SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(A) of The Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
CHAMPIONSHIP AUTO RACING TEAMS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share.
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(2) Aggregate number of securities to which transaction applies:
14,718,134 shares of common stock.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The filing fee was determined based upon the aggregate merger
consideration of $8,242,156 to be paid to the Championship Auto Racing
Teams, Inc. stockholders. In accordance with Rule 0-11 under the
Securities Exchange Act of 1934, as amended, the filing fee was
determined by multiplying $8,242,156 by .00008090.
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(4) Proposed maximum aggregate value of transaction:
$8,242,156.
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(5) Total fee paid:
$666.79.
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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This preliminary proxy statement and the information contained herein is subject
to completion or amendment.
PRELIMINARY PROXY STATEMENT - SUBJECT TO COMPLETION.
Championship Auto Racing Teams, Inc.
5350 Lakeview Parkway South Dr.
Indianapolis, Indiana 46268
[ ], 2003
Dear Stockholder:
We cordially invite you to attend a special meeting of
stockholders of Championship Auto Racing Teams, Inc. to be held on [ ],
2003, at [ ], local time, at the [ ]. At the special meeting, we will
ask you to vote on a proposal to adopt the Agreement and Plan of Merger we
entered into on September 10, 2003 pursuant to which Open Wheel Racing Series
LLC will acquire Championship. In the merger contemplated by the merger
agreement, a subsidiary of Open Wheel Racing Series will merge with and into
Championship and Championship will become a wholly owned subsidiary of Open
Wheel Racing Series.
If we complete the merger, each share of our common stock you
own will be converted into the right to receive the amount of cash, without
interest and rounded down to the nearest cent, equal to: (1) $8,242,156, divided
by (2) the total number of shares of our common stock outstanding immediately
prior to completion of the merger. Based on 14,718,134 shares of our common
stock outstanding on [ ], 2003 (which we will not take any action to
increase while this transaction is pending), you would be entitled to receive
$0.56 for each share of our common stock.
Our board of directors (including all of our independent
directors) has determined that the merger agreement and merger are advisable,
fair to and in the best interests of our stockholders, including our
unaffiliated stockholders. Our board of directors believes that, if the merger
is not approved, Championship will not be able to continue as a viable business
and that in any winding up of Championship, stockholders would receive little or
no value for their shares. ACCORDINGLY, OUR BOARD OF DIRECTORS HAS APPROVED THE
MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF
THE MERGER AGREEMENT.
Your vote is important. Under Delaware law, we cannot complete
the merger unless the merger agreement is adopted by the affirmative vote of
holders of a majority of shares of our common stock outstanding and entitled to
vote at the special meeting. In addition, the obligations of Championship and
Open Wheel Racing Series to complete the merger are conditioned upon approval of
the merger by the holders of a majority of shares of our common stock that are
voted at the special meeting and are not held by Open Wheel Racing Series or its
affiliates. WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TO ENSURE YOUR SHARES
ARE REPRESENTED AT THE SPECIAL MEETING. If you do not send in your proxy, do not
vote in person or do not instruct your broker to vote your shares, or if you
abstain from voting, it will have the same effect (for the purposes of the vote
required under Delaware law) as a vote against the adoption of the merger
agreement. Only holders of record of our common stock at the close of business
on [ ], 2003 will be entitled to vote at the special meeting.
The enclosed proxy statement provides you with detailed
information about the merger and related matters. We urge you to read the proxy
statement carefully, including the annexes. If you have any questions about the
merger, please call D.F. King & Co., Inc. at (800) 431-9643.
On behalf of the board of directors, I thank you for your
support and appreciate your consideration of this matter.
Yours truly,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
Christopher R. Pook
President and Chief Executive Officer
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement is dated [ ], 2003 and is first being mailed to
stockholders on or about [ ], 2003.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
5350 LAKEVIEW PARKWAY SOUTH DR.
INDIANAPOLIS, IN 46268
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 2003
To the Stockholders of Championship Auto Racing Teams, Inc.:
NOTICE IS HEREBY GIVEN that we will hold a special meeting of
the stockholders of Championship Auto Racing Teams, Inc. on [ ], 2003, at
[ ], local time, at the [ ], for the following purposes:
1. To consider and vote on a proposal to adopt the Agreement and
Plan of Merger, dated as of September 10, 2003, among Open Wheel Racing
Series LLC, Open Wheel Acquisition Corporation, a wholly owned
subsidiary of Open Wheel Racings Series, and Championship Auto Racing
Teams, Inc., pursuant to which, upon completion of the merger,
Championship will be a wholly owned subsidiary of Open Wheel Racing
Series and each share of our common stock, par value $0.01 per share
(other than those held by Open Wheel Racing Series or Open Wheel
Acquisition Corporation, or held by stockholders who perfect their
appraisal rights under Delaware law), will be converted into the right
to receive the amount of cash, without interest and rounded down to the
nearest cent, equal to: (1) $8,242,156, divided by (2) the total number
of shares of our common stock outstanding immediately prior to the
completion of the merger. Based on 14,718,134 shares of our common
stock outstanding on [ ], 2003 (which we will not take any action
to increase while this transaction is pending), you would be entitled
to receive $0.56 for each share of our common stock that you own.
2. To transact any other business as may properly come before the
special meeting or any adjournment or postponement of the special
meeting.
Under Delaware law, we cannot complete the merger unless the
merger agreement is adopted by the affirmative vote of holders of a majority of
shares of our common stock outstanding and entitled to vote at the special
meeting. In addition, the obligations of Championship and Open Wheel Racing
Series to complete the merger are conditioned upon approval of the merger by the
holders of a majority of shares of our common stock that are voted at the
special meeting and are not held by Open Wheel Racing Series LLC or its
affiliates.
Only stockholders of record as of the close of business on
[ ], 2003 are entitled to notice of, and to vote at, the special meeting
or any adjournments or postponements of the meeting. The number of outstanding
shares of our common stock entitled to notice and to vote on [ ], 2003 was
14,718,134. Each stockholder is entitled to one vote for each share of our
common stock held on the record date.
A form of proxy and a proxy statement containing more detailed
information with
respect to the matters to be considered at the special meeting, including a copy
of the merger agreement, accompany and form a part of this notice. We urge you
to read the proxy statement carefully, including the annexes. You should not
send any certificates representing your Championship common stock with your
proxy card.
This notice also constitutes notice of appraisal rights under
Delaware law in connection with the merger. Stockholders who do not vote in
favor of adoption of the merger agreement have the right under Delaware law to
demand appraisal of their shares of our common stock and to receive payment in
cash for the fair value of their shares as determined by the Delaware Chancery
Court. A copy of the provision of Delaware law that grants appraisal rights and
specifies the required procedures for demanding appraisal is attached to this
proxy statement as Annex E.
Your vote is very important, regardless of the number of
shares you own. Please vote as soon as possible to make sure that your shares
are represented at the meeting. To vote your shares, you may complete, sign,
date and return the enclosed proxy card. If you are a holder of record, you may
also cast your vote in person at the special meeting. If your shares are held in
an account at a brokerage firm or bank, you must instruct them on how to vote
your shares. If you do not vote or do not instruct your broker or bank how to
vote, it will have the same effect (for the purposes of the vote required under
Delaware law) as voting against the adoption of the merger agreement.
By order of the Board of Directors,
____________________
J. Carlisle Peet III
Secretary
Indianapolis, Indiana
[ ], 2003
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET............................................................................................... 1
The Parties to the Merger Agreement........................................................................... 1
The Merger.................................................................................................... 2
The Special Meeting........................................................................................... 2
Purpose of the Merger......................................................................................... 4
Effects of the Merger......................................................................................... 4
Recommendation of the Championship Board of Directors......................................................... 5
Opinion of our Financial Advisor.............................................................................. 5
United States Federal Income Tax Consequences................................................................. 5
The Open Wheel Group's Position as to the Fairness of the Merger.............................................. 6
Opinion of Open Wheel's Financial Advisor..................................................................... 6
Interests of Certain Persons in the Merger.................................................................... 7
Appraisal Rights.............................................................................................. 8
The Merger Agreement.......................................................................................... 8
Financing of the Merger....................................................................................... 11
Provisions for Unaffiliated Stockholders...................................................................... 12
Additional Information........................................................................................ 12
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING................................................... 13
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS........................................................ 17
INTRODUCTION..................................................................................................... 18
Proposal to be Considered at the Special Meeting.............................................................. 18
Record Date; Voting Rights; Vote Required..................................................................... 19
Voting and Revocation of Proxies.............................................................................. 20
Solicitation of Proxies; Expenses of Solicitation............................................................. 20
Comparative Market Price Data................................................................................. 21
Dividends..................................................................................................... 21
Championship's Selected Consolidated Financial Information.................................................... 22
SPECIAL FACTORS.................................................................................................. 24
Background of the Merger...................................................................................... 24
Reasons for the Recommendation of the Championship Board of Directors; Fairness of the Merger................. 35
Opinion of our Financial Advisor.............................................................................. 38
Championship's Reasons for the Merger......................................................................... 48
The Open Wheel Group's Position as to the Fairness of the Merger.............................................. 48
The Open Wheel Group's Reasons for the Merger................................................................. 50
Opinion of Open Wheel's Financial Advisor..................................................................... 50
Forecasts..................................................................................................... 57
Purpose and Structure of the Merger........................................................................... 58
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Page
Effects of the Merger on Championship and Championship's Common Stock; Plans or Proposals After the Merger.... 58
Effects on Championship if the Merger is not Completed........................................................ 60
Interests of Directors and Executive Officers in the Merger................................................... 60
Certain Relationships Between the Open Wheel Group and Championship........................................... 64
Financing of the Merger....................................................................................... 65
Provisions for Unaffiliated Stockholders...................................................................... 66
Material U.S. Federal Income Tax Consequences of the Merger to Championship's Stockholders.................... 67
Appraisal Rights.............................................................................................. 68
Regulatory Matters............................................................................................ 72
THE MERGER AGREEMENT............................................................................................. 73
Completion of the Merger...................................................................................... 73
Certificate of Incorporation; By-laws; Directors and Officers of the Surviving Corporation.................... 73
Merger Consideration.......................................................................................... 73
Stock Options................................................................................................. 74
Conditions to the Merger...................................................................................... 74
Alternative Acquisition Proposals............................................................................. 77
Stockholder Rights Agreement.................................................................................. 78
Right to Accept a Superior Proposal........................................................................... 78
Representations and Warranties................................................................................ 78
Covenants Relating to the Conduct of our Business............................................................. 80
Reasonable Best Efforts....................................................................................... 82
Directors' and Officers' Indemnification...................................................................... 83
Other Covenants............................................................................................... 83
Fees and Expenses............................................................................................. 83
Termination of the Merger Agreement........................................................................... 84
Amendment..................................................................................................... 85
Extension; Waiver............................................................................................. 85
CONTRIBUTION AGREEMENT........................................................................................... 86
OTHER MATTERS.................................................................................................... 87
Beneficial Ownership of Championship Common Stock............................................................. 87
Other Matters for Action at the Special Meeting............................................................... 89
Common Stock Transactions Information......................................................................... 89
Stockholder Proposals......................................................................................... 90
Where You Can Find More Information........................................................................... 90
Information Incorporated by Reference......................................................................... 91
Additional Information........................................................................................ 91
ii
ANNEX A - AGREEMENT AND PLAN OF MERGER
ANNEX B - CONTRIBUTION AGREEMENT
ANNEX C - OPINION OF BEAR, STEARNS & CO. INC
ANNEX D - OPINION OF ERNST & YOUNG CORPORATE FINANCE LLC
ANNEX E - SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
iii
SUMMARY TERM SHEET
This summary term sheet, together with the following question and
answer section, highlights important information discussed in greater detail
elsewhere in this proxy statement. This summary term sheet includes
parenthetical references to pages in other portions of this proxy statement
containing a more detailed description of the topics presented in this summary
term sheet. This summary term sheet does not contain all of the information you
should consider before voting on the merger agreement. To more fully understand
the merger, you should read carefully this entire proxy statement and all of its
annexes, including the merger agreement, which is attached as Annex A, before
voting on whether to adopt the merger agreement.
THE PARTIES TO THE MERGER AGREEMENT
CHAMPIONSHIP AUTO RACING TEAMS, INC.
Championship Auto Racing Teams, Inc.
5350 Lakeview Parkway South Dr.
Indianapolis, Indiana 46268
(317) 715-4100
- Championship Auto Racing Teams, Inc., a Delaware corporation, owns all
of the common stock of CART, Inc., which operates and markets the 2003
Bridgestone Presents The Champ Car World Series Powered by Ford. In
this proxy statement, the 2003 Bridgestone Presents The Champ Car World
Series Powered by Ford is referred to as the CART racing series. CART
Champ Cars are thoroughbred racing machines that reach speeds in excess
of 200 miles per hour, showcasing the technical expertise of
manufacturers such as Ford Motor Company, Lola Cars and
Bridgestone/Firestone North American Tire, LLC. Championship also owns
and operates its top development series, the Toyota Atlantic
Championship.
- In this proxy statement, Championship Auto Racing Teams, Inc. is
referred to as "Championship."
- Our common stock currently trades on The New York Stock Exchange under
the symbol "MPH." On October 6, 2003, however, the NYSE announced that
our common stock will be suspended from trading prior to the opening
of trading on October 13, 2003, or such earlier date as our common
stock commences trading in another securities marketplace or there is a
material adverse development. We are currently seeking to have our
common stock quoted on the OTC Bulletin Board. See "Special Factors -
Background of the Merger."
OPEN WHEEL RACING SERIES LLC
Open Wheel Racing Series LLC
275 Middlefield Road, Second Floor
Menlo Park, California 94025
(650) 329-7300
- Open Wheel Racing Series LLC, a Delaware limited liability company, is
a specially formed entity whose principal business is to acquire all
outstanding capital stock and attached rights of Championship. Open
Wheel is owned indirectly by a group of investors and team owners,
including Kevin Kalkhoven, Paul Gentilozzi and Gerald R. Forsythe. The
members of Open Wheel are 21st Century Racing Holdings LLC, Big
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Bang Racing LLC and Willis Capital, L.L.C. As of [ ], 2003, Open
Wheel Racing Series LLC beneficially owns 3,377,400 shares, or
approximately 22.95%, of our common stock.
- In this proxy statement, Open Wheel Racing Series LLC is referred to as
"Open Wheel."
OPEN WHEEL ACQUISITION CORPORATION
Open Wheel Acquisition Corporation
275 Middlefield Road, Second Floor
Menlo Park, California 94025
(650) 329-7300
- Open Wheel Acquisition Corporation, a Delaware corporation, is a wholly
owned subsidiary of Open Wheel formed for the purpose of effecting a
merger with Championship.
- In this proxy statement, Open Wheel Acquisition Corporation is referred
to as "Acquisition Corp."
- In this proxy statement, Open Wheel and Acquisition Corp. are referred
to together as the "Open Wheel Group."
THE MERGER
- The merger agreement you are asked to adopt would cause Acquisition
Corp. to be merged with and into Championship. If the merger agreement
is adopted, each share of our common stock will be exchanged for cash
equal to (1) $8,242,156, divided by (2) the total number of shares of
our common stock outstanding immediately prior to the merger. This
amount will be without interest and rounded down to the nearest cent.
Based on 14,718,134 shares of our common stock outstanding on [ ],
2003 (which we will not take any action to increase while this
transaction is pending), each share of our common stock would be
exchanged for $0.56. Shares of our common stock held by Open Wheel or
Acquisition Corp. or by stockholders who perfect their appraisal rights
under Delaware law will not be entitled to this per share merger
consideration. See "Special Factors--Appraisal Rights" (page 68).
THE SPECIAL MEETING
- Date, Time and Place (see page 18). The special meeting will take place
on [ ], 2003, at [ ], local time, at the [ ].
- Proposal to be considered (see page 18). At the special meeting, you
will be asked to consider and vote upon a proposal to adopt the merger
agreement, a copy of which is attached to this proxy statement as Annex
A. For additional information regarding the proposal to be considered
at the special meeting, see "Introduction -- Proposal to be Considered
at the Special Meeting."
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- Record Date and Shares Entitled to Vote; Quorum (see page 19). The
record date for determining the holders of shares of our common stock
entitled to notice of, and to vote at, the special meeting is [ ],
2003. On the record date, 14,718,134 shares of our common stock were
outstanding and entitled to vote on the proposal to adopt the merger
agreement. The presence, in person or by proxy, of shares representing
at least a majority of all the votes entitled to be cast on the
adoption of the merger agreement is necessary to constitute a quorum
for the transaction of business at the special meeting. See
"Introduction -- Record Date; Voting Rights; Vote Required."
- Vote Required (see page 19). Under Delaware law, we cannot complete the
merger unless the merger agreement is adopted by the affirmative vote
of holders of a majority of shares of our common stock outstanding and
entitled to vote at the special meeting. In addition, the obligations
of Championship and Open Wheel to complete the merger are conditioned
upon approval of the merger by the holders of a majority of shares of
our common stock that are voted "for" or "against" approval of the
merger at the special meeting and are not held by Open Wheel or its
affiliates. This second vote is referred to in this proxy statement as
the "unaffiliated stockholder approval." Although Championship and Open
Wheel could agree to waive the need for the unaffiliated stockholder
approval, Championship would not do so unless our board of directors
concluded that the unaffiliated stockholder approval was not obtained
due to a negative vote by stockholders whose primary objective is to
obtain value from Championship for themselves that would not be
available to all unaffiliated stockholders on a pro rata basis. See
"Introduction -- Record Date; Voting Rights; Vote Required."
As of [ ], 2003, Open Wheel beneficially owns 3,377,400
shares, or approximately 22.95%, of our common stock. All of these
shares will be voted in favor of adopting the merger agreement but none
will count in determining whether the unaffiliated stockholder approval
has been received. See "Special Factors -- Certain Relationships
Between the Open Wheel Group and Championship -- Gerald R. Forsythe --
Forsythe Voting Agreements."
Our directors and executive officers as a group beneficially
own 4,025 shares, or less than 1%, of our common stock. This number
excludes shares issuable upon the exercise of options that will
terminate immediately prior to the completion of the merger. See "Other
Matters--Beneficial Ownership of Championship Common Stock." Neither
we nor Open Wheel have entered into any agreements with these directors
and officers with respect to the voting of their shares in connection
with the merger; however, these directors and officers have expressed
their intent to vote their shares in favor of the merger.
- Procedures for Voting (see page 19). You may vote shares you hold of
record in either of two ways:
- by completing and returning the enclosed proxy card, or
- by voting in person at the special meeting.
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If you hold shares of our common stock in "street name" through a
broker or other financial institution, you must follow the instructions
provided by the broker or other financial institution regarding how to
instruct it to vote those shares. See "Introduction -- Record Date;
Voting Rights; Vote Required."
- Voting of Proxies (see page 20). Shares of our common stock represented
by properly executed proxies received at or prior to the special
meeting that have not been revoked will be voted at the special meeting
in accordance with the instructions indicated on the proxies. Shares of
our common stock represented by properly executed proxies for which no
instruction is given will be voted FOR adoption of the merger
agreement. See "Introduction -- Voting and Revocation of Proxies."
- Revocability of Proxies (see page 20). Your proxy may be revoked at any
time before it is voted. If you complete and return the enclosed proxy
card but wish to revoke it, you must either (1) send a later-dated
proxy card relating to the same shares to our Secretary at or before
the special meeting, (2) file with our Secretary a written, later-dated
notice of revocation or (3) attend the special meeting and vote in
person. Please note that your attendance at the meeting will not, by
itself, revoke your proxy. See "Introduction -- Voting and Revocation
of Proxies."
- Failure to vote (see page 15). If you do not send in your proxy, do not
instruct your broker to vote your shares or if you abstain from voting,
it will have the same effect as a vote against adoption of the merger
agreement.
PURPOSE OF THE MERGER
- The principal purpose of the merger is to enable you to receive cash
for your shares. The merger also will enable Open Wheel to obtain
control of Championship and give CART, Inc. the opportunity to continue
the CART racing series in 2004. If the merger is not completed,
Championship does not expect to have sufficient financial resources for
a 2004 season. See "Special Factors -- Purpose and Structure of the
Merger" (see page 58), "--Background of the Merger" (see page 24) and
"-- Effects on Championship if the Merger is not Completed" (see page
60).
EFFECTS OF THE MERGER
- Upon completion of the merger, Championship will be a direct, wholly
owned, privately held subsidiary of Open Wheel. The registration of our
common stock and our reporting obligations under the Securities
Exchange Act of 1934, as amended, referred to as the Exchange Act, will
be terminated upon application to the SEC. In addition, upon completion
of the merger, our common stock will no longer be listed on the New
York Stock Exchange or any other exchange or quotation system where our
common stock may at such time be listed or quoted. See "Special Factors
-- Effects of the Merger on Championship and Championship's Common
Stock; Plans or Proposals After the Merger" (see page 58).
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RECOMMENDATION OF THE CHAMPIONSHIP BOARD OF DIRECTORS
- Our board of directors, including all of our independent directors, has
determined that the merger agreement and the merger are advisable, fair
to and in the best interests of Championship's stockholders, including
Championship's unaffiliated stockholders. Accordingly, our board of
directors approved the merger agreement and the merger and recommends
that you vote "FOR" the proposal to adopt the merger agreement. Carl
Haas, one of our directors (who resigned as a director on September 22,
2003), abstained from the foregoing determination and approval due to a
potential conflict of interest as a team owner, however none of our
directors voted against approval of the merger agreement and the
merger. For a discussion of the material factors considered by our
board of directors in reaching its conclusions and the reasons why our
board of directors determined that the merger agreement and the merger
are advisable, fair to and in the best interests of Championship's
stockholders, including Championship's unaffiliated stockholders, see
"Special Factors -- Reasons for the Recommendation of the Championship
Board of Directors; Fairness of the Merger" (see page 35).
OPINION OF OUR FINANCIAL ADVISOR
- In connection with the proposed merger, our financial advisor, Bear,
Stearns & Co. Inc., delivered to our board of directors an opinion to
the effect that, subject to the conditions, assumptions and limitations
contained in the opinion, from a financial point of view, the per share
merger consideration is fair to unaffiliated holders of our common
stock, other than Open Wheel or its affiliates, individuals who own or
operate teams or entities that participate in the businesses owned or
operated by Championship or any of its subsidiaries, or any
stockholders who have entered into agreements with Open Wheel with
respect to any matter related to their shares of our common stock. In
this proxy statement, Bear, Stearns & Co. Inc. is referred to as "Bear
Stearns."
- The full text of the written opinion of our financial advisor, dated
September 10, 2003, is attached to this proxy statement as Annex C. We
encourage you to read the opinion carefully in its entirety for a
description of the procedures followed, assumptions made, matters
considered and limitations on our financial advisor's review.
- THE OPINION OF OUR FINANCIAL ADVISOR IS ADDRESSED TO OUR BOARD OF
DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
AS TO ANY MATTER RELATING TO THE MERGER.
- See "Special Factors -- Opinion of our Financial Advisor" (see page
38).
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
- The receipt of cash for shares pursuant to the merger will be a taxable
transaction for United States Federal income tax purposes. In general,
a stockholder who receives cash in exchange for shares pursuant to the
merger will recognize gain or loss for United States Federal income tax
purposes equal to the difference, if any, between the amount of
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cash received and the stockholder's adjusted tax basis in the shares
exchanged for cash pursuant to the merger. If the shares exchanged
constitute capital assets in the hands of the stockholder, the gain or
loss will be capital gain or loss and, generally speaking, will be
long-term capital gain or loss if the shares have been held by the
stockholder for more than one year. The deductibility of capital losses
is subject to limitations.
- BECAUSE THE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON YOUR
PARTICULAR CIRCUMSTANCES, WE RECOMMEND THAT YOU CONSULT YOUR TAX
ADVISOR CONCERNING THE FEDERAL (AND ANY STATE, LOCAL OR FOREIGN) TAX
CONSEQUENCES TO YOU OF THE MERGER.
THE OPEN WHEEL GROUP'S POSITION AS TO THE FAIRNESS OF THE MERGER
- Because members of the Open Wheel Group beneficially own 3,377,400
shares, or 22.95%, of our common stock contributed to Open Wheel by Mr.
Forsythe, the merger may constitute, if completed, a "going-private
transaction" subject to Rule 13e-3 under the Exchange Act, in which
case the members of the Open Wheel Group would be required to express
their belief as to the fairness of the merger to stockholders of
Championship who are not affiliated with Championship. The members of
the Open Wheel Group believe that the merger is fair to such
stockholders of Championship. This belief, however, should not be
construed as a recommendation to stockholders of Championship to vote
to adopt the merger agreement. For a discussion of the factors
considered by the members of the Open Wheel Group in reaching this
belief, see "Special Factors -- The Open Wheel Group's Position as to
the Fairness of the Merger" (see page 48).
OPINION OF OPEN WHEEL'S FINANCIAL ADVISOR
- In connection with the proposed merger, Open Wheel retained its own
financial advisor, Ernst & Young Corporate Finance LLC, who delivered a
written opinion to Open Wheel, dated September 10, 2003, to the effect
that, as of that date, the per share merger consideration to be
received by the unaffiliated common stockholders of Championship was
fair, from a financial point of view, to such holders. In this proxy
statement, Ernst & Young Corporate Finance LLC is referred to as
"EYCF."
- The full text of the written opinion of EYCF dated September 10, 2003
is attached to this proxy statement as Annex D. We encourage you to
read the opinion carefully in its entirety for a description of the
procedures followed, assumptions made, matters considered and
limitations on EYCF's review.
- THE EYCF OPINION IS ADDRESSED EXCLUSIVELY TO OPEN WHEEL AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO ANY MATTER
RELATING TO THE MERGER.
- See "Special Factors -- Opinion of Open Wheel's Financial Advisor" (see
page 50).
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
- When considering the recommendation of our board of directors, you
should be aware that some of our directors and executive officers have
interests that are different from, or in addition to, yours, including
as follows:
- one of our directors, Carl Haas (who resigned as a director on
September 22, 2003), owns a racing team that participates in
the CART racing series. If the merger is not completed, the
CART racing series will not continue in 2004 in the absence of
another strategic transaction. Due to his potential conflict
of interest as a team owner, Mr. Haas abstained from our board
of directors' vote approving the merger and the merger
agreement;
- each of Christopher R. Pook, our President and Chief Executive
Officer, David J. Clare, our Chief Operating Officer, and John
J. Lopes, CART, Inc.'s Vice President of Racing Operations,
are parties to prior employment agreements with Championship
pursuant to which they would have been entitled to enhanced
severance benefits (including cash payments of up to three or
2.99 times the executive's base salary and up to seven years
of continued employee benefits) in the event of involuntary
termination, as defined under their respective prior
employment agreements, within two years following the
completion of the merger. In connection with the merger, Mr.
Pook's prior employment agreement has been amended and each of
Mr. Clare's and Mr. Lopes' prior employment agreements have
been superseded by new employment agreements. This amendment
and these new employment agreements, as the case may be,
eliminate the foregoing severance benefits. In the event the
merger agreement is terminated, the amendment to Mr. Pook's
employment agreement and Messrs. Clare's and Lopes's new
employment agreements would be void and each of their prior
employment agreements, including the severance benefits, would
be automatically reinstated;
- in connection with the merger, Championship and CART, Inc.
have entered into a new consulting agreement with Mr. Pook,
which becomes effective upon completion of the merger, and a
new employment agreement with Thomas L. Carter, our Chief
Financial Officer. In the event the merger agreement is
terminated, Mr. Pook's new consulting agreement and Mr.
Carter's new employment agreement would be void and their
prior employment agreements would be automatically reinstated;
and
- our directors and executive officers (1) will be indemnified
against certain liabilities both before and after the merger
and (2) will have, for a certain period of time after
completion of the merger, the benefit of directors' and
officers' liability insurance for acts and omissions occurring
before the merger.
- See "Special Factors -- Interests of Directors and Executive Officers
in the Merger" (see page 60) for a more detailed discussion of the
foregoing and other interests.
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APPRAISAL RIGHTS
- If the merger is completed, stockholders who object to the merger may
elect to exercise their statutory appraisal rights to receive the
judicially determined "fair value" of their shares. The fair value,
which could be more or less than the merger consideration to which
stockholders would be entitled under the merger agreement, would be
exclusive of any value arising from the completion or expectation of
the merger (including as a result of any new capital that may become
available to Championship as a result of the merger). The determination
of fair value would be made after completion of the merger.
- In order to exercise these rights, you must (1) not vote to adopt the
merger agreement, (2) make a written demand for appraisal prior to the
taking of the vote on the merger agreement at the special meeting and
(3) otherwise comply with the procedures under Delaware law for
exercising appraisal rights. For a summary of these Delaware law
procedures, see "Special Factors -- Appraisal Rights" (see page 68). An
executed proxy that is not marked "AGAINST" or "ABSTAIN" will be voted
for adoption of the merger agreement and will disqualify the
stockholder submitting that proxy from demanding appraisal rights.
- Under the merger agreement, if holders of more than 16% of the
outstanding shares of our common stock validly demand appraisal of
their shares in accordance with Delaware law and do not withdraw their
demand or otherwise forfeit their appraisal rights, one of the
conditions to Open Wheel's and Acquisition Corp.'s obligations to
complete the merger will not be satisfied.
- Appraisal rights will not apply if the merger is abandoned for any
reason.
THE MERGER AGREEMENT
CONDITIONS TO THE MERGER
The obligations of Open Wheel and Acquisition Corp. to effect the merger are
subject to the satisfaction or waiver of, among others, the following
conditions:
- as required under Delaware law, the merger agreement must be adopted by
the affirmative vote of holders of a majority of shares of our common
stock outstanding and entitled to vote at the special meeting;
- the merger must be approved by the holders of a majority of shares of
our common stock that are voted "for" or "against" approval at the
special meeting and are not held by Open Wheel and its affiliates;
- no law, injunction or order preventing the completion of the merger or
preventing Open Wheel from either owning our common stock or operating
any material part of Championship's business may be in effect;
- the representations and warranties of Championship in the merger
agreement must be true
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and correct in all material respects and Championship must have
complied in all material respects with its covenants and other
agreements in the merger agreement;
- no more than 16% of Championship's shares of common stock outstanding
immediately prior to the completion of the merger shall be shares held
by persons who validly demand appraisal of their shares in accordance
with Delaware law and do not withdraw their demand or otherwise forfeit
their appraisal rights;
- subject to certain exceptions, the absence of pending or threatened
suits, actions or proceedings advancing non-frivolous claims against
Open Wheel, Acquisition Corp., Championship or any subsidiary of
Championship, which Open Wheel reasonably believes would not be covered
by Championship's existing insurance policies or which seek equitable
relief preventing Open Wheel from either owning Championship common
stock or operating any material part of Championship's business;
- the absence of pending suits, actions or proceedings advancing
non-frivolous claims against Open Wheel, Acquisition Corp.,
Championship or any subsidiary of Championship that seek equitable
relief preventing the completion of the merger;
- each holder of an option to purchase our common stock must have agreed
to surrender that option prior to the completion of the merger (this
condition has already been satisfied);
- Championship must be able to pay its debts as and when they become due
and no bankruptcy petition shall have been filed or be pending, subject
to limited exceptions; and
- a material adverse effect on Championship, as defined in the merger
agreement and under "The Merger Agreement -- Conditions to the Merger
-- Conditions to Obligations of Open Wheel and Acquisition Corp. to
Complete the Merger," must not have occurred.
RIGHT TO ACCEPT A SUPERIOR PROPOSAL
- The merger agreement provides that we will not enter into any agreement
with respect to any proposal for an alternative merger or other
business combination or other acquisition of over 20% of our stock or
assets except as described below. However, the merger agreement also
provides that, prior to obtaining the required stockholder approvals,
we may, pursuant to a confidentiality agreement, provide to any person
or entity information with respect to an alternative acquisition
proposal. If, prior to obtaining the required stockholder approvals, we
receive a proposal for an alternative merger or other acquisition of
over 50% of our stock or all or substantially all of our assets that
our board of directors determines in good faith is more favorable to
our stockholders than the transactions contemplated by the merger
agreement, then, having first complied with certain notification
requirements and taken into account any revised proposal from Open
Wheel, we may approve such superior takeover proposal, cause the merger
agreement to be terminated and enter into a definitive agreement with
respect to such superior takeover proposal. If we terminate the merger
agreement and enter into a definitive agreement with respect to a
superior takeover proposal, we will be required to pay a termination
fee
- 9 -
of $350,000 to Open Wheel.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the completion of
the merger:
- by mutual written consent of Open Wheel and Championship;
- by either Open Wheel or Championship if either of the required
stockholder approvals is not obtained at a Championship stockholder
meeting called for that purpose;
- by either Open Wheel or Championship if the merger is not completed on
or before February 15, 2004, except that this date may be extended for
up to 61 days under the limited circumstances related to the filing of
any involuntary bankruptcy petition described under "The Merger
Agreement -- Termination of the Merger Agreement"; or
- by either Open Wheel or Championship if a final and nonappealable order
or injunction issued by a governmental entity prohibits the merger.
The merger agreement may also be terminated by Open Wheel if:
- Championship breaches any of its representations, warranties or
covenants in a manner which would result in the failure of a condition
to Open Wheel's obligation to complete the merger;
- prior to obtaining the requisite stockholder approvals, Championship's
board of directors withdraws or adversely modifies (or refuses, after
request from Open Wheel, to affirm) its recommendation of the merger
agreement, or proposes publicly to do so;
- prior to obtaining the requisite stockholder approvals, Championship's
board of directors, without obtaining the prior written approval of
Open Wheel, amends the Championship stockholder rights agreement to
permit another person or entity to acquire 15% or more of
Championship's common stock; or
- prior to obtaining the requisite stockholder approvals, Championship
enters into any definitive agreement to implement a proposal for an
alternative merger or other business combination or other acquisition
of over 20% of our stock or assets (any such proposal referred to in
this proxy statement as an alternative acquisition proposal).
TERMINATION FEE
Championship must pay to Open Wheel a termination fee of $350,000 if:
- Championship terminates the merger agreement because our board of
directors received and accepted a superior takeover proposal as
described under "The Merger Agreement -- Right to Accept a Superior
Proposal";
- Open Wheel terminates the merger agreement because
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- our board of directors withdraws or adversely modifies (or
refuses, after request from Open Wheel, to affirm) its
recommendation of the merger agreement to our stockholders, or
proposes publicly to do so,
- without the approval of Open Wheel, our board of directors
amends our stockholder rights agreement, redeems the rights
issued under our rights agreement or takes any action with
respect to, or makes any determination under, our rights
agreement to comply with its fiduciary duties and, as a result
of such amendment, redemption, action or determination, any
person other than Open Wheel and its affiliates is permitted
to hold more than 15% of our outstanding common stock or
- Championship enters into any definitive agreement to implement
an alternative acquisition proposal; or
- after the date of the merger agreement, any person or entity makes an
alternative acquisition proposal, the merger agreement is terminated by
either Open Wheel or Championship because the merger has not occurred
on or before February 15, 2004 and Championship then completes an
alternative merger or business combination or acquisition of over 40%
of our stock or assets within 12 months after the termination of the
merger agreement.
One purpose of the termination fee is to compensate Open Wheel, in the event
that the merger is abandoned by Championship to pursue an alternate proposal,
for the financial and other resources Open Wheel has expended in connection with
entering into the merger agreement and seeking to complete the merger. One
effect of the termination fee provision is to make it more expensive for any
other potential acquiror of Championship to acquire control of Championship. For
additional information regarding the termination fee provision and the
circumstances under which this amount is payable, see "The Merger Agreement --
Fees and Expenses" (see page 83).
FINANCING OF THE MERGER
- The total amount of funds required to complete the merger and pay the
related fees and expenses is estimated to be approximately $[ ]. The
Contribution Agreement dated September 10, 2003, between Kevin
Kalkhoven, Paul Gentilozzi and Gerald R. Forsythe, on the one hand, and
Championship, on the other hand, a copy of which is attached to this
proxy statement as Annex B, provides that, subject to the satisfaction
or waiver of the conditions to Open Wheel's and Acquisition Corp.'s
obligations to complete the merger, each of Messrs. Kalkhoven,
Gentilozzi and Forsythe will make or cause to be made to Open Wheel,
prior to the completion of the merger, capital contributions in an
aggregate amount sufficient to enable Open Wheel to pay the aggregate
merger consideration. Mr. Forsythe partially satisfied his contribution
obligation by contributing all of his shares, and causing his
affiliates to contribute all of their shares, of our common stock to
Open Wheel on September 26, 2003, as was required under the
Contribution Agreement.
- 11 -
PROVISIONS FOR UNAFFILIATED STOCKHOLDERS
- Gerald R. Forsythe is one of the indirect owners of Open Wheel. Prior
to contributing all of his shares of our common stock to Open Wheel on
September 26, 2003, Mr. Forsythe and his affiliates directly owned
3,377,400 shares of our common stock, representing approximately 22.95%
of our outstanding common stock as of [ ], 2003. Due to this
ownership, the members of the Open Wheel Group might be deemed to be
affiliated stockholders of Championship. Notwithstanding Mr. Forsythe's
substantial share ownership, Mr. Forsythe has not been a member of our
board of directors since October 2001, and our board of directors
believes he was not in a position to influence, and did not influence,
our board's consideration of and decision to pursue the transaction
with Open Wheel. Therefore, we concluded that despite the possibility
that the members of the Open Wheel Group might be deemed our
affiliates, it was not necessary to make any provisions in connection
with the merger to grant unaffiliated stockholders access to
Championship's, Open Wheel's or Acquisition Corp.'s non-publicly
disclosed information, or to obtain counsel or appraisal services
solely for unaffiliated stockholders at Championship's expense or the
expense of Open Wheel or Acquisition Corp. We did, however, agree with
Open Wheel that the merger should be conditioned upon receipt of the
unaffiliated stockholder approval. See "--The Special Meeting."
ADDITIONAL INFORMATION
- If you have questions about the merger or this proxy statement, or if
you would like additional copies of this proxy statement or the proxy
card, you should call D.F. King & Co., Inc. at (800) 431-9643.
- 12 -
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Below are brief answers to frequently asked questions concerning the
proposed merger and the special meeting. These questions and answers do not, and
are not intended to, address all the information that may be important to you.
You should read the summary and the remainder of this proxy statement, including
all annexes, carefully.
1. Q: WHAT IS THE PROPOSED MERGER?
A: In the proposed merger, Acquisition Corp., a wholly owned subsidiary
of Open Wheel, will merge with and into Championship. Championship will
survive the merger as a wholly owned subsidiary of Open Wheel, and our
shares will cease to be publicly traded. The merger agreement is
attached to this proxy statement as Annex A. We encourage you to read
it carefully.
2. Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Upon completion of the merger, in exchange for each share of
Championship common stock that you own, you will be entitled to receive
the amount of cash, without interest and rounded down to the nearest
cent, equal to: (1) $8,242,156, divided by (2) the total number of
shares of our common stock outstanding immediately prior to the
completion of the merger and less any applicable withholding taxes. In
this proxy statement, we refer to this cash payment as the "per share
merger consideration." Based on 14,718,134 shares of our common stock
outstanding on [ ], 2003 (which we will not take any action to
increase while this transaction is pending), you would be entitled to
receive $0.56 for each share of our common stock you own.
3. Q: WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER?
A: The receipt of cash for shares pursuant to the merger will be a
taxable transaction for United States Federal income tax purposes. In
general, a stockholder who receives cash in exchange for shares
pursuant to the merger will recognize gain or loss for United States
Federal income tax purposes equal to the difference, if any, between
the amount of cash received and the stockholder's adjusted tax basis in
the shares exchanged for cash pursuant to the merger. Because the tax
consequences of the merger are complex and may vary depending on your
particular circumstances, we recommend that you consult your tax
advisor concerning the Federal (and any state, local or foreign) tax
consequences to you of the merger. To review a summary of the material
tax considerations of the merger, see "Special Factors -- Material U.S.
Federal Income Tax Consequences of the Merger to Championship's
Stockholders."
4. Q: WHAT IS THE VOTE REQUIRED TO ADOPT THE MERGER AGREEMENT?
A: Under Delaware law, we cannot complete the merger unless the merger
- 13 -
agreement is adopted by the affirmative vote of holders of a majority
of shares of our common stock outstanding and entitled to vote at the
special meeting. In addition, the obligations of Championship and Open
Wheel to complete the merger are conditioned upon approval of the
merger by the holders of a majority of shares of our common stock that
are voted "for" or "against" the merger at the special meeting and are
not held by Open Wheel or its affiliates. See "Introduction -- Record
Date; Voting Rights; Vote Required."
5. Q: IS CHAMPIONSHIP'S BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR
THE MERGER AGREEMENT?
A: Yes. After considering a number of factors, our board of directors,
including all of our independent directors, determined that the terms
of the merger agreement and the merger are advisable, fair to and in
the best interests of Championship's stockholders, including
Championship's unaffiliated stockholders. One of our directors
abstained from this determination due to a potential conflict of
interest. Our board of directors recommends that you vote FOR adoption
of the merger agreement. To review the background of and reasons for
the merger, see "Special Factors--Background of the Merger" and
"--Reasons for the Recommendation of the Championship Board of
Directors; Fairness of the Merger." In considering the recommendation
of Championship's board of directors, you should be aware that certain
of Championship's directors and executive officers have interests in
the merger that are different from, or in addition to, yours. See
"Special Factors--Interests of Directors and Executive Officers in
the Merger."
6. Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We expect to complete the merger late in the fourth quarter of 2003,
as quickly as possible after the special meeting and after all the
conditions to the merger are satisfied or waived. See "The Merger
Agreement--Conditions to the Merger."
7. Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this proxy statement carefully, including its
annexes, consider how the merger would affect you as a stockholder and
then vote. After you read this proxy statement, you should complete,
sign and date your proxy card and mail it in the enclosed return
envelope as soon as possible, even if you plan to attend the special
meeting in person, so that your shares may be represented at the
special meeting. If you sign, date and send in your proxy card without
indicating how you want to vote, all of your shares will be voted FOR
adoption of the merger agreement. See "Introduction--Voting and
Revocation of Proxies."
- 14 -
8. Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME", WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will only be permitted to vote your shares if you
provide instructions to your broker on how to vote. You should follow
the procedures provided by your broker regarding the voting of your
shares and be sure to provide your broker with instructions on how to
vote your shares. See "Introduction--Record Date; Voting Rights; Vote
Required."
9. Q: WHAT IF I WANT TO CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY
CARD?
A: You can change your vote by sending a later-dated, signed proxy card
or a written revocation to the Secretary of Championship at
Championship Auto Racing Teams, Inc., 5350 Lakeview Parkway South Dr.,
Indianapolis, IN 46268, who must receive it before your proxy has been
voted at the special meeting, or by attending the special meeting in
person and voting. Your attendance at the special meeting will not, by
itself, revoke your proxy. It will only be revoked if you actually vote
at the special meeting. If you have instructed your broker to vote your
shares, you must follow the directions received from your broker to
change those voting instructions. See "Introduction -- Voting and
Revocation of Proxies."
10. Q: WHAT HAPPENS IF I DO NOT SEND IN MY PROXY, IF I DO NOT INSTRUCT MY
BROKER TO VOTE MY SHARES OR IF I ABSTAIN FROM VOTING?
A: If you do not send in your proxy, do not instruct your broker to
vote your shares or if you abstain from voting, it will have the same
effect (for the purposes of the vote required under Delaware law) as a
vote against adoption of the merger agreement.
11. Q: SHOULD I SEND MY CHAMPIONSHIP COMMON STOCK CERTIFICATES NOW?
A: No. Do not send your Championship common stock certificates now. If
we complete the merger, you will receive written instructions for
exchanging your Championship common stock certificates for your merger
consideration. You should follow the procedures described in "The
Merger Agreement -- Merger Consideration."
12. Q: WHAT IF I OPPOSE THE MERGER? DO I HAVE APPRAISAL RIGHTS?
A: If you are a stockholder who objects to the merger, and if you
comply with the procedures required under Delaware law, you may elect
to pursue your statutory appraisal rights to receive the judicially
determined "fair value" of your shares, which could be more or less
than the per share merger consideration. If you validly demand
appraisal of your shares in accordance with Delaware law and do
- 15 -
not withdraw your demand or otherwise forfeit your appraisal rights,
you will not receive the merger consideration. Instead, after
completion of the merger, a court will determine the fair value of your
shares exclusive of any value arising from the completion or
expectation of the merger (including as a result of any new capital
that may become available to Championship as a result of the merger).
The fair value of your shares could be more or less than the merger
consideration to which you would be entitled under the merger
agreement.
In order to qualify for these rights, you must (1) not vote in favor of
adoption of the merger agreement, (2) make a written demand for
appraisal prior to the taking of the vote on the merger agreement at
the special meeting and (3) otherwise comply with the Delaware law
procedures for exercising appraisal rights. For a summary of these
Delaware law procedures, see "Special Factors -- Appraisal Rights." An
executed proxy that is not marked "AGAINST" or "ABSTAIN" will be voted
for adoption of the merger agreement and will disqualify you from
demanding appraisal rights.
Under the merger agreement, if holders of more than 16% of the
outstanding shares of our common stock validly demand appraisal of
their shares in accordance with Delaware law and do not withdraw their
demand or otherwise forfeit their appraisal rights, one of the
conditions to Open Wheel's and Acquisition Corp.'s obligations to
complete the merger will not be satisfied. Appraisal rights will not
apply if the merger is abandoned for any reason.
13. Q: WHAT WILL HAPPEN IF THE MERGER IS ABANDONED?
A: Our board of directors believes that, if the merger is abandoned,
Championship will not be able to continue as a viable business and that
in any winding up of Championship, holders of our common stock would
receive little or no value for their shares.
14. Q: WHERE CAN I FIND MORE INFORMATION ABOUT CHAMPIONSHIP?
A: Championship files periodic reports and other information with the
Securities and Exchange Commission, or the SEC. You may read and copy
this information at the SEC's public reference facilities. Please call
the SEC at 1-800-SEC-0330 for information about these facilities. This
information is also available on the Internet site maintained by the
SEC at http://www.sec.gov. For a more detailed description of the
information available about Championship, see "Other Matters -- Where
You Can Find More Information."
15. Q: WHOM SHOULD I CALL IF I HAVE QUESTIONS OR WANT ADDITIONAL COPIES OF
DOCUMENTS?
A: If you have any questions about the merger or this proxy statement,
or if you would like additional copies of this proxy statement or the
proxy card, you should contact D.F. King & Co., Inc. at (800) 431-9643.
- 16 -
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on various underlying assumptions and
expectations of management and are subject to risks and uncertainties which
could cause actual results to differ materially from those expressed in the
forward-looking statements. These risks and uncertainties include, but are not
limited to, general economic conditions; the timing and occurrence (or
non-occurrence) of transactions; and events which may be subject to
circumstances beyond our control or the control of our subsidiaries.
Other factors and assumptions not identified above could also cause
actual results to differ materially from those set forth in the forward-looking
statements. Although our management believes these assumptions are reasonable,
we cannot assure you that they will prove correct. Accordingly, you should not
rely upon forward-looking statements as a prediction of actual results. Further,
we undertake no obligation to update forward-looking statements after the date
they are made or to conform the statements to actual results or changes in our
expectations.
The forward-looking statements should be read in conjunction with our
Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and our
subsequent Quarterly Reports on Form 10-Q. Our reports on Form 10-K and Form
10-Q are on file with the SEC, and copies are available without charge upon
written request to J. Carlisle Peet III at the address provided in "Other
Matters -- Where You Can Find More Information."
All information contained in this proxy statement with respect to Open
Wheel and Acquisition Corp. has been supplied or confirmed by Open Wheel.
- 17 -
INTRODUCTION
We are furnishing this proxy statement to holders of our common stock
in connection with the solicitation of proxies by our board of directors for use
at the special meeting to be held on [ ], 2003, at [ ], local time, at the
[ ], and at any adjournments or postponements of the special meeting. This
proxy statement, the attached notice of special meeting and the accompanying
proxy card are first being sent or given to our stockholders on or about
[ ], 2003.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, holders of record of our common stock as of the
close of business on [ ], 2003 will consider and vote on a proposal to adopt
the Agreement and Plan of Merger, dated as of September 10, 2003, among Open
Wheel Racing Series LLC, Open Wheel Acquisition Corporation, a wholly owned
subsidiary of Open Wheel, and Championship Auto Racing Teams, Inc., pursuant to
which, upon completion of the merger, each share of our common stock, par value
$0.01 per share, other than the shares held by Open Wheel or Acquisition Corp.,
or held by stockholders who perfect their appraisal rights under Delaware law,
will be converted into the right to receive the amount of cash, without interest
and rounded down to the nearest cent, equal to: (1) $8,242,156, divided by (2)
the total number of shares of our common stock outstanding immediately prior to
the completion of the merger. Based on 14,718,134 shares of our common stock
outstanding on [ ], 2003 (which we will not take any action to increase while
this transaction is pending), each share of our common stock, other than those
held by Open Wheel and Acquisition Corp., or held by stockholders who perfect
their appraisal rights under Delaware law, would be entitled to receive $0.56.
At the special meeting, we will also transact any other business as may
properly come before the special meeting or any adjournment or postponement of
the special meeting.
If the merger is completed, stockholders who perfect their appraisal
rights under Delaware law will be entitled to receive from the surviving
corporation a cash payment in the amount of the "fair value" of their shares.
The fair value, which could be more or less than the merger consideration to
which stockholders would be entitled under the merger agreement, would be
exclusive of any value arising from the completion or expectation of the merger
(including as a result of any new capital that may become available to
Championship as a result of the merger). After the merger, these shares will not
represent any interest in the surviving corporation other than the right to
receive this cash payment. Stockholders who perfect their appraisal rights in
accordance with Delaware law will not receive the merger consideration. See
"Special Factors -- Appraisal Rights."
Our board of directors (including all of our independent directors) has
determined that the merger agreement and merger are advisable, fair to and in
the best interests of our stockholders, including our unaffiliated stockholders.
ACCORDINGLY, OUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
MERGER AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
- 18 -
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED
Only stockholders of record at the close of business on [ ], 2003,
referred to as the "record date," are entitled to notice of and to vote at the
special meeting. On that date, there were approximately [ ] holders of record
of our common stock and 14,718,134 shares of our common stock outstanding, of
which 11,340,734 shares were held by stockholders other than Open Wheel and its
affiliates. Each share of our common stock entitles the holder to cast one vote
at the special meeting.
Any stockholder entitled to vote may vote either in person or by
properly executed proxy. The presence, in person or by proxy, of the holders of
a majority in voting power of the shares of our common stock outstanding on the
record date is necessary to constitute a quorum at the special meeting.
Abstentions and broker non-votes are counted for the purpose of establishing a
quorum at the special meeting.
Under Delaware law, we cannot complete the merger unless the merger
agreement is adopted by the affirmative vote of holders of a majority of shares
of our common stock outstanding and entitled to vote at the special meeting. In
addition, the obligations of Championship and Open Wheel to complete the merger
are conditioned upon approval of the merger by the holders of a majority of
shares of our common stock that are voted "for" or "against" the merger at the
special meeting and are not held by Open Wheel or its affiliates. Abstentions
and broker non-votes will have the effect of a vote "AGAINST" adoption of the
merger agreement for purposes of the vote required by Delaware law. Although
Championship and Open Wheel could agree to waive the need for the unaffiliated
stockholder approval, Championship would not do so unless our board of directors
concluded that the unaffiliated stockholder approval was not obtained due to a
negative vote by stockholders whose primary objective is to obtain value from
Championship for themselves that would not be available to all unaffiliated
stockholders on a pro rata basis.
Championship has entered into two identical voting agreements with
Gerald R. Forsythe, one of Open Wheel's indirect owners. On September 26, 2003,
Mr. Forsythe and his affiliates contributed all of their shares of our common
stock to Open Wheel. In connection with the merger, since Open Wheel is an
affiliate of Mr. Forsythe and is therefore subject to the terms of the Forsythe
voting agreements, Open Wheel is required to vote the shares of our common stock
it holds in excess of 14.9% of our outstanding common stock in accordance with
the recommendation of our board of directors. As of [ ], 2003, Open Wheel owns
3,377,400 shares, or approximately 22.95%, of our common stock.
Our directors and executive officers as a group beneficially own 4,025
shares, or less than 1%, of our common stock. This number excludes shares
issuable upon the exercise of options that will terminate immediately prior to
the completion of the merger. See "Other Matters-Beneficial Ownership of
Championship Common Stock." Neither we nor Open Wheel have entered into any
agreements with these directors and officers with respect to the voting of their
shares in connection with the merger; however, these directors and officers have
expressed their intent to vote their shares in favor of the merger.
- 19 -
VOTING AND REVOCATION OF PROXIES
All shares of our common stock represented by properly executed proxies
received prior to or at the special meeting and not revoked will be voted in
accordance with the instructions indicated in those proxies. If no instructions
are indicated, the proxies will be voted "FOR" the proposal to adopt the merger
agreement.
A stockholder giving the proxy may revoke it by:
- delivering to Championship's corporate secretary at
Championship's corporate offices at 5350 Lakeview Parkway
South Dr., Indianapolis, IN 46268, on or before the business
day prior to the special meeting, a later-dated, signed proxy
card or a written revocation of the proxy;
- delivering a later-dated, signed proxy card or a written
revocation to Championship at the special meeting prior to the
taking of the vote on the merger agreement;
- attending the special meeting and voting in person; or
- if a stockholder has instructed a broker to vote their shares,
following the directions received from such broker to change
those instructions.
Revocation of the proxy will not affect any vote previously taken.
Attendance at the special meeting will not in itself constitute the revocation
of a proxy; stockholders must vote in person at the special meeting in order to
revoke their proxy.
SOLICITATION OF PROXIES; EXPENSES OF SOLICITATION
This solicitation is being made by the board of directors of
Championship and the expenses thereof will be borne by Championship. The
principal solicitation is being made by mail; however, additional solicitations
may be made by telephone, telegraph, or personal interview by officers of
Championship or employees of D.F. King & Co., Inc. Championship expects to
reimburse brokerage houses, banks and other fiduciaries for reasonable expenses
of forwarding proxy materials to beneficial owners. The fee of D.F. King & Co.,
Inc. is estimated to be approximately $15,000 plus customary additional payments
for telephone solicitations and reimbursement of certain out-of-pocket expenses.
Any written revocation or subsequent proxy card should be delivered to
5350 Lakeview Parkway South Dr., Indianapolis, IN 46268, Attention: Secretary,
or hand delivered to our Secretary or his representative before the taking of
the vote at the special meeting.
- 20 -
COMPARATIVE MARKET PRICE DATA
Our common stock currently trades on the NYSE under the symbol "MPH".
On October 6, 2003, however, the NYSE announced that our common stock will be
suspended from trading prior to the opening of trading on October 13, 2003, or
such earlier date as our common stock commences trading in another securities
marketplace or there is a material adverse development. We are currently seeking
to have our common stock quoted on the OTC Bulletin Board. The table below sets
forth by quarter, since the beginning of our fiscal year 2001, the high and low
closing prices for our common stock on the NYSE.
MARKET PRICES
----------------------------------
HIGH LOW
--------- ---------
Fiscal Year 2001................................
First Quarter.......................... $ 21.94 $ 14.31
Second Quarter......................... $ 18.93 $ 14.40
Third Quarter.......................... $ 17.83 $ 13.50
Fourth Quarter......................... $ 17.20 $ 12.15
Fiscal Year 2002................................
First Quarter.......................... $ 17.00 $ 13.52
Second Quarter......................... $ 14.87 $ 8.00
Third Quarter.......................... $ 9.85 $ 3.30
Fourth Quarter......................... $ 5.28 $ 3.40
Fiscal Year 2003................................
First Quarter.......................... $ 4.31 $ 2.58
Second Quarter......................... $ 4.13 $ 2.22
Third Quarter $ 2.57 $ 0.58
Fourth Quarter through October [ ], 2003 $ [ ] $ [ ]
On September 9, 2003, the last full trading day prior to the public
announcement of the signing of the merger agreement, the closing price for our
common stock on the NYSE was $0.87 per share. On [ ], 2003, the most recent
practicable date prior to the printing of this proxy statement, the closing
price of our common stock on the NYSE or such other exchange or quotation
system where our common stock may at such time be listed or quoted was $[ ]
per share.
The market price for our common stock is subject to fluctuation and
stockholders are urged to obtain current market quotations. We cannot give you
any assurances as to the future price of or market for our common stock.
DIVIDENDS
Championship has not declared or paid a dividend in any of the last two
fiscal years. Under the merger agreement, Championship has agreed not to declare
or pay any dividends on Championship common stock prior to the closing of the
merger or the earlier termination of the merger agreement.
- 21 -
CHAMPIONSHIP'S SELECTED CONSOLIDATED FINANCIAL INFORMATION
The table below shows selected consolidated financial information about
Championship. The financial information for the fiscal years 1998 to 2002 was
taken from, and should be read along with the audited financial statements
contained in, Championship's most recent Annual Report on Form 10-K. The
financial information for the six months ended June 30, 2002 and June 30, 2003,
excluding book value per share, was taken from financial statements of
Championship that have not been audited but that, we believe, fairly present
Championship's financial position and results of operations for the periods, and
should be read along with Championship's most recently filed Quarterly Report on
Form 10-Q. See "Other Matters -- Where You Can Find More Information."
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2003 2002 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Revenue:
Sanction fees $ 8,300 $ 14,527 $ 36,607 $ 47,226 $ 38,902 $ 35,689 $ 30,444
Sponsorship revenue 3,968 5,105 10,150 12,314 21,063 19,150 16,388
Television revenue 903 2,263 4,538 5,228 5,501 5,018 5,148
Race promotion revenue 5,020 1,417 1,417 -- -- -- --
Engine leases, rebuilds and wheel
sales 950 -- -- 1,286 2,122 2,054 2,214
Other revenue 1,431 1,584 4,533 4,209 7,460 6,865 8,336
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues 20,572 24,896 57,245 70,263 75,048 68,776 62,530
Expenses:
Race distributions (1) 28,662 7,351 19,797 18,599 15,370 15,334 15,183
Race expenses 3,941 4,322 10,823 10,618 9,869 6,670 4,818
Race promotion expense 10,910 3,483 9,687 -- -- -- --
Costs of engine rebuilds and wheel
sales -- -- -- 348 652 610 633
Television expense 7,417 4,712 10,975 -- -- -- --
Administrative and indirect
expenses (2) 10,219 11,795 27,756 35,605 25,275 20,646 20,658
Bad debt-sponsorship partner (3) -- -- -- -- 6,320 -- --
Litigation expenses (4) 1,378 -- -- 3,547 -- -- --
Relocation Expense -- 1,305 1,422 -- -- -- --
Asset impairment and strategic
charges (5) -- -- -- 8,548 -- -- --
Depreciation and amortization 1,844 688 1,436 1,493 1,352 1,048 779
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses 64,371 33,656 81,896 78,758 58,838 44,308 42,071
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (43,799) (8,760) (24,651) (8,495) 16,210 24,468 20,459
Realized gain (loss) on sale of
investments 85 -- 26 -- -- -- --
Interest income (net) 872 2,201 3,762 7,033 7,463 5,255 3,198
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (42,842) (6,559) (20,863) (1,462) 23,673 29,723 23,657
Income tax expense (benefit) 660 (2,295) (7,302) 512 (8,520) (10,865) (8,568)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before effect of
accounting change $ (43,502) $ (4,264) $ (13,561) $ (950) $ 15,153 $ 18,858 $ 15,089
========== ========== ========== ========== ========== ========== ==========
Cumulative effect of accounting change -- $ (956) $ (956) -- -- -- --
Net income (loss) after effect of
accounting change $ (43,502) $ (5,220) $ (14,517) $ (950) $ 15,153 $ 18,858 $ 15,089
========== ========== ========== ========== ========== ========== ==========
- 22 -
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2003 2002 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ------------ ---------- ----------
Earnings (loss) per share before
cumulative effect of
accounting change:
Basic $ (2.96) $ (0.29) $ (0.92) $ (0.06) $ 0.97 $ 1.22 $ 1.06
========== ========== ========== ========== ========== ========== ==========
Diluted $ (2.96) $ (0.29) $ (0.92) $ (0.06) $ 0.97 $ 1.22 $ 1.06
========== ========== ========== ========== ========== ========== ==========
Net earnings (loss) per share:
Basic $ (2.96) $ (0.35) $ (0.99) $ (0.06) $ 0.97 $ 1.22 $ 1.06
========== ========== ========== ========== ========== ========== ==========
Diluted $ (2.96) $ (0.35) $ (0.99) $ (0.06) $ 0.97 $ 1.19 $ 1.05
========== ========== ========== ========== ========== ========== ==========
Weighted average shares outstanding:
Basic 14,718 14,718 14,718 15,289 15,624 15,427 14,190
========== ========== ========== ========== ========== ========== ==========
Diluted 14,718 14,718 14,738 15,289 15,657 15,908 14,421
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (at period end):
Cash and cash equivalents $ 7,553 $ 11,677 $ 6,773 $ 27,765 $ 19,504 $ 7,216 $ 15,080
Short-term investments 44,501 107,132 79,489 87,621 98,206 91,758 81,610
Working capital (deficit) 42,686 105,828 92,288 111,604 119,953 99,480 72,219
Total assets 87,972 142,779 114,451 132,941 144,101 124,887 97,186
Long-term debt (including current
portion) 1,800 -- -- -- -- -- 314
Total stockholders' equity $ 59,499 $ 112,444 $ 103,018 $ 117,936 $ 133,894 $ 114,330 $ 86,219
Book value per share (Basic) $ 4.04 $ 7.64 $ 7.00 $ 7.71 $ 8.57 $ 7.41 $ 6.08
Book value per share (Diluted) $ 4.04 $ 7.64 $ 6.99 $ 7.71 $ 8.55 $ 7.19 $ 5.98
-------------------
(1) Distributions for the years ended December 31, 2001 and 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," contained in our Annual Report on Form 10-K and Form
10-K/A for the year ended December 31, 2002, which is incorporated by
reference into this proxy statement, for a discussion of this bad debt
expense.
(4) Litigation expense relates to the settlement with Texas Motor Speedway
for the postponement of a race at Texas Motor Speedway 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.
- 23 -
SPECIAL FACTORS
BACKGROUND OF THE MERGER
In the past two years, our financial condition has deteriorated
significantly. CART, Inc., our wholly owned subsidiary that operates the CART
racing series, has experienced a significant reduction in revenue from all of
its previous revenue sources, including sanction fees, television programming
and sponsorship fees. At the same time, race promoters, who are critical
partners in the CART racing series, also experienced a deterioration in their
financial condition. This deterioration was primarily attributable to a decrease
in promotional and advertising expenditure by corporations due to the general
downturn in the economy, decreased attendance at some race venues as a result of
the split with the Indy Racing League and competition from NASCAR, which has
experienced rapid growth during this period. In addition, during this period,
two of the three engine manufacturers which supplied engines for the CART racing
series left the series to participate in the Indy Racing League. Our teams,
which were supported to a significant degree by engine manufacturers and their
suppliers, were being encouraged to follow those manufacturers to the Indy
Racing League. The teams that elected to participate in the CART racing series
experienced a dramatic loss of sponsorship revenue related to the departed
engine manufacturers as well as the adverse economic conditions that caused
companies to cut back promotion and advertising of their brands. In addition,
the teams experienced increased costs because they were required to pay for the
lease of engines as compared to receiving free engine leases in the past. These
conditions required CART, Inc. to expend significant amounts of capital on entry
support programs and team participation payments to encourage teams to remain in
the CART racing series.
Beginning in 2001, CART, Inc. lost several important race venues. Three
of CART, Inc.'s more profitable international races were lost due to, in the
case of Brazil, an adverse political climate, in the case of Germany, bankruptcy
of the promoter and, in the case of Japan, the decision by the race venue, which
was owned by Honda Motor Company, not to renew with CART, Inc. but rather to run
an Indy Racing League event in which participating teams were using Honda
engines. CART, Inc. was also forced to cancel another race due to safety
concerns. Promoters of CART, Inc.'s other events were also experiencing
weakening revenue streams and therefore began demanding lower sanction fees or
sanction fees that were based either in whole or in part on a revenue or net
income sharing model. CART, Inc. lost some promoters altogether. In order to
preserve important markets, CART, Inc. began self-promoting some of its series
races rather than utilizing third party promoters. In 2002, CART, Inc. promoted
two of its races and in 2003 it promoted six of its races. Unfortunately, due to
unfavorable trends in consumer and corporate spending, the overall economic
conditions affecting advertising in open-wheel motorsports and the entertainment
industry in general and the declining popularity of open-wheel motorsports in
the United States, the expenses of self-promoted races were significantly
greater than the revenues generated.
During 2001, CART, Inc. began negotiations for a new television
agreement to replace its existing fixed fee television agreement that was due to
expire at the end of the 2001 season. The existing agreement guaranteed that at
least half of the CART racing series races would be shown on network television
(ABC) and the balance of the races would be shown on the ESPN cable network. The
existing agreement provided a guaranteed amount of income with no offsetting
expenses. Unfortunately, CART, Inc. was unable to negotiate an acceptable fixed
fee television
- 24 -
agreement to replace the existing agreement. Therefore, beginning in 2002, CART,
Inc. began buying the air-time and bearing the production costs for its
television broadcasts in order to provide its race sponsors, race promoters and
team sponsors with adequate television coverage of its races. CART, Inc.'s
television revenue thus became dependent solely upon advertising and
international rights sales. In addition, the new television agreements provided
for fewer network broadcasts and a significant number of races broadcast on a
cable network with less exposure than ESPN. Due to the adverse economic and
industry developments described in the previous paragraph and CART, Inc.'s
limited experience with selling television advertising, the revenue generated
from sales of television advertising was significantly less than the costs to
produce and air the television broadcasts.
Also in 2001 and 2002, difficult economic conditions and other factors
adversely affected CART, Inc.'s sponsorship revenues. Beginning in 1999, CART,
Inc. had outsourced its sponsorship sales function pursuant to a long-term
contract which guaranteed CART, Inc. a minimum amount of annual sponsorship
revenue plus escalations on an annual basis. At the beginning of 2001, however,
CART, Inc.'s sponsorship sales partner defaulted on its contract, ceased
operations and filed for bankruptcy protection. As a result, CART, Inc. was
required to build an internal sponsorship sales force. This sales force had to
operate under adverse economic conditions that caused corporate sponsors to
reduce their expenditures for both teams and the CART racing series. The decline
in sponsorship revenue was also attributable to our weakened television package,
as sponsors value a sponsorship opportunity largely on the amount of exposure
they receive on television. In some cases, corporate sponsors left the CART
racing series to align themselves with a rival series. In other cases, corporate
sponsors left motorsports altogether. Our title sponsor for the previous four
years decided not to renew its title sponsorship and withdrew from the CART
racing series after the 2002 season.
Other factors also contributed to our declining financial condition
during this time period. During 2001, CART, Inc. was in negotiations to change
the engine specifications for the CART racing series beginning with the 2003
race season. At the time, American Honda Motor Company, Toyota Motor Sales,
U.S.A., Inc. and Ford Motor Company supplied engines for the CART racing series.
In some cases, these car manufacturers supplied free engines and provided other
financial support to certain teams. In addition, the manufacturers were major
sponsors for race promoters and also purchased large quantities of television
advertising. At the end of the 2002 season, however, Honda and Toyota left the
CART racing series to participate in the Indy Racing League. Several of the
teams participating in the CART racing series followed Honda and Toyota to the
rival series. Although CART, Inc. was able to enter into a contract with a
subsidiary of Ford to purchase and service engines for the CART racing series
for the 2003 and 2004 seasons, the loss of Honda and Toyota had an adverse
effect on CART, Inc. and the CART racing series promoters and teams.
As a result of the foregoing, by the middle of 2002 it had become
apparent to CART, Inc. that it would need to find a way to retain its remaining
teams and attract new teams in order to have 18 to 20 race cars in the field for
the 2003 season. Failure to field 18 to 20 race cars would, depending on the
agreements, have resulted in defaults under certain promoter and television
agreements. In light of the circumstances, CART, Inc. believed that the only way
to retain existing teams and attract new teams would be to provide participating
teams with additional financial support. CART, Inc. believed that this support
would result in increased team participation in 2003 and would give it the
opportunity to market its television and sponsorship rights on a profitable
basis. Therefore, in August 2002, CART, Inc. announced its entry support program
and increased its existing team participation payments in order to ensure
adequate team
- 25 -
participation in the 2003 CART racing series. The entry support program and the
team participation payments provide a total of $42,500 in cash payments to
teams, per race, for each car entered in the 2003 CART racing series. Management
estimates that these payments will amount to a total of $15,342,500 for the 2003
CART racing series. These payments are in addition to prize money and other
nonmonetary benefits that accrue to participating teams. In October 2002,
recognizing the difficulties the teams were having in securing sponsorship,
CART, Inc. announced its commitment to spend an aggregate amount of $30 million
in team assistance payments, which would be in addition to the entry support
program and team participation payments. In exchange for the entry support, team
participation and team assistance payments, the teams agreed to participate in
the CART racing series for the entire 2003 season and granted CART, Inc. the
right to sell certain advertising space on the teams' racecars. CART, Inc.
planned to package this advertising opportunity with its advertising inventory
from television and self-promoted races. CART, Inc. believed this would provide
an integrated marketing opportunity to sponsors whereby they could participate
at the team, race event and series levels. However, CART, Inc. was unsuccessful
in selling the integrated advertising packages.
On October 29, 2002, Championship retained Bear Stearns to act as its
financial advisor in its consideration of strategic alternatives to increase
stockholder value.
At this time, management, at the direction of the board of directors,
began developing a four-year business plan incorporating the changing business
model discussed above, including financial forecasts for the four fiscal years
ending December 31, 2006. From October 2002 to April 2003, Championship's
management worked with an outside consultant to develop the business plan.
In light of the financial and business challenges encountered by CART,
Inc. discussed above, on December 18, 2002, Championship announced that it had
hired David J. Clare to fill the newly-created position of Chief Operating
Officer with effect from January 6, 2003. Mr. Clare's responsibilities include
overseeing Championship's promoter relations, marketing and sales, racing
operations and communications departments.
Following the development of the business plan, Bear Stearns, together
with management and the board of directors, prepared a confidential information
memorandum and Bear Stearns began contacting potential strategic acquirors,
equity investors and financing sources concerning strategic alternatives. We
encouraged Bear Stearns to pursue a wide range of possibilities for
Championship, including finding a strategic partner to acquire a significant
interest in Championship or finding a strategic or financial buyer for
Championship or a portion of Championship's assets. We did not place any
limitations on the types of investors, buyers or partners Bear Stearns could
contact or on the structure or type of transaction Bear Stearns could pursue.
From May through September 2003, Bear Stearns contacted or was contacted by 45
potential strategic and financial investors, including Mr. Kalkhoven, Mr.
Forsythe and Mr. Gentilozzi as well as logical strategic investors within the
motorsports industry. Before releasing a confidential information memorandum or
other confidential information to entities or individuals who requested initial
evaluation materials, we entered into confidentiality agreements with such
entities or individuals. As of September 10, 2003, the date we announced the
transaction with Open Wheel, 25 prospective investors had executed
- 26 -
confidentiality agreements with us. Since that date, we have not entered into
any additional confidentiality agreements with entities or individuals that
requested initial evaluation materials.
Championship's board of directors, management and advisors from time to
time considered matters relating to strategic alternatives. From January 2003
through the announcement of the proposed merger with Open Wheel on September 10,
2003, members of the board held 26 meetings and other organized discussions with
respect to these matters.
In May 2003, Bear Stearns contacted Mr. Kalkhoven to discuss the
possibility of a transaction involving Championship. Bear Stearns and Cravath,
Swaine & Moore LLP, or Cravath, special counsel to Championship, coordinated the
execution of a confidentiality agreement by Mr. Kalkhoven on May 14, 2003. Bear
Stearns and Championship management thereafter had several meetings and other
discussions with Mr. Kalkhoven to determine his interest in pursuing a
transaction involving Championship.
On June 16, 2003, as our efforts with Bear Stearns to seek strategic
alternatives continued, we publicly announced that, in light of the near term
financial challenges facing Championship, we had retained Bear Stearns to assist
us in exploring strategic alternatives that may be available to us, including a
possible sale of Championship.
During this time, the overall economic, financial and operating
conditions affecting Championship's business continued to deteriorate. These
developments were reflected in a series of deteriorating financial forecasts
provided to the board of directors and publicly disclosed on June 16, 2003, July
22, 2003 and August 11, 2003. Consequently, the expectations of management and
the board of directors as to Championship's future performance diminished and it
became clear to management and the board that Championship would not have
sufficient resources to fund the CART racing series in 2004, even if the entry
support, team participation and team assistance payments were reduced.
On July 2, 2003, in response to a concern that certain of our
stockholders might be deterred from pursuing a possible business combination or
other strategic transaction by the Championship stockholder rights agreement,
our board of directors authorized us to amend the rights agreement to permit
certain groups of our stockholders to make an acquisition proposal at our
request without triggering the rights agreement.
On July 16, 2003, on behalf of Mr. Kalkhoven, representatives of Heller
Ehrman White & McAuliffe LLP, or Heller Ehrman, special counsel to Mr. Kalkhoven
and, after its formation, Open Wheel, and representatives of Ernst & Young LLP
and EYCF met at the Indianapolis offices of Baker & Daniels, special counsel to
Championship, to begin due diligence of Championship. Representatives of Open
Wheel continued their due diligence until September 18, 2003.
On August 11, 2003, at the request of Mr. Forsythe and other investors
who eventually formed Open Wheel, our board of directors approved, among other
things, (1) the delivery of a letter from Championship to these potential
investors, including Mr. Forsythe, indicating that the formation of a group by
them would not trigger the rights agreement and (2) the formation of such group
for the purposes of making Section 203 of the General Corporation Law of the
State of Delaware inapplicable to such group.
- 27 -
On August 15, 2003, in response to Championship's invitation to make an
acquisition proposal, Open Wheel was formed by entities controlled by Mr.
Kalkhoven, Paul Gentilozzi and Mr. Forsythe. Open Wheel was formed for the
purpose of making an acquisition proposal to Championship. On August 15, 2003,
Open Wheel delivered a letter to Championship outlining the initial Open Wheel
acquisition proposal, which included an offer to acquire all of the outstanding
shares of common stock of Championship for a total of $7.4 million in cash.
Based on 14,718,134 shares of Championship common stock outstanding as of August
15, 2003 (and assuming the termination of all securities convertible into or
exercisable for capital stock of Championship), the consummation of the
transaction contemplated by the initial proposal would have resulted in
Championship stockholders receiving approximately $0.50 in cash in exchange for
each share of our common stock. At the time of delivery of the August 15, 2003
letter, as a result of the ownership of our common stock by Mr. Forsythe and his
affiliates, Open Wheel beneficially owned 3,377,400 shares of our common stock,
constituting approximately 22.95% of the then-outstanding shares of our common
stock.
On August 15, 2003, Open Wheel filed a Schedule 13D with the SEC in
connection with the formation of Open Wheel for the purpose of making an
acquisition proposal to Championship.
Beginning on August 15, 2003 Championship, Open Wheel and their
respective advisors had ongoing discussions regarding a potential transaction
and its possible terms. In addition, the parties exchanged drafts of various
agreements as well as other documents relating to a potential transaction and
Open Wheel continued its due diligence regarding Championship.
On August 16, 2003, Championship's independent directors (other than
Robert D. Biggs) met telephonically with Championship's management and advisors
to discuss the status of the Open Wheel proposal and the status of any other
indications of interest. The independent directors consisted of all directors
except Christopher R. Pook, our President and Chief Executive Officer, and
Derrick Walker and Carl Haas, each an owner of a team that races in the CART
racing series. Mr. Walker and Mr. Haas resigned as directors on August 19, 2003
and September 22, 2003, respectively. The independent directors determined that
it was in the best interests of our stockholders to engage in negotiations with
Open Wheel for several reasons, including the fact that no other potential
acquiror had been willing to devote enough effort to due diligence to indicate a
sincere interest in completing a transaction, the absence at that time of any
superior alternative for stockholders from a financial point of view, assurances
from Open Wheel that a definitive agreement would contain limited restrictions
on Championship's ability to solicit and accept alternative acquisition
proposals, and the belief that such negotiations and an eventual transaction
would preserve value for stockholders.
On August 18, 2003, Championship publicly announced that it had
received a proposal from Open Wheel and that Championship was engaged in
negotiations regarding a possible transaction with Open Wheel.
On August 19, 2003, Championship received two letters expressing
preliminary interest in an extraordinary transaction involving Championship.
These were the only other specific proposals made to Championship during the
period following the announcement that it was seeking strategic alternatives
until the conclusion of negotiations with Open Wheel. In one
- 28 -
proposal, a group of investors expressed an interest in making an offer to
acquire Championship at a price higher than the amount proposed by Open Wheel.
This proposal is referred to in this proxy statement as the investment group
acquisition proposal. The investment group acquisition proposal was expressly
conditioned upon additional due diligence. After the investment group executed a
confidentiality agreement and provided financial and background information
about its members, Bear Stearns provided to it a copy of the confidential
information memorandum. Championship's advisors also spoke with representatives
of the investment group to gather more details about its interest and concluded
based on these conversations that the investment group's intention was to
liquidate Championship and its subsidiaries after acquiring them. However,
Championship and its advisors further concluded that the investment group at the
time seemed to have made only a cursory analysis of the value that would be
available in a liquidation and had not taken into account Championship's
disclosures about its diminishing cash resources or the significant liabilities
of Championship that would need to be paid if Championship ceased doing business
(and thus were not reflected on Championship's historical balance sheet).
Championship and its advisors nonetheless encouraged the investment group to
make a more definitive proposal or offer for Championship's consideration. After
additional due diligence by the investment group, no offer or firmer proposal
was received.
In the other proposal, an investment fund that had previously signed a
confidentiality agreement and provided financial and background information
about its members and received the confidential information memorandum proposed
to loan Championship $25 million on a senior secured basis. This proposal is
referred to in this proxy statement as the investment fund financing proposal.
The investment fund financing proposal contemplated that the investment fund
would also receive warrants to purchase shares that would represent 85% of our
common stock after issuance at a price of $0.10 per share. The investment fund
financing proposal also was subject to satisfactory completion of due diligence
and would not permit any cash distribution to Championship stockholders for the
foreseeable future.
On August 19, 2003, Championship announced that Mr. Walker had resigned
from his position as a member of the Championship board of directors. Mr. Walker
cited potential conflicts of interest as the reason for his resignation. Mr.
Walker owns a team that participates in the CART racing series.
On August 19, 2003 and again on August 25, 2003, representatives of
Bear Stearns contacted the investment fund to determine its willingness to
improve the terms of the investment fund financing proposal so as to improve the
per share equity value to Championship's stockholders that would result from the
proposal. In each case, the investment fund indicated that it was not willing to
materially modify the terms of its proposal.
On August 21, 2003, Championship's independent directors (other than
Mr. Biggs) met telephonically with Championship's management and advisors and
were briefed on the status of the ongoing discussions with Open Wheel and their
advisors and other matters. The independent directors also reviewed and
considered the terms of the investment group acquisition proposal and the
investment fund financing proposal and the additional information on those
proposals gathered in conversations between Championship's advisors and
representatives of the investment group and the investment fund.
- 29 -
Also on August 21, 2003, Championship announced that Mr. Biggs, who was
elected to the Championship board of directors on July 17, 2003, had resigned
from his position as a member of the board. Mr. Biggs cited personal
circumstances as the reason for his resignation.
On August 23, 2003, the board of directors of Championship met in New
York, along with representatives of Bear Stearns, Cravath, Baker & Hostetler
LLP, Championship's regular counsel, and Baker & Daniels, to discuss the status
and terms of the Open Wheel proposal, the investment group acquisition proposal
and the investment fund financing proposal, and other options available to
Championship. Representatives of Cravath discussed the fiduciary duties of the
board in connection with the board's consideration of the Open Wheel proposal
and other alternatives. At this meeting, management provided the board of
directors with a detailed financial and operational overview of Championship. In
addition, management and representatives of Baker & Daniels and Baker &
Hostetler LLP made presentations to the board with respect to the financial and
legal implications of various alternatives available to Championship, including
liquidation, and the issues relating to a possible winding up and liquidation of
the businesses of Championship and its subsidiaries. Management advised the
board that, if Championship stopped making cash advances to its subsidiaries,
this would likely trigger breaches under contracts to which its subsidiaries,
including CART, Inc., but not Championship itself, were parties. Baker & Daniels
and Baker & Hostetler LLP advised the board regarding claims that might arise
against, and possible adverse consequences to, Championship if CART, Inc. and
other Championship subsidiaries shut down racing operations before the
conclusion of the 2003 CART racing series season.
At the August 23, 2003 meeting, representatives of Bear Stearns
described the process that Bear Stearns had undertaken in order to seek out
strategic alternatives for Championship. Representatives of Bear Stearns and
Cravath also described the terms and conditions of the Open Wheel proposal, the
investment group acquisition proposal and the investment fund financing
proposal. The independent directors considered the shortcomings of these two
proposals, including their conditionality and preliminary status, the
unattractiveness of many of the proposed terms and the likelihood that
additional due diligence, particularly by the investment group that appeared to
contemplate liquidating Championship and its subsidiaries, would result in
withdrawal or adverse revision of the proposals. The independent directors
concluded that, while discussions with the investment group and the investment
fund should continue, the primary focus of Championship's efforts should
continue to be improving the financial and other terms of and finalizing a
transaction with Open Wheel. In coming to this conclusion, the independent
directors also took into account the fact that Open Wheel had devoted
substantially more time and effort to investigating a transaction with
Championship than any other party and therefore would be able to complete
negotiations substantially before any other party. The independent directors
believed that because it would be extremely difficult for the management of
CART, Inc. and the other subsidiaries to negotiate the arrangements necessary to
continue their racing and other business operations into 2004 until Championship
announced a transaction, the value of Championship could be damaged if
negotiations with Open Wheel were delayed to pursue alternatives that the
independent directors believed were unlikely ultimately to be superior to the
Open Wheel proposal. The independent directors also took into account the fact
that, in the course of negotiations, Open Wheel had continued to accept the need
for Championship to have the right to pursue superior proposals during the
period before any stockholder vote on a merger with Open Wheel. This meant that
Championship could obtain the
- 30 -
stabilizing benefits of an announced transaction without giving up the
possibility of negotiating a better transaction with the investment group or the
investment fund or another party if such a transaction was, contrary to the
independent directors' expectation based on the terms of proposals received to
date, in fact available. The independent directors also considered the fact that
Open Wheel's offer price per share represented a significant discount to the
market price of the common stock at that time and discussed with their advisors
possible causes for the difference between the market price, on the one
hand, and the value that appeared to be available in any strategic transactions
that had been proposed by third parties, on the other hand. The possible causes
discussed included the trading volumes of Championship common stock, the lack of
significant coverage of Championship by equity analysts since December 2002, the
high concentration of ownership of Championship common stock, the possibility
that some investors in Championship common stock were focusing on Championship's
historical book value without taking into account Championship's disclosures
about its near term prospects and its projected cash needs and deficiencies and
the possibility that some investors in Championship common stock were focusing
on Championship's historical book value without taking into account
Championship's liabilities that would need to be satisfied in any liquidation of
Championship. At the conclusion of the meeting, the board instructed management
to continue negotiations with Open Wheel, including seeking a higher offer price
per share, and authorized management to issue a press release to that effect.
On August 24, 2003, Championship publicly announced that its board of
directors had instructed management to continue negotiating with Open Wheel with
respect to all terms related to a possible acquisition of Championship.
Championship, Open Wheel and their respective advisors continued to engage in
negotiations regarding the terms of a possible transaction and related
definitive agreements.
Also on August 24, 2003, following discussions between representatives
of Bear Stearns and Open Wheel, representatives of Championship and Open Wheel
met to discuss the terms of Open Wheel's proposal. At this meeting, Open Wheel
revised its proposed purchase price from $0.50 to $0.56 per share. In addition,
Open Wheel insisted on a right, exercisable for a specified period of time after
execution of a definitive merger agreement, to terminate the merger agreement
based on its continuing due diligence. Open Wheel insisted on this termination
right so it could be in a position to enter into a definitive merger agreement
as soon as possible, something that both parties deemed advantageous, yet still
retain the ability to complete its due diligence.
On August 25, 2003, the board of directors of Championship held a
special telephonic meeting to discuss the revised terms of the Open Wheel
proposal.
On September 4, 2003, the board of directors of Championship met in
Chicago, along with representatives of Bear Stearns, Cravath, Baker & Daniels
and Baker & Hostetler LLP, to discuss the status of the ongoing negotiations and
other matters. Representatives of Bear Stearns provided the board with a
detailed overview of the status of indications of interest from third parties,
including the lack of extensive due diligence on Championship by parties other
than Open Wheel and the potential value of the alternatives to Championship
stockholders. Representatives of Cravath discussed the fiduciary duties of the
board in connection with the board's consideration of the Open Wheel proposal
and other alternatives. Representatives of
- 31 -
Cravath also presented to the board a summary of the principal terms of the
merger agreement and related documents.
At the September 4, 2003 meeting, the board of directors also completed
its examination of the potential consequences to Championship's stockholders
from immediately stopping cash advances to Championship's subsidiaries (which
would likely result in an immediate suspension of racing operations) and
liquidating Championship, rather than providing the necessary funding for
completion of the 2003 CART racing series and pursuing a strategic transaction
with Open Wheel or another party. In any liquidation, the only source of value
for Championship stockholders would be Championship's cash because substantially
all other assets shown on the Championship consolidated balance sheet are owned
by subsidiaries whose liabilities greatly exceed the value of their assets. The
board's review included a presentation by management as to the cash that would
be available for distribution to stockholders after satisfaction of
Championship's liabilities. Management explained that many of the liabilities
that would need to be satisfied in a liquidation are not reflected in the
historical financial statements of Championship as a going concern because they
would only arise or would be accelerated if Championship decided to liquidate.
That presentation is summarized in the following chart:
PER SHARE
GROSS VALUE VALUE
----------- ---------
Estimated Cash Balance at 9/5/03................... $21,668,667 $ 1.47
Obligations of Championship in liquidation:
Occupancy/Leasing............................... 2,870,069
Operating Contracts/Obligations................. 9,436,285
Professional Services........................... 3,000,000
----------- ---------
Total Obligations of Championship........... 15,306,354
----------- ---------
Estimated Cash Balance After
Championship Obligations........................ $ 6,362,314 $ 0.43
=========== =========
The board of directors understood that this analysis, while presented
with apparent numerical precision, was subject to a number of important
uncertainties. For instance, it did not reflect the possibility that amounts due
under some of Championship's contracts might be reduced through mitigation or
negotiated compromise. In addition, some of the estimated amounts, particularly
for professional services incurred in connection with a liquidation (including
for defense of claims), could vary materially depending upon the actual
complexity of any liquidation. Management expressed the belief that it was more
likely that the estimates of professional expenses would prove to be too low
rather than too high. The presentation also did not discount for the effects of
any delay in distributions pending the resolution of disputes that might arise
in connection with a liquidation.
The board of directors also understood that this analysis did not
reflect more than $60 million of potential obligations under contracts to which
CART, Inc. and other subsidiaries, but not Championship itself, are parties that
would likely be breached if Championship decided to suspend its business
operations and stop making cash advances to its subsidiaries. This amount
represented management's estimate of potential claims and other obligations that
could arise as of September 5, 2003 upon breach of these contracts. Baker &
Daniels and Baker & Hostetler LLP provided advice to the board regarding claims
that might arise against, and possible adverse
- 32 -
consequences to, Championship if CART, Inc. and other Championship subsidiaries
shut down racing operations before the conclusion of the 2003 season. The board
concluded that it was likely that at least some of the parties to whom these
obligations were owed (or a bankruptcy trustee for CART, Inc. if it filed for
bankruptcy) would believe that CART, Inc. or other subsidiaries would not have
the resources to pay the potential damages caused by any breaches of their
obligations, and that these parties would seek to enforce these obligations
against Championship. Management's presentation also included an alternative
analysis showing that if Championship's cash balance were used to satisfy
obligations of both Championship and its subsidiaries in the event Championship
decided to suspend its business operations and stop making cash advances to its
subsidiaries, nothing would be available for distribution to stockholders. Based
on this presentation, the board noted that if any significant obligation of
CART, Inc. ultimately were found also to be an obligation of Championship, there
would be little, if any, cash left to distribute to stockholders in a
liquidation.
Based on this review, the board of directors determined that although
the actual results of any liquidation were likely to be different from the $0.43
per share cash distribution shown in management's presentation, the risk that
the amount available to stockholders would be materially less than $0.43 was
significantly greater than the possibility that the amount would be materially
more. Therefore, the board determined that it was appropriate to use this
presentation as a basis for judging the attractiveness of liquidating
Championship compared to the Open Wheel transaction. The board was aware that,
because Championship expected its cash resources to continue to diminish as the
2003 CART racing series continued, any financial benefits to stockholders of
liquidation also would diminish and that once Championship depleted its cash
resources, as was expected before the end of the year, stockholders would
receive little, if any, value in a liquidation even if Championship did not have
to pay any CART, Inc. obligations.
Representatives of Bear Stearns then made a detailed financial
presentation regarding the proposed transaction with Open Wheel as well as a
detailed analysis of the investment fund financing proposal. Bear Stearns
indicated that, assuming satisfactory resolution of the remaining outstanding
business issues between Championship and Open Wheel, it would be prepared to
issue an opinion in writing to the effect that, from a financial point of view,
the per share merger consideration is fair to the unaffiliated stockholders of
Championship, other than Open Wheel and its affiliates, individuals who own and
operate teams or entities that participate in the businesses owned or operated
by Championship or any of its subsidiaries and any stockholders who have entered
into agreements with Open Wheel with respect to any matter related to their
shares of our common stock.
During this meeting, after considering the Bear Stearns financial
presentation and other factors, the board of directors also concluded that the
terms of the investment fund financing proposal would be so costly as to dilute
the per share equity value of Championship to well below $0.56. In addition, the
investment fund financing proposal was very conditional in nature and the board
did not believe that there was a reasonable chance that it would lead to
definitive agreements.
- 33 -
At the conclusion of the meeting on September 4, 2003, the board of
directors instructed management and its advisors to continue negotiations with
Open Wheel and its advisors in order to finalize the definitive agreements and
related documents.
After the September 4, 2003 meeting of the Championship board of
directors, Championship, Open Wheel and their respective advisors continued to
engage in negotiations in order to finalize the definitive agreements and
related documents.
On September 9, 2003, the board of directors of Championship held a
special telephonic meeting in which all board members, except Rafael Sanchez,
who was ill, as well as representatives of Cravath, Baker & Hostetler LLP and
Bear Stearns participated. At the meeting, a representative of Cravath updated
the board on the status of negotiations with Open Wheel.
On September 10, 2003, EYCF delivered an oral opinion to Open Wheel
that, as of that date and subject to the assumptions and limitations set forth
in its written opinion, the per share merger consideration to be received by the
unaffiliated stockholders of Championship was fair, from a financial point of
view, to such holders. The opinion of EYCF was set forth in a written opinion
dated September 10, 2003.
On September 10, 2003, the board of directors of Championship held a
special telephonic meeting to consider and approve the proposed transaction,
whereby Open Wheel would acquire Championship and Championship stockholders
would receive the per share merger consideration. Representatives of Cravath
reviewed the purpose of the meeting and then provided an update concerning the
merger agreement and related documents. Representatives of Bear Stearns provided
the board with an update to their presentation made at the board meeting held on
September 4, 2003. Representatives of Bear Stearns advised the board that they
had reviewed the developments in the transaction and rendered an oral opinion,
which was subsequently confirmed in writing, that, based upon and subject to the
matters contained in the written opinion, as of that date, from a financial
point of view, the per share merger consideration was fair to the unaffiliated
stockholders of Championship, other than Open Wheel and its affiliates,
individuals who own and operate teams or entities that participate in the
businesses owned or operated by Championship or any of its subsidiaries and any
stockholders who have entered into agreements with Open Wheel with respect to
any matter related to their shares of our common stock. After discussion and
consideration, all of the members of the board, excluding Carl Haas who
abstained from the vote due to a potential conflict of interest as a team owner,
voted to approve the merger and related transactions, declared the merger
agreement and the merger advisable, fair to and in the best interests of
Championship's stockholders, including its unaffiliated stockholders, and
resolved to recommend that Championship stockholders vote in favor of the
adoption of the merger agreement.
Immediately following the meeting of the board of directors,
representatives of Championship, Open Wheel and Acquisition Corp. executed and
delivered the merger agreement and other related agreements and Championship and
Open Wheel issued a joint press release announcing the proposed transaction.
- 34 -
On September 18, 2003, Championship and Open Wheel issued a joint press
release announcing that Open Wheel had not exercised its right to terminate the
merger agreement based on its continued due diligence and that the parties would
continue to pursue the completion of the transaction in accordance with the
remaining terms of the merger agreement.
In an effort to solicit a proposal that is superior to the merger, the
board of directors has, in accordance with the merger agreement, directed Bear
Stearns to contact all 45 potential strategic and financial investors whom Bear
Stearns had previously contacted or by whom Bear Stearns had previously been
contacted (excluding representatives of Open Wheel) during its solicitation
effort to advise these entities or individuals that Championship has entered
into a merger agreement with Open Wheel and to provide them with copies of the
preliminary version of this proxy statement filed with the SEC on [ ], 2003.
Since the public announcement of the merger on September 10, 2003, Bear
Stearns has neither received any new proposals from strategic acquirors, equity
investors or financing sources concerning strategic alternatives nor have any
entities or individuals requested the confidential information memorandum. In
addition, neither the investment fund nor the investment group has presented a
revised or firmer proposal nor have they indicated any willingness to materially
modify the terms of their initial proposals.
On October 3, 2003, Championship announced that Carl Haas had resigned
from his position as a member of the Championship board of directors. Mr. Haas
cited his desire to pursue and direct his attention to his other business
interests as the reason for his resignation.
On October 6, 2003, Championship announced that it had received formal
notification from the NYSE that it is no longer in compliance with the NYSE
continued listing standards as Championship's average market capitalization is
less than $15 million over a consecutive 30 trading-day period and the average
closing price of its common stock is less than $1.00 over a consecutive 30
trading-day period. On the same date, the NYSE announced that the common stock
of Championship will be suspended from trading prior to the opening of trading
on October 13, 2003, or such earlier date as Championship commences trading in
another securities marketplace or there is a material adverse development.
Championship is currently seeking to have its common stock quoted on the OTC
Bulletin Board.
REASONS FOR THE RECOMMENDATION OF THE CHAMPIONSHIP BOARD OF DIRECTORS; FAIRNESS
OF THE MERGER
At a special meeting held on September 10, 2003, the board of directors
(including all of our independent directors but excluding Mr. Haas, who
abstained due to a potential conflict of interest as a team owner):
- determined that the merger agreement and the merger are advisable, fair
to and in the best interests of Championship's stockholders, including
Championship's unaffiliated stockholders;
- approved the merger agreement and the transactions contemplated
thereby; and
- recommended that stockholders vote to adopt the merger agreement.
- 35 -
The material factors considered by the board of directors in making the
determinations and recommendation set forth above were as follows:
- Championship's Business, Condition and Prospects. The board of
directors considered information with respect to our financial
condition, results of operations, business, competitive position and
business strategy, on both a historical and prospective basis, and
focused in particular on the significant challenges to Championship
continuing to operate as an independent publicly traded company in
light of its deteriorating prospects, the expected depletion of its
cash resources and the expectation that additional financing on
acceptable terms or at all is unlikely to be available. The board also
considered current industry, economic and market conditions.
- Form of Merger Consideration. The board of directors considered the
cash only merger consideration to be received by our stockholders. The
board considered the desirability of the liquidity and certainty of
value that an all-cash transaction would afford our stockholders. In
addition, the board considered the fully taxable nature of the merger
consideration to be received by our stockholders.
- Absence of Viable Alternative Transactions with Third Parties. The
board of directors considered Championship's contacts with third
parties other than Open Wheel to discuss alternative transactions.
Although Bear Stearns had approached numerous potential acquirors and
Championship's interest in a strategic transaction had been announced
publicly, at the time the board approved the merger agreement these
contacts had yielded only two highly conditional proposals that the
board concluded were inferior to the Open Wheel transaction for the
reasons described under "Special Factors -- Background of the Merger."
- Liquidation Alternative. The board of directors compared the $0.56 per
share merger consideration to the likely distribution to stockholders
in a liquidation and, for the reasons described under "Special Factors
-- Background of the Merger," concluded that liquidation was less
advantageous to Championship stockholders than the Open Wheel proposal.
- Ability to Consider Competing Proposals. The board of directors
considered the terms of the merger agreement permitting the board of
directors to consider competing proposals. The merger agreement permits
the board to furnish information to and participate in negotiations
with interested third parties. The merger agreement also permits the
board to terminate the merger agreement and accept a superior proposal
under certain conditions, including the payment to Open Wheel of a
termination fee of $350,000. A superior proposal could come from the
investment group that made the investment group acquisition proposal,
the investment fund that made the investment fund financing proposal or
another third party. In assessing the termination fee, the board
recognized that its effect would be to increase by the amount of such
fee the cost to a third party, other than Open Wheel, of acquiring
Championship. See "The Merger Agreement--Alternative Acquisition
Proposals," "-- Right to Accept a Superior Proposal," "-- Fees and
Expenses" and "-- Termination of the Merger Agreement" for additional
information regarding the ability of the board to consider competing
proposals.
- 36 -
- Market Price. The board of directors considered the relationship of the
per share merger consideration to the historical market prices,
volatility and trading information with respect to our common stock.
Although the $0.56 per share being offered by Open Wheel represented a
discount to the market price of the common stock at that time, the
board concluded that the market price of the common stock did not
properly reflect a number of significant negative factors, including
Championship's deteriorating economic prospects, Championship's
expectation that it would exhaust its cash resources in the near future
and Championship's need for financing to continue into the 2004 CART
racing series season, for which no sources had been identified. The
board understood there are several possible causes for this discount,
including the trading volumes of Championship common stock, the lack of
significant coverage of Championship by equity analysts since December
2002, the high concentration of ownership of Championship common stock,
the possibility that some investors in Championship common stock were
focusing on Championship's historical book value without taking into
account Championship's disclosures about its near term prospects and
its projected cash needs and deficiencies and the possibility that some
investors in Championship common stock were focusing on Championship's
historical book value without taking into account Championship's
liabilities that would need to be satisfied in any liquidation of
Championship.
- Terms of the Merger Agreement. The board of directors considered the
terms of the merger agreement, including the fact that the merger is
subject to various conditions that may fail to be satisfied or waived.
In analyzing the conditions to the merger, the board considered, among
other things, the risks of failing to complete the merger, including
that Championship's cash resources are expected to be depleted before
the end of the year.
- Financing of the Merger. The board of directors considered that the
merger is not subject to a financing condition and that, subject to the
satisfaction or waiver of the conditions to Open Wheel's and
Acquisition Corp.'s obligations to complete the merger, the indirect
owners of Open Wheel have guaranteed the payment of the merger
consideration.
- Conflicts. The board of directors was fully aware of and considered the
possible conflicts of interest of various directors and executive
officers, as described under "Special Factors--Interests of Directors
and Executive Officers in the Merger."
- Opinion of Championship's Financial Advisor. The board of directors
considered the written opinion delivered to the board by Bear Stearns
as to the fairness, from a financial point of view, of the per share
merger consideration to be received by the unaffiliated holders of our
common stock, other than Open Wheel and its affiliates, individuals who
own and operate teams or entities that participate in the businesses
owned or operated by Championship or any of its subsidiaries and any
stockholders who have entered into agreements with Open Wheel with
respect to any matter related to their shares, as more fully described
under "Special Factors --Opinion of our Financial Advisor."
- Unaffiliated Stockholder Approval. The board of directors considered
that in addition to the approval of stockholders required by Delaware
law, the merger agreement allows either Championship or Open Wheel to
refuse to complete the merger unless the merger
- 37 -
also is approved by the holders of a majority of our outstanding shares
of common stock that are voted "for" or "against" approval at the
special meeting and are not held by Open Wheel or its affiliates. This
provision provides a meaningful right for our unaffiliated stockholders
to reject the merger if they do not agree with the board's assessment
that it is in the best interest of stockholders. Although this closing
condition could be waived by Championship and Open Wheel, Championship
would not do so unless the board concluded that the unaffiliated
stockholder approval was not obtained due to a negative vote by
stockholders whose primary objective is to obtain value from
Championship for themselves that would not be available to all
unaffiliated stockholders on a pro rata basis.
- Appraisal Rights. The board of directors considered that stockholders
who do not support the merger have the ability to obtain "fair value"
for their shares if they properly perfect and exercise their appraisal
rights under Delaware law, although if holders of more than 16% of the
outstanding shares of our common stock validly assert and perfect this
right a condition to closing will not be satisfied.
In view of the variety of factors considered in connection with its
evaluation of the merger agreement, the board of directors found it
impracticable to, and did not, quantify, rank, or otherwise assign relative
weights to the factors considered or determine that any factor was of particular
importance in reaching its determination that the merger agreement and the
transactions contemplated thereby are advisable, fair to and in the best
interests of Championship's stockholders, including Championship's unaffiliated
stockholders. Rather, the board viewed its recommendation as being based upon
its judgment, in light of the totality of the information presented to and
considered by it, of what the overall effect of the merger would be on
Championship's stockholders compared to any alternative transaction.
The foregoing discussion of the information and factors considered and
given weight by the board of directors is not intended to be exhaustive but
includes the factors given primary consideration by the board. The board did not
analyze the fairness of the merger consideration in isolation from the other
considerations referred to above. The board did not attempt to distinguish
between factors that support a determination that the merger is "fair" and
factors that support a determination that the merger is in the "best interests"
of Championship's stockholders.
The board of directors (including all independent directors but
excluding Mr. Haas, who abstained) has approved the merger agreement and has
determined that the merger agreement and the merger are advisable, fair to and
in the best interests of Championship's stockholders, including Championship's
unaffiliated stockholders. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
OPINION OF OUR FINANCIAL ADVISOR
In connection with the merger, our financial advisor, Bear Stearns,
delivered a written opinion, dated September 10, 2003, to our board of directors
that, as of that date and based on and subject to the matters described in their
opinion, the per share merger consideration to be received by the unaffiliated
stockholders of Championship, other than Open Wheel and its affiliates,
individuals who own and operate teams or entities that participate in the
businesses
-38-
owned or operated by Championship or any of its subsidiaries and any
stockholders who have entered into agreements with Open Wheel with respect to
any matter related to their shares, was fair to such holders from a financial
point of view. The full text of the written opinion of Bear Stearns is attached
to this proxy statement as Annex C. We encourage you to read the opinion
carefully in its entirety for a description of the procedures followed,
assumptions made, matters considered and limitations on the review undertaken.
THE OPINION IS ADDRESSED TO OUR BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO ANY MATTER RELATING TO THE MERGER.
BEAR STEARNS' OPINION
Bear Stearns has acted as financial advisor to Championship's board of
directors in connection with Championship's review of strategic alternatives and
the merger. In connection with Bear Stearns' engagement as financial advisor,
Championship's board of directors requested that Bear Stearns evaluate the
fairness, from a financial point of view, of the per share merger consideration
to be received by certain unaffiliated holders of Championship's common stock.
On September 10, 2003, Bear Stearns delivered its oral opinion, subsequently
confirmed in writing, to the effect that, as of the date of the Bear Stearns
opinion and based on and subject to the assumptions, limitations and
qualifications set forth therein, the per share merger consideration, was fair,
from a financial point of view, to Championship's unaffiliated stockholders,
other than Open Wheel and its affiliates, individuals who own and operate teams
or entities that participate in the businesses owned or operated by Championship
or any of its subsidiaries, and any stockholders who have entered into
agreements with Open Wheel with respect to any matter related to their shares.
THE FULL TEXT OF BEAR STEARNS' WRITTEN OPINION, DATED SEPTEMBER 10,
2003, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY BEAR STEARNS, IS ATTACHED
AS ANNEX C TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE
SUMMARY OF THE BEAR STEARNS OPINION SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE BEAR STEARNS
OPINION. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ CAREFULLY THE BEAR STEARNS
OPINION IN ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY STATEMENT.
The Bear Stearns opinion was provided for the information of
Championship's board of directors in connection with its consideration of the
merger and relates only to the fairness, from a financial point of view, of the
per share merger consideration to be received by the unaffiliated stockholders
of Championship, other than Open Wheel and its affiliates, individuals who own
and operate teams or entities that participate in the businesses owned or
operated by Championship or any of its subsidiaries, and any stockholders who
have entered into agreements with Open Wheel with respect to any matter related
to their shares. The Bear Stearns opinion does not address any other aspect of
the merger or any related transaction or any other proposal, does not address
Championship's underlying business decision to effect the merger, does not
constitute a recommendation to Championship's board of directors, and does not
constitute a recommendation to any stockholder as to any matter relating to the
merger.
-39-
Although Bear Stearns evaluated the fairness, from a financial point of
view, of the per share merger consideration to be received by the unaffiliated
stockholders of Championship, other than Open Wheel and its affiliates,
individuals who own and operate teams or entities that participate in the
businesses owned or operated by Championship or any of its subsidiaries, and any
stockholders who have entered into agreements with Open Wheel with respect to
any matter related to their shares, the amount and form of the per share merger
consideration were determined by the parties to the merger agreement through
arm's-length negotiations. Championship did not provide specific instructions
to, or place any limitations on, Bear Stearns with respect to the procedures to
be followed or factors to be considered by Bear Stearns in performing its
analyses or rendering the Bear Stearns opinion.
In arriving at the Bear Stearns opinion, Bear Stearns:
- reviewed the draft merger agreement dated September 10, 2003;
- reviewed Championship's Annual Reports to Stockholders and
Annual Reports on Form 10-K for the years ended December 31,
1998 through 2002, its Quarterly Reports on Form 10-Q for the
periods ended March 31, 2003 and June 30, 2003, and its
Reports on Form 8-K for the three years ended September 10,
2003;
- reviewed certain Schedule 13Ds filed by Open Wheel with the
Securities and Exchange Commission with respect to
Championship;
- reviewed certain operating and financial information relating
to Championship's business and prospects, including
projections for the four years ended December 31, 2006, dated
August 23, 2003 and updates thereto, referred to in this proxy
statement as the forecasts, all as prepared and provided to
Bear Stearns by Championship's management;
- reviewed the bankruptcy/liquidation analysis as of September
5, 2003 and dated September 3, 2003, prepared by
Championship's management in consultation with Championship's
legal advisors and board of directors, referred to in this
proxy statement as the liquidation analysis;
- met with certain members of Championship's senior management
to discuss Championship's business, operations, historical and
projected financial results and future prospects, current
financial condition and liquidity, expected negative free cash
flow and future funding requirements;
- reviewed the historical prices and trading volume of shares of
Championship common stock;
- performed certain hypothetical discounted cash flow analyses
based on the forecasts; and
- conducted such other studies, analyses, inquiries and
investigations as Bear Stearns deemed appropriate.
-40-
In the course of its review, Bear Stearns relied on and assumed,
without independent verification, the accuracy and completeness of the financial
and other information, including, without limitation, the forecasts, provided by
Championship to Bear Stearns. With respect to the forecasts, Bear Stearns has
relied on Championship's representations that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of
Championship's management as to Championship's expected future performance as
well as considered the current concerns of Championship's board of directors
that it will be difficult for management to achieve the results projected beyond
2003 in the forecasts even if financing were available, which Bear Stearns
believes is unlikely given the lack of financing alternatives currently
available to Championship.
Bear Stearns also relied upon and assumed, without independent
verification, the accuracy and completeness of the liquidation analysis. With
respect to the liquidation analysis, Bear Stearns relied upon representations
that it was reasonably prepared on bases reflecting the best currently available
estimates and judgments of Championship's senior management and Championship's
board of directors as to the expected financial implications of liquidation as
well as upon the views of Championship's legal advisors on such matters as to
the likely implications (financial and otherwise) of the liquidation on
Championship's stockholders.
Bear Stearns relied on the assurances of Championship's senior
management that they were unaware of any facts that would make any historical
financial information or the forecasts (subject to Championship's board of
directors' view that it will be difficult to achieve the results projected
beyond 2003 in the forecasts) provided to Bear Stearns incomplete or misleading.
Bear Stearns further relied upon the assurances of Championship's senior
management, legal advisors and board of directors that they were unaware of any
facts that would make the liquidation analysis provided to Bear Stearns
incomplete or misleading.
Bear Stearns assumed that the merger will be consummated in a timely
manner and in accordance with the terms of the merger agreement without any
limitations, restrictions, conditions, amendments or modifications, regulatory
or otherwise, that collectively would have a material effect on Championship and
that there will be no change in the per share merger consideration.
In arriving at the Bear Stearns opinion, Bear Stearns did not perform
or obtain any independent appraisal of Championship's assets or liabilities
(contingent or otherwise), nor was Bear Stearns furnished with any such
appraisals. During the course of its engagement, Bear Stearns was asked by
Championship's board of directors to solicit indications of interest from
various third parties regarding a potential transaction with Championship. In
connection with its solicitation effort, which was publicly announced on June
16, 2003 when Championship disclosed that it had engaged Bear Stearns to pursue
strategic alternatives, Bear Stearns noted that no other potential strategic
acquirors, equity investors or financing sources have made an acquisition,
investment or financing proposal to Championship that would imply greater
benefits to Championship and Championship's stockholders. Bear Stearns was not
asked to consider, and the Bear Stearns opinion does not address, Championship's
underlying business decision to pursue the merger, the relative merits of the
merger as compared to any alternative business strategies, financial
alternatives or liquidation alternatives that might exist for Championship or
the effects of any other transaction in which Championship might engage. The
Bear Stearns
-41-
opinion was necessarily based on economic, market and other conditions, and the
information made available to Bear Stearns as of the date of Bear Stearns'
opinion.
In connection with the delivery of its opinion, Bear Stearns reviewed
selected historical financial and operational results and observed that:
- Championship's revenues have declined each year since 2001;
- Championship's earnings before interest, taxes, depreciation
and amortization ("EBITDA") have declined each year since
2000;
- Championship's net cash balances, and net cash per share have
declined each year since 2000;
- Championship's management has had limited success in
forecasting its financial performance, and Championship has
been required to update and clarify its publicly-communicated
financial guidance and prospects for fiscal 2003 and 2004;
- Championship has experienced declining revenues from sanction
fees since 2002 due to promoters experiencing weaker revenue
streams;
- Championship has experienced increased losses from race
promotion each year since it began promoting races in 2002;
- Championship has experienced increased losses from television
since 2002, due to its assumption of the responsibility for
television production costs and selling advertising air time;
- Championship has experienced declining sponsorship revenue
since 2001 due to the loss of guaranteed income from its
sponsorship partners, reduced race attendance and television
exposure and a general decline in economic conditions; and
- Championship's entry support program and team assistance
payments designed to retain and attract teams for the 2003
season do not guarantee that teams will return to the CART
racing series in 2004.
In developing the bases by which it would formulate its opinion as to
the fairness, from a financial point of view, of the per share merger
consideration to be received in the merger to the unaffiliated stockholders of
Championship, other than Open Wheel and its affiliates, individuals who own and
operate teams or entities that participate in the businesses owned or operated
by Championship or any of its subsidiaries, and any stockholders who have
entered into agreements with Open Wheel with respect to any matter related to
their shares, Bear Stearns observed that:
- based on the forecasts, Championship's current cash position,
and the absence of new financing to meet the funding shortfall
contained in the forecasts, if
-42-
Championship were to continue to meet all of its existing
obligations and those of its operating subsidiaries, it would
exhaust its existing cash resources at some point during the
last quarter of 2003 and would no longer be able to conduct
its operations after such date without additional financing;
- based on the forecasts, Championship projects negative
operating cash flow in 2004 and 2005, which would create an
additional funding shortfall;
- Championship's board of directors believes that it will be
difficult to achieve the results projected beyond 2003 in the
forecasts even if financing were available to Championship;
and
- due to Championship' historic and projected negative operating
results, there exists an absence of observable valuation
metrics by which to compare Championship to other publicly
traded companies or by which to compare the merger to other
mergers and acquisition transactions. As a result, Bear
Stearns did not utilize comparable selected company and
comparable selected transaction valuation multiples as such an
analysis would be of limited applicability.
The following is a summary of the material factors considered and
principal analyses underlying the Bear Stearns opinion dated September 10, 2003,
delivered to Championship's board of directors in connection with the merger.
The financial analyses summarized below include information presented in tabular
format. In order to fully understand Bear Stearns' financial analyses, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses. Considering the
data set forth in the tables below without considering the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of Bear Stearns' financial analyses.
Comparison of Per Share Merger Consideration to Historical Stock
Prices. Bear Stearns compared the per share merger consideration of $0.56 per
share to the closing market price of Championship's common stock as of certain
dates, including August 15, 2003, which was the last trading day before
Championship publicly disclosed that it was engaged in negotiations regarding a
possible transaction with Open Wheel, and various ranges of prices preceding
August 15, 2003. The per share merger consideration represents approximately a
69.4% discount to the August 15, 2003 closing price of $1.83, an 89.5% discount
to the 52-week high and a 60.0% discount to the 52-week low. The table below
summarizes the comparison.
CHAMPIONSHIP MERGER
CLOSING STOCK PRICE PREMIUM/(DISCOUNT)
------------------- ------------------
As of 9/03/03 $1.03 (45.6%)
As of 8/15/03 1.83 (69.4)
52-Week High 5.35 (89.5)
52-Week Low 1.40 (60.0)
52-Week Average 3.51 (84.0)
90-Day Average 2.71 (79.3)
20-Day Average 1.80 (68.8)
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Liquidation Analysis. Bear Stearns reviewed the liquidation analysis
prepared by Championship's management in consultation with Championship's legal
advisors on such matters and board of directors. Such liquidation analysis was
prepared based on two scenarios. Scenario #1 assumed that the cash balance of
$21,668,667 as of September 5, 2003 was used to pay in full Championship's
direct obligations and the potential obligations of its operating subsidiaries
as of September 5, 2003, prior to distributing any remaining cash to
Championship's stockholders, without any discount, subtraction or mitigation of
such liabilities. The potential obligations of Championship's operating
subsidiaries set forth in the table below represent Championship management's
estimate of potential claims and other obligations that could arise as of
September 5, 2003 upon breaches of contracts to which those operating
subsidiaries, but not Championship itself, are parties.
Scenario #1
--------------------------------------------------------------------------------------
PER SHARE
GROSS VALUE VALUE
----------- -----
Estimated Cash Balance at 9/5/03 $21,668,667 $1.47
Direct Obligations of Championship:
Occupancy/Leasing 2,870,069
Operating Contracts/Obligations $ 9,436,285
Professional Services 3,000,000
-----------
Subtotal 15,306,354
-----------
Estimated Cash Balance After Championship Obligations $ 6,362,314
Potential Obligations of Subsidiaries $61,974,944 4.21
----------- -----
Total Obligations of Championship and Subsidiaries $77,281,298 $5.25
=========== =====
Estimated Cash Balance After Liquidation $ 0 $0.00
=========== =====
Scenario #2 assumed that the cash balance of $21,668,667 as of
September 5, 2003 was used to pay in full Championship's direct obligations, but
not those of its subsidiaries, as of September 5, 2003 prior to distributing any
remaining cash to Championship's stockholders, without any discount, subtraction
or mitigation of Championship's liabilities.
Scenario #2
----------------------------------------------------------------------------------------
PER SHARE
GROSS VALUE VALUE
----------- -----
Estimated Cash Balance at 9/5/03 $21,668,667 $1.47
Direct Obligations of Championship:
Occupancy/Leasing 2,870,069
Operating Contracts/Obligations 9,436,285
Professional Services 3,000,000
-----------
Subtotal $15,306,354
=========== =====
Estimated Cash Balance After Championship Obligations $ 6,362,314 $0.43
=========== =====
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It should be noted that the above amounts do not reflect: (i) the time
value of Championship's obligations, (ii) the potential risk and timing of
receipt of cash to Championship's stockholders, (iii) any compromise or
reduction of Championship's obligations, or (iv) the potential negative cash
flow from operations following September 5, 2003.
Bear Stearns was not informed as to the potential likelihood that
Championship could be responsible for or legally obligated to meet some or all
of the financial obligations of Championship's subsidiaries.
Hypothetical Financing/Discounted Cash Flow Analysis. Bear Stearns
performed two hypothetical discounted cash flow analyses of Championship's
projected cash flows based on the forecasts. Free cash flows for the period
beginning on January 1, 2004 and ending on December 31, 2006, were discounted to
January 1, 2004. Bear Stearns calculated free cash flow for each period as
EBITDA, less changes in working capital and capital expenditures. In order to
perform a discounted cash flow analysis, Bear Stearns calculated the terminal
value by applying a range of assumed exit EBITDA multiples of 4.5x to 5.5x
projected fiscal year 2007 EBITDA. Discount rates of 12.0% to 20.0% were chosen
based on Bear Stearns' estimate of Championship's weighted average cost of
capital, understanding that the actual cost could be significantly higher, as
returns sought by potential investors may be above this range given
Championship's projected liquidity shortfall. To calculate the aggregate net
present value of Championship's equity, Bear Stearns subtracted Championship's
total debt, less projected cash and cash equivalents as of January 1, 2004, from
the sum of the present value of the projected net cash flows to equity and the
present value of the terminal value.
Bear Stearns made assumptions regarding the terms under which
Championship would be able to obtain financing that would provide Championship
with the liquidity to meet Championship's projected cash shortfall.
Bear Stearns performed these analyses for illustrative purposes only,
and Bear Stearns indicated that there were inherent limitations of performing
such analyses. According to Championship's management and board of directors,
even if Championship were able to procure financing, key constituents (e.g.,
teams, advertisers, sponsors, promoters) may still depart the CART racing series
due to a lack of confidence in management. This result would severely limit
Championship's ability to achieve the results projected beyond 2003 in the
forecasts. Even if Championship could obtain financing and ensure that
Championship's key constituents remain with the CART racing series,
Championship's board of directors believes that the results projected beyond
2003 are optimistic and it will be difficult for management to achieve them.
Championship would need to undergo a significant turnaround to achieve the
forecasts, as the forecasts assume annual increases in sanction fees,
sponsorships and television revenue from 2003 levels. Given the downward trend
in these items over the last several years and the current status of discussions
with key CART racing series constituents, achieving the results projected beyond
2003 in the forecasts is doubtful. The forecasts assume no team assistance
payments after 2004 and flat purse and year-end points fund, entry support
payments, race operation and
-45-
administrative expenses beginning in 2004. Teams may not be able to support
themselves absent the significant amount of team assistance payments they
received in 2003. Reduced race distributions in the form of purses and point
funds may also reduce the incentive of teams to remain in the CART racing
series. Departure of teams would have a material negative effect on
Championship's ability to meet its forecasts.
Bear Stearns also noted that there are significant issues regarding
Championship's ability to obtain financing. Championship has limited assets to
provide collateral for a secured loan; therefore, lending sources would
typically only loan funds to Championship if it projected positive cash flow in
the foreseeable future. However, Championship does not project to have positive
operating cash flow until 2006. In addition, currently, there are limited or no
logical strategic buyers with an apparent interest in Championship. As a result,
lenders might only realize repayment upon a refinancing.
Bear Stearns performed discounted cash flow analyses on two
illustrative financing scenarios that illustrate Championship' s theoretical
value if the forecasts were met. The following represent the hypothetical
financing scenarios utilized:
- Hypothetical Financing Scenario #1: $25.0 million loan on
January 1, 2004 at a cash-pay interest rate of 13% per annum,
a placement fee equal to 1.5% of the loan amount, and warrants
for 85% of Championship exercisable at $0.10 per share. Loan
repayment occurs on December 31, 2006 and the loan amortizes
to the extent cash is available for repayment beginning on
July 1, 2005. This scenario was based upon a preliminary
financing proposal we received on August 19, 2003.
- Hypothetical Financing Scenario #2: $25.0 million loan on
January 1, 2004 at illustrative ranges of cash-pay interest
rates from 15% to 20% per annum. Any additional financing
required to maintain a positive cash balance would be provided
at the time required at the stated interest rate. Loan
repayment occurs on December 31, 2006. Bear Stearns utilized
the illustrative interest rate range noting that if a
financing source were to lend us money, this financing source
would likely expect an all-in-return that would incorporate
terms such as (i) up-front fees, (ii) a high interest rate
relative to standard secured or unsecured financing, and (iii)
equity participation features, and that these terms could
increase the cost of debt financing above the 15% to 20%
illustrative range.
Based on the above assumptions, Bear Stearns' discounted cash flow
analysis resulted in per share equity values of $0.08 to $0.12 based on
Hypothetical Financing Scenario #1 and $0.00 to $0.39 based on Hypothetical
Financing Scenario #2.
Process Review. Bear Stearns considered the events that resulted in the
negotiation of the merger agreement, including the four-month process that was
undertaken by Championship's board of directors and its financial and legal
advisors to identify and negotiate with prospective purchasers of, or investors
in, Championship. Bear Stearns also considered Championship's public disclosures
regarding the initiative it was undertaking to explore strategic alternatives.
-46-
Other Analyses. Bear Stearns conducted such other analyses as it deemed
appropriate, including reviewing available information regarding the holders of
Championship's common stock, reviewing Championship's historical and projected
financial and operating data, and comparing Championship's historical financial
and operating data with that underlying its projections.
In preparing its opinion for Championship's board of directors, Bear
Stearns performed a variety of financial analyses, including those described
above. The summary of Bear Stearns' analyses is not a complete description of
the analyses underlying the Bear Stearns opinion. The preparation of a fairness
opinion is a complex process and involves various judgments and determinations
as to the most appropriate and relevant assumptions and financial analyses and
the application of those methods to the particular circumstances involved. The
Bear Stearns opinion is therefore not necessarily susceptible to partial
analysis or summary description. In arriving at its opinion, Bear Stearns made
qualitative judgments as to the significance and relevance of each analysis and
factor considered by it and did not attribute particular weight to any one
analysis or factor. Bear Stearns did not form an opinion as to whether any
individual analysis or factor, positive or negative, considered in isolation,
supported or failed to support the Bear Stearns opinion. Accordingly, Bear
Stearns believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or of the summary described above
or focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying its analyses and
opinion.
The analyses performed by Bear Stearns, particularly those based on
estimates, are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than those results
suggested by the analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, Bear
Stearns' analyses are inherently subject to substantial uncertainty. The
analyses were prepared solely as part of Bear Stearns' analysis of the fairness,
from a financial point of view, of the per share merger consideration to the
unaffiliated stockholders of Championship, other than Open Wheel and its
affiliates, individuals who own and operate teams or entities that participate
in the businesses owned or operated by Championship or any of its subsidiaries,
and any stockholders who have entered into agreements with Open Wheel with
respect to any matter related to their shares.
The Bear Stearns opinion and financial analyses performed by Bear
Stearns were only one of many factors considered by Championship's board of
directors in their evaluation of the merger, and should not be viewed as
determinative of the views of Championship's board of directors or
Championship's management with respect to the per share merger consideration or
the merger.
Championship engaged Bear Stearns based on Bear Stearns'
qualifications, expertise and reputation in providing advice to companies with
respect to transactions similar to the merger. Except as set forth in the
following paragraph, Bear Stearns has not provided Championship any investment
banking or other services in the past two years. Bear Stearns is an
internationally recognized investment banking firm and, as part of its
investment banking activities, regularly engages in the valuation of businesses
and securities in connection with mergers and
-47-
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. In the ordinary course of
business, Bear Stearns and its affiliates may actively trade the equity and/or
bank debt of Championship for Bear Stearns' own account and for the account of
Bear Stearns' customers and, accordingly, may at any time hold a long or short
position in such securities or bank debt.
Pursuant to the terms of Championship's engagement letter with Bear
Stearns dated October 29, 2002, Championship has paid Bear Stearns a cash fee of
$500,000 for the rendering of its fairness opinion on September 10, 2003. In
addition, pursuant to the terms of this engagement letter, Championship has
agreed to pay Bear Stearns a cash fee of $1,000,000 if, during the duration of
Championship's agreement with Bear Stearns, or 12 months after termination of
Championship's agreement with Bear Stearns, the merger or any similar
transaction is completed. Championship has also agreed to reimburse Bear Stearns
for all reasonable out-of-pocket expenses incurred by Bear Stearns in connection
with its engagement and the merger and to indemnify Bear Stearns and related
persons against certain liabilities in connection with the engagement of Bear
Stearns, including liabilities under Federal securities laws.
CHAMPIONSHIP'S REASONS FOR THE MERGER
Championship is engaging in the merger principally to enable its
stockholders to receive the per share merger consideration for each of their
shares, which our board of directors concluded is more than would be available
to stockholders if Championship pursued other available alternatives.
Championship believes that continuing to operate as an independent publicly
traded company is not a viable option and that liquidation would be less
beneficial to stockholders than the merger, for the reasons considered by the
board and articulated above under "-- Reasons for the Recommendation of the
Championship Board of Directors; Fairness of the Merger." See also "--
Background of the Merger" and "-- Effects on Championship if the Merger is not
Completed."
THE OPEN WHEEL GROUP'S POSITION AS TO THE FAIRNESS OF THE MERGER
Because members of the Open Wheel Group beneficially own 3,377,400
shares, or 22.95%, of our common stock contributed to Open Wheel by Mr.
Forsythe, the merger may constitute, if completed, a "going-private transaction"
subject to Rule 13e-3 under the Exchange Act, in which case the members of the
Open Wheel Group would be required to express their belief as to the fairness of
the merger to stockholders of Championship who are not affiliated with
Championship. The members of the Open Wheel Group believe that the merger is
fair to such stockholders of Championship. This belief, however, should not be
construed as a recommendation to stockholders of Championship to vote in favor
of the adoption of the merger agreement.
In reaching the belief that the transaction is fair to the unaffiliated
stockholders of Championship, the members of the Open Wheel Group considered the
following factors, each of which in their judgment supports their view as to the
fairness of the transaction:
-48-
- Championship's Business, Condition and Prospects. The Open Wheel Group
considered information with respect to the financial condition, results
of operations, business, and business strategy of Championship, on both
a historical and prospective basis, and focused in particular on the
decreasing revenue from sanction fees, television sales, and
sponsorships and the increased costs associated with the team
participation, entrant support and team assistance programs. The Open
Wheel Group also considered current industry, economic and market
conditions. The Open Wheel Group also focused on the fact that the
Championship board of directors publicly announced on July 22, 2003,
that Championship would not be able to complete the 2004 season without
obtaining additional financing.
- Absence of Viable Alternative Transactions with Third Parties. The Open
Wheel Group considered the fact that Championship had engaged Bear
Stearns to explore strategic alternatives, and that, to the Open Wheel
Group's knowledge, Bear Stearns had not identified any viable
transactions other than the merger. The Open Wheel Group also took into
account Bear Stearns' written opinion to the board of directors of
Championship that the per share merger consideration is fair, from a
financial point of view, to the unaffiliated stockholders of
Championship, other than Open Wheel and its affiliates, individuals who
own or operate teams or entities that participate in the businesses
owned or operated by Championship or any of its subsidiaries or any
stockholders who have entered into agreements with Open Wheel with
respect to any matter related to their shares of Championship common
stock. The Open Wheel Group would not have proceeded with the
transaction if the Championship board had not received that opinion.
- Liquidation Alternative. The Open Wheel Group considered an estimate of
the liquidation value of Championship and concluded that the amount
that would be available to stockholders in a liquidation would be less
than the consideration that would be paid in the merger.
- Ability to Consider Competing Proposals. The Open Wheel Group
considered the terms of the merger agreement permitting the board of
directors of Championship to continue to consider competing proposals
and to accept, subject to the terms of the merger agreement, a superior
proposal.
- Market Price and Liquidity of Championship Common Stock. The Open Wheel
Group considered the relationship of the per share merger consideration
to the historical market prices, volatility and trading information
with respect to Championship's common stock. The $0.56 per share being
offered by Open Wheel represented a discount to the market price of the
common stock at that time, because Open Wheel concluded that the market
price of the common stock did not properly reflect a number of
significant negative factors, including Championship's deteriorating
economic prospects, the expectation that it would exhaust its cash
resources in the near future and Championship's need for financing to
continue into the 2004 CART racing series season. Open Wheel believed
there were several possible explanations for the apparent overvaluation
of Championship common stock in the public marketplace, including the
trading volumes of Championship common stock, the lack of significant
coverage of Championship by equity analysts since December 2002, the
high concentration of ownership of Championship common stock and the
absence of viable alternatives to liquidation. The Open Wheel Group
also took into account the possibility that some investors in
Championship common stock were focusing on Championship's historical
book value without taking into account Championship's disclosures about
its near term prospects and its projected cash needs and deficiencies
and the possibility that some investors in Championship common stock
were focusing on Championship's historical book value without taking
into account Championship's liabilities that would need to be satisfied
in any liquidation of Championship.
- Opinion of Open Wheel's Financial Advisor. The Open Wheel Group
considered the written opinion delivered to Open Wheel's members by
EYCF as to the fairness, from a
-49-
financial point of view, of the per share merger consideration to be
received by the unaffiliated holders of Championship common stock, as
more fully described under "Special Factors -- Opinion of Open Wheel's
Financial Advisor."
- Unaffiliated Stockholder Approval. The Open Wheel Group considered that
in addition to the approval of stockholders required by Delaware law,
the merger agreement allows either Championship or Open Wheel to refuse
to complete the merger unless the merger also is approved by the
holders of a majority of Championship's outstanding shares of common
stock that are voted "for" or "against" approval of the merger at the
special meeting and are not held by Open Wheel or its affiliates. This
provision provides a meaningful right for Championship's unaffiliated
stockholders to reject the merger if they do not agree with the board's
assessment that it is in the best interest of stockholders. Although
this closing condition could be waived by Championship and Open Wheel,
Open Wheel would not do so unless it concluded that the unaffiliated
stockholder approval was not obtained due to a negative vote by
stockholders who are primarily acting to support an attempt to obtain
value from Championship or Open Wheel (through, for example,
litigation) that would not be available to all unaffiliated
stockholders on a pro rata basis.
In view of the variety of factors considered in connection with its
evaluation of the merger agreement, the Open Wheel Group found it impracticable
to, and did not, quantify, rank, or otherwise assign relative weights to the
factors considered or determine that any factor was of particular importance in
reaching its determination that the merger agreement and the transactions
contemplated thereby are fair.
The foregoing discussion of the information and factors considered and
given weight by the Open Wheel Group is not intended to be exhaustive but
includes the factors given primary consideration by the Open Wheel Group. The
Open Wheel Group did not analyze the fairness of the merger consideration in
isolation from the other considerations referred to above.
THE OPEN WHEEL GROUP'S REASONS FOR THE MERGER
The Open Wheel Group is pursuing the merger because it believes that
the merger presents the best opportunity to continue the CART racing series,
including the support series. The Open Wheel Group continues to believe that the
CART racing series can provide the best forum for open-wheel racing in the
Americas and that, with the proper organizational and capital structure,
Championship's format of racing events on superspeedways, ovals, temporary
street courses in urban settings and permanent road courses can be successful.
OPINION OF OPEN WHEEL'S FINANCIAL ADVISOR
In connection with the proposed merger, Open Wheel retained its own
financial advisor, EYCF, who delivered a written opinion to Open Wheel, dated
September 10, 2003, to the effect that, as of that date and based on and subject
to the matters described in its opinion, the per share merger consideration to
be received by the unaffiliated common stockholders of Championship was fair,
from a financial point of view, to such holders. The full text of the written
opinion of EYCF is attached to this proxy statement as Annex D. You are
encouraged to read the opinion
-50-
carefully in its entirety for a description of the procedures followed,
assumptions made, matters considered and limitations on the review undertaken.
THE OPINION IS ADDRESSED EXCLUSIVELY TO OPEN WHEEL AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO ANY MATTER RELATING TO THE MERGER.
OPINION OF EYCF
Introduction. EYCF was retained by Open Wheel on August 29, 2003 to
advise it as to the fairness to the unaffiliated common stockholders of
Championship, from a financial point of view, of the consideration to be paid by
Open Wheel in connection with the merger. EYCF is a wholly owned subsidiary of
Ernst & Young LLP, one of the world's largest professional services firms. Open
Wheel employed the services of EYCF because EYCF is a recognized investment
banking and financial advisory firm, possessing experience in business
valuations, financial opinions, merger and acquisition advisory services and
transaction financing. Open Wheel selected EYCF as its financial advisor based
upon EYCF's experience, ability and reputation for providing advisory services
on a wide variety of corporate transactions.
On September 10, 2003, EYCF delivered an oral opinion to Open Wheel
that, as of that date and subject to the assumptions and limitations set forth
in its written opinion, the per share merger consideration to be received by the
unaffiliated stockholders of Championship was fair, from a financial point of
view, to such holders. The opinion of EYCF was set forth in a written opinion
dated September 10, 2003.
THE FULL TEXT OF THE WRITTEN FAIRNESS OPINION OF EYCF, WHICH SETS FORTH
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON
AND SCOPE OF REVIEW BY EYCF IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX D TO
THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE
ENCOURAGED TO READ THE EYCF OPINION IN ITS ENTIRETY. THE FOLLOWING SUMMARY OF
EYCF'S WRITTEN OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION. EYCF'S OPINION IS ADDRESSED AND DIRECTED EXCLUSIVELY TO
OPEN WHEEL AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO ANY
MATTER RELATING TO THE MERGER. EYCF'S OPINION ADDRESSES THE FAIRNESS OF THE
PROPOSED PER SHARE MERGER CONSIDERATION TO BE RECEIVED BY THE UNAFFILIATED
COMMON STOCKHOLDERS OF CHAMPIONSHIP FROM A FINANCIAL POINT OF VIEW ONLY AND DOES
NOT ADDRESS THE MERITS OF THE MERGER OR ANY ALTERNATIVE TO THE MERGER, THE
UNDERLYING DECISION TO PROCEED WITH THE MERGER OR ANY OTHER ASPECT OF THE
MERGER. EYCF'S OPINION WAS RENDERED WITHOUT REGARD TO THE COSTS THAT MAY BE
INCURRED TO CLOSE THE MERGER.
Scope of Analysis. In arriving at its opinion, EYCF reviewed, among
other items:
- a draft version of the merger agreement, dated September 8,
2003;
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- Championship's Annual Report on Form 10-K and Form 10-K/A for
the fiscal year ended December 31, 2002, Championship's Annual
Report on Form 10-K for the fiscal year ended December 31,
2001 and Championship's Quarterly Reports on Form 10-Q for the
fiscal quarters ended June 30 and March 31, 2003;
- certain publicly available information regarding Championship
and comparable public companies, such as their websites,
recently issued financial statements and relevant research
analyst reports;
- financial projections, as prepared by Championship's
management, relating to Championship's earnings and cash flow
for the four month period ending December 31, 2003 and for the
fiscal years ending December 31, 2004 through 2006;
- certain information provided by Championship's management
relating to Championship's sponsors, promoters, television
rights, race teams, contracts, employees, competitors and
overall business prospects;
- results of certain meetings and discussions with members of
senior management of Open Wheel and Championship, and their
respective advisors;
- Championship management's September 5, 2003 liquidation
analysis;
- historical prices and trading volume of shares of Championship
common stock;
- transactions involving companies deemed similar to
Championship; and
- such other studies, analyses, inquiries and investigations as
EYCF deemed appropriate.
EYCF also took into account its assessment of general economic, market
and financial conditions, as well as its experience in securities and business
valuation in general, and with respect to similar transactions in particular.
Summary of Analyses; Limitations. EYCF relied only upon information
available from recognized public sources and information provided by the Open
Wheel Group and Championship, in both cases without any independent
verification. Additionally, EYCF:
- assumed that all information provided by the Open Wheel Group
and Championship was reasonably prepared in good faith and on
bases reflecting the best currently available judgments and
estimates of the management of the Open Wheel Group and
Championship, without any independent verification;
- did not interview sponsors, promoters or race teams;
- did not conduct an independent valuation or appraisal of
Championship's tangible or intangible assets or receive such a
valuation or appraisal from any third party;
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- did not review detailed financial account information, such as
accounts receivable by customer and the fixed asset ledger;
- assumed Championship's board of directors decided that
proceeding with the merger was a better alternative for its
stockholders than a liquidation of the assets;
- assumed that the merger would be consummated on a timely basis
in accordance with the merger agreement, and that there would
be no change in the merger consideration; and
- relied exclusively upon the management of Championship to
provide projected financial information for the four months
ending December 31, 2003 and for the fiscal years ending
December 31, 2004 through 2006, and EYCF did not independently
develop any financial projections.
The terms and conditions of the proposed merger were determined without
the involvement of EYCF, and EYCF expresses no opinion as to whether or not
better terms could have been achieved by either party. EYCF expresses no opinion
with respect to any other reasons, legal, business or otherwise, that may or may
not support any decision of Championship or its stockholders to approve the
merger, and the opinion does not address the underlying business decision to
proceed with the merger. EYCF's opinion is based upon current economic,
monetary, and market conditions and the merger structure as described in the
merger agreement.
The following is a summary of the material financial and comparative
analyses utilized by EYCF in arriving at its opinion. It does not purport to be
a complete description of the presentation made to Open Wheel on September 10,
2003 by EYCF, or the underlying analyses as performed by EYCF. The preparation
of a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Selecting portions of the analyses or
of the summary set forth below, without considering the analyses as a whole,
could create a misleading or an incomplete view of the process underlying EYCF's
opinion.
In arriving at its opinion, EYCF considered the results of all such
analyses taken as a whole. Furthermore, in arriving at its opinion, EYCF did not
attribute any weight to a particular analysis, but rather made qualitative
judgments as to the relative significance and relevance of each of the analyses.
Accordingly, EYCF's analyses must be considered as a whole. Reviewing only
selected portions of the analyses, without considering all analyses, could
create an incomplete view of the process underlying their opinion. No company or
transaction used in the analyses as a comparison is identical to Championship or
the merger. The analyses were prepared solely for purposes of EYCF providing its
opinion and do not purport to be appraisals or to necessarily reflect the prices
at which businesses or securities actually may be sold. Actual future results
may be materially different from any projected forecast.
In accordance with customary investment banking practices, EYCF
performed or reviewed financial and comparative analyses regarding the valuation
of Championship, including a common stock price analysis; discounted cash flow
analysis; liquidation analysis; comparable public company analysis; and
precedent transactions analysis. Such analyses are summarized as follows:
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Common Stock Price Analysis - Discount Considerations. The $0.56 per
share offer proposed by Open Wheel implies a 38% discount to the reported market
price for Championship as of September 8, 2003. This discount has continued to
decrease significantly as the Championship stock price has steadily declined.
However, EYCF does not believe that the reported share price accurately reflects
the following factors which affect the value of Championship stock: ownership of
Championship common stock is highly concentrated; Championship common stock is
thinly traded; many Championship stockholders appear to hold stock for
nonfinancial reasons; Championship's stock appears to be valued on the basis of
Championship's book value; and Championship has had no significant equity
research coverage since December 2002.
The high concentration of ownership and the nonfinancial reasons that
many Championship stockholders own their stock result in Championship's shares
being thinly traded. The lack of trading volume results in an illiquid market,
making it difficult for the market price to immediately and rationally adjust to
Championship's changing financial position and outlook. Approximately 55% of
Championship's outstanding common stock is currently held by five individuals or
investor groups. Based on discussions with Championship management, EYCF
believes the intention of the majority of these investors is to hold the stock
over the long term. Therefore, the deterioration in Championship's financial
position has not resulted in a significant reduction of their ownership. The
average daily trading volume of the stock over the last year has been
approximately 67,000 shares, compared to an average daily volume for all
companies on the S&P 500 of approximately 3.8 million shares.
The lack of any significant current equity research coverage impairs
investors' ability to accurately and timely understand the changing fundamentals
of the business. By comparison, the average number of analysts covering public
companies in the S&P 500 Index is 17.
Championship's stock appears to be valued primarily on the basis of
Championship's book value and perceived future earnings potential. Book value
does not take into consideration Championship's extensive contractual
liabilities that are not required to be disclosed in financial statements based
upon generally accepted accounting principals ("GAAP"), but would likely
represent significant claims if Championship were to liquidate or file for
bankruptcy protection. Book value also does not fully reflect the extent of
future capital needs required to fund Championship's operations. Championship's
deteriorating operating performance since December 2000 has been funded by a
significant cash reserve that was generated primarily from the proceeds of its
IPO. As of June 30, 2003, Championship had a net book value of $59.5 million,
but based on management's projections, Championship's cash balance will be
depleted by the end of 2003. Book value as a determinant of market value
provides a historical approach and does not take into account forward-looking
financial expectations.
Therefore, in consideration of the preceding, EYCF concluded that the
discount to the current share price did not materially impact its analysis of
the fairness of the per share merger consideration to the unaffiliated common
stockholders of Championship.
Discounted Cash Flow Analysis. EYCF performed a discounted cash flow
analysis based upon the financial projections provided by Championship's
management for the last four months of fiscal 2003 and the fiscal years ending
December 31, 2004 through 2006. However,
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Championship management did not provide a balance sheet or statement of cash
flows for any of the projected periods, but did provide expected working capital
requirements and capital expenditures to derive free cash flows. Using this
projected information, EYCF discounted to present value the projected stream of
free cash flows and the terminal value to determine Championship's enterprise
value. In order to estimate Championship's terminal value at the end of the
forecast horizon, EYCF applied two approaches: a range of multiples to projected
2006 EBITDA, and a constant growth valuation method ("Gordon Growth") to the
projected 2006 free cash flow. The terminal EBITDA multiple range was based on
estimated market conditions for the sale of the business, given the expectations
for subsequent cash flow growth. The Gordon Growth approach assumes the
significant free cash flow growth from 2003 to 2006 stabilizes and Championship
experiences constant free cash flow growth of 3% - 4% beyond 2006. EYCF applied
a range of discount rates based on an assumed required equity return of 30% -
40%. To calculate the value of Championship's equity, EYCF subtracted the total
debt of $1.8 million from the calculated enterprise value, which assumptions and
methodologies resulted in an equity value range between negative $9.7 million
and negative $2.3 million.
The analysis was limited by the lack of financial projections beyond
2006 and any projected balance sheets or cash flows. Further limiting the
analysis was the fact that the terminal year in the projections is the first
year since 2000 in which Championship attains positive EBITDA. As a result,
significant adjustments to the terminal year projections would be required for
the present value to approximate the consideration being offered by Open Wheel
in the proposed merger. See "--Forecasts."
Liquidation Analysis. Championship's management prepared a summary
liquidation analysis to estimate the value that might be available to the common
stockholders in the event of a liquidation. One scenario under the analysis
assumed that contractual liabilities at the operating subsidiaries' level
(including CART, Inc.) would not be applied against Championship's cash balance
and payment of outstanding liabilities, other claims, and bankruptcy costs have
a priority position over common stock. This scenario, solely considering assets
and liabilities at the parent level (Championship), would result in a $0.43 per
share distribution to stockholders.
The other scenario assumed that Championship's cash balance would be
used to pay obligations in full at both the parent and subsidiary levels prior
to any distribution to the Championship stockholders. To determine the net
recovery to stockholders, assuming Championship could not be liquidated in
isolation, EYCF, with the assistance of Championship management, estimated the
potential recovery on the liquidation of Championship's consolidated assets.
Championship management then estimated the amount of potential liabilities to be
satisfied at the operating subsidiaries' level in the event of such a
liquidation. The analysis, taking into consideration the estimated value
generated upon the liquidation of Championship's consolidated assets, results in
a $66.4 million shortage of cash to satisfy the estimated claims of creditors,
resulting in no proceeds available for distribution to Championship
stockholders. Even assuming a book value recovery on the liquidation of
Championship's consolidated assets, this would result in a $44.9 million
shortage of cash to satisfy the estimated claims of creditors, again resulting
in no proceeds available for distribution to Championship stockholders.
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Comparable Public Company Analysis. EYCF attempted to compare
Championship's historical financial performance to that of certain comparable
publicly traded companies. However, Championship is the only pure publicly
traded motorsports sanctioning organization and has a unique business model. As
a result, the analysis was expanded to include publicly traded companies whose
businesses were most similar to that of Championship. However, the comparable
company analysis did not appear to provide an accurate or reliable basis for
determining value because:
- Championship's historical financial performance has resulted
in negative EBITDA and earnings for the last twelve months,
and Championship is not projected to generate positive EBITDA
or earnings until 2006;
- the comparable public companies have adequate funding to
continue as going concerns, unlike Championship;
- valuation estimates based solely on a multiple of revenue are
not appropriate, given the distressed nature of Championship
and its projected financial outlook; and
- the comparable public companies are significantly larger in
size.
As such, EYCF concluded that the comparable public company analysis was
of limited use in its analysis of the proposed merger.
Precedent Transactions Analysis. EYCF analyzed certain acquisitions of,
and investments in, similar businesses that have been announced since January 1,
1993, with a primary focus on transactions in the last two years. After a review
of transactions during this period, and due to the following factors, EYCF
concluded that the precedent transactions would not prove beneficial to its
analysis:
- very few companies with publicly available transaction
information have operating characteristics similar to those of
Championship;
- there was no available information on a precedent transaction
that represented the sale of comparable distressed assets
(inside or outside of bankruptcy); and
- Championship's negative historical and projected EBITDA and
earnings provide no basis to compute value expectations for
Championship.
Fees and Other Information. EYCF's compensation is not contingent upon
the content of its opinion or the consummation of the merger. EYCF was paid a
retainer fee of $100,000 upon execution of an engagement letter and was paid an
additional $175,000 upon delivery of its opinion to Open Wheel. Open Wheel has
agreed to reimburse EYCF for its reasonable and properly documented
out-of-pocket expenses and to indemnify it against certain liabilities that may
arise out of the rendering of its opinion. Prior to its current engagement, EYCF
had never provided any investment banking services to Championship, nor does
EYCF provide any research coverage or trading support in connection with
Championship's outstanding shares of
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stock. Furthermore, the opinion was not provided in anticipation of the
retention of EYCF to provide investment banking services to Open Wheel in the
future. Neither EYCF nor its parent, Ernst & Young LLP, has provided
Championship with any accounting or tax services. Ernst & Young LLP, an
affiliate of EYCF, provides and will continue to provide certain accounting and
financial advisory services to affiliates of Open Wheel.
FORECASTS
In connection with various potential acquirors' review of Championship,
management provided various third parties with non-public business and financial
information. Management provided this information to Bear Stearns, EYCF and
various potential acquirors, including, among others, Open Wheel. The non-public
information management provided included forecasts of future operating
performance. The forecasts included management forecasts for the four fiscal
years ending December 31, 2006 of Championship's revenues and expenses based on
a 15 race schedule. Since the initial distribution of the confidential offering
memorandum, we have publicly disclosed management's expectations for financial
performance through the end of 2003.
The inclusion of the forecasts should not be regarded as an indication
that any of Championship, Open Wheel, Bear Stearns or EYCF considers the
forecasts to be a reliable prediction of future events, and the forecasts should
not be relied upon as such. Championship's board of directors has expressed the
belief that it will be difficult for management to achieve the results projected
beyond 2003 even if the financing needed to continue operations as an
independent publicly traded company were available. To the extent the forecasts
represent management's reasonable estimate of possible future performance, this
estimate was made only as of August 23, 2003, the date of the forecasts, and is
not made or updated as of any later date. You should take all of this into
account when evaluating any factors or analyses based on the forecasts.
The material forecasts are summarized below:
Forecast Forecast Forecast Forecast
Consolidated Consolidated Consolidated Consolidated
2003 2004 2005 2006
------------ ------------ ------------- ------------
Revenues:
Sanction Fees $ 24,880,681 $ 27,803,002 $ 30,323,178 $31,613,278
Sponsorship Revenue 8,212,124 10,443,500 14,643,500 18,243,500
Television Revenue 1,871,500 4,826,500 6,376,500 7,401,500
Race Promotion 11,099,915 -- -- --
Engine Lease Revenue 1,900,000 1,800,000 1,800,000 --
Other Revenue 2,348,379 2,133,596 2,233,596 2,433,596
------------ ------------- ------------- -----------
Total Revenues 50,312,599 47,006,598 55,376,774 59,691,874
Expenses:
Team Payments
Purse and Year-end Points Fund 14,266,496 11,474,000 11,474,000 11,474,000
Team Participation Payments 7,220,000 5,400,000 5,400,000 5,400,000
Entry Support Payments 8,122,500 6,075,000 6,075,000 6,075,000
Cosworth Track Support 750,000 750,000 750,000 --
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Forecast Forecast Forecast Forecast
Consolidated Consolidated Consolidated Consolidated
2003 2004 2005 2006
------------ ------------ ------------ ------------
Team Assistance 31,825,000 2,000,000 -- --
----------- ---------- -- --
Sub-total Team Payments 62,183,996 25,699,000 23,699,000 22,949,000
Race Operations Expenses 8,720,985 7,248,611 7,248,611 7,248,611
Television Expenses 15,935,017 13,368,790 13,368,790 13,368,790
Race Promotion Expenses 20,569,136 -- -- --
Administrative and Indirect Expenses
Administrative 6,808,540 4,644,317 4,644,317 4,644,317
Legal 2,510,088 1,031,964 1,031,964 1,031,964
Marketing, Advertising and Sales 5,437,892 3,032,837 3,032,837 3,032,837
Corporate Communications and Public Relations 3,825,281 2,002,163 2,002,163 2,002,163
Joint Venture and Promoter Relations 2,206,313 1,050,013 1,050,013 1,050,013
----------- ----------- ----------- -----------
Sub-total Administrative 20,788,113 11,761,294 11,761,294 11,761,294
Litigation Expenses 2,722,432 -- -- --
Depreciation and amortization 3,877,622 3,864,383 1,826,936 2,163,273
Total Expenses 134,797,300 61,942,078 57,904,632 57,490,968
Operating Income (84,484,702) (14,935,480) (2,527,858) 2,200,906
Interest Income/(expense) 1,462,721 55,974 55,974 55,974
----------- ----------- ----------- -----------
Pretax Income (83,021,981) (14,879,506) (2,471,884) 2,256,880
Tax expense (benefit) 660,013 -- -- --
----------- ----------- ----------- -----------
Net Income (83,681,994) (14,879,506) (2,471,884) 2,256,880
=========== =========== =========== ===========
PURPOSE AND STRUCTURE OF THE MERGER
The principal purpose of the merger is to permit our stockholders to
receive cash in exchange for their shares of common stock and to enable Open
Wheel to obtain control of Championship in an orderly fashion so that Open Wheel
may pursue its long-term business objectives for Championship.
The reason Championship and Open Wheel structured the acquisition as a
merger is to effect a prompt and orderly transfer of ownership of Championship
from its current stockholders to Open Wheel and to provide Championship
stockholders with cash for their shares.
EFFECTS OF THE MERGER ON CHAMPIONSHIP AND CHAMPIONSHIP'S COMMON STOCK; PLANS OR
PROPOSALS AFTER THE MERGER
Following completion of the merger, our common stock will no longer be
publicly traded or listed on the NYSE or any other exchange or quotation system
where our common stock may at such time be listed or quoted. In addition, the
registration of our shares and our reporting obligations under the Exchange Act
will be terminated upon application to the SEC. Also, the by-laws of Acquisition
Corp. immediately prior to the completion of the merger will become
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those of Championship, and the directors and officers of Acquisition Corp.
immediately prior to the completion of the merger will become the directors and
officers of Championship.
Upon completion of the merger, Championship will be a privately held
corporation and Championship stockholders, other than Open Wheel and its
affiliates, will no longer hold an equity interest in Championship. Accordingly,
Championship stockholders, other than Open Wheel and its affiliates, will not
have the opportunity to participate in the earnings and growth of Championship
and will not have any right to vote on corporate matters. Similarly,
Championship's stockholders, other than Open Wheel and its affiliates, will not
face the risk of losses generated by Championship's operations or decline in the
value of Championship. Upon completion of the merger, each share of our common
stock that you own immediately prior to the completion of the merger will be
converted into the right to receive the per share merger consideration.
Open Wheel owns 100% of Acquisition Corp. Open Wheel owns 3,377,400
shares of our common stock. In the merger, Acquisition Corp. will merge with and
into Championship, with Championship as the surviving corporation. In the
merger, the shares of our common stock beneficially owned by Open Wheel and its
affiliates will be canceled and Open Wheel and its affiliates will not receive
any consideration in exchange for those shares. As a result of the merger,
Championship will be a wholly owned subsidiary of Open Wheel.
After the merger, as the sole stockholder of Championship, Open Wheel
will be entitled to the corresponding benefits and detriments resulting from its
interest in Championship, including income or losses generated by Championship's
operations and future increases or decreases in Championship's value.
Following the merger, Open Wheel intends to continue to operate the
business of Championship, including continuing to sanction the motorsports
series currently known as "Bridgestone Presents the Champ Car World Series
Powered by Ford." In order to improve the financial outlook of Championship,
Open Wheel is considering several actions. These actions focus on three
constituencies: fans, sponsors and teams. For the fans, these actions include
seeking to broaden the fan base by maintaining the current series format as well
as entering into strategic agreements with other parties (including MotoRock) to
organize and conduct music festivals, concerts, events and contests in
conjunction with CART racing series events. Open Wheel plans to provide enhanced
value to sponsors by increasing the fan base both at race venues and for
broadcast events. With respect to teams, Open Wheel believes that the financial
interests of the teams are best promoted by creating a stable business
environment to allow the successful operation of the teams over the long term.
In order to keep the racing and support series operating, Open Wheel may take
additional actions, including refocusing the racing schedule to better support
fans, sponsors and teams, expanding promoter relationships and increasing the
number of street races in the CART racing series.
Open Wheel's first priority for Championship is to stabilize its
financial outlook. The members of Open Wheel have committed (assuming completion
of the merger) additional funding of $15,000,000 to support operations of
Championship. Upon completion of the merger, Open Wheel will effect changes to
the board of directors and management of Championship.
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EFFECTS ON CHAMPIONSHIP IF THE MERGER IS NOT COMPLETED
If the requisite stockholder approvals in connection with the merger
are not obtained, or if the merger agreement is otherwise terminated, the merger
will not be completed. In addition, in certain circumstances described below
under "The Merger Agreement -- Fees and Expenses," Championship will be required
to pay Open Wheel a $350,000 termination fee.
If the merger is not completed for any reason, and if no alternative
transactions to the merger are available to Championship at such time, it is
expected that Championship will be required immediately to cease its operations,
wind up its affairs and seek to liquidate its remaining assets. We expect that
Championship's cash resources would be substantially depleted by that time. We
expect that without financial support from Championship, CART, Inc. and other
Championship subsidiaries would discontinue racing and other operations and
commence liquidation. No other transaction is currently being considered by the
Championship management or board of directors as an alternative to the merger.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of the board of directors with
respect to the merger agreement, you should be aware that, in addition to the
matters discussed above, certain of Championship's directors and executive
officers have interests in the merger that are in addition to, or different
from, the interests of the stockholders generally and that create potential
conflicts of interest. These interests are described below and in the section
entitled "-- Certain Relationships Between the Open Wheel Group and
Championship."
NEW EMPLOYMENT AGREEMENTS
Championship and Christopher R. Pook, Championship's President and
Chief Executive Officer, have entered into an amendment dated September 30, 2003
to the prior employment agreement between Championship and Mr. Pook dated
December 18, 2001. This amendment terminates the change in control "severance
benefits" in Mr. Pook's prior employment agreement. These change in control
"severance benefits" are described in detail below under "-- Interests of
Directors and Executive Officers in the Merger -- Prior Employment Agreements."
As consideration for termination of these change in control "severance
benefits," Championship caused its subsidiary CART, Inc. to enter into a new
consulting agreement with Mr. Pook, which would become effective upon completion
of the merger. If the merger agreement is terminated, the amendment will be void
and will have no effect and Mr. Pook will again be entitled to the change in
control "severance benefits."
The new consulting agreement with Mr. Pook would become effective upon
completion of the merger and continue until the earlier of May 31, 2006 or upon
expiration of sixty days' written notice by either party. If the merger
agreement is terminated, the new consulting agreement will be void and Mr.
Pook's prior employment agreement will be automatically reinstated. In the event
that Mr. Pook's employment under the new consulting agreement is terminated
without cause, he will continue to be compensated under the terms of the new
consulting agreement until May 31, 2006. The new consulting agreement provides
that Mr. Pook will make himself available to CART, Inc. and Championship to
facilitate the orderly transition of management, to provide information and
advice about CART, Inc.'s contractual relationships and to make public
appearances at certain events. Mr. Pook will
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be compensated for these services in the amount of $21,765 per month for the
first twelve months of the new consulting agreement and in the amount of $16,140
per month thereafter. Pursuant to the new consulting agreement, Mr. Pook has
agreed that until December 31, 2004, he will not directly or indirectly
participate as an owner, stockholder, manager, agent, consultant, director or
employee of a professional motorsport sanctioning body, league or series or any
affiliated organization, except that ownership of one percent or less of the
outstanding shares of a publicly traded company will not constitute a violation.
Furthermore, from January 1, 2005 through June 30, 2005, Mr. Pook must obtain
written permission from CART, Inc. before negotiating with another motorsport
group for employment or consulting services, or ownership or sponsorship rights.
On September 30, 2003, October 1, 2003 and October 3, 2003, CART, Inc.
entered into new employment agreements with David J. Clare, Championship's Chief
Operating Officer, Thomas L. Carter, Championship's Chief Financial Officer, and
John J. Lopes, CART, Inc.'s Vice President of Racing Operations, respectively,
that revised the terms of their prior employment agreements, including reducing
their base salaries upon completion of the merger, eliminating their change in
control "severance benefits," if any, and changing their employment status to
at-will employment, as well as other changes. Messrs. Clare, Carter and Lopes'
prior employment agreements are described below under "-- Interests of Directors
and Executive Officers in the Merger -- Prior Employment Agreements." The new
employment agreements render void the prior employment agreements that
Championship entered into with Messrs. Clare, Carter and Lopes on December 14,
2002, March 16, 2001 and August 15, 2001, respectively. However, if the merger
agreement is terminated, the new employment agreements will be void and the
prior employment agreements will be automatically revived, in the case of Mr.
Clare and Mr. Lopes, and continue without further action of the parties, in the
case of Mr. Carter. Pursuant to the new employment agreements, upon completion
of the merger, the base salaries of Messrs. Clare, Carter and Lopes would be
$210,000, $200,000, and $275,000, respectively.
PRIOR EMPLOYMENT AGREEMENTS
Championship entered into prior employment agreements with Messrs.
Pook, Clare and Lopes on December 18, 2001, December 14, 2002 and August 15,
2001, respectively. These prior employment agreements have been amended or
superseded by the new employment agreements described above under "-- Interests
of Directors and Executive Officers in the Merger -- New Employment Agreements,"
provided that these prior employment agreements will be automatically reinstated
in the event the merger agreement is terminated. These prior employment
agreements provide that in the event there is a "proposed change in control" of
Championship (such event occurred on August 18, 2003 when Open Wheel publicly
announced its intention to enter into a merger), the executive will remain in
the employ of Championship until the earliest of (1) a date which is 180 days
from the occurrence of such "proposed change in control," (2) the termination of
the executive's employment by reason of death or disability or (3) the date on
which the executive first becomes entitled to receive change in control
"severance benefits," as discussed below.
These prior employment agreements further provide that, in the event
the employment of Messrs. Pook, Clare or Lopes with Championship is terminated
as a result of an involuntary termination (which generally includes a
termination of the executive's employment by Championship without cause or by
the executive as a result of certain changes in the executive's
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status, position, responsibilities, duties, principal place of employment or
reductions in base salary, benefits or awards) within 24 months following the
date of a change in control, the executive will be entitled to receive the
following change in control "severance benefits":
- cash severance payment in an amount equal to three times the
executive's annual base salary at the rate in effect at the time of the
termination of employment, paid in a single lump sum not later than the
fifth day following the termination of employment (Mr. Lopes is
entitled to 2.99 times his annual base salary in effect at the time of
the termination of employment);
- continuation of employee benefits (either through the company or
through company-paid individual insurance policies on an after-tax
basis) for the executive and his dependents for a period of two years
following the termination of employment, or, if earlier, the
commencement of equivalent benefits from a new employer;
- payment of all salary, benefits, awards and accrued vacation time
earned through the date of termination of employment; and
- payment of all legal fees and expenses incurred as a result of such
termination of employment.
In addition, these prior employment agreements generally provide that,
if at the end of the two-year period after the termination of employment the
executive is not receiving equivalent employee benefits from a new employer,
then for a period not to exceed five years following the end of the two-year
period, Championship will arrange, at its sole cost and expense, to enable the
executive to convert his and his dependents' coverage under Championship's
benefit plans to, or continue coverage under, as applicable, individual policies
or programs upon the same terms as employees of Championship.
For fiscal year 2003, the annual base salaries of Messrs. Pook, Clare
and Lopes are $450,000, $235,000 and $302,500, respectively.
Adoption of the merger agreement by the requisite stockholder approvals
would have resulted in a change in control for purposes of Messrs. Pook, Clare
and Lopes' prior employment agreements. The estimated aggregate sum of the cash
severance payment and the continuation of benefits for a period of two years, to
which Messrs. Pook, Clare and Lopes would have been entitled under their prior
employment agreements upon an involuntary termination of their employment
immediately following the completion of the merger, is approximately $1,394,210,
$719,724 and $918,685, respectively. If benefits were to be continued for an
additional five years following the initial two-year period, the value of these
additional benefits to Messrs. Pook, Clare and Lopes would be approximately
$110,525, $36,810 and $35,525, respectively.
Championship entered into a prior employment agreement with Mr. Carter
on March 16, 2001. Mr. Carter's prior employment agreement will be superseded
upon completion of the merger by the new employment agreement described above
under "--Interests of Directors and Executive Officers in the Merger -- New
Employment Agreements," provided that Mr. Carter's prior employment agreement
will continue without further action of the parties in the event the merger
agreement is terminated. Mr. Carter's prior employment agreement has a four year
term but does not entitle him to any change in control "severance benefits." For
fiscal year 2003, the annual base salary of Mr. Carter is $210,000 under his
prior employment agreement.
STOCK OPTIONS
The termination prior to the completion of the merger of all
outstanding options to purchase our common stock, including those held by our
directors and executive officers, is a condition to the obligations of Open
Wheel and Acquisition Corp. to complete the merger. As of
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the date of this proxy statement, all holders of outstanding options to purchase
our common stock have entered into option termination agreements pursuant to
which their options will terminate immediately prior to the completion of the
merger.
CARL HAAS
Carl Haas, a former director who resigned from the Championship board
of directors on September 22, 2003, is a principal owner of Carl A. Haas
Enterprises, Inc., which owns part of Newman/Haas Racing, an entity that
participates in the CART racing series. Newman/Haas Racing is a participant in
CART, Inc.'s team participation, team assistance and entrant support programs
for the 2003 CART racing series. Pursuant to these programs, Newman/Haas has
received aggregate payments of $2,960,000 (as of October 3, 2003) and is
entitled to receive additional aggregate payments of $655,000 in connection with
the remainder of the 2003 CART racing series. In addition, for the first 16
races of the 2003 CART racing series, Newman/Haas has earned aggregate prize
money payments from CART, Inc. of $1,373,000.
Mr. Haas owns a parts distribution business, Carl A. Haas Automobile
Imports, Inc., that sells certain race car parts and receives commission on the
delivery of race cars. For 2003, Carl A. Haas Automobile Imports, Inc. has sold
race car parts to nine teams that participate in the CART racing series.
Mr. Haas beneficially owns 150,500 shares, or 1.02%, of our common
stock. The shares are held of record by Carl A. Haas Enterprises, Inc. and Mr.
Haas' spouse.
RAPHAEL SANCHEZ
Rafael Sanchez, one of our directors, is a principal owner of RAS
Development, Inc. In March, 2003, CART, Inc. entered into a five year lease
agreement with RAS Development, Inc. for office space in Miami, Florida.
Remaining payments to RAS Development, Inc. under this lease agreement total
$15,008, $91,098, $93,456, $96,812, $101,259 and $43,045 for 2003 (as at October
3, 2003), 2004, 2005, 2006, 2007 and 2008, respectively.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that the surviving corporation in the
merger will honor all of Championship's obligations to indemnify the current or
former directors or officers of Championship for acts or omissions by such
directors and officers occurring prior to the completion of the merger to the
extent that such obligations of Championship exist on the date of the merger
agreement, whether pursuant to the Championship charter, by-laws or otherwise.
This obligation to indemnify the current or former directors or officers of
Championship will survive the merger and will continue in full force and effect
in accordance with the terms of the Championship charter and by-laws from the
completion of the merger until the expiration of the applicable statute of
limitations with respect to any claims against such directors or officers
arising out of such acts or omissions.
The merger agreement also provides that, from the completion of the
merger until May 15, 2004, the surviving corporation in the merger will maintain
or cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by
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Championship with respect to claims arising from or related to facts or events
which occurred at or before the completion of the merger. Prior to the
completion of the merger, Championship may obtain "tail" coverage with respect
to such policies providing continuing insurance for claims made after May 15,
2004 arising from or related to facts or events which occurred at or before the
completion of the merger, provided that it may not pay more than $500,000 with
respect to premiums for such coverage. In the event that Championship does not
obtain such tail coverage prior to the completion of the merger, Open Wheel or
the surviving corporation in the merger will be required to obtain such tail
coverage, subject to the $500,000 limitation described above.
CERTAIN RELATIONSHIPS BETWEEN THE OPEN WHEEL GROUP AND CHAMPIONSHIP
GERALD FORSYTHE
Forsythe Voting Agreements. We have entered into two identical voting
agreements with Gerald R. Forsythe, dated September 11, 2002 and October 16,
2002, pursuant to which Mr. Forsythe has agreed, in connection with a "strategic
transaction" and for a period of three years from the respective dates of the
voting agreements, to vote all shares of our common stock owned by him and his
affiliates in excess of 14.9% of our outstanding common stock in accordance with
the recommendation of our board of directors with respect to the strategic
transaction. Under the voting agreements, "strategic transaction" includes the
merger, consolidation, sale of substantially all of the assets of Championship
to another entity not controlled by the existing Championship stockholders or
similar transaction, and therefore includes the merger. In consideration for
these voting agreements, Championship amended its stockholder rights agreement
to allow Mr. Forsythe and certain of his affiliates to acquire shares of our
common stock representing 15% or more of our outstanding common stock without
triggering the rights agreement. On September 26, 2003, Mr. Forsythe contributed
all of his shares of our common stock to Open Wheel. Therefore, in connection
with the merger, since Open Wheel is an affiliate of Mr. Forsythe and is
therefore subject to the Forsythe voting agreements, Open Wheel is required to
vote the shares of our common stock it holds in excess of 14.9% of our
outstanding common stock in accordance with the recommendation of our board of
directors. In addition, Open Wheel has agreed to vote the balance of the shares
of our common stock it holds in favor of the adoption of the merger agreement.
Promoter Agreements. Mr. Forsythe is a principal owner of Monterrey
Grand Prix, S. de R.L. de C.V. and Grupo Automovilistico Nacional y Deportivo,
S. de R.L. de C.V., entities that have entered into promoter agreements with
CART, Inc. pursuant to which these entities will promote the CART racing series
events held in Monterrey, Mexico and Mexico City, Mexico until December 31, 2005
and December 31, 2006, respectively. Monterrey Grand Prix, S. de R.L. de C.V.
has paid a sanction fee in the amount of $2,500,000 to CART, Inc. in connection
with the 2003 CART racing series event held in Monterrey. CART, Inc. has neither
received nor made any payments to Grupo Automovilistico Nacional y Deportivo, S.
de R.L. de C.V. during 2003.
Mexican Television Rights. Mr. Forsythe is a principal owner of
Promotion Entertainment of Mexico, LLC, the entity that holds the exclusive
right to broadcast, distribute and transmit CART series races via television and
radio in Mexico until December 31, 2006. In
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return for granting these rights to Promotion Entertainment of Mexico, LLC,
CART, Inc. received a minimum guaranteed payment of $300,000 in 2002 and a
minimum guaranteed payment of $325,000 in 2003, and is due to receive a minimum
guaranteed payment of $375,000 in 2004, $400,000 in 2005 and $425,000 in 2006.
In addition to the guaranteed minimum payments due in 2004, 2005 and 2006, CART,
Inc. will receive a guaranteed payment of up to 70% of the net profits of
Promotion Entertainment of Mexico, LLC, if any, until it receives an aggregate
amount of $625,000 in 2004, $650,000 in 2005 and $700,000 in 2006.
TEAM SUBSIDIES
Kevin Kalkhoven, Paul Gentilozzi and Gerald R. Forsythe, three of the
indirect owners of Open Wheel, each owns or has an interest in a team that
participates in the CART racing series. Mr. Kalkhoven's team (which fields one
car in the CART racing series) is PK Racing, Mr. Gentilozzi's team (which fields
one car in the CART racing series) is Rocketsports Racing and Mr. Forsythe's
team (which fields two cars in the CART racing series) is Player's/Forsythe
Racing. Messrs. Kalkhoven's and Gentilozzi's teams are participants in CART,
Inc.'s team participation, team assistance and entrant support programs for the
2003 CART racing series. Mr. Forsythe's team is a participant in the team
participation and entrant support programs for the 2003 CART racing series.
PK Racing and Rocketsports Racing have each received aggregate payments
under the team participation and entrant support programs of $680,000 (in each
case, as of October 3, 2003) and are each entitled to receive additional
aggregate payments of $127,500 in connection with the remainder of the 2003 CART
racing series. In addition, PK Racing and Rocketsports Racing have received
aggregate payments under the team assistance program of $800,000 and $1,600,000
(in each case, as of October 3, 2003), respectively, and are entitled to receive
additional aggregate payments of $200,000 and $400,000, respectively, in
connection with the remainder of the 2003 CART racing series. Player's/Forsythe
Racing has received aggregate payments under the team participation and entrant
support programs of $1,360,000 (as of October 3, 2003) and is entitled to
receive additional aggregate payments of $255,000 in connection with the
remainder of the 2003 CART racing series. By way of comparison, each car
participating in the 2003 CART racing series is entitled under the team
participation and entrant support programs to a payment of $42,500 per race and
the average total aggregate payment per car participating in the 2003 CART
racing series under the team assistance program is $1,989,062.
PRIZE MONEY
For the first 16 races of the 2003 CART racing series, PK Racing,
Rocketsports Racing and Player's/Forsythe Racing have received aggregate prize
money payments from CART, Inc. of $287,000, $362,500 and $1,420,250,
respectively.
FINANCING OF THE MERGER
The total amount of funds required to complete the merger and pay the
related fees and expenses is estimated to be approximately $[ ]. The
Contribution Agreement dated September 10, 2003, between Kevin Kalkhoven, Paul
Gentilozzi and Gerald R. Forsythe, on the one hand, and Championship, on the
other hand, a copy of which is attached hereto as Annex B, provides that,
subject to the satisfaction or waiver of the conditions to Open Wheel's and
Acquisition Corp.'s obligations to complete the merger, each of Messrs.
Kalkhoven, Gentilozzi
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and Forsythe will make or cause to be made to Open Wheel, prior to the
completion of the merger, capital contributions in an aggregate amount
sufficient to enable Open Wheel to pay the aggregate merger consideration. Mr.
Forsythe partially satisfied his contribution obligation by contributing all of
his shares, and causing his affiliates to contribute all of their shares of our
common stock to Open Wheel on September 26, 2003, as was required under the
Contribution Agreement.
PROVISIONS FOR UNAFFILIATED STOCKHOLDERS
Gerald R. Forsythe is one of the indirect owners of Open Wheel. Prior
to contributing all of his shares of our common stock to Open Wheel on September
26, 2003, Mr. Forsythe and his affiliates directly owned 3,377,400 shares of our
common stock, representing approximately 22.95% of our outstanding common stock
as of [ ], 2003. Due to this ownership, the members of the Open Wheel Group
might be deemed to be affiliated stockholders of Championship. Notwithstanding
Mr. Forsythe's substantial share ownership, Mr. Forsythe has not been a member
of our board of directors since October 2001, and our board of directors
believes he was not in a position to influence, and did not influence, our
board's consideration of and decision to pursue the transaction with Open Wheel.
Therefore, we concluded that despite the possibility that the members of the
Open Wheel Group might be deemed our affiliates, it was not necessary to make
any provisions in connection with the merger to grant unaffiliated stockholders
access to Championship's, Open Wheel's or Acquisition Corp.'s non-publicly
disclosed information, or to obtain counsel or appraisal services solely for
unaffiliated stockholders at Championship's expense or the expense of Open Wheel
or Acquisition Corp. We did, however, agree with Open Wheel that the merger
should be conditioned upon receipt of the unaffiliated stockholder approval.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO CHAMPIONSHIP'S
STOCKHOLDERS
The following is a summary of the material United States Federal income
tax consequences of the merger that are generally applicable to our stockholders
whose shares are exchanged for cash in the merger. The discussion is based on
current provisions of the Internal Revenue Code of 1986, as amended, or the
Code, and existing, proposed and temporary regulations promulgated thereunder
and administrative and judicial interpretations thereof, all of which are
subject to change, possibly with retroactive effects. The discussion does not
purport to consider all aspects of United States Federal income taxation that
might be relevant to our stockholders. The discussion applies only to
stockholders in whose hands shares of our common stock are capital assets within
the meaning of Section 1221 of the Code. This summary does not apply to certain
types of our stockholders subject to special rules, such as insurance companies,
financial institutions, dealers in securities or currencies, tax-exempt
organizations, holders of our shares who hold such shares as part of a position
in a straddle, or as part of a hedging, conversion or other integrated
transaction, stockholders who have a functional currency other than the U.S.
dollar, S corporations, small business investment companies, real estate
investment trusts, or traders who use a mark-to-market method of accounting for
their securities holdings. In addition, this discussion does not apply to shares
of our common stock received pursuant to the exercise of employee stock options
or otherwise as compensation. This discussion does not discuss the United States
Federal income tax consequences of the merger to any stockholder who, for United
States Federal income tax purposes, is a United States expatriate, a
non-resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust, nor does it consider the effect of any foreign, state
or local tax or any United States Federal tax other than income tax.
The exchange of shares of common stock for cash pursuant to the merger
will be a taxable sale of shares for United States Federal income tax purposes.
In general, a stockholder who receives cash in exchange for shares of our common
stock pursuant to the merger will recognize capital gain or loss for United
States Federal income tax purposes in an amount equal to the difference, if any,
between the amount of cash received and the stockholder's adjusted tax basis in
the shares exchanged for cash pursuant to the merger. Such gain or loss will be
long-term capital gain or loss provided that a stockholder's holding period for
such shares of common stock is more than one year at the time of completion of
the merger. Certain limitations apply to the use of a stockholder's capital
losses. The amount and character of gain or loss will be determined separately
for each block of shares (i.e., shares acquired at the same cost in a single
transaction) exchanged for cash pursuant to the merger.
INFORMATION REPORTING AND BACKUP TAX WITHHOLDING
Under the "backup withholding" provisions of United States Federal
income tax law, the paying agent for the merger may be required to withhold and
pay over to the Internal Revenue Service, referred to in this proxy statement as
the IRS, a portion of the amount of any payments you receive in connection with
the merger unless you (1) provide a correct taxpayer identification number
(which, if you are an individual, is your Social Security number) and any other
required information to the paying agent, or (2) are a corporation or come
within certain exempt categories and, when required, demonstrate this fact and
otherwise comply with
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applicable requirements of the backup withholding rules. If you do not provide a
correct taxpayer identification number, you may be subject to penalties imposed
by the IRS. Any amount withheld as backup withholding does not constitute an
additional tax and will be creditable against your United States Federal income
tax liability. If withholding results in an overpayment of taxes, a refund may
be obtained by filing a tax return with the IRS. You should consult with your
own tax advisor as to your qualification for exemption from backup withholding
and the procedure for obtaining such exemption.
If you are a United States person (as defined for United States Federal
income tax purposes), you may prevent backup withholding by completing the IRS
Form W-9 that will be included with the letter of transmittal mailed to you by
the paying agent and submitting the completed IRS Form W-9 to the paying agent
when you submit your stock certificate(s) following the completion of the
merger. Foreign stockholders should complete and sign the appropriate IRS Form
W-8 (a copy of which may be obtained from the paying agent) in order to avoid
backup withholding. Such stockholders should consult a tax advisor to determine
which IRS Form W-8 is appropriate. Please see the instructions in the letter of
transmittal for more details.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED ABOVE AND THE PARTICULAR TAX CONSEQUENCES OF THE MERGER ON THE
STOCKHOLDER IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES, INCLUDING THE
APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND ANY STATE, LOCAL AND
FOREIGN TAX LAWS AND OF THE POSSIBILITY AND RELEVANCE OF CHANGES IN SUCH LAWS.
APPRAISAL RIGHTS
Under Delaware law, if (1) you properly make a demand for appraisal in
writing prior to the vote taken at the special meeting and (2) your shares are
not voted in favor of the merger agreement, you will be entitled to exercise
appraisal rights under Section 262 of the General Corporation Law of the State
of Delaware. If you perfect your appraisal rights in accordance with Delaware
law, you will not receive the merger consideration. Instead, after completion of
the merger, a court will determine the fair value of your shares exclusive of
any value arising from the completion or expectation of the merger (including as
a result of any new capital that may become available to Championship as a
result of the merger). Appraisal rights will not be available if the merger is
not completed for any reason.
Section 262 is reprinted in its entirety as Annex E to this proxy
statement. The following discussion summarizes the material provisions of
Delaware law relating to appraisal rights and is qualified in its entirety by
reference to Annex E. You should review this discussion and Annex E carefully if
you wish to exercise statutory appraisal rights or you wish to preserve the
right to do so. Failure to strictly comply with the procedures set forth in
Section 262 will result in the loss of your appraisal rights.
If you:
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- make the written demand described below with respect to your shares
prior to the vote at the special meeting;
- are continuously the record holder of your shares from the date of
making the demand through the completion of the merger;
- otherwise comply with the statutory requirements of Section 262; and
- neither vote in favor of the merger agreement nor consent to the merger
agreement in writing, and if a proper petition is filed with the
Delaware Court of Chancery, as described below, you will be entitled to
an appraisal by the Delaware Court of Chancery of the "fair value" of
your shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate
of interest, if any, as determined by the Delaware Court of Chancery.
Although the Delaware courts have not endorsed any particular valuation
methodology for determining what constitutes "fair value" of a corporation's
stock, several types of analyses have regularly been used in appraisal
proceedings. Among these have been analyses based on discounted cash flow,
comparable companies and comparable transactions. A court's assessment of "fair
value" of Championship shares may be higher or lower than that determined by
these analyses or the per share merger consideration.
Under Section 262, where a merger agreement is to be submitted for
adoption at a meeting of stockholders, as in the case of the special meeting,
Championship must notify you that appraisal rights are available not less than
20 days prior to the meeting and include in the notice a copy of Section 262.
This proxy statement constitutes your notice of your appraisal rights, and the
applicable statutory provisions are attached to this proxy statement as Annex E.
If you desire to exercise your appraisal rights, you must not vote in
favor of the merger agreement and you must deliver a separate written demand for
appraisal to Championship prior to the vote at the special meeting. If you sign
and return a proxy without expressly directing, by checking the applicable box
on the enclosed proxy card, that your shares be voted against the proposal or
that an abstention be registered with respect to your shares in connection with
the proposal, you effectively will have waived your appraisal rights as to those
shares. This is because, in the absence of express contrary instructions, your
shares will be voted in favor of the proposal. See "Introduction--Voting and
Revocation of Proxies." Accordingly, if you desire to perfect appraisal rights
with respect to any of your shares, you must, as one of the procedural steps
involved in perfection, either (1) refrain from executing and returning the
enclosed proxy card and from voting in person in favor of the proposal to adopt
the merger agreement or (2) check either the "Against" or the "Abstain" box next
to the proposal on the proxy card or affirmatively vote in person against the
proposal or register in person an abstention with respect to the proposal.
Only a holder of record is entitled to assert appraisal rights for the
shares of Championship common stock registered in that holder's name. A demand
for appraisal must be executed by or on behalf of the holder of record and must
reasonably inform Championship of
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the holder's identity and that the holder of record intends to demand appraisal
of the holder's shares. If you have a beneficial interest in shares that are
held of record in the name of another person, such as a broker, fiduciary or
other nominee, you must act promptly to cause the record holder to follow
properly and in a timely manner the procedures to perfect appraisal rights, and
your demand must be executed by or for the record owner. If your shares are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, your demand must be executed by or for all joint owners. An authorized
agent, including an agent for two or more joint owners, may execute the demand
for appraisal. However, the agent must identify the record owner(s) and
expressly disclose the fact that, in exercising the demand, the agent is acting
as agent for the record owner(s).
A record owner, such as a broker, fiduciary or other nominee, who holds
shares as a nominee for others may exercise appraisal rights with respect to the
shares held for all or less than all of the beneficial owners of shares as to
which the person is the record owner. In that case, the written demand must set
forth the number of shares covered by the demand. Where the number of shares is
not expressly stated, the demand will be presumed to cover all shares in the
name of the record owner.
If you elect to exercise appraisal rights, you should deliver your
written demand to: Championship Auto Racing Teams, Inc., 5350 Lakeview Parkway
South Dr., Indianapolis, Indiana 46268, Attention: Secretary.
The written demand for appraisal should specify your name and mailing
address, the number of shares you own and that you are demanding appraisal of
your shares. A proxy or vote against the merger agreement will not by itself
constitute a demand. Within 10 days after the completion of the merger, the
surviving corporation must provide notice of the completion of the merger to you
if you have complied with Section 262.
Within 120 days after the completion of the merger, either Championship
or you, if you have complied with the required conditions of Section 262 and are
otherwise entitled to appraisal rights, may file a petition in the Delaware
Court of Chancery demanding a determination of the fair value of the shares of
all stockholders demanding an appraisal. Championship does not have any present
intention to file this petition in the event that a stockholder makes a written
demand for appraisal. Accordingly, if you desire to have your shares appraised,
you should initiate any petitions necessary for the perfection of your appraisal
rights within the time periods and in the manner prescribed in Section 262. If
you file a petition, you must serve a copy on Championship. If appraisal rights
are available and if you have complied with the applicable provisions of Section
262, within 120 days after the completion of the merger, you will be entitled,
upon written request, to receive from Championship a statement setting forth the
aggregate number of shares not voting in favor of the merger agreement and with
respect to which Championship received demands for appraisal, and the aggregate
number of holders of those shares. This statement must be mailed within 10 days
after the surviving corporation has received the written request for the
statement or within 10 days after the expiration of the period for delivery of
demands for appraisal rights, whichever is later.
If a petition for an appraisal is timely filed by a holder of
Championship shares and a copy is served upon the surviving corporation,
Championship will then be obligated within 20
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days to file with the Delaware Register in Chancery a duly verified list
containing the names and addresses of all stockholders who have demanded an
appraisal of their shares of common stock and with whom agreements as to the
value of their shares have not been reached. After notice to those stockholders
as required by the Court, the Delaware Court of Chancery is empowered to conduct
a hearing on the petition to determine those stockholders who have complied with
Section 262 and who have become entitled to appraisal rights. If you have
demanded an appraisal, the Delaware Court of Chancery may require you to submit
your stock certificates to the Delaware Register in Chancery for notation on the
stock certificates of the pendency of the appraisal proceeding. If you fail to
comply with this direction, the Delaware Court of Chancery may dismiss the
proceedings as to you. Where proceedings are not dismissed, the Delaware Court
of Chancery will appraise the shares owned by stockholders demanding an
appraisal, determining the "fair value" of those shares, together with a fair
rate of interest, if any, to be paid upon the amount determined to be the fair
value. The Delaware Court of Chancery's appraisal may be more than, less than or
equal to the per share merger consideration. You should be aware that investment
advisors' opinions as to fairness, from a financial point of view, are not
opinions as to "fair value" under Section 262. In determining fair value, the
Delaware Court of Chancery is to take into account all relevant factors. In
relevant case law, the Delaware Supreme Court discussed the factors that could
be considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered, and that "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that, in making this determination of fair value, the court may consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts ascertainable as of the date of the merger that
throw light on the future prospects of the merged corporation. The Delaware
Supreme Court also stated that "elements of future value, including the nature
of the enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered." Section 262,
however, provides that fair value is to be "exclusive of any element of value
arising from the accomplishment or expectation of the merger." In addition,
Delaware courts have decided that the statutory appraisal remedy, depending on
factual circumstances, may or may not be a dissenting stockholder's exclusive
remedy.
The Delaware Court of Chancery will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Championship common stock have been appraised. The cost of the
appraisal proceeding may be determined by the Delaware Court of Chancery and
taxed against the parties as the Delaware Court of Chancery deems equitable
under the circumstances. Upon application of a stockholder who has demanded an
appraisal, the Delaware Court of Chancery may order that all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all of
the shares entitled to an appraisal. In the absence of such a determination or
assessment, each party bears its own expenses.
If you have demanded appraisal in compliance with Section 262, you will
not, after the completion of the merger, be entitled to vote for any purpose any
shares subject to your demand or to receive payment of dividends or other
distributions on your shares, except for dividends or distributions payable to
holders of record as of a date prior to the completion of the merger.
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If no petition for appraisal is filed with the Delaware Court of
Chancery within 120 days after the completion of the merger, your rights to
appraisal will cease. You may withdraw your demand for appraisal by delivering
to Championship a written withdrawal of your demand for appraisal and an
acceptance of the merger. However, (1) any attempt to withdraw a demand for
appraisal made more than 60 days after the completion of the merger will require
written approval of Championship and (2) no appraisal proceeding in the Delaware
Court of Chancery may be dismissed as to any stockholder without the approval of
the Delaware Court of Chancery, and the approval may be conditioned upon such
terms as the Delaware Court of Chancery deems just.
If you fail to comply fully with the statutory procedure set forth in
Section 262, you will forfeit your rights of appraisal and will be entitled to
receive the per share merger consideration for each share of our common stock
that you own. Consequently, any stockholder wishing to exercise appraisal rights
should contact legal counsel before attempting to exercise these rights.
REGULATORY MATTERS
No federal or state regulatory requirements must be satisfied or
approvals obtained in connection with the merger.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. This description is qualified in its entirety by reference to the
merger agreement itself, a copy of which is attached as Annex A to this
document. You should read the merger agreement in its entirety because it is the
primary legal document that governs the merger.
COMPLETION OF THE MERGER
The merger agreement provides that, following the adoption of the
merger agreement by our stockholders and the satisfaction or waiver of the other
conditions to the merger, Acquisition Corp. will be merged with and into
Championship and Championship will be the surviving corporation. The merger will
become effective upon the filing of a certificate of merger with the Secretary
of State of Delaware or at a later time agreed to by the parties and specified
in the certificate of merger.
While we anticipate that the merger will be completed during the fourth
quarter of 2003, we cannot specify when, or assure you that, all conditions to
the merger will be satisfied or waived. We intend to complete the merger as
promptly as practicable subject to receipt of the requisite stockholder
approvals.
CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION
In the merger, the certificate of incorporation of the surviving
corporation will be amended at the completion of the merger in accordance with
the terms of the merger agreement. The by-laws of Acquisition Corp. immediately
prior to the completion of the merger will be the by-laws of the surviving
corporation. Also, the directors and officers of Acquisition Corp. immediately
prior to the completion of the merger will be the directors and officers,
respectively, of the surviving corporation, in each case until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified.
MERGER CONSIDERATION
At the completion of the merger, each issued and outstanding share of
our common stock, other than shares owned by Open Wheel or Acquisition Corp.,
all of which will be canceled without consideration, or shares owned by holders
that validly demand appraisal of their shares in accordance with Delaware law
and do not withdraw their demand or otherwise forfeit their appraisal rights,
will be converted into the right to receive the amount of cash, without interest
and rounded down to the nearest cent, equal to: (1) $8,242,156, divided by (2)
the aggregate number of shares of our common stock outstanding immediately prior
to the completion of the merger. Based on 14,718,134 shares of our common stock
outstanding on [ ], 2003 (which we will not take any action to increase while
this transaction is pending), the per share merger consideration would be $0.56.
At the completion of the merger, each holder of a certificate representing
shares of our common stock will cease to have any voting or other rights with
respect to those shares, except the right to receive the per share merger
consideration.
Prior to the completion of the merger, Open Wheel will designate a bank
or trust company reasonably acceptable to us to act as paying agent for the
payment of the merger
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consideration. Immediately following the completion of the merger, Open Wheel
will deliver to the paying agent funds necessary for the payment of the
aggregate merger consideration. As promptly as practicable after the completion
of the merger, the paying agent will mail a letter of transmittal to you. The
letter of transmittal will tell you how to surrender your Championship common
stock certificates in exchange for the per share merger consideration. Please do
not send your Championship common stock certificates now. You should send them
only in compliance with the instructions that will be provided in the letter of
transmittal. Holders who surrender their certificates to the paying agent,
together with a properly completed letter of transmittal, will receive the per
share merger consideration for each share of common stock represented by the
certificates surrendered. In all cases, the per share merger consideration will
be paid only in accordance with the procedures set forth in the merger agreement
and the letter of transmittal.
Holders of common stock whose certificates are lost, stolen or
destroyed will be required to make an affidavit identifying the certificate or
certificates as lost, stolen or destroyed and, if required by Open Wheel, to
post a bond in a reasonable amount as directed by Open Wheel to indemnify
against any claim that may be made against Open Wheel with respect to the
certificates.
None of Open Wheel, Acquisition Corp., us or the paying agent will be
liable to any person in respect of any merger consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
STOCK OPTIONS
We have agreed to take such action as may be required to terminate any
outstanding options to purchase our common stock prior to the completion of the
merger. The termination of all such options is a condition to Open Wheel's and
Acquisition Corp.'s obligations to complete the merger. As of the date of this
proxy statement, all holders of outstanding options to purchase our common stock
have entered into option termination agreements pursuant to which their options
will terminate immediately prior to the completion of the merger.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation to Complete the Merger. Each
party's obligation to complete the merger is subject to the satisfaction or
waiver on or prior to the closing date of the merger of the following
conditions:
- as required under Delaware law, the merger agreement must be
adopted by the affirmative vote of holders of a majority of
shares of our common stock outstanding and entitled to vote at
the special meeting;
- the merger must be approved by the holders of a majority of
shares of our common stock that are voted "for" or "against"
approval at the special meeting and are not held by Open Wheel
or its affiliates; and
- there must be no temporary restraining order, injunction or
law preventing the
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completion of the merger or preventing Open Wheel from either
owning our common stock or operating any material part of our
business following completion of the merger.
Conditions to Obligations of Open Wheel and Acquisition Corp. to
Complete the Merger. The obligations of Open Wheel and Acquisition Corp. to
complete the merger are further subject to the satisfaction or waiver on or
prior to the closing date of the merger of the following additional conditions:
- our representations and warranties in the merger agreement
must be true and correct in all material respects;
- we must have performed in all material respects all material
obligations required to be performed by us and complied in all
material respects with our material agreements and covenants,
in each case under the merger agreement;
- we must have furnished a certificate signed by our chief
executive officer certifying compliance with the conditions
summarized in the previous two bullet points;
- no more than 16% of shares of our common stock outstanding
immediately prior to the completion of the merger shall be
shares held by persons who validly demand appraisal of their
shares in accordance with Delaware law and do not withdraw
their demand or otherwise forfeit their appraisal rights;
- other than pending suits, actions or proceedings as disclosed
on the disclosure letter delivered to Open Wheel, any pending
or threatened suits, actions or proceedings by Open Wheel,
Acquisition Corp. or any of their affiliates, or any
derivative suit, action or proceeding in Delaware that under
applicable and controlling law would expire, or with respect
to which all plaintiffs would lose standing, at the completion
of the merger, the absence of pending or threatened suits,
actions or proceedings advancing non-frivolous claims against
Open Wheel, Acquisition Corp., us or any of our subsidiaries:
- that Open Wheel reasonably believes would not be covered
by Championship's existing insurance policies unless the
damages sought that are not covered by such insurance
policies (in Open Wheel's reasonable judgment) would not
exceed an aggregate amount of $250,000 for such suits,
actions or proceedings, or
- seeking any equitable relief preventing the consummation
of the merger (provided that such action, suit or
proceeding seeking to prevent consummation of the merger
is pending), preventing Open Wheel from owning shares of
our common stock or preventing Open Wheel from operating
any material part of our business;
- the by-laws of our subsidiary, CART, Inc., must have been
amended to disband
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the Franchise Board and to provide for the management of CART,
Inc. by a board of directors to be elected by us;
- each holder of any outstanding stock option must have agreed
to surrender that option;
- we must be able to pay our debts as and when such debts become
due and no bankruptcy petition seeking to commence a
bankruptcy case shall have been filed or be pending, unless
such bankruptcy petition (if it is involuntary) is dismissed
prior to the consummation of the merger and in no event later
than 60 days of its filing; and
- a material adverse effect with respect to Championship must
not have occurred.
As defined in the merger agreement, "material adverse effect" means (1)
any state of facts, change, development, effect, condition or occurrence that is
material and adverse to our and our subsidiaries', taken as a whole, business,
financial condition or results of operations, or that materially impair our
ability to perform our obligations under the merger agreement or to complete the
merger, or (2) any material adverse change in our relationship with the teams
participating in the CART racing series taken as a whole (provided that any net
decrease in the number of teams during the period between September 10, 2003 and
the closing of the merger will be considered a material adverse change in our
relationship with the teams taken as a whole), other than, in each case, any
state of facts, change, development, effect, condition or occurrence that:
- is disclosed in the disclosure letter delivered to Open Wheel
or otherwise disclosed in writing to Open Wheel prior to 5:00
p.m. New York City time on September 15, 2003; or
- arises out of or relates to:
- the economy, political conditions or the securities
markets in general,
- actions taken at Open Wheel's request or with its
consent,
- the failure to take actions prohibited by the merger
agreement or with respect to which Open Wheel refused to
provide its consent,
- the announcement or existence of the transactions
contemplated by the merger agreement,
- the industry in which we operate and not specifically
related to us,
- sponsors or sponsorships or the venues at which we or any
of our subsidiaries conducts or plans to conduct races or
- changes in the market price of our common stock.
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Conditions to our Obligation to Complete the Merger. Our obligation to
complete the merger is further subject to the satisfaction or waiver on or prior
to the closing date of the merger of the following additional conditions:
- Open Wheel's and Acquisition Corp.'s representations and
warranties in the merger agreement must be true and correct in
all material respects; and
- Open Wheel and Acquisition Corp. must have performed in all
material respects all material obligations required to be
performed by them and complied in all material respects with
their material agreements and covenants, in each case under
the merger agreement.
ALTERNATIVE ACQUISITION PROPOSALS
We have agreed that we will not, and will not permit our subsidiaries
to, nor shall we authorize any officer, director or employee of ours or any of
our subsidiaries, or any investment banker, attorney or representative of ours
or our subsidiaries to, enter into any agreement with respect to any proposal
for an alternative merger or other business combination or other acquisition of
over 20% of our stock or assets (any such proposal referred to in this proxy
statement as an alternative acquisition proposal), except as described below
under "-- Right to Accept a Superior Proposal" and except for a confidentiality
agreement. We have also agreed that, prior to obtaining the stockholder
approvals, we may, pursuant to a confidentiality agreement, provide to any
person or entity information with respect to an alternative acquisition
proposal. We must promptly advise Open Wheel orally and in writing of any
alternative acquisition proposal or related inquiry, the identity of the person
or entity making such proposal or inquiry and the material terms of such
proposal or inquiry. We must also keep Open Wheel informed of the status
(including any change to the material terms) of any such alternative acquisition
proposal or related inquiry.
In addition, we have agreed that our board of directors may not, except
as described below under "-- Right to Accept a Superior Proposal":
- withdraw or modify in a manner adverse to Open Wheel, or
propose publicly to withdraw or modify in a manner adverse to
Open Wheel, its recommendation of the merger agreement unless
it determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with
its fiduciary duties;
- without Open Wheel's written approval, amend Championship's
stockholder rights agreement, redeem the rights issued under
the rights agreement or take any action with respect to, or
make any determination under, the rights agreement, in each
case unless it determines in good faith, after consultation
with outside counsel, that it is necessary to do so in order
to comply with its fiduciary duties;
- approve any agreement relating to an alternative acquisition
proposal (other than a confidentiality agreement); or
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- approve or recommend, or propose publicly to approve or
recommend, any alternative acquisition proposal.
STOCKHOLDER RIGHTS AGREEMENT
As required by the merger agreement, on September 10, 2003 we amended
our stockholder rights agreement with Wells Fargo Minnesota, N.A., as rights
agent, to ensure that (a) neither Open Wheel nor any of its "affiliates" or
"associates" is or will become an "acquiring person," as those terms are defined
in the rights agreement, (b) no "distribution date" or "shares acquisition
date," as those terms are defined in the rights agreement, has occurred or will
occur by reason of the merger agreement and (c) all rights will expire
immediately prior to the completion of the merger.
RIGHT TO ACCEPT A SUPERIOR PROPOSAL
If, prior to obtaining the stockholder approvals, our board of
directors receives a proposal for an alternative merger or other acquisition of
over 50% of our stock or all or substantially all of our assets that our board
of directors determines in good faith, after consultation with its financial
advisor, is more favorable to our stockholders than the transactions
contemplated by the merger agreement, taking into account all the terms and
conditions of such proposal (any such proposal is referred to in this proxy
statement as a superior takeover proposal), then our board of directors may,
having first complied with the notification requirements summarized above under
"-- Alternative Acquisition Proposals" and taken into account any revised
proposal from Open Wheel, after three business days approve and recommend such
superior takeover proposal and cause the merger agreement to be terminated and
enter into a definitive agreement with respect to such superior takeover
proposal. If we terminate the merger agreement and enter into a definitive
agreement with respect to a superior takeover proposal, we will be required to
pay a termination fee of $350,000 to Open Wheel.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties with
respect to us and our subsidiaries relating to, among other things:
- organization, standing and power;
- subsidiaries and equity interests;
- capital structure;
- the authorization, execution, delivery, performance and
enforceability of the merger agreement and related matters;
- the absence of any conflict with, violation of, or default
under, organizational documents, contracts, judgments, orders,
laws or regulations as a result of entering into the merger
agreement or completing the merger;
- the consents we are required to obtain and the filings we are
required to make in
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connection with entering into the merger agreement and the
transactions contemplated by the merger agreement;
- the accuracy and completeness of the information contained in
the reports and financial statements that we file with the
SEC, and the compliance of our SEC filings with applicable
requirements of Federal securities laws;
- the accuracy and completeness of this proxy statement and our
Transaction Statement on Schedule 13E-3 at the time they are
filed with the SEC and, in the case of this proxy statement,
mailed to our stockholders and the compliance of our SEC
filings in connection with the merger with applicable
requirements of Federal securities laws;
- the conduct of our business, and the absence of a material
adverse effect (as defined above under "-- Conditions to the
Merger"), since December 31, 2002;
- the absence, since December 31, 2002, of specified types of
distributions, changes in benefits or compensation, accounting
changes or changes in tax elections;
- our material contracts and the absence of our material
violation of or material default under such contracts;
- tax, employee benefit plan, environmental, intellectual
property, property, labor and insurance matters;
- the absence of litigation;
- compliance with applicable laws;
- the absence of undisclosed broker's fees; and
- the receipt by us of an opinion from our financial advisor.
The merger agreement contains representations and warranties by Open
Wheel and Acquisition Corp. relating to, among other things:
- organization, standing and power;
- the capital structure of Acquisition Corp.;
- the authorization, execution, delivery, performance and
enforceability of the merger agreement and related matters;
- the absence of any conflict with, violation of, or default
under, organizational documents, contracts, judgments, orders,
laws or regulations as a result of entering into the merger
agreement or completing the merger;
- the consents Open Wheel and Acquisition Corp. are required to
obtain and the
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filings Open Wheel and Acquisition Corp. are required to make
in connection with entering into the merger agreement and the
transactions contemplated by the merger agreement;
- the accuracy and completeness of the information supplied for
inclusion in this proxy statement;
- the accuracy and completeness of the information contained in
their Transaction Statement on Schedule 13E-3 and the
compliance of the Schedule 13E-3 with applicable requirements
of Federal securities laws;
- the absence of undisclosed broker's fees;
- the sufficiency of funds available to Open Wheel to pay the
merger consideration and the contribution by Mr. Gerald R.
Forsythe and his affiliates of all of their shares of our
common stock to Open Wheel; and
- other than as specifically disclosed, the absence of
beneficial ownership of our common stock by Open Wheel,
Acquisition Corp. and their affiliates.
COVENANTS RELATING TO THE CONDUCT OF OUR BUSINESS
Except for matters set forth in the disclosure letter delivered to Open
Wheel pursuant to the merger agreement or as otherwise contemplated by the
merger agreement, until the completion of the merger we have agreed that we will
(and will cause our subsidiaries to) conduct our business in light of the
existing circumstances in the ordinary course, including operating in compliance
with law and making all required filings with the SEC. In addition, we have
agreed that we will not (and will not permit any of our subsidiaries to) take
any of the following actions, except as expressly contemplated by the merger
agreement or disclosed to Open Wheel in the disclosure letter, without Open
Wheel's prior written consent (such consent not to be unreasonably withheld,
delayed or conditioned):
- declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of our capital stock, other
than dividends and distributions by any direct or indirect
wholly owned subsidiary of Championship to its parent;
- split, combine or reclassify any of our capital stock or issue
or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of our capital
stock;
- purchase, redeem or otherwise acquire any shares of our
capital stock or any other securities or any options, calls,
warrants or rights to acquire any such shares or other
securities;
- except for certain permitted issuances, issue, deliver, sell
or grant any shares of our capital stock, any other voting
securities, any securities convertible into or exchangeable
for, or any options, warrants or rights to acquire, any such
shares,
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voting securities or convertible or exchangeable securities,
or "phantom" stock rights, stock appreciation rights or stock
based performance units;
- amend our or any of our subsidiaries' certificate of
incorporation, by-laws or other comparable organizational
documents;
- acquire or agree to acquire by merger or otherwise any
business, business organization, or division thereof, or any
assets, other than purchases in the ordinary course of
business consistent with prior practice;
- make any change in accounting methods, principles or practices
materially affecting our reported consolidated assets,
liabilities or results of operations, except for any such
change required by generally accepted accounting principles or
applicable law;
- sell, lease, license or otherwise dispose of, or subject to
any encumbrance, pledge or security interest, any material
properties or assets, except sales of assets or licensing
transactions in the ordinary course of business consistent
with prior practice;
- incur or guarantee any indebtedness for borrowed money, or
issue or sell any debt securities or warrants or rights to
acquire any debt securities, except for indebtedness for
borrowed money that (together with all other indebtedness for
borrowed money) does not exceed an aggregate principal amount
of $2,000,000;
- make any loans or capital contributions to, or investments in,
any other person, other than to or in Championship or any
direct or indirect wholly owned subsidiary of Championship;
- make or agree to make any new capital expenditure or
expenditures that, individually or in the aggregate, are in
excess of $50,000;
- make any election with respect to taxes or settle or
compromise any material tax liability or refund;
- grant to any director or executive officer:
- any increase in cash compensation, except increases in
the ordinary course of business of not more than 2% per
annum or increases required under employment agreements
in effect as of the date of the merger agreement, or
- any increase in severance or termination pay, except
increases required under any employment, severance or
termination agreements in effect as of the date of the
merger agreement;
- enter into any employment, severance, termination or other
agreement with any director or executive officer;
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- adopt or amend in any material respect any collective
bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or
understanding providing benefits to any current or former
employee, officer or director;
- enter into, modify or terminate any material contract;
- enter into, modify or terminate any sponsorship or promoter
contract;
- enter into, modify or terminate any contract with any of our
affiliates or subsidiaries; or
- authorize any of, or commit or agree to take any of, the
foregoing actions.
REASONABLE BEST EFFORTS
We and Open Wheel have agreed that each of us will use its reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or advisable to complete and make
effective, in the most expeditious manner practicable, the merger and the other
transactions contemplated by the merger agreement, including:
- obtaining any necessary actions or nonactions, consents and
waivers from governmental entities and making all necessary
registrations and filings and taking all reasonable steps as
may be necessary to obtain a consent or waiver from, or to
avoid an action or proceeding by, any governmental entity;
- in our case, obtaining all necessary consents or waivers from
third parties;
- in our case, defending any lawsuits or other legal
proceedings, whether judicial or administrative, challenging
the merger agreement or the completion of any of the
transactions contemplated by the merger agreement, including
seeking to have any stay, order or injunction entered by any
court or other governmental entity vacated or reversed;
- in our case, taking all action necessary to ensure that no
state takeover statute or similar statute or regulation
applies or becomes applicable to the merger, and if such a
statute or regulation becomes applicable, to minimize its
effect on the merger; and
- executing and delivering any additional instruments necessary
to complete the transactions contemplated by the merger
agreement and to fully carry out the purposes of the merger
agreement.
Open Wheel has agreed to cooperate with us at our request in connection
with the matters described in the second and third bullet points above.
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DIRECTORS' AND OFFICERS' INDEMNIFICATION
The merger agreement provides that the surviving corporation (or any
successor entity) in the merger will honor all of our obligations to indemnify
our current or former directors and officers for acts or omissions occurring
prior to the completion of the merger to the extent that such obligations exist
on the date of the merger agreement, whether pursuant to our charter, our
by-laws or otherwise, and such obligations will survive the merger and will
continue in full force and effect in accordance with the terms of our charter
and by-laws from the completion of the merger until the expiration of the
applicable statute of limitations with respect to any claims against such
directors or officers arising out of such acts or omissions.
The merger agreement further provides that from the completion of the
merger until May 15, 2004, the surviving corporation in the merger will maintain
or cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by us with respect to claims arising
from or related to facts or events that occurred at or before the completion of
the merger. Prior to the completion of the merger, we may obtain "tail" coverage
with respect to such policies providing continuing insurance for claims made
after May 15, 2004 arising from or related to facts or events which occurred at
or before the completion of the merger, provided that we may not pay more than
$500,000 with respect to premiums for such coverage. In the event that we do not
obtain such tail coverage before the completion of the merger, Open Wheel or the
surviving corporation in the merger will be required to obtain such tail
coverage, subject to the $500,000 limitation described above.
OTHER COVENANTS
The merger agreement also contains other covenants relating to the
special meeting, this proxy statement and the associated Schedule 13E-3, access
to information, confidentiality and public announcements.
FEES AND EXPENSES
General. The merger agreement provides that all fees and expenses
incurred in connection with the merger and the other transactions contemplated
by the merger agreement will be paid by the party incurring such fees or
expenses, whether or not the merger is completed.
Fees and Expenses of the Merger. The estimated fees and expenses in
connection with the merger are set forth in the table below:
Championship Financial Advisor Fees $1,500,000
Championship Legal, Accounting and Other Professional Fees $1,740,000
Open Wheel Financial Advisor Fees $ 275,000
Open Wheel Legal, Accounting and Other Professional Fees $ [ ]
Printing, Proxy Solicitation and Mailing Costs $ 60,450
Filing Fees $ 667
Paying Agent Fees $ [ ]
Miscellaneous $ [ ]
----------
Total $ [ ]
==========
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Termination Fee. We are required to pay a termination fee of $350,000
to Open Wheel if:
- we terminate the merger agreement because our board of
directors receives and accepts a superior takeover proposal as
described above under "-- Right to Accept a Superior
Proposal";
- Open Wheel terminates the merger agreement because
- our board of directors withdraws or adversely modifies
(or refuses, after request from Open Wheel, to affirm)
its recommendation of the merger agreement to our
stockholders, or proposes publicly to do so,
- without Open Wheel's written approval, our board of
directors amends our stockholder rights agreement,
redeems the rights issued under our rights agreement or
takes any action with respect to, or makes any
determination under, our rights agreement to comply with
its fiduciary duties and, as a result of such amendment,
redemption, action or determination, any person other
than Open Wheel and its affiliates is permitted to hold
more than 15% of our outstanding common stock or
- we enter into any definitive agreement to implement an
alternative acquisition proposal; or
- after the date of the merger agreement, any person or entity
makes an alternative acquisition proposal, the merger
agreement is terminated because the merger has not occurred on
or before February 15, 2004 and we then complete an
alternative merger or business combination or acquisition of
over 40% of our stock or assets within 12 months after the
termination of the merger agreement.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated:
- by mutual written consent of Open Wheel and us;
- by Open Wheel or us if the merger does not occur on or before
the later of February 15, 2004 and the date which is 61 days
from the date of any filing of an involuntary bankruptcy
petition with respect to us (a) that we reasonably expect will
be dismissed, (b) which we are using our best efforts to have
dismissed and (c) that is filed prior to February 15, 2004,
unless such failure to complete the merger is the result of a
material breach of the merger agreement by the party seeking
to terminate the merger agreement;
- by Open Wheel or us if a final and nonappealable order or
injunction issued by a governmental entity prohibits the
merger, unless such order or injunction is the
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result of a material breach of the merger agreement by the
party seeking to terminate the merger agreement;
- by Open Wheel or us if either of the stockholder approvals
described above under "Summary Term Sheet -- The Special
Meeting" is not obtained at a Championship stockholder meeting
called for that purpose;
- by Open Wheel if we breach or fail to perform in any material
respect any of our representations, warranties or covenants,
which breach or failure to perform (a) would give rise to a
failure of a condition to which the obligations of Open Wheel
and Acquisition Corp. are subject and (b) cannot be or has not
been cured within 30 days, after the giving of written notice
to us of the breach;
- by Open Wheel if, prior to obtaining each of the stockholder
approvals described above under "Summary Term Sheet -- The
Special Meeting," (a) our board of directors withdraws or
adversely modifies (or refuses, after request from Open Wheel,
to affirm) its recommendation of the merger agreement to our
stockholders, or proposes publicly to do so, (b) without
obtaining the prior written approval of Open Wheel, our board
of directors amends our rights agreement, redeems the rights
issued under our rights agreement or takes any action with
respect to, or makes any determination under, our rights
agreement to comply with its fiduciary duties and, as a result
of such amendment, redemption, action or determination, any
person other than Open Wheel and its affiliates is permitted
to hold more than 15% of our outstanding shares of common
stock or (c) we enter into any definitive agreement to
implement an alternative acquisition proposal;
- by us if our board of directors exercises its right to accept
a superior takeover proposal described above under "-- Right
to Accept a Superior Proposal"; or
- by us if Open Wheel or Acquisition Corp. breaches or fails to
perform in any material respect any of its representations,
warranties or covenants, which breach or failure to perform
cannot be or has not been cured within 30 days after the
giving of written notice to Open Wheel of the breach.
AMENDMENT
The merger agreement may be amended only by a written instrument signed
on behalf of each party. The merger agreement may be amended by the parties at
any time, except that once stockholder approval of the merger agreement has been
obtained, any amendment for which stockholder approval is required by law may
not be made without that further approval having been obtained.
EXTENSION; WAIVER
At any time prior to the completion of the merger, the parties may:
- extend the time for performance of any of the obligations or
other acts of the other
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parties;
- waive any inaccuracies in the representations and warranties
in the merger agreement or any document delivered under the
merger agreement; or
- waive compliance with any of the agreements or conditions
contained in the merger agreement, except that once
stockholder approval of the merger agreement has been
obtained, any waiver for which stockholder approval is
required by law may not be made without that further approval
having been obtained.
CONTRIBUTION AGREEMENT
The following is a summary of the material provisions of the
Contribution Agreement, dated as of September 10, 2003, entered into between
Kevin Kalkhoven, Paul Gentilozzi and Gerald R. Forsythe, on the one hand, and
Championship, on the other hand. This description is qualified in its entirety
by reference to the contribution agreement itself, a copy of which is attached
as Annex B to this document.
Under the contribution agreement, subject to us satisfying or Open
Wheel waiving each of the conditions to the merger described under "The Merger
Agreement -- Conditions to the Merger -- Conditions to Obligations of Open Wheel
and Acquisition Corp. to Complete the Merger," each of Messrs. Kalkhoven,
Gentilozzi and Forsythe has agreed to make or cause to be made to Open Wheel,
prior to the completion of the merger, capital contributions in an aggregate
amount sufficient to enable Open Wheel to deliver to the paying agent funds
necessary for the payment of the merger consideration under the merger
agreement.
In addition, under the contribution agreement, Mr. Forsythe agreed to
cause all shares of our common stock owned or controlled by him or any of his
affiliates to be contributed to Open Wheel immediately prior to the record date
for the special meeting, which he has already done.
Under the contribution agreement, each of Messrs. Kalkhoven, Gentilozzi
and Forsythe has also agreed to take all actions necessary to cause Open Wheel
and Acquisition Corp. to:
- file with the SEC the Transaction Statement on Schedule 13E-3 in
connection with the merger;
- cooperate with and assist us in connection with the filing of this
proxy statement; and
- vote all shares of our common stock owned by them in favor of the
adoption of the merger agreement at the special meeting.
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OTHER MATTERS
BENEFICIAL OWNERSHIP OF CHAMPIONSHIP COMMON STOCK
The following table sets forth information as of [ ], 2003 regarding
the beneficial ownership of our common stock by any person, other than any of
our directors and executive officers, known to us from our records and from
reports filed with the SEC on Schedule 13D and/or 13G to be the beneficial owner
of more than 5% of our common stock. Unless otherwise indicated, the owner has
sole voting and investment power with respect to the shares indicated.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(9)
------------------------------------ -------------------- -----------
Open Wheel Racing Series LLC (1) 3,377,400 22.95%
275 Middlefield Road, Second Floor
Menlo Park, CA 94025
Kevin Kalkhoven (1)(2) 3,377,400 22.95%
21st Century Racing Holdings LLC
275 Middlefield Road
Menlo Park, CA 94025
Paul Gentilozzi (1)(3) 3,377,400 22.95%
Big Bang Racing LLC
201 N. Washington Square
Suite 900
Lansing, MI 48933
Gerald R. Forsythe (1)(4) 3,377,400 22.95%
Willis Capital, L.L.C.
1111 South Willis Avenue
Wheeling, IL 60090
FMR Corp. (5) 1,471,600 9.99%
Edward C. Johnson, III
Abigail P. Johnson
82 Devonshire Street
Boston, MA 02109
Jonathan P. Vannini (6) 1,255,000 8.53%
828 Irwin Drive
Hillsborough, CA 94010
Fuller & Thaler Asset Management, 1,145,500 7.78%
Inc. (7)
Russell J. Fuller
411 Borel Avenue, Suite 402
San Mateo, CA 94402
Weatons Holdings Limited (8) 920,900 6.26%
17485 McLaren Road, Caledon Ontario
Canada L0N 1C0
------------------
(1) These shares are subject to the voting agreements described under
"Certain Relationships Between the Open Wheel Group and Championship-
Gerald R. Forsythe - Forsythe Voting Agreements."
(2) Kevin Kalkhoven and 21st Century Racing Holdings LLC are the beneficial
owners of these shares, which are beneficially owned by Open Wheel.
(3) Paul Gentilozzi and Big Bang Racing LLC are the beneficial owners of
these shares, which are beneficially owned by Open Wheel.
(4) Gerald Forsythe and Willis Capital, L.L.C. are the beneficial owners of
these shares, which are beneficially owned by Open Wheel.
-87-
(5) According to the Schedule 13G that was filed by FMR Corp. with the SEC
on February 13, 2003.
(6) According to the Schedule 13D/A that was filed by Mr. Vannini with the
SEC on November 29, 2001.
(7) According to the Schedule 13G that was filed by Fuller & Thaler Asset
Management, Inc. with the SEC on February 13, 2003.
(8) According to the Schedule 13G filed by Weatons Holdings Limited with
the SEC on August 15, 2003.
(9) Based on 14,718,134 shares outstanding on [ ], 2003.
The following table sets forth information regarding the beneficial
ownership of our common stock by each of our directors, the named executive
officers and all directors and executive officers as a group as of [ ], 2003.
Unless otherwise indicated, the owner has sole voting and investment power with
respect to the shares indicated (other than unissued securities, the ownership
of which has been imputed to the owner).
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS (2)
--------------------------------- ------------------------ ------------
Christopher R. Pook.............. 173,333 Vested Options 1.18%
James F. Hardymon................ 85,000 Vested Options *
James A. Henderson............... 1,000 Direct *
25,000 Vested Options
Rafael A. Sanchez................ 15,000 Vested Options *
Frederick T. Tucker.............. 15,000 Vested Options *
David J. Clare................... 25 Direct *
J. Carlisle Peet III............. 6,666 Vested Options *
Thomas L. Carter................. 3,000 Direct *
58,333 Vested Options
Vicki O'Connor................... 22,500 Vested Options *
All current directors and 4,025 Direct 2.75%
executive officers as a group 400,832 Vested Options
(9 persons)
------------------
* Represents less than 1% of Championship's outstanding common stock.
(1) "Vested Options" are stock options that may be exercised as of December
31, 2002. Each of our directors and executive officers has entered into
a stock option termination agreement pursuant to which their options
will be terminated immediately prior to the completion of the merger.
(2) Percentages are based upon 14,718,134 shares of common stock
outstanding on [ ], 2003.
-88-
OTHER MATTERS FOR ACTION AT THE SPECIAL MEETING
Our board of directors is not aware of any matters to be presented for
action at the special meeting other than those described in this proxy statement
and does not intend to bring any other matters before the special meeting.
However, if other matters should properly come before the special meeting or any
adjournment or postponement thereof, it is intended that the holders of proxies
solicited hereby will vote on those matters in their discretion.
COMMON STOCK TRANSACTIONS INFORMATION
The following table sets forth the total number of shares purchased by
Gerald R. Forsythe and his affiliates since September 30, 2001 and, for each
quarterly period since September 30, 2001, the total number of shares purchased
by Mr. Forsythe and his affiliates (excluding the other members of Open Wheel),
the range of prices paid for such shares and the average purchase price paid for
such shares:
NUMBER OF AVERAGE
SHARES PURCHASE
QUARTER ENDED PURCHASED RANGE OF PRICES PRICE
------------- --------- --------------- -----
December 31, 2001 417,700 $12.45-$14.50 $ 13.36
March 31, 2002 -- -- --
June 30, 2002 272,500 $ 8.46-$14.03 $ 9.39
September 30, 2002 1,172,400 $ 5.00 $ 5.00
December 31, 2002 -- -- --
March 31, 2003 135,000 $ 3.60-$ 3.65 $ 3.62
June 30, 2003 -- -- --
September 30, 2003 -- -- --
---------
Total 1,997,600
=========
In addition, on September 26, 2003, Mr. Forsythe and his affiliates
contributed all of their shares of our common stock to Open Wheel. This
contribution satisfied a portion of Mr. Forsythe's obligation under the
contribution agreement and under Open Wheel's operating agreement to contribute
funds to Open Wheel, together with Messrs. Kalkhoven and Gentilozzi, in an
aggregate amount sufficient to enable Open Wheel to pay the aggregate merger
consideration. Accordingly, the valuation of the shares of our common stock
contributed to Open Wheel by Mr. Forsythe and his affiliates was based on the
per share merger consideration (which, based on 14,718,134 shares of our common
stock outstanding on [ ], 2003, would be $0.56 per share).
-89-
STOCKHOLDER PROPOSALS
If the merger is completed, there will no longer be public stockholders
of Championship or public participation in any future meetings of our
stockholders. However, if the merger is not completed, we will hold a 2004
annual meeting of stockholders. In that event:
- Rule 14a-8 under the Exchange Act requires that a stockholder
proposal intended to be included in the proxy statement for
the 2004 annual meeting be received at our executive offices
no later than February 4, 2004. The proposal may be omitted
from the annual meeting proxy statement if the submitting
stockholder does not meet the applicable requirements under
Rule 14a-8; and
- stockholder proposals for new business or suggestions for
nominees to the board of directors submitted outside of Rule
14a-8 must be delivered to our Secretary at our principal
executive offices no later than April 18, 2004.
WHERE YOU CAN FIND MORE INFORMATION
Championship is subject to the informational reporting requirements of
the Exchange Act and, in accordance with the Exchange Act, files reports, proxy
statements and other information with the SEC. These reports, proxy statements
and other information can be inspected and copies made at the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and the SEC's
regional office at 175 W. Jackson Blvd., Suite 900, Chicago, Illinois 60604.
Copies of these materials can also be obtained from the Public Reference Room of
the SEC at its Washington address at prescribed rates. Information regarding the
operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Copies of these materials also may be accessed through the SEC's
web site at www.sec.gov. Our common stock currently trades on the NYSE under the
symbol "MPH." On October 6, 2003, however, the NYSE announced that our common
stock will be suspended from trading prior to the opening of trading on October
13, 2003, or such earlier date as our common stock commences trading in another
security marketplace or there is a material adverse development. We are
currently seeking to have our common stock quoted on the OTC Bulletin Board.
Championship and the Open Wheel Group have filed a Schedule 13E-3 with
the SEC with respect to the merger. As permitted by the SEC, this proxy
statement omits certain information contained in the Schedule 13E-3. The
Schedule 13E-3, including any amendments and exhibits filed or incorporated by
reference as a part of it, is available for inspection or copying as set forth
above. Statements contained in this proxy statement or in any document
incorporated in this proxy statement by reference regarding the contents of any
contract or other document are not necessarily complete and each of these
statements is qualified in its entirety by reference to that contract or other
document filed as an exhibit with the SEC.
If you would like to request documents from Championship, please do so
at least 10 business days before the date of the special meeting in order to
receive timely delivery of those documents prior to the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote your shares at the special meeting. We
have not authorized anyone to provide you with information that is different
from what is contained in this proxy statement.
This proxy statement is dated [ ], 2003. You should not assume that
the information contained in this proxy statement is accurate as of any date
other than that date, and the mailing
-90-
of this proxy statement to stockholders does not create any implication to the
contrary. This proxy statement does not constitute a solicitation of a proxy in
any jurisdiction where, or to or from any person to whom, it is unlawful to make
a proxy solicitation.
INFORMATION INCORPORATED BY REFERENCE
We incorporate by reference into this proxy statement the following
documents filed by Championship with the SEC:
- Championship's Annual Report on Form 10-K and Form 10-K/A for
the fiscal year ended December 31, 2002;
- Championship's Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 2003 and June 30, 2003; and
- Championship's Current Reports on Form 8-K dated May 6, 2003,
June 16, 2003, July 23, 2003, August 11, 2003, August 18,
2003, August 19, 2003, August 21, 2003, August 24, 2003,
September 10, 2003, September 18, 2003, October 3, 2003 and
October 6, 2003.
Any references to Private Securities Litigation Reform Act in
Championship's publicly-filed documents which are incorporated by reference in
this proxy statement are specifically not incorporated by reference in this
proxy statement. Championship's Form 10-K, Form 10-K/A, Forms 10-Q and Forms 8-K
are not presented in this proxy statement or delivered with it, but are
available, without exhibits, unless the exhibits are specifically incorporated
by reference in this proxy statement, to any person, including any beneficial
owner, to whom this proxy statement is delivered, without charge, upon written
or telephonic request directed to Championship Auto Racing Teams, Inc., 5350
Lakeview Parkway South Dr., Indianapolis, IN 46268, Attention: J. Carlisle Peet
III.
ADDITIONAL INFORMATION
To vote your shares of our common stock, please complete, date, sign
and return the enclosed proxy card as soon as possible in the enclosed
postage-prepaid envelope. Please call D.F. King & Co., Inc. at (800) 431-9643 if
you have any questions about this proxy statement or the merger or need
assistance with the voting procedures.
Requests for additional copies of this proxy statement or proxy cards
should be directed to D.F. King & Co., Inc. at the following address or
telephone number:
48 Wall Street,
New York, N.Y. 10005
Attention: Kathleen Moffatt
Telephone: (800) 431-9643
If you would like to request additional documents from us, please do so
by [ ], 2003 in order to receive them before the special meeting.
-91-
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
SPECIAL MEETING OF STOCKHOLDERS
[ ], 2003
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
FOLD AND DETACH HERE
CHAMPIONSHIP AUTO RACING TEAMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS ON [ ], 2003
The undersigned hereby appoints Thomas L. Carter and J. Carlisle Peet
III and each of them with the power of substitution and revocation, as attorneys
and proxies to appear and vote all shares of Championship Auto Racing Teams,
Inc. common stock held by the undersigned at the special meeting of stockholders
of Championship Auto Racing Teams, Inc. to be held on [ ], 2003 and at any and
all adjournments or postponements thereof, and the undersigned hereby instructs
said proxies to vote as indicated on the matter referred to on the reverse side
and described in the proxy statement for the meeting, and in accordance with
their judgment on all other matters that may properly come before the meeting.
All proxies will vote as specified on the reverse side. IN THE ABSENCE
OF SPECIFIC INSTRUCTIONS, PROXIES WILL VOTE FOR THE ADOPTION OF THE AGREEMENT
AND PLAN OF MERGER. To vote FOR the Board of Directors' recommendation, just
sign and date the reverse side - no boxes need be checked.
(CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
[X] Please mark your votes as in this example.
THE BOARD OF DIRECTORS OF CHAMPIONSHIP AUTO RACING TEAMS, INC. RECOMMENDS THAT
YOU VOTE FOR THE FOLLOWING PROPOSAL:
To adopt the Agreement and Plan of Merger, dated as of September 10,
2003, among Open Wheel Racing Series LLC, Open Wheel Acquisition Corporation, a
wholly owned subsidiary of Open Wheel Racings Series LLC, and Championship Auto
Racing Teams, Inc., pursuant to which, upon the merger becoming effective, each
share of common stock, par value $0.01 per share, of Championship Auto Racing
Teams, Inc., other than those held by Open Wheel Racing Series LLC or Open Wheel
Acquisition Corporation, or held by stockholders who perfect their appraisal
rights under Delaware law, will be converted into the right to receive the
amount of cash, without interest, equal to: (1) $8,242,156, divided by (2) the
total number of shares of our common stock outstanding immediately prior to the
completion of the merger.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Mark box at right if an address change [ ]
or comment has been made and note at left.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE.
Note: Please sign name(s) exactly as appearing hereon. When signing as attorney,
executor, administrator, or other fiduciary, please give your full title as
such. Joint owners should each sign personally.
Signature:______________________ Date:________________________
Signature:______________________ Date:________________________
ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of September 10, 2003,
among
OPEN WHEEL RACING SERIES LLC,
OPEN WHEEL ACQUISITION CORPORATION
and
CHAMPIONSHIP AUTO RACING TEAMS, INC.
================================================================================
TABLE OF CONTENTS
Page
ARTICLE I
The Merger
SECTION 1.01. The Merger............................................................................... A-1
SECTION 1.02. Closing.................................................................................. A-2
SECTION 1.03. Effective Time........................................................................... A-2
SECTION 1.04. Effects.................................................................................. A-3
SECTION 1.05. Certificate of Incorporation and By-laws................................................. A-3
SECTION 1.06. Directors................................................................................ A-3
SECTION 1.07. Officers................................................................................. A-3
ARTICLE II
Effect on the Capital Stock of the Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock.................................................................. A-3
SECTION 2.02. Exchange of Certificates................................................................. A-5
ARTICLE III
Representations and Warranties of the Company
SECTION 3.01. Organization, Standing and Power......................................................... A-8
SECTION 3.02. Company Subsidiaries; Equity Interests................................................... A-9
SECTION 3.03. Capital Structure........................................................................ A-10
SECTION 3.04. Authority; Execution and Delivery; Enforceability........................................ A-12
SECTION 3.05. No Conflicts; Consents................................................................... A-13
SECTION 3.06. SEC Documents; Undisclosed Liabilities................................................... A-15
SECTION 3.07. Information Supplied..................................................................... A-16
SECTION 3.08. Absence of Certain Changes or Events..................................................... A-17
SECTION 3.09. Tax Matters.............................................................................. A-18
SECTION 3.10. Absence of Changes in Benefit Plans...................................................... A-21
SECTION 3.11. ERISA Compliance......................................................................... A-22
SECTION 3.12. Litigation............................................................................... A-24
SECTION 3.13. Compliance with Applicable Laws.......................................................... A-24
A-i
SECTION 3.14. Environmental Matters.................................................................... A-24
SECTION 3.15. Contracts................................................................................ A-25
SECTION 3.16. Intellectual Property Matters............................................................ A-28
SECTION 3.17. Brokers.................................................................................. A-30
SECTION 3.18. Opinion of Financial Advisor............................................................. A-30
SECTION 3.19. Insurance................................................................................ A-31
SECTION 3.20. Title to Property........................................................................ A-32
SECTION 3.21. Labor Matters............................................................................ A-32
ARTICLE IV
Representations and Warranties of Parent and Sub
SECTION 4.01. Organization, Standing and Power......................................................... A-33
SECTION 4.02. Sub...................................................................................... A-33
SECTION 4.03. Authority; Execution and Delivery; Enforceability........................................ A-33
SECTION 4.04. No Conflicts; Consents................................................................... A-34
SECTION 4.05. Information Supplied..................................................................... A-35
SECTION 4.06. Brokers.................................................................................. A-36
SECTION 4.07. Financing................................................................................ A-36
SECTION 4.08. Stock Ownership.......................................................................... A-36
ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. Conduct of Business by the Company....................................................... A-37
SECTION 5.02. Company Takeover Proposals............................................................... A-41
ARTICLE VI
Additional Agreements
SECTION 6.01. Preparation of Proxy Statement; Stockholders Meeting..................................... A-43
SECTION 6.02. Access to Information; Confidentiality................................................... A-45
SECTION 6.03. Reasonable Best Efforts; Notification.................................................... A-46
SECTION 6.04. Stock Options............................................................................ A-47
SECTION 6.05. Indemnification.......................................................................... A-47
SECTION 6.06. Fees and Expenses........................................................................ A-48
SECTION 6.07. Public Announcements..................................................................... A-49
SECTION 6.08. Transfer Taxes........................................................................... A-49
A-ii
SECTION 6.09. Rights Agreements; Consequences if Rights Triggered...................................... A-49
SECTION 6.10. No Additional Representations............................................................ A-50
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation To Effect The Merger............................... A-50
SECTION 7.02. Conditions to Obligations of Parent and Sub.............................................. A-51
SECTION 7.03. Conditions to Obligation of the Company.................................................. A-53
SECTION 7.04. Frustration of Closing Conditions........................................................ A-53
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination.............................................................................. A-53
SECTION 8.02. Effect of Termination.................................................................... A-56
SECTION 8.03. Amendment................................................................................ A-56
SECTION 8.04. Extension; Waiver........................................................................ A-56
SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver................................ A-57
ARTICLE IX
General Provisions
SECTION 9.01. Nonsurvival of Representations and Warranties............................................ A-58
SECTION 9.02. Notices.................................................................................. A-58
SECTION 9.03. Definitions.............................................................................. A-59
SECTION 9.04. Interpretation; Disclosure Letters....................................................... A-60
SECTION 9.05. Severability............................................................................. A-61
SECTION 9.06. Counterparts............................................................................. A-62
SECTION 9.07. Entire Agreement; No Third-Party Beneficiaries........................................... A-62
SECTION 9.08. Governing Law............................................................................ A-62
SECTION 9.09. Assignment............................................................................... A-62
SECTION 9.10. Enforcement; Waiver of Jury Trial........................................................ A-63
A-iii
Exhibit A Amended Certificate of Incorporation
A-iv
AGREEMENT AND PLAN OF MERGER dated as of
September 10, 2003 (this "Agreement"), among OPEN
WHEEL RACING SERIES LLC, a Delaware limited liability
company ("Parent"), OPEN WHEEL ACQUISITION
CORPORATION, a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and CHAMPIONSHIP
AUTO RACING TEAMS, INC., a Delaware corporation (the
"Company").
WHEREAS the Boards of Directors of each of the Company and Sub
has approved and declared advisable, and the Board of Managers of Parent has
approved, this Agreement and the merger of Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of common stock, par value
$0.01 per share, of the Company (the "Company Common Stock"), including the
associated Company Rights (as defined in Section 3.03(a)), not owned by Parent,
Sub or the Company, other than the Appraisal Shares (as defined in Section
2.01(d)), will be converted into the right to receive in cash the Per Share
Merger Consideration (as defined in Section 2.01(c) below); and
WHEREAS Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), Sub shall be merged with and into the
Company
A-1
at the Effective Time (as defined in Section 1.03). At the Effective Time, the
separate corporate existence of Sub shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation") and shall succeed to
and assume all the rights and obligations of Sub in accordance with the DGCL.
The Merger and the other transactions contemplated by this Agreement are
referred to in this Agreement collectively as the "Transactions".
SECTION 1.02. Closing. The closing (the "Closing") of the
Merger shall take place at the offices of Cravath, Swaine & Moore LLP, 825
Eighth Avenue, New York, New York 10019 at 10:00 a.m., New York City time, on
the business day following the satisfaction (or, to the extent permitted by Law
(as defined in Section 3.05(a)) waiver by the applicable party or parties of the
conditions set forth in Article VII (other than those conditions that by their
terms cannot be satisfied until the time of the Closing but subject to the
satisfaction (or, to the extent permitted by Law, waiver by the applicable party
or parties) of such conditions), or at such other place, time and date as Parent
and the Company shall agree in writing; provided, however, that if all the
conditions set forth in Article VII shall not have been satisfied (or, to the
extent permitted by applicable Law, waived by the applicable party or parties)
on such business day, then the Closing shall take place on the first business
day after the date on which all such conditions shall have been satisfied (or,
to the extent permitted by applicable Law, waived by the applicable party or
parties). The date on which the Closing occurs is referred to in this Agreement
as the "Closing Date".
SECTION 1.03. Effective Time. Prior to the Closing, the
Company shall prepare, and on the Closing Date or as soon as practicable
thereafter the Company shall file with the Secretary of State of the State of
Delaware, a certificate of merger in form reasonably satisfactory to Parent (the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the DGCL.
The Merger shall become effective at such time as the Certificate of Merger is
duly filed with such Secretary of State, or at such other time as Parent and the
Company shall agree and specify in the Certificate of Merger (the
A-2
time the Merger becomes effective being the "Effective Time").
SECTION 1.04. Effects. The Merger shall have the effects set
forth in the DGCL, including in Section 259 thereof.
SECTION 1.05. Certificate of Incorporation and By-laws. (a)
The certificate of incorporation of the Surviving Corporation shall be amended
at the Effective Time to read in the form of Exhibit A (subject to Section
6.05).
(b) The by-laws of Sub as in effect immediately prior to
the Effective Time shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein (subject to Section 6.05) or
by applicable Law.
SECTION 1.06. Directors. The directors of Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of Sub immediately prior
to the Effective Time shall be the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected or appointed and qualified, as the case may be.
ARTICLE II
Effect on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock. At the Effective Time,
by virtue of the Merger and without any action on the part of the holder of any
shares of Company Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding
share of capital stock of Sub shall be
A-3
converted into and become one fully paid and nonassessable share of common
stock, par value $0.01 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned
Stock. Each issued and outstanding share of Company Capital Stock that is owned
by the Company, Parent or Sub shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and no cash or
other consideration shall be delivered or deliverable in exchange therefor. Each
issued and outstanding share of Company Capital Stock that is owned by any
subsidiary of the Company or Parent (other than Sub) shall be converted into and
become one fully paid and nonassessable share of common stock, par value $0.01
per share, of the Surviving Corporation.
(c) Conversion of Company Common Stock. (i) Subject to
Sections 2.01(b) and 2.01(d), each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (together with any Company
Rights if still outstanding) shall be converted into the right to receive, in
exchange for such share of Company Common Stock, the amount of cash, without
interest, equal to the quotient, rounded down to the nearest whole cent (the
"Per Share Merger Consideration"), of (A) $6,350,811 and (B) the aggregate
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time. Based on 14,718,134 shares of Company Common Stock outstanding,
and excluding 3,377,400 shares of Company Common Stock held by Parent or Sub,
the Per Share Merger Consideration would be $.56.
(ii) The cash payable upon conversion of shares of Company
Common Stock pursuant to this Section 2.01(c) is referred to collectively as the
"Merger Consideration". As of the Effective Time, all such shares of Company
Common Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock (a "Certificate") shall
cease to have any rights with respect thereto, except the right to receive
Merger Consideration upon surrender of such certificate in accordance with
Section 2.02, without interest.
A-4
(d) Appraisal Rights. Notwithstanding anything in this
Agreement to the contrary, shares of Company Capital Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by any
person who is entitled to demand and properly demands appraisal of such shares
pursuant to, and who complies in all respects with, Section 262 of the DGCL
("Section 262") and who, as of the Effective Time, shall not have effectively
withdrawn or otherwise forfeited appraisal rights (collectively, the "Appraisal
Shares") shall not be converted into Merger Consideration as provided in Section
2.01(c), but rather the holders of Appraisal Shares shall be entitled to payment
in accordance with Section 262; provided, however, that if any such holder shall
fail to perfect or otherwise shall waive, withdraw or lose the right to
appraisal under Section 262, then the right of such holder to be paid in
accordance with Section 262 shall cease and such Appraisal Shares shall be
deemed to have been converted as of the Effective Time into, and to have become
exchangeable solely for the right to receive, Merger Consideration pursuant to
Section 2.01(c). The Company shall give prompt notice to Parent of any demands
received by the Company for appraisal of any shares of Company Capital Stock,
and Parent shall have the right to participate in and direct all negotiations
and proceedings with respect to such demands. Prior to the Effective Time, the
Company shall not, without the prior written consent of Parent, make any payment
with respect to, or settle or offer to settle, any such demands, or agree to do
any of the foregoing.
SECTION 2.02. Exchange of Certificates. (a) Paying Agent.
Prior to the Effective Time, Parent shall select a bank or trust company
reasonably acceptable to the Company to act as paying agent (the "Paying Agent")
for the payment of the Merger Consideration upon surrender of Certificates.
Parent shall directly provide to the Paying Agent immediately following the
Effective Time all the cash necessary to pay for the shares of Company Common
Stock that were converted into the right to receive Merger Consideration
pursuant to Section 2.01(c) (such cash being hereinafter referred to as the
"Exchange Fund").
(b) Exchange Procedure. As promptly as practicable after
the Effective Time, the Paying Agent shall mail to each holder of record of
Certificates whose
A-5
shares were converted into the right to receive Merger Consideration pursuant to
Section 2.01(c), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for Merger Consideration. Upon surrender of a Certificate for cancellation to
the Paying Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the amount of cash
into which the shares of Company Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 2.01(c), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Company Common Stock that is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
Taxes (as defined in Section 3.09(n)) required by reason of the payment to a
person other than the registered holder of such Certificate or establish to the
satisfaction of Parent that such Tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the amount of cash, without interest, into which the
shares of Company Common Stock theretofore represented by such Certificate have
been converted pursuant to Section 2.01. No interest shall be paid or accrue on
the cash payable upon surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock.
The Merger Consideration paid in accordance with the terms of this Article II
upon conversion of any shares of Company Common Stock shall be paid in full
satisfaction of all rights pertaining to such shares of Company Common
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Stock and after the Effective Time there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of shares of
Company Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, any certificates formerly representing
shares of Company Common Stock are presented to the Surviving Corporation or the
Paying Agent for any reason, they shall be canceled and exchanged as provided in
this Article II.
(d) Termination of Exchange Fund. Any portion of the
Exchange Fund that remains undistributed to the holders of Company Common Stock
for nine (9) months after the Effective Time shall be delivered to Parent and
any holder of Company Common Stock who has not by then complied with this
Article II shall thereafter look only to Parent for payment of its claim for
Merger Consideration.
(e) No Liability. None of Parent, Sub, the Company or the
Paying Agent shall be liable to any person in respect of any cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law. If any Certificate has not been
surrendered prior to the date on which Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.05(b)), any such Merger
Consideration in respect of such Certificate shall, to the extent permitted by
applicable Law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
(f) Investment of Exchange Fund. The Paying Agent shall
invest any cash included in the Exchange Fund, as directed by Parent, on a daily
basis. Pending payment of such funds to the holders of Certificates for shares
of Company Capital Stock, such funds will be held and shall be invested by the
Paying Agent as Parent directs (so long as such directions do not impair the
rights of holders of Company Capital Stock) in the direct obligations of the
United States, obligations for which the full faith and credit of the United
States is pledged to provide for the payment of principal and interest or
commercial paper rated of the highest quality by Moody's Investors Services,
Inc.
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or Standard & Poor's. Parent will promptly replace any monies lost through any
investment made pursuant to this Section 2.02(f). If for any reason (including
losses) the Exchange Fund is inadequate to pay the amounts to which holders of
the Company Common Stock shall be entitled under this Article II, Parent and the
Surviving Corporation shall in any event be liable for payment thereof. The
Exchange Fund shall not be used except as provided in this Agreement. Any
interest and other income resulting from such investments shall be paid to
Parent or the Surviving Corporation, as Parent directs.
(g) Lost, Stolen or Destroyed Certificates. If any
Certificate has been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by Parent, the posting by such person of a bond in
such reasonable amount as Parent may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Paying Agent will
deliver in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration pursuant to this Article II.
ARTICLE III
Representations and Warranties of the Company
The Company represents and warrants to Parent and Sub that,
except as set forth in the letter dated as of the date of this Agreement and as
amended in accordance with Section 9.04, from the Company to Parent and Sub (the
"Company Disclosure Letter"):
SECTION 3.01. Organization, Standing and Power. The Company
and each of its subsidiaries (the "Company Subsidiaries") (a) is duly organized,
validly existing and in good standing (to the extent such jurisdiction
recognizes the concept of good standing) under the laws of the jurisdiction in
which it is organized, (b) has full corporate or limited liability company power
and authority, as applicable, and (c) possesses all governmental franchises,
licenses, permits, authorizations and approvals necessary to enable it to own,
lease or otherwise hold its
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properties and assets and to conduct its business as presently conducted, in
each case other than (except in the case of clauses (a) and (b) above with
respect to the Company and the Company Subsidiaries) such failures that,
individually or in the aggregate, have not had and are not reasonably likely to
have a Company Material Adverse Effect (as defined in Section 3.08(b)). The
Company and each Company Subsidiary is duly qualified to do business in each
jurisdiction where the nature of its business or the ownership or leasing of its
properties make such qualification necessary, other than failures to so qualify
that, individually or in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect. The Company has made available to Parent, Sub
or their Representatives (as defined in Section 9.03) true and complete copies
of the certificate of incorporation of the Company, as amended through the date
of this Agreement (as so amended, the "Company Charter"), and the by-laws of the
Company, as amended through the date of this Agreement (as so amended, the
"Company By-laws"), and the comparable charter and organizational documents of
each Company Subsidiary, in each case as amended through the date of this
Agreement.
SECTION 3.02. Company Subsidiaries; Equity Interests. (a)
Section 3.02(a) of the Company Disclosure Letter sets forth, as of the date of
this Agreement, a list of each Company Subsidiary and its jurisdiction of
organization. All the outstanding shares of capital stock or limited liability
company interests, as applicable, of each Company Subsidiary (i) are duly
authorized and have been validly issued and are fully paid and nonassessable, as
applicable, and free of preemptive rights and (ii) are owned by the Company, by
another Company Subsidiary or by the Company and another Company Subsidiary,
free and clear of all pledges, liens, charges, mortgages, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens").
There are no Contracts (as defined in Section 3.05(a)) or arrangements with
respect to the ownership, voting or disposition of any shares of stock of any
Company Subsidiary.
(b) Except for its interests in the Company Subsidiaries,
the Company does not, as of the date of this Agreement, own, directly or
indirectly, any capital stock,
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membership interest, partnership interest, joint venture interest or other
equity interest in any person.
SECTION 3.03. Capital Structure. (a) The authorized capital
stock of the Company consists of 50,000,000 shares of Company Common Stock and
5,000,000 shares of preferred stock, par value $0.01 per share (the "Company
Preferred Stock", and together with the Company Common Stock, the "Company
Capital Stock"). At the close of business on September 8, 2003, (i) 14,718,134
shares of Company Common Stock were issued and outstanding, (ii) no shares of
Company Common Stock were held by the Company in its treasury, (iii) 1,272,850
shares of Company Common Stock were subject to outstanding Company Employee
Stock Options (as defined in Section 3.11(g)), (iv) 1,500,000 shares of Company
Common Stock were reserved for issuance pursuant to the Company Stock Plans (as
defined in Section 3.11(g)), (v) no shares of Company Common Stock were reserved
for and subject to issuance in connection with the rights (the "Company Rights")
issued pursuant to the Amended and Restated Rights Agreement dated as of October
16, 2002 (as amended from time to time, the "Company Rights Agreement"), between
the Company and Wells Fargo Minnesota, N.A., as Rights Agent, and (vi) no shares
of Company Preferred Stock were issued and outstanding. Except as set forth
above, at the close of business on September 8, 2003, no shares of Company
Common Stock were issued, reserved for issuance or outstanding.
(b) Section 3.03(b) of the Company Disclosure Letter sets
forth a true and complete list, as of the close of business on September 8,
2003, of all outstanding Company Employee Stock Options and all other rights, if
any, to purchase or receive Company Common Stock or stock in any Company
Subsidiary or other rights issued or granted by the Company or any Company
Subsidiary, the number of shares subject thereto, the grant dates and exercise
prices thereof and the names of the holders thereof. The Company has made
available to Parent, Sub or their Representatives true and complete copies of
all option agreements governing Company Employee Stock Options. During the
period from September 8, 2003 to the date of this Agreement, there have been no
issuances by the Company of shares of Company Capital Stock other than issuances
of shares of Company Common Stock pursuant to the exercise of Company Employee
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Stock Options outstanding on such date as required by their terms as in effect
on the date of this Agreement.
(c) All outstanding shares of Company Capital Stock are,
and all such shares that may be issued prior to the Effective Time will be when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to or issued in violation of any purchase option, call option, right of
first refusal, preemptive right, subscription right or any similar right under
any provision of the DGCL, the Company Charter, the Company By-laws or any
Contract to which the Company or any Company Subsidiary is a party or otherwise
bound.
(d) There are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
holders of Company Common Stock may vote ("Voting Company Debt"). Except as set
forth above, there are no options, warrants, calls, rights, convertible or
exchangeable securities, "phantom" stock rights, stock appreciation rights,
stock-based performance units, profit participation rights, rights of
repurchase, other rights (other than rights that may have arisen under a Company
Stock Plan) linked to the price of Company Capital Stock, commitments,
Contracts, arrangements or undertakings of any kind to which the Company or any
Company Subsidiary is a party or by which any of them is bound (i) obligating
the Company or any Company Subsidiary to issue, deliver, sell or grant, or cause
to be issued, delivered, sold or granted additional shares of capital stock or
other voting securities or equity interests in, or any security convertible or
exchangeable into or exercisable for any capital stock of or other voting
security or equity interest in, the Company or any Company Subsidiary or any
Voting Company Debt, or (ii) obligating the Company or any Company Subsidiary to
issue, grant, extend or enter into any such option, warrant, call, right,
security, unit, commitment, Contract, arrangement or undertaking. There are not
any outstanding contractual obligations of the Company or any Company Subsidiary
to repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any Company Subsidiary. The Company has made available to Parent, Sub
or their Representatives a true and complete copy of the
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Company Rights Agreement, as amended to the date of this Agreement.
(e) Neither the Company nor any Company Subsidiary is a
party to any voting agreement, and, to the Company's Knowledge (as defined in
Section 9.03), there are no irrevocable proxies and no other agreements with
respect to the voting of the Company Capital Stock, other than those described
in the Schedule 13D filed by Parent on August 18, 2003.
SECTION 3.04. Authority; Execution and Delivery;
Enforceability. (a) The Company has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the Transactions in
accordance with the terms of this Agreement, subject, in the case of the
consummation of the Merger to receipt of the Company Stockholder Approval (as
defined in Section 3.04(c)). The execution and delivery by the Company of this
Agreement and the consummation by the Company of the Transactions in accordance
with the terms of this Agreement have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to approve this Agreement or to
consummate the Transactions, subject, in the case of the consummation of the
Merger, to receipt of the Company Stockholder Approval. The Company has duly
executed and delivered this Agreement, and, assuming due execution and delivery
hereof by Parent and Sub, this Agreement constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
(b) The Board of Directors of the Company (the "Company
Board"), at a meeting duly called and held, duly adopted resolutions (with each
disinterested director voting in favor thereof)(i) approving this Agreement, the
Merger and the other Transactions, (ii) determining that the terms of the Merger
and the other Transactions are fair to and in the best interests of the Company
and its stockholders, (iii) recommending that the Company's stockholders adopt
this Agreement and (iv) declaring that this Agreement is advisable. Assuming the
accuracy of Parent's and Sub's representations and warranties in Section 4.08,
such resolutions and the previous actions taken by the Company Board are
sufficient to render
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inapplicable the provisions of Section 203 of the DGCL to (i) the formation of
Parent, (ii) this Agreement, (iii) the Merger, (iv) the other Transactions, and
(v) the acquisition of 1,172,400 shares of Company Common Stock by the Forsythe
Parties (as defined in Section 4.08 hereof) on September 12, 2002. No other
state takeover statute or similar statute or regulation applies or purports to
apply to the Company with respect to this Agreement, the Merger or any other
Transaction.
(c) Assuming the accuracy of Parent's and Sub's
representations and warranties in Section 4.08, the only vote of holders of any
class or series of Company Capital Stock necessary to approve and adopt this
Agreement and the Merger is the adoption of this Agreement by the holders of a
majority of the outstanding Company Common Stock (the "Company Stockholder
Approval"). The affirmative vote of the holders of Company Capital Stock, or any
of them, is not necessary to consummate any Transaction other than the Merger.
SECTION 3.05. No Conflicts; Consents. (a) The execution and
delivery by the Company of this Agreement do not, and the consummation of the
Merger and the other Transactions and the compliance with the terms hereof will
not, conflict with, or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any Company Subsidiary under, any provision of (i) the Company
Charter, the Company By-laws or the comparable charter or organizational
documents of any Company Subsidiary, (ii) any material contract (whether written
or oral), lease, license, indenture, note, bond, agreement, permit, concession,
franchise or other instrument (other than a Company Benefit Plan (as defined in
Section 3.10)) (a "Contract") to which the Company or any Company Subsidiary is
a party or by which any of their respective properties or assets is bound or
(iii) subject to the filings and other matters referred to in Section 3.05(b),
any material judgment, order or decree ("Judgment") or material statute, law,
ordinance, rule or regulation ("Law"), in each case,
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applicable to the Company or any Company Subsidiary or their respective
properties or assets.
(b) No material consent, approval, license, permit, order
or authorization ("Consent") of, or material registration, declaration or filing
with, or material permit from, any domestic or foreign (whether national,
federal, state, provincial, local or otherwise) government or any court of
competent jurisdiction, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (each, a
"Governmental Entity") is required to be obtained or made by the Company or any
Company Subsidiary in connection with the execution, delivery and performance of
this Agreement by the Company or the consummation of the Transactions, other
than (i) the filing with the Securities and Exchange Commission (the "SEC") of
(A) a proxy statement relating to the adoption of this Agreement by the
Company's stockholders (as amended or supplemented from time to time, the "Proxy
Statement"), (B) a Transaction Statement on Schedule 13E-3 (as amended or
supplemented from time to time, the "Schedule 13E-3") and (C) such reports under
Sections 13 and 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement, the
Merger and the other Transactions, (ii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of the other jurisdictions in which the Company is
qualified to do business, (iii) such filings as may be required in connection
with the Taxes described in Section 6.08, (iv) such filings as may be required
under the rules and regulations of the New York Stock Exchange, Inc., or (v)
such other items required solely by reason of the participation of Parent (as
opposed to any third party) in the Transactions.
(c) Assuming the accuracy of Parent's and Sub's
representations and warranties in Section 4.08, the Company and the Company
Board have taken all action necessary to (i) render the Company Rights
inapplicable to (A) the formation of Parent, (B) this Agreement, (C) the Merger,
(D) the other Transactions and (E) the acquisition of 1,172,400 shares of
Company Common Stock by the Forsythe Parties on September 12, 2002, and (ii)
ensure that (A) neither Parent nor any of its affiliates or associates
A-14
is or will become an "Acquiring Person" (as defined in the Company Rights
Agreement) by reason of this Agreement, the Merger or any other Transaction, (B)
a "Distribution Date" (as defined in the Company Rights Agreement) or a "Shares
Acquisition Date" (as defined in the Company Rights Agreement) shall not occur
by reason of this Agreement, the Merger or any other Transaction and (C) the
Company Rights shall expire immediately prior to the Effective Time.
SECTION 3.06. SEC Documents; Undisclosed Liabilities. (a) The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company with the SEC since January 1, 2002 (the
"Company SEC Documents").
(b) As of its respective date, each Company SEC Document
complied in all material respects with the requirements of the Exchange Act or
the Securities Act of 1933, as amended (the "Securities Act"), as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such Company SEC Document, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The consolidated financial
statements (the "Company Financial Statements") of the Company included in the
Company SEC Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Each certification
included in the Company SEC Documents pursuant to Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") was accurate when made.
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(c) Other than as disclosed in the Company Financial
Statements, as of the date of this Agreement, neither the Company nor any
Company Subsidiary has any material liabilities or material obligations of any
nature (whether accrued, absolute, contingent or otherwise) other than
liabilities that, individually or in the aggregate, have not had or are not
reasonably likely to have a Company Material Adverse Effect.
(d) None of the Company Subsidiaries is subject to the
reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act.
SECTION 3.07. Information Supplied. (a) At the time the Proxy
Statement is filed with the SEC, at any time it is amended or supplemented or at
the time it is first mailed to stockholders of the Company, neither the Proxy
Statement, as amended or supplemented, if applicable, nor the Schedule 13E-3, as
amended or supplemented, if applicable, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty is made by the Company in this Section 3.07(a) with
respect to statements made or incorporated by reference therein based on
information supplied solely by Parent, Sub or their Representatives for
inclusion or incorporation by reference in such documents.
(b) Each document required to be filed by the Company
with the SEC or required to be distributed or otherwise disseminated to the
Company's stockholders in connection with the Merger and the other Transactions,
including the Proxy Statement and the Schedule 13E-3 (other than portions of the
Schedule 13E-3 attributable to Parent or Sub), and any amendments or supplements
thereto, when filed, distributed or disseminated, as applicable, will comply in
all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation or
warranty is made by the Company with respect to statements made or incorporated
by reference therein based on information supplied solely by Parent, Sub or
their Representatives for inclusion or incorporation by reference therein.
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SECTION 3.08. Absence of Certain Changes or Events. (a) From
December 31, 2002 to the date of this Agreement, the Company has conducted its
business in the ordinary course.
(b) From December 31, 2002 to the date of this Agreement,
there has not been a material adverse effect on the Company or any material
adverse change in the Company's relationship with the Teams (as defined in
Section 3.15(k)) taken as a whole, provided that any net decrease during such
time period in the number of teams participating or planning to participate in
races sanctioned by the Company or any Company Subsidiary (not taking into
account any decrease in participation of Teams owned or operated by any direct
or indirect owners of Parent) will be considered a material adverse change in
the Company's relationship with the Teams taken as a whole, in each case other
than any state of facts, change, development, effect, condition or occurrence
(i) disclosed on the Company Disclosure Letter or otherwise disclosed in writing
to Parent, Sub or their representatives prior to the Final Disclosure Date (as
defined in Section 9.04) or (ii) arising out of or relating to (A) the economy,
political conditions or the securities markets in general, (B) actions taken at
Parent's request or with its consent, (C) the failure to take actions prohibited
by this Agreement or with respect to which Parent refused to provide its
consent, (D) the announcement or existence of the Transactions, (E) the industry
in which the Company operates and not specifically related to the Company, (F)
sponsors, sponsorships or the venues at which the Company or a Company
Subsidiary conducts or plans to conduct its races, or (G) changes in the market
price of the Company Common Stock (a "Company Material Adverse Effect").
(c) From December 31, 2002 to the date of this Agreement,
there has not been:
(i) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect
to any Company Capital Stock or any repurchase for value by the Company
of any Company Capital Stock;
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(ii) any split, combination or reclassification of any Company
Capital Stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for
shares of Company Capital Stock;
(iii) (A) any granting by the Company or any Company
Subsidiary to any director or officer of the Company or any Company
Subsidiary of any increase in cash compensation, except increases in
the ordinary course of business of not more than 2% per annum or
increases required under employment agreements disclosed in Section
3.15 of the Company Disclosure Letter, (B) any granting by the Company
or any Company Subsidiary to any such director or officer of any
increase in severance or termination pay, except increases required
under any employment, severance or termination agreements disclosed in
Section 3.15 of the Company Disclosure Letter, or (C) any entry by the
Company or any Company Subsidiary into any employment, severance or
termination agreement with any such director or officer;
(iv) any change in accounting methods, principles or practices
by the Company or any Company Subsidiary materially affecting the
reported consolidated assets, liabilities or results of operations of
the Company, except insofar as may have been required by a change in
GAAP or applicable Law; or
(v) any material elections with respect to Taxes by the
Company or any Company Subsidiary or settlement or compromise by the
Company or any Company Subsidiary of any material Tax liability or
refund.
SECTION 3.09. Tax Matters. (a) The Company and each Company
Subsidiary has timely filed, or has caused to be timely filed on its behalf, all
Tax Returns (as defined below) required to be filed by it prior to the date of
this Agreement. All such Tax Returns are true, complete and accurate in all
material respects. All Taxes shown to be due on such Tax Returns have been
timely paid.
(b) Taxes incurred by the Company and the Company
Subsidiaries but not yet due and payable do not
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exceed the reserve for Taxes set forth on the most recent financial statements
contained in the Company SEC Documents for all Tax periods and portions thereof
through the date of such financial statements. No material Taxes will be
incurred by the Company or any Company Subsidiary for periods ending after the
date of the most recent financial statements contained in the Company SEC
Documents through the Effective Time other than in the ordinary course of
business.
(c) No audit is currently pending with respect to any Tax
Return of the Company or any Company Subsidiary nor, to the Company's Knowledge,
has an audit, examination or other similar review been threatened by any Tax
Authority (as defined below). Neither the Company nor any Company Subsidiary has
waived any statute of limitations in respect of Taxes or agreed to any extension
of time for the assessment of any Tax. There are no outstanding rulings of, or
requests for rulings by, any Tax Authority addressed to the Company or any
Company Subsidiary, that are, or if issued would be, binding on the Company or
any Company Subsidiary. No written claim has been made in the past five years by
a Tax Authority in a jurisdiction where the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction.
(d) The federal income Tax Returns of the Company and
each Company Subsidiary (whether or not consolidated in the Tax Returns for the
Company Group) have been examined by and fully and finally settled with the
United States Internal Revenue Service, or have closed by virtue of the
expiration of the applicable statute of limitations, for all tax years ended on
or before December 31, 1999. Copies of all Tax Returns of the Company and the
Company Subsidiaries as filed, including any amendments thereof, relating to
income for periods ending after December 31, 1999 have been made available, and
shall be delivered on request, to Parent, Sub or their Representatives. All
assessments for Taxes due with respect to such completed and settled
examinations or any concluded litigation have been fully paid.
(e) There are no material Liens for Taxes (other than for
current Taxes not yet due and payable) on the assets of the Company or any
Company Subsidiary.
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(f) Neither the Company nor any Company Subsidiary has
been a member of an affiliated group filing a consolidated federal income Tax
Return other than the group in which the Company is the common parent (the
"Company Group"). Neither the Company nor any Company Subsidiary is a party to
any Tax allocation or sharing agreement or any other material agreement with
respect to Taxes, in each case other than agreements between or among the
Company and the Company Subsidiaries and no other person. The Company and the
Company Subsidiaries do not have any liability for the Taxes of any person other
than the Company and the Company Subsidiaries (i) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign law),
(ii) as a transferee or successor, (iii) by contract, or (iv) otherwise.
(g) The Company and the Company Subsidiaries have
withheld and paid all material Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party.
(h) Neither the Company nor any Company Subsidiary will
be required, as a result of a change in method of accounting for any period
ending on or before or including the Effective Time, to include any adjustment
under Section 481(c) of the Code (or any similar or corresponding provision or
requirement under any other Tax Law) in Taxable income for any period ending on
or after the Effective Time.
(i) The Company is not subject to any limitations under
Code Sections 382 or 383 on the use of its federal net operating loss or credit
carryforwards.
(j) The Company is not obligated to make any payments,
and is not a party to any agreement that under certain circumstances could
obligate it to make any payments, that will not be deductible under Code Section
162(m) or Section 280G.
(k) The Company has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2).
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(l) Neither the Company nor the Company Subsidiaries have
a permanent establishment in any country with which the United States of America
has a relevant Tax treaty, as defined in such relevant Tax treaty, and does not
otherwise operate or conduct business through any branch in any country other
than the United States.
(m) The Company has never been either a "distributing
corporation" or a "controlled corporation" in connection with a distribution of
stock qualifying for tax-free treatment, in whole or in part, pursuant to
Section 355 of the Code.
(n) For purposes of this Agreement:
"Tax Authority" means any domestic, foreign, federal,
national, state, county, municipal, provincial or other local government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
body exercising tax regulatory authority.
"Taxes" includes all forms of taxation imposed by any domestic
or foreign (whether national, federal, state, provincial, local, or otherwise)
Governmental Entity, including income, franchise, property, sales, use, excise,
employment, unemployment, payroll, social security, estimated, value added, ad
valorem, transfer, recapture, withholding and other Taxes of any kind, including
all interest, penalties and additions thereto.
"Tax Return" means all domestic or foreign (whether national,
federal, state, provincial, local or otherwise) returns, declarations,
statements, reports, schedules, forms and information returns and any amended
Tax return relating to Taxes.
SECTION 3.10. Absence of Changes in Benefit Plans. Since
December 31, 2002, there has not been any adoption or amendment in any material
respect by the Company or any Company Subsidiary of any collective bargaining
agreement or any bonus, employee pension benefit plans (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) ("Company Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA)
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("Company Welfare Plans"), deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other plan,
arrangement or understanding providing benefits to any current or former
employee, officer or director of the Company or any Company Subsidiary
(collectively, "Company Benefit Plans"). As of the date of this Agreement there
are not any severance or termination agreements or arrangements between the
Company or any Company Subsidiary and any current or former officer or director
of the Company or any Company Subsidiary (collectively, the "Company Benefit
Agreements").
SECTION 3.11. ERISA Compliance. (a) Section 3.11 of the
Company Disclosure Letter sets forth, as of the date of this Agreement, a list
and brief description of all Company Benefit Plans maintained, or contributed
to, by the Company or any Company Subsidiary (or to which the Company or any
Company Subsidiary is obligated to make payments or otherwise may have any
liability) for the benefit of any current or former employees, consultants,
officers or directors of the Company or any Company Subsidiary. Each Company
Benefit Plan has been administered in compliance with its terms and applicable
Law, other than instances of noncompliance that, individually and in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
The Company has made available to Parent, Sub or their Representatives true and
complete copies of (i) each Company Benefit Plan (or, in the case of any
unwritten Company Benefit Plan, a description thereof) and all amendments
thereto, (ii) the two most recent annual reports on Form 5500 filed with the
Internal Revenue Service with respect to each Company Benefit Plan (if any such
report was required), (iii) the most recent summary plan description for each
Company Benefit Plan for which such summary plan description is required and all
summaries of material modifications and (iv) each trust agreement and group
annuity contract relating to any Company Benefit Plan and all amendments
thereto.
(b) All Company Pension Plans have been the subject of
determination letters from the Internal Revenue Service to the effect that such
Company Pension Plans are
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qualified and exempt from Federal income taxes under Sections 401(a) and 501(a),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code"), and
no such determination letter has been revoked nor, to the Company's Knowledge,
has revocation been threatened, nor has any such Company Pension Plan been
amended since the date of its most recent determination letter or application
therefor in any respect that would adversely affect its qualification or
materially increase its costs.
(c) No Company Pension Plan is subject to Title IV of
ERISA.
(d) Each material Company Welfare Plan (including any
such plan covering retirees or other former employees) may be amended or
terminated without material liability (other than for claims or benefits
incurred prior to such amendment or termination) to the Company or any Company
Subsidiary on or at any time after the Effective Time.
(e) The execution and delivery by the Company of this
Agreement do not, and the consummation of the Merger and the other Transactions
and the compliance with the terms hereof will not, (i) entitle any employee,
officer or director of the Company or any Company Subsidiary to severance pay,
(ii) accelerate the time of payment or vesting or trigger any payment or funding
(through a grantor trust or otherwise) of compensation or benefits under,
increase the amount payable or trigger any other material obligation pursuant
to, any Company Benefit Plan or Company Benefit Agreement or (iii) result in any
breach or violation of, or a default under, any Company Benefit Plan or Company
Benefit Agreement other than any such items that, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
(f) Other than routine claims for benefits, there are no
actions, audits, investigations, suits, or claims pending, or, to the Company's
Knowledge, threatened against any Company Benefit Plan, any fiduciary of any
Company Benefit Plan or against the assets of any Company Benefit Plan that,
individually or in the aggregate, are reasonably likely to have a Company
Material Adverse Effect.
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(g) Each holder of a Company Employee Stock Option has
consented or, prior to the Closing, will consent to the termination of such
Company Employee Stock Option immediately prior to the Closing. For purposes of
this Agreement: "Company Employee Stock Option" means any option to purchase
Company Common Stock granted under any Company Stock Plan, and "Company Stock
Plan" means the Company's 1997 Director Stock Option Plan, 1997 Stock Option
Plan, the Company's 2001 Long Term Stock Incentive Plan and the American Racing
Series, Inc. & B.P. Automotive Stock Option Plan or any other stock option plan
of the Company or any Company Subsidiary which issued options to purchase shares
of the Company, in each case as amended through the date of this Agreement.
SECTION 3.12. Litigation. As of the date of this Agreement,
there is no suit, action or proceeding pending or, to the Company's Knowledge,
directly threatened against the Company, any Company Subsidiary or any current
or past director or officer, in their capacity as such, nor is there any
monetary Judgment outstanding against the Company or any Company Subsidiary in
excess of $250,000 or any Judgment providing for non-monetary relief outstanding
against the Company or any Company Subsidiary that is reasonably likely to have
a Company Material Adverse Effect.
SECTION 3.13. Compliance with Applicable Laws. Each of the
Company and the Company Subsidiaries is in compliance with all applicable Laws,
except for instances of noncompliance that, individually and in the aggregate,
are not reasonably likely to have a Company Material Adverse Effect.
SECTION 3.14. Environmental Matters. (a) Except for such
instances as, individually or in the aggregate, are not reasonably likely to
have a Company Material Adverse Effect, (i) each of the Company and each Company
Subsidiary is, and since its organization has been, in compliance with all
Environmental Laws (as defined below), (ii) none of the Company or any Company
Subsidiary has any liability under any Environmental Law arising out of or
relating to the use, storage, release or disposal of Hazardous Substances, (iii)
each of the Company and each Company Subsidiary possesses, and is in compliance
with,
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all registrations and other consents required under Environmental Laws to
conduct its business as presently conducted, (iv) as of the date of this
Agreement, there is no suit, action or proceeding pending, or, to the Company's
Knowledge, threatened in writing against, or, to the Company's Knowledge, any
pending or threatened investigation by any Governmental Entity of, the Company
or any Company Subsidiary alleging a violation of, or liability under, any
Environmental Law and (v) neither the Company nor any Company Subsidiary has
received any written notice that alleges that it is in violation of, or subject
to liability under, any Environmental Law. For purposes of this Agreement,
"Environmental Laws" means all applicable and binding domestic and foreign
(whether national, federal, state, provincial, local or otherwise) Laws or
Judgments issued by any Governmental Entity in each case relating to pollution
or protection of the environment, the management or release of Hazardous
Substances or human health and safety. For purposes of this Agreement,
"Hazardous Substances" means any hazardous substance as defined by 42 U.S.C.
9601(14), any pollutant or contaminant as defined by 42 U.S.C. 9601(33), any
petroleum or petroleum products, and any other material, chemical or substance
regulated by any Environmental Law.
(b) Neither the Company nor any Company Subsidiary has
assumed or is responsible for, by Contract or otherwise, any liabilities or
obligations arising under any Environmental Law, or is currently performing any
investigation, response or other corrective action under any Environmental Law.
(c) To the Company's Knowledge, (i) there are no
underground storage tanks or related piping, or impoundments, at any real
property currently owned or leased by the Company or any Company Subsidiary, and
(ii) any former such tanks, piping, or impoundments, on any such property which
have been removed or closed, have been removed or closed in accordance with
applicable Environmental Laws.
SECTION 3.15. Contracts. Except for Contracts filed as
exhibits to the Company SEC Documents, Section 3.15 of the Company Disclosure
Letter sets forth, as of the date of this Agreement, a true and complete list
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of all of the following Contracts to which the Company or any Company Subsidiary
is a party:
(a) material Contracts not made in the ordinary course of
business;
(b) license agreements or royalty agreements, whether the
Company or any Company Subsidiary is the licensor or licensee thereunder
(excluding licenses that are commonly available on standard commercial terms,
such as software "shrink-wrap" licenses);
(c) non-disclosure agreements (whether the Company or any
Company Subsidiary is the beneficiary or the obligated party thereunder);
(d) Contracts or commitments (including groups of related
Contracts or commitments) involving future expenditures or liabilities, actual
or potential, in excess of $50,000 after the date hereof or otherwise material
to the business of the Company and the Company Subsidiaries, taken as a whole;
(e) Contracts or commitments relating to commission
arrangements with others that are material to the business of the Company and
the Company Subsidiaries, taken as a whole;
(f) employment contracts, consulting contracts, severance
agreements, "stay-bonus" agreements and similar arrangements, including
Contracts (A) to employ or terminate executive officers or other personnel and
other contracts with present or former officers or directors of the Company or
any Company Subsidiary or (B) that will result in the payment by, or the
creation of any liability of the Company, any Company Subsidiary, Parent or Sub
to pay any severance, termination, "golden parachute," or other similar payments
to any present or former personnel following termination of employment or
otherwise as a result of the consummation of the Transactions;
(g) Contracts providing for indemnification by the
Company or any Company Subsidiary with respect to material liabilities of the
business of the Company and the Company Subsidiaries, taken as a whole;
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(h) promissory notes, loans, agreements, indentures,
evidences of indebtedness, letters of credit, guarantees, or other instruments
relating to an obligation for borrowed money, whether the Company or any Company
Subsidiary shall be the borrower, lender or guarantor thereunder;
(i) Contracts containing covenants limiting in any
material respect the ability of the Company or any Company Subsidiary to engage
in any line of business or compete with any person that relates directly or
indirectly to the business of the Company and the Company Subsidiaries;
(j) any Contract with the federal, state or local
government or any agency or department thereof;
(k) any Contract with any officer, director, holder of
more than 5% of the outstanding shares of Company Common Stock or any person
formed for the purpose of racing in a series sanctioned by the Company or any
Company Subsidiary (such persons, collectively, the "Teams");
(l) leases of real or personal property (including groups
of related leases) involving annual payments of more than $50,000;
(m) Contracts or commitments regarding the promotion of
racing events for the 2003 racing season and any later seasons;
(n) Contracts or commitments concerning a partnership or
joint venture;
(o) Contracts or commitments related to sponsorships for
the 2003 racing season and any later seasons; and
(p) any other Contract or series of related Contracts
that are material to the business of the Company and the Company Subsidiaries,
taken as a whole, as it is currently conducted.
True and complete copies of all of the Contracts listed in Section 3.15 of the
Company Disclosure Letter, including all amendments and supplements thereto,
have been made
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available to Parent, Sub or their Representatives. Neither the Company nor any
Company Subsidiary has any oral Contracts. Neither the Company nor any Company
Subsidiary is in material violation of or material default under any Contract
listed in Section 3.15 of the Company Disclosure Letter.
SECTION 3.16. Intellectual Property Matters. (a) Section 3.16
of the Company Disclosure Letter lists, as of the date of this Agreement, all
Company Registered Proprietary Rights (as defined below) (including all
Proprietary Rights (as defined below), all pending applications seeking
registration of Proprietary Rights and trademark and service marks that the
Company or any Company Subsidiary has used with the intent of creating or
benefiting from any common law rights relating to such marks) and lists any
proceedings or actions pending as of the date of this Agreement before any
court, tribunal or administrative body (including the PTO or equivalent
authority anywhere in the world) related to any of the Company Registered
Proprietary Rights. Section 3.16 of the Company Disclosure Letter also lists, as
of the date of this Agreement, all Contracts (including all inbound licenses) to
which the Company or any Company Subsidiary is a party with respect to any
Proprietary Rights.
(b) The Company Proprietary Rights constitute all the
Proprietary Rights necessary to the conduct of the business of the Company and
the Company Subsidiaries, taken as a whole, as it is currently conducted. The
Company or a Company Subsidiary owns exclusively all Company Proprietary Rights.
Each of the Company Proprietary Rights owned or used by the Company or any
Company Subsidiary immediately prior to the date of this Agreement will be owned
or available for use by the Company or a Company Subsidiary on identical terms
and conditions immediately subsequent to the Effective Time, subject to
termination in accordance with the terms of any Contracts governing the use of
such Company Proprietary Rights. The Company has taken all actions reasonably
necessary to maintain and protect each material item of the Company Proprietary
Rights that it or any Company Subsidiary owns or uses.
(c) The operation of the business of the Company as
conducted does not infringe or misappropriate the
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Proprietary Rights of any person, or constitute unfair competition or an unfair
trade practice under any applicable Law, and neither the Company nor any Company
Subsidiary has received written notice from any person claiming that such
operation or any act, product, technology or service of the Company infringes or
misappropriates the Proprietary Rights of any person or constitutes unfair
competition or trade practices under any applicable Law. To the extent that the
Company has received any written notice related to the above or is aware of any
pending, anticipated, or threatened dispute or action against the Company or any
Company Subsidiary relating to infringement or misappropriation of the
Proprietary Rights of any person, there is no basis for any action against the
Company or any Company Subsidiary that is reasonably likely to have a Company
Material Adverse Effect.
(d) Each item of Company Registered Proprietary Rights is
valid and subsisting, and all necessary registration, maintenance, renewal fees,
annuity fees and Taxes due through the date of this Agreement in connection with
such Company Registered Proprietary Rights have been paid and all necessary
documents and certificates in connection with such Company Registered
Proprietary Rights have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Company Registered
Proprietary Rights including all change of name documents required to be filed
to maintain chain of title.
(e) To the Company's Knowledge, no person is infringing
or misappropriating any Company Proprietary Rights.
(f) For purposes of this Agreement, the following
definitions apply:
"Company Proprietary Right" means any Proprietary Right that
(i) is owned by, (ii) is licensed to, or (iii) was developed or created by or
for the Company or any Company Subsidiary.
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"Company Registered Proprietary Rights" means all Registered
Proprietary Rights owned by, filed in the name of, assigned to or applied by or
for, the Company or any Company Subsidiary.
"Proprietary Rights" means all (i) U.S. and foreign patents,
patent applications, patent disclosures and improvements thereto, including
petty patents and utility models and applications therefor, (ii) U.S. and
foreign trademarks, service marks, trade dress, logos, trade names and corporate
names and the goodwill associated therewith and registrations and applications
for registration thereof, (iii) U.S. and foreign copyrights and registrations
and applications for registration thereof, (iv) U.S. and foreign mask work
rights and registrations and applications for registration thereof, (v) rights
in trade secrets, (vi) domain name registrations, (vii) other proprietary
rights, and (viii) licenses granting any rights with respect to any of the
foregoing.
"Registered Proprietary Rights" means all United States,
international and foreign: (i) issued patents and patent applications (including
provisional applications), (ii) registered trademarks and servicemarks,
applications to register trademarks and servicemarks, intent-to-use
applications, other registrations or applications to trademarks or servicemarks,
(iii) registered copyrights and applications for copyright registration, (iv)
any mask work registrations and applications to register mask works, and (v) any
other Proprietary Right that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded by,
any state, government or other public legal authority.
SECTION 3.17. Brokers. No broker, investment banker, financial
advisor or other person, other than Bear, Stearns & Co. Inc., the fees and
expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Merger and the other Transactions based upon arrangements made by or on
behalf of the Company.
SECTION 3.18. Opinion of Financial Advisor. The Company has
received the opinion of Bear, Stearns & Co. Inc., dated the date of this
Agreement, to the effect that,
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as of such date, the consideration to be received is fair, from a financial
point of view, to the unaffiliated shareholders of the Company, other than (i)
Parent and its affiliates, (ii) individuals who own and operate teams or
entities that participate in the businesses owned or operated by the Company or
any of the Company Subsidiaries, and (iii) any shareholders who have entered
into agreements with Parent with respect to any matter related to their shares.
The Company will deliver a true and complete copy of such opinion to Parent
promptly after receipt thereof.
SECTION 3.19. Insurance. Section 3.19 of the Company
Disclosure Letter contains a list, as of the date of this Agreement, of all
material insurance policies and binders of insurance covering any of the
business, properties, assets or operations of the Company and the Company
Subsidiaries (the "Insurance Policies"), the premiums and coverage of the
Insurance Policies, and all claims in excess of $50,000 made under any of the
Insurance Policies since January 1, 2002. All of the Insurance Policies are in
full force and effect and following the Effective Time, shall continue to be
legal, valid, binding and enforceable on identical terms. The Company has
completed the application for each of the Insurance Policies accurately. The
Company has received no notice of cancelation or termination with respect to any
Insurance Policy, and no event (including signing this Agreement or consummating
the Merger) has occurred or is planned to occur which would constitute a breach
or default, or permit termination, modification or acceleration under any
Insurance Policy. To the Company's Knowledge, there are no facts upon which an
insurer might reasonably be justified in reducing or denying coverage or
materially increasing premiums on any of the Insurance Policies. There are no
outstanding unpaid claims under any of the Insurance Policies. The Insurance
Policies are sufficient for compliance with all requirements of applicable Law
and of all Contracts to which the Company and the Company Subsidiaries are
party, and in the reasonable judgment of management of the Company, are adequate
insurance coverage for the assets and operations of the Company and the Company
Subsidiaries as conducted as of the date of this Agreement. Each party required
to be listed as an additional insured on any Insurance Policy pursuant to any
Contracts entered into by the Company or any Company
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Subsidiary has been and is listed as an additional insured as required by such
Contract.
SECTION 3.20. Title to Property. Neither the Company nor any
Company Subsidiary owns any real property. The Company or a Company Subsidiary
has good and marketable title to, or valid leasehold interests in, or other
valid rights to use, all of the material properties and assets used in its
business, free and clear of all Liens, other than those Liens that have not had
and are not reasonably likely to have a Company Material Adverse Effect.
SECTION 3.21. Labor Matters. Neither the Company nor any
Company Subsidiary is a party to any labor agreement with respect to its
employees with any labor organization, group or association. As of the date of
this Agreement, no petition for certification as the exclusive bargaining
representative for any of the employees is pending before the National Labor
Relations Board. To the Company's Knowledge, no union organizing activity has
occurred with respect to the employees in the two (2) years preceding the date
of this Agreement. There is no unfair labor practice charge or complaint against
the Company pending before the National Labor Relations Board or any other
domestic or foreign governmental agency arising out of the Company's or any
Company Subsidiary's activities, and to the Company's Knowledge, there are no
facts or information that would give rise thereto. There is no labor strike or
labor disturbance pending or, to the Company's Knowledge, threatened against the
Company or any Company Subsidiary, nor is any grievance currently being asserted
against it, and neither the Company nor any Company Subsidiary has experienced a
work stoppage or other labor difficulty in the two (2) years preceding the date
of this Agreement. There are no material controversies pending or, to the
Company's Knowledge, threatened between the Company or any Company Subsidiary
and the employees, and to the Company's Knowledge, there are no facts that could
reasonably result in such controversy.
(a) Compliance. The Company and each Company Subsidiary
is in compliance in all material respects with all applicable Laws respecting
employment practices, terms and conditions of employment, wages and hours, equal
employment opportunity, and the payment of social security
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and similar taxes and is not engaged in any unfair labor practice that,
individually or in the aggregate, is reasonably likely to have a Company
Material Adverse Effect.
ARTICLE IV
Representations and Warranties of Parent and Sub
Parent and Sub, jointly and severally, represent and warrant
to the Company that:
SECTION 4.01. Organization, Standing and Power. Each of Parent
and Sub is duly organized, validly existing and in good standing (to the extent
such jurisdiction recognizes the concept of good standing) under the laws of the
jurisdiction in which it is organized and has full limited liability company or
corporate power and authority, as applicable, to conduct its business as
presently conducted, other than where the failure to be in good standing,
individually or in the aggregate, is not reasonably likely to have a material
adverse effect on Parent (a "Parent Material Adverse Effect"). Parent has made
available to the Company true and complete copies of the certificate of
incorporation, by-laws and other comparable charter and organizational
documents, in each case as amended to the date of this Agreement, for each of
Parent and Sub.
SECTION 4.02. Sub. (a) Since the date of its incorporation,
Sub has not carried on any business or conducted any operations other than the
execution of this Agreement, the performance of its obligations hereunder and
matters ancillary thereto.
(b) The authorized capital stock of Sub consists of 1,000
shares of common stock, par value $0.01 per share, all of which have been
validly issued, are fully paid and nonassessable and are owned by Parent free
and clear of any Lien.
SECTION 4.03. Authority; Execution and Delivery;
Enforceability. Each of Parent and Sub has all requisite limited liability
company or corporate power and authority,
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as applicable, to execute and deliver this Agreement and to consummate the
Transactions. The execution and delivery by each of Parent and Sub of this
Agreement and the consummation by it of the Transactions have been duly
authorized by all necessary limited liability company or corporate action, as
applicable, on the part of Parent and Sub. Each of the Board of Managers of
Parent and the Board of Directors of Sub, at a meeting duly called and held,
duly and unanimously adopted resolutions approving this Agreement, the Merger
and the other Transactions and, in the case of the Board of Directors of Sub,
declaring its advisability. Parent, as sole stockholder of Sub, has adopted this
Agreement. Each of Parent and Sub has duly executed and delivered this
Agreement, and, assuming due execution and delivery hereof by the Company, this
Agreement constitutes the legal, valid and binding obligation of each of Parent
and Sub, enforceable against it in accordance with its terms.
SECTION 4.04. No Conflicts; Consents. (a) The execution and
delivery by each of Parent and Sub of this Agreement do not, and the
consummation of the Merger and the other Transactions and the compliance with
the terms hereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any material
obligation or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of Parent or any of its
subsidiaries under, any provision of (i) the certificate of incorporation,
by-laws or other comparable charter and organizational documents of Parent or
any of its subsidiaries, (ii) any Contract to which Parent or any of its
subsidiaries is a party or by which any of their respective properties or assets
is bound or (iii) subject to the filings and other matters referred to in
Section 4.04(b), any Judgment or Law, in each case, applicable to Parent or any
of its subsidiaries or their respective properties or assets.
(b) No Consent of, or registration, declaration or filing
with, or permit from any Governmental Entity is required to be obtained or made
by or with respect to Parent or any of its subsidiaries in connection with the
execution, delivery and performance of this Agreement by
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Parent or any of its subsidiaries or the consummation of the Transactions, other
than (i) the filing with the SEC of (A) the Schedule 13E-3 and (B) such reports
under Sections 13 and 16 of the Exchange Act, as may be required in connection
with this Agreement, the Merger and the other Transactions, (ii) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware,
and (iii) such filings as may be required in connection with the Taxes described
in Section 6.08.
SECTION 4.05. Information Supplied. (a) At the time the Proxy
Statement is filed with the SEC, at any time it is amended or supplemented or at
the time it is first mailed to stockholders of the Company, the Proxy Statement,
as amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation and
warranty is made by Parent or Sub in this Section 4.05(a) solely with respect to
statements made or incorporated by reference therein based on information
supplied by Parent, Sub or their Representatives for inclusion or incorporation
by reference in such documents. The Schedule 13E-3, at the time it is filed with
the SEC or at any time it is amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation or warranty is made by Parent or Sub
in this Section 4.05(a) with respect to statements made or incorporated by
reference therein based on information supplied solely by the Company or its
Representatives for inclusion or incorporation by reference therein. None of the
information supplied or to be supplied by Parent, Sub or their Representatives
for inclusion or incorporation by reference in the Proxy Statement or Schedule
13E-3 will, at the time any such document is filed with the SEC, at any time it
is amended or supplemented or at the time it is first mailed to the Company's
stockholders, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading.
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(b) The Schedule 13E-3 (other than portions of the
Schedule 13E-3 attributable to the Company), and any amendments or supplements
thereto, when filed, will comply in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder, except
that no representation or warranty is made by Parent with respect to statements
made or incorporated by reference therein based on information supplied solely
by the Company or its Representatives for inclusion or incorporation by
reference therein.
SECTION 4.06. Brokers. No broker, investment banker, financial
advisor or other person, other than Ernst & Young Corporate Finance LLP, the
fees and expenses of which will be paid by Parent, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Merger and the other Transactions based upon arrangements made by or on
behalf of Parent or Sub.
SECTION 4.07. Financing. At the Effective Time, Parent and Sub
will have available all of the funds necessary for the acquisition of the shares
of Company Common Stock pursuant to Section 2.01(c) of this Agreement.
Immediately prior to the record date for the Company Stockholders Meeting, the
Forsythe Parties (defined below) will have contributed all of their shares of
Company Capital Stock to Parent.
SECTION 4.08. Stock Ownership. None of Parent, Sub and their
respective "associates" (as such term is defined in Section 203(c)(2) of the
DGCL) or affiliates, in each case, other than Mr. Gerald R. Forsythe, Forsythe
Racing, Inc., Indeck Energy Services, Inc., and Indeck-Ilion Cogeneration Corp.
(the "Forsythe Parties"), beneficially owns, or, at any time during the three
years preceding August 11, 2003, has owned, any Company Common Stock. None of
Parent, Sub and their respective associates or affiliates (in each case, other
than the Forsythe Parties) at any time during the three years preceding August
11, 2003 has been an "interested stockholder" of the Company, as such term is
defined in Section 203(c)(5) of the DGCL. As of the date of this Agreement, the
Forsythe Parties own (of record and beneficially) in the aggregate 3,377,400
shares of Company Common Stock and do not own of
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record or beneficially any shares of Company Common Stock other than such
shares. As of the Effective Time, Parent or Sub or both own (of record and
beneficially) in the aggregate the number of shares of Company Common Stock set
forth on Schedule 4.08 and do not own of record or beneficially any shares of
Company Common Stock other than such shares. At no time during the three years
preceding September 11, 2002, was any Forsythe Party an interested stockholder
of the Company.
ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. Conduct of Business by the Company. (a) Except
for matters set forth in Section 5.01 of the Company Disclosure Letter or
otherwise contemplated by this Agreement, from the date of this Agreement to the
Effective Time the Company shall, and shall cause each Company Subsidiary to,
conduct its business in light of the existing circumstances in the ordinary
course, including operating in compliance with Law and making all required
filings with the SEC. In addition, and without limiting the generality of the
foregoing, except for matters set forth in the Company Disclosure Letter or
otherwise contemplated by this Agreement, from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any Company
Subsidiary to, do any of the following without the prior written consent of
Parent (which consent shall not be unreasonably withheld, delayed or
conditioned):
(i) (A) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, other
than dividends and distributions by a direct or indirect wholly owned
subsidiary of the Company to its parent, (B) split, combine or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or (C) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any Company
Subsidiary or any other securities thereof or any
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options, warrants, calls or rights to acquire any such shares or other
securities;
(ii) issue, deliver, sell or grant (A) any shares of its
capital stock or other voting securities or equity interests, (B) any
Voting Company Debt, (C) any securities convertible or exchangeable
into, or exercisable for, any such shares, voting securities, equity
interests or Voting Company Debt, or (D) any options, warrants, calls,
rights, convertible or exchangeable securities, "phantom" stock rights,
stock appreciation rights or stock-based performance units, profit
participation rights, rights of repurchase, other rights linked to the
price of Company Capital Stock, commitments, Contracts, arrangements or
undertakings obligating it to issue, deliver, sell or grant any such
shares, voting securities, equity interests or Voting Company Debt, in
each case other than (1) the issuance of Company Common Stock (and
associated Company Rights) upon the exercise of Company Employee Stock
Options outstanding on the date of this Agreement and in accordance
with their present terms and (2) the issuance of Company Common Stock
upon the exercise of Company Rights if the Company is not in breach of
Section 6.09;
(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing any equity interest in or portion
of the assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof or (B) any assets that are material,
individually or in the aggregate, to the Company and the Company
Subsidiaries, taken as a whole, except purchases in the ordinary course
of business consistent with prior practice;
(v) make any change in accounting methods, principles or
practices materially affecting the reported consolidated assets,
liabilities or results
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of operations of the Company, except insofar as may have been required
by a change in GAAP or applicable Law;
(vi) sell, lease (as lessor), license or otherwise dispose of
or subject to any Lien any properties or assets that are material,
individually or in the aggregate, to the Company and the Company
Subsidiaries, taken as a whole, except sales of assets or licensing
transactions in the ordinary course of business consistent with prior
practice;
(vii) (A) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company or any Company Subsidiary, guarantee any debt
securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any
of the foregoing, except for indebtedness for borrowed money so long as
such indebtedness (together with all other indebtedness for borrowed
money) does not exceed an aggregate principal amount of $2,000,000 or
(B) make any loans or capital contributions to, or investments in, any
other person, other than to or in the Company or any direct or indirect
wholly owned subsidiary of the Company;
(viii) make or agree to make any new capital expenditure or
expenditures that, individually, is in excess of $50,000 or, in the
aggregate, are in excess of $50,000;
(ix) make any election with respect to Taxes or settle or
compromise any material Tax liability or refund;
(x) (A) grant to any director or executive officer of the
Company of any Company Subsidiary any increase in cash compensation,
except increases in the ordinary course of business of not more than 2%
per annum or increases required under employment agreements in effect
as of the date of this Agreement,
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(B) grant to any such director or executive officer any increase in
severance or termination pay, except increases required under any
employment, severance or termination agreements in effect as of the
date of this Agreement, or (C) enter into any employment, severance,
termination or other agreement with any such director or executive
officer;
(xi) adopt or amend in any material respect any collective
bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan,
arrangement or understanding providing benefits to any current or
former employee, officer or director of the Company or any Company
Subsidiary;
(xii) enter into, modify or terminate (i) any Contract listed
on Section 3.15 of the Company Disclosure Letter, and (ii) any Contract
entered into on or after the date of this Agreement, that if it had
been entered into prior to the date of this Agreement, would have had
to be listed on Section 3.15 of the Company Disclosure Letter;
(xiii) enter into, modify or terminate any sponsorship or
promoter Contract;
(xiv) enter into, modify or terminate any Contract with any
affiliate of the Company or any Company Subsidiary; or
(xv) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Other Actions. Except as otherwise permitted by
Section 5.02, the Company and Parent shall not, and shall not permit any of
their respective subsidiaries to, take any action that would, or that is
reasonably likely to, result in (i) any of the representations and warranties of
such party set forth in this Agreement becoming untrue, other than for such
failures to be true and correct that, individually or in
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the aggregate, have not resulted and are not reasonably likely to result in the
condition in Section 7.02(a) (in the case of the Company) or Section 7.03(a) (in
the case of Parent) not being satisfied or (ii) any condition to the Merger set
forth in Article VII not being satisfied.
(c) Designated Representative of Parent and Sub. If any
consent is required of Parent or Sub pursuant to this Agreement, Kevin Kalkhoven
is hereby designated as the authorized representative of Parent or Sub for such
purposes. Parent or Sub may change its authorized representative by giving
notice to the Company pursuant to the procedures set forth in Section 9.02.
SECTION 5.02. Company Takeover Proposals. (a) The Company
shall not, nor shall it authorize or permit any Company Subsidiary to, nor shall
it authorize or permit any of its or any Company Subsidiary's Representatives
to, (i) enter into any agreement with respect to any Company Takeover Proposal
(as defined in Section 5.02(e)), except (A) in accordance with Section 8.05(b)
(and after compliance with all the procedures set forth therein) or (B) a
confidentiality agreement in accordance with this Section 5.02(a) or (ii)
furnish to any person any information with respect to a Company Takeover
Proposal, except, prior to obtaining each of the Company Stockholder Approval
and the Unaffiliated Stockholders Approval (as defined in Section 6.01(b)),
pursuant to a confidentiality agreement and subject to compliance with Section
5.02(c).
(b) Neither the Company Board nor any committee thereof
shall (i) withdraw or modify in a manner adverse to Parent or Sub, or propose
publicly to withdraw or modify, in a manner adverse to Parent or Sub, the
recommendation by the Company Board or any such committee of this Agreement or
the Merger, in each case unless the Company Board determines in good faith,
after consultation with outside counsel, that it is necessary to do so to comply
with its fiduciary duties (any such withdrawal, modification or proposal being
referred to herein as an "Adverse Recommendation Change"), (ii) approve any
letter of intent, agreement in principle, acquisition agreement or similar
agreement relating to any Company Takeover Proposal or (iii) approve or
recommend, or propose publicly to approve or recommend, any Company Takeover
Proposal.
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Notwithstanding the foregoing, if, prior to obtaining each of the Company
Stockholder Approval and the Unaffiliated Stockholders Approval, the Company
Board receives a Superior Company Proposal (as defined in Section 5.02(e)) then
the Company Board may, in accordance with Section 8.05(b) (including the notice
provisions and the payment of the fee therein), approve and recommend such
Superior Company Proposal and cause the Company to terminate this Agreement and
concurrently enter into a definitive agreement providing for the implementation
of such Superior Company Proposal. The Company shall, after the Due Diligence
Termination Date, at any time requested by Parent, publicly reaffirm its
recommendation of this Agreement and the Merger (unless it determines in good
faith after consultation with outside counsel, that it cannot do so consistent
with its fiduciary duties), and provided that any failure to so reaffirm
(whether or not as a result of a determination described in the preceding
parenthetical) shall constitute an Adverse Recommendation Change.
(c) The Company promptly shall advise Parent orally and
in writing of any Company Takeover Proposal or any inquiry from a third party
made to a director or officer of the Company, or to a Representative of the
Company of which a director or officer of the Company becomes aware, with
respect to the making of a Company Takeover Proposal, the identity of the person
making any such Company Takeover Proposal or inquiry and the material terms of
any such Company Takeover Proposal or inquiry. The Company shall keep Parent
informed of the status (including any change to the material terms) of any such
Company Takeover Proposal or inquiry.
(d) Nothing contained in this Section 5.02 shall prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2(a) of the SEC or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Company Board, after consultation with outside counsel, failure to so disclose
would be inconsistent with its obligations under applicable Law, it being
understood that if any such disclosure constitutes an Adverse Recommendation
Change, Parent shall have the rights provided in the event of an Adverse
Recommendation Change.
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(e) For purposes of this Agreement:
"Company Takeover Proposal" means (i) any proposal or offer
for a merger, consolidation, dissolution, recapitalization or other business
combination involving the Company or (ii) any proposal or offer to acquire in
any manner, directly or indirectly, over 20% of the equity securities or
consolidated total assets of the Company, in each case other than the
Transactions.
"Superior Company Proposal" means any proposal made by a third
party to acquire, directly or indirectly, including pursuant to a tender or
exchange offer, a merger, a consolidation, a liquidation or dissolution, a
recapitalization, a purchase of warrants or otherwise, more than 50% of the
Company Common Stock or all or substantially all of the assets of the Company
and the Company subsidiaries, taken as a whole, on terms which the Company Board
determines in good faith to be more favorable to the holders of Company Common
Stock than the Transactions (after consultation with a financial advisor),
taking into account all the terms and conditions of such proposal and this
Agreement (including any proposal by Parent to amend the terms of the
Transactions).
ARTICLE VI
Additional Agreements
SECTION 6.01. Preparation of Proxy Statement; Stockholders
Meeting. (a) As promptly as practicable following the date of this Agreement,
(i) the Company shall prepare and after obtaining the approval of Parent, which
approval shall not be unreasonably withheld, delayed or conditioned, file with
the SEC the Proxy Statement in preliminary form, and (ii) each of the Company,
Parent and Sub shall prepare and file with the SEC the Schedule 13E-3, and each
of the Company and Parent shall use its reasonable best efforts to respond as
promptly as practicable to any comments of the SEC with respect thereto. Each of
the Company, Parent and Sub shall notify the others promptly of the receipt of
any comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or the Schedule 13E-3
or
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for additional information and shall supply the others with copies of all
correspondence between it or any of its Representatives, on the one hand, and
the SEC or its staff, on the other hand, with respect to the Proxy Statement or
the Schedule 13E-3, as applicable. If at any time prior to receipt of the
Company Stockholder Approval there shall occur any event that should be set
forth in an amendment or supplement to the Proxy Statement or the Company or
Parent shall otherwise determine that any amendment or supplement should be made
to the Proxy Statement in accordance with applicable Law, the Company shall as
promptly as practicable prepare and mail to its stockholders such an amendment
or supplement. The Company shall not mail any Proxy Statement, or any amendment
or supplement thereto, to which Parent reasonably objects. The Company shall use
its reasonable best efforts to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable after filing with the SEC.
(b) The Company shall, as promptly as practicable
following the date of this Agreement, duly call, give notice of, convene and
hold a meeting of its stockholders (the "Company Stockholders Meeting") to
obtain (i) the Company Stockholder Approval and (ii) the approval of this
Agreement and the Merger by the holders of the majority of shares of Company
Common Stock present or represented by proxy at such meeting that is not held by
Disqualified Holders (as defined below) voting "for" and "against" such approval
(treating for this purpose holders who have delivered, prior to the Company
obtaining the Company Stockholder Approval, written demands for appraisal in
accordance with Section 262(d) of the DGCL and who, as of such time, shall not
have effectively withdrawn or otherwise forfeited appraisal rights as voting
"no") (such approval, the "Unaffiliated Stockholders Approval"). "Disqualified
Holders" means Parent and its affiliates. The Company shall, through the Company
Board and in the Proxy Statement, recommend to its stockholders that they give
each of the Company Stockholder Approval and the Unaffiliated Stockholders
Approval, except to the extent that the Company Board shall have withdrawn or
modified its recommendation of this Agreement or the Merger as permitted by
Section 5.02(b). Without limiting the generality of the foregoing, the Company
agrees that its obligations pursuant to the first sentence of this Section
6.01(b) shall not be
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affected by (i) the commencement, public proposal, public disclosure or
communication to the Company of any Company Takeover Proposal or (ii) the
withdrawal or modification by the Company Board of its approval or
recommendation of this Agreement or the Merger.
(c) Parent shall cause all shares of Company Common Stock
owned by Parent, Sub or any other subsidiary or affiliate of Parent to be voted
in favor of the adoption of this Agreement. Notwithstanding the foregoing, if
the Company Board shall have made an Adverse Recommendation Change, then Parent
shall cause the Excluded Forsythe Shares (as defined below) to be voted in
accordance with the recommendation of the Company Board. "Excluded Forsythe
Shares" means those shares of Company Common Stock that must be voted in
accordance with the recommendation of the Company Board pursuant to the voting
agreements between Mr. Gerald R. Forsythe and the Company dated September 11,
2002 and October 16, 2002.
SECTION 6.02. Access to Information; Confidentiality. The
Company shall, and shall cause each Company Subsidiary to, afford to Parent, and
to Parent's Representatives, reasonable access during normal business hours
during the period prior to the Effective Time to all their respective
properties, books, Contracts, commitments, personnel and records and, during
such period, the Company shall, and shall cause each Company Subsidiary to,
furnish promptly to Parent (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of Federal or state securities laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request; provided, however, that the Company or any Company Subsidiary may
withhold any document or information that is subject to the terms of a
confidentiality agreement with a third party. Without limiting the generality of
the foregoing, the Company shall, within two business days of request therefor,
provide to Parent the information described in Rule 14a-7(a)(2)(ii) of the SEC
and any information to which a holder of Company Common Stock would be entitled
under Section 220 of the DGCL (assuming such holder met the requirements of such
section). All information exchanged pursuant to this Section 6.02 shall be
subject to the
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confidentiality agreements set forth on Schedule 6.02 (the "Confidentiality
Agreements").
SECTION 6.03. Reasonable Best Efforts; Notification. (a) Upon
the terms and subject to the conditions set forth in this Agreement, unless, to
the extent permitted by Section 5.02(b), the Company Board approves or
recommends a Superior Company Proposal, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
Transactions, including (i) the obtaining of all necessary actions or
nonactions, Consents and waivers from Governmental Entities and the making of
all necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary to
obtain a Consent or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) in the case of the Company, the obtaining of all
necessary Consents or waivers from third parties, (iii) in the case of the
Company, the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
any of the Transactions, including seeking to have any stay, order or injunction
entered by any court or other Governmental Entity vacated or reversed and (iv)
the execution and delivery of any additional instruments necessary to consummate
the Transactions and to fully carry out the purposes of this Agreement. In
connection with and without limiting the foregoing, the Company and the Company
Board shall (i) take all action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to any
Transaction or this Agreement and (ii) if any state takeover statute or similar
statute or regulation becomes applicable to any Transaction or this Agreement,
take all action necessary to ensure that the Merger and the other Transactions
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other Transactions. Notwithstanding the foregoing, the
Company and its Representatives shall not be
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prohibited under this Section 6.03 from taking any action permitted by Sections
5.02(b) or (d). Parent and Sub will use reasonable efforts to cooperate with the
Company, at the Company's request, in the performance of the Company's
obligations in clauses (ii) and (iii) above.
SECTION 6.04. Stock Options. Prior to the Effective Time, the
Company Board shall adopt resolutions to terminate effective as of the Effective
Time each Company Employee Stock Option.
SECTION 6.05. Indemnification. (a) To the fullest extent
permitted by Law, the Surviving Corporation (or any successor entity) shall
honor all the Company's obligations to indemnify (including any obligations to
advance funds for expenses) the current or former directors or officers of the
Company for acts or omissions by such directors and officers occurring prior to
the Effective Time to the extent that such obligations of the Company exist on
the date of this Agreement, whether pursuant to the Company Charter, the Company
By-laws, the individual indemnity agreements set forth in Section 6.05 of the
Company Disclosure Letter or otherwise, and such obligations shall survive the
Merger and shall continue in full force and effect in accordance with the terms
of the Company Charter, the Company By-laws and such individual indemnity
agreements from the Effective Time until the expiration of the applicable
statute of limitations with respect to any claims against such directors or
officers arising out of such acts or omissions.
(b) From the Effective Time until May 15, 2004, the
Surviving Corporation shall maintain or cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
the Company with respect to claims arising from or related to facts or events
which occurred at or before the Effective Time. Prior to the Effective Time, the
Company may obtain tail coverage with respect to such policies, provided that
the Company shall not pay more than $500,000 with respect to premiums for such
coverage. In the event that the Company does not obtain such tail prior to the
Effective Time, Parent or the Surviving Corporation shall be required to obtain
such tail, subject to the limitations set forth above.
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(c) Prior to entering into any agreement or arrangement
with respect to, or effecting, any proposed merger into or consolidation with
any other person or sale, exchange, dividend or other distribution or
liquidation of all or a significant portion of the Surviving Corporation's
assets in one or a series of transactions or any significant recapitalization or
reclassification of the Surviving Corporation's outstanding securities that does
not directly or indirectly provide for the assumption of the obligations of the
Surviving Corporation set forth in this Section 6.05 by the purchaser or
successor entity in such transaction, the Surviving Corporation shall arrange in
connection therewith alternative means of providing for the obligations of the
Surviving Corporation set forth in this Section 6.05, including the assumption
of such obligations by another party, insurance, surety bonds or the creation of
an escrow, in each case in an amount, upon terms and conditions and, if
applicable, from a nationally recognized or other creditworthy entity so that,
thereafter, the current or former directors and officers of the Company are in
substantially the same position as they were in immediately prior to the
applicable transaction.
SECTION 6.06. Fees and Expenses. (a) Except as provided below,
all fees and expenses incurred in connection with the Merger and the other
Transactions shall be paid by the party incurring such fees or expenses, whether
or not the Merger is consummated.
(b) The Company shall pay to Parent a fee of $350,000 if:
(i) the Company terminates this Agreement pursuant to Section 8.01(d)(ii); (ii)
Parent terminates this Agreement pursuant to Section 8.01(c)(ii); or (iii) (A)
after the date of this Agreement, any person makes a Company Takeover Proposal,
(B) the Merger shall not have occurred on or before the Outside Date (as defined
in Section 8.01(b)(i)), (C) this Agreement is thereafter terminated by Parent or
the Company pursuant to Section 8.01(b)(i) (but only if the Company Stockholders
Meeting has not been held by the date that is two days prior to the date of such
termination), and (D) within 12 months of such termination, the Company
consummates the transactions contemplated by a Company Takeover Proposal (solely
for the purposes of this Section 6.06(b)(iii)(D) and the next sentence of this
Section 6.06(b), the term
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Company Takeover Proposal shall have the meaning set forth in the definition of
Company Takeover Proposal contained in Section 5.02(e) except that all
references therein to "20%" shall be deemed references to "40%"). Any fee due
under this Section 6.06(b) shall be paid by wire transfer of same-day funds, in
the case of clauses (i) and (ii) of the previous sentence, on the date of
termination of this Agreement or the next business day if the date of
termination of this Agreement is not a business day, or in the case of clause
(iii) of the previous sentence, on the date on which the Company consummates the
transactions contemplated by such Company Takeover Proposal.
SECTION 6.07. Public Announcements. Parent and Sub, on the one
hand, and the Company, on the other hand, shall consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release or other public statements with respect to the Merger and the
other Transactions and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be required by
applicable Law, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
SECTION 6.08. Transfer Taxes. All stock transfer, real estate
transfer, documentary, stamp, recording and other similar Taxes (including
interest, penalties and additions to any such Taxes) ("Transfer Taxes") incurred
in connection with the Transactions shall be paid by the Surviving Corporation,
and the Company shall cooperate with Parent and Sub in preparing, executing and
filing any Tax Returns with respect to such Transfer Taxes.
SECTION 6.09. Rights Agreements; Consequences if Rights
Triggered. Except as approved in writing by Parent or contemplated by this
Agreement, the Company Board shall not (i) amend the Company Rights Agreement,
(ii) redeem the Company Rights or (iii) take any action with respect to, or make
any determination under, the Company Rights Agreement, in each case, unless the
Company Board determines in good faith, after compliance with applicable
provisions of this Agreement and after consultation with outside counsel, that
such action is necessary to do so to comply with its fiduciary duties.
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SECTION 6.10. No Additional Representations.
(a) Parent acknowledges and agrees that (i) it is
entering into this Agreement and the Transactions without any representation or
warranty, express or implied, by the Company or any of its Representatives
except as expressly set forth in this Agreement and (ii) the accuracy,
completeness or reasonableness of any projection or forecast delivered by or on
behalf of the Company to Parent, Sub or any of their Representatives shall not
be considered in determining whether any condition to Parent's or Sub's
obligations with respect to the Merger has been satisfied.
(b) The Company acknowledges and agrees that (i) it is
entering into this Agreement and the Transactions without any representation or
warranty, express or implied, by Parent, Sub or any of their Representatives
except as expressly set forth in this Agreement and (ii) the accuracy,
completeness or reasonableness of any projection or forecast delivered by or on
behalf of Parent, Sub or any of their Representatives to the Company shall not
be considered in determining whether any condition to the Company's obligations
with respect to the Merger has been satisfied.
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation To Effect
The Merger. The respective obligation of each party hereto to effect the Merger
is subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. The Company shall have obtained
the Company Stockholder Approval and the Unaffiliated Stockholders Approval.
(b) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or Law preventing the consummation of the
Merger, or
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preventing Parent from owning the shares of the Surviving Corporation or from
operating any material part of the business of the Surviving Corporation and its
subsidiaries, taken as a whole, shall be in effect; provided, however, that
prior to asserting this condition the applicable party shall have used its
reasonable efforts to prevent the entry of any such injunction or other order
and to appeal as promptly as possible any such injunction or other order that
may be entered.
SECTION 7.02. Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are further subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations
and warranties of the Company in this Agreement shall be true and correct in all
material respects, as of the date of this Agreement and as of the Closing Date,
except to the extent that such representations and warranties expressly relate
to an earlier date (in which case on and as of such earlier date).
(b) Performance of Obligations of the Company. The
Company shall have performed in all material respects any material obligation
and complied in all material respects with any material agreement or covenant of
the Company to be performed or complied with by it under this Agreement prior to
or at the time of the Closing.
(c) Company Certificate. The Company shall have furnished
a certificate, signed by its Chief Executive Officer, certifying compliance with
the conditions set forth in Sections 7.02(a) and (b).
(d) Dissenting Shareholders. No more than 16% of the
shares of Company Common Stock outstanding immediately prior to the Effective
Time shall be Appraisal Shares.
(e) Litigation. Other than pending suits, actions or
proceedings as disclosed on the Company Disclosure Letter, any pending or
threatened suits, actions
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or proceedings by Parent, Sub or any of their affiliates, or any derivative
suit, action or proceeding pending in Delaware that under applicable and
controlling law would expire, or with respect to which all plaintiffs would lose
standing, at the Effective Time, there shall be no pending or threatened suit,
action or proceeding that advances non-frivolous claims against Parent, Sub, the
Company or any Company Subsidiary (i) that Parent reasonably believes would not
be covered by the Insurance Policies, unless the damages sought that would not
be covered by the Insurance Policies, would not, in Parent's reasonable
judgment, exceed a total of $250,000 for such suits, actions or proceedings, or
(ii) that seeks any equitable relief, which, if successful, would prevent (A)
the consummation of the Merger, provided that such action, suit or proceeding
seeking to prevent the consummation of the Merger is pending, (B) Parent from
owning the shares of the Surviving Corporation or (C) Parent from operating any
material part of the business of the Surviving Corporation and its subsidiaries,
taken as a whole.
(f) Management of CART, Inc. The by-laws of CART, Inc., a
Michigan corporation ("CART"), shall have been amended to disband the Franchise
Board, and to provide for the management of CART by a board of directors to be
elected by the Company, as sole stockholder of CART.
(g) No Bankruptcy. The Company shall generally be able to
pay its debts as and when such debts become due, shall not have admitted in
writing its inability to pay its debts generally, and shall not have made a
general assignment for the benefit of creditors. No petition shall have been
filed by or against the Company seeking liquidation, winding up, reorganization,
relief, appointment of a receiver, trustee or similar official for it or for any
substantial part of its property or assets, or to commence a case as to the
Company pursuant to 11 U.S.C. Section 301 or 303 or any similar state law (a
"Bankruptcy Petition"), unless such Bankruptcy Petition is dismissed prior to
the Effective Time and in no event later than sixty (60) days of its filing. No
such Bankruptcy Petition shall be pending as of the Closing.
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(h) Material Adverse Effect. Since the date of this
Agreement, there shall not have occurred and be continuing a Company Material
Adverse Effect.
SECTION 7.03. Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is further subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects, in each case as of the date of this Agreement and as of
the Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date (in which case on and as of such earlier
date).
(b) Performance of Obligations of Parent and Sub. Parent
and Sub shall have performed in all material respects any material obligation of
Parent or Sub, as the case may be, and complied in all material respects with
any material agreement or covenant of Parent or Sub, as the case may be, to be
performed or complied with by it under this Agreement prior to or at the time of
the Closing.
SECTION 7.04. Frustration of Closing Conditions. None of the
Company, on the one hand, or Parent or Sub, on the other hand, may rely on the
failure of any condition set forth in Article VII to be satisfied if such
failure was caused primarily by the failure of the Company, on the one hand, or
Parent or Sub, on the other hand, to use reasonable best efforts to consummate
the Merger and the other Transactions, as required by and subject to Section
6.03.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination. This Agreement may be terminated at
any time:
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(a) prior to the Effective Time, whether before or after
receipt of the Company Stockholder Approval or the Unaffiliated Stockholders
Approval, by mutual written consent of the Parent, Sub and the Company;
(b) prior to the Effective Time, whether before or after
receipt of the Company Stockholder Approval or the Unaffiliated Stockholders
Approval, by either Parent or the Company:
(i) if the Merger does not occur on or before the
later of February 15, 2004 and the date that is 61 days from
the date of any filing of an involuntary Bankruptcy Petition
that (A) the Company reasonably expects will be dismissed, (B)
the Company is using its reasonable best efforts to have
dismissed and (C) is filed prior to February 15, 2004 (the
"Outside Date"), unless the failure to consummate the Merger
is the result of a material breach of this Agreement by the
party seeking to terminate this Agreement;
(ii) if any Governmental Entity issues an order or
injunction or takes any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such
order, injunction or other action shall have become final and
nonappealable, unless such order, injunction or other action
is the result of a material breach of this Agreement by the
party seeking to terminate this Agreement; provided, however,
that prior to seeking to terminate, such party shall have used
its reasonable best effects to prevent such order, injunction
or other action and to appeal as promptly as practicable any
such orders, injunctions or other actions; or
(iii) if, upon a vote at a duly held meeting to
obtain the Company Stockholder Approval or the Unaffiliated
Stockholders Approval, as the case may be, the Company
Stockholder Approval or the Unaffiliated Stockholders
Approval, as the case may be, is not obtained; provided,
however, that this Agreement may not be terminated by a party
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pursuant to this Section 8.01(b)(iii) if such party is then in
breach of Section 6.01(c);
(c) (i)prior to the Effective Time, whether before or
after receipt of the Company Stockholder Approval or the Unaffiliated
Stockholders Approval, by Parent if the Company breaches or fails to perform in
any material respect any of its representations, warranties or covenants
contained in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 7.01 or Section 7.02,
and (B) cannot be or has not been cured within 30 days after the giving of
written notice to the Company of such breach; or
(ii) prior to obtaining each of the Company
Stockholder Approval and the Unaffiliated Stockholders
Approval, by Parent (A) in the event an Adverse Recommendation
Change has occurred, (B) if, pursuant to Section 6.09 and
without the approval in writing of Parent, the Company Board
amends the Company Rights Agreement, redeems the Company
Rights or takes any action with respect to, or makes any
determination under, the Company Rights Agreement to comply
with its fiduciary duties and, as a result of such amendment,
redemption, action or determination, any person other than
Parent or any of its affiliates is permitted to become an
Acquiring Person (as currently defined in the Company Rights
Agreement) or (C) the Company enters into any definitive
agreement to implement a Company Takeover Proposal;
(d) (i)prior to the Effective Time, whether before or
after receipt of the Company Stockholder Approval or the Unaffiliated
Stockholders Approval, by the Company if Parent or Sub breaches or fails to
perform in any material respect any of its representations, warranties or
covenants contained in this Agreement, which breach or failure to perform cannot
be or has not been cured within 30 days after the giving of written notice to
Parent of such breach; or
(ii) prior to obtaining each of the Company
Stockholder Approval and the Unaffiliated
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Stockholders Approval by the Company in accordance with
Section 8.05(b); provided, however, that the Company shall
have complied with all provisions thereof, including the
notice provisions therein; or
(e) at any time during the period from the date of this
Agreement until 5:00 p.m., New York City time, on September 18, 2003 or any
earlier time that Parent identifies in writing to the Company (the "Due
Diligence Termination Date"), by Parent if Parent in its discretion determines
that it is inadvisable to proceed with the Transactions for any reason
whatsoever.
SECTION 8.02. Effect of Termination. In the event of
termination of this Agreement by either the Company or Parent as provided in
Section 8.01, this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of Parent, Sub or the Company,
other than Section 3.17, Section 4.06, Section 4.07, the last sentence of
Section 6.02, Section 6.06, this Section 8.02 and Article IX, which provisions
shall survive such termination, and except to the extent that such termination
results from the willful and material breach by a party of any representation,
warranty or covenant set forth in this Agreement. The Confidentiality Agreements
shall survive termination of this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the
parties hereto at any time before or after receipt of the Company Stockholder
Approval or the Unaffiliated Stockholders Approval, as the case may be;
provided, however, that after receipt of the Company Stockholder Approval, there
shall be made no amendment or waiver that by applicable Law requires further
approval by the stockholders of the Company without the further approval of such
stockholders. Subject to Section 9.04, this Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
SECTION 8.04. Extension; Waiver. At any time prior to the
Effective Time, the parties hereto may (a) extend the time for the performance
of any of the obligations or other acts of the other parties, (b) waive
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any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso of Section 8.03, waive compliance with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Any failure or delay by any party
hereto to assert any of its rights under this Agreement or otherwise shall not
constitute a waiver of such rights.
SECTION 8.05. Procedure for Termination, Amendment, Extension
or Waiver. (a) A termination of this Agreement pursuant to Section 8.01, an
amendment of this Agreement pursuant to Section 8.03 or an extension or waiver
pursuant to Section 8.04 shall, in order to be effective, require in the case of
Parent, Sub or the Company, action by its Board of Directors or the duly
authorized designee of its Board of Directors.
(b) The Company may terminate this Agreement pursuant to
Section 8.01(d)(ii) only if (i) the Company Board has received a Company
Takeover Proposal, (ii) the Company Board shall have determined in good faith
that such Company Takeover Proposal constitutes a Superior Company Proposal,
(iii) the Company has notified Parent in writing of the determination described
in clause (ii) above, which notice shall describe all material terms of such
Company Takeover Proposal; (iv) at least three business days following receipt
by Parent of the notice referred to in clause (iii) above, and taking into
account any revised proposal made by Parent since receipt of the notice referred
to in clause (iii) above, such Superior Company Proposal remains a Superior
Company Proposal and the Company Board has again made the determination referred
to in clause (ii) above (although no additional time period shall be required
following such determination), (v) the Company is in compliance with Section
5.02, (vi) the Company Board concurrently approves, and the Company concurrently
enters into, a definitive agreement providing for the implementation of such
Superior Company Proposal and (vii) the Company has paid Parent the fee pursuant
to Section 6.06(b).
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ARTICLE IX
General Provisions
SECTION 9.01. Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 9.01 shall not limit any covenant or agreement of the parties
hereto which by its terms contemplates performance after the Effective Time.
SECTION 9.02. Notices. All notices, requests, claims, demands
and other communications under this Agreement shall be in writing and shall be
deemed given upon receipt by the parties hereto at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Open Wheel Racing Series LLC
c/o 21st Century Racing Holdings LLC
275 Middlefield Road
Menlo Park, CA 94025
Attention: Kevin Kalkhoven
Fax: (650) 329-7315
with copies to:
Open Wheel Racing Series LLC
c/o Willis Capital, L.L.C.
1111 South Willis Avenue
Wheeling, IL 60090
Attention: Gerald R. Forsythe
Fax: (847) 541-8301
Open Wheel Racing Series LLC
c/o Big Bang Racing LLC
201 N. Washington Square
Suite 900
Lansing, MI 48933
Attention: Paul Gentilozzi
Fax: (517) 371-1213
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Heller Ehrman White & McAuliffe, LLP
333 Bush Street
San Francisco, CA 94104
Attention: Tim Hoxie, Esq.
Fax: (415) 772-6268
Freeborn & Peters LLP
311 South Wacker Drive
Suite 3000
Chicago, IL 60606
Attention: Bob McWilliams, Esq.
Fax: (312) 360-6570
McClelland & Anderson, LLP
1305 South Washington Street
Suite 102
Lansing, MI 48910
Attention: Greg McClelland, Esq.
Fax: (517) 482-4875
(b) if to the Company, to
5350 Lakeview Parkway South Drive
Indianapolis, IN 46268
Attention: Carlisle Peet, Esq.
General Counsel
Fax: (317) 715-4101
with a copy to:
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, NY 10019
Attention: Philip A. Gelston, Esq.
Sarkis Jebejian, Esq.
Fax: (212) 474-3700
SECTION 9.03. Definitions. For purposes of this Agreement:
An "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first person. For the
purposes
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of this Agreement, (a) none of Parent, Sub and any Disqualified Holder is an
affiliate of the Company and (b) the Company is not an affiliate of Parent, Sub
or any Disqualified Holder.
The "Company's Knowledge" means matters of which the officers
and directors of the Company or any of the Company's Subsidiaries know or should
have known after reasonable inquiry.
A "material adverse effect" on a party means any state of
facts, change, development, effect, condition or occurrence that is material and
adverse to the business, financial condition or results of operations of such
party and its subsidiaries, taken as a whole, or that materially impairs the
ability of such party to perform its obligations under this Agreement or
consummate the Merger.
A "person" means any individual, firm, corporation,
partnership, company, limited liability company, trust, joint venture,
association, Governmental Entity or other entity.
A "Representative" of any person means any officer, director
or employee of, or any investment banker, attorney or other advisor or
representative of, such person.
A "subsidiary" of any person means another person, an amount
of the voting securities or other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first person.
SECTION 9.04. Interpretation; Disclosure Letters. (a) When a
reference is made in this Agreement to a Section, Exhibit or Schedule, such
reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the
A-60
words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". The words
"hereof", "herein", "hereby" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The words "date hereof" shall refer to
the date of this Agreement. The term "or" is not exclusive. The word "extent" in
the phrase "to the extent" shall mean the degree to which a subject or other
thing extends, and such phrase shall not mean simply "if". The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms. Any agreement or instrument defined or referred to herein
or in any agreement or instrument that is referred to herein means such
agreement or instrument as from time to time amended, modified or supplemented.
References to a person are also to its permitted successors and assigns.
(b) Any matter disclosed in any section of the Company
Disclosure Letter shall be deemed disclosed for all purposes and all sections of
the Company Disclosure Letter if the reference to such matter in the Company
Disclosure Letter makes apparent the relationship between the matter disclosed
and the other representation that the disclosure qualifies.
(c) The Company will deliver the Company Disclosure Letter to
Parent no later than 12:00 p.m. New York City time on September 15, 2003 or such
earlier time and date as the parties agree to in writing (the "Final Disclosure
Date") and will mark such document as "final" (the "Final Company Disclosure
Letter"). The Company acknowledges that Parent has not consented or agreed to
the Company Disclosure Letter, or any part thereof, and that the Company
Disclosure Letter will have no force or effect until Parent has approved in
writing the Final Company Disclosure Letter. If Parent has not approved in
writing the Final Company Disclosure Letter, or any amendment thereto, prior to
the Due Diligence Termination Date, Parent shall be deemed to have terminated
this Agreement pursuant to Section 8.01(e).
SECTION 9.05. Severability. If any term or other provision of
this Agreement is invalid, illegal or
A-61
incapable of being enforced as a result of any applicable Law, or public policy,
all other conditions and provisions of this Agreement shall nevertheless remain
in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.06. Counterparts. This Agreement may be executed in
one or more counterparts (including via telecopy or facsimile), all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties hereto and
delivered to the other parties. Each party hereto need not sign the same
counterpart.
SECTION 9.07. Entire Agreement; No Third-Party Beneficiaries.
This Agreement, taken together with the Company Disclosure Letter and the
Confidentiality Agreements, (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties hereto with respect to the Transactions and (b) except for the
provisions of Article II Section 6.05, are not intended to confer upon any
person other than the parties hereto any rights or remedies.
SECTION 9.08. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 9.09. Assignment. Neither this Agreement nor any of
the rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties hereto
without the prior written consent of the other parties. Any purported assignment
without such
A-62
consent shall be void. Subject to the preceding sentences, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and assigns.
SECTION 9.10. Enforcement; Waiver of Jury Trial. (a) The
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any Delaware state court or any Federal court located in
the State of Delaware, this being in addition to any other remedy to which they
are entitled at law or in equity. In addition, each of the parties hereto
irrevocably and unconditionally submits to the exclusive jurisdiction of any
Delaware state court or any Federal court located in the State of Delaware for
the purposes of any suit, action or other proceedings arising out of this
Agreement or any Transaction (and each party agrees that no such suit, action or
proceeding arising out of to this Agreement or any Transaction shall be brought
by it or any of its affiliates except in such courts). Each party hereto further
agrees that, to the fullest extent permitted by applicable Law, service of any
process, summons, notice or document by U.S. registered mail to such party's
respective address set forth above shall be effective service of process for any
suit, action or proceeding in Delaware with respect to any matters to which it
has submitted to jurisdiction in this Section 9.10. Each of the parties hereto
irrevocably and unconditionally waives (and agrees not to plead or claim) any
objection to the laying of venue of any suit, action or proceeding arising out
of this Agreement or any Transaction in any Delaware State court or any Federal
court located in the State of Delaware, or that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
(b) Each party hereto hereby waives, to the fullest extent
permitted by applicable Law, any right it may have to a trial by jury in respect
of any suit, action or proceeding directly or indirectly arising out of, under
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or in connection with this Agreement or any Transaction. Each party hereto, (i)
certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such party would not, in the event of
any suit, action or proceeding, seek to enforce the foregoing waiver and (ii)
acknowledges that it and the other parties hereto have been induced to enter
into this Agreement by, among other things the mutual waivers and certifications
in this Section 9.10(b).
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IN WITNESS WHEREOF, Parent, Sub and the Company have duly
executed this Agreement, all as of the date first written above.
OPEN WHEEL RACING SERIES LLC,
by /s/ Kevin Kalkhoven
--------------------------------
Name: Kevin Kalkhoven
Title: Manager
OPEN WHEEL ACQUISITION CORPORATION,
by /s/ Kevin Kalkhoven
--------------------------------
Name: Kevin Kalkhoven
Title: President
CHAMPIONSHIP AUTO RACING TEAMS, INC.,
by /s/ Christopher Pook
--------------------------------
Name: Christopher Pook
Title: President
A-65
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CHAMPIONSHIP AUTO RACING TEAMS, INC.
Championship Auto Racing Teams, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"CORPORATION") does hereby certify that:
1. The original Certificate of Incorporation was filed with the Secretary
of State of Delaware on December 8, 1997.
2. The Amended and Restated Certificate of Incorporation in the form
attached hereto as Exhibit A has been duly adopted in accordance with
the provisions of Sections 242 and 245 of the General Corporation Law
of the State of Delaware by the directors and stockholders of the
Company.
3. The Amended and Restated Certificate of Incorporation so adopted reads
in full as set forth in Exhibit A attached hereto and is hereby
incorporated herein by this reference.
IN WITNESS WHEREOF, Championship Auto Racing Teams, Inc. has caused
this Amended and Restated Certificate of Incorporation to be signed by its
President this /-/ day of /-/ 2003.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
____________________________________
Kevin Kalkhoven, President
A-66
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OPEN WHEEL ACQUISITION CORPORATION
FIRST
The name of the corporation is Championship Auto Racing Teams, Inc.
(the "Corporation").
SECOND
The address of the registered office of the Corporation in the State of
Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The
name of its registered agent at such address is Corporation Service Company.
THIRD
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH
The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is one thousand (1,000) shares of
Common Stock with a par value of $0.01 per share (the "Common Stock").
FIFTH
The business and affairs of the corporation shall be managed by or
under the direction of the board of directors, and the directors need not be
elected by ballot unless required by the bylaws of the corporation.
SIXTH
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the board of directors of the corporation is
expressly authorized to make, alter or repeal the bylaws of the corporation.
SEVENTH
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that this Article Eight does not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after the filing of this Certificate of Incorporation to authorize corporate
action further
A-67
limiting or eliminating the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware. Any
amendment or repeal of this Article Eight, or any adoption of any provision of
this Certificate of Incorporation inconsistent with this Article Eight, shall be
prospective only and shall not adversely affect any right or protection of a
director of the corporation existing at the time of such amendment or repeal or
adoption of an inconsistent provision.
EIGHTH
The corporation reserves the right to amend and repeal any provision
contained in this Certificate of Incorporation in the manner from time to time
prescribed by the laws of the State of Delaware. All rights herein conferred are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has executed, signed and
acknowledged this Amended and Restated Certificate of Incorporation as of /-/,
2003.
____________________________________
Kevin Kalkhoven, President
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ANNEX B
CONTRIBUTION AGREEMENT
This Agreement, dated as of September 10, 2003 (this "Agreement"), is
made by and among Kevin Kalkhoven, Paul Gentilozzi and Gerald R. Forsythe
(collectively, the "Managers"). Championship Auto Racing Teams, Inc. ("CHAMP")
is a third-party beneficiary to this Agreement.
W I T N E S S E T H:
WHEREAS, the Open Wheel Racing Operating Agreement dated August 15,
2003 (the "Operating Agreement") provides that each member of Open Wheel Racing
(a "Member") shall, in the event of a capital call, contribute to the
capitalization of Open Wheel Racing in an amount corresponding to such Member's
Percentage Interest (as defined in the Operating Agreement);
WHEREAS, each Manager, through ownership of control of a Member, is a
beneficial owner of Open Wheel Racing;
WHEREAS, the Managers constitute all of the members of the Board of
Managers of Open Wheel Racing (the "Board of Managers");
WHEREAS, Open Wheel Racing has agreed to purchase the outstanding
shares of CHAMP pursuant to the Agreement and Plan of Merger dated September 10,
2003 among Open Wheel Racing, Open Wheel Racing Acquisition Corporation ("Sub")
and CHAMP (the "Merger Agreement"); and
WHEREAS, the agreements of the Members made herein are a material
inducement to CHAMP to enter into the Merger Agreement.
THEREFORE, the Managers agree as follows:
1. Provided that all the conditions to the Closing (as defined in
the Merger Agreement) set forth in Section 7.02 of the Merger Agreement are
satisfied or waived prior to the Closing, each Manager shall take or cause to be
taken all actions required to cause (a) the Board of Managers to call the
additional capital contribution referenced in Section 5.1(c) of the Operating
Agreement and (b) his respective Member to contribute funds to Open Wheel Racing
sufficient to allow such Member to meet its capital obligations under Section
5.1(c) of the Operating Agreement.
2. Immediately prior to the record date for the Company
Stockholders Meeting (as defined in Section 6.01(b) of the Merger Agreement),
Gerald R. Forsythe shall cause all CHAMP shares owned or controlled by him or
any of his affiliates, including Forsythe Racing, Inc., Indeck Energy Services,
Inc., and Indeck-Ilion Cogeneration Corp., to be contributed to Open Wheel
Racing.
B-1
3. Following the execution of the Merger Agreement, each Manager
shall take or cause to be taken all actions necessary to cause Open Wheel Racing
and Sub to perform their obligations under Section 6.01(a) and (c) of the Merger
Agreement.
4. In the event of a conflict between the terms of the Operating
Agreement and this Agreement, the Managers agree that this Agreement shall
control.
5. The rights and obligations of each of the Managers pursuant to
this Agreement are for the benefit of each of the other Managers and CHAMP only,
and no creditor or other third party shall have any right or claim under this
Agreement.
6. This Agreement may be executed in one or more counterparts
(including via facsimile), all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties hereto and delivered to the other parties. Each
party hereto need not sign the same counterpart.
7. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
date first above written.
/s/ Kevin Kalkhoven /s/ Paul Gentilozzi
------------------------------------ -----------------------------------
Kevin Kalkhoven Paul Gentilozzi
/s/ Gerald R. Forsythe
------------------------------------
Gerald R. Forsythe
CHAMPIONSHIP AUTO RACING TEAMS, INC.
/s/ Christopher Pook
------------------------------------
By: Christopher Pook
Its: President
B-2
ANNEX C
--------------------------------------------------------------------------------
BEAR Bear, Stearns & Co. Inc.
STEARNS 383 Madison Avenue
[GRAPHIC OMITTED] New York, New York 10179
Tel 212.272.2000
www.bearstearns.com
--------------------------------------------------------------------------------
September 10, 2003
The Board of Directors
Championship Auto Racing Teams, Inc.
5350 West Lake Parkway South
Indianapolis, IN 46268
Gentlemen:
We understand that Championship Auto Racing Teams, Inc. ("Championship"), Open
Wheel Racing Series LLC, a Delaware limited liability company ("Open Wheel") and
Open Wheel Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Open Wheel ("Acquisition Corp."), intend to enter into an
Agreement and Plan of Merger to be dated as of September 10, 2003, (the
"Agreement") pursuant to which Acquisition Corp. shall be merged with and into
Championship, with Championship continuing as the surviving corporation (the
"Transaction"), whereby each issued and outstanding share of Championship common
stock, par value $0.01 per share (the "Shares"), subject to certain exceptions,
will be converted into the right to receive the "per share merger
consideration", as defined in the Agreement, which as of the date hereof is
$0.56 per share in cash (the "Consideration to be Received").
You have asked us to render our opinion as to whether the Consideration to be
Received is fair, from a financial point of view, to the unaffiliated
shareholders of Championship, other than Open Wheel and its affiliates,
individuals who own and operate teams or entities that participate in the
businesses owned or operated by Championship or any of its subsidiaries ("Team
Affiliates") and any shareholders who have entered into agreements with Open
Wheel with respect to any matter related to their Shares.
In the course of performing our review and analyses for rendering this opinion,
we have:
- reviewed the draft Agreement dated September 10, 2003;
- reviewed Championship's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the years ended December 31, 1998 through
2002, its Quarterly Reports on Form 10-Q for the periods ended March
31, 2003 and June 30, 2003, and its Reports on Form 8-K for the three
years ended the date hereof;
C-1
- reviewed certain Schedule 13Ds filed by Open Wheel with the Securities
and Exchange Commission with respect to Championship;
- reviewed certain operating and financial information relating to
Championship's business and prospects, including projections for the
four years ended December 31, 2006 dated August 23, 2003 and updates
thereto (the "August 2003 Projections"), all as prepared and provided
to us by Championship's management;
- reviewed the bankruptcy/liquidation analysis dated September 3, 2003
prepared by Championship's management in consultation with
Championship's legal advisors and the Board of Directors of
Championship (the "Liquidation Analysis");
- met with certain members of Championship's senior management to discuss
Championship's business, operations, historical and projected financial
results and future prospects, current financial condition and
liquidity, expected negative free cash flow and future funding
requirements;
- reviewed the historical prices and trading volume of the Shares of
Championship;
- performed certain hypothetical discounted cash flow analyses based on
the August 2003 Projections; and
- conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
As set forth below, we have relied upon and assumed, without independent
verification, the accuracy and completeness of the August 2003 Projections and
the financial and other information provided to us by Championship. With respect
to the August 2003 Projections, we have relied on representations that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of Championship as to the expected future
performance of Championship as well as considered the current concerns of the
Board of Directors that it will be difficult for management to achieve the
results projected beyond 2003 in the August 2003 Projections even if financing
were available, which is unlikely given the lack of financing alternatives
currently available to Championship. We note that the August 2003 Projections
project negative operating cash flow for 2004 and 2005, which creates, in the
absence of a strategic transaction or alternative financing transaction, a
funding shortfall. Based on the August 2003 Projections, Championship's current
cash position and the absence of new financing to meet the funding shortfall
contained in the August 2003 Projections, if Championship were to continue to
meet all of its existing obligations and those of its operating subsidiaries,
Championship would exhaust its cash resources at some period during the last
quarter of 2003 and would no longer be able to conduct its operations after such
date without additional financing.
We also have relied upon and assumed, without independent verification, the
accuracy and completeness of the Liquidation Analysis. With respect to the
Liquidation Analysis, we have relied upon representations that it has been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of Championship and the Board of
Directors of Championship as to the expected financial implications of
liquidation as
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well as upon the views of Championship's legal advisors on such matters as to
the likely implications (financial and otherwise) of the liquidation on
Championship's shareholders.
In arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets or liabilities (contingent or otherwise) of
Championship, nor have we been furnished with any such appraisals. We have
assumed that the Transaction will be consummated in a timely manner and in
accordance with the terms of the Agreement without any limitations,
restrictions, conditions, amendments or modifications, regulatory or otherwise,
that collectively would have a material effect on Championship and that there
will be no change in the per share merger consideration. In connection with our
solicitation effort, which was publicly announced on June 16, 2003 when
Championship disclosed that it had engaged Bear, Stearns & Co. Inc. to pursue
strategic alternatives, we note that no other potential strategic acquirors,
equity investors or financing sources have made an acquisition, investment or
financing proposal to Championship that would imply greater benefits to
Championship and its shareholders.
In formulating our opinion, we have observed that (a) a discounted cash flow
analysis is of limited efficacy in valuing enterprises in severe financial
distress that have a demonstrated lack of liquidity or financing alternatives;
(b) Championship's Board of Directors' belief that it will be difficult for
management to achieve the results projected beyond 2003 in the August 2003
Projections even if financing were available, which we believe is unlikely given
the lack of financing options available to Championship; and (c) there exists an
absence of observable valuation metrics by which to compare Championship to
other publicly traded companies or by which to compare the Transaction to other
mergers and acquisitions.
We have relied upon the assurances of the senior management of Championship that
they are unaware of any facts that would make any historical financial
information or the August 2003 Projections (subject to the Board of Directors'
view that it will be difficult to achieve the results projected beyond 2003 in
the August 2003 Projections) provided to us incomplete or misleading. We have
further relied upon the assurances of the senior management of Championship,
Championship's legal advisors and the Board of Directors of Championship that
they are unaware of any facts that would make the Liquidation Analysis provided
to us incomplete or misleading. We do not express any opinion as to the price or
range of prices at which the Shares may trade subsequent to the announcement of
the Transaction.
We have acted as a financial advisor to Championship in connection with the
Transaction and will receive a customary fee for such services, a substantial
portion of which is contingent on successful consummation of the Transaction. In
the ordinary course of business, Bear Stearns and its affiliates may actively
trade the equity and debt securities and/or bank debt of Championship for our
own account and for the account of our customers and, accordingly, may at any
time hold a long or short position in such securities or bank debt.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of Championship and does not constitute a recommendation to
the Board of Directors of Championship or any holders of Shares as to how to
vote in connection with the Transaction. This opinion does not address
Championship's underlying business decision to pursue the Transaction, the
relative merits of the Transaction as compared to any alternative business
strategies, financial alternatives or liquidation alternatives that might exist
for Championship or
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the effects of any other transaction in which Championship might engage. This
letter is not to be used for any other purpose, or be reproduced, disseminated,
quoted from or referred to at any time, in whole or in part, without our prior
written consent; provided, however, that this letter may be included in its
entirety in any proxy statement to be distributed to the holders of Championship
common stock in connection with the Transaction. Our opinion is subject to the
assumptions and conditions contained herein and is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date hereof. We assume no responsibility for updating or revising our
opinion based on circumstances or events occurring after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be Received is fair, from a financial point of
view, to the unaffiliated shareholders of Championship, other than Open Wheel
and its affiliates, Team Affiliates, and any shareholders who have entered into
agreements with Open Wheel with respect to any matter related to their Shares.
Very truly yours,
BEAR, STEARNS & CO. INC.
By:__________________________________
Senior Managing Director
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ANNEX D
September 10, 2003
Open Wheel Racing Series, LLC
320 Harcross Road
Woodside, CA 94062
Attention: Kevin Kalkhoven
Ladies and Gentlemen:
Open Wheel Racing Series, LLC (the "Purchaser") retained Ernst & Young Corporate
Finance LLC ("EYCF") to advise it with respect to the fairness to the selling
stockholders of Championship Auto Racing Team, Inc. ("CHAMP" or the "Company"),
from a financial point of view, of the Consideration (as defined herein) to be
paid by the Purchaser pursuant to the terms of the proposed Agreement and Plan
of Merger (the "Agreement") Among the Purchaser and CHAMP, and the transaction
being effected thereby (the "Transaction").
The Agreement provides, among other things, that each share of CHAMP common
stock issued and outstanding (together with any rights if still outstanding)
will be converted into the right to receive in cash the amount equal to the
fraction, the numerator of which is $6,350,811 (the "Consideration") and the
denominator of which is the aggregate number of shares of CART capital stock
outstanding, less the shares of common stock that are or will be owned by the
Purchaser, rounded down to the nearest whole cent. Based on 14,718,134 shares of
common stock of CHAMP outstanding as of July 1, 2003 (with no additional rights
outstanding) and an assumed 3,377,400 shares owned or to be owned by the
Purchaser, the consummation of the Transaction would result in CHAMP
stockholders receiving approximately $.56 cash in exchange for each share.
In connection with rendering our opinion, we have reviewed a draft of the
Agreement, dated September 8, 2003. For purposes of this opinion, we have
assumed that the final form of the Agreement and the specific terms therein will
not differ in any material respect from those contained in that draft. We have
assumed, with your consent, that no other agreements or information referred to
in the document identified above will materially affect the value of the
Consideration or the terms of the Transaction.
We also have reviewed, among other things, certain publicly available financial
information and other information concerning the Company and certain analyses
and other information furnished to us by Company management. In addition, we
have met and had discussions with members of senior management of the Company
regarding such information and, among other things, the business, operations,
assets, financial condition,
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future prospects and foreseeable risks of the Company. We have also had
discussions with the Purchaser and the Purchaser's representatives regarding the
intent and associated risks of the Transaction.
In conducting our review and analysis and in formulating our opinion, we faced
certain limitations including, without limitation, the fact that we relied only
upon information available from recognized public sources and information
provided by Purchaser and CHAMP, in both cases without any independent
verification. We assumed that all information provided by Purchaser and CHAMP
was reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the management of Purchaser and CHAMP,
without any independent verification. We did not interview sponsors, promoters
or team representatives, evaluate technologies, or conduct inspections of any
properties or facilities and no independent valuation or appraisal of the
Company or its assets were conducted by EYCF or provided to us by others. We
also relied exclusively upon the management of CHAMP to provide projected
financial information for the Company for the four-month period ending December
31, 2003 and the fiscal years ending December 31, 2004 through 2006 and we did
not independently develop any financial projections. The terms and conditions of
the Transaction were determined without the involvement of EYCF and EYCF
expresses no opinion as to whether or not better terms could have been achieved
by either party. In arriving at our opinion, we were not authorized to solicit,
and did not solicit, interest from any party (including Purchaser) with respect
to the Company or its assets. We also express no opinion with respect to any
other reasons, legal, business or otherwise, that may support the decision of
either the Company's Board of Directors or the Purchaser to approve or
consummate the Transaction, and our opinion does not address the underlying
business decision to proceed with the Transaction. We also assumed that the
CHAMP Board of Directors decided that proceeding with the Transaction is a
better alternative for the stockholders than a liquidation of the Company.
We have assumed that obtaining all regulatory or other approvals and third party
consents required for consummation of the Transaction has been, or will be,
accomplished and will not have an adverse impact on either the Company or the
Purchaser, and we have assumed that the Transaction will be consummated without
waiver or modification of, or with respect to, any of the material terms or
conditions contained in the Agreement. We also are assuming the absence of any
material contingent liabilities not already taken into consideration in the
Company's projections.
In the course of our analysis, we first compared the value of the Consideration
being received by the CHAMP stockholders to the current quoted price of the
Company's common stock and then considered various factors that appear to
appropriately account for the discount being offered by the Purchaser. We then
performed a discounted cash flow analysis based on the cash flow streams
projected by CHAMP management, an assumed terminal value and a range of assumed
discount rates. Additionally, we reviewed and compiled an analysis prepared by
the Company assuming that an orderly liquidation of the Company's assets and
liabilities was effected. We also considered relevant issues related to the
current market capitalization of the Company. Further, we
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reviewed and considered certain financial data relating to the Company and have
compared, where applicable and appropriate, that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company; and we
have reviewed and considered the financial terms of certain recent acquisition,
business combination and equity investment transactions in the industry. We also
have performed such other financial studies, analyses and investigations and
reviewed such other information as we considered appropriate for purposes of
this opinion.
In addition to these quantitative analyses, we considered various qualitative
factors that we considered relevant to our analysis, including but not limited
to (i) the substantial financial losses expected to be incurred by the Company,
which are anticipated to deplete the Company's current cash balance by December
31, 2003; (ii) the additional capital financing that will be required to fund
the CHAMP business plan in fiscal 2004 and 2005 and the unlikelihood of the
Company being able to raise such financing on a stand-alone basis; (iii) that
Company management has concluded that, in the absence of this Transaction, CHAMP
may be required to file for reorganization under Chapter 11 or liquidation under
Chapter 7 of the bankruptcy code; (iv) the Company's financial advisor was
unable to find a buyer for the business, other than Purchaser, after an
extensive sale process; (v) the Purchaser has not attempted to discourage
competing bids for the Company (as evidenced by a 13D filing in which the
Purchaser stated that it would support a superior offer from a third party who
intends to continue to operate the business of CHAMP); and (vi) the Company's
projections are dependent upon a turnaround in both the operations and cost
structure.
Our opinion is based upon current economic, monetary and market conditions and
the transaction structure as described in the Agreement. Given the nature of our
analytical techniques, this opinion is not readily susceptible to partial
analysis or summary description. Furthermore, in arriving at our opinion, we did
not attribute any particular weight to a particular analysis, but rather made
qualitative judgments as to the relative significance and relevance of each of
the analyses. Accordingly, we believe that our analysis must be considered as a
whole and that selecting portions of our analysis, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
The opinion expressed herein was prepared solely for the benefit and use of the
Purchaser in its consideration of the Transaction and may not be relied upon by
any other person
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and may not be quoted, referred to or reproduced at any time or in any manner
without our prior written consent. This opinion does not constitute a
recommendation to the Purchaser or to any other person with respect to the
Transaction and should not be relied upon by any such person for such purpose.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that, as of the date hereof, the
Consideration provided pursuant to the Agreement is fair, from a financial point
of view, to the selling stockholders of CHAMP.
Sincerely,
/s/ ERNST & YOUNG CORPORATE FINANCE LLC
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ANNEX E
SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Section 262. Appraisal rights - (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to Section 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect thereof, at
the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such
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merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
(or depository receipts in respect thereof) or depository
receipts at the effective date of the merger or consolidation
will be either listed on a national securities exchange or
designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of
this title is not owned by the parent corporation immediately prior to
the merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than
20 days prior to the meeting, shall notify each of its stockholders who
was such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand
for appraisal of such stockholder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand
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as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or Section 253 of this title, then either a constituent
corporation before the effective date of the merger or consolidation or
the surviving or resulting corporation within 10 days thereafter shall
notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send
a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to
all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such
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stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw such stockholder's demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate number
of shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the Register
in Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving
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or resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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