1
EXHIBIT 2.1
December 22, 1997
U.E. ▇▇▇▇▇▇▇
Chairman of the Board of Directors
American Racing Series, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Dear ▇▇. ▇▇▇▇▇▇▇:
This letter will serve to confirm the intentions of Championship Auto
Racing Teams, Inc., a Delaware corporation ("CART") to enter into a Definitive
Purchase Agreement ("Purchase Agreement") to acquire all of the issued and
outstanding shares of common stock of American Racing Series, Inc. ("ARS") and
certain assets of BP Automotive, Ltd. ("B.P."). Consummation of the transactions
discussed in this letter will be subject to the basic conditions precedent
hereinafter set forth:
1. PURCHASE OF STOCK OF ARS - CART and the shareholders of ARS will
enter into a mutually acceptable Definitive Purchase Agreement providing for the
acquisition by CART of 100% of the issued and outstanding shares of stock in
ARS.
2. ACQUISITION OF ASSETS OF B.P. - CART will enter into a mutually
acceptable Purchase Agreement with respect to the acquisition of certain assets
of B.P., as set forth on Exhibit A attached hereto and incorporated herein.
3. PURCHASE PRICE - The purchase price for the stock of ARS and the
assets of B.P. payable by CART shall be $10,000,000. The purchase price is to be
allocated to the parties based upon their mutual agreement and paid as follows:
a. CART shall pay $7,000,000 at closing.
b. The remaining $3,000,000 of the purchase price shall
be paid to ARS shareholders and B.P. at $1,000,000
per year for three years, subject to the attainment
of certain performance criteria as follows:
(i) Five Hundred Twenty Two Thousand Five
Hundred Dollars ($522,500.00) per year for
three years for sponsorship agreements that
are not currently contracted. ARS will be
entitled to continue to solicit sponsors in
all categories until September 1, 1998 to
meet the guarantee. After September 1, 1998,
ARS agrees to discontinue any sales efforts;
(ii) Two Hundred Thousand Dollars ($200,000.00)
related to promoter fees for the Penske
tracks for the 1998 and 1999 seasons;
2
(iii) Engines leases and rebuilds based on 30 paid
leases per year for two (2) years;
(iv) Wheel sales of Fifty One Thousand Three
Hundred Dollars ($51,300.00) per year for
three years;
(v) Parts and chassis commissions of Three
Hundred Fifty Thousand Dollars ($350,000.00)
per year for two (2) years;
(vi) The annual average performance criteria
guarantee for the items outlined above are
as follows:
1998 1999 2000
---- ---- ----
Engine Lease $1,380,000 $1,380,000
Rebuilds 1,440,000 1,440,000
Sponsorship 522,500 522,500 522,500
Promoter Fees
Penske Tracks 200,000 200,000
Wheel Sales (net) 51,300 51,300 51,300
Commissions 350,000 350,000
----------- ---------- --------
$3,943,800 $3,943,800 $573,800
(vii) In the event that there is an annual
shortfall to the above number, the annual
payments by CART will be reduced dollar for
dollar by the shortfall. If the annual
average is met on a multi-year basis, any
previous shortfall to the One Million Dollar
($1,000,000.00) annual payment will be
reimbursed to ARS stockholders and B.P. ARS
will increase the Engine Lease payments and
engine rebuilds by a reasonable amount for
1999.
c. The shareholders of ARS and B.P. shall be granted
options to purchase 100,000 shares of the common
stock of CART at the initial public offering price.
These options will vest one year from the date of the
initial public offering, subject to ARS meeting the
1998 performance criteria of $3,943,800. If the
performance criteria is not met, the shareholders and
B.P. may pay CART the deficiency and thus meet the
performance criteria. These options may be
exercised at any time within 5 years after they vest.
d. DIRECTED SHARES - The shareholders of ARS and B.P.
shall be granted the right to purchase up to
$1,000,000 of CART's common stock at the initial
public offering price.
4. REPRESENTATIONS AND WARRANTIES - The shareholders of ARS and BP
shall make standard representations and warranties customary to a transaction of
this type, including, but not limited to:
a. Conduct of the business pending closing;
b. Organization and standing of ARS and BP;
2
3
c. ARS's capitalization share ownership and financial
statements;
d. B.P.'s share ownership and financial statements,
including the accuracy of financial statements.
e. Title to properties owned, absence of litigation,
unasserted claims.
f. Other typical disclosure, including no material
adverse changes in the business, assets, liabilities,
etc., and no other transactions other than in the
normal course of business.
5. CONDITIONS PRECEDENT TO CLOSING. The Purchase Agreement shall
provide that the obligations of the parties to consummate the Purchase Agreement
will be subject to the satisfaction of certain conditions, including the
following:
a. Completion of the CART initial public offering.
b. Representations and warranties contained in the
Purchase Agreement will continue to be true and
correct in all material respects as of the closing.
c. No material adverse changes in the business condition
of ARS or BP.
6. DISTRIBUTIONS PRIOR TO CLOSING. The parties agree that, prior to the
closing of the Purchase Agreement, ARS shall distribute to its shareholders all
cash, accounts receivable, accounts payable, the ARS airplane, the hanger and
the partnership interests with respect to the Melbourne property. The cash
distributed shall be adjusted to reflect any obligations that ARS may have with
respect to engine deposits unearned income related to 1998 and beyond or other
matters recorded on ARS's financial statements which reflect future obligations
of ARS.
7. COVENANT NOT TO COMPETE. U.E. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ will enter
into a covenant not to compete for a period of five (5) years from the Closing,
which will provide that neither U.E. ▇▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇ will form a race
series that directly competes with ARS.
8. CLOSING AND EFFECTIVE DATE. Closing and the effective date will
occur not later than 10 business days after the closing of the CART initial
public offering.
9. TAX ELECTION. ARS agrees to a Section 338(h)(10) under the Internal
Revenue Code on terms mutually acceptable to all parties.
10. ACCESS TO BOOKS AND RECORDS AND DUE DILIGENCE. Prior to the
execution of the Definitive Purchase Agreement, ARS shareholders and B.P. shall
afford CART's officers, attorneys, accountants and other authorized
representatives free and full access, on reasonable notice, and during normal
business hours to all management, personnel, offices, properties, books and
records so that CART may have a reasonable opportunity to make such
investigations as it desires into the management, business, properties and
affairs of ARS and B.P. ARS and B.P. shall furnish to CART financial and
operating data and other information, including legal documents regarding their
business as CART reasonably requests. In the event that CART discovers issues
related to the business of ARS or B.P. which adversely effect the business of
ARS or the value thereof, CART shall have the right to terminate this letter of
intent.
10. NON-SOLICITATION. Until the Definitive Purchase Agreement has been
executed or 60 days from the date hereof, ARS and B.P. will not: (i) solicit
from any outside sources, acquisition proposals relating to ARS or B.P. or their
assets or stock; or (ii) entertain or discuss any acquisition proposals from any
unsolicited outside sources relating to ARS or B.P.
3
4
This letter is intended to be a binding letter of intent, therefore
constitute a legally binding enforceable contract among the parties pertaining
to the subject matter hereof, which all parties agree to reduce to a definitive
purchase agreement as expeditiously as possible, but no later than January 15,
1998.
If you are in agreement with the foregoing, and this letter of intent
is acceptable to you and the parties that you represent, please confirm by
signing a copy of this letter and returning it to me no later than December 22,
1997.
Sincerely yours,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Vice President
Accepted and agreed to this 22nd day of December, 1997.
AMERICAN RACING SERIES, INC.
By: /s/ U.E. ▇▇▇▇▇▇▇
---------------------------------------
U.E. ▇▇▇▇▇▇▇
Chairman of the Board of Directors
/s/ U.E. ▇▇▇▇▇▇▇
---------------------------------------
U.E. ▇▇▇▇▇▇▇, on behalf of himself, ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇
` ▇▇▇▇▇▇▇-▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
B.P. AUTOMOTIVE
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇, President
4
