Michael D. Allweiss * 100 - 2nd Ave. S. Suite 704S * St. Petersburg, FL 33701 * 727-821-2722 MAllweiss@APBAOffshore.com www.apbaoffshore.com
Date: September 29, 2003 To:
Bill Lussier, GM Powertrain
From: Michael Allweiss, Chairman/CEO, APBA Offshore Powerboat Racing, LLC LLC Members: Mark Nemschoff, Nigel Hook, Gordon Kraft, Allen Allweiss, Steve Miklos Re:
Your September 27, 2003 Proposed Letter of Termination of Sponsorship Agreement
Dear Mr. Lussier: As we discussed this weekend I received your letter purporting to terminate our 3year sponsorship agreement with GM. The letter was delivered via FedEx - without a warning of any kind or even a courtesy phone call. The letter contains no cogent reasoning for the termination and actually flies in the face of everything we have done for GM and everything GM executives have been telling us for months. In fact, last spring Bob Purcell told us in your offices that GM would honor our agreement through its full term. When I negotiated the contract with Rick Dunagan, moreover, he assured us that GM would honor its commitment. There was never any hint that GM would ever do something like this. Indeed, the entire royalty arrangement was negotiated as compensation for our company’s financial and human resource assistance in the development, validation and promotion of the HP3. Our deal is for 3 years with an automatic one year extension that kicks in annually. This paragraph 5 to which you refer in your letter, is buried in the boiler plate language of the GM form contract provisions dealing primarily with vehicle leasing. The substantive terms of our contract including the applicable term and termination provisions are set forth in Attachment “A”. For your legal department to assert that GM has the right to terminate a multi-year contract whenever it wants for whatever reason it wants is absurd when the contract is viewed in its entirety.
More importantly, GM representatives have been assuring us for months that GM always acts with honesty and integrity. We always believed that to be true. Both Tom Stephens and Bob Lutz went on national television and extolled the virtues of GM's relationship and long term commitment to APBA Offshore. Milwaukee was a huge success. We have sold trucks and promoted the GM and GMC brands beyond what our agreement calls for. We spent hundreds of thousands of dollars of our own money to help develop the HP3 saving GM millions of R&D costs in the process. With GM’s knowledge we built an entire business plan around this sponsorship and GM's commitment to see it through, yet now, without warning or explanation suddenly we do not fit your admittedly as of yet undeveloped corporate guidelines? We are even more deeply troubled by the fact that certain people within GM Powertrain apparently advised Mercury Marine of your intent to attempt to terminate our agreement before you even told us. Why is it that certain top Mercury offshore racing teams knew about the termination before we did? We know that the HP3 program has been a source of significant consternation at Mercury Racing for many months as has GM’s promotional participation in our series. In fact, the reaction within Mercury Racing was so negative that within months of announcing our new sponsorship arrangement, Fred Hauenstein, a Mercury Racing executive and confidante of Fred Kiekhaefer, and a group of old school APBA members embarked on a campaign to terminate our APBA license and drive us out of business. At the same time, another now former Mercury Racing executive, Tony Esposito, working in concert with Hauenstein began a deliberate public campaign challenging our status as an APBA Licensee while falsely accusing us of failing to deliver on our sponsorship obligations to Mercury Racing. This was followed by his unjustified termination of that sponsorship and his refusal to pay us the remaining $100,000.00 due under our contract. He continued to apply pressure on GM as well by publicly criticizing GM’s involvement in the series and by denigrating the HP3 platform. Meanwhile, we now know that Mercury officials also began applying tremendous behind the scenes pressure on GM to withdraw their support for us. We also know that certain individuals within GM Powertrain sympathized with the “plight” of their largest customer and also began working against our partnership with GM. We then were hit with sham legal actions in New York and North Carolina, which Mr. Hauenstein and his supporters unlawfully financed by using APBA membership money. We had to spend our own money to defend ourselves and pursue our own claims. To add insult to injury, even though we prevailed in court, since most of the money in the APBA account was ours to begin with we actually ended up financing their actions against us. The resulting hostile environment, moreover, made it impossible for us to sell sponsorships or raise any outside money to grow our business. Despite the loss of the Mercury sponsorship, hemorrhaging money on events such as Milwaukee, where Mercury actually was actively working against us, and these lawsuits, we produced our events and television, paid the prize purses and even continued to deliver on the Mercury Sponsorship. Why?
Because our friends within GM urged us to do so and because we had their assurances that GM would honor its commitments to us for the full term of our agreement. We all believed that if we took the high road Mercury ultimately would put a stop to Kiekhaefer, Hauenstein and Esposito and do what was right and just and then we could all take the same stage and create a win/win/win situation for all of us. We now know though that a meeting was held this past week between top officials at Mercury and GM to according to you, "resolve commercial issues between the companies", but within days of that meeting GM hurriedly attempted to terminate our agreement. We can only assume that Mercury officials never advised you of these other goings on and we can only hope you had no idea of the ramifications of your decision. Sadly, however, once this decision by GM becomes public, which probably will occur in the next 24-48 hours because of the leaks within Powertrain, our corporate recapitalization efforts will cease – inasmuch as they were contingent on the GM agreement - the credibility of our company will be destroyed and our operations will likely be shut down immediately. That means no more races this year and probably the end of any future between us and GMC. Your cancellation of the contract has even wider spread negative ramifications. We both share numerous customers who have leased the GM HP3 engines for competition. These same folks have purchased millions of dollars worth of GM vehicles and spent hundreds of thousands more on promoting GM, GMC and the Vortec Power Team. I am not sure you can even imagine how upset these people are going to be over your decision to suddenly and inexplicably terminate this relationship. We were scheduled to go to court tomorrow to finalize the settlement which we negotiated as a result of our court victory. The settlement included a general release of all of our claims against Hauenstein and the others. Unfortunately, because of your letter and the uncertainty it has caused we will be unable to finalize the settlement. Your actions have thus left us with the untenable choice of continuing on with our business in hopes that we can secure a new agreement with GM, or continuing our current lawsuits and adding Mercury as a major defendant. At this point we must choose the latter because the certainty of a positive outcome for us is much greater than in the former scenario. As I said this weekend, the only possible solution would be for GM to formally retract its letter or immediately enter into a new sponsorship agreement before tomorrow. Our position is that we already negotiated a fair and reasonable deal with GM last year. We will agree to a new arrangement; provided, however, that we must be guaranteed the same gross sponsorship dollars, a substitute mechanism which will yield similar returns to the royalty arrangement, and the fixed term of 3 years plus the automatic renewals that we secured in our current deal with GM. Please let us know how you intend to proceed.