel and shall not be more strictly
construed against either party.
13.9 Entire Agreement; Governing Law; Time. This Lease and the Exhibits and
Riders, if any, attached hereto are incorporated herein and set forth the entire
agreement between Landlord and Tenant concerning the Premises and there are no
other agreements or understandings between them. This Lease and its Exhibits and
Riders may not be modified except by agreement in writing executed by Landlord
and Tenant. This Lease shall be construed in accordance with and governed by the
laws of the State of Florida. Time is of the essence of this Lease.
13.10 No Partnership. Nothing in this Lease creates any relationship
between the parties other than that of lessor and lessee and nothing in this
Lease constitutes Landlord a partner of Tenant or a joint venturer or member of
a common enterprise with Tenant.
13.11 Quiet Enjoyment. If Tenant pays the rent and fully observes and
performs all of its obligations under this Lease, Tenant shall be entitled to
peaceful and quiet enjoyment of the Premises for the Term without interruption
or interference by Landlord or any person claiming through Landlord.
13.12 Brokerage. Landlord and Tenant each represent and warrant one to the
other that except as set forth in the Lease Summary, neither of them has
employed any broker in connection with the negotiations of the terms of this
Lease or the execution thereof. Landlord and Tenant hereby agree to indemnify
and to hold each other harmless against any loss, expense, or liability with
respect to any claims for commissions or brokerage fees arising from or out of
any breach of the foregoing representation and warranty. Landlord recognizes the
broker(s) specified in the Lease Summary as the sole broker(s) with whom
Landlord has dealt in this transaction and agrees to pay any commissions
determined to be due said broker(s).
13.13 Radon Gas. Radon is a naturally occurring radioactive gas that, when
it has accumulated in a building in sufficient quantities, may present health
risks to persons who are exposed to it over time. Levels of radon that exceed
federal and state guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from your county
public health unit.
13.14 TRIAL BY JURY. LANDLORD AND TENANT EACH HEREBY WAIVES ITS RIGHT TO A
JURY TRIAL OF ANY ISSUE OR CONTROVERSY ARISING UNDER THIS LEASE.
ARTICLE XIV. OPTION TO RENEW
14.1 Landlord hereby grants Tenant the option to renew (the "Renewal
Option") the initial Term (not to include, for purposes of this Rider only, the
Renewal Terms, as hereinafter defined) for two (2) additional terms of five (5)
years (the "Renewal Term(s)"), commencing as of the date immediately following
the expiration of the then-current Term, such option to be subject to the
covenants and conditions hereinafter set forth in this Rider.
14.2 Tenant shall give Landlord written notice (the "Renewal Notice") of
Tenant's election to exercise its Renewal Option not later than one hundred
eighty (180) days prior to the expiration of the then-current term of the Lease;
provided that Tenant's failure to give the Renewal Notice by said date, whether
due to Tenant's oversight or failure to cure any existing defaults or otherwise,
shall render the Renewal Option null and void.
14.3 Tenant may exercise the second Renewal Option only if Tenant has
exercised the first Renewal Option. Tenant shall not be permitted to exercise
the Renewal Option at any time during which Tenant is in default under the
Lease, subject to applicable notice and grace periods (if any). If Tenant fails
to cure any default under the Lease prior to the commencement of the upcoming
Renewal Term, subject to applicable notice and grace periods, the Renewal Terms
shall be immediately cancelled, unless Landlord elects to waive such default,
and Tenant shall forthwith deliver possession of the Premises to Landlord as of
the expiration or earlier termination of the then-current term of the Lease.
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14.4 Tenant shall be deemed to have accepted the Premises in "as-is"
condition as of the commencement of each Renewal Term, subject to any other
repair and maintenance obligations of Landlord under the Lease, it being
understood and agreed that Landlord shall have no additional obligation to
renovate or remodel the Premises or any portion of the Building as a result of
Tenant's renewal of the Lease.
14.5 The covenants and conditions of the Lease in force during the original
Term, as the same may be modified from time to time, shall continue to be in
effect during each Renewal Term, except as follows:
(1) The "Commencement Date" and the "Rent Commencement Date" for
purposes of the Lease shall be the first day of the applicable Renewal Term.
(2) The Minimum Rent for each Lease Year of each Renewal Term shall be
an amount equal to one hundred three and one-half (103.5%) percent of the
Minimum Rent payable by Tenant for the immediately prior Lease Year.
(3) Following expiration of the second Renewal Term as provided
herein, Tenant shall have the right to request a renewal of the term of the
Lease, provided, Landlord shall have no obligation to renew the term of the
Lease.
14.6 Tenant's option to renew the Lease shall not be transferable by
Tenant, except in conjunction with a permissible Transfer in accordance with the
applicable provisions of the Lease.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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EXECUTED as of the day and year first above written.
WITNESSES: LANDLORD:
RAS DEVELOPMENT, INC., a Florida corporation
By: /s/ Rafael A. Sanchez
----------------------------- -----------------------------------------
Name: Rafael A. Sanchez
---------------------------------------
Title: President
----------------------------- -------------------------------------
TENANT:
CART, INC., a Delaware corporation,
By: /s/ David Clare
----------------------------- -----------------------------------------
Name: David Clare
--------------------------------------
Title: Chief Operating Officer
----------------------------- --------------------------------------
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EXHIBIT "A"
Floor Plan of Premises
EXHIBIT "B"
Legal Description
Legal Description: Lots 11 through 15, Block 7, Coral Gables Craft section
according to the plat thereof as recorded in Plat Book 10, Page 40 of the Public
Records of Miami-Dade County, Florida
EXHIBIT "C"
RULES AND REGULATIONS
1. Security; Return of Keys. Landlord may, but shall not be obligated to,
from time to time adopt appropriate systems and procedures for the security or
safety of the Building, any persons occupying, using, or entering the same, or
any equipment, furnishings, or contents thereof, and Tenant shall comply with
Landlord's reasonable requirements relative thereto. At the end of the Term,
Tenant shall promptly return to Landlord all keys and access cards, if any, for
the Building and Premises which are in the possession of Tenant.
2. Repair, Maintenance, Alterations, and Improvements. Tenant shall carry
out Tenant's repair, maintenance, alterations, and improvements in the Premises
only during times agreed to in advance by Landlord and in a manner which will
not interfere with the rights of other tenants in the Building.
3. Water Fixtures. Tenant shall not use water fixtures for any purpose for
which they are not intended, nor shall water be wasted by tampering with such
fixtures. Any cost or damage resulting from such misuse by Tenant shall be paid
for by Tenant.
4. Personal Use of Premises. The Premises shall not be used or permitted to
be used for residential, lodging, or sleeping purposes or for the storage of
personal effects or property not required for business purposes. Tenant shall
not bring any animals or birds into the Building, and shall not permit bicycles
or other vehicles inside or on the sidewalks outside the Building except in
areas designated from time to time by Landlord for such purposes.
5. Heavy Articles. Tenant shall not place in or move about the Premises
without Landlord's prior written consent any safe or other heavy article which
in Landlord's reasonable opinion may damage the Building, and Landlord may
designate the location of any such heavy articles in the Premises.
6. Deliveries. Tenant shall ensure that deliveries of supplies, fixtures,
equipment, furnishings, wares, and merchandise to the Premises are made through
such entrances and corridors and at such times as may from time to time be
designated by Landlord, and shall promptly pay or cause to be paid to Landlord
the cost of repairing any damage in the Building caused by any person making
improper deliveries.
7. Solicitations. Landlord reserves the right to restrict or prohibit
canvassing, soliciting, or peddling in the Building.
8. Food and Beverages. Only persons approved from time to time by Landlord
may prepare, solicit orders for, sell, serve, or distribute foods or beverages
in the Building, or use the common areas for any such purpose. Except with
Landlord's prior written consent and in accordance with arrangements approved by
Landlord, Tenant shall not permit on the Premises the use of equipment for
dispensing food or beverages or for the preparation, solicitation of orders for,
sale, serving, or distribution of food or beverages, other than vending machines
for use by Tenant's employees.
9. Refuse. Tenant shall place all refuse in proper receptacles provided by
Tenant at its expense in the Premises or in receptacles (if any) provided by
Landlord for the Building, and shall keep sidewalks and driveways outside the
Building, and lobbies, corridors, stairwells, ducts, and shafts of the Building,
free of all refuse.
10. Obstructions. Tenant shall not obstruct or place anything in or on the
sidewalks or driveways outside the Building or in the lobbies, corridors,
stairwells, or other common areas, or use such locations for any purpose except
access to and exit from the Premises without Landlord's prior written consent.
Landlord may remove at Tenant's expense any such obstruction or thing caused or
placed by Tenant (and unauthorized by Landlord) without notice or obligation to
Tenant.
11. Proper Conduct; Employees, Agents, and Invitees. Tenant shall not
conduct itself in any manner which is inconsistent with the character of the
Building as a first quality building or which will impair the comfort and
convenience of other tenants in the Building. In these Rules and Regulations,
"Tenant" includes the employees, agents, invitees, and licensees of Tenant and
others permitted by Tenant to use or occupy the Premises.
12. Recycling. Tenant shall comply with any reasonable recycling programs
implemented by Landlord from time to time.
13. No-Smoking Building. The Building is a "No Smoking" building. Tenant
and its employees and agents and invitees may not smoke anywhere in the Building
or its common areas, other than in designated, well-ventilated smoking areas
outside of the Building or on the outside patios at the Building.
14. Parking. Tenant shall park its vehicles only in its assigned spaces and
shall cause its employees and agents to park their vehicles only in such
designated assigned parking spaces. Tenant shall furnish Landlord, upon request,
with the current license numbers of all vehicles owned or used by Tenant or its
employees or agents and Tenant thereafter shall notify Landlord of any changes
in such numbers within five (5) days after the occurrence thereof. In the event
of failure of Tenant or its employees or agents to park their vehicles in such
designated assigned parking spaces, Tenant shall forthwith on demand pay to
Landlord the sum of Fifty and No/100 ($50.00) Dollars per day per each car so
parked. Landlord may itself or through any agent designated for such purpose,
make, administer, and enforce additional rules and regulations regarding parking
by tenants and by their employees or agents, including, without limitation,
rules and regulations permitting Landlord or such agent to move any vehicles
improperly parked to the designated tenant or employee parking areas. No
disabled vehicle shall be left in the parking areas of the Building for more
than 24 hours.
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EXHIBIT "D"
THIS WORK LETTER AGREEMENT (this "Work Letter") is attached to and made
part of that certain Lease (the "Lease") dated the day of March, 2003 by and
between RAS DEVELOPMENT, INC. ("Landlord") and CART, INC., a Delaware
corporation ("Tenant"). The terms, definitions, and other provisions of the
Lease are hereby incorporated into this Work Letter by reference.
IN CONSIDERATION OF the execution of the Lease and the mutual covenants and
conditions hereinafter set forth, Landlord and Tenant agree as follows:
1. Building Standard and Tenant Improvements.
(a) This Work Letter sets forth the agreement with respect to the
construction of the "Building Standard and Tenant Improvements."
(b) In accordance with and subject to the provisions of this Work
Letter, Landlord shall, at Tenant's expense, construct and install the Building
Standard and Tenant Improvements to Building Grade (hereinafter defined). The
term "Building Grade shall mean (i) the type, brand, and/or quality of materials
Landlord designates from time to time to be the minimum quality to be used in
the Building or, as the case may be, the exclusive type, grade, or quality of
material to be used in the Building; and (ii) the standard method of
construction and installation technique to be used in the Building. Unless
otherwise agreed in writing, Landlord shall use the following Building Grade
construction methods and materials where appropriate or some other substantially
comparable construction method or material deemed by Landlord (in its sole
discretion) to be Building Grade:
The Building Standard and Tenant Improvements to be constructed by Landlord
shall consist of the following items for each 1000 rentable square feet in the
premises with the quantities and quality equivalent to the following, unless
stated otherwise:
--------------------------------------------------------------------------------
INTERIOR PARTITION WALLS: 100 lineal feet, 3-5/8" - 25 gauge metal studs 48"
on center; mtl studs floor to 4" above acoustic
ceiling. One (1) layer 5/8" gypsum board each
side.
--------------------------------------------------------------------------------
DEMISING WALLS: 3-5/8" - 25 gauge metal studs 48" on center;
mtl studs floor to underside of slab or
structural members of floor above; one layer 5/8"
gypsum board each side with 3" fiberglass
insulation; sound caulked at floor.
--------------------------------------------------------------------------------
PAINT: Two (2) coats of latex, color selection by Tenant.
--------------------------------------------------------------------------------
BASE: 4" high painted wood base.
--------------------------------------------------------------------------------
DOORS: Three interior doors, (3' x 0") x (7' x 0") x
1-3/4" solid core, paint grade, non-rated, painted
wood door frame with building standard lockset.
One set of Entry double doors per suite (3' x 8' x
1-3/4") solid core, walnut veneer to match
building standard, with building standard lockset.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
HARDWARE: Typical Interior:
Lockset: Schlage Handicap Commercial Lever / US26D
Butts: VV H330-RP-PRIVACY-26D Satin
Stop: Trimco W1212 x US3
--------------------------------------------------------------------------------
CEILING: Furnish and install 2' x 2' x 5/8" Armstrong, Dune
Beveled Tegular with Suprafine, 9/16" exposed tee
grid, white, acoustical tile system.
--------------------------------------------------------------------------------
FLOORS: Shaw Commercial or Equal
Style : Potential II
Gauge 1/8
Rows per inch: 7.0
Pile Height/Tufted: .114 inches
Face Yarn: 100% Solution Q BCF Nylon
Ply: 2 ply continuous heat set.
Backing Material: Polypropylene
Yarn Weight/Tufted: 26 oz per sq. yd.
Construction: Tufted textured loop
Dye method: solution dyed
Flammability: Class I
--------------------------------------------------------------------------------
WINDOWS: Leveler blinds (vertical)
--------------------------------------------------------------------------------
LIGHTING: Ten (10) Recessed 2' x 4' and 2'x 2' flourescent
parabolic luminaire, complete with lamps, lens,
flexible conduit (maximum 6" wire) and connectors.
Lithonia @PM3GC340-18-227ESB 2' x 4' 3 bulb
parabolic (or equal).
Ten (10) Fluorescent downlights.
--------------------------------------------------------------------------------
DUPLEX OUTLET: Ten (10)Leviton, auto ground, 15-20 amp 3/4"
conduit stubbed above ceiling or equal.
--------------------------------------------------------------------------------
PHONE OUTLETS: (5) Wall mounted, connection box with conduit
stubbed out above ceiling.
--------------------------------------------------------------------------------
DATA OUTLETS: (5) Wall mounted, connection box with conduit
stubbed out above ceiling.
--------------------------------------------------------------------------------
LIGHT SWITCHES: Five (5) Leviton, single pull, wall mounted.
--------------------------------------------------------------------------------
-2-
--------------------------------------------------------------------------------
HVAC: Supply and install Landlord's Building Standard
air conditioning systems with duct work, VAV boxes
and thermostats in an amount not to exceed one (1)
thermostat for each conditioning zone, and not
more than one (1) 2 x 2 ceiling supply diffuser
and (1) return grille for each two hundred (200)
square feet of Rentable Area contained within the
Premises.
--------------------------------------------------------------------------------
LIFE SAFETY: Supply and install Lessor's Building Standard
sprinkler protection and fire alarm in accordance
with NFPA Code.
--------------------------------------------------------------------------------
2. Tenant Improvement Allowance; Tenant's Costs.
(a) Landlord shall provide Tenant with an allowance (the "Tenant
Improvement Allowance") as a credit against the cost of the Building Standard
and Tenant Improvements. The Tenant Improvement Allowance shall be up to the
amount of $102,912.00 (based upon $32.00 per Rentable Area of the Premises).
(b) Tenant shall not receive any credit or payment for any unused
portion of the Tenant Improvement Allowance.
3. Plans and Specifications; Construction Budget.
(a) Within seven (7) days of the execution and delivery of this Lease,
Tenant shall agree upon the final space plan and selection of Building Grade
materials.
(a) The Building Standard and Tenant Improvements shall be completed
in accordance with detailed architectural and engineering working drawings and
material specifications (the "Plans and Specifications") which shall be prepared
by Landlord's architect. The cost of preparation of Plans and Specifications
shall be included in the cost of the Building Standard and Tenant Improvements.
The Plans and Specifications shall reflect the Building Standard and Tenant
Improvements and shall include the following:
(1) fully dimensioned architectural plan;
(2) electric/telephone outlet diagram;
(3) reflective ceiling plan with light switches;
(4) mechanical plan;
(5) electric power circuitry diagram;
(6) plumbing plans;
(7) all color and finish selections;
(8) all special equipment and fixture specifications; and
(9) fire sprinkler design drawings.
-3-
(b) The architect and engineer utilized by Landlord for preparation of
the Plans and Specifications shall be chosen by Landlord.
(c) Tenant shall then have a period of not more than seven (7) days
following submission of the Plans and Specifications to Tenant in which to
review and approve the Plans and Specifications or state any objections to same
in writing. Tenant's approval shall not be unreasonably withheld, and any
objections shall be reasonable in nature and stated in sufficient detail so as
to allow necessary modification by Landlord. Landlord shall make such
modifications to the Plans and Specifications in response to Tenant's objections
as Landlord shall deem appropriate in its sole discretion. Once the Plans and
Specifications are in final form, the Plans and Specifications may be modified
only with Landlord's written approval, and Tenant shall be liable for any
additional costs incurred as a result of any such change.
(e) Tenant acknowledges and agrees that Landlord shall not be
obligated to spend any amount in excess of the Tenant Improvement Allowance for
the cost of construction of the Building Standard and Tenant Improvements. If
Landlord's estimated budget for the cost of construction of the Building
Standard and Tenant Improvements based upon the Plans and Specifications in
final form exceeds the amount of the Tenant Improvement Allowance, then Landlord
shall cause the Plans and Specifications to be modified in its sole discretion
so that the total costs of the Building Standard and Tenant Improvements does
not exceed the Tenant Improvement Allowance, provided that the Building Standard
and Tenant Improvements must still be constructed to Building Grade.
4. Contractor(s); Permits. Landlord shall use its own contractor(s) and
shall obtain all building permits necessary to complete all Building Standard
and Tenant Improvements. Landlord agrees to obtain at least three (3) bids for
the construction contract for construction of the Building Standard and Tenant
Improvements. The cost of all building permits shall be included in the cost of
the Building Standard and Tenant Improvements.
5. Construction of the Improvements.
(a) Landlord shall cause Substantial Completion of the Building
Standard and Tenant Improvements substantially in accordance with the Plans and
Specifications. "Substantial Completion" shall mean that the Building Standard
and Tenant Improvements are sufficiently complete so as to allow Tenant to
occupy the Premises for the use and purposes intended without unreasonable
disturbance or interruption; provided that Landlord, its employees, agents, and
contractors, shall be allowed to enter upon the Premises at any reasonable
time(s) following the Commencement Date as necessary to complete any unfinished
details, and such entry shall not constitute an actual or constructive eviction
of Tenant, in whole or in part, nor shall it entitle Tenant to any abatement or
diminution of rent or relieve Tenant from any obligation under the Lease.
(b) Tenant shall be responsible for any delay in Substantial
Completion resulting from any of the following causes:
(1) Tenant's failure to approve the Plans and Specifications (or
any necessary modifications or additions thereto) within the time periods
specified in this Work Letter; or
(2) any change in the Plans and Specifications caused by Tenant
once finally approved and accepted by Landlord, even though Landlord may approve
such change; or
(3) the performance of or failure to perform any special work or
installation by any person or firm employed by Tenant to do any work on the
Premises; or
(4) any other delay in Substantial Completion directly
attributable to the negligent or willful acts or omissions of Tenant, its
employees, agents, or contractor(s).
(c) In the event that any delay caused by Tenant results in or
contributes to a delay in Substantial Completion, then the Commencement Date
shall be deemed to have occurred and Tenant's rental obligations shall commence
as of the date Landlord would have otherwise achieved Substantial Completion but
for Tenant's delay.
-4-
EXECUTED BY the parties hereto simultaneously with the Lease and attached
thereto as Exhibit "D."
WITNESSES: LANDLORD:
RAS DEVELOPMENT, INC., a Florida corporation
By: /s/ Rafael A. Sanchez
-------------------------- ----------------------------------------------
Name: Rafael A. Sanchez
--------------------------------------------
Title: President
------------------------- -------------------------------------------
TENANT:
CART, INC., a Delaware corporation,
By: /s/ David Clare
------------------------- ----------------------------------------------
Name: David Clare
--------------------------------------------
Title: Chief Operating Officer
------------------------- -------------------------------------------
-5-
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
STATE OF INCORPORATION
CART, Inc. Michigan
CART Licensed Products, Inc. Michigan
Pro-Motion Agency, Inc. Illinois
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-74889 on Form S-8 of our report dated February 27, 2003 (March 7, 2003 as to
Note 18) (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the change in the Company's method of
accounting for goodwill and other intangible assets) appearing in this Annual
Report on Form 10-K of Championship Auto Racing Teams, Inc. for the year ended
December 31, 2002.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
March 24, 2003
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Championship Auto Racing Teams, Inc.
(the "Company") on Form 10-K for the year ending December 31, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Christopher R. Pook, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of section G 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Christopher R. Pook
Christopher R. Pook
Chief Executive Officer
March 26, 2003
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Championship Auto Racing Teams, Inc.
(the "Company") on Form 10- K for the year ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Thomas L. Carter, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Thomas L. Carter
Thomas L. Carter
Chief Financial Officer
March 26, 2003
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