-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WSXSd3xOHvBdYw2Xger1b0v071tREaNVBSuKdVFu3zsNpdX4ez4lR5kEW+tIrpBV GshIYvE+PPEYS5ggK0Fh3w== 0000950134-97-002364.txt : 19970329 0000950134-97-002364.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950134-97-002364 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 38 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KARTS INTERNATIONAL INC CENTRAL INDEX KEY: 0001010077 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752639196 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-24145 FILM NUMBER: 97567120 BUSINESS ADDRESS: STREET 1: 109 NORTHPARK BOULEVARD STREET 2: SUITE 210 CITY: COVINGCOVINGTON STATE: LA ZIP: 70433 BUSINESS PHONE: 5048757350 MAIL ADDRESS: STREET 1: 109 NORTHPARK BOULEVARD STREET 2: SUITE 210 CITY: COVINGTON STATE: LA ZIP: 70433 SB-2 1 FORM SB-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _________________________ KARTS INTERNATIONAL INCORPORATED (Name of Small Business Issuer in its Charter) _________________________ NEVADA 3944 75-2639196 (State or Other Jurisdiction of (Primary Standard (I.R.S. Employer Incorporation or Organization) Industrial Identification No.) Classification Code Number) _________________________ KARTS INTERNATIONAL INCORPORATED V. LYNN GRAYBILL, CHIEF EXECUTIVE OFFICER 109 NORTHPARK BOULEVARD, SUITE 210 109 NORTHPARK BOULEVARD, SUITE 210 COVINGTON, LOUISIANA 70433 COVINGTON, LOUISIANA 70433 (504) 875-7350 (504) 875-7350 (Address and Telephone Number of Principal Executive (Name, Address and Telephone Number Offices and Principal Place of Business) of Agent for Service) _________________________ Copies to: RICHARD B. GOODNER, ESQ. LOOPER, REED, MARK & MCGRAW ROBERT E. ALTENBACH, ESQ. INCORPORATED JOHNSON & MONTGOMERY 4100 THANKSGIVING TOWER ONE BUCKHEAD PLAZA 1601 ELM STREET 3060 PEACHTREE ROAD, N.W., SUITE 400 DALLAS, TEXAS 75201 ATLANTA, GEORGIA 30305 PHONE NO. (214) 954-4135 PHONE NO. (404) 262-1000 FAX NO. (214) 953-1332 FAX NO. (404) 262-1222
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] _________________________ CALCULATION OF REGISTRATION FEE
============================================================================================================================== TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM CLASS OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------------- Common Stock(2), $.001 par value(2) . . . . . . 3,360,000 $5.06 $17,001,600 $5,151.48 - ----------------------------------------------------------------------------------------------------------------------------- Redeemable Common Stock Purchase Warrants(3)(5) 1,610,000 $0.125 $201,250 $60.98 - ----------------------------------------------------------------------------------------------------------------------------- Underwriters' Warrants(4)(5) . . . . . . . . . 140,000 $6.22 $870,800 $263.85 - ----------------------------------------------------------------------------------------------------------------------------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,476.31 - -----------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933. The price per share of Common Stock has been calculated on the basis of the average of the closing bid and ask prices per share as quoted on the NASD Electronic Bulletin Board on March 26, 1997, which were $4.50 and $5.625 per share, respectively. (2) Includes (i) 1,400,000 shares of Common Stock offered hereby, (ii) 1,400,000 shares of Common Stock issuable upon exercise of the Redeemable Common Stock Purchase Warrants (the "Warrants") offered hereby, (iii) 210,000 shares of Common Stock subject to the Underwriters' overallotment option, (iv) 210,000 shares of Common stock issuable upon exercise of 210,000 Warrants subject to the Underwriters' overallotment option, and (v) 140,000 shares of Common Stock issuable upon exercise of 140,000 warrants subject to Underwriters' Warrants. (3) Includes 1,400,000 Warrants offered hereby and 210,000 Warrants subject to the Underwriters' over-allotment option. (4) Underwriters' Warrants to purchase up to 140,000 units consisting of an aggregate of 140,000 shares of Common Stock and 140,000 Warrants exercisable at 120% of the estimated offering prices of the Common Stock and Warrants. (5) Pursuant to Rule 416, this Registration Statement also covers such indeterminate number of shares of Common Stock as may be issuable upon exercise of the referenced warrants pursuant to antidilution provisions. _________________________ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 2 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. The securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED MARCH 28, 1997 PROSPECTUS KARTS INTERNATIONAL INCORPORATED 1,400,000 SHARES OF COMMON STOCK AND 1,400,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS Karts International Incorporated, a Nevada corporation (the "Company"), hereby offers 1,400,000 shares of Common Stock, par value $.001 per share (the "Common Stock"), and 1,400,000 Redeemable Common Stock Purchase Warrants (the "Warrants") (the "Offering"). The shares of Common Stock and the Warrants offered hereby (sometimes hereinafter collectively referred to as the "Securities") may be purchased separately. Each Warrant is transferable immediately upon issuance and entitles the holder thereof to purchase one share of Common Stock at a price of $4.50 per share (assuming an initial offering price of $4.50 per share) during the four-year period commencing on the first anniversary of the effective date of this Offering (the "First Exercise Date"). The Warrants are redeemable by the Company at a redemption price of $0.01 per Warrant, at any time after the First Exercise Date, upon 30 days' written notice to the holders thereof, if the average closing price of the Common Stock equals or exceeds $9.00 per share for the 20 consecutive trading days ending three days prior to the date of the notice of redemption. See "Description of Securities." The Company's Common Stock is listed for trading on the Electronic Bulletin Board of the National Association of Securities Dealers, Inc. (the "NASD") under the symbol "KINT". On March 26, 1997, the closing bid and ask prices of the Common Stock were $4.50 and $5.625 per share, respectively. The Company has applied to include the shares of Common Stock and Warrants offered hereby on the Nasdaq SmallCap Market under the symbols "KINT" and "KINTW," respectively. The Company's Securities have not yet been approved for quotation on the Nasdaq SmallCap Market and there can be no assurance that an active trading market will develop or if such market is developed it will be sustained. See "Common Stock Price Ranges and Dividends." SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK AND WARRANTS OFFERED HEREBY, INCLUDING, WITHOUT LIMITATION, A RISK THAT THIS PROSPECTUS MAY NOT BE CURRENT DURING THE EXERCISE PERIOD OF THE WARRANTS. ______________________________ THESE SECURITIES HAVE 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 ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
====================================================================================================================== PRICE UNDERWRITING DISCOUNTS PROCEEDS TO TO PUBLIC AND COMMISSIONS(1) COMPANY(2) - ---------------------------------------------------------------------------------------------------------------------- Per Share of Common Stock . . . . . . . $__________ $__________ $__________ - ---------------------------------------------------------------------------------------------------------------------- Per Warrant . . . . . . . . . . . . . . $__________ $__________ $__________ - ---------------------------------------------------------------------------------------------------------------------- Total(3) . . . . . . . . . . . . . $__________ $__________ $__________ ======================================================================================================================
(1) Does not include compensation to Argent Securities, Inc. as the managing underwriter (the "Representative") among the companies underwriting this Offering (the "Underwriters") in the form of (i) a 3% non-accountable expense allowance, (ii) warrants to purchase up to 140,000 shares of Common Stock and 140,000 Warrants exercisable at $5.40 per share of Common Stock and $0.15 per warrant (the "Underwriters' Warrants") and (iii) a financial advisory agreement for the Representative to act as an investment banker for the Company for a period of two years for an aggregate fee of $48,000 payable at the closing of the Offering. In addition, the Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company, estimated at $387,250, including the non-accountable expense allowance payable to the Underwriters. (3) The Company has granted the Underwriters a 45-day over-allotment option to purchase up to 210,000 additional shares of Common Stock and 210,000 additional Warrants on the same terms and conditions as set forth above. If all such additional shares are purchased by the Underwriters, the total Price to Public will be $_______________, the total Underwriting Discounts and Commissions will be $_______________ and the total Proceeds to the Company will be $_______________. See "Underwriting." ______________________________ The Securities offered by this Prospectus are being offered by the Underwriters named herein on a "firm commitment" basis subject to prior sale, when, as and if accepted by the Underwriters, approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer without notice and reject any order in whole or in part. It is expected that delivery of the certificates representing the Securities will be made at the offices of Argent Securities, Inc., Atlanta, Georgia on or about ____________________, 1997. Argent Securities, Inc. The Date of this Prospectus is , 1997 3 AVAILABLE INFORMATION The Company has filed with the U.S. Securities and Exchange Commission (the "Commission") a Registration Statement on Form SB-2 (together with all exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Securities offered hereby. This Prospectus constitutes a part of the Registration Statement and does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted from this Prospectus as permitted by the rules and regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract, agreement or other document referred to herein are not necessarily complete and, where such agreement or other document is an exhibit to the Registration Statement, each such statement is qualified in all respects by the provisions of such exhibit, to which reference is hereby made for a full statement of the provisions thereof. For further information with respect to the Company and the Securities offered hereby, reference is hereby made to the Registration Statement and to the schedules and exhibits thereto. The Registration Statement may be inspected, without charge, and copies may be obtained, at prescribed rates, at the public reference facilities of the Commission maintained at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of the Registration Statement may also be inspected, without charge, at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, copies of the Registration Statement may be obtained by mail, at prescribed rates, from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. ADDITIONAL INFORMATION As a result of this Offering, the Company will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will file periodic reports, proxy statements and other information with the Commission. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference facilities and regional offices referred to above. The Commission also maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers of securities which file electronically with the Commission. The Company intends to furnish its stockholders with annual reports containing consolidated financial statements certified by its independent auditors and with quarterly reports for each of the first three quarters of each fiscal year containing unaudited consolidated financial information. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL ON THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. -2- 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated herein, the financial, business activities, management and other pertinent information herein relates on a consolidated basis to the Company and its wholly-owned subsidiaries, Brister's Thunder Karts, Inc. and USA Industries, Inc. Each prospective investor is urged to read this Prospectus in its entirety and to particularly consider the information set forth under the heading "RISK FACTORS." Unless otherwise indicated, all Common Stock share and per share data and information in this Prospectus (i) have been adjusted to give effect to a two-for-three reverse stock split of the Company's Common Stock effective March 24, 1997 and a one-for-250 reverse stock split of the Company's Common Stock on February 23, 1996, (ii) assume the conversion, upon the closing of the Offering, of all outstanding shares of the Company's Convertible Preferred Stock, par value $0.001 per share (the "Convertible Preferred Stock") for $625,000 and the issuance of 104,175 shares of Common Stock to the holders of the Convertible Preferred Stock, (iii) assume issuance to Convertible Preferred Stockholders of an additional 333,350 1996 Redeemable Common Stock Purchase Warrants (the "1996 Warrants") upon the closing of the Offering, (iv) assume no exercise of outstanding options to purchase an aggregate of 59,355 shares of Common Stock with an exercise price of $5.63 per share, (v) assume no exercise of outstanding warrants, including Warrants offered hereby, the 1996 Warrants, the Class A Warrants and the Underwriters' Warrants, and (vi) assume no exercise of the Underwriters' over-allotment option. THE COMPANY Karts International Incorporated, a Nevada corporation (the "Company"), through its wholly-owned subsidiaries, Brister's Thunder Karts, Inc., a Louisiana corporation ("Brister's") and USA Industries, Inc., an Alabama corporation ("USA"), designs, manufactures and distributes recreational fun karts ("Fun Karts"), also referred to as "go karts." Fun Karts are four-wheeled, gas-powered vehicles typically equipped with engines of 5 to 8 horsepower and purchased by consumers principally for off-road recreational use. The Company shipped approximately 17,750 Fun Karts to dealers and mass merchandisers in 1996, which the Company believes represents approximately 14% of the total domestic karts market, an approximate 27% increase over 1995, and a 42% increase over 1994. Proforma consolidated revenues of the Company for the fiscal year ended December 31, 1996 were approximately $10.7 million as compared with revenues of approximately $8.5 million for the fiscal year ended December 31, 1995. The Company operates manufacturing facilities in Roseland, Louisiana and Prattville, Alabama, and maintains its executive offices in Covington, Louisiana. See "The Company" and "Business." The karts industry is comprised of three principal segments, Fun Karts, racing and concession karts. Fun Karts, the largest segment, are karts sold to consumers for general recreational use. Racing karts are specially designed for use on established tracks in a controlled racing environment. Concession karts are designed for use by amusement and entertainment centers which provide karts and facilities for customers' use on a rental basis. Management estimates that in 1996 approximately 145,000 karts were sold in the United States of which approximately 125,000 were Fun Karts, 12,500 racing karts and 7,500 concession karts. Historically, the Company has concentrated its efforts in the Fun Karts market. The Company offers a complete product line of Fun Karts, differentiated by drive train, seating capacity, tire size and tread, and frame size. Thirty-two Fun Kart models are available in three different colors, black, blue and red, which are sold under the Thunder Karts and USA Fun Karts brand names. The Company's models offer a wide range of standard and optional features which enhance the safety, operation, riding comfort and performance of its Fun Karts. Such features include the exclusive, patented automatic throttle override; full safety cage; safety flag; three kinds of drive trains, including live axle, single wheel pull and torque converter; clutch lubrication system; high speed bearings; adjustable throttle and seats; steel rims; band and disc brakes; and Briggs & Stratton 5 horsepower engines. The end-users of the Company's Fun Karts are primarily 7- to 17-year-old males, living with their parents in suburban and rural markets. Typical Fun Kart purchasers are parents who purchase Fun Karts for their children. The Company relies on a broad and diversified national independent dealer network and mass merchandisers to sell its Fun Karts. Prior to 1996, the Company sold its products through its over 700 dealers, primarily lawn and garden stores, motorcycle outlets, hardware stores and specialty karts dealers, located in 40 states. The major -3- 5 markets for the Company's Fun Karts are in the Southeast and Southwest regions of the United States. In 1996, the Company sold approximately 61% of its Fun Karts to approximately 250 dealers located in Louisiana, Texas, Mississippi and Florida. Although there are no formal dealer agreements, the Company, for the benefit of certain of its higher volume dealers, will agree not to sell to other retailers in a limited geographic area surrounding the high volume dealer. To become a Fun Kart dealer, the Company generally requires a retailer to annually purchase six or more Fun Karts. Dealers usually maintain an inventory of three to five Fun Karts which increases during the Christmas holiday season. For eligible dealers, the Company offers a dealer floor plan financing program through an unaffiliated financial services company. To broaden its distribution channels, the Company in 1996 began selling its Fun Karts to two mass merchandisers, Wal-Mart Stores, Inc. ("Wal-Mart") and Sam's Wholesale Club ("Sam's Club"), a division of Wal-Mart Stores, Inc. In 1996, the Company sold approximately 4,000 of its Fun Karts to Wal-Mart and Sam's Club, representing approximately 21% of the Company's proforma revenues for the fiscal year ended December 31, 1996. Management believes that mass merchandisers represent a significant untapped market for Fun Karts. The Company's operating strategy is to increase its sales and market share by producing safe, high-quality and reliable Fun Karts at competitive prices; continue to improve manufacturing efficiency; and continue diversification of domestic distribution channels. The Company's growth strategy is to increase its brand and product recognition by innovative marketing to its target users; broaden its product lines through improved product design and development; and expand its geographic presence and market share by continued emphasis on expansion of its domestic dealer and mass merchandiser networks, through further penetration of international markets, and through acquisitions of manufacturers of karts and related products that provide synergistic growth opportunities for the Company. Although the Company is actively seeking acquisitions that will expand its existing product lines, market share and distribution channels, the Company currently has no agreements or understandings with respect to any such acquisitions and there can be no assurance that the Company will be able to identify and acquire such businesses or obtain necessary financing on favorable terms. THE OFFERING
SECURITIES OFFERED Common Stock . . . . . . . . . . 1,400,000 shares of Common Stock. See "Description of Securities -- Common Stock." Warrants . . . . . . . . . . . . 1,400,000 Warrants. Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $4.50 per share (assuming an initial offering price of $4.50 per share of Common Stock) during the four-year period commencing on the first anniversary of the effective date of this Offering (the "First Exercise Date"). The Warrants are each redeemable by the Company at a redemption price of $0.01 per Warrant, at any time after the First Exercise Date, upon thirty days prior written notice to the holders thereof, if the average closing price of the Common Stock equals or exceeds $9.00 per share, for the 20 consecutive trading days ending three days prior to the date of the notice of redemption. See "Description of Securities -- Redeemable Common Stock Purchase Warrants."
-4- 6
OUTSTANDING SECURITIES . . . . . . . Securities Securities Outstanding Upon Presently Completion of the Outstanding Offering ----------- ------------------ Common Stock(1) . . . . . . . . . . . 2,717,653 4,117,653 Warrants . . . . . . . . . . . . . . -0- 1,400,000 Convertible Preferred Stock(2) . . . 25 -0- 1996 Warrants(2) . . . . . . . . . . 166,675 500,025 Class A Warrants(3) . . . . . . . . . 63,334 63,334 Underwriters' Warrants(4) . . . . . . -0- 140,000 ESTIMATED NET PROCEEDS TO THE COMPANY . . . . . . . . . . . . . Approximately $5,440,250 if the Securities are sold, and $6,285,237 if the over-allotment option is fully exercised. See "Use of Proceeds." USE OF PROCEEDS . . . . . . . . . . . Debt repayment, conversion of preferred stock, purchase of equipment, advertising and marketing, product development and design, working capital and other corporate purposes. See "Use of Proceeds." RISK FACTORS . . . . . . . . . . . . This Offering involves a high degree of risk and immediate and substantial dilution. See "Risk Factors" and "Dilution." PROPOSED NASDAQ SYMBOLS(5) . . . . . Common Stock -- KINT Warrants -- KINTW
______________________________ (1) Unless otherwise indicated herein, the information contained in this Prospectus regarding the Company's outstanding securities does not include (i) 210,000 shares of Common Stock and 210,000 Warrants issuable upon exercise of the Underwriters' over-allotment option, (ii) the 140,000 shares of Common Stock and 140,000 Warrants issuable upon exercise of the Underwriters' Warrants, (iii) the 1,963,359 shares of Common Stock issuable upon the exercise of the outstanding warrants, including the Warrants offered hereby, and (iv) 59,355 shares of Common Stock issuable upon the exercise of stock options granted to certain employees and officers of the Company. See "Management -- Stock Options," "Principal Stockholders," "Description of Securities" and "Underwriting." (2) See "The Company -- Recent Financings" and "Description of Securities -- Convertible Preferred Stock, -- 1996 Warrants, and -- Bridge Financing." (3) See "The Company -- Recent Financings" and "Description of Securities -- Class A Warrants." (4) See "Underwriting." (5) The Company has made application with the NASD for inclusion of the Securities in the NASD's Automated Quotation System ("Nasdaq") SmallCap Market. The inclusion of the proposed Nasdaq symbols in this Prospectus Summary is not meant to imply that a trading market may someday exist for the Securities offered hereby or that the symbols will be assigned to the Securities of the Company. The Company's Common Stock currently is quoted on the NASD Electronic Bulletin Board under the symbol "KINT". See "Common Stock Price Ranges and Dividends." -5- 7 SUMMARY HISTORICAL AND PROFORMA CONSOLIDATED FINANCIAL INFORMATION The following table presents summary historical data of the Company on a consolidated proforma basis as of December 31, 1995 and 1996 and for the three years ended December 31, 1994, 1995 and 1996, respectively, which present the consolidated proforma results of continuing operations of the Company and its two subsidiaries as if the acquisitions of Brister's and USA occurred as of January 1, 1994, as adjusted for the proforma effect of the amortization of goodwill, which have been derived from the Company's audited financial statements included elsewhere in this Prospectus. The summary financial information should be read in conjunction with "Selected Historical and Proforma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. In the opinion of management, these proforma statements include all material adjustments necessary to present proforma historical results of the above-described transactions. The proforma information does not purport to be indicative of the financial position or the results of operations which would have actually been obtained if the acquisition transactions had actually been consummated on the dates indicated. In addition, the proforma financial information does not purport to be indicative of the financial position or results of operations that may be obtained in the future.
Years Ended December 31, --------------------------------------------------------- (Proforma) (Proforma) (Proforma) 1996 1995 1994 ------------------ ------------------ ------------------ STATEMENT OF OPERATIONS DATA: Revenues, net . . . . . . . . . . . . . . . . . . . . . . . $ 10,698,824 $ 8,514,460 $ 7,069,500 Cost of goods sold . . . . . . . . . . . . . . . . . . . . 7,613,372 6,184,340 5,186,245 Operating expenses . . . . . . . . . . . . . . . . . . . . 2,495,676 1,873,960 1,658,310 Income from operations . . . . . . . . . . . . . . . . . . 589,776 456,160 224,945 Net income . . . . . . . . . . . . . . . . . . . . . . . . 322,168 121,324 106,659 Net income per proforma weighted-average share of common stock outstanding . . . . . . . . . . . . 0.10 0.04 0.03 Number of proforma weighted-average shares of common stock outstanding . . . . . . . . . . . . . . . 3,119,592 3,119,592 3,119,592
December 31, 1996 December 31, 1995 ----------------------------- ------------------------------ As Historical Adjusted(1) Historical Proforma -------------- -------------- -------------- -------------- BALANCE SHEET DATA: Current assets . . . . . . . . . . . . . . . . . . . . . $ 3,391,290 $ 4,906,540 $ - $ 2,054,177 Total assets . . . . . . . . . . . . . . . . . . . . . . 10,094,717 11,609,967 - 8,268,481 Current liabilities . . . . . . . . . . . . . . . . . . . 1,382,932 1,282,932 4,010 1,335,057 Total liabilities . . . . . . . . . . . . . . . . . . . . 4,715,592 1,515,592 4,010 4,610,490 Convertible preferred stock . . . . . . . . . . . . . . . 625,000 - - - Stockholders' equity . . . . . . . . . . . . . . . . . . 4,754,125 10,194,375 (4,010) 3,657,991 Working capital . . . . . . . . . . . . . . . . . . . . . 2,008,358 3,623,608 - 719,120
______________________________ (1) Adjusted to give effect to (i) the sale of 1,400,000 shares of Common Stock and 1,400,000 Warrants offered hereby at assumed initial public offering prices of $4.50 per share of Common Stock and $0.125 per Warrant, respectively, and the application of the net proceeds therefrom and (ii) conversion of outstanding shares of Convertible Preferred Stock. See "Use of Proceeds." No effect has been given to the exercise of (i) any outstanding warrants, including the Warrants offered hereby and the Underwriters' Warrants, (ii) the Underwriters' over-allotment option, or (iii) outstanding options. See "Management -- Stock Options," "Description of Securities" and "Underwriting." -6- 8 RISK FACTORS An investment in the Securities offered hereby involves a high degree of risk. Prospective investors should consider carefully the following risk factors in addition to the other information set forth in this Prospectus. SUBSTANTIAL PAYMENT TO DIRECTOR AND CERTAIN STOCKHOLDERS OF THE COMPANY. As a result of the acquisition of Brister's (the "Brister's Acquisition"), the Company incurred long-term indebtedness of approximately $3.2 million of which approximately $1.2 million will be repaid to Charles Brister, a director and principal stockholder of the Company, with a portion of the proceeds of the Offering. The remaining $2 million of long-term debt will be repaid to the Schlinger Foundation, a principal stockholder of the Company, upon closing of the Offering. In addition to the $3.2 million debt repayment, the Company will pay to holders of the Company's Convertible Preferred Stock $625,000 of the proceeds of this Offering upon the conversion of the outstanding Convertible Preferred Stock. After the completion of this Offering, Mr. Brister will have received approximately $3.2 million from the Company and will own 516,667 shares of Common Stock as a result of the Brister's Acquisition. Upon conversion of the preferred stock, the holders will receive the return of their total cash investment while retaining an aggregate of 104,175 shares of Common Stock and 500,025 1996 Warrants at no cost basis. The purchasers of the Securities in this Offering will have paid $4.50 per share of Common Stock, representing a significantly higher price for such stock than the holders of the Convertible Preferred Stock or most of the principal stockholders paid for their shares of Common Stock, and will have assumed the principal financial risk for the future success of the Company's business operations. Certain officers, directors and stockholders of the Company, including Mr. Brister and the Convertible Preferred Stockholders will enter into lock-up agreements with the Company and the Representative upon the closing of the Offering for periods ranging from 18 to 60 months. See "The Company," "Use of Proceeds," "Dilution," "Certain Relationships and Related Transactions," "Principal Stockholders," "Description of Securities -- Convertible Preferred Stock and -- Bridge Financing." INTEGRATION OF OPERATIONS AS A RESULT OF RECENT ACQUISITIONS. If the Company is to realize the anticipated benefits of its recent acquisitions, USA's and Brister's must be integrated and combined efficiently and effectively with those of the Company. The process of augmenting the manufacturing, supply and distribution channels, computer and accounting systems and other aspects of operations, while managing a larger and geographically expanded entity with additional Fun Kart products, will present a significant challenge to the Company's management. There can be no assurance that the integration process will be successful or that the anticipated benefits of these acquisitions will be fully realized. The dedication of management resources to such integration may detract attention from the day-to-day business of the Company. The difficulties of integration may be increased by the necessity of coordinating geographically separated manufacturing operations, integrating personnel with disparate business backgrounds and combining different corporate cultures. There can be no assurance that the Company will be able to achieve any expense reduction through the removal of duplicative expenses or through economies of scale, that there will not be substantial costs associated with any such reductions or that such reductions will not result in a decrease in revenues or that there will not be other material adverse effects on the Company of these integrated efforts. Such effects could also materially reduce the short-term earnings of the Company. See "The Company -- Recent Acquisitions." RISKS RELATING TO GROWTH AND EXPANSION. Although the Company believes that the net proceeds from this Offering and projected cash flow from operations will allow the Company to achieve initial implementation of its business strategies, there can be no assurance that the Company will have sufficient funds to completely achieve successful implementation of its plans to a level that will have a positive effect on its results of operations or financial condition. The ability of the Company to execute its growth strategy will also depend on other factors, including ability of sales and marketing personnel to retain and expand the Company's dealers and mass merchandiser networks, market acceptance of Company's modified and new products, ability to further penetrate the Company's target market and increase consumer awareness of its products by advertising, ability to consummate acquisitions of kart manufacturers and related businesses, general economic and industry conditions, and other factors, many of which are beyond the control of the Company. Even if the Company's revenues and earnings grow rapidly, such growth may significantly strain the Company's management and its operational and technical resources. If the Company is successful in obtaining greater market penetration with its products, the Company will be required to deliver increasing volumes of its products to its customers on a -7- 9 timely basis at a reasonable cost to the Company. No assurance can be given that the Company can expand its manufacturing capacity to meet increased product demand or that the Company will be able to satisfy increased production demands on a timely and cost-effective basis. There can be no assurance that the Company's growth strategy will be successful. Further, if one or more of the component parts of the Company's growth strategy is unsuccessful, there can be no assurance that such lack of success will not have a material adverse effect on the Company's results of operations or financial condition. See "Use of Proceeds" and "Business -- Operating Strategy, -- Growth Strategy and -- Acquisition Strategy." SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company has historically experienced stronger demand for its products in the third and fourth quarters of each calendar year. Operating results may fluctuate due to factors such as the timing of the introduction of new products, price reductions by the Company and its competitors, demand for the Company's products, new product mix, delay, cancellation or rescheduling of orders, performance of third party manufacturers, available inventory levels, seasonal cost increases and general economic conditions. A significant portion of the Company's operating expenses are relatively fixed. Since the Company typically does not obtain long-term purchase orders or commitments from its customers, it must anticipate the future volume of orders based upon the historic purchasing patterns of its dealers and mass merchandisers and upon its discussions with its dealers and representatives of mass merchandisers as to their future requirements. Cancellations, reductions or delays in orders by a large customer or group of customers could have a material adverse impact on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Seasonality." BROAD DISCRETION OVER USE OF PROCEEDS. After debt repayment, conversion of the outstanding Convertible Preferred Stock and payment of the expenses of this Offering, the Company will have approximately $1,615,250 net proceeds to broaden its distribution channels, purchase equipment, pay advertising and marketing expenses, for product development and design and working capital. Management will have broad discretion in allocating and applying such proceeds and the Company's stockholders will not have an opportunity to review or vote upon the terms of these unspecified expenditures. See "Use of Proceeds." GROWTH STRATEGY AND RISKS RELATING TO FUTURE ACQUISITIONS. One element of the Company's growth strategy involves growth through the acquisition of other companies, assets or product lines that would complement or expand the Company's business. The Company's ability to grow by acquisition is dependent upon, and may be limited by, the availability of suitable acquisition candidates and capital. Future acquisitions by the Company could result in potentially dilutive issuances of securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, which could materially affect the Company's profitability. In addition, acquisitions involve risks that could adversely affect the Company's operating results, including the assimilation of the operations and personnel of acquired companies, and the potential loss of key employees of acquired companies. There can be no assurance that the Company will be able to consummate any acquisitions on suitable terms. No commitments or binding agreements have been entered into to date and there can be no assurance that acquisitions, if any, can be completed. Although the Company does not presently plan to use any of the proceeds from this Offering for acquisitions, the Company does reserve the right to reallocate such proceeds for use in an acquisition if management believes such acquisition would be in the best interest to the Company. Other than as required by the Company's Articles of Incorporation, Bylaws and applicable laws, stockholders of the Company generally will not be entitled to vote upon such acquisitions. See "Use of Proceeds" and "Business -- Growth Strategy and -- Acquisition Strategy." ADDITIONAL FINANCING WILL BE NEEDED. Upon completion of this Offering, the Company will have limited financial resources for acquisitions. The Company will be dependent upon the proceeds from additional financings, including receiving proceeds from the future exercise of the Warrants of which there can be no assurance, to facilitate an acquisition. The Company may also need additional financing to achieve full implementation of its long-term growth strategy and for working capital. There can be no assurance that additional financing will be available, or if available, that such financing will be on favorable terms. See "Use of Proceeds" and "Business -- Growth Strategy and -- Acquisition Strategy." POTENTIAL PRODUCT LIABILITY AND INSURANCE LIMITS. The nature of the products manufactured by the Company is such that the products may fail due to material inadequacies or equipment failures. Such a failure -8- 10 may subject the Company to the risk of product liability claims and litigation arising from injuries allegedly caused by the improper functioning or design of its products. As the Company expands its Fun Karts product lines and distributes more products into the marketplace, the Company's exposure to such potential liability will also increase. The Company currently maintains $5 million occurrence basis product liability insurance with a $50,000 self-insured retention and $5 million maximum per occurrence coverage. The Company currently has four pending product liability claims, none of which are expected to exceed the existing policy limits. The Company has never had a claim that resulted in an award or settlement in excess of insurance coverage. The Company believes that as its sales of Fun Karts increase, product liability claims will be inevitable, particularly given the current litigious nature of American consumers. There is no assurance that the Company's insurance coverage will be sufficient to fully protect the business and assets of the Company from all claims, nor can any assurances be given that the Company will be able to maintain the existing insurance coverage or obtain additional coverage at commercially reasonable rates. To the extent product liability losses are beyond the limits or scope of the Company's insurance coverage, the Company could experience a material adverse effect upon its business, operations, profitability and assets. See "Business -- Product Liability and Insurance Limits and -- Legal Proceedings." PENDING LITIGATION. In addition to product liability claims, the Company, from time to time, is involved in lawsuits in the ordinary course of business. On February 4, 1997 a lawsuit was filed in a Mississippi state court against the Company, Brister's and an unaffiliated insurance broker by the Company's insurance underwriter to have insurance coverage declared as null and void for an alleged material misrepresentation on the insurance application. This action arose as a result of the payment in 1997 by the insurance underwriter of $700,000 in settlement of a product liability lawsuit against the Company and other defendants. The Company intends to file a counterclaim against the Company's insurance broker relating to possible misrepresentations made by the insurance broker to the insurance underwriter regarding Brister's prior product liability claims history. The Company intends to vigorously defend this lawsuit. The Company is currently engaged in discovery and is unable to predict the outcome of this litigation. If the Plaintiff is successful in this litigation and is awarded a judgement for damages, such judgment could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Legal Proceedings." DEPENDENCE ON KEY PERSONNEL. The Company's success will depend to a large degree on its ability to retain the services of its existing management and to attract and retain qualified personnel as necessary in the future. To provide for continuity of management, the Company has entered into an employment agreement with V. Lynn Graybill, Chairman of the Board, President and Chief Executive Officer of the Company. The loss of the services of any key management personnel or the inability to recruit and retain qualified personnel in the future could have a material adverse effect on the Company's business and results of operations. The Company may obtain key man life insurance policies on the lives of key management personnel, with the proceeds of the policies to be payable to the Company. While management of the Company believes that any such policy proceeds would help the Company recruit and compensate replacements for such individuals, there can be no assurance that any such proceeds would offset any resulting financial impact of the death of any key management personnel. See "Management" and "Certain Relationships and Related Transactions." CONFLICTS OF INTEREST. Prior to the Offering, certain officers, directors and related parties have engaged in business transactions with the Company. Management believes that the terms of these transactions were as favorable to the Company as those which could have been obtained from unaffiliated third parties under similar circumstances. All future transactions between the Company and its affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of the disinterested members of the Board of Directors of the Company. See "The Company" and "Certain Relationships and Related Transactions." DEPENDENCE ON LICENSE AGREEMENT WITH DIRECTOR. The Company does not own any patents, trademarks or service marks. However, Mr. Charles Brister, a director and principal stockholder of the Company, owns certain patents, technology and trademarks which are licensed to the Company, which allows the Company to use brand names and utilize the automatic throttle override system on its Fun Karts. The Company's success is dependent upon, among other things, its continued ability to use these certain patented items and other proprietary materials. The termination of the license agreement with Mr. Brister would have an adverse effect upon the Company's ability to produce its current line of Fun Karts. Furthermore, there can be no assurance -9- 11 that if the license agreement is terminated prior to its initial term that the Company could find suitable substitutions for the licensed items and technology or that its Fun Karts, produced without the licensed items and technology, would receive the same market acceptance. Also, there is no assurance that the technology licensed to the Company, or that the Company might license in the future, will quickly become obsolete due to the development of other, more advanced technology by competitors of the Company. See "Business -- Product Lines and -- Patents and Proprietary Technology" and "Certain Relationships and Related Transactions." RETENTION OF CONTROL. The Company's officers, directors and principal stockholders beneficially will own approximately 47% of the outstanding shares of the Company's Common Stock at the completion of the Offering. As a result, the officers, directors and principal stockholders of the Company will have the ability to control the day-to- day affairs and the fundamental policies of the Company. Voting together such stockholders, including the officers and directors of the Company, could possibly block any major corporate transactions, such as a merger or sale of substantially all of the Company's assets, that under Nevada law requires the affirmative vote of holders of a majority of the outstanding shares of Common Stock of the Company. See "Management" and "Principal Stockholders." CONCENTRATION OF MANUFACTURING FACILITIES. The Company's manufacturing operations are conducted at, and substantially all of the Company's inventory is maintained in, two facilities, one in Roseland, Louisiana and the other in Prattville, Alabama. Any significant casualty loss to, or extended interruptions of operations at, either facility would have a material adverse effect on the Company. Replacement of the Company's manufacturing equipment could take several months and would have a material adverse effect on the Company. See "Business -- Facilities." INFORMAL SUPPLY ARRANGEMENTS. Most of the component parts, including engines, wheels, tires, seats, steering wheels, steering tire rods and other miscellaneous parts, used in the manufacture of the Company's Fun Karts are purchased from various domestic vendors under informal arrangements. The Company currently purchases its engines exclusively from Briggs & Stratton. Although the Company believes its relationship with its vendors to be excellent, the loss of any vendor, and in particular Briggs & Stratton, may cause the Company to experience a temporary delay in the production of the Company's Fun Karts. The Company believes other engine vendors and suppliers of other component parts necessary for the production of Fun Karts are readily available. See "Business -- Manufacturing Operations." DEPENDENCE ON INDEPENDENT DEALERS. The Company has not entered into written agreements with its Fun Karts dealers and in turn the dealers are under no obligation to purchase the Company's Fun Karts. In 1996, approximately 79% of the Company's proforma revenues were the result of sales to its independent dealers and the Company projects that in 1997 approximately 75% of the Company's revenues will be attributed to sales to independent dealers. No one dealer or group of affiliated dealers accounted for 10% or more of the Company's 1996 proforma revenues. While the Company believes that its relations with its independent dealers are generally good, there can be no assurance that the Company will be able to maintain these relationships, that a majority of its dealers will continue to sell the Company's Fun Karts or that the Company will be able to attract and retain quality independent dealers. If a significant number of the Company's dealers ceased to order Fun Karts from the Company or if the Company is unable to expand its dealer network, the Company's financial condition and results of operations would be adversely affected. See "Business -- Sales and Marketing." DEPENDENCE ON MAJOR CUSTOMERS. The Company is a provider of Fun Karts to Wal-Mart and Sam's Club. In 1996, 12% and 9% of the Company's proforma revenues were the result of sales made to Sam's Club and Wal-Mart, respectively. The Company believes that sales of Fun Karts to Sam's Club and Wal-Mart will account for approximately 12% and 13%, respectively, of the Company's 1997 revenues. A delay of over 90 days in the payment of invoices submitted by the Company to either Wal-Mart or Sam's Club may adversely affect the Company's working capital. The loss of either the Wal-Mart or Sam's Club accounts would have a material adverse effect on the financial condition and results of operations of the Company. See "Business -- Sales and Marketing." DEPENDENCE ON NEW PRODUCT INTRODUCTIONS; MARKET ACCEPTANCE. The Company believes that the introduction of new, innovative models of Fun Karts will be important to its future growth, and that it must continue to respond to changing consumer preferences in the areas of style, function, safety and technological -10- 12 innovation. Failure by the Company to identify and respond to such trends could adversely affect consumer acceptance of its product lines which in turn would adversely affect the Company's results of operations. No assurances can be given that the Company will be able to successfully develop new Fun Kart models or that any new or modified Fun Karts will meet with consumer acceptance in the marketplace or that the Company's current products will receive continued or increased consumer acceptance. No assurance can be given that the Company's existing Fun Kart models will continue to be sold at acceptable margin levels or that the Company will be able to design, manufacture and distribute new products at acceptable margin levels. See "Business -- Product Lines." COMPETITION. The Fun Karts industry is highly competitive, and there is no assurance that the Company will be able to continue to compete profitably in this industry in the future. The Company expects that it will continue to face intense competition as its growth strategy is implemented. Such competition may result in reduced sales, reduced margins, or both. The Company is and will be competing with larger, better capitalized companies which may be better positioned to respond to shifts in consumer demand and other market based changes. If other companies introduce new and modified products before the Company achieves significant market expansion, the Company could experience growth less than its expectations which could have a material adverse effect on the Company's financial condition and results of operations. The Company's ability to continue to compete successfully will depend, to a significant extent, on its ability to continue to enhance its existing products and to develop and introduce new products which maintain the Company's technological position, satisfy a wide range of customer safety requirements and maintain or expand market acceptance of the Company's products. See "Business -- Competition." COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Management believes certain states, including California, have proposed legislation involving emission or other safety standards for the type of gas powered engines installed on the Company's Fun Karts. The Company is currently unable to predict whether such legislation will be enacted in the future and, if so, the ultimate impact on the Company and its operations. Additionally, consumer protection laws exist in many states in which the Company currently markets its products. Any violation of such laws or regulations could have a material adverse effect on the Company. The Company's manufacturing facilities are inspected by the Occupational Safety and Health Administration. The Company believes that it is generally in compliance in all material respects with all currently applicable federal and state laws and regulations. Federal, state and local environmental regulations are not expected to have a material effect on the Company's operations. However, if the Company acquires existing manufacturing operations which are in violation of such consumer or environmental laws and regulations, such violations may have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Government Regulations." IMMEDIATE AND SUBSTANTIAL DILUTION. The purchase price of the Common Stock substantially exceeds the net tangible book value of the Common Stock. Purchasers of the Common Stock will experience an immediate substantial dilution in the net tangible book value per share of the Common Stock after this Offering in the amount of $3.49 per share. See "Dilution." ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation and Bylaws contain provisions that may have the effect of discouraging certain transactions involving an actual or threatened change of control of the Company. In addition, the Board of Directors of the Company has the authority to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the preferences, rights and limitations of any such series without stockholder approval. The ability to issue preferred stock could have the effect of discouraging unsolicited acquisition proposals or making it more difficult for a third party to gain control of the Company, or otherwise could adversely affect the market price of the Common Stock. See "Description of Securities." DIVIDEND POLICY. The Company has not paid or declared any cash dividends with respect to its Common Stock or Convertible Preferred Stock, nor does it anticipate any such payments or declarations in the foreseeable future. Any future dividends will be declared at the discretion of the Board of Directors of the Company and will depend, among other things, on the Company's earnings, if any, its financial requirements for future operations and growth, and such other factors as the Company may then deem appropriate. Investors should not rely on the receipt of dividends in the near future or at any time in the future when evaluating the merits of an investment in the Securities. See "Dividend Policy." -11- 13 SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common Stock in the public market following the completion of the Offering could have an adverse effect on the market price of the Common Stock. There will be approximately 4,221,828 shares of Common Stock outstanding immediately after the Offering, including the 1,400,000 shares offered hereby and the 104,175 shares to be issued upon the conversion of the Convertible Preferred Stock. Upon completion of the Offering, all of the shares of Common Stock offered hereby and approximately 154,809 shares of Common Stock held by current stockholders of the Company will be eligible for public sale without restrictions, except for shares purchased by affiliates (those controlling or controlled by or under common control with the Company and generally deemed to include officers and directors) of the Company. The remaining approximately 2,667,019 shares of the Company's Common Stock are "restricted securities" as that term is defined under Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). Subject to the volume and holding period limitations of Rule 144 and the "lock-up" agreements described below, 2,305,879 currently outstanding shares of Common Stock will be eligible for sale under Rule 144 ninety days after the completion of the Offering. None of the Company's currently outstanding restricted securities are eligible for sale under Rule 144(k). Holders of approximately 1,376,221 shares of Common Stock, including the holders of the Convertible Preferred Stock, officers and directors of the Company, will agree to "lock-up" their shares of Common Stock for periods ranging from 18 to 60 months after the completion of the Offering. No prediction can be made as to the effect, if any, that future sales of additional shares of Common Stock or the availability of such shares for sale under Rule 144, other applicable exemptions or otherwise will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock in the public market, or the perception that such sales could occur, could adversely affect prevailing market prices of the Common Stock. See "Principal Stockholders" and "Shares Eligible for Future Sale." POSSIBLE SALE OF SHARES OF COMMON STOCK DURING LOCK-UP PERIODS. The holders of the Convertible Preferred Stock have agreed not to sell or otherwise dispose of any of the 104,175 shares of Common Stock to be issued upon conversion of the Convertible Preferred Stock or underlying the 1996 Warrants for a period of 18 months after the closing of the Offering; provided the shares of Common Stock issuable upon exercise of the 1996 Warrants may be subject to demand registration rights and subsequently sold by the holders thereof if the Company calls for the redemption of the Warrants or 1996 Warrants within 18 months after the completion of this Offering. All officers and directors of the Company who are current stockholders of the Company have agreed not to sell or dispose any shares of Common Stock held by them without the prior written consent of the Representative until two years after the effective date of this Offering. Furthermore, officers or directors whose total compensation is more than $100,000 per year, or who own 5% or more of the Company's outstanding securities, have agreed not to sell or dispose of any shares of Common Stock held by them without the prior written consent of the Representative for a period of five years after completion of this Offering. Officers and directors of the Company who are subject to a five-year lock-up provision shall have the right to have such restriction released at a rate of 20% per annum during the five year lock-up period based upon the Company's achievement of certain goals with respect to the following: (i) annual revenue growth of 20% or more, (ii) annual earnings per share growth of 20% or more, and (iii) annual price of stock growth of 20% or more. With regard to V. Lynn Graybill, the Chairman of the Board and Chief Executive Officer of the Company, the lock-up provisions, to which Mr. Graybill would be subject, will be terminated after the termination of Mr. Graybill's Employment Agreement, unless such agreement is otherwise extended. The possibility that substantial amounts of Common Stock may be sold in the public market prior to the expiration of the lock-up periods may adversely affect the prevailing market price for the Common Stock and could impair the Company's ability to raise additional capital through the sale of its equity securities. See "Shares Eligible for Future Sale." EXERCISE OF UNDERWRITERS' WARRANTS. In connection with this Offering, the Company will sell to the Underwriters, for nominal consideration, warrants (the "Underwriters' Warrants") to purchase an aggregate of 140,000 shares of Common Stock and 140,000 Warrants. The Underwriters' Warrants will be exercisable commencing one year after the date of this Prospectus (the "Effective Date") and ending five years after such date at an exercise price of $5.40 per share of Common Stock and $0.15 per Warrant. The terms of the Warrants underlying the Underwriters' Warrants shall be the same as those Warrants offered to the public, except such Warrants are not subject to redemption. The holders of the Underwriters' Warrants will have the opportunity to profit from a rise in the market price of the Common Stock, if any, without assuming the risk of ownership. At any time when the holders of the Underwriters' Warrants might be expected to exercise them, the Company probably would be able to obtain additional equity capital on terms more favorable than those -12- 14 provided by the Underwriters' Warrants. The Company may find it more difficult to raise additional equity capital if it should be needed for the business of the Company while the Underwriters' Warrants are outstanding. To the extent that any of the Underwriters' Warrants are exercised, the ownership interest of the Company's stockholders may be diluted. The Company also has granted registration rights to the Underwriters with respect to the 140,000 shares of the Common Stock, the 140,000 Warrants and the 140,000 shares of Common Stock issuable upon exercise of the 140,000 Warrants. See "Underwriting." IMPACT ON MARKET OF WARRANT EXERCISE. In the event of the exercise of a substantial number of the outstanding warrants of the Company, including the Warrants offered hereby, within a reasonably short period of time after the right to exercise commences, the resulting increase in the amount of Common Stock of the Company in the trading market could substantially affect the market price of the Common Stock. See "Description of Securities -- Redeemable Common Stock Purchase Warrants, -- 1996 Warrants and -- Class A Warrants" and "Underwriting." ADJUSTMENTS TO OUTSTANDING WARRANTS EXERCISE PRICE AND EXERCISE DATE. The Company, in its sole discretion, may reduce the exercise price of the outstanding warrants of the Company, including the Warrants offered hereby, and/or extend the time within which such warrants may first be exercised. Further, in the event the Company issues certain securities or makes certain distributions to holders of its Common Stock, the exercise price of such warrants may be reduced. Any such price reduction in the exercise price of outstanding warrants will provide less money for the Company and possibly adversely affect the market price of the Securities. See "Description of Securities -- Redeemable Common Stock Purchase Warrants, -- 1996 Warrants and - -- Class A Warrants." REDEMPTION OF WARRANTS. The Warrants are subject to redemption by the Company, at any time after the First Exercise Date at a price of $0.01 per Warrant, upon 30 days prior written notice to the holders thereof, if the average closing bid price for the Common Stock equals or exceeds $9.00 per share (assuming an initial offering price of $4.50 per share) for the 20 consecutive trading days ending on the third day prior to the date of notice of redemption. In the event that the Warrants are called for redemption by the Company, Warrantholders will have 30 days during which they may exercise their rights to purchase shares of Common Stock. In the event a current prospectus is not available, the Warrants may not be exercised and the Company will be precluded from redeeming the Warrants. If holders of the Warrants elect not to exercise them upon notice of redemption thereof, and the Warrants are subsequently redeemed prior to exercise, the holders thereof will lose the benefit of the difference between the market price of the underlying Common Stock as of such date and the exercise price of such Warrants, as well as any possible future price appreciation in the Common Stock. As the result of an exercise of the Warrants, existing stockholders would be diluted and the market price of the Common Stock may be adversely affected. If a Warrantholder fails to exercise his rights under the Warrants prior to the date set for redemption, then the Warrantholder will be entitled to receive only the redemption price, $0.01 per Warrant. The 1996 Warrants are subject to redemption by the Company upon the same terms as the Warrants at any time after November 15, 1997 until May 15, 2000 when the 1996 Warrants expire. See "Description of Securities -- Redeemable Common Stock Purchase Warrants and -- 1996 Warrants" and "Shares Eligible for Future Sale -- Lock-up Agreements." CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Company will be able to issue shares of its Common Stock upon the exercise of the Warrants only if (i) there is a current prospectus relating to the Common Stock issuable upon exercise of the Warrants under an effective registration statement filed with the Commission and (ii) such Common Stock is then qualified for sale or exempt therefrom under applicable state securities laws of the jurisdiction in which the various holders of Warrants reside. Although the Company has undertaken to use its best efforts to maintain the effectiveness of a current prospectus covering the Common Stock subject to the Warrants offered hereby, there can be no assurance that the Company will be successful in doing so. After a registration statement becomes effective, it may require continuous updating by the filing of post-effective amendments. A post-effective amendment is required (i) when, for a prospectus that is used more than nine months after the effective date of the registration statement the information contained therein (including the certified financial statements) is as of a date more than 16 months prior to the use of the prospectus, (ii) when facts or events have occurred which represent a fundamental change in the information contained in the registration statement, or (iii) when any material change occurs in the information relating to the plan of distribution of the securities registered by such registration -13- 15 statement. The Company anticipates that this Registration Statement will remain effective for a least nine months following the date of this Prospectus, assuming a post-effective amendment is not filed by the Company. The Company intends to qualify the sale of the Securities in a limited number of states, although certain exemptions under certain state securities laws may permit the Warrants to be transferred to purchasers in states other than those in which the Warrants were initially qualified. The Company will be prevented, however, from issuing Common Stock upon exercise of the Warrants in those states where exemptions are unavailable and the Company has failed to qualify the Common Stock issuable upon exercise of the Warrants. The Company may decide not to seek, or may not be able to obtain qualification of the issuance of such Common Stock in all of the states in which the ultimate purchasers of the Warrants reside. In such case, the Warrants of those purchasers will expire and have no value if such Warrants cannot be exercised or sold. Accordingly, the market for the Warrants may be limited because of the foregoing requirements. See "Description of Securities -- Redeemable Common Stock Purchase Warrants." NO ASSURANCE OF ACTIVE PUBLIC MARKET; POSSIBLE VOLATILITY OF COMMON STOCK. Although the Common Stock is quoted on the NASD Electronic Bulletin Board and the Company has made application to have the Common Stock and Warrants listed on the Nasdaq SmallCap Market, there can be no assurance that an active public market for the Common Stock or the Warrants will develop or be sustained after the Offering. The offering price of the Securities offered hereby has been determined by negotiations among the Company and the Representative based upon the trading market of the Company's Common Stock on the NASD Electronic Bulletin Board. The trading price of the Common Stock and Warrants could be subject to wide fluctuations in response to quarter to quarter variations in operating results, announcements of innovations or new products by the Company or its competitors, and other events or factors. In addition, the stock market has from time to time experienced extreme price and volume fluctuations which affects the market price of securities of publicly traded companies and which have often been unrelated to the operating performance of these companies. Broad market fluctuations may adversely affect the market price of the Common Stock and Warrants. See "Common Stock Price Ranges and Dividends," "Description of Securities," "Shares Eligible for Future Sale" and "Underwriting". POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE SECURITIES. Although they have no legal obligation to do so, the Underwriters from time to time may act as market makers and otherwise effect transactions in the Securities. Unless granted an exemption by the Commission from Rule 10b-6 under the Exchange Act, the Underwriters will be prohibited from engaging in any market making activities or solicited brokerage activities with respect to the Securities for the period from nine business days prior to any solicitation of the exercise of any Warrant or nine business days prior to the exercise of any Warrant based on a prior solicitation until the later of the termination of such solicitation activity or the termination (by waiver or otherwise) of any right the Underwriters may have to receive such a fee for the exercise of the Warrants following such solicitation. As a result, the Underwriters may be unable to continue to provide a market for the Securities during certain periods while the Warrants are exercisable. The prices and liquidity of the Securities may be materially and adversely affected by the cessation of the Underwriters' market making activities. In addition, there is no assurance that the Underwriters will continue to be market makers in the Securities. The price and liquidity of the Securities may be affected significantly by the degree, if any, of the Underwriters' participation in the market. The Underwriters may voluntarily discontinue such participation at any time. Further, the market for, and liquidity of, the Securities may be adversely affected by the fact that a significant amount of the Securities may be sold to customers of the Underwriters. See "Underwriting." POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SMALLCAP MARKET AND RISKS OF COMMON STOCK TRADING BELOW $5.00 PER SHARE. Nasdaq recently approved changes to the standards for companies to remain listed on the SmallCap Market, including, without limitation, new corporate governance standards, a new requirement that the company have net tangible assets of $2,000,000, market capitalization of $35,000,000 or net income of $500,000 and other qualitative requirements. If the Company is unable to satisfy the requirements for continued quotation on Nasdaq SmallCap Market, trading in the Common Stock and Warrants offered hereby would be conducted in the over-the-counter market in what are commonly referred to as the "pink sheets" or on the NASD Electronic Bulletin Board. As a result, an investor may find it more difficult to dispose of or obtain accurate quotations as to the price of the Common Stock and Warrants offered hereby. In addition, if the Common Stock and Warrants are suspended or terminated from Nasdaq SmallCap Market and at such time the Common Stock has a market price of less than $5.00 per share, then the sale of such securities would become subject to certain regulations adopted by the Commission which imposes sales practice requirements on -14- 16 broker-dealers. For example, broker-dealers selling such securities must, prior to effecting the transaction, provide their customers with a document which discloses the risks of investing in the Common Stock and Warrants. Furthermore, if the person purchasing the securities is someone other than an accredited investor or an established customer of the broker-dealer, the broker-dealer must also approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker-dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in the security. Accordingly, if the Common Stock and Warrants are suspended or terminated from Nasdaq SmallCap Market and are trading for less than $5.00 per share, the Commission's rules may limit the number of potential purchasers of the securities. CONTINUING RELATIONSHIP WITH UNDERWRITERS; POTENTIAL INFLUENCE. In connection with this Offering, the Company will have certain continuing relationships with the Representative, some of which may adversely affect the Company's results of operations. The Company has agreed with the Representative that (i) it will sell to the Underwriters the Underwriters' Warrant (including the grant of "piggyback" and demand registration rights), (ii) it will pay, under certain conditions, to the Underwriters a warrant solicitation fee equal to 5% of the exercise price of the Warrants exercised, (iii) it will use its best efforts to cause the election to its Board of Directors one designee of the Representative, and (iv) it will enter into a consulting agreement with the Representative for consulting services for a two year period for aggregate fees payable to the Representative of $48,000. Any of the foregoing relationships may adversely impact the Company's business, operating results or financial condition, or its ability to raise additional capital for its business should the need arise during the term of the above agreements. See "Underwriting." FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. Management believes that this Prospectus contains forward- looking statements, including statements regarding, among other items, the Company's future plans and growth strategies and anticipated trends in the industry in which the Company operates. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, many of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of the factors described herein, including, among others, regulatory or economic influences. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Prospectus will in fact transpire or prove to be accurate. -15- 17 THE COMPANY HISTORICAL The Company was originally incorporated on February 28, 1984 as Rapholz Silver Hunt, Inc. under the laws of the State of Florida. In June 1984, April 1986 and November 1987, respectively, the Company changed its name to Great Colorado Silver, Inc., Great Colorado Silver Valley Development Company and J.R. Gold Mines, Inc., respectively. In January 1996, the Company changed its name to Sarah Acquisition Corporation. In 1987, the Company completed an initial public offering of its securities and was engaged in the mining industry, principally through joint ventures with related parties involving mining properties located in Colorado. In 1989, the Company began experiencing financial difficulties and did not have sufficient cash flow to meet its obligations as they became due. By December 31, 1989, the Company had liquidated substantially all of its assets and ceased its business operations. From December 1989 until early 1996, the Company had no significant assets, liabilities or business operations. On December 15, 1995, a former director of the Company and Halter Financial Group, Inc. ("HFG"), a financial consulting firm owned by Timothy P. Halter, an officer and director of the Company, together acquired 46,834 shares of the Company's Common Stock from the then majority stockholder of the Company. Subsequently, on February 20, 1996, the Company sold 50,000 restricted shares of its Common Stock to a former unaffiliated director of the Company for $938 cash. On March 7, 1996, the Company sold an additional 967,545 restricted shares of Common Stock to HFG for $1,451 cash. See "Management," "Certain Relationship and Related Transactions" and "Principal Stockholders." On February 23, 1996, the Company was reincorporated in the State of Nevada through a merger with Karts International Incorporated, a Nevada corporation, incorporated on February 21, 1996. The Company was the surviving entity and changed its corporate name to Karts International Incorporated. The reincorporation merger also had the effect of a one-for-250 reverse split of the Company's issued and outstanding Common Stock. On February 28, 1997, to be effective on March 24, 1997, the Company's Board of Directors approved a two-for- three reverse stock split and a corresponding reduction of the authorized shares of Common Stock. The issued and outstanding shares of Common Stock shown in the historical and proforma consolidated financial statements included elsewhere in this Prospectus reflect the effect of the March 24, 1997 reverse stock split as if this reverse stock split had occurred as of the beginning of the first period presented. RECENT FINANCINGS HFG and a former director of the Company acquired control of the Company in 1995 in order to utilize it as a suitable entity for a possible merger or acquisition of a company that offered growth potential in a manufacturing industry. In early 1996, HFG identified Brister's Thunder Karts, Inc., a Louisiana corporation ("Brister's"), a manufacturer of Fun Karts, as a possible acquisition candidate. On March 15, 1996, the Company concluded the private sale of 233,334 shares of Common Stock to 13 accredited investors for aggregate gross proceeds of $525,000. Additionally, the Company obtained a $2 million loan (the "Schlinger Note") from The Schlinger Foundation (the "Foundation") which provides for interest at 14% per annum with interest only payable until March 14, 1999. Principal payments of $399,996 are due on March 14, 1999 and March 14, 2000 with a final principal payment of $1,200,008 due on March 14, 2001. The Schlinger Note is secured by accounts receivable, inventory, property and equipment owned or acquired by the Company. The Company paid the Foundation $21,000, consisting of $10,500 cash and the issuance of 70,000 shares of Common Stock, as additional consideration for the loan. The proceeds from the private offer and sale of securities and the loan proceeds from the Schlinger Note were utilized by the Company to fund the acquisition of Brister's (the "Brister's Acquisition"). The Schlinger Note will be paid with a portion of the proceeds from this Offering. See "-- Brister's Acquisition," "Use of Proceeds," "Management" and "Certain Relationships and Related Transactions." On July 2, 1996, the Company sold to an unaffiliated investor 3,334 shares of Common Stock and 66,667 Class A Warrants for a total consideration of $17,500. Each Class A Warrant entitles the holder to -16- 18 purchase one share of Common Stock at an exercise price of $5.25 per share until December 31, 1997. The proceeds from this offering were utilized by the Company for working capital. See "Description of Securities -- Class A Warrants." On November 15, 1996, the Company completed a private offer and sale of 25 Units to 17 accredited investors for total proceeds of $625,000 (the "Bridge Financing"). Each Unit consisted of one share of Convertible Preferred Stock and 6,667 1996 Warrants. Each 1996 Warrant entitles the holder to purchase, for a period of 42 months after November 15, 1996 one share of the Company's Common Stock at an exercise price of $4.50 per 1996 Warrant subject to further adjustment in certain circumstances. The Representative acted as placement agent for the Company in this offering and received certain compensation. On March 6, 1997, the Company offered to each holder of the Convertible Preferred Stock the option of either (i) receiving a refund of their cash investment with interest at 12% per annum as consideration for assigning their Convertible Preferred Stock and 1996 Warrants to the Company or (ii) agreeing to the conversion of the Convertible Preferred Stock at the completion of this Offering upon previously agreed terms along with the issuance of an additional 13,334 1996 Warrants for each share of Convertible Preferred Stock held as further consideration for waiving certain registration rights and agreeing to certain lock-up provisions with respect to the Common Stock issuable upon conversion of the Convertible Preferred Stock and the 1996 Warrants. For purposes of this Offering, the Company has assumed that the holders of the Convertible Preferred Stock will accept the latter option. See "Description of Securities -- Convertible Preferred Stock, -- 1996 Warrants and - -- Bridge Financing." ACQUISITIONS BRISTER'S ACQUISITION. On March 15, 1996, the Company acquired all of the issued and outstanding shares of common stock of Brister's from Charles Brister, a director and principal stockholder of the Company, in exchange for $2 million cash; a subordinated $1 million promissory note with variable interest rates, maturing in 2003 and a $200,000 promissory note bearing 10% interest, with interest and principal payable quarterly beginning April 1, 1997 with a maturity date of April 1, 1998 or upon successful completion of an underwritten public offering of the Company's securities (collectively, the "Brister Notes"); and 516,667 shares of Common Stock of the Company with an aggregate market value of $3.1 million as determined in the related purchase agreement. Additionally, the Company entered into (i) a Consulting Agreement with Mr. Brister which expired on December 31, 1996, (ii) a five-year License Agreement under which the Company received the right to use certain intellectual property owned and developed by Mr. Brister and (iii) a five-year Non-Competition Agreement with Mr. Brister. Brister's has been manufacturing Fun Karts in Roseland, Louisiana since 1959. The Company will pay the Brister Notes with a portion of the proceeds of this Offering. See "Use of Proceeds," "Management," "Certain Relationships and Related Transactions" and "Principal Stockholders." USA ACQUISITION. On November 20, 1996, the Company acquired all of the issued and outstanding shares of common stock of USA Industries, Inc. ("USA"), a Fun Karts manufacturer located in Prattville, Alabama, for $250,000 cash and the issuance of 166,668 restricted shares of Common Stock valued by the USA stockholders and the Company at an aggregate of $750,000 or $4.50 per share (the "USA Acquisition"). Each of the four USA stockholders received $62,500 cash and 41,667 restricted shares of the Company's Common Stock. See "Note B -- Acquisition of Subsidiaries of Notes to Consolidated Financial Statements" and "Note I -- Capital Stock Transactions of Notes to Consolidated Financial Statements." Unless otherwise indicated herein, the financial, business activities, management and other pertinent information herein relates on a consolidated basis to the Company and its wholly-owned subsidiaries, Brister's and USA. The Brister's and USA Acquisitions were accounted for using the purchase method of accounting for business combinations. The Company has allocated the total purchase price to assets acquired based on their relative fair value. Any excess of the purchase price over the fair value of the assets acquired has been recorded as goodwill. The financial and other information regarding the Company set forth herein reflects, for the periods presented, the proforma unaudited results of operations as though the Brister's and USA Acquisitions had occurred as of the beginning of the periods presented herein. The address of the Company's principal executive office is 109 Northpark Boulevard, Suite 210, Covington, Louisiana 70433, and its telephone number is (504) 875-7350. The Company maintains manufacturing facilities at 202 Challenge Avenue, Prattville, Alabama 36067 and Highway 51 South, Roseland, Louisiana 70456. -17- 19 COMMON STOCK PRICE RANGES AND DIVIDENDS The Company's Common Stock is traded on the NASD Electronic Bulletin Board under the symbol "KINT". The following table sets forth the range of high and low closing bid prices for the Common Stock for the periods indicated as reported by the National Quotation Bureau, Incorporated. These prices represent inter-dealer prices, without adjustment for retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions.
Common Stock Bid Price(1) ----------------------------------------------- Calendar Year 1997 Low High ------------------ ---------------------- ----------------------- First Quarter (through March 21, 1997) 4.13 4.88 ---------------------- -----------------------
Common Stock Bid Price ----------------------------------------------- Calendar Year 1996 Low High ------------------ ---------------------- ----------------------- Second Quarter(2) $5.63 $5.63 Third Quarter $4.13 $5.63 Fourth Quarter $4.13 $4.88
______________________________ (1) Prices have been adjusted to reflect a two-for-three reverse stock split of the Company's Common Stock effective March 24, 1997. (2) The Common Stock began trading on the NASD Electronic Bulletin Board on June 27, 1996. On March 26, 1997, the closing bid and ask prices for the Common Stock were $ 4.50 and $ 5.625, respectively, per share. As of March 26, 1997, 2,717,653 shares of Common Stock were issued and outstanding. The Company believes that its Common Stock is held of record and beneficially by approximately 500 persons. See "Shares Eligible for Future Sale." DIVIDEND POLICY The Company has not paid or declared any dividends with respect to its Common Stock or Convertible Preferred Stock, nor does it anticipate paying any cash dividends or other distributions on its Common Stock in the foreseeable future. Any future dividends will be declared at the discretion of the Board of Directors of the Company and will depend, among other things, on the Company's earnings, if any, its financial requirements for future operations and growth and such other facts as the Company may then deem appropriate. -18- 20 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the 1,400,000 shares of the Common Stock and 1,400,000 Warrants offered hereby are estimated to be approximately $5,440,250 (based on an assumed public offering price of $4.50 per share of Common Stock and $0.125 per Warrant or approximately $6,285,237 if the Underwriters' over- allotment option is exercised in full) after deducting Underwriters' discounts and commission and estimated offering expenses. The Company intends to use the net proceeds from the sale of the Securities offered hereby (assuming no exercise of the Underwriters' over-allotment option) for the purposes and in the approximate percentages as set forth in the following table:
Approximate Approximate Percentage Application of Proceeds(1) Dollar Amount of Net Proceeds -------------------------- --------------- ------------------ Payment of Schlinger Note (2) . . . . . . . . . . . . . . . . . . . . . $2,000,000 36.8% Payment of Brister Notes(3) . . . . . . . . . . . . . . . . . . . . . . 1,200,000 22.0 Conversion of Preferred Stock . . . . . . . . . . . . . . . . . . . . . 625,000 11.5 Purchase of Equipment(4) . . . . . . . . . . . . . . . . . . . . . . . 400,000 7.4 Advertising and Marketing(5) . . . . . . . . . . . . . . . . . . . . . 150,000 2.8 Product development and design(6) . . . . . . . . . . . . . . . . . . . 100,000 1.8 Working Capital and General Corporate Purposes(7) . . . . . . . . . . . 965,250 17.7 ---------- ---- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,440,250 100.0% ========= =====
______________________________ (1) Proceeds, if any, received upon the exercise of the Underwriters' over-allotment option will be used for working capital and general corporate purposes. (2) See "The Company -- Recent Financings," "Certain Relationships and Related Transactions" and "Principal Stockholders." (3) Charles Brister, a director and principal stockholder of the Company, is the holder of the Brister Notes. See "The Company -- Acquisitions; Brister Acquisition," "Management," "Certain Relationships and Related Transactions" and "Principal Stockholders." (4) The Company intends to purchase a powder paint system and tube bending machine for its manufacturing facility in Prattville, Alabama. See "Business -- Operating Strategy; Continue to Improve Manufacturing Efficiency." (5) The Company intends to increase its penetration of its target market by enhancing potential customers' awareness of its products by advertising in youth-oriented magazines, motorcycle, lawn and garden, hardware and outdoor power equipment trade magazines, establishment of a Company home page on the Internet, displaying and promoting the Company's products at NASCAR races and related events and traditional print, billboard and, to a lesser extent, television and radio media. See "Business -- Growth Strategy; Increasing Brand and Product Recognition by Innovative Marketing to Target Users and -- Sales and Marketing." (6) In 1997, the Company will introduce its new Big Thunder Kart line which will utilize a torque converter, new tire design and existing standard features of the Company's Fun Karts. The Company also intends to develop and distribute additional optional Fun Kart parts and accessories which can be sold by dealers to customers at the point of sale. The Company may also develop a line of helmets, jackets, boots and other related items for its dealers and mass merchandisers to complement sales of Fun Karts. See "Business -- Growth Strategy; Improve Product Design and Development and -- Product Lines." (7) Working capital will be increased to $1,810,237 if the Underwriters' over-allotment option is exercised. Working capital includes, but is not limited to, carrying additional receivables associated with increased sales, costs for expansion of existing facilities, personnel costs related to expansion of Company's product lines and increased sales, acquisition expenses and other general and administrative expenses. The Company may find it necessary or advisable to reallocate the net proceeds within the categories described above if its assumptions regarding present plans and future revenues and expenditures prove inaccurate. Any change in the allocation of funds will be at the discretion of the Company's Board of Directors. The Company believes that the net proceeds of the Offering will be adequate to fund the proposed business operations of the Company for approximately 12 to 18 months. Proceeds, if any, from the exercise of the Warrants are currently intended to be used for general corporate purposes. The Company also reserves the right to allocate a portion of the net proceeds for acquisitions and the payment of legal, accounting and other expenses associated with acquisitions. No commitments or binding agreements have been entered into by the Company for any such acquisitions. Until the proceeds of this Offering are used for the purposes stated above, the Company may invest them temporarily in interest-bearing securities such as certificates of deposit, United States governmental obligations or money market funds or instruments. -19- 21 DILUTION At December 31, 1996, the Company had a net tangible book value of approximately ($1.16) million or approximately $(0.43) per share of Common Stock. Net tangible book value per share of Common Stock equals the tangible assets of the Company, less all liabilities, divided by the total number of shares of Common Stock outstanding, without giving effect to the possible exercise of outstanding stock options and warrants. After giving effect to the sale of the 1,400,000 shares of Common Stock offered hereby (at an assumed offering price of $4.50 per share) and the 1,400,000 Warrants offered hereby (at an assumed offering price of $0.125 per Warrant) and the receipt of the estimated net proceeds therefrom, the proforma net tangible book value of the Company as of December 31, 1996 would have been approximately $4.28 million or approximately $1.01 per share, representing an immediate increase in net tangible book value of $1.44 per share to existing stockholders, and an immediate dilution in net tangible book value of $3.49 per share to purchasers of the Securities offered hereby. The following table illustrates the resulting dilution with respect to the Common Stock offered hereby: Public offering price (per share of Common Stock)(1) . . . . . . . . . . . . . . . . . . . . $4.50 Net tangible book value per share as of December 31, 1996 . . . . . . . . . . . . . $(0.43) Increase per share attributable to new investors . . . . . . . . . . . . . . . . . . 1.44 ------- Proforma net tangible book value per share after the Offering(2) . . . . . . . . . . . . . . 1.01 ------- Dilution of net tangible book value per share to new investors attributable to purchase of Common Stock by new investors . . . . . . . . . . . . . . . $ 3.49 ======
______________________________ (1) Represents the anticipated public offering price per share of Common Stock (excluding Warrants) before deduction of underwriting discounts and commissions and estimated expenses of the Offering. (2) Assuming no exercise of outstanding warrants or options, including the Warrants offered hereby and the Underwriters' Warrants or the exercise of the Underwriters' over-allotment option. See "Description of Securities" and "Underwriting." The following table sets forth the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share by existing stockholders and new investors purchasing shares of Common Stock in this Offering:
Shares Purchased Total Consideration Average Price ---------------------- ------------------------- Amount Percent Amount Percent Per Share --------- ----------- ------------ ----------- -------------- Existing stockholders . . 2,634,212 65.3% $4,289,789 41.9% $1.63 New investors . . . . . . 1,400,000 34.7 5,950,000 58.1 $4.50 --------- ------ ----------- ------ Total . . . . . 4,034,212 100.0% $10,239,789 100.0% ========= ===== ========== ======
The foregoing table gives effect to the sale of the shares of Common Stock offered hereby (assuming an offering price of $4.50 per share and without giving effect to the underwriting discount and expenses of the Offering) and does not give effect to the exercise of any warrants or options or the exercise of the Underwriters' over-allotment option. See "The Company," "Management -- Stock Options," "Certain Relationships and Related Transactions," "Principal Stockholders" and "Description of Securities." -20- 22 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1996 and as adjusted giving effect to the sale by the Company of 1,400,000 shares of Common Stock at $4.50 per share and 1,400,000 Warrants at $0.125 per Warrant and by giving effect to the anticipated use of proceeds derived therefrom. This table has not been adjusted to give effect to the exercise of the Underwriters' over-allotment option, the exercise of any outstanding warrants or options, including the Warrants offered hereby and the Underwriters' Warrants. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus.
December 31, 1996 ----------------------------------------- As Actual Adjusted(1) Proforma ------------- ------------ ------------- Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $ 140,020 $ -- $ 140,020 Current maturities of long-term debt . . . . . . . . . . . . . . 116,390 (100,000) 16,390 Long-term debt(2) . . . . . . . . . . . . . . . . . . . . . . . . 3,332,660 (3,200,000) 132,660 Convertible Preferred Stock, $0.001 par value; 25 shares issued and outstanding; none as adjusted(3) . . . . . . . . . . 625,000 (625,000) -- ------------ ----------- ------------ Total debt and debt equivalents . . . . . . . . . . . . . . . . 4,214,070 (3,925,000) 289,070 ------------ ----------- ------------ Common Stock, $0.001 par value; 2,717,653 shares issued and outstanding; 4,221,828 as adjusted(3) . . . . . . . 2,718 1,504 4,222 Additional paid-in capital . . . . . . . . . . . . . . . . . . . 4,774,905 5,263,746 10,038,651 Common stock warrants; 463,336 warrants issued and outstanding; 1,863,336 as adjusted . . . . . . . . . . . . -- 175,000 175,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . (23,498) -- (23,498) ------------ ----------- ------------ Total stockholders' equity . . . . . . . . . . . . . . . . . . 4,754,125 5,440,250 10,194,375 ------------ ----------- ------------ Total capitalization . . . . . . . . . . . . . . . . . . . . . $ 8,968,195 $ 1,515,250 $ 10,483,445 =========== ========== ===========
______________________________ (1) As adjusted giving effect to the sale by the Company of the 1,400,000 shares of Common Stock and 1,400,000 Warrants offered hereby and the application of the proceeds therefrom. See "Use of Proceeds," "Description of Securities" and "Underwriting." (2) For a description of the Brister Notes and Schlinger Note to be paid with a portion of the proceeds of this Offering, see "The Company," "Certain Relationships and Related Transactions" and "Note F -- Long-Term Debt of Notes to Consolidated Financial Statements." (3) Assumes conversion of all outstanding shares of Convertible Preferred Stock for $625,000 and the issuance of 104,175 shares of Common Stock. See "Description of Securities -- Bridge Financing." -21- 23 SELECTED HISTORICAL AND PROFORMA FINANCIAL INFORMATION The following selected financial information has been presented in a proforma format for the periods ended December 31, 1996, 1995 and 1994 and has been derived from the audited historical financial statements of the Company and Brister's. The information pertaining to the historical financial statements of USA is unaudited. The Company was dormant from 1989 until the first quarter of 1996. The Company's purchase of 100% of the issued and outstanding stock of Brister's was effective April 1, 1996. The Company's purchase of 100% of the issued and outstanding stock of USA was effective November 22, 1996. The information presented herein reflects the proforma results of the combined operations of all entities as if the respective acquisitions had occurred on January 1, 1994 (the first day of the first period presented), as adjusted for the proforma effect of the amortization of goodwill. In the opinion of management, these proforma statements include all material adjustments necessary to present proforma historical results of the above-described transactions. The proforma information does not purport to be indicative of the financial position or the results of operations which would have been obtained if the acquisition transactions had actually been consummated on the dates indicated. In addition, the proforma financial information does not purport to be indicative of the financial position or results of operations that may be obtained in the future. The proforma financial information should be read in conjunction with the historical consolidated financial statements and notes thereto of the Company and its wholly-owned subsidiaries, Brister's and USA and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.
Years Ended December 31, --------------------------------------------------------- (Proforma) (Proforma) (Proforma) STATEMENT OF OPERATIONS DATA: 1996 1995 1994 ------------------ ------------------ ------------------ Revenues, net . . . . . . . . . . . . . . . . . . . . . . . $ 10,698,824 $ 8,514,460 $ 7,069,500 Cost of goods sold . . . . . . . . . . . . . . . . . . . . 7,613,372 6,184,340 5,186,245 Operating expenses . . . . . . . . . . . . . . . . . . . . 2,495,676 1,873,960 1,658,310 Income from operations . . . . . . . . . . . . . . . . . . 589,776 456,160 224,945 Net income . . . . . . . . . . . . . . . . . . . . . . . . 322,168 121,324 106,659 Net income per proforma weighted-average share of common stock outstanding . . . . . . . . . . . . 0.10 0.04 0.03 Number of proforma weighted-average shares of common stock outstanding . . . . . . . . . . . . . . . 3,119,592 3,119,592 3,119,592
December 31, 1996 December 31, 1995 ----------------------------- ------------------------------ As BALANCE SHEET DATA: Historical Adjusted(1) Historical Proforma -------------- -------------- -------------- -------------- Current assets . . . . . . . . . . . . . . . . . . . . . $ 3,391,290 $ 4,096,540 $ - $ 2,054,177 Total assets . . . . . . . . . . . . . . . . . . . . . . 10,094,717 11,609,967 - 8,268,481 Current liabilities . . . . . . . . . . . . . . . . . . . 1,382,932 1,282,932 4,010 1,335,057 Total liabilities . . . . . . . . . . . . . . . . . . . . 4,715,592 1,515,592 4,010 4,610,490 Convertible preferred stock . . . . . . . . . . . . . . . 625,000 - - - Stockholders' equity . . . . . . . . . . . . . . . . . . 4,754,125 10,194,375 (4,010) 3,657,991 Working capital . . . . . . . . . . . . . . . . . . . . . 2,008,358 3,623,608 - 719,120
______________________________ (1) Adjusted to give effect to (i) the sale of 1,400,000 shares of Common Stock and 1,400,000 Warrants offered hereby at assumed initial public offering prices of $4.50 per share of Common Stock and $0.125 per Warrant, respectively, and the application of the net proceeds therefrom and (ii) conversion of outstanding shares of Convertible Preferred Stock. See "Use of Proceeds." No effect has been given to the exercise of (i) any outstanding warrants, including the Warrants offered hereby and the Underwriters' Warrants, (ii) the Underwriters' over-allotment option, or (iii) outstanding options. See "Management -- Stock Options," "Description of Securities" and "Underwriting." -22- 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company had no significant business operations from 1989 through March 1996. Prior to that time, the Company was engaged in the mining industry, principally through joint ventures with related parties involving mining properties located in Colorado. The Company is in the business of manufacturing and marketing Fun Karts for the consumer market. See "Business." On March 17, 1996, the Company purchased 100% of the issued and outstanding stock of Brister's, a Louisiana corporation organized on August 2, 1976, from Charles Brister, a director and principal stockholder of the Company, for a total purchase price of $6.3 million (the "Brister's Acquisition"). The Brister's Acquisition was effective on March 31, 1996. The purchase price was paid with $2.0 million cash, $1.2 million Brister Notes and the issuance to Mr. Brister of 516,667 shares of restricted Common Stock valued at $3.1 million. The Brister's Acquisition was accounted for using the purchase method of accounting for business combinations. The Company allocated the total purchase price to assets acquired based on their relative fair values. Any excess of the purchase price over the fair value of the assets acquired is recorded as goodwill. Results of operations of Brister's are included in the Company's consolidated financial statements beginning on the effective date of the Brister's Acquisition. See "The Company -- Acquisitions; Brister Acquisition," "Management," "Certain Relationships and Related Transactions" and "Principal Stockholders." On November 20, 1996, the Company purchased 100% of the issued and outstanding stock of USA, an Alabama corporation organized on January 2, 1992, from four USA shareholders for a total purchase price of $1,000,000 (the "USA Acquisition"). The USA Acquisition was effective on November 21, 1996. The purchase price was paid with $250,000 in cash and the issuance to the USA shareholders of an aggregate of 166,668 restricted shares of the Company's Common Stock valued at $750,000. The USA Acquisition was accounted for using the purchase method of accounting for business combinations. The Company allocated the total purchase price to assets acquired based on their relative fair value. Any excess of the purchase price over the fair value of the assets acquired is recorded as goodwill. Results of operations of USA are included in the Company's consolidated financial statements beginning on the effective date of the USA Acquisition. The accompanying discussion relates principally to the operations of Brister's, USA and the Company for the years ended December 31, 1996, 1995 and 1994. The discussion is based upon the proforma consolidated financial statements for the years ended December 31, 1996, 1995 and 1994. The proforma financial information has been derived from the audited historical consolidated financial statements of the Company. The information pertaining to the historical financial statements of USA is unaudited. The proforma consolidated financial information reflects adjustments to record the acquisition of Brister's and USA as if the acquisitions occurred on January 1, 1994. RESULTS OF OPERATIONS PROFORMA CALENDAR YEAR 1996 VERSUS PROFORMA CALENDAR YEAR 1995. The Company, on a proforma basis, realized net sales for the year ended December 31, 1996 of approximately $10.7 million as compared to approximately $8.5 million for the year ended December 31, 1995 or an increase of approximately 25%. Management attributes the increase in sales primarily to the continued development of the Company's dealer base and the addition of two mass merchandisers as a distribution channel. Management estimates that unit sales growth in the Fun Kart industry has been in the 12% to 15% range from 1991 through 1995. In 1996, industry-wide unit sales were relatively stagnant. Management believes the stagnant unit sales in 1996 were the result of high consumer debt, less than anticipated retail Christmas sales, unusual national weather patterns and weak sales performance in the lawn and garden industry, a principal network of dealers for Fun Karts. The Company, on a proforma basis, incurred cost of sales of approximately $7.6 million for 1996 as compared to approximately $6.2 million in 1995. These costs allowed the Company to achieve a gross margin of approximately $3.1 million in 1996 and approximately $2.3 million in 1995 or approximately 28% and 27%, respectively. Management continues to focus on expanding its distribution channels to include the optimum -23- 25 balance among dealers (lawn/garden, hardware, cycle stores, etc.), mass merchandisers, home centers, farm stores and other distribution channels. In addition, management has restructured its cost accounting system to more effectively manage costs at each of its subsidiary manufacturing locations. Operating expenses, on a proforma basis, for 1996 and 1995, respectively, were approximately $2.5 million and $1.8 million. Key expense increases from 1995 to 1996 were related to (i) interest expense which increased approximately $302,000 due to costs related to the Brister's and USA Acquisitions, (ii) product liability insurance expenses which increased approximately $265,000 due to increased sales volume and increased coverage required by the Company's major customers, and amortization expenses related to the Brister's and USA Acquisitions increased approximately $172,000. All other operating expenses were maintained at the same relative levels as the previous year by improved cost controls. Operating expenses reflect historical levels even though significant interest, insurance and amortization expenses were added in 1996. Additional sales volume and effective management control of variable operating expenses contributed to maintaining the relatively constant operating expense relationship to sales on a percentage basis. PROFORMA CALENDAR YEAR 1995 VERSUS PROFORMA CALENDAR YEAR 1994. The Company, on a proforma basis, realized net sales for year ended December 31, 1995 of approximately $8.5 million as compared to approximately $7.0 million for the year ended 1994 or an increase of approximately 13%. Management attributes the increase in sales to the addition of approximately 80 dealers during 1995 and the implementation of a qualified dealer floor plan financing program. Management estimates that the 1995 industry-wide unit sales increase was approximately 12%. The Company, on a proforma basis, incurred cost of sales of approximately $6.2 million for 1995 compared to approximately $5.1 million in 1994. The Company achieved a gross margin of approximately $2.3 million in 1995 and approximately $1.9 million in 1994 or approximately 27% and 26%, respectively. Costs of sales increased in 1995 as compared to 1994 as a result of increased unit sales in 1995. Operating expenses, on a proforma basis, for 1995 and 1994, respectively, were approximately $1.8 million and $1.6 million. Operating expenses in 1995 were maintained at approximately the same relative percent of sales as in previous years due to management monitoring of expenses during the period. ADDITIONAL OPERATIONS INFORMATION. In 1996 the Company settled several product liability lawsuits with a cumulative charge to operations of approximately $44,000. The Company currently has four product liability lawsuits outstanding, none of which are expected to exceed existing product liability insurance policy limits. The Company has never had a claim that resulted in an award or settlement in excess of insurance coverage. There is no assurance that the Company's insurance coverage of $5,000,000 per occurrence and $5,000,000 aggregate will be sufficient to fully protect the business and assets of the Company from all claims, nor can any assurances be given that the Company will be able to maintain the existing coverage or obtain additional coverage at commercially reasonable rates. Management believes that it has process controls on its product operations, product labeling, operator's manuals, and design features which will assist in a successful defense of any present or future product liability claim. To the extent product liability losses are beyond the limits or scope of the Company's insurance coverage, the Company could experience a material adverse effect upon its business, operations, profitability and assets. See "Business -- Product Liability and Insurance Limits and -- Legal Proceedings." SEASONALITY The Company experiences significant seasonality in its sales pattern with only approximately 26% of its sales recognized in the first half of the year. Historically, approximately 28% and 46% of total sales are realized in the third and fourth quarters, respectively. Sales of Fun Karts are generally the lowest during the first quarter of each year. Since the Company typically does not obtain long-term purchase orders or commitments from its customers, it must anticipate the future volume of orders based upon the historic purchasing patterns of its dealers and mass merchandisers and upon its discussions with its dealers and representatives of mass merchandisers as to their future requirements. Cancellations, reductions or delays by -24- 26 a large volume dealer or mass merchandiser could have a material adverse impact on the Company's business, financial condition and results of operations. Traditionally, many dealers have sold Fun Karts only during the Christmas holiday season. Recent market growth can be attributed to many of these dealers beginning to sell Fun Karts year round. The Company believes that if its business strategies are successfully implemented in 1997 and future years, there will be some additional mitigation of the seasonality aspect of the Company's Fun Karts sales. The Company also intends to offset the seasonal aspects of its current business operations through acquisitions of manufacturers of product lines that are compatible with the Company's business objectives and offer product diversity which have year round demand. LIQUIDITY AND CAPITAL RESOURCES During 1996, the Company acquired Brister's and USA with approximately $2,250,000 cash, issuance of approximately $3.2 million in promissory notes and issuance of approximately 683,334 shares of Common Stock. The Company intends to retire the Brister Notes and the Schlinger Note with a portion of the proceeds of this Offering. As of December 31, 1996 and December 31, 1995, respectively, the Company has positive proforma working capital of approximately $4.7 million and $0.7 million, respectively. The Company experienced negative cash flow from operations of approximately $(223,000) for calendar 1996. This deficiency was principally caused by increases in trade accounts receivable attributable to sales to mass merchandisers. An aggregate of approximately $535,000 in cash resided in Brister's and USA as of their respective acquisition effective dates which in turn offset this deficiency. Additionally, the Company received approximately $123,000 in trade accounts receivable receipts from mass merchandiser customers on January 2, 1997. Additionally, the Company spent approximately $533,642 in indirect costs associated with the acquisition of Brister's and USA. These amounts were funded through the private placement of Company securities in March 1996 and November 1996. As a result of cash received from all sources versus cash expended for all purposes, the Company experienced net cash increases of approximately $630,000 and $580,000 in calendar 1996 and 1995, respectively. During the years ended December 31, 1996 and 1995, respectively, the Company expended approximately $72,000 and $113,000 for capital assets and/or improvements. The Company has budgeted capital resource requirements of approximately $400,000 during 1997. See "Use of Proceeds." The Company has currently available to it a $300,000 revolving line of credit, which expires in August 1997, based upon a percentage of the value of certain purchase orders and accounts receivable to specific, large mass merchandisers. The interest rate on the revolving line is at the lending institution's prime rate (8.25% at December 31, 1996). The outstanding loan balance on the credit facility is $100,000 at December 31, 1996. Certain restrictions and covenants apply such as the maintenance of financial ratios. It is management's opinion that the currently revolving credit facility and terms are renewable and adequate for any anticipated short-term credit requirements. It is anticipated that the net proceeds from this offering will be used to repay $3.2 million in long-term indebtedness, $400,000 in capital expenditures and $150,000 in special marketing promotions. The repayment of the Company's long-term debt will yield interest expense reductions of approximately $400,000 during the 12 month period after retirement of the debt. These interest savings will generate additional working capital resources for the Company. See "Use of Proceeds." The Company expects that its cash flow from operations, along with its currently available line of credit, will be sufficient to meet its financing requirements over the next 12 to 18 months. This is a projection, however, and no assurance can be given that the Company's cash flow from operations and from its available line of credit will be available to meet the Company's cash requirements over the next 12 to 18 months. See -25- 27 "Risk Factors" and "Use of Proceeds" for a discussion of certain important factors that could materially impact this projection. The Company's management does not believe that inflation has had a significant effect on the Company's operations during the last several years. The Company's management believes the Company has historically been able to pass on increased costs of production to the price charged for its products; however, no assurance can be given that the Company will continue to be able to pass on such increased costs in the future. Liquidity requirements mandated by future business acquisitions or expansions, if any are specifically identified or undertaken, are not readily determinable at this time as no substantive plans have been formulated by management. Upon completion of this Offering, the Company will have limited financial resources for acquisitions. The Company will be dependent upon the proceeds from additional financings, including receiving proceeds from the future exercise of the Warrants of which there can be no assurance, to facilitate an acquisition. The Company may also need additional financing to achieve full implementation of its long-term growth strategy and for working capital. There can be no assurance that additional financing will be available, or if available, that such financing will be on favorable terms. See "Use of Proceeds" and "Business -- Growth Strategy and -- Acquisition Strategy." -26- 28 BUSINESS GENERAL The Company, through its wholly-owned subsidiaries, Brister's and USA, designs, manufactures and distributes Fun Karts, also referred to as "go karts." Fun Karts are four-wheeled, gas-powered vehicles typically equipped with engines of 5 to 8 horsepower and purchased by consumers principally for off-road recreational use. The Company shipped approximately 17,750 Fun Karts to dealers and mass merchandisers in 1996, which the Company believes represents approximately 14% of the total domestic karts market, an approximate 27% increase over 1995, and a 42% increase over 1994. Proforma consolidated revenues of the Company for the fiscal year ended December 31, 1996 were approximately $10.7 million as compared with revenues of approximately $8.5 million for the fiscal year ended December 31, 1995. The Company operates manufacturing facilities in Roseland, Louisiana and Prattville, Alabama, and maintains its executive offices in Covington, Louisiana. The karts industry is comprised of three principal segments, Fun Karts, racing and concession karts. Fun Karts, the largest segment, are karts sold to consumers for general recreational use. Racing karts are specially designed for use on established tracks in a controlled racing environment. Concession karts are designed for use by amusement and entertainment centers which provide karts and facilities for customers' use on a rental basis. Management estimates that in 1996 approximately 145,000 karts were sold in the United States of which approximately 125,000 were Fun Karts, 12,500 racing karts and 7,500 concession karts. Historically, the Company concentrated its efforts in the Fun Karts market. The Company offers a complete product line of Fun Karts, differentiated by drive train, seating capacity, tire size and tread design. Thirty-two Fun Kart models are available in three different colors, black, blue and red, which are sold under the Thunder Karts and USA Fun Karts brand names. The Company's models offer a wide range of standard and optional features which enhance the safety, operation, riding comfort and performance of its Fun Karts. Such features include the exclusive, patented automatic throttle override; full safety cage; safety flag; three kinds of drive trains, including live axle, single wheel pull and torque converter; clutch lubrication system; high speed bearings; adjustable throttle and seats; steel rims; band and disc brakes; and Briggs & Stratton 5 horsepower engines. The end-users of the Company's Fun Karts are primarily 7- to 17-year-old males, living with their parents in suburban and rural markets. Typical Fun Kart purchasers are parents who purchase Fun Karts for their children. The Company relies on a broad and diversified national independent dealer network and mass merchandisers to sell its Fun Karts. Prior to 1996, the Company sold its products through its over 700 dealers, primarily lawn and garden stores, motorcycle outlets, hardware stores and specialty karts dealers, located in 40 states. The major markets for the Company's Fun Karts are in the Southeast and Southwest regions of the United States. In 1996, the Company sold approximately 61% of its Fun Karts to approximately 250 dealers located in Louisiana, Texas, Mississippi and Florida. Although there are no formal dealer agreements, the Company, for the benefit of certain of its higher volume dealers, will agree not to sell to other retailers in a limited geographic area surrounding the high volume dealer. To become a Fun Kart dealer, the Company generally requires a retailer to annually purchase six or more Fun Karts. Dealers usually maintain an inventory of three to five Fun Karts which increases during the Christmas holiday season. For eligible dealers, the Company offers a dealer floor plan financing program through an unaffiliated financial services company. To broaden its distribution channels, the Company in 1996 began selling its Fun Karts to two mass merchandisers, Wal-Mart Stores, Inc. ("Wal-Mart") and Sam's Wholesale Club ("Sam's Club"), a division of Wal-Mart Stores, Inc. In 1996, the Company sold approximately 4,000 of its Fun Karts to Wal-Mart and Sam's Club, representing approximately 21% of the Company's proforma revenues for the fiscal year ended December 31, 1996. Management believes that mass merchandisers represent a significant untapped market for Fun Karts. The Company's operating strategy is to increase its sales and market share by producing safe, high-quality and reliable Fun Karts at competitive prices; continue to improve manufacturing efficiency; and continue diversification of domestic distribution channels. The Company's growth strategy is to increase its brand and -27- 29 product recognition by innovative marketing to its target users; broaden its product lines through improved product design and development; and expand its geographic presence and market share by continued emphasis on expansion of its domestic dealer and mass merchandiser networks, through further penetration of international markets, and through acquisitions of manufacturers of karts and related products that provide synergistic growth opportunities for the Company. Although the Company is actively seeking acquisitions that will expand its existing product lines, market share and distribution channels, the Company currently has no agreements or understandings with respect to any such acquisitions and there can be no assurance that the Company will be able to identify and acquire such businesses or obtain necessary financing on favorable terms. INDUSTRY OVERVIEW Since specific information with respect to kart sales is not, in the estimation of management, consistently and reliably available, management has instead relied on data provided by engine manufacturers. The karts industry consists of three major segments: Fun Karts, used for private recreational activities; racing karts, raced by competitors on an estimated 550 kart racing tracks in the United States; and concession karts, sold to family amusement and entertainment centers for use as rental units. Management believes the history of karts dates to 1956, when a hobbyist built the first kart, which consisted of a 2-cycle, 2- 1/2 horsepower engine, a tubular chassis and semi-pneumatic tires. Karts were initially sold for approximately $150 each. During 1957, Rod and Custom Magazine coined the name "go-kart." In December 1957, the Go-Kart Club of America was formed, which set chassis requirements and created racing classes. By 1960, there were an estimated 100 kart manufacturers in the United States, which were mostly small family-owned businesses. The Company believes there are currently four principal Fun Kart manufacturers in the United States, which includes the Company, Carter Brothers Manufacturing, Manco Products and Ken-Bar Manufacturing. Management estimates that the Company and its three primary competitors accounted for over 60% of the Fun Karts sold in the United States in 1996. In 1996, there were an estimated 100,000 kart racers and significantly more Fun Kart enthusiasts in the United States and Canada, according to industry sources. Annually, it is estimated that nearly 20 million Americans ride concession karts at tracks and family entertainment centers. Kart racing was a contributor to the development of various NASCAR and IndyCar drivers, including Al Unser Jr., Michael Andretti, Jeff Gordon, Emerson Fittipaldi, and Bobby Labonte, who began their driving careers as kart racers. During 1997, Bobby Labonte has committed to endorse and promote the Company's products and will appear at various Company-sponsored and other events to promote the Company's Fun Karts. See "-- Sales and Marketing." In 1996, approximately 125,000 Fun Karts were sold in the United States as compared with 1995 sales of approximately 124,000 Fun Karts, while 1995 sales represented an approximate 13% increase over 1994 sales of approximately 110,000 Fun Karts. Sales in 1994 represented an 11% increase over 1993 sales of approximately 98,000 Fun Karts. In 1996, the Company sold approximately 17,750 Fun Karts, which represents approximately 14% of the Fun Karts market as compared with 1995 sales of approximately 13,000 Fun Karts or approximately 11% of the Fun Kart market. The other two industry segments, racing and concession karts, are significantly smaller than the Fun Karts market. Sales of racing karts, karts used by racers on established tracks, were estimated at approximately 12,500 in 1996. Concession karts, used by commercial providers of tracks for entertainment, were estimated at approximately 7,500 units in 1996. Each of these segments is addressed by different manufacturers than those manufacturing Fun Karts. The typical end-user customer of the Company's Fun Karts is a 7-17 year old male, living with his parents primarily in the suburban and rural markets. The Company estimates that at least 90% of its end users are young males. This is a significant sector of the population, as the 7-17 year old male population in 1995, according to the Bureau of the Census, was estimated at 22 million. Typical Fun Karts purchasers are the parents, who buy Fun Karts as gifts for their children. -28- 30 Although annual industry-wide sales of Fun Karts increased significantly during 1994 and 1995, there was a nominal increase in unit sales industry wide during 1996. Management believes the nominal increase in unit sales industry wide during 1996 was the result of high consumer debt, less than anticipated retail Christmas sales, unusual national weather patterns and weak sales performance in the lawn and garden industry, a principal network of dealers for Fun Karts. Management believes there are several key factors which may increase industry wide Fun Kart demand and accordingly sales in future periods: o UNDERPENETRATED MARKET. According to census estimates, the target market of 7- to 17-year-old males is projected to grow from 22 million in 1995 to 25 million in the year 2000. Annual Fun Karts sales are only to approximately 0.6% of the total 7- to 17-year-old male population. o GROWTH IN DISTRIBUTION CHANNELS. Management believes that mass merchandisers and international dealers represent significant untapped markets for Fun Karts. Additionally, management believes independent dealer distribution channels, consisting primarily of lawn and garden stores, hardware stores, motorcycle dealers and automotive parts stores, remain underpenetrated; for example, the Company believes that less than 5% of the motorcycle dealers and less than 10% of the lawn and garden stores located in the United States sell Fun Karts. o ASSOCIATION WITH MOTORSPORTS. The Company believes that the association of Fun Karts with the dynamic motorsports industry will increase consumer interest in these products. Motorsports is the fastest growing spectator sport segment in the United States. Attendance at the Winston Cup series of races has more than tripled since 1980. More than 80 million households watched live television motor races during 1995. Sales of NASCAR licensed goods, which have grown nine-fold since 1990 to over $500 million, are expected to reach $1 billion in two years. SEASONALITY Most Fun Karts are sold during the last quarter of the year and are typically purchased as Christmas gifts by parents for their children. Sales of Fun Karts are generally the lowest during the first quarter of each year. Since the Company typically does not obtain long-term purchase orders or commitments from its customers, it must anticipate the future volume of orders based upon the historic purchasing patterns of its dealers and mass merchandisers and upon its discussions with its dealers and representatives of mass merchandisers as to their future requirements. Cancellations, reductions or delays by a large volume dealer or mass merchandiser could have a material adverse impact on the Company's business, financial condition and results of operations. Traditionally, many dealers have sold Fun Karts only during the Christmas holiday season. Recent market growth can be attributed to many of these dealers beginning to sell Fun Karts year round. The Company believes that if its business strategies are successfully implemented in 1997 and future years, there will be some mitigation of the seasonality aspect of the Company's Fun Karts sales. The Company also intends to offset the seasonal aspects of its current business operations through acquisitions of manufacturers of product lines that are compatible with the Company's business objectives and offer product diversity which have year round demand. OPERATING STRATEGY PRODUCE SAFE, HIGH QUALITY AND RELIABLE FUN KARTS AT COMPETITIVE PRICES. The Company believes that it is one of the leaders in the development of safety-related features for Fun Karts, which, along with price, is a key consideration for the Fun Kart purchaser, the parent of the 7- to 17-year-old male. The Company believes it was the first manufacturer in the Fun Karts industry to provide full safety cages and adjustable seats, which are now standard features on most Fun Karts. The Company is the exclusive Fun Kart manufacturer installing its patented automatic throttle override system on Fun Karts. Producing high quality, reliable products increases customer satisfaction, and the Company believes this is one of the key elements of its success in the highly competitive karts industry. The Company believes its strategy of selling its Fun Karts through independent -29- 31 dealers and selected mass merchandisers helps to ensure that the Company's products are competitive with those of other manufacturers in terms of safety, consumer acceptability, product design, quality and price. See "-- Product Lines." CONTINUE TO IMPROVE MANUFACTURING EFFICIENCY. Management believes that greater productivity will reduce operating costs. By installing a standard single Briggs & Stratton 5 horsepower engine on all of its Fun Karts, the Company expects to reduce volume purchase prices and decrease assembly costs. The Company believes that modernization of its manufacturing facilities is essential to improving the quality of the Company's products and promoting the price competitiveness of its Fun Karts. The Company intends to expand and renovate, as necessary, its manufacturing facilities, purchase new equipment and maintain strict cost controls as a means to enhance the production of high quality Fun Karts. In particular, the Company plans capital expenditures of approximately $400,000 during the next six months including the installation of a powder paint system and tube bending machine at its manufacturing plant in Prattville, Alabama. Management continuously reviews the floor plan of its manufacturing facilities to determine revisions that will enhance manufacturing efficiency. Management believes that the maximum capacity of the Company's manufacturing facilities for one shift is approximately 28,000 Fun Karts, which allows for an approximate 50% increase in capacity before the addition of another shift or expansion of current facilities. See "-- Manufacturing Operations." DIVERSIFICATION OF DOMESTIC DISTRIBUTION CHANNELS. The Company's historical marketing strategy has been to build a broad and diverse independent dealer base, primarily in Louisiana, Texas, Mississippi and Florida by offering safe, high quality and reliable Fun Karts that are competitively priced and timely delivered. To broaden its distribution channels, the Company, in 1996, began selling its Fun Karts to two mass merchandisers, Wal-Mart and Sam's Club. The Company's future marketing efforts are designed to maintain and expand its independent dealer network in the South and West regions of the United States through direct communications with dealers, engaging independent sales representatives and attendance at industry trade shows. The Company also plans to assist dealers with their selling and marketing efforts with Company-sponsored seminars, discount or rebate programs and advertising, including product videos and brochures, leaflets, posters, signs and other miscellaneous promotional items for use by dealers. The Company will also seek to increase sales to mass merchandisers with direct communication and the engagement of independent sales representatives. Although the Company believes that sales to mass merchandisers offers a significant growth opportunity, the Company will seek to obtain a reasonable balance between its dealer and mass merchandiser distribution networks and will attempt to avoid a high concentration of sales to any one or group of dealers or mass merchandisers. See "Risk Factors -- Dependence on Independent Dealers; Dependence on Major Customers" and "-- Sales and Marketing." GROWTH STRATEGY INCREASING BRAND AND PRODUCT RECOGNITION BY INNOVATIVE MARKETING TO TARGET USERS. In 1995, the Fun Kart industry's sales were made to only approximately 0.6% of the estimated 22 million 7- to 17-year-old males in the United States, the Company's target users. The Company believes that if it is to further penetrate its target market, the Company must advertise in media easily accessible by this group and attractively and prominently display its Fun Karts in locations and at events frequented by young males and their parents. The Company intends to increase its penetration of this market by enhancing potential customers' awareness of its products by advertising in youth-oriented publications, as well as motor racing and motorcycle publications, establishment of a Company home page on the World Wide Web portion of the Internet, displaying and promoting the Company's products at NASCAR races, which may include appearances by NASCAR driver Bobby Labonte pursuant to his promotional agreement with the Company, and traditional print, billboard and to a lesser extent, television and radio media. IMPROVE PRODUCT DESIGN AND DEVELOPMENT. Historically, the Company has been a leader within the Fun Karts industry in the development of safety and performance enhancing items for Fun Karts. One of the benefits of the acquisition of USA was the addition of a line of torque converter Fun Karts, which are being sold under the USA brand name. In 1997, the Company will introduce its new Big Thunder Kart line which will utilize a torque converter, new tire design and existing standard features of the Company's Fun Karts, including large custom seats and 3400 rpm 5 horsepower Briggs & Stratton engines. The Company also intends to develop and distribute additional optional Fun Kart parts and accessories which can be sold by dealers to customers at -30- 32 the point of sale of the Company's Fun Karts. Such accessories may include face shields, repair and lube kits, caps and tee-shirts. The Company may also develop a line of helmets, jackets, boots and other related items for its dealers and mass merchandisers to complement sales of Fun Karts. EXPANSION OF GEOGRAPHIC PRESENCE. The Company intends to expand its geographic presence and increase its market share within and outside of its core and contiguous markets by continued emphasis on the development and expansion of its dealer and mass merchandiser networks, establishing relationships with independent sales representatives to serve regions of the United States which are currently underpenetrated by the Company and possible acquisition of kart manufacturers and related businesses that offer synergistic growth opportunities for the Company. Also during calendar 1996, the Company had its first shipment of Fun Karts of approximately 70 Karts into the international market, and believes international sales offer a significant market for the Company's products. Although the Company is actively seeking acquisitions that would meet its strategic objectives, it currently has no agreements or understandings with respect to any such acquisition and there can be no assurance that the Company will be successful in its acquisition efforts. Further, the ability of the Company to effect its strategic plans will be dependent upon its obtaining financing for such acquisitions, which there can be no assurance will be available. ACQUISITION STRATEGY The Company continually evaluates acquisition opportunities of operating entities or product lines compatible with its current operations. Target companies will be in the Fun Karts or related business or will provide the Company with complementary capabilities such as manufacturing, distribution or shipping. Acceptable acquisition candidates are expected to be (i) companies having three or more years operating history and annual revenues from $5 to $15 million, (ii) businesses with different or expanded distribution channels through which the Company may market its current and/or future products, and (iii) companies with existing manufacturing capabilities which may allow the Company greater operating efficiencies through vertical integration of its manufacturing and assembly functions. There are no present agreements, commitments, letters of intent or understandings with any acquisition candidates. The Company intends to aggressively pursue growth through acquisitions, subject to financial and managerial resources. Management believes that it will be necessary to obtain additional financing prior to a major acquisition. The Company anticipates that the financing of any acquisition will be paid in cash, issuance of capital stock or debt instruments, or a combination thereof. To the extent that the Company issues capital stock in any acquisition, purchasers of the Securities in this Offering may incur dilution in their investment in the Company. The issuance of debt to finance acquisitions may result in the encumbrance of Company assets, impede the Company's ability to obtain bank financing, decrease the Company's liquidity and adversely affect the Company's ability to declare dividends to its stockholders. PRODUCT LINES The Company produces a full line of Fun Karts, currently consisting of 32 models which are variations on 15 different frames available in three different colors, black, blue and red. The models are differentiated by drive train (single wheel pull, live axle or torque converter), seating (single or double), tires (standard or custom) and frame size. The Company markets its Fun Karts under the brand names of Thunder Karts and USA Fun Karts, which includes the Blackhawk, Coyote, Eagle, Cobra and Land Runner models. The Company's Fun Karts are sold at suggested retail prices ranging from $599 to $1,399. The Company markets its USA Cobra Fun Kart model exclusively to Wal-Mart and its Thunder Kart Blackhawk model to Sam's Club. The Company's Thunder Kart SLXL, Thunder Kart XL700, Thunder Kart Blackhawk and USA Cobra models accounted for 24%, 17%, 14% and 9%, respectively, of the Company's 1996 unit sales. The Company believes its Fun Karts enjoy a premier image in its core markets and that its Fun Karts have a reputation for quality, performance, style, comfort, ride and handling. The Company's models offer a wide range of standard and optional features which enhance the operation, safety, riding comfort and performance of its Fun Karts. Such features include band brakes, 5 horsepower Briggs & Stratton engine, automatic throttle override system, full safety cage, automatic clutch lubrication system, powder paint, high -31- 33 speed bearings and safety flag. The Company's USA Coyote Fun Kart has oversize wheels and has the added features of a torque converter and disc brakes. The Company believes that it is a leader in the development of safety features for its Fun Karts, due primarily to its emphasis on continuous research and development of safety related items. The Company, principally through the efforts of Charles Brister, a director and principal stockholder of the Company, has developed a number of technological advances, including the automatic throttle override and automatic clutch lubrication systems, which have significantly improved its products. Mr. Brister will continue to devote a portion of his time on a project basis for the development of innovative safety and technological features for the Company's Fun Karts. See "The Company -- Acquisitions; Brister's Acquisition," "Management," "Certain Relationships and Related Transactions" and "Principal Stockholders." The Company's patented, exclusive automatic throttle override system was named the 1995 Product of the Year for the recreational kart industry by Kart Marketing International, a trade magazine for the kart industry. This safety feature prohibits throttling and braking at the same time, regardless of the position of the gas pedal. If the brake pedal is depressed slightly, the engine will revert to the idle position immediately, and will not let throttling engage until the pedal is released. Significant benefits of this system include virtual elimination of throttle runaways; enhancement of safety for inexperienced drivers; stopping of simultaneous braking and throttling; easier braking; and extended brake life. The Company has an exclusive license from Mr. Brister to use the automatic throttle override system on its Fun Karts. See "Certain Relationships and Related Transactions." The Company believes it was the first manufacturer in the Fun Karts industry to provide safety cages and adjustable seats, which are now standard features on most Fun Karts. Further, the Company is the only manufacturer in the industry that has an automatic chain adjuster, a spring activated device that constantly puts tension on the chain. Because a chain typically lengthens as it heats up, this product reduces the chance of the chain disconnecting from the sprocket and causing injury to the operator. The Company was also one of the first Fun Karts manufacturers to introduce the powder paint process, which significantly reduces harmful emissions during the painting process. The Company believes it is currently the only major Fun Karts manufacturer using the automatic throttle override system. Additionally, the Company has its own custom designed tire treads manufactured to its specifications. Introduced in 1994, the Company's automatic clutch lubrication system releases grease as needed to the clutch bushing on Fun Karts, which reduces wear and extends the life of the clutch. This system was licensed by Mr. Charles Brister, a director of the Company, to Briggs & Stratton, prior to the Brister Acquisition, and is being installed on the Company's Fun Karts as well as certain of its competitors. MANUFACTURING OPERATIONS The Company, through its two wholly-owned subsidiaries, operates manufacturing facilities in Roseland, Louisiana and Prattville, Alabama. The Company's manufacturing facilities include a 48,000 square foot building in Roseland and a 20,000 square foot facility located in Prattville. The management of the Company's manufacturing facilities typically consists of a plant manager, a production manager, a material manager and a quality control manager. These mid-level managers control operations of the respective manufacturing facilities, with assistance and guidance from the Company's executive officers. The Roseland facility is leased from Mr. Charles Brister, a director of the Company, and the Company owns the Prattville facility which includes a two-acre tract of land. See "Facilities" and "Certain Relationships and Related Transactions." Management believes the Prattville facility could be expanded to a 40,000 square foot facility on the existing land. The Company has an option to acquire two acres adjacent to its Prattville facility for future expansion. The Prattville plant is located in a planned industrial park with adequate support utilities and freight services. Future expansion of the Roseland facility would be limited due to the unavailability of adjacent real estate. See "Facilities." Fun Kart production levels at the Company's manufacturing plants varies depending on the season. During the off-season between January and May, the Company generally runs a single ten-hour shift four days a week at its plants. In June, the work week expands to five days and peaks in November at six days. From -32- 34 June through December, daily output is approximately 125 to 150 Fun Karts. The Company believes that the maximum annual capacity of its manufacturing facilities for one shift is approximately 28,000 Fun Karts, which allows for approximately 50% growth in capacity before the addition of another shift. Management believes that another shift can be cost effectively added, with limited expansion of its current facilities, to meet projected increased customer demand for the Company's products. The Fun Karts manufacturing process is primarily one of welding and assembly at various work stations. The Company buys directly from mills both pre-cut and uncut tubular steel used in the manufacturing of the frames. Since the price differential between pre-cut and uncut tubular steel is relatively small, it is more cost-effective, particularly for pieces that are certain not to change, to purchase pre-cut tubular steel. The steel is cut and bent during the manufacturing process to the frame specifications for the Company's various Fun Kart models. Most of the other Fun Karts component parts, including engines, wheels, tires, seats, steering wheels, steering tie rods and miscellaneous parts, are purchased from various domestic vendors. The Company depends on Briggs & Stratton for its engines, and the loss of this vendor may cause the Company to experience a temporary delay in the production of the Company's Fun Karts. The Company believes other engine vendors and suppliers of other component parts necessary for the production of Fun Karts are readily available. QUALITY CONTROL, WARRANTIES AND SERVICE The Company adheres to strict quality standards and continuously refines its production procedures to increase productivity and reduce warranty costs. Each Fun Kart is inspected and numbered during assembly for compliance with certain quality control standards. The Company provides the purchaser of its Fun Karts with a 90-day limited warranty against certain manufacturing defects in the Fun Kart's construction. There are also direct warranties that are provided by the manufacturer of the engine and certain component parts. The Company's Fun Karts are usually serviced by the dealers. The Company has not historically incurred any significant warranty claims and has never had a recall of any of its products. PATENTS AND PROPRIETARY TECHNOLOGY The Company does not own any patents, trademarks or service marks. However, Charles Brister, a director of the Company, owns certain patents and trademarks which are licensed to the Company and which allows the Company to use certain brand names and utilize the automatic throttle override system on its Fun Karts. The Company's success is dependent upon, among other things, its continued ability to use these certain patented items and trademarks. There can be no assurance that any patents or trademarks which may be issued to the Company, or which the Company may license from third parties or Mr. Brister, will not be challenged, invalidated or circumvented, or that any rights granted thereunder would provide proprietary protection to the Company. The Company will continue to implement protective measures and intends to aggressively defend its proprietary rights. See "Certain Relationships and Related Transactions." SALES AND MARKETING SALES. The Company primarily relies on a broad and diversified national independent dealer network to sell its Fun Karts. The Company sells directly to approximately 700 dealers located in 40 states, with most dealers concentrated in the Southeast and Southwest regions of the United States. In 1996, the Company sold approximately 61% of its Fun Karts to approximately 250 dealers in Louisiana, Texas, Mississippi and Florida. The Company continues to expand its dealer network, with 82 dealers added in 1995 and 15 dealers added in 1996. The Company believes that its independent dealer network enables the Company to achieve broader distribution of its products than if the Company operated its own retail outlets. Selling through independent dealers also allows the Company to avoid the substantial investment in management and overhead associated with the operation of company-owned retail stores. In addition, the Company's strategy of selling its products through independent dealers helps to ensure that the Company's Fun Karts are competitive with those of other manufacturers in terms of consumer acceptability, product design, quality and price. Accordingly, a component of the Company's business strategy is to continually strengthen its dealer relations. The Company believes its relations with its independent dealers are good. -33- 35 While there are no formal dealer agreements, the Company, for the benefit of certain of its higher volume dealers, will agree not to sell to other dealers in a limited geographic area surrounding the location of a high volume dealer. To become a dealer, the Company generally requires a retailer to annually purchase six or more Fun Karts. Most dealers keep an inventory of three to five Fun Karts, which increases during the Christmas holiday season. Credit terms are 30 days with no discount. For eligible dealers, the Company offers a dealer floor plan financing program through an unaffiliated financial services company. The Company provides up to 90 days floor planning for dealers and pays 100% of the interest charged by the financial services company. In 1996, the Company emphasized both the retention of existing dealers through Company-sponsored seminars and the expansion of its dealer network. For the first time in the Company's history, in 1996, 70 Fun Karts were exported to a foreign market, the United Kingdom. Other foreign dealer prospects are being investigated by the Company in Canada, Brazil, Austria, Germany, Australia and Argentina. Typical domestic dealers include lawn and garden shops, hardware stores, motorcycle shops, automobile parts stores and specialty karts dealers. The Company believes the dealer distribution channel is underpenetrated. The Company estimates that less than 10% of the lawn and garden stores and less than 5% of the motorcycle dealers in the United States sell Fun Karts. Dealer sales are made through Company personnel under the supervision of Mr. Larry E. Schwall, the Company's Sales and Marketing Vice President. The Company does not currently engage independent manufacturers representatives; however, it is investigating the possibility of contracting with such representatives for the purpose of servicing underpenetrated regions of the United States as well as foreign markets. In 1995, substantially all of the Company's product sales were to independent dealers. See "Management." To broaden its distribution channels, the Company in 1996 began selling its Fun Karts to mass merchandisers, Wal-Mart and Sam's Club. Wal-Mart purchased approximately 1,500 Fun Karts, while Sam's Club purchased approximately 2,500 Fun Karts, collectively representing approximately 21% of the Company's 1996 unit sales. Sales to lawn and garden stores, motorcycle shops, karts specialty stores, automobile parts dealers, hardware stores and other dealers accounted for 36.3%, 13.9%, 7.4%, 6.5%, 6.3 and 7%, respectively, of the Company's 1996 unit sales. The Company estimates that sales of its products to independent dealers and mass merchandisers will be approximately 75% and 25%, respectively, in 1997. Although the Company believes that sales to mass merchandisers offers a significant growth opportunity, the Company will seek to obtain a reasonable balance between its dealer and mass merchandisers distribution networks and will attempt to avoid a high concentration of sales to any one or group of dealers or mass merchandisers. See "Risk Factors -- Dependence on Independent Dealers; Dependence on Major Customers." The Company has two main modes of delivery to its dealers. The Company delivers directly to Louisiana and Alabama dealers, using four pickup trucks with trailers that can carry 27 Fun Karts per truck. All Louisiana and Alabama delivery routes are designed to be completed during a single day. All other dealers and mass merchandisers receive their Fun Karts by common carrier, collected F.O.B. dealer. The typical turnaround from order date to shipment is one to two days in the off season, and three to seven days in peak season. Fun Karts are delivered completely assembled, except for the installation of the accompanying safety cages. MARKETING. The Company's historical marketing strategy has been to build a broad and diverse independent dealer base, primarily in the Southeast and Southwest regions of the United States, by offering safe, high-quality and reliable Fun Karts that are competitively priced and timely delivered. To improve its market share position, in 1996, the Company added 15 new dealers and the Wal-Mart and Sam's Club networks to its existing distribution channels. The Company's future marketing efforts are designed to maintain and expand its independent dealer network in the South and West regions of the United States and in foreign markets through direct communications with dealers and assisting them with their selling and marketing efforts with Company-sponsored seminars, discounts or rebate products and advertising, including product videos and brochures, leaflets, posters, signs and other miscellaneous promotion and items for use by dealers. The Company will also seek to increase sales to mass merchandisers with direct communication, engaging independent sales representatives and attendance by Company representatives at Fun Kart and industry related trade shows. The Company believes that attendance at trade shows will allow it to promote its products to a diversified group of dealers and mass merchandisers currently targeted by the Company. The Company also intends to implement -34- 36 a complete part and accessories sales program including such items as helmets, jackets, boots and shirts, which will be sold to its dealers and mass merchandisers. Parts and accessories may be ordered by toll-free telephone contact with the Company's representatives and overnight service is available if required. The Company's advertising and promotional materials emphasize the safety-related features built into the Company's Fun Karts. The Company has adopted this advertising strategy in order to promote the concept that it is fun and safe for children to own and operate Fun Karts. Additionally, the Company intends to increase its penetration of its target market by enhancing potential customers' awareness of its products by advertising in youth-oriented magazines, motorcycle, lawn and garden, hardware and outdoor power equipment trade magazines, establishment of a Company home page on the Internet, displaying and promoting the Company's products at NASCAR races and related events and traditional print, billboard and, to a lesser extent, television and radio media. The Company believes that if it is to further penetrate its target market, the Company must advertise in media easily accessible by this group and attractively and prominently display its Fun Karts in locations and at events frequented by young males and their parents. To enhance its marketing program, the Company, on January 21, 1997, entered into a one-year promotional agreement with NASCAR driver, Bobby Labonte. Under the terms of the agreement, Mr. Labonte will be the national spokesperson for the Company's products and will appear at various Company-sponsored and industry trade shows to promote the Company's Fun Karts. The Company will also have the right to display a Company decal on Mr. Labonte's #44 Busch Grand National racing car. Mr. Labonte will receive approximately $104,000 for his services during 1997 plus reimbursement of travel, food and lodging expenses. The Company has the option to renew the agreement for 1998 on similar terms. CUSTOMERS In 1996, approximately 79% of the Company's proforma sales were to its independent dealers and the Company projects that it will sell approximately 75% of its Fun Karts to independent dealers in 1997. No one dealer or group of affiliated dealers accounted for 10% or more of the Company's 1996 sales. In 1996, 12% and 9% of the Company's proforma sales were made to Sam's Club and Wal-Mart, respectively. The Company believes that Sam's Club and Wal-Mart will account for approximately 12% and 13%, respectively, of the Company's 1997 revenues. The loss of either the Wal-Mart or Sam's Club accounts would have a material adverse effect on the financial condition and results of operations of the Company. BACKLOG The Company typically fills and ships customer orders within 3 to 7 days of receipt of the order and, therefore, maintains no significant backlog. FACILITIES The following table sets forth information concerning the Company's facilities:
Date Leased Expiration of Approximate Location or Acquired Description Lease Term Square Footage --------------------------- ------------- --------------------------- -------------- ---------------- Covington, Louisiana 1996 Corporate Offices(1) 2001 3,400 Roseland Louisiana 1996 Manufacturing facility(2) 1998 48,000 Prattville, Alabama 1996 Manufacturing facility (3) 20,000
______________________________ (1) The monthly lease payment is $4,058 with adjustments for Consumer Price Index. (2) The Company and Charles Brister, a director of the Company, have entered into a Real Estate Option Right of First Refusal Agreement. This agreement provides that the Company may, at its sole option, purchase the Roseland facility for an aggregate purchase price of $550,000. The option can be exercised after December 31, 1997 and expires on December 31, 2000. On March 15, 1996, the Company and Mr. Brister entered into a lease agreement for this facility which provides for a two-year primary term with a two-year renewal option. The monthly lease payment is $6,025 with adjustments for increases in the Consumer Price Index. The Company believes these terms are comparable to existing market rates in the region. Approximately 45,000 square feet is -35- 37 used for manufacturing and 3,000 square feet is used for office space at the Roseland facility. See "Certain Relationships and Related Transactions." (3) The Prattville facility is situated on a two-acre tract of land owned by the Company. This property is subject to a mortgage held by a financial institution with a principal balance of approximately $235,000 at December 31, 1996 with interest at the financial institution's commercial base rate (9.75% at December 31, 1996). The Company is obligated to make monthly payments of principal and interest of $2,626 until 2010. The Prattville facility could be expanded to 40,000 square feet on the existing land. The Company has an option to acquire two acres adjacent to its existing facilities for future expansion. The Prattville facility is located in a planned industrial park with adequate support utilities and freight services. GOVERNMENTAL REGULATIONS Consumer protection laws exist in many states in which the Company markets its products. Any violation of such laws or regulations could have a material adverse effect on the Company. The Company's manufacturing facilities are inspected by the Occupational Safety and Health Administration. The Company believes that it is generally in compliance in all material respects with all currently applicable federal and state laws and regulations. Federal, state and local environmental regulations are not expected to have a material effect on the Company's operations. However, if the Company in the future acquires an entity which is in violation of consumer or environmental laws and regulations, such violations may have a material adverse effect on the Company's operations. Management believes certain states, including California, have proposed legislation involving emission or other safety standards for the type of gas-powered type engines installed on the Company's Fun Karts. The Company is currently unable to predict whether such legislation will be enacted in the future and, if so, the ultimate impact on the Company and its operations. EMPLOYEES The Company employs approximately 96 employees of which 56 are employed on a full-time basis. Eight employees are administration and sales personnel, four are plant management and supervisory personnel and 84 hourly employees are involved in manufacturing and shipping. In spite of the seasonal nature of sales, the Company attempts to keep all personnel employed year-round and increases the hours per work week to meet seasonal demand. Cost of manufacturing labor for the Company is between $5.00 and $9.00 per hour, which is comparable to labor costs in its respective markets. The Company's employees are not represented by a union or subject to a collectively bargaining agreement. The Company has never experienced a strike or work stoppage and considers its relations with its employees to be excellent. COMPETITION The Fun Karts industry is highly competitive, and there is no assurance that the Company will be able to continue to compete profitably in this industry in the future. The Company expects that it will continue to face intense competition as its business and acquisition strategies are implemented. Such competition may result in reduced sales, reduced margins, or both. The Company is and will be competing with larger, better capitalized companies which may be better positioned to respond to shifts in consumer demand and other market related changes. If other companies introduce new and modified products before the Company achieves significant market expansion, the Company may experience growth below projected levels which could have a material adverse effect on the Company's operating results. However, the Company believes that it will be able to compete effectively with its competitors by diversifying its product line and expanding its market share through implementation of its business and acquisition strategies. The Company has identified three major competitors in the Fun Karts industry, Manco Productions, a Fort Wayne, Indiana-based company, Carter Brothers Manufacturing, a Brundidge, Alabama-based company, and Ken-Bar Manufacturing, a Cornelia, Georgia-based company. Management estimates that the Company and its three primary competitors accounted for over 60% of the Fun Karts sold in the United States in 1996. -36- 38 PRODUCT LIABILITY AND INSURANCE LIMITS The nature of the products manufactured and marketed by the Company is such that the products may fail due to material inadequacies or equipment failures. Such a failure may subject the Company to the risk of product liability claims and litigation arising from injuries allegedly caused by the improper functioning or design of its products. As the Company expands its product lines and distributes more products into the marketplace, the Company's exposure to such potential liability will also increase. The Company currently maintains $5 million occurrence basis product liability insurance (with coverage being provided in respect of accidents which occurred during the policy year, regardless of when the related claim is made) with a $50,000 self-insured retention and $5 million maximum per occurrence coverage. The Company has four pending product liability claims. None of the current claims are expected to exceed the existing policy limits. The Company has never had a claim that resulted in an award or settlement in excess of insurance coverage. At December 31, 1996, the Company had accrued $100,000 for the defense and possible payment of pending claims. The Company believes that if it is successful in the sale and distribution of a large number and variety of Fun Karts and related products, product liability claims will be inevitable, particularly given the current litigious nature of American consumers. There is no assurance that such insurance coverage will be sufficient to fully protect the business and assets of the Company from all claims, nor can any assurances be given that the Company will be able to maintain the existing coverage or obtain additional coverage at commercially reasonable rates. To the extent product liability losses are beyond the limits or scope of the Company's insurance coverage, the Company could experience a material adverse effect upon its business, operations, profitability and assets. LEGAL PROCEEDINGS In addition to product liability claims, the Company, from time to time, is involved in lawsuits in the ordinary course of business. Such lawsuits have not resulted in any material losses to date, and, except as discussed below, the Company does not believe that the outcome of any existing lawsuits would have a material adverse effect on its business. On February 4, 1997 a lawsuit was filed in a Mississippi state court against the Company, Brister's and an unaffiliated insurance broker by the Company's insurance underwriter to have insurance coverage declared as null and void for an alleged material misrepresentation on the insurance application. This action arose as a result of the payment in 1997 by the insurance underwriter of $700,000 in settlement of a product liability lawsuit against the Company and other defendants. The Company intends to file a counterclaim against the Company's insurance broker relating to possible misrepresentations made by the insurance broker to the insurance underwriter regarding Brister's prior product liability claims history. The Company intends to vigorously defend this lawsuit. The Company is currently engaged in discovery and is unable to predict the outcome of this litigation. If the Plaintiff is successful in this litigation and is awarded a judgement for damages against the Company and Brister's, such judgment could have a material adverse effect on the Company's business, financial condition and results of operations. Under the terms of the Brister's Acquisition, the Company may offset certain product liability claims against certain shares of the Common Stock of the Company issued to Mr. Charles Brister, a director and principal stockholder of the Company, as partial consideration for the Brister's Acquisition. See "The Company -- Acquisitions; Brister's Acquisition," "Management," "Certain Relationships and Related Transactions" and "Principal Stockholders." -37- 39 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning the directors and executive officers of the Company:
Name Age Position ---- --- -------- V. Lynn Graybill(1)(2) 52 Chairman of the Board, President and Chief Executive Officer John V. Callegari, Jr. 44 Vice President, Administration and Chief Financial Officer Larry E. Schwall 36 Vice President, Sales and Marketing Timothy P. Halter(1) 30 Vice President, Secretary and Director Charles Brister(1) 45 Director Joseph R. Mannes(2) 38 Director Ronald C. Morgan 48 Director Robert W. Bell(2) 57 Director Gary C. Evans 38 Director
______________________________ (1) Members of the Company's Compensation Committee. (2) Members of the Company's Audit Committee. The Company may employ such additional management personnel as the Board of Directors of the Company deems necessary. The Company has not identified nor reached an agreement or understanding with any other individuals to serve in such management positions, but does not anticipate any difficulty in employing qualified individuals. Directors of the Company are elected by the stockholders at each annual meeting and serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. Officers are elected to serve, subject to the discretion of the Board of Directors, until their successors are appointed or their earlier resignation or removal from office. Information regarding the directors and management of the Company is set forth below. V. Lynn Graybill is the Chairman of the Board, President and Chief Executive Officer of the Company and has served in those capacities since March 1996. From September 1993 to March 1996, Mr. Graybill served as President of Capacity of Texas, Inc., a specialty vehicle engineering and manufacturing subsidiary of Collins Industries (Nasdaq: COLL), which sold products through an international dealer organization. From 1988 to 1993, Mr. Graybill was President and Chief Executive Officer of Peerless Chain Company, a 200 employee $30 million sales consumer hardware company selling to hardware stores, farm implement and supply stores, automotive parts stores, large mass merchandisers and home centers in the United States. From 1985 to 1988, Mr. Graybill was Division President of Harlan Tractor Corporation, a 90 employee $10 million sales manufacturer of specialty vehicles, including ground support vehicles for the airline industry. From 1980 to 1985, Mr. Graybill was Vice President of Leland Truck Equipment Company, a 300 employee $30 million sales manufacturer and retail distributor of truck parts and equipment. From 1972 to 1980, Mr. Graybill worked in various supervisory, engineering, accounting, safety, union contract administration and production control positions at Harnischfeger Corporation, a Fortune 500 manufacturer of hydraulic truck and ground cranes. Mr. Graybill received a B.S. degree in Industrial Management from Central Missouri State University. John V. Callegari, Jr., is the Vice President, Administration and Chief Financial Officer of the Company and has served in these capacities since November 1996. Mr. Callegari is responsible for all -38- 40 accounting matters, Exchange Act reporting, cash management, risk management, audit and taxes, human resources and information systems for the Company. Prior to joining the Company, Mr. Callegari served as Chief Financial Officer of Con Pac, Inc. from May 1994 to May 1996. Con Pac, Inc. is a manufacturer of folding cartons, and while with Con Pac, Inc., Mr. Callegari had responsibilities similar to those which he has with the Company. From January 1992 to May 1994, Mr. Callegari served as Executive Vice President and Chief Financial Officer of Sunport Medical Corporation, a medical diagnostic imaging and rehabilitation company with 12 clinics in the State of Texas, and was responsible for accounting matters, Exchange Act reporting, investor relations and risk management. From March 1982 to December 1991, Mr. Callegari served as Director of Finance of Stewart Enterprises, a multi-divisional holding company with worldwide interests in real estate, construction and insurance companies, and was responsible for all accounting matters, including corporate acquisition accounting. Mr. Callegari is a Certified Public Accountant and received his B.S. degree in Accounting from Louisiana State University. Larry E. Schwall is the Vice President, Sales and Marketing of the Company and has served in this capacity since January 1997. Mr. Schwall's responsibilities include overseeing the development of the Company's sales and marketing strategies, market forecasting, and the development and presentation of product knowledge seminars for the Company's dealers and mass merchandisers. From December 1995 to January 1997, Mr. Schwall served as Territory Manager -- Commercial Lawn and Garden Dealers for Homelite, Inc., a subsidiary of Deere & Co. Homelite, Inc. is a manufacturer of hand-held products. While with Homelite, Inc., Mr. Schwall was responsible for producing training seminars for the company's customers. From August 1987 to December 1995, Mr. Schwall was OEM Engine Sales Manager for Delta Power, Inc. and was responsible for the sale and marketing of engines to existing customers and prospective accounts throughout the southern region of the United States. Mr. Schwall also served with the industrial division of Briggs & Stratton as communications liaison for Delta Power, Inc. Timothy P. Halter has been Vice President, Secretary and a director of the Company since February 1996. Since May 1995, Mr. Halter has served as President of Halter Financial Group, Inc., a Dallas, Texas based financial consulting firm. From 1991 to 1995, Mr. Halter was President of Halter Capital Corporation, a diversified holding company. Mr. Halter also serves on the Board of Directors of Duncanville National Bank, located in Duncanville, Texas. Charles Brister is a director of the Company and has served in this capacity since March 1996. He served as President and Chief Executive Officer of Brister's from 1986 to April 1996. Joseph R. Mannes has been a director of the Company since July 1996, and since February 1996 has been the Chief Financial Officer, Secretary and Treasurer of Interactive Creations Incorporated ("ICI"), a corporation offering real- time internet gaming services. From 1987 until joining ICI, Mr. Mannes was First Vice President in the Corporate Finance Department of Rauscher Pierce Refsnes, Inc., a Dallas, Texas stock brokerage company. From 1982 to 1987, Mr. Mannes was in the commercial lending division of the First National Bank of Boston, where he attained the position of Assistant Vice President. Mr. Mannes worked in both the Special Industry Group and the High Technology Group at First National Bank of Boston. Mr. Mannes graduated with an MBA in Accounting and Finance from the Wharton School, Graduate Division, of the University of Pennsylvania in 1982 and an A.B. from Dartmouth College in 1980. Mr. Mannes is a Chartered Financial Analyst. Ronald C. Morgan has been a director of the Company since July 1996. Since June 1980, Mr. Morgan has served as Chief Operating Officer, Executive Vice President and Director of The Leather Factory, Inc., an AMEX listed company ("TLF"). Mr. Morgan was a co-founder of TLF. Mr. Morgan was employed by the Tandy Leather Company for ten years prior to 1980, eventually attaining the position of Vice-President -- Eastern Division. Mr. Morgan received a B.S. degree from West Texas State University. Robert W. Bell has been a director of the Company since July 1996. He served as Chairman, President and Chief Executive Officer of NewCare Health Corporation from 1987 to January 1997, when he retired. NewCare Health Corporation is a Nasdaq SmallCap Market-listed nursing home company. From 1981 to 1987, Mr. Bell was President of R.W.B. Realty, a Louisiana corporation that sponsored public and private limited partnerships that owned, built and operated nursing homes and medical office buildings. From 1964 to 1981, -39- 41 Mr. Bell was President and Chairman of Bell Realty and Land Company, a residential land development and home construction business in Mississippi. Gary C. Evans has been a director of the Company since July 1996. Mr. Evans has served as President, Chief Executive Officer and a director of Magnum Petroleum Inc. ("Magnum"), an American Stock Exchange oil and gas exploration and development company, since December 1995. Mr. Evans previously served as Chairman, President and Chief Executive Officer of Hunter Resources, Inc. ("Hunter") from September 1992 until its merger with Magnum. From December 1990 to September 1992, he served as President and Chief Operating Officer of Hunter. From 1985 to 1990, he was the founder and President of Sunbelt Energy, Inc. From 1981 to 1985, Mr. Evans was associated with the Mercantile Bank of Canada where he held various positions including Vice President and Manager of the Energy Division of the southwestern United States. From 1978 to 1981, he served in various capacities with National Bank of Commerce (now Banc Texas) including Credit Manager and Credit Officer. Mr. Evans serves on the Board of Directors of Digital Communications Technology Corporation, an American Stock Exchange listed company. There are no family relationships among any of the Company's officers and directors. EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities for the Company to its Chief Executive Officer. No other executive officer of the Company received remuneration in excess of $100,000 during the referenced periods. All other compensation related tables required to be reported have been omitted as there has been no applicable compensation awarded to, earned by or paid to any of the Company's executive officers in any fiscal year to be covered by such tables. SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation --------------------------- ----------------------------- Awards ----------------------------- Securities Other Annual Restricted Underlying Name/Title Year Salary/Bonus Compensation Stock Awards Options/SARs ---------- ---- ------------ ------------ ------------ ------------ V. Lynn Graybill, Chairman of the 1996 $ 121,731 $15,000(1) -0- -0- Board, Chief Executive Officer and President
______________________________ (1) Represents a signing bonus equal to 10% of Mr. Graybill's base salary, which was paid by issuing Mr. Graybill 140,000 restricted shares of Common Stock of the Company. See "-- Employment Agreements." EMPLOYMENT AGREEMENTS On March 15, 1996, the Company entered into an Employment Agreement (the "Employment Agreement") with V. Lynn Graybill, whereby Mr. Graybill agreed to serve as Chairman of the Board, President and Chief Executive Officer of the Company. The Employment Agreement is for a term of three years and provides Mr. Graybill with an annual base salary of $150,000. Upon execution of the Employment Agreement, Mr. Graybill received a signing bonus of $15,000 (the "Bonus"). The Bonus was paid with the issuance by the Company to Mr. Graybill of 140,000 shares of Common Stock (the "Graybill Shares"), subject to a buy-back option of the Company. The Company may buy back all of the Graybill Shares for an aggregate purchase price of $16,800, or $0.12 per share, if Mr. Graybill is either terminated for cause or Mr. Graybill terminates his employment voluntarily prior to March 15, 1997. In year two of the Employment Agreement, the Company may buy back up to 70,000 Graybill Shares for $8,400 or $0.12 per share and in year three up to 35,000 Graybill Shares for $4,200 or $0.12 per share. If the Employment Agreement is terminated for any reason other than for cause or voluntarily by Mr. Graybill, the buy back option available to the Company is terminated. Mr. Graybill may also receive performance based incentive stock options to purchase shares of Common Stock at a price equal to the market value of the Common Stock on the date of issuance, as determined by the Board of Directors. Mr. Graybill receives benefits commensurate with his title including medical insurance and other -40- 42 benefits offered to executive management of the Company. Mr. Graybill is responsible for the day-to-day operations of the Company and for the preparation of the Company's annual budget, monthly operating financial statements, quarterly presentations addressing qualitative and quantitative issues of the operations of the Company, and any and all other matters requested by the Board of Directors. To provide for continuity of management, the Company may enter into employment agreements with other members of its executive management staff. STOCK OPTIONS The Company has yet to adopt a formal stock compensation plan for its management and key employees. The Company intends to adopt a stock compensation plan as it believes that such a plan is necessary to retain current management and employ additional qualified personnel. A stock option plan which is adopted by the Company will have terms that are normally accepted in the industry and for public entities. The Board of Directors of the Company has, however, reserved for issuance up to 133,333 shares of Common Stock for options to be granted to employees of the Company at the discretion of the Compensation Committee of the Board of Directors. The Company has issued to its employees options to purchase an aggregate of 59,355 shares of Common Stock at an exercise price of $5.63 per share which are exercisable one year after the date of grant and expire at various times during 2001. COMPENSATION OF DIRECTORS Each Director of the Company is entitled to receive annual compensation of $6,000 for attendance of meetings of the Board of Directors of the Company and for serving on any committees of the Board of Directors of the Company. The Company will reimburse directors for out-of-pocket expenses of attending meetings. COMMITTEES The Board of Directors of the Company has established a Compensation Committee and Audit Committee. The Compensation Committee makes recommendations to the Board of Directors regarding the compensation of executive officers and administers the Company's employee benefit plans, if any. The Audit Committee is comprised of a majority of independent directors and its functions are to recommend to the Board of Directors the engagement of the Company's independent public accountants, review with such accountants the plans for and the results and scope of their auditing engagement and certain other matters relating to their services as provided to the Company. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS From December 1989 until early 1996, the Company had no significant assets, liabilities or business operations. On December 15, 1995, a former director of the Company and HFG, a financial consulting firm owned by Timothy P. Halter, an officer and director of the Company, together acquired 46,834 shares of the Company's Common Stock from the then majority stockholder of the Company. Subsequently, on February 20, 1996, the Company sold 50,000 restricted shares of its Common Stock to a former director of the Company for $938 cash. On March 7, 1996, the Company sold 967,545 restricted shares of Common Stock to HFG for $1,451 cash. See "Management," and "Principal Stockholders." In January 1996, concurrent with the execution of the Brister's stock purchase agreement, the Company entered into a consulting agreement with HFG whereby HFG would pay all necessary legal and other related professional services fees, exclusive of accounting and auditing services, related to the reorganization, recapitalization and consummation of the Brister's Acquisition for a fee of $15,000. The fee was payable in shares of Common Stock or $10,000 cash and shares of Common Stock as determined in accordance with the terms of the consulting agreement and the Brister's stock purchase agreement. The payment of the consulting fee was contingent upon the successful consummation of the Brister's Acquisition. The consulting fee was paid by the Company upon the closing of the Brister's Acquisition through the issuance of 484,333 restricted shares of the Company's Common Stock to HFG. -41- 43 The Company in March 1996 entered into a second consulting agreement with HFG which provided for an annual payment of $10,000 to HFG for assisting the Company with its financial public relations and stockholder communications. The HFG consulting agreement expired in March 1997 and has been renewed for an additional one-year period on similar terms. Timothy P. Halter, the President and sole owner of HFG, is a principal stockholder of the Company and the Vice President, Secretary and a director of the Company. See "Management" and "Principal Stockholders." In connection with the Brister's Acquisition, the Company issued to Charles Brister, a director and principal stockholder of the Company, 516,667 shares of Common Stock with a value of $3.1 million or approximately $6.00 per share as determined by the terms of the related purchase agreement. The Company also issued Mr. Brister a subordinated note in the principal amount of $1,000,000 payable over a seven-year period (the "Subordinated Note"), a $200,000 note with 10% interest, with interest and principal payable quarterly beginning April 1, 1997 and with a maturity date of April 1, 1998 or upon successful completion of an underwritten public offering of the Company's securities (collectively, the "Brister Notes"). Interest on the Subordinated Note accrues at the rate of 8% per annum in year one and increases 1% per year thereafter to a maximum of 14% per annum in year seven. Payments due under the Subordinated Note are to be made in quarterly installments with interest only being due and payable for the first three years of the Subordinated Note. The principal amount of the Subordinated Note is payable in installments of $250,000 per year commencing in year four and ending in year seven. The Subordinated Note is subordinated to the prior payment of the principal of and interest on all other indebtedness of the Company then outstanding, whether secured or unsecured. The Subordinated Note is secured with securities having a market value of approximately $1.0 million owned by Robert W. Bell and Gary C. Evans, directors of the Company. The Brister Notes, approximately $1.2 million, will be paid to Mr. Brister with a portion of the proceeds of this Offering. See "The Company -- Acquisitions; Brister's Acquisition," "Use of Proceeds," "Management" "Principal Stockholders." Mr. Brister has deposited 83,334 shares of the Company's Common Stock owned by him (the "Offset Shares") into an escrow account to offset any amounts that may be owing at any time by Mr. Brister or Brister's to the Company as a result of (i) a claim of products liability for Fun Karts manufactured prior to the close of the Brister's Acquisition which results in either a settlement or award of damages in excess of stated insurance policy limits or (ii) any failure or breach of any representation, warranty, agreement or covenant of Brister's or Mr. Brister under the terms of the stock purchase agreement between the Company and Mr. Brister. If HFG or the Company determines that an offset is appropriate, notice will be given to Mr. Brister at least 10 days prior to the disposition of the Offset Shares. If conditions upon which the offset are based are cured by Mr. Brister during that period, no offset will be undertaken. However, upon an event of offset, both HFG and the Company have sole discretion to sell or otherwise dispose of the number of Offset Shares necessary to satisfy any outstanding liability or obligation imposed upon either HFG or the Company. All remaining Offset Shares, upon the expiration of the two-year offset period, will be returned to Mr. Brister. See "Business -- Legal Proceedings." Concurrent with the Brister's Acquisition, the Company and Mr. Brister entered into a Real Estate Option Right of First Refusal Agreement. Under the terms of this agreement, the Company may, at its sole option, purchase the real property and improvements upon which the Facilities are located for an aggregate purchase price of $550,000. The option can be exercised commencing on December 31, 1997 and expires on December 31, 2000. The Company and Mr. Brister have also entered into a lease agreement for the Facilities which provides for a two-year primary term with a two-year renewal option. The monthly lease payment for the Facilities is $6,025 which adjustments for increases in the Consumer Price Index. The Company believes these terms are comparable to existing market rates in the region. See "Business -- Facilities." The Company, in March 1996, entered into a license agreement with Charles Brister under which Mr. Brister has licensed to the Company for a period of five years (at no cost to the Company during the first year) all of the Intellectual Property (as hereinafter defined), which was owned by Mr. Brister on the Brister acquisition date, and all Intellectual Property developed and/or owned by Mr. Brister at any time subsequent to March 15, 1996. After the first year of the license agreement, the Company and Mr. Brister will enter into subsequent agreements defining the license fee and royalty payments based on terms at least as favorable as Mr. Brister has received, or could have received, in arms'-length transactions with third parties. "Intellectual Property" is defined as all domestic and foreign letters, patents, patent applications, patent licenses, software -42- 44 licenses and know-how licenses, trade names, trademarks, copyrights, unpatented inventions, service marks, trademark registrations and applications, service mark registration and applications and copyright registration and applications owned or used by Brister's in the operation of its business. On March 15, 1997, the Company and Mr. Brister entered in an addendum to the License Agreement and a related Royalty Agreement which provides for the payment of a one-time license fee and future royalties, respectively, by the Company to Mr. Brister for the use by the Company for a three-year period of the automatic throttle override system ("ATOS") developed and patented by Mr. Brister. The Company paid Mr. Brister an initial $10,000 license fee and agreed during the first year of the three year extension to pay him a royalty of $1.00 for each Company Fun Kart on which the ATOS was installed. During the second and third year of the agreement, the Company agreed to pay during each year a royalty of $1.00 for each Company Fun Kart on which the ATOS was installed or $20,000 whichever is greater. Pursuant to the terms of the Brister's Acquisition, the Company entered into a consulting agreement with Charles Brister which expired on December 31, 1996. Under the consulting agreement, Mr. Brister provided certain consulting services to the Company and its subsidiaries. In consideration for these services, Mr. Brister received $400 per day for consulting services provided at the Company's principal place of business and $800 per day for consulting services provided while traveling in connection with Company business. During 1996, Mr. Brister received $10,070 from the Company for consulting fees. The Company intends to employ Mr. Brister on a project by project basis during 1997 under similar terms as the 1996 consulting agreement to develop innovative safety and technological features for the Company's Fun Karts and to assist management with the development and design of new products. Concurrent with the Brister's Acquisition, Mr. Brister and the Company entered into a Non-Competition Agreement whereby, for a period of five years after the Brister's Acquisition, Mr. Brister agreed not to compete with the Company and its subsidiaries. To finance the Brister's Acquisition, the Company issued a promissory note in the principal amount of $2,000,000 (the "Schlinger "Note") payable to The Schlinger Foundation, a California non-profit public benefit corporation (the "Foundation"). The Schlinger Note bears interest at the rate of 14% per annum and is due and payable on or before March 15, 2001. Interest on the Note is payable monthly with the principal to be paid in annual installments of $399,996 in 1998, $399,996 in 1999 and $1,200,008 and 2000. The Schlinger Note is secured by a first lien and security interest in all of the Company's equipment, accounts receivable and inventory. As further consideration for the $2,000,000 loan, the Company paid the Foundation $21,000, consisting of $10,500 cash and issued the Foundation 70,000 restricted shares of Common Stock. In July 1996, the Foundation purchased an additional 200,000 shares of Common Stock from HFG for $600,000 or $3.00 per share. Evert I. Schlinger, the trustee of the Foundation, also owns 219,048 shares of the Company's Common Stock which he purchased in April 1996 from HFG for $115,000 or $0.52 per share. On March 15, 1996, two trusts of which Mr. Schlinger is the trustee purchased 49,445 shares of Common Stock from the Company for $111,250 or $2.25 per share. Timothy P. Halter, an officer, director and principal stockholder of the Company, is the President and sole owner of HFG. The Company intends to pay the Schlinger Note with a portion of the proceeds of this Offering. See "The Company -- Recent Financings," "Use of Proceeds," "Management" and "Principal Stockholders." Mr. Jerry M. Allen, a Vice President and former shareholder of USA, a subsidiary of the Company, received $62,500 cash and 41,667 shares of the Company's Common Stock as a result of the USA Acquisition. See "The Company -- Acquisitions; USA Acquisition." On November 15, 1996, Mr. Gary C. Evans, a director of the Company, purchased a Unit from the Company for $25,000 in connection with the Company's Bridge Financing. See "The Company -- Recent Financings." "Management," "Principal Stockholders," "Description of Securities -- Bridge Financing" and "Shares Eligible for Future Sale -- Lock- up Agreements." The Company believes that all the foregoing related-party transactions were on terms no less favorable to the Company than could reasonably be obtained from unaffiliated third parties. All future transactions with affiliates will be approved by a majority of disinterested directors of the Company and on terms no less favorable to the Company than those that are generally available from unaffiliated third parties. -43- 45 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the ownership of the Company's shares of Common Stock as of March 26, 1997 by each of its directors, executive officers and persons known by the Company to beneficially own 5% or more of the outstanding shares of the Common Stock and all executive officers and directors as a group.
Shares Beneficially Percentage of Shares Percentage of Shares Owned Prior to and Beneficially Owned Beneficially Owned Name(1) After the Offering Prior to the Offering After the Offering(2) ---- ------------------ --------------------- --------------------- V. Lynn Graybill(3) . . . . . . . . . . . . . . . 140,000 5.2 3.3 John V. Callegari(4) . . . . . . . . . . . . . . 667 * * Larry E. Schwall(5) . . . . . . . . . . . . . . . -0- -0- -0- Charles Brister(6) . . . . . . . . . . . . . . . 516,667 19.0 12.2 Joseph R. Mannes(7) . . . . . . . . . . . . . . . 63,734 2.3 1.5 Ronald C. Morgan(7) . . . . . . . . . . . . . . . 3,334 * * Robert W. Bell(7) . . . . . . . . . . . . . . . . 14,445 * * Gary C. Evans(8) . . . . . . . . . . . . . . . . 38,613 1.4 * Timothy P. Halter(9) . . . . . . . . . . . . . . 495,253 18.2 11.7 Halter Financial Group, Inc.(9) . . . . . . . . . 495,253 18.2 11.7 Schlinger Foundation(10) . . . . . . . . . . . . 489,048 18.0 11.6 Evert I. Schlinger(11) . . . . . . . . . . . . . 538,493 19.8 12.7 Blair L. Smith(12) . . . . . . . . . . . . . . . 179,134 6.6 4.2 Officers and directors as a group (9 persons) . . 1,272,713 46.4 30.0 --------- ------ ------ Total . . . . . . . . . . . . . . . . . 1,990,340 72.6% 46.9% ===== ====
________________________________ *Less than 1%. (1) Unless otherwise indicated, each person named in the table has sole voting and investment power with respect to the shares beneficially owned. Also, unless otherwise indicated, the address of each beneficial owner identified below is: c/o Karts International Incorporated, 109 Northpark Boulevard, Suite 210, Covington, Louisiana 70433. (2) Includes the issuance of 104,175 shares of Common Stock issuable upon the conversion of the Convertible Preferred Stock. (3) Mr. Graybill is a director and the Chairman of the Board, President and Chief Executive Officer of the Company. See "Management -- Employment Agreement." (4) Mr. Callegari is Vice President, Administration and Chief Financial Officer of the Company. See "Management." (5) Mr. Schwall is Vice President, Sales and Marketing of the Company. See "Management." (6) Mr. Brister is a director of the Company. See "The Company -- Acquisitions; Brister's Acquisition," "Management" and "Certain Relationships and Related Transactions." (7) Messrs. Mannes, Morgan and Bell are directors of the Company. See "Management." (8) Mr. Evans is a director of the Company. Includes 4,167 shares of Common Stock issuable upon conversion of one share of Convertible Preferred Stock owned by Mr. Evans. Includes 6,667 shares of Common Stock and 13,334 shares of Common Stock underlying Mr. Evans 1996 Warrants issued in connection with the Bridge Financing and conversion of the Convertible Preferred Stock. See "Management," "Certain Relationships and Related Transactions," "Description of Securities -- 1996 Warrants and -- Bridge Financing" and "Shares Eligible for Future Sale -- Lock-up Agreements." (9) Mr. Halter, the Vice President, Secretary and director of the Company, is the sole stockholder, director and president of HFG and is therefore deemed to have beneficial ownership of the shares of Common Stock held by HFG. HFG may be deemed a promoter of the Company. HFG and Mr. Halter's address is 4851 LBJ Freeway, Suite 201, Dallas, Texas 75244. See "The Company -- Historical," "Management" and "Certain Relationships and Related Transactions." (10) The Schlinger Foundation ("Foundation") beneficially owns 270,000 shares of the Company's Common Stock. See "The Company -- Recent Financings" and "Certain Relationships and Related Transactions." Mr. Schlinger is the sole trustee of the Foundation and has sole voting and dispositive power over the shares held by the Foundation. However, Mr. Schlinger does not assert any ownership interest in any of the shares of Common Stock of the Company owned by the Foundation. Mr. Schlinger owns 219,048 of the shares of Common Stock of the Company for his own account. See "Certain Relationships and Related Transactions." (11) Includes 270,000 shares of Common Stock owned by the Foundation, 219,048 shares of Common Stock owned by Mr. Schlinger for his own account, 37,778 shares of Common Stock held by the Brian Schlinger Trust and 11,667 shares of Common Stock held by the Evert I. Schlinger Jr. Trust. Mr. Schlinger is the sole trustee of the Brian Schlinger and Evert I. Schlinger Trusts and has sole voting and dispositive power over the shares held by these trusts. However, Mr. Schlinger does not claim any ownership interest in any of the shares of Common Stock owned by either the Brian Schlinger Trust or the Evert I. Schlinger, Jr. Trust. (12) Mr. Smith's address is 4900 Ridgeview, Parker, Texas 75002. -44- 46 DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of 10,000,000 shares of preferred stock, $0.001 par value, and 14,000,000 shares of Common Stock, $0.001 par value per share. Upon completion of this Offering, there will be approximately 4,221,828 million shares of Common Stock issued, which includes the 104,175 shares of Common Stock issuable upon conversion of the Convertible Preferred Stock. Except for the 25 shares of Convertible Preferred Stock previously issued, there are no other outstanding shares of preferred stock. The following description of certain matters relating to the Common Stock, Preferred Stock, Convertible Preferred Stock, Redeemable Common Stock Purchase Warrants, 1996 Warrants and Class A Warrants is a summary and is qualified in its entirety by the provisions of the Company's Articles of Incorporation and Bylaws. COMMON STOCK The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders of the Company. In addition, such holders are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor, subject to the payment of preferential dividends with respect to any preferred stock that from time to time may be outstanding. In the event of the dissolution, liquidation or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities of the Company and subject to the prior distribution rights of the holders of any preferred stock that may be outstanding at that time. The holders of Common Stock do not have cumulative voting rights or preemptive or other rights to acquire or subscribe for additional, unissued or treasury shares. Accordingly, the holders of more than 50% of the issued and outstanding Common Stock voting for the election of directors can elect all of the directors if they choose to do so, and in such event, the holders of the remaining shares of Common Stock voting for the election of the directors will be unable to elect any person or persons to the Board of Directors. All outstanding shares of Common Stock are, and when issued, the shares of Common Stock offered hereby, will be fully paid and nonassessable. PREFERRED STOCK The Board of Directors has the authority to issue 10,000,000 shares of preferred stock, $0.001 par value per share, in one or more series, and to fix the rights, preferences, qualifications, privileges, limitations or restrictions of each such series without any further vote or action by the stockholders, including the dividend rights, dividend rate, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences, and the number of shares constituting any series or the designations of such series. Except for the Convertible Preferred Stock, no shares of preferred stock have been issued. CONVERTIBLE PREFERRED STOCK The Convertible Preferred Stock constitutes a single series of preferred stock. The Company may in the future issue additional series of preferred stock but may not reissue any initially issued shares of Convertible Preferred Stock that have been redeemed or converted into Common Stock unless such shares are included in a different series of preferred stock. The following is a summary of the terms and provisions of the Convertible Preferred Stock: DIVIDENDS. Holders of shares of the Convertible Preferred Stock are not entitled to receive cash dividends or cash equivalent value stock dividends of Common Stock. CONVERSION RIGHTS. Upon the occurrence of certain events, including, the closing of this Offering, the Company has the option to require the holders of the Convertible Preferred Stock to convert the Convertible Preferred Stock into either (a) $25,000 and 4,167 shares of Common Stock ("Option One"), or (b) 8,334 shares -45- 47 of Common Stock ("Option Two"). If for any reason the Company does not complete a public offering of the securities by November 15, 1997, each share of Convertible Preferred Stock will be automatically converted into 8,334 shares of Common Stock. See "The Company -- Recent Financings," "Use of Proceeds," "-- Bridge Financing" and "Shares Eligible for Future Sale -- Lock-up Agreements." Holders of Convertible Preferred Stock converted into Common Stock will be entitled to the same rights applicable at the time of conversion to other holders of Common Stock. The holders of the shares of the Convertible Preferred Stock have no preemptive rights with respect to any securities of the Company. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, the holders of shares of the Convertible Preferred Stock are entitled to receive out of assets of the Company available for distribution to stockholders, before any distribution of assets is made to holders of Common Stock or any other junior stock, liquidating distributions in the amount of $25,000 per share. If upon any liquidation, dissolution or winding up of the Company, the assets distributable to the holders of the Convertible Preferred Stock to any such distribution on a parity with the Convertible Preferred Stock are insufficient to fully pay the preferential amount, the holders of the Convertible Preferred Stock and of such other preferred stock will share ratably in such distribution of assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of the Convertible Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation or merger of the Company with another corporation nor a sale or transfer of all or part of the Company's assets for cash or securities will be considered a liquidation, dissolution or winding up of the Company. The right of the Company, and the rights of its creditors and stockholders (including holders of the Convertible Preferred Stock), to participate in the distribution of the assets of any subsidiary of the Company upon any liquidation or reorganization of such subsidiary, or otherwise, will be subject to the prior claims of creditors of such subsidiary (except to the extent the Company may itself be a creditor with recognized claims against such subsidiary). VOTING RIGHTS. The holders of shares of Convertible Preferred Stock have no voting rights. REDEEMABLE COMMON STOCK PURCHASE WARRANTS Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $4.50 per share (assuming an initial offering price of $4.50 per share) for a period of four years commencing on the first anniversary of the Effective Date of this Offering (the "First Exercise Date"). Each Warrant is redeemable by the Company at a redemption price of $0.01 per Warrant at any time after the First Exercise Date, upon 30 days' prior written notice to the holders thereof, if the average closing bid price of the Common Stock, as reported on the principal exchange upon which the Common Stock is traded, equals or exceeds $9.00 per share for 20 consecutive trading days ending three days prior to the date of the notice of redemption. Pursuant to applicable federal and state securities laws, and in the event a current prospectus is not available, the Warrants may not be exercised by the holders thereof and the Company will be precluded from redeeming the Warrants. There can be no assurance that the Company will not be prevented by financial or other considerations from maintaining a current prospectus. Any Warrantholder who does not exercise prior to the redemption date, as set forth in the Company's notice of redemption, will forfeit the right to purchase the Common Stock underlying the Warrants, and after the redemption date or upon conclusion of the exercise period, any outstanding Warrants will become void and be of no further force or effect, unless extended by the Board of Directors of the Company. See "Underwriting" for the terms of the warrants issuable pursuant to the Underwriters' Warrants. The number of shares of Common Stock that may be purchased is subject to adjustment upon the occurrence of certain events including a dividend distribution to the Company's stockholders, or a subdivision, combination or reclassification of the outstanding shares of Common Stock. Further, the Warrant exercise price is subject to adjustment in the event the Company issues additional stock or rights to acquire stock at a price per share that is less than the current market price per share of Common Stock on the record date established for the issuance of additional stock or rights to acquire stock. The term "current market price" is defined as the average of the daily closing prices for the 20 consecutive trading days ending three days prior to the record date. -46- 48 However, the Warrant exercise price will not be adjusted in the case of the issuance or exercise of options pursuant to the Company's stock option plans, the issuance or exercise of the Underwriters' Warrants (or the Warrants included therein), or any other options or warrants outstanding as of the date of this Offering. The Warrant exercise price is also subject to adjustment in the event of a consolidation or merger where a distribution by the Company is made to a stockholder of the Company's assets or evidences of indebtedness (other than cash or stock dividends) or pursuant to certain subscription rights or other rights to acquire Common Stock. In order for a holder to exercise his Warrants, there must be a current registration statement on file with the Commission and various state securities commissions to cover registration of the shares of Common Stock underlying the Warrants. The Company intends to maintain a current registration statement while the Warrants are exercisable. The maintenance of a currently effective registration statement could result in substantial expense to the Company, and there is no assurance that the Company will be able to maintain a current registration statement covering the shares issuable upon exercise of the Warrants. The Company believes it will be to qualify the shares of Common Stock underlying the Warrants for sale in those states where the Securities are to be offered. The Warrantholders may be deprived of any value for the Warrants if a current prospectus covering the shares issuable upon the exercise thereof is not kept effective or if such underlying shares are not qualified in the states in which the holders of the Warrants reside. In addition, if the Company merges with a business which does not have and cannot obtain audited financial statements, holders of the Warrants will be unable to exercise their Warrants because the Company will be unable to provide a current prospectus. The Warrants may be exercisable on surrender of the applicable Warrant certificate on or prior to expiration of the applicable Warrant exercise period, with the form on the reverse side of the certificate executed as indicated, and accompanied by payment of the full exercise price for the number of Warrants being exercised. Subject to certain limitations, a commission is payable to the Underwriters upon exercise of the Warrants. See "Underwriting." 1996 WARRANTS Each of the 500,025 outstanding 1996 Warrants entitles the holder thereof to purchase, up until May 15, 2000, one share of Common Stock at an exercise price of $4.50 per share, subject to adjustment in certain circumstances. The Company may redeem the 1996 Warrants for $.01 per warrant at any time after November 15, 1997 and until such warrants expire on May 15, 2000, when the average of the daily closing bid price of the Common Stock equals $9.00 or more per share on any 20 consecutive trading days ending within 15 days of the date on which notice of redemption is given. The Company will provide holders of the 1996 Warrants with at least 30 days written notice of the Company's intention to redeem the 1996 Warrants. See "The Company -- Recent Financings," "-- Bridge Financing" and "Shares Eligible for Future Sale - -- Lock-up Agreements." CLASS A WARRANTS The Company has outstanding 63,334 Class A Warrants, with each Class A Warrant entitling the holder thereof to purchase one share of Common Stock at an exercise price of $5.25 on or before December 31, 1997. The Class A Warrants were sold as part of an offering comprised of an aggregate of 3,333 shares of Common Stock and 66,667 Class A Warrants for an aggregate of $17,500 proceeds. On August 15, 1996, the holder of the Class A Warrants exercised 3,333 Class A Warrants and received 3,333 shares of Common Stock for $18,000. See "The Company -- Recent Financings." BRIDGE FINANCING On November 15, 1996, the Company concluded the private sale of 25 Units (the "Units") for total proceeds of $625,000.00 (the "Bridge Financing"). Each Unit consisted of one share of Convertible Preferred Stock and 6,667 1996 Warrants. A total of 25 shares of Convertible Preferred Stock and 166,675 1996 Warrants were sold. Each 1996 Warrant entitles the holder thereof to purchase, for a period of 42 months after November 15, 1996, one share of the Common Stock at an exercise price of $4.50 per 1996 Warrant, subject to adjustment in certain circumstances. Under the terms of the Bridge Financing, the Company has the right to require the holders of the Convertible Preferred Stock to convert their shares into either (a) $25,000 and 4,167 -47- 49 shares of the Common Stock ("Option 1") or (b) 8,334 shares of Common Stock ("Option 2") if the Company is able to complete a public offering of its securities prior to November 15, 1997. Under either option, the investor will continue to hold the 1996 Warrants. If for any reason the Company does not complete a public offering of its securities by November 15, 1997, each share of Convertible Preferred Stock will be automatically converted into 8,334 shares of Common Stock. On March 6 1997, the Company offered to each holder of the Convertible Preferred Stock the option of either (i) receiving a refund of their cash investment with interest at 12% per annum as consideration for assigning their Convertible Preferred Stock and 1996 Warrants to the Company or (ii) agreeing to the conversion of their Convertible Preferred Stock at the completion of this Offering upon previously agreed terms along with the issuance of an additional 13,334 1996 Warrants for each share of Convertible Preferred Stock converted as further consideration for the agreement by the holders of Convertible Stock to waive certain registration rights and agreeing to certain lock-up provisions with respect to the Common Stock received on conversion of the Convertible Preferred Stock and the 1996 Warrants. The Company has assumed that all holders of the Convertible Preferred Stock will accept the latter option. See "Shares Eligible for Future Sale -- Lock-up Agreements." The Representative acted as placement agent with regard to this private offering. As placement agent, the Representative received a commission of eight percent of the offering proceeds (or $50,000), four percent of the offering proceeds (or $25,000.00) as additional compensation for investment banking services and three percent of the offering proceeds (or $18,750.00) for non-accountable expenses. See "Underwriting." CERTAIN PROVISION OF THE ARTICLES OF INCORPORATION AND BYLAWS GENERAL. A number of provisions of the Articles of Incorporation ("Articles") and Bylaws ("Bylaws") of the Company concern matters of corporate governance and the rights of stockholders. Certain of these provisions, as well as the ability of the Board of Directors to issue shares of preferred stock and to set the voting rights, preferences and other terms thereof, may be deemed to have an anti-takeover effect and may discourage takeover attempts not first approved by the Board of Directors (including takeovers which certain stockholders may deem to be in their best interests). To the extent takeover attempts are discouraged, temporary fluctuations in the market price of the Common Stock, which may result from actual or rumored takeover attempts, may be inhibited. These provisions, together with the ability of the Board to issue preferred stock without further stockholder action, also could delay or frustrate the removal of incumbent directors or the assumption of control by stockholders, even if such removal or assumption would be beneficial to stockholders of the Company. These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even if they could be favorable to the interests of stockholders, and could potentially depress the market price of the Common Stock. The Board of Directors believes that these provisions are appropriate to protect the interests of the Company and all of its stockholders. MEETINGS OF STOCKHOLDERS. The Bylaws provide that a special meeting of stockholders may be called by the President of the Company, the Board of Directors or the holders of not less than 10% of the outstanding Common Stock entitled to vote at such a meeting unless otherwise required by law. The Company's Bylaws provide that only those matters set forth in the notice of the special meeting may be considered or acted upon at the special meeting, unless all stockholders entitled to vote are present and consent. INDEMNIFICATION AND LIMITATION OF LIABILITY. The Company's Articles provide that a director of the Company will not be personally liable to the Company or its stockholders for monetary damages for any act or omission in good faith. By its terms, and in accordance with applicable state law, however, this provision does not eliminate or limit the liability of a director of the Company for any breach of duty based upon an act or omission (i) involving appropriation in violation of duty of any business opportunity of the Company, (ii) involving acts or omissions that are not in good faith or which involve intentional misconduct or a knowing violation of the law, or (iii) involving unlawful distributions or transactions from which the director derived an improper personal benefit. The Articles provide further that the Company shall indemnify its directors, except in such matters as to which the director shall be adjudged liable for his own negligence or intentional misconduct in the performance of his duty. A similar indemnification and limitation of liability provision in the Company's Bylaws also extends such protection to officers of the Company. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the Company pursuant -48- 50 to the foregoing provisions, or otherwise, the Company is aware that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. AMENDMENT OF BYLAWS. The Bylaws provide that the Bylaws may be altered, amended or repealed by the Board of Directors. Such action by the Board of Directors requires the affirmative vote of a majority of the directors present at such meeting. CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK Upon the completion of this Offering and assuming conversion of the Convertible Preferred Stock, the Company's authorized but unissued capital stock will consist of approximately 9,778,172 million shares of Common Stock and 10,000,000 shares of preferred stock. One of the effects of the authorized, but unissued capital stock may be to enable the Board of Directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, proxy contest or otherwise, and thereby to protect the continuity of the Company's management. If in the due exercise of its fiduciary obligations, for example, the Board of Directors were to determine that a takeover proposal was not in the Company's best interests, such shares could be issued by the Board of Directors without stockholder approval in one or more private or public offerings or other transactions that might prevent or render more difficult or costly the completion of the proposed takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group, by creating a substantial voting block of institutional or other investors that might undertake to support the position of the incumbent Board of Directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise. In this regard, the Company's Articles grants the Board of Directors broad power to establish the rights and preferences of the authorized, but unissued preferred stock, one or more series of which would be issued entitling holders to vote separately as a class on any proposed merger or consolidation, to convert preferred stock into a larger number of shares of Common Stock or other securities, to demand redemption at a specified price under prescribed circumstances related to a change in control, or to exercise other rights designed to impede a takeover. The issuance of shares of preferred stock pursuant to the Board's authority described above could decrease the amount of earnings and assets available for distribution to holders of Common Stock, and adversely affect the rights and powers, including voting rights, of such holders and may have the effect of delaying, deferring or preventing a change in control of the Company. The Board of Directors does not currently intend to seek stockholder approval prior to any issuance of authorized, but unissued stock, unless otherwise required by law. TRANSFER AGENT The transfer agent for the Company's Securities is Securities Transfer Corporation, 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248. -49- 51 SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of Common Stock in the public market following the completion of the Offering could have an adverse effect on the market price of the Common Stock. Upon completion of the Offering, there will be approximately 4,221,828 (4,431,828 if the Underwriters' over-allotment option is exercised in full) shares of Common Stock outstanding, which includes the 104,175 shares of Common Stock issuable upon conversion of the Convertible Preferred Stock. The Securities offered hereby will be eligible for public sale without restriction, except for shares purchased by affiliates of the Company (those controlling or controlled by or under common control with the Company and generally deemed to include officers and directors). Of the 4,221,828 shares of Common Stock to be outstanding after the Offering, 2,667,019 shares will be deemed "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act. Additionally, there will be outstanding as of the closing of the Offering, options and warrants to purchase an aggregate 2,162,714 shares of Common Stock (2,372,714 if the Underwriters' over- allotment option is exercised in full), including (i) 1,400,000 shares of Common Stock issuable upon exercise of the Warrants offered hereby, (ii) 140,000 shares issuable upon exercise of the Underwriters' Warrants, (iii) 500,025 shares issuable upon exercise of the 1996 Warrants, (iv) 63,334 shares issuable upon exercise of the Class A Warrants, and (v) 59,355 shares of Common Stock issuable upon exercise of options granted to employees of the Company, which, when issued in connection with the terms of such options and warrants, will be restricted shares under the Securities Act. See "Management" and "Description of Securities." In February 1997, the Commission adopted amendments to Rule 144 to shorten the holding period for restricted securities, generally being those securities purchased in unregistered private placements. The amendments to Rule 144 are to become effective on April 29, 1997. As a result of these amendments, and subject to satisfaction of certain other conditions, a person, including an affiliate of the Company (or persons whose shares are aggregated into such affiliate), who has owned restricted shares of Common Stock beneficially for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of one percent of the total number of outstanding shares of the same class or the average weekly trading volume of the Common Stock during the four calendar weeks preceding the sale. Subject to the volume and holding period limitations of Rule 144 and the lock-up agreements described below, 2,305,879 shares of Common Stock would be eligible for sale under Rule 144 ninety days after the completion of the Offering. Holders of approximately 1,376,221 shares of Common Stock, including the holders of the Convertible Preferred Stock, officers and directors of the Company, will agree to "lock-up" their shares of Common Stock for periods ranging from 18 to 60 months after the completion of the Offering. A person who has not been an affiliate of the Company for at least the three months immediately preceding the sale and who has beneficially owned shares of Common Stock for at least two years is entitled to sell such shares under Rule 144(k) without regard to any of the limitations described above. As of the commencement of the Offering, no restricted shares of Common Stock would be eligible for sale under the provisions of Rule 144(k). The possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect the prevailing market price for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. REGISTRATION RIGHTS The holders of the Underwriters' Warrants have been granted registration rights to require the Company, at the Company's expense, to register under the Securities Act the 140,000 Underwriters' Warrants and the 140,000 shares of Common Stock underlying the Underwriters' Warrants. See "Underwriting." The holders of the Convertible Preferred Stock have certain registration rights with respect to the 500,025 shares of Common Stock issuable upon exercise of the 1996 Warrants. Any exercise of such registration rights by the holders of these securities may hinder the Company's efforts to obtain future financing and may have an adverse effect on the market price of the Common Stock. LOCK-UP AGREEMENTS The holders of the Convertible Preferred Stock have agreed not to sell or otherwise dispose, for a period of 18 months after the completion of this Offering, any of the 104,175 shares of Common Stock to be issued -50- 52 upon conversion of the Convertible Preferred Stock, the 1996 Warrants or 500,025 shares of Common Stock issuable upon exercise of the 1996 Warrants; provided the shares of Common Stock issuable upon exercise of the 1996 Warrants are subject to demand registration rights and may be subsequently sold by the holders thereof if the Company calls for the redemption of the Warrants or 1996 Warrants within 18 months after the completion of this Offering. See "Description of Securities -- Bridge Financing." All officers and directors of the Company who are existing stockholders of the Company have agreed not to sell or dispose of any shares of Common Stock held by them without the prior written consent of the Representative until two years after the effective date of this Offering. Furthermore, officers and directors whose total compensation is more than $100,000 per year, or who own 5% or more of the Company's outstanding securities, have agreed to enter into a compensation and lock-up agreement for a period of five years to commence upon completion of this Offering. Officers and directors of the Company who are subject to a five-year lock-up provision shall have the right to have such restriction released at a rate of 20% per annum for a period of five years based upon the Company's achievement of certain goals with respect to the following: (i) annual revenue growth of 20% or more, (ii) annual earnings per share growth of 20% or more, and (iii) annual price of stock growth of 20% or more. With regard to V. Lynn Graybill, the Chairman of the Board and Chief Executive Officer of the Company, the afore-referenced lock-up provisions, to which Mr. Graybill would be subject, will be terminated after the termination of Mr. Graybill's Employment Agreement, unless such Agreement is otherwise extended. UNDERWRITING The underwriters named below (the "Underwriters") for whom Argent Securities, Inc. is acting as Representative (the "Representative"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement between the Company and the Representative (the "Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the Underwriter, the aggregate number of shares of Common Stock and Warrants set forth opposite their names below:
Number of Number of Underwriters Shares Warrants ------------ ------ -------- Argent Securities, Inc. . . . . . . . . . . . . . . . . . . . . . ------------------------- ------------------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . ========================= ========================
The Underwriters are committed to purchase and pay for all of the shares of Common Stock and Warrants offered hereby if any shares of Common Stock and Warrants are purchased. The shares of Common Stock and Warrants subject to this Offering are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to approval of certain legal matters by counsel and to various other conditions. The Underwriters have advised the Company that the Underwriters propose to offer the shares of Common Stock and Warrants subject to this Offering to the public at the public offering price set forth on the cover page of this Prospectus. The Underwriters may allow to certain dealers who are members of the NASD a concession not in excess of $.___ per share of Common Stock at $.___ per Warrant and such dealers may reallow a concession of not in excess $.___ per share of Common Stock and $.___ per Warrant to certain other dealers who are members of the NASD. The Company has granted to the Representative an option, exercisable for 45 days from the date of this Prospectus, to purchase up to 210,000 additional shares of Common Stock and 210,000 additional Warrants at the public offering price set forth on the cover page of this Prospectus, less underwriting discounts and commissions. The Representative may exercise this option on one occasion, in whole or in part, solely for the purpose of covering over- allotments, if any, made in connection with the sale of the shares of Common Stock offered hereby. -51- 53 The Company has agreed with the Underwriters that the Company will pay to the Underwriters a warrant solicitation fee (the "Warrant Solicitation Fee") equal to 5% of the exercise price of the Warrants exercised beginning one year after the Effective Date and to the extent not inconsistent with the guidelines of the NASD And the rules and regulations to the Commission (including NASD Notice to Members 81-38). Such Warrant Solicitation Fee will be paid to the Underwriters if (a) the market price of the Common Stock on the date that any Warrant is exercised is greater than the exercise price of the Warrant; (b) the exercise of such Warrant was solicited by the Underwriters; (c) prior specific written approval for exercise is received from the customer if the Warrant is held in a discretionary account; (d) disclosure of this compensation agreement is made prior to or upon the exercise of such Warrant; (e) solicitation of the exercise is not a violation of Rule 10b-6 of the Exchange Act; (f) the Underwriter provided bona fide services in exchange for the Warrant Solicitation Fee; and (g) the Underwriter has been specifically designated in writing by the holders of the Warrants as the broker. In addition, unless granted an exemption by the Commission from Rule 10b-6 under the Exchange Act, the Underwriters will be prohibited from engaging in any market making activities or solicited brokerage activities with respect to the Securities for the period from nine business days prior to any solicitation of the exercise of any Warrant or nine business days prior to the exercise of any Warrant based on a prior solicitation until the later of the termination of such solicitation activity or the termination (by waiver or otherwise) of any right the Underwriters may have to receive such a fee for the exercise of the Warrants following such solicitation. As a result, the Underwriters may be unable to continue to provide a market for the securities during certain periods while the Warrants are exercisable. The Representative has informed the Company that the Underwriters do not intend to confirm sales of shares of Common Stock offered hereby to any accounts over which they exercise discretionary authority. Prior to this Offering, the Company's Common Stock has been traded on the NASD Electronic Bulletin Board. As a result, the public offering price of the Common Stock offered hereby has been determined by negotiations among the Company and the Representatives based on the prior trading history of the Company's Common Stock. The Company has agreed to pay to the Representatives a non-accountable expense allowance of three percent of the gross proceeds of this Offering, of which $_______________ has been paid to date. The Company also has agreed to pay all expenses in connection with registering or qualifying the shares of Common Stock and Warrants offered hereby for sale under the laws of the states in which the Securities are sold by the Underwriters (including expenses of counsel retained for such purpose by the Underwriters, expenses associated with informational meetings) and the expense of all pre- and post-closing advertisements relating to this Offering. The Company has agreed to sell to the Representative for an aggregate purchase price of $140 ($.001 per warrant), non-callable warrants entitling the Representative to purchase from the Company 140,000 shares of Common Stock and 140,000 Warrants (10 percent of the securities sold in the Offering) at an exercise price of $5.40 per share of Common Stock and $0.15 per Warrant. The Underwriters' Warrants may not be transferred or exercised for one year from the date of this Prospectus, except to officers and partners of the Underwriters or members of the underwriting or selling group, if any, and are exercisable during the year-year period commencing one year from the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the Underwriters' Warrants are given, at nominal cost, the opportunity to profit from a rise in the market price of the Company's Common Stock. To the extent that the Underwriters' Warrants are exercised, dilution to the percentage ownership of the Company's stockholders will occur. Further, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected since the holders of the Underwriters' Warrants may be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain additional equity capital on terms more favorable to the company than those provided in the Underwriters' Warrants. Any profit realized by the Representative on sale of the Underwriters' Warrants or the underlying securities may be deemed additional underwriting compensation. The Company has further agreed to place an indeterminable number of shares of Common Stock, underlying the exercise of the Underwriters' Warrants, including additional shares of Common Stock issuable in the event any of the anti-dilution provisions set forth in the instruments evidencing such Underwriters' Warrants are triggered. Subject to certain limitations and exclusions, the Company has agreed, at the request of the holders of a majority of the Underwriters' Warrants, to register the Underwriters' Warrants, -52- 54 and the underlying shares of Common Stock, under the Securities Act on two occasions during the Warrant Exercise Term; one such occasion shall be at the Company's expense. The Company has also agreed to include such Underwriters' Warrants and underlying shares of Common Stock in any appropriate registration statement filed by the Company for five years from the date of this Prospectus. See "Shares Eligible for Future Sale." All officers and directors, as of the Effective Date, have agreed with the Representative in writing not to sell, assign or transfer any of their shares of the Company's securities without the Representative's prior written consent for periods ranging from 18 to 60 months from the Effective Date, subject to certain conditions. Also, the holders of the Company's Convertible Preferred Stock have agreed to certain lock-up provisions for the securities received upon redemption of the Convertible Preferred Stock for 18 months, subject to certain conditions. See "Shares Eligible for Future Sale -- Lock-up Agreement." The Company has agreed to enter into a financial advisory agreement with the Representative for them to offer financial consulting services to the Company for a period of two years commencing on the closing date of the Offering for an aggregate of $48,000, which amount shall be prepaid in full at the closing of the Offering. Such consulting services are to include evaluating the Company's capital requirements for future growth and expansion, advising the Company as to alternative methods and sources of financing and advising management of the Company regarding potential business opportunities. If the Representative originates a financing or a merger, acquisition, joint venture or other transaction to which the Company is a party, the Representative will be entitled to receive a finder's fee in consideration for origination of such transaction. Such finder's fee shall be calculated as a percentage of the value of the applicable transaction in accordance with the following schedule: 5% on the first $1,000,000; 4% on the amount from $1,000,001 to $2,000,000; 3% on the amount from $2,000,001 to $3,000,000; 2% on the amount from $3,000,001 to $4,000,000; 1% on the amount from $4,000,001 to $5,000,000; and 1% on the amount above $5,000,000. The Representative will have the right, for a period of five years following the completion of this Offering or until the Underwriters' Warrants have been exercised in full, whichever comes first, to each designate a nominee for election to the Board or, in lieu thereof, to have a representative attend all Board meetings of the Company. Any such nominee may be a director, officer, partner, employee or affiliate of the Representative. The Company (and its current directors and officers) have agreed to support any such nominee designated by the Representative. The Representative has advised the Company that they have not presently identified any designees to nominate for election to the Board. The Company has agreed that, for a period of two years from the closing of the Offering, without the consent of the Representative, it shall not redeem or issue any of its securities or pay any dividends, or make any other cash distributions in respect of its securities, in excess of the amount of the Company's current or retained earnings recognized from and after the closing date. See "Dividend Policy." For a period of four years following the completion of this Offering, the officers and directors of the Company have agreed to effect any permitted sales of their shares of Common Stock through the Representative provided that the price and terms of executed offered by the Representative are at least as favorable as those that may be obtained from other brokerage firms. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. The foregoing includes a summary of the principal terms of the Underwriting Agreement and does not purport to be complete. Reference is made to the copy of the form of Underwriting Agreement filed as an exhibit to the Company's Registration Statement of which this Prospectus forms a part. -53- 55 LEGAL MATTERS Certain legal matters in connection with the validity of the Securities offered hereby are being passed upon for the Company by Looper, Reed, Mark & McGraw Incorporated, Dallas, Texas. Certain legal matters in connection with this Offering will be passed upon for the Underwriters by Johnson & Montgomery, Atlanta, Georgia. Richard B. Goodner, a member of Looper, Reed, Mark & McGraw Incorporated, owns 12,000 shares of Common Stock of the Company. EXPERTS The consolidated financial statements for fiscal years ended December 31, 1996, 1995 and 1994 for the Company, to the extent of and for the periods indicated in the reports, have been audited by S. W. Hatfield + Associates, independent public accountants, and are included in this Prospectus in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. -54- 56 [S. W. HATFIELD + ASSOCIATES LETTERHEAD] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Karts International Incorporated (formerly Sarah Acquisition Corporation) We have audited the accompanying consolidated balance sheets of Karts International Incorporated (a Nevada corporation) (formerly Sarah Acquisition Corporation, a Florida corporation) and Subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Karts International Incorporated (formerly Sarah Acquisition Corporation) and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the years then ended in conformity with generally accepted accounting principles. S. W. HATFIELD + ASSOCIATES Dallas, Texas February 28, 1997 (except for Note I as to which the date is March 6, 1997) F-1 57 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) CONSOLIDATED BALANCE SHEET December 31, 1996 and 1995 ASSETS
1996 1995 ------------ -------------- CURRENT ASSETS Cash on hand and in bank $ 630,028 $ -- Accounts receivable Trade, net of allowance for doubtful accounts of $5,000 and $-0-, respectively 1,795,802 -- Other 1,052 -- Inventory 958,381 -- Prepaid expenses 6,027 -- ------------ -------------- TOTAL CURRENT ASSETS 3,391,290 -- ------------ -------------- PROPERTY AND EQUIPMENT - AT COST 771,374 -- Accumulated depreciation (34,598) -- ------------ -------------- 736,776 -- Land 32,800 -- ------------ -------------- NET PROPERTY AND EQUIPMENT 769,576 -- ------------ -------------- OTHER ASSETS Deposits 19,060 -- Loan costs, net of accumulated amortization of approximately $20,120 and $-0-, respectively 101,913 -- Organization costs, net of accumulated amortization of approximately $19,514 and $-0-, respectively 104,741 -- Goodwill, net of accumulated amortization of approximately $151,286 and $-0-, respectively 5,708,137 -- ------------ -------------- TOTAL OTHER ASSETS 5,933,851 -- ------------ -------------- TOTAL ASSETS $ 10,094,717 $ -- ============ ==============
- CONTINUED - The accompanying notes are an integral part of these consolidated financial statements. F-2 58 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) CONSOLIDATED BALANCE SHEET - CONTINUED December 31, 1996 and 1995 LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995 ------------ ------------ CURRENT LIABILITIES Notes payable to banks $ 140,020 $ -- Current maturities of notes payable 116,390 -- Accounts payable and other accrued liabilities 857,305 4,010 Federal and State income taxes payable 269,217 -- ------------ ------------ TOTAL CURRENT LIABILITIES 1,382,932 4,010 ------------ ------------ LONG-TERM LIABILITIES Notes payable, net of current maturities 3,332,660 -- ------------ ------------ TOTAL LIABILITIES 4,715,592 4,010 ------------ ------------ COMMITMENTS AND CONTINGENCIES CONVERTIBLE PREFERRED STOCK $0.001 par value. 25 shares allocated, issued and outstanding 625,000 -- ------------ ------------ SHAREHOLDERS' EQUITY Preferred stock - $0.001 par value 10,000,000 shares authorized, 25 shares allocated; -0- and -0- shares issued and outstanding, respectively. -- -- Common stock - $0.001 par value, 14,000,000 shares authorized; 2,717,653 and 83,441 shares issued and outstanding, respectively. 2,718 83 Additional paid-in capital 4,774,905 487,751 Accumulated deficit (23,498) (491,844) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 4,754,125 (4,010) ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,094,717 $ -- ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 59 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) CONSOLIDATED STATEMENT OF OPERATIONS Years ended December 31, 1996 and 1995
1996 1995 ---------- ---------- REVENUES Kart sales $8,327,316 $ -- ---------- ---------- COST OF SALES Purchases 4,910,692 -- Direct labor 570,842 -- Other direct costs 360,998 -- ---------- ---------- TOTAL COST OF SALES 5,842,532 -- ---------- ---------- GROSS PROFIT 2,484,784 -- ---------- ---------- OPERATING EXPENSES Salaries and related costs 427,025 -- Insurance 353,944 -- Interest expense 396,589 -- Other operating expenses 472,481 630 Depreciation and amortization 205,397 -- ---------- ---------- TOTAL OPERATING EXPENSES 1,855,436 630 ---------- ---------- INCOME (LOSS) FROM OPERATIONS 629,348 (630) OTHER INCOME (EXPENSE) Interest and other 32,573 -- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 661,921 (630) INCOME TAXES 193,575 -- ---------- ---------- NET INCOME (LOSS) $ 468,346 $ (630) ========== ========== Net income (loss) per weighted-average share of common stock outstanding $ 0.15 nil ========== ========== Weighted-average number of shares of common stock outstanding 3,119,592 124,616 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-4 60 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 1996 and 1995
Convertible Additional Preferred Stock Common Stock paid-in Accumulated Shares Amount Shares Amount capital deficit ------ ------ ------ ------ ------- ------------ BALANCES AT JANUARY 1, 1995, AS REPORTED -- $ -- 31,254,621 $ 1,563 $ 492,940 $ (491,214) Retirement of treasury stock -- -- (102,600) -- (6,669) -- Effect of 1 for 250 reverse stock split, post treasury stock retirement, including rounding, as of February 23, 1996 -- -- (31,027,405) (1,438) 1,438 -- Effect of 2 for 3 reverse stock split, including rounding, as of March 24, 1997 -- -- (41,175) (42) 42 -- ----- -------- ---------- ----------- ----------- ----------- BALANCES AT JANUARY 1, 1995, AS RESTATED -- -- 83,441 83 487,751 (491,214) Net loss for the year -- -- -- -- -- (630) ----- -------- ---------- ----------- ----------- ----------- BALANCES AT DECEMBER 31, 1995 -- -- 83,441 83 487,751 (491,844) Sale of common stock to current and former directors -- -- 1,017,545 1,018 1,371 -- under private placement memorandum -- -- 233,333 233 524,767 -- less cost of raising capital -- -- -- -- (163,100) -- under private sale document -- -- 6,667 7 34,993 -- Treasury Stock Total -------- ----- BALANCES AT JANUARY 1, 1995, AS REPORTED $ (6,669) $ (3,380) Retirement of treasury stock 6,669 -- Effect of 1 for 250 reverse stock split, post treasury stock retirement, including rounding, as of February 23, 1996 -- -- Effect of 2 for 3 reverse stock split, including rounding, as of March 24, 1997 -- -- ----------- ----------- - BALANCES AT JANUARY 1, 1995, AS RESTATED -- (3,380) Net loss for the year -- (630) ----------- ----------- - BALANCES AT DECEMBER 31, 1995 -- (4,010) Sale of common stock to current and former directors -- 2,389 under private placement memorandum -- 525,000 less cost of raising capital -- (163,100) under private sale document -- 35,000
- CONTINUED - The accompanying notes are an integral part of these consolidated financial statements. F-5 61 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 1996 and 1995
Convertible Additional Preferred Stock Common Stock paid-in Accumulated Shares Amount Shares Amount capital deficit ---------- ---------- ---------- ---------- ---------- ---------- Sale of convertible preferred stock under private placement memorandum 25 $ 625,000 -- $ -- $ -- $ -- Issuance of common stock for acquisition of Brister's Thunder Karts, Inc. -- -- 516,667 517 3,099,483 -- acquisition of USA Industries, Inc. -- -- 166,667 167 749,833 -- payment of professional services for corporate reorganization and acquisition of Brister's Thunder Karts, Inc. -- -- 483,333 483 14,517 -- payment of loan origination fees -- -- 70,000 70 10,430 -- payment of employment contract signing bonus -- -- 140,000 140 14,860 -- Net income for the year -- -- -- -- -- 468,346 ---------- ---------- ---------- ---------- ---------- ---------- BALANCES AT DECEMBER 31, 1996 25 $ 625,000 2,717,653 $ 2,718 $4,774,905 $ (23,498) ========== ========== ========== ========== ========== ========== Treasury Stock Total --------- ---------- Sale of convertible preferred stock under private placement memorandum $ -- $ -- Issuance of common stock for acquisition of Brister's Thunder Karts, Inc. -- 3,100,000 acquisition of USA Industries, Inc. -- 750,000 payment of professional services for corporate reorganization and acquisition of Brister's Thunder Karts, Inc. -- 15,000 payment of loan origination fees -- 10,500 payment of employment contract signing bonus -- 15,000 Net income for the year -- 468,346 --------- ---------- BALANCES AT DECEMBER 31, 1996 $ -- $4,754,125 ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 62 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) CONSOLIDATED STATEMENT OF CASH FLOWS Years ended December 31, 1996 and 1995
1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) for the year $ 468,346 $ (630) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 225,517 -- Common stock issued for compensation 15,000 -- (Increase) Decrease in: Accounts receivable-trade and other (770,825) -- Inventory 154,485 -- Prepaid expenses and other 82,517 -- Organization costs (109,255) -- Increase (Decrease) in: Accounts payable (458,548) 630 Other accrued liabilities 3,944 -- Income taxes payable 165,675 -- ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (223,144) -- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for property and equipment (71,734) -- Cash acquired in acquisition of Brister's Thunder Karts, Inc. and USA Industries, Inc. 535,425 -- Cash paid for acquisition of Brister's Thunder Karts, Inc. and USA Industries, Inc. (2,533,642) -- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (2,069,951) -- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from bank line of credit 100,000 -- Cash proceeds from long-term note payable 2,000,000 -- Cash paid for long-term note origination fees (16,783) -- Principal payments on long-term debt (89,633) -- Cash received from sale of convertible preferred stock 625,000 -- Cash paid for brokerage and placement fees related to sale of convertible preferred stock (94,750) -- Cash received from sale of common stock 657,139 -- Cash paid for brokerage and placement fees related to sale of common stock (257,850) -- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,923,123 -- ----------- ----------- INCREASE IN CASH 630,028 -- Cash at beginning of year -- -- ----------- ----------- CASH AT END OF YEAR $ 630,028 $ -- =========== ===========
- CONTINUED - The accompanying notes are an integral part of these consolidated financial statements. F-7 63 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED Years ended December 31, 1996 and 1995
1996 1995 ---------- ---------- SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID Interest paid for the year $ 348,730 $ -- ========== ========== Income taxes paid for the year $ 28,000 $ -- ========== ========== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Acquisition price of Brister's Thunder Karts, Inc. settled with common stock and a note payable $4,100,000 $ -- ========== ========== Acquisition price of USA Industries, Inc. settled with common stock $ 750,000 $ -- ========== ========== Loan origination fees settled with common stock $ 10,500 $ -- ========== ========== Organization costs settled with common stock $ 15,000 $ -- ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-8 64 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Karts International Incorporated (formerly Sarah Acquisition Corporation) (Company) was originally incorporated on February 28, 1984 as Rapholz Silver Hunt, Inc. under the laws of the State of Florida. In June 1984, April 1986, and November 1987, respectively, the Company changed its corporate name to Great Colorado Silver, Inc., Great Colorado Silver Valley Development Company and J. R. Gold Mines, Inc. In January 1996, the Company changed its corporate name to Sarah Acquisition Corporation. The Company has had no significant business operations since 1989. Prior to that time, the Company was involved in the mining industry, principally through joint ventures with related parties involving mining properties located in Colorado. In October 1995, the Company experienced a change in control due to the transfer of a majority of the issued and outstanding shares of common stock of the Company between unrelated third parties. It was the intent of the new majority shareholder and management to seek a suitable situation for merger or acquisition. On February 23, 1996, the Company was reincorporated in the State of Nevada by means of a merger with and into Karts International Incorporated, a Nevada corporation incorporated on February 21, 1996. The Company was the surviving entity and changed its corporate name to Karts International Incorporated. The reincorporation merger had the effect of a one for 250 reverse split of the Company's issued and outstanding common stock. The reincorporation merger also modified the Company's capital structure to authorize the issuance of up to 20,000,000 shares of $0.001 par value common stock and authorized the issuance of up to 10,000,000 shares of $0.001 par value Preferred Stock. The effect of this transaction has been reflected in the accompanying financial statements as of the beginning of the first period presented. On February 28, 1997, to be effective on March 24, 1997, the Company's Board of Directors approved a two (2) for three (3) reverse stock split and a corresponding reduction of the authorized shares of common stock in anticipation of a proposed underwritten public offering of the Company's common stock during 1997. The issued and outstanding shares of common stock shown in the accompanying financial statements reflect the ultimate effect of the March 24, 1997 reverse stock split as if this second reverse split had occurred as of the beginning of the first period presented in the accompanying consolidated financial statements. On March 15, 1996, effective at the close of business on March 31, 1996, the Company acquired 100.0% of the issued and outstanding stock of Brister's Thunder Karts, Inc. (a Louisiana corporation), a "fun kart" manufacturer located in Roseland, Louisiana for total consideration of approximately $6,100,000. This acquisition was accounted for as a purchase. On November 20, 1996, effective at the close of business on November 21, 1996, the Company acquired 100.0% of the issued and outstanding stock of USA Industries, Inc. (an Alabama corporation), a "fun kart" manufacturer located in Prattville, Alabama for total consideration of approximately $1,000,000. This acquisition was accounted for as a purchase. F-9 65 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS - CONTINUED The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company has a concentration of key raw material suppliers for kart engines. In the event of any disruption in engine availability, if any, the Company may experience a negative economic impact. The Company does not anticipate any foreseeable interruption in engine availability and believes that alternate suppliers are available. The accompanying consolidated financial statements contain the accounts of Karts International Incorporated and its wholly-owned subsidiaries, Brister's Thunder Karts, Inc. and USA Industries, Inc. All significant intercompany transactions have been eliminated. The consolidated entities are collectively referred to as Company. NOTE B - ACQUISITION OF SUBSIDIARIES On March 15, 1996, the Company purchased 100.0% of the issued and outstanding stock of Brister's Thunder Karts, Inc. (a Louisiana corporation) for a total purchase price of approximately $6,100,000. The acquisition was effective at the close of business on March 31, 1996. The purchase price was paid with $2,000,000 cash, a note payable for $1,000,000 and 775,000 shares of restricted, unregistered common stock of the Company. Brister's Thunder Karts, Inc. (Brister's) was formed on August 2, 1976 under the laws of the State of Louisiana. Brister's is in the business of manufacturing and marketing motorized "fun karts" for the consumer market. Results of operations of Brister's are included in the consolidated financial statements beginning on the effective date of the acquisition. This acquisition was accounted for using the purchase method of accounting for business combinations. The Company allocates the total purchase price to assets acquired based on their relative fair value. Any excess of the purchase price over the fair value of the assets acquired is recorded as goodwill. Purchase price $ 6,100,000 Assets acquired (2,017,394) Liabilities assumed 781,367 ----------- Goodwill related to Brister's $ 4,863,973 ===========
On November 20, 1996, the Company purchased 100.0% of the issued and outstanding stock of USA Industries, Inc. (an Alabama corporation) for a total purchase price of approximately $1,000,000. The acquisition was effective at the close of business on November 21, 1996. The purchase price was paid with $250,000 cash and 250,000 shares of restricted, unregistered common stock of the Company. USA Industries, Inc. (USA) was formed on January 2, 1992 under the laws of the State of Alabama. USA is in the business of manufacturing and marketing motorized "fun karts" for the consumer market. Results of operations of USA are included in the consolidated financial statements beginning on the effective date of the acquisition. F-10 66 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - ACQUISITION OF SUBSIDIARIES - CONTINUED This acquisition was accounted for using the purchase method of accounting for business combinations. The Company allocates the total purchase price to assets acquired based on their relative fair value. Any excess of the purchase price over the fair value of the assets acquired is recorded as goodwill. Purchase price $ 1,000,000 Assets acquired (1,496,970) Liabilities assumed 1,492,420 ----------- Goodwill related to USA $ 995,450 ===========
Pro forma unaudited results of operations relating to the acquisition of Brister's and USA, as though the acquisition had occurred as of the beginning of the first period presented, is as follows:
1996 1995 ----------- ---------- Revenues $10,698,824 $8,514,460 =========== ========== Net income $ 340,343 $ 121,324 =========== ========== Earnings per share $ 0.10 $ 0.04 =========== ==========
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. Accounts and advances receivable In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. During 1996, the Company had an international sale of approximately $35,000 and experienced no credit risk exposure as a result of this transaction. The Company anticipates continuing international sales in future periods and is developing credit policies related to this revenue segment. F-11 67 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. Inventory Inventory consists of steel, engines and other related raw materials used in the manufacture of "fun karts". These items are carried at the lower of cost or market using the first-in, first-out method. As of December 31, 1996, inventory consisted of the following components: Raw materials $875,450 Work in process 37,661 Finished goods 45,270 -------- $958,381
4. Property, plant and equipment Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives of the individual assets using the straight-line method. Gains and losses from disposition of property and equipment are recognized as incurred and are included in operations. 5. Loan costs Costs incurred to acquire notes payable and to facilitate the sale of convertible preferred stock are deferred and amortized as a component of interest expense over the life of the related financing using the straight-line method. In the event of debt retirement using the proceeds of future equity offerings, the related unamortized loan costs will be reclassified as a cost of capital and offset against additional paid-in capital related to the specific equity sale proceeds. 6. Organization costs Costs related to the restructuring and reorganization of the Company have been capitalized and are being amortized over a five year period, commencing March 15, 1996, using the straight-line method. 7. Goodwill Goodwill represents the excess of the purchase price of acquired subsidiaries over the fair value of net assets acquired and is amortized over 25 years using the straight-line method. 8. Income taxes The Company utilizes the asset and liability method of accounting for income taxes. At December 31, 1996 and 1995, the deferred tax asset and deferred tax liability accounts, as recorded when material, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization. No valuation allowance was provided against deferred tax assets, where applicable. F-12 68 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 9. Income (Loss) per share Income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of shares outstanding during the period. NOTE D - PROPERTY AND EQUIPMENT Property and equipment consist of the following components:
Estimated 1996 1995 useful life --------- ------- -------------- Building and improvements $ 331,360 $ -- 5 to 25 years Equipment 317,665 -- 5 to 10 years Transportation equipment 57,050 -- 3 to 5 years Furniture and fixtures 65,299 -- 5 years --------- ------- 771,374 -- Accumulated depreciation (34,598) -- --------- ------- 736,776 -- Land 32,800 -- --------- ------- Net property and equipment $ 769,576 $ -- --------- -------
Total depreciation expense charged to operations for the years ended December 31, 1996 and 1995 was approximately $34,598 and $-0-, respectively. NOTE E - NOTES PAYABLE Notes payable consist of the following:
1996 1995 -------- -------- $300,000 line of credit payable to a bank Interest at 8.25%. Principal and accrued interest payable at maturity. Maturity in August 1997. Secured solely by accounts receivable due from a specific customer $100,000 $ -- $40,020 term note payable to a bank. Interest at 10.5%. Principal and accrued interest payable at maturity. Secured by accounts receivable, inventory and equipment of USA Industries, Inc. Paid in full in January 1997 40,020 -- -------- ------ Total notes payable $140,020 $ -- ======== ======
The Company's $300,000 line of credit contains certain restrictive covenants. The Company was in compliance with all covenants as of December 31, 1996. F-13 69 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - LONG-TERM DEBT Long-term debt consists of the following:
1996 1995 ---------- -------- $2,000,000 note payable to a Foundation. Interest at 14.0%. Interest payable on the 15th day of each month beginning on March 15, 1996. All accrued but unpaid interest due on March 14, 2001. Principal payable as follows: $399,996 on March 14, 1999; $399,996 on March 14, 2000; $1,200,008 on March 14, 2001. Secured by accounts receivable, inventory, property and equipment owned or acquired by the Company. $2,000,000 $ -- $1,000,000 payable to the former shareholder of Brister's Thunder Karts, Inc. Interest payable at 8.0% in the first loan year and escalating 1.0% per year to a maximum of 14.0% in the seventh loan year. Interest only payable quarterly, starting June 30, 1996. All unpaid but accrued interest is due at maturity. Principal payable in annual installments of $250,000 starting on March 31, 2000. Collateralized by certain assets valued at $1 million owned by certain members of the Company's Board of Directors. 1,000,000 -- $200,000 note payable to the former shareholder of Brister's Thunder Karts, Inc. Interest payable at 10.0%. Payable in quarterly installments, including interest, of $20,000, $55,000, $53.750, $52,500 and $51,250, respectively, commencing on April 1, 1997. Final maturity in April 1998 or immediately upon successful completion of an underwritten public offering of the Company's securities. Collateralized by certain assets valued at $1 million owned by certain members of the Company's Board of Directors. 200,000 -- $240,020 mortgage note payable to a bank. Interest at the Bank's Commercial Base Rate (9.75% at December 31, 1996). Payable in monthly installments of approximately $2,626, including accrued interest. Final maturity in August 2010. Collateralized by land and a building owned by USA Industries, Inc. 235,089 --
F-14 70 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - LONG-TERM DEBT - CONTINUED
1996 1995 ----------- -------- $9,348 installment note payable to a bank. Interest at 10.0%. Payable in monthly installments of approximately $303, including accrued interest Final maturity in April 1999. Collateralized by transportation equipment owned by USA Industries, Inc. 7,553 -- $27,677 note payable to an individual. Interest at 7.0%. Payable in semi-monthly installments of approximately $200, including interest. Secured by equipment owned by Brister's 6,408 -- ----------- ------ Total long-term debt 3,449,050 -- Less current maturities (116,390) -- ----------- ------ Long-term portion $ 3,332,660 $ -- =========== ======
Future maturities of long-term debt are as follows:
Year ending December 31, Amount ------------ ---------- 1997 $ 116,390 1998 115,030 1999 411,958 2000 661,809 2001 1,463,085 2002-2006 588,270 2007-2010 92,508 ---------- Totals $3,449,050 ==========
NOTE G - INCOME TAXES The deferred current tax asset and non-current deferred tax liability on the December 31, 1996 and 1995 balance sheets consist of the following:
1996 1995 ------ ------ Current deferred tax asset $ -- $ -- Current deferred tax liability -- -- Valuation allowance for current deferred tax asset -- -- ------ ------ Net current deferred tax asset $ -- $ -- ====== ====== Non-current deferred tax asset $ -- $ -- Non-current deferred tax liability -- -- Valuation allowance for non-current deferred tax asset -- -- ------ ------ Net non-current deferred tax asset $ -- $ -- ====== ======
F-15 71 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - INCOME TAXES - CONTINUED The components of income tax expense for the years ended December 31, 1996 and 1995, respectively, are as follows:
1996 1995 -------- ------ Federal: Current $156,675 $ -- Deferred -- -- -------- ------ 156,675 -- -------- ------ State: Current 36,900 -- Deferred -- -- -------- ------ 36,900 -- -------- ------ Total $193,575 $ -- ======== ======
NOTE H - RELATED PARTY TRANSACTIONS The Company leases its manufacturing facilities under an operating lease with the former owner of Brister's, who is also a Company shareholder and director. Concurrent with the closing of the acquisition of Brister's, the Company and the former owner executed a new lease agreement for a primary two-year term expiring in 1998 and an additional two-year renewal option. The monthly lease payment will remain at $6,025 per month with annual adjustments for increases based upon the Consumer Price Index. Concurrent with the acquisition of Brister's, the Company and the former owner of Brister's entered into a Real Estate Option Right of First Refusal Agreement. This agreement provides that the Company may, at its sole option, purchase the real property and improvements in Roseland, Louisiana currently utilized by the Company or its subsidiary for an aggregate purchase price of $550,000. The option may be exercised commencing on December 31, 1997 and expires on December 31, 2000. In January 1996, concurrent with the execution of a letter of intent related to a Stock Purchase Agreement whereby the Company acquired 100.0% of the issued and outstanding stock of Brister's, the Company entered into a consulting contract with a company owned by an officer and director of the Company whereby the consulting company would provide all necessary legal, capital and other related professional services, exclusive of accounting and auditing services, related to the reorganization, recapitalization and consummation of the acquisition of Brister's for a fee of $15,000. The payment of the fee was contingent upon the successful consummation of the Brister's acquisition. The fee was settled with the differential between 1,500,000 pre-reverse stock split unregistered, restricted common stock (1,000,000 post-reverse split shares) escrowed to close the acquisition of Brister's and the actual number of shares to be issued to the then owners of Brister's, pursuant to the applicable settlement terms of the Stock Purchase Agreement. Upon final settlement, the $15,000 fee was settled with the allocation of approximately 725,000 pre-reverse stock split shares (483,333 post-reverse stock split shares) to the consulting company. F-16 72 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - CONVERTIBLE PREFERRED STOCK The Company has 10,000,000 shares of Preferred Stock (Preferred Shares) authorized for issuance. In October 1996, the Company's Board of Directors allocated 25 shares of the authorized number to facilitate the private placement of said shares as a component of an Equity Unit (Unit) to be sold through a Private Placement Memorandum (PPM). The PPM was fully subscribed and closed in November 1996. Each $25,000 Unit consisted of one (1) share of convertible preferred stock and 10,000 redeemable common stock purchase warrants. The PPM raised total gross proceeds of approximately $625,000 and net proceeds of approximately $530,250 to the Company. The Preferred Shares require mandatory conversion upon either the effectiveness of a public offering of the Company's common stock pursuant to a Registration Statement or upon the first anniversary date of the PPM closing date. In the event that the conversion is triggered by a public offering, each Preferred Share will be converted, at the holder's option, into either $25,000 cash and this issuance of 6.250 shares of restricted, unregistered common stock or 12,500 shares of restricted, unregistered common stock. In either situation, the holder retains piggyback registration rights for the shares of common stock issued in the conversion. In the event that the conversion is triggered by the first anniversary date of the PPM closing, each Preferred Share will be converted to 12,500 shares of restricted, unregistered common stock, subject to identical piggyback registration rights discussed previously. In January 1997, the Company began undertaking a secondary public offering of common stock pursuant to a Form SB-2 Registration Statement (secondary offering). In accordance with guidance and instructions from the National Association of Securities Dealers (NASD) related to the Company's application for listing on the "NASDAQ Small- Cap Market", the NASD required certain modifications to the terms and conditions underlying the sale and issuance of the Preferred Shares and their conversion terms. In March 1997, the holders of the Preferred Shares individually approved a modification to the mandatory conversion terms of the Preferred Shares. Upon approval by the individual holders, each holder may now receive either $25,000 (the initial Unit sales price) and simple interest of 12.0% (or the legal rate prescribed by governing state law, if any) or the holder may retain the original participation terms of the PPM. If the holder chooses the option to retain the original participation terms, the holder must unconditionally agree to a lock-up of all of the holder's securities (the Preferred Shares and any securities that the Preferred Shares are convertible into and all originally issued redeemable common stock purchase warrants) whereby these designated securities may not be sold by the holder for a period of approximately 18 months from the closing date of the secondary offering. Upon release of the lock-up terms, the holder will be permitted to sell the aforementioned securities under the terms and conditions of Rule 144 of the U. S. Securities and Exchange Commission. Further, if the holder elects the second option, the holder will be deemed to be an affiliate of the underwriter in the secondary offering and, as such, will not be eligible to purchase any securities offered in the secondary offering. In the event any holder selects the second option, the Company will issue an additional 20,000 pre-reverse stock split redeemable common stock purchase warrants (13,333 post-reverse stock split warrants) to the holder of the Preferred Shares. F-17 73 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - COMMON STOCK TRANSACTIONS On February 23, 1996, the Company was reincorporated in the State of Nevada by means of a merger with and into Karts International Incorporated, a Nevada corporation incorporated on February 21, 1996. The Company was the surviving entity and changed its corporate name to Karts International Incorporated. The reincorporation merger had the effect of a one for 250 reverse split of the Company's issued and outstanding common stock. The reincorporation merger also modified the Company's capital structure to authorize the issuance of up to 20,000,000 shares of $0.001 par value common stock and authorized the issuance of up to 10,000,000 shares of $0.001 par value Preferred Stock. The effect of this transaction has been reflected in the accompanying financial statements as of the beginning of the first period presented. On February 28, 1997, to be effective on March 24, 1997, the Company's Board of Directors approved a two (2) for three (3) reverse stock split and a corresponding reduction of the authorized shares of common stock in anticipation of a proposed underwritten public offering of the Company's common stock during 1997. This reverse stock split reduced the authorized shares of common stock from 20,000,000 to 14,000,000. The issued and outstanding shares of common stock shown in the accompanying financial statements reflect the ultimate effect of the March 24, 1997 reverse stock split as if this second reverse split had occurred as of the beginning of the first period presented in the accompanying consolidated financial statements. On February 20, 1996, the Company sold 18,750,000 restricted, unregistered pre-reorganization shares of common stock (75,000 equivalent post-reorganization shares) (50,000 post-March 24, 1997 reverse split shares) to a former Company director for cash of approximately $938. On March 7, 1996, the Company sold 1,451,317 restricted, unregistered post-reorganization shares (967,545 post- March 24, 1997 reverse split shares) of common stock to an entity owned by an officer and director of the Company for cash of approximately $1,451. Between March 14, 1996 and March 31, 1996, the Company sold 350,000 restricted, unregistered post-reorganization shares (233,333 post-March 24, 1997 reverse split shares) of common stock under a Private Placement Memorandum at a price of $1.50 per share. The total gross proceeds of the offering were $525,000. Certain placement costs and commissions related to the sale of the Private Placement stock, totaling approximately $163,100, were deducted from the gross proceeds and charged against additional paid-in capital. On March 15, 1996, the Company issued 105,000 restricted, unregistered post-reorganization shares (70,000 post- March 24, 1997 reverse split shares) of common stock to a Foundation as a component of the loan origination costs to secure the $2,000,000 note payable. The proceeds of this note payable were used to satisfy the cash component of the Brister's acquisition cost. On March 15, 1996, the Company acquired 100% of the issued and outstanding stock of Brister's Thunder Karts, Inc., a Louisiana corporation, in exchange for $2,000,000 in cash; a subordinated $1,000,000 promissory note payable bearing variable interest rates, as defined therein, maturing in 2003; and restricted, unregistered common stock of the Company having an aggregate market value of $3,100,000, as defined in the related purchase agreement. The $2,000,000 cash payment was funded by a promissory note from an unrelated third party bearing interest at 14.0% per annum and maturing in 2000. Final settlement was satisfied with the issuance of 775,000 restricted, unregistered post-reorganization shares (516,667 post-March 24, 1997 reverse stock split shares) having a market value of $3,100,000, as defined in the related Stock Purchase Agreement. F-18 74 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - COMMON STOCK TRANSACTIONS - CONTINUED On March 15, 1996, the Company issued 725,000 restricted, unregistered post-reorganization shares (483,333 post- March 24, 1997 reverse stock split shares) of common stock in settlement of a $15,000 consulting contract with a company owned by an officer and director of the Company. On March 15, 1996, in accordance with a January 1996 letter of intent, the Company issued 210,000 restricted, unregistered post-reorganization shares (140,000 post-March 24, 1997 reverse split shares) of common stock to the Company's chief executive officer, valued at $15,000, as additional consideration for the execution of an employment agreement. In July 1996, the Company sold 5,000 Units, consisting of 5,000 restricted, unregistered post-reorganization shares of common stock (3,334 post-March 24, 1997 reverse split shares) and 100,000 Class A common stock warrants (66,667 post-March 24, 1996 reverse stock split warrants) for approximately $17,500. The Class A common stock warrants may be used to purchase one (1) restricted, unregistered post-reorganization share of the Company's common stock at a price of $3.50 per share ($5.25 per share, post-March 24, 1997 reverse stock split). In August 1996, 5,000 warrants (3,334 post-March 24, 1997 reverse split warrants) were exercised for total proceeds of $17,500. The total effect of this transaction was the sale of 10,000 restricted, unregistered post-reorganization shares (6,667 post-March 24, 1997 reverse split shares) for a total price of $35,000. On November 20, 1996, Company acquired 100% of the issued and outstanding stock of USA Industries, Inc. an Alabama corporation, in exchange for $250,000 in cash and 250,000 restricted, unregistered post-reorganization shares (166,667 post-March 24, 1997 reverse split shares) of restricted, unregistered common stock of the Company having an aggregate market value of $750,000. NOTE K - COMMON STOCK WARRANTS In July 1996, the Company privately sold 5,000 Units which included 100,000 Class A common stock warrants (Class A Warrants) (66,667 post-March 24, 1997 reverse stock split warrants), as discussed in previous footnotes. Each warrant entitles the holder to purchase one (1) share of common stock at an adjusted price of $5.25 per share through December 31, 1997. In November 1996, the Company privately sold 25 units which included 250,000 Redeemable Common Stock Purchase Warrants (1996 Warrants) (166,668 post-March 24, 1997 reverse stock split warrants), as discussed in previous footnotes). Each warrant entitles the holder to purchase one (1) share of common stock at $3.00 per share ($4.50 post-March 24, 1997 reverse split), subject to adjustment in certain circumstances, for a period of 42 months from the closing date of the offering. The 1996 Warrants are redeemable by the Company at a price of $0.01 per Warrant at any time after one (1) year from the offering closing date when the average of the daily closing bid price of the Company's common stock equals $6.00 or more per share on any 20 consecutive trading days ending within 15 days of the date on which notice of redemption is given to the holders. The Company will provide holders of the 1996 Warrants with at least 30 days written notice of the Company's intent to redeem the Warrants.
Warrants Warrants Warrants granted exercised outstanding Exercise price ------- --------- ----------- -------------- Class A Warrants 66,667 3,334 63,333 $5.25 per share 1996 Warrants 166,668 -- 166,668 $4.50 per share ------- ------ ------- Totals 233,335 3,334 230,001 ======= ====== =======
F-19 75 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - STOCK OPTIONS The Company's Compensation Committee of the Board of Directors has allocated an aggregate 188,066 shares of the Company's common stock (125,377 post-March 24, 1997 reverse stock split shares) for unqualified stock option plans for the benefit of employees of the Company and its subsidiaries. During 1996, the Company granted options to purchase 89,032 shares (59,355 post-March 24, 1997 reverse stock split shares) of the Company's common stock to employees of the Company and its operating subsidiaries at an exercise price of $3.75 per share ($5.63 post-March 24, 1997 reverse split). These options expire at various times during 2001.
Options Options Options granted exercised outstanding Exercise price ------- --------- ----------- -------------- 1996 options 59,355 -- 59,355 $5.63 per share ======= === ====== Shares allocated 125,377 =======
NOTE M - COMMITMENTS AND CONTINGENCIES Litigation Brister's is named as defendant in several product liability lawsuits related to its "fun karts". The Company has had and continues to have commercial liability coverage to cover these exposures with a $50,000 per claim self-insurance clause as of December 31, 1996. The Company is vigorously contesting each lawsuit and has accrued management's estimation of the Company's exposure in each situation. Additionally, the Company maintains a reserve for future litigation equal to the "per claim" self-insurance amount times the four-year rolling average of lawsuits filed naming the Company as a defendant. As of December 31, 1996, approximately $100,000 has been accrued and charged to operations for anticipated future litigation. On February 7, 1997, litigation was filed against Brister's in an action to have Brister's product liability insurance coverage (discussed in the preceding paragraph) declared null and void as a result of a payment by Brister's insurance underwriter in settlement of a product liability lawsuit. Legal counsel is of the opinion that this action has questionable merit and the determination of an outcome, if any, is unpredictable at this time. The Company is vigorously defending the action. Additionally, the Company is pursuing a counteraction against the underwriter's agent for potential misrepresentations made by the agent to the underwriter regarding Brister's during the acquisition of the aforementioned commercial liability insurance coverage. F-20 76 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - COMMITMENTS AND CONTINGENCIES - CONTINUED Consulting and Patent Licensing Pursuant to the acquisition of Brister's, the Company entered into a Consulting Agreement with the former owner of Brister's. The former owner will provide certain consulting services to the Company or any subsidiary thereof, which services will not exceed 8 eight-hour work days per month. As consideration for such services, the former owner will receive $400 per day for consulting services provided at the Company's principal place of business and $800 per day for consulting services provided while traveling in connection with Company business. The former owner is required to maintain the confidentiality of all Company information. Pursuant to the acquisition of Brister's, the Company and the former owner of Brister's entered into a Non- Competition Agreement. The former owner has agreed not to compete with the Company or any of its subsidiaries for a period of five years in any jurisdiction in which the Company or any subsidiary is duly qualified to conduct business or within any marketing area in which the Company is doing a substantial amount of business or is engaged in a business similar to that currently operated by the Company. Additionally, the former owner agreed that during the same five-year period not to interfere with the employment relationship between the Company and any of its other employees by soliciting any of such individuals to participate in individual business ventures. At the closing of the Brister's acquisition, the Company entered into a Licensing Agreement with the former owner of Brister's. This agreement provides that the former owner will (1) license to the Company all of the Intellectual Property (as defined) currently owned by the former owner and being used by the Company or any subsidiary at terms at least as favorable as the former owner has received or could have received in arms-length transactions with third parties and (2) for a period of five years from the execution of the Licensing Agreement will license to the Company, at the Company's sole option, all Intellectual Property developed or owned by the former owner at any time subsequent to the Closing Date. The license referenced in section (2) above shall be exclusive to the Company and free of charge for the first year from the date of invention and thereafter at terms at least as favorable as the former owner has received or could have received in arms-length transactions with third parties. Intellectual Property is defined in the Stock Purchase Agreement as all domestic and foreign letters patent, patents, patent applications, patent licenses, software licenses and know-how licenses, trade names, trademarks, copyrights, unpatented inventions, service marks, trademark registrations and applications, service mark registrations and applications and copyright registrations and applications owned or used by the Company or any subsidiary in the operation of its business. Employment agreement In March 1996, the Company entered into a long-term employment contract (Agreement) with an individual to serve as the Company's Chairman of the Board, President and Chief Executive Officer. The Agreement is for a term of three (3) years and provides for an annual base salary of $150,000. Upon execution of the Agreement, the individual received a signing bonus of 10%, or $15,000, paid with the issuance of 210,000 restricted, unregistered post-reorganization shares (140,000 post-March 24, 1997 reverse split shares) of common stock. Under the terms of the Agreement, the Company may buy-back 140,000 shares in Year 1 of the Agreement at an aggregate price of $16,800 if the individual is terminated for cause or the individual voluntarily terminates his employment prior to March 15, 1997; 70,000 shares in Year 2 of the Agreement at an aggregate price of $8,400 if the individual is terminated for cause or the individual voluntarily terminates his employment between March 15, 1997 and March 15, 1998; and 35,000 shares in Year 3 of the Agreement at an aggregate price of $4,200 if the individual is terminated for cause or the individual voluntarily terminates his employment between March 15, 1998 and March 15, 1999. If the Agreement is terminated for any reason than for cause or voluntary termination by the individual, the buy-back option is terminated. F-21 77 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Sarah Acquisition Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - SIGNIFICANT CUSTOMERS During the year ended December 31, 1996, the Company had two related customers responsible for net sales in excess of 10.0% of total net sales. Total net sales $8,327,316 100.00% ========== ====== Company A $1,316,880 15.81% Company B 369,460 4.44% ---------- ------ Total significant customers $1,686,340 20.25% ========== ======
F-22 78 KARTS INTERNATIONAL INCORPORATED INTRODUCTION TO PROFORMA CONSOLIDATED FINANCIAL INFORMATION (Unaudited) Karts International Incorporated (Karts) acquired 100.0% of the issued and outstanding stock of Brister's Thunder Karts, Inc. (a Louisiana corporation) (Brister's) at the close of business on March 31, 1996 and 100.0% of the issued and outstanding stock of USA Industries, Inc. (an Alabama corporation) (USA) as of the close of business on November 21, 1996. The purchase price of Brister's was approximately $6,300,000 with approximately $2,000,000 paid in cash, a notes payable to the seller aggregating $1,200,000 and 775,000 shares (516,667 post-March 24, 1997 reverse stock split shares) of Karts unregistered, restricted common stock having an agreed-upon value of approximately $3,100,000. The purchase price of USA was $1,000,000 with approximately $250,000 paid in cash at closing and the balance paid in 250,000 shares (166,667 post-March 24, 1997 reverse stock split shares) of Karts unregistered, restricted common stock equaling $750,000 based upon the closing price of the Company's common stock on the settlement date. Both acquisition transactions were accounted for using the purchase method of accounting for business combinations. Karts allocated the total purchase price to the assets acquired based upon their respective relative fair value. Any excess purchase price over the fair value of the assets acquired was recorded as goodwill.
Brister's USA Thunder Industries, Karts, Inc. Inc. ----------- ----------- Purchase price $ 6,300,000 $ 1,000,000 Assets acquired (2,017,394) (1,496,970) Liabilities assumed 981,367 1,492,420 ----------- ----------- Goodwill $ 4,863,973 $ 995,450 =========== ===========
The Proforma Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 present the consolidated results of continuing operations of Karts International Incorporated and Subsidiaries and USA Industries, Inc. as if the acquisitions occurred as of January 1, 1994, as adjusted for the pro forma effect of the amortization of goodwill. These proforma statements include all material adjustments necessary to present proforma historical results of the above described transactions. The proforma information does not purport to be indicative of the financial position or the results of operations which would have actually been obtained if the acquisition transactions had actually been consummated on the dates indicated. In addition, the proforma financial information does not purport to be indicative of the financial position or results of operations that may be obtained in the future. The proforma information has been prepared by Karts and all calculations have been made based on assumptions deemed appropriate in the circumstances by Karts. Certain of these assumptions are set forth under the Notes to Proforma Consolidated Financial Information. The proforma financial information should be read in conjunction with the historical Financial Statements and Notes thereto of Karts International Incorporated and its wholly-owned subsidiaries, Brister's Thunder Karts, Inc. and USA Industries, Inc. F-23 79 KARTS INTERNATIONAL INCORPORATED COMBINED PRO FORMA STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1996
Brister's USA Thunder Industries, Pro Forma Karts Karts, Inc. Inc. effect of International 1/1/96 to 1/1/96 to amortization Pro Forma Incorporated 3/31/96 11/21/96 of goodwill Combined ------------ ------------ ------------ ------------ ------------ REVENUES Kart sales $ 8,327,316 $ 916,845 $ 1,454,663 $ -- $ 10,698,824 COST OF GOODS SOLD 5,842,532 353,734 1,417,106 -- 7,613,372 ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 2,484,784 563,111 37,557 -- 3,085,452 OPERATING EXPENSES General and administrative 1,650,039 277,666 223,947 -- 2,151,652 Depreciation and amortization 205,397 14,687 40,849 83,091 344,024 ------------ ------------ ------------ ------------ ------------ Total operating expenses 1,855,436 292,353 264,796 83,091 2,495,676 ------------ ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS 629,348 270,758 (227,239) (83,091) 589,776 OTHER INCOME (EXPENSE) Litigation settlements -- (17,379) -- -- (13,379) Interest and other 32,573 448 -- -- 33,021 ------------ ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 661,921 253,827 (227,239) (83,091) 605,418 PROVISION FOR INCOME TAXES (193,575) (89,675) -- -- (283,250) ------------ ------------ ------------ ------------ ------------ NET INCOME $ 468,346 $ 164,152 $ (227,239) $ (83,091) $ 322,168 ============ ============ ============ ============ ============ Pro Forma earnings per weighted-average share of common stock $ 0.10 ============ Pro Forma number of weighted-average shares of common stock outstanding 3,119,592 ============
F-24 80 KARTS INTERNATIONAL INCORPORATED COMBINED PRO FORMA STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1995
Pro Forma Karts Brister's USA effect of International Thunder Industries, amortization Pro Forma Incorporated Karts, Inc. Inc. of goodwill Combined ------------ ----------- ----------- ----------- ---------- REVENUES Kart sales $ -- $ 7,320,417 $ 1,194,043 $ - $8,514,460 COST OF GOODS SOLD -- 5,131,735 1,052,605 -- 6,184,340 ----------- ----------- ----------- ----------- ---------- GROSS PROFIT -- 2,188,682 141,438 -- 2,330,120 OPERATING EXPENSES General and administrative 630 1,443,155 94,822 -- 1,538,607 Depreciation and amortization -- 68,815 32,161 234,377 335,353 ----------- ----------- ----------- ----------- ---------- Total operating expenses 630 1,511,970 126,983 234,377 1,873,960 ----------- ----------- ----------- ----------- ---------- INCOME FROM OPERATIONS (630) 676,712 14,455 (234,377) 456,160 OTHER INCOME (EXPENSE) Litigation settlements -- (130,000) -- -- (130,000) Interest and other -- 13,263 587 -- 13,850 ----------- ----------- ----------- ----------- ---------- INCOME BEFORE INCOME TAXES (630) 559,975 15,042 (234,377) 340,010 PROVISION FOR INCOME TAXES -- (218,686) -- -- (218,686) ----------- ----------- ----------- ----------- ---------- NET INCOME $ (630) $ 341,289 $ 15,042 $ (234,377) $ 121,324 =========== =========== =========== =========== =========== Pro Forma earnings per weighted-average share of common stock $ 0.04 ============ Pro Forma number of weighted-average shares of common stock outstanding 3,119,592 ============
F-25 81 KARTS INTERNATIONAL INCORPORATED COMBINED PRO FORMA STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1994
Pro Forma Karts Brister's USA effect of International Thunder Industries, amortization Pro Forma Incorporated Karts, Inc. Inc. of goodwill Combined ----------- ----------- ----------- ----------- ----------- REVENUES Kart sales $ -- $ 6,203,293 $ 866,207 $ -- $7,069,500 COST OF GOODS SOLD -- 4,421,274 764,971 -- 5,186,245 ----------- ----------- ----------- ----------- ----------- GROSS PROFIT -- 1,782,019 101,236 -- 1,883,255 OPERATING EXPENSES General and administrative 630 1,235,694 77,453 -- 1,313,777 Depreciation and amortization -- 81,179 28,977 234,377 344,533 ----------- ----------- ----------- ----------- ----------- Total operating expenses 630 1,316,873 106,430 234,377 1,658,310 ----------- ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS (630) 465,146 (5,194) (234,377) 224,945 OTHER INCOME (EXPENSE) Interest and other -- 97,414 372 -- 97,786 ----------- ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES (630) 562,560 (4,822) (234,377) 322,731 PROVISION FOR INCOME TAXES -- (216,072) -- -- (216,072) ----------- ----------- ----------- ----------- ----------- NET INCOME $ (630) $ 346,488 $ (4,822) $ (234,377) $ 106,659 =========== =========== =========== =========== =========== Pro Forma earnings per weighted-average share of common stock $ 0.03 ============ Pro Forma number of weighted-average shares of common stock outstanding 3,119,592 ============
F-26 82 KARTS INTERNATIONAL INCORPORATED NOTES TO PROFORMA CONSOLIDATED FINANCIAL INFORMATION (Unaudited) The Proforma Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 are derived from the historical Statements of Income of Karts International Incorporated, Brister's Thunder Karts, Inc. and USA Industries, Inc. The proforma information reflects the adjustments to record the acquisition of Brister's Thunder Karts, Inc. by Karts International Incorporated on April 1, 1996 as if the acquisition occurred on January 1, 1994. This transaction was recorded pursuant to the requirements of Accounting Principles Board Opinion #16, "Business Combinations", and is accounted for as a purchase. Additionally, the proforma information reflects the adjustments to record the acquisition of USA Industries, Inc. by Karts International Incorporated on November 21, 1996 as if the acquisition occurred on January 1, 1994. This transaction was recorded pursuant to the requirements of Accounting Principles Board Opinion #16, "Business Combinations", and is accounted for as a purchase. The proforma financial information should be read in conjunction with the historical Financial Statements and Notes thereto of Karts International Incorporated and its wholly-owned subsidiaries, Brister's Thunder Karts, Inc. and USA Industries, Inc. The proforma information does not purport to be indicative of the financial position or the results of operations which would have actually been obtained if the acquisition transactions had actually been consummated on the dates indicated. In addition, the proforma financial information does not purport to be indicative of the financial position or results of operations that may be obtained in the future. The respective pro forma adjustments to the historical financial statements depicted on the Proforma Consolidated Statements of Income are described below: (1) Adjustment to amortize approximately $5.86 million in cumulative goodwill acquired in the respective acquisitions as if both acquisitions had occurred on January 1, 1994. Goodwill is amortized using a 25 year life and the straight-line method. F-27 83 [S. W. HATFIELD + ASSOCIATES LETTERHEAD] ACCOUNTANT'S REVIEW REPORT Shareholders and Board of Directors Brister's Thunder Karts, Inc. We have reviewed the accompanying balance sheet of Brister's Thunder Karts, Inc.(a Louisiana corporation and a wholly-owned subsidiary of Karts International Incorporated ) as of March 31, 1996 and the related statements of income, changes in retained earnings and cash flows for the three months then ended, in accordance with statements on standards for accounting and review services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Brister's Thunder Karts, Inc. A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. S. W. HATFIELD + ASSOCIATES DALLAS, TEXAS MAY 10, 1996 F-28 84 BRISTER'S THUNDER KARTS, INC. (a wholly-owned subsidiary of Karts International Incorporated) BALANCE SHEET March 31, 1996 ASSETS CURRENT ASSETS Cash on hand and in bank $ 488,047 Accounts and notes receivable Trade 239,864 Other 424 Inventory 852,631 Prepaid expenses 101,050 ----------- TOTAL CURRENT ASSETS 1,682,016 ----------- PROPERTY AND EQUIPMENT - AT COST 496,425 Less accumulated depreciation (171,528) ----------- NET PROPERTY AND EQUIPMENT 324,897 ----------- OTHER ASSETS Deposits 4,059 ----------- TOTAL ASSETS $ 2,010,972 =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Note payable $ 83,235 Current maturities of long-term debt 4,190 Accounts payable and other accrued liabilities 97,394 Federal and State income taxes payable 103,542 ----------- TOTAL CURRENT LIABILITIES 288,361 ----------- LONG-TERM LIABILITIES Notes payable 5,364 Deferred income tax liability 17,438 ----------- TOTAL LIABILITIES 311,163 ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock - no par value 1,000 shares authorized, issued and outstanding 1,000 Retained earnings 1,698,809 ----------- TOTAL SHAREHOLDERS' EQUITY 1,699,809 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,010,972 ===========
See Accountant's Review Report. The accompanying notes are an integral part of these financial statements. F-29 85 BRISTER'S THUNDER KARTS, INC. (a wholly-owned subsidiary of Karts International Incorporated) STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS Three months ended March 31, 1996 REVENUES $ 916,845 COST OF SALES 399,334 ----------- GROSS PROFIT 517,511 OPERATING EXPENSES 299,527 ----------- INCOME FROM OPERATIONS 217,984 OTHER INCOME (EXPENSE) (13,647) ----------- INCOME BEFORE INCOME TAXES 204,337 INCOME TAX (EXPENSE) (89,675) ----------- NET INCOME 114,662 RETAINED EARNINGS At beginning of period 1,584,147 ----------- At end of period $ 1,698,809 ===========
See Accountant's Review Report. The accompanying notes are an integral part of these financial statements. F-30 86 BRISTER'S THUNDER KARTS, INC. (a wholly-owned subsidiary of Karts International Incorporated) STATEMENTS OF CASH FLOWS Three months ended March 31, 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income for the period $ 114,662 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 20,273 (Increase) Decrease in: Accounts receivable (86,167) Inventory (280,632) Prepaid expenses 50,525 Deposits (4,059) Increase (Decrease) in: Accounts payable and other accrued liabilities (416,388) Federal income taxes payable 63,054 ----------- NET CASH USED IN OPERATING ACTIVITIES (538,732) ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (46,343) Cash received (advanced) on other accounts receivable (424) ----------- NET CASH USED IN INVESTING ACTIVITIES (46,767) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on note payable (26,988) Principal payments on long-term debt (1,045) ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES (28,033) ----------- DECREASE IN CASH (613,532) Cash at beginning of period 1,101,579 ----------- Cash at end of year $ 5,338 =========== SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID Interest paid during the period $ 14,639 =========== Income taxes paid during the period $ 26,621 ===========
See Accountant's Review Report. The accompanying notes are an integral part of these financial statements. F-31 87 BRISTER'S THUNDER KARTS, INC. (a wholly-owned subsidiary of Karts International Incorporated) NOTES TO FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Brister's Thunder Karts, Inc. (Company) was formed on August 2, 1976 under the laws of the State of Louisiana. The Company is in the business of manufacturing and marketing motorized "fun" karts for the consumer market. Effective at the close of business on March 31, 1996, the Company's sole shareholder sold 100.0% of the issued and outstanding stock to Karts International Incorporated (KII). The Company became a wholly-owned subsidiary of KII at that date. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. Accounts and advances receivable In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. 3. Inventory Inventory consists of steel, engines and other related raw materials used in the manufacture of "fun" karts. These items are carried at the lower of cost or market using the first-in, first-out method. As of March 31, 1996, inventory consisted of the following components: Raw materials $506,022 Work in process 211,825 Finished goods 134,784 -------- $852,631 ========
F-32 88 BRISTER'S THUNDER KARTS, INC. (a wholly-owned subsidiary of Karts International Incorporated) NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Property, plant and equipment Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives of the individual assets using the straight-line method. Gains and losses from disposition of property and equipment are recognized as incurred and are included in operations. 5. Income taxes The Company utilizes the asset and liability method of accounting for income taxes. At March 31, 1996 , the deferred tax asset and deferred tax liability accounts, as recorded when material, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization. No valuation allowance was provided against deferred tax assets, where applicable. NOTE C - PROPERTY AND EQUIPMENT Property and equipment consist of the following components:
Estimated useful life ----------- Equipment $ 360,368 10 years Transportation equipment 85,788 3 years Furniture and fixtures 45,822 7 years Leasehold improvements 4,447 10 years --------- 496,425 Accumulated depreciation (171,528) --------- Net property and equipment $ 324,897 =========
NOTE D - NOTES PAYABLE Notes payable consist of the following: $137,025 note payable to a finance company. Interest at 9.20% Payable in monthly installments of approximately $14,290, including interest. Secured by insurance coverage $83,235 =======
F-33 89 BRISTER'S THUNDER KARTS, INC. (a wholly-owned subsidiary of Karts International Incorporated) NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE E - LONG-TERM DEBT Long-term debt consists of the following: $27,677 note payable to the Company's former shareholder. Interest at 7.0% Payable in semi-monthly installments of approximately $200, including interest Secured by equipment $ 9,554 Less current portion (4,190) Long-term portion $ 5,364 =======
Future maturities of long-term debt are as follows:
Year ending December 31, Amount ------------ ------ 1996 $4,190 1997 4,494 1998 870 ------ $9,554 ======
NOTE F - INCOME TAXES The deferred current tax asset and non-current deferred tax liability on the March 31, 1996 balance sheet consists of the following: Current deferred tax asset $ -- Current deferred tax liability -- Valuation allowance for current deferred tax asset -- ------- Net current deferred tax asset $ -- ======= Non-current deferred tax asset $ -- Non-current deferred tax liability 17,438 Valuation allowance for non-current deferred tax asset -- ------- Net non-current deferred tax asset $17,438 =======
The non-current deferred tax liability results from the usage of statutory accelerated tax depreciation and amortization methods. F-34 90 BRISTER'S THUNDER KARTS, INC. (a wholly-owned subsidiary of Karts International Incorporated) NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - INCOME TAXES - CONTINUED The components of income tax expense for the three months ended March 31, 1996 is as follows: Federal: Current $78,502 Deferred -- ------- 78,502 State: Current 11,173 Deferred -- ------- 11,173 ------- Total $89,675 =======
The Company's income tax expense for the three months ended March 31, 1996 differed from the statutory federal rate of 34 percent as follows: Statutory rate applied to earnings before income taxes $69,475 Increase (decrease) in income taxes resulting from: State income taxes 11,173 Effect of book/tax differences in depreciation and other tax basis adjustments 9,027 ------- Income tax expense $89,675 =======
NOTE G - RELATED PARTY TRANSACTIONS The Company leases its manufacturing facilities and corporate offices under an operating lease with its sole shareholder. The lease requires payments of approximately $6,025 per month and the lease expires in December 1996. The lease contains an extension option for the year beginning January 1997. Total lease expense for the three months ended March 31, 1996 was approximately $18,075. NOTE H - COMMITMENTS AND CONTINGENCIES The Company is named as defendant in several lawsuits related to its "fun" karts. The Company has commercial liability coverage to cover these exposures with a $25,000 per claim self-insurance clause. The Company is vigorously contesting each lawsuit and has accrued management's estimation of the Company's exposure in each situation. Additionally, the Company maintains a reserve for future litigation equal to the "per claim" self-insurance amount times the four-year rolling average of lawsuits filed naming the Company as a defendant. F-35 91 [S. W. HATFIELD + ASSOCIATES LETTERHEAD] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholder Brister's Thunder Karts, Inc. We have audited the accompanying balance sheets of Brister's Thunder Karts, Inc. (A Louisiana corporation) as of December 31, 1995 and 1994 and the related statements of income, changes in shareholder's equity and cash flows for each of the two years ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brister's Thunder Karts, Inc. As of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the two years ended December 31, 1995 in conformity with generally accepted accounting principles. S. W. HATFIELD + ASSOCIATES DALLAS, TEXAS MARCH 9, 1996 F-36 92 BRISTER'S THUNDER KARTS, INC. BALANCE SHEETS December 31, 1995 and 1994
ASSETS 1995 1994 ----------- ----------- CURRENT ASSETS Cash on hand and in bank $ 1,101,579 $ 521,432 Accounts receivable Trade 153,697 179,576 Other -- 24,000 Inventory 571,999 381,743 Prepaid expenses 151,575 109,745 ----------- ----------- TOTAL CURRENT ASSETS 1,978,850 1,216,496 ----------- ----------- PROPERTY AND EQUIPMENT 450,082 349,050 Accumulated depreciation (151,255) (98,444) ----------- ----------- NET PROPERTY AND EQUIPMENT 298,827 250,606 ----------- ----------- TOTAL ASSETS $ 2,277,677 $ 1,467,102 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Notes payable $ 110,223 $ 76,881 Current maturities of long-term debt 4,190 3,908 Accounts payable and other accrued expenses 513,782 98,783 Federal and state income taxes payable 40,488 1,271 ----------- ----------- TOTAL CURRENT LIABILITIES 668,683 180,843 ----------- ----------- LONG-TERM LIABILITIES Notes payable, net of current maturities 6,409 10,599 Deferred tax liability 17,438 31,802 ----------- ----------- TOTAL LIABILITIES 692,530 223,244 ----------- ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDER'S EQUITY (DEFICIT) Common stock - no par value 1,000 shares authorized, issued and outstanding, respectively 1,000 1,000 Retained earnings 1,584,147 1,242,858 ----------- ----------- TOTAL SHAREHOLDER'S EQUITY (DEFICIT) 1,585,147 1,243,858 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 2,277,677 $ 1,467,102 =========== ===========
The accompanying notes are an integral part of these financial statements. F-37 93 BRISTER'S THUNDER KARTS, INC. STATEMENTS OF INCOME Years ended December 31, 1995 and 1994
1995 1994 ----------- ----------- REVENUES Kart sales $ 7,320,417 $ 6,203,293 ----------- ----------- COST OF SALES Materials 4,350,123 3,805,191 Direct labor 447,654 328,524 Freight 72,687 76,289 Other 261,271 211,270 ----------- ----------- TOTAL COST OF SALES 5,131,735 4,421,274 ----------- ----------- GROSS PROFIT 2,188,682 1,782,019 ----------- ----------- OPERATING EXPENSES Salaries, wages and related costs 872,502 777,662 Insurance 174,166 180,032 Other general and administrative costs 396,487 278,000 Depreciation and amortization 68,815 81,179 ----------- ----------- TOTAL OPERATING EXPENSE 1,511,970 1,316,873 ----------- ----------- INCOME FROM OPERATIONS 676,712 465,146 OTHER INCOME (EXPENSES) Interest and other income 9,043 20,763 Litigation settlements and reserves (130,000) -- Gain on sale of fixed assets 4,220 76,651 ----------- ----------- INCOME BEFORE INCOME TAXES 559,975 562,560 INCOME TAXES (218,686) (216,072) ----------- ----------- NET INCOME $ 341,289 $ 346,488 =========== ===========
The accompanying notes are an integral part of these financial statements. F-38 94 BRISTER'S THUNDER KARTS, INC. STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY Years ended December 31, 1995 and 1994
Common Stock ------------------------- Retained # shares Amount earnings Totals ----------- ----------- ----------- ----------- BALANCES AT JANUARY 1, 1994 1,000 $ 1,000 $ 1,069,472 $ 1,070,472 Property dividend to shareholder -- -- (173,102) (173,102) Net income for the year -- -- 346,488 346,488 ----------- ----------- ----------- ----------- BALANCES AT DECEMBER 31, 1994 1,000 1,000 1,242,858 1,243,858 Net income for the year -- -- 341,289 341,289 ----------- ----------- ----------- ----------- BALANCES AT DECEMBER 31, 1995 1,000 $ 1,000 $ 1,584,147 $ 1,585,147 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-39 95 BRISTER'S THUNDER KARTS, INC. STATEMENTS OF CASH FLOWS Years ended December 31, 1995 and 1994 1995 1994 ----------- ----------- [S] [C] [C] CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year $ 341,289 $ 346,488 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 68,815 81,179 Gain on sale of fixed assets (4,220) (76,651) (Increase) Decrease in: Accounts receivable 25,879 (55,961) Inventory (190,256) (289,293) Prepaid expenses (151,575) -- Increase (Decrease) in: Accounts payable and other accrued liabilities 525,222 (28,260) Income taxes payable 148,962 (192,178) Deferred tax liability (14,364) 21,277 ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 749,752 (193,399) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash collected from miscellaneous advances 24,000 35,000 Cash advanced on miscellaneous advances -- (24,000) Purchase of property and equipment (112,816) (84,822) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (88,816) (73,822) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Advances from shareholder - net (40,381) 40,381 Principal payments on note payable (36,500) -- Principal payments on long-term debt (3,908) (3,645) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES (80,789) 36,736 ----------- ----------- INCREASE (DECREASE) IN CASH 580,147 (230,485) Cash at beginning of period 521,432 751,917 ----------- ----------- CASH AT END OF PERIOD $ 1,101,579 $ 521,432 =========== =========== - CONTINUED - The accompanying notes are an integral part of these financial statements. F-40 96 BRISTER'S THUNDER KARTS, INC. STATEMENTS OF CASH FLOWS - CONTINUED Years ended December 31, 1995 and 1994
1995 1994 -------- -------- SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID Interest paid for the period $ 34,773 $ 7,170 ======== ======== Income taxes paid for the period $ 84,088 $386,973 ======== ======== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of insurance through short-term note payable $137,025 $ -- ======== ========
The accompanying notes are an integral part of these financial statements. F-41 97 BRISTER'S THUNDER KARTS, INC. NOTES TO FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Brister's Thunder Karts, Inc. (Company) was formed on August 2, 1976 under the laws of the State of Louisiana. The Company is in the business of manufacturing and marketing motorized "fun" karts for the consumer market. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. Accounts and advances receivable In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. 3. Inventory Inventory consists of steel, engines and other related raw materials used in the manufacture of "fun" karts. These items are carried at the lower of cost or market using the first-in, first-out method. As of December 31, 1995 and 1994, inventory consisted of the following components:
1995 1994 -------- -------- Raw materials $522,849 $223,490 Work in process 49,150 147,360 Finished goods -- 10,893 -------- -------- $571,999 $381,743 ======== ========
F-42 98 BRISTER'S THUNDER KARTS, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Property, plant and equipment Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives of the individual assets using the straight-line method. Gains and losses from disposition of property and equipment are recognized as incurred and are included in operations. 5. Income taxes The Company utilizes the asset and liability method of accounting for income taxes. At December 31, 1995 and 1994, the deferred tax asset and deferred tax liability accounts, as recorded when material, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization. No valuation allowance was provided against deferred tax assets, where applicable. NOTE C - PROPERTY AND EQUIPMENT Property and equipment consist of the following components as of December 31, 1995 and 1994, respectively:
Estimated 1995 1994 useful life --------- --------- ----------- Equipment $ 314,339 $ 198,688 10 years Transportation equipment 85,788 98,865 3 years Furniture and fixtures 45,608 47,150 7 years Leasehold improvements 4,347 4,347 10 years --------- --------- 450,082 349,050 Accumulated depreciation (151,255) (98,444) --------- --------- Net property and equipment $ 298,827 $ 250,606 ========= =========
NOTE D - NOTES PAYABLE Notes payable consists of the following at December 31, 1995 and 1994, respectively,
1995 1994 -------- -------- $137,025 note payable to a finance company. Interest at 9.20%. Payable in monthly installments of approximately $14,290, including interest. Secured by insurance coverage $110,223 $ -- Note payable to shareholder. Interest at 12.0% Final payment due December 1995 -- 76,881 -------- -------- $110,223 $ 76,881 ======== ========
F-43 99 BRISTER'S THUNDER KARTS, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE E - LONG-TERM DEBT Long-term debt consists of the following at December 31, 1995 and 1994, respectively,
1995 1994 -------- -------- $27,677 note payable to the Company's former shareholder. Interest at 7.0%. Payable in semi-monthly installments of approximately $200, including interest Secured by equipment $ 10,599 $ 14,507 Less current portion (4,191) (3,908) -------- -------- Long-term portion $ 6,408 $ 10,599 ======== ========
Future maturities of long-term debt are as follows:
Year ending December 31, Amount ------------ ------ 1996 $ 4,191 1997 4,494 1998 1,914 ------- $10,599 =======
NOTE F - INCOME TAXES The deferred current tax asset and non-current deferred tax liability on the December 31, 1995 and 1994, respectively, balance sheet consists of the following:
December 31, December 31, 1995 1994 ------- ------- Current deferred tax asset $ -- $ -- Current deferred tax liability -- -- Valuation allowance for current deferred tax asset -- -- ------- ------- Net current deferred tax asset $ -- $ -- ======= ======= Non-current deferred tax asset $ -- $ -- Non-current deferred tax liability 17,438 31,802 Valuation allowance for non-current deferred tax asset -- -- ------- ------- Net non-current deferred tax asset $17,438 $31,802 ======= =======
The non-current deferred tax liability results from the usage of statutory accelerated tax depreciation and amortization methods. F-44 100 BRISTER'S THUNDER KARTS, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE F - INCOME TAXES - CONTINUED The components of income tax expense (benefit) for the years ended December 31, 1995 and 1994, respectively, are as follows:
1995 1994 --------- --------- Federal: Current $ 204,000 $ 171,317 Deferred (14,364) 21,277 --------- --------- 189,636 192,594 --------- --------- State: Current 29,050 23,478 Deferred -- -- --------- --------- 29,050 23,478 --------- --------- Total $ 218,686 $ 216,072 ========= =========
The Company's income tax expense (benefit) for the years ended December 31, 1995 and 1994, respectively, differed from the statutory federal rate of 34 percent as follows:
1995 1994 --------- --------- Statutory rate applied to earnings before income taxes $ 190,392 $ 191,270 Increase (decrease) in income taxes resulting from: State income taxes 29,050 23,478 Deferred income taxes (14,364) 21,277 Effect of incremental tax brackets 13,608 (19,953) --------- --------- Income tax expense $ 218,686 $ 216,072 ========= =========
NOTE G - RELATED PARTY TRANSACTIONS The Company leases its manufacturing facilities and corporate offices under an operating lease with its sole shareholder. The lease requires payments of approximately $6,025 per month and the lease expires in December 1996. The lease contains an extension option for the year beginning January 1997. Total lease expense for the years ended December 31, 1995 and 1994, respectively, were approximately $70,400 and $60,887. NOTE H - COMMITMENTS AND CONTINGENCIES The Company is named as defendant in several lawsuits related to its "fun" karts. The Company has commercial liability coverage to cover these exposures with a $25,000 per claim self-insurance clause. The Company is vigorously contesting each lawsuit and has accrued management's estimation of the Company's exposure in each situation. Additionally, the Company maintains a reserve for future litigation equal to the "per claim" self-insurance amount times the four-year rolling average of lawsuits naming the Company as a defendant. F-45 101 NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES TO WHICH IT RELATES IN ANY STATE TO ANY PERSON WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------------ TABLE OF CONTENTS
Page ---- Prospectus Summary . . . . . . . . . . . . . . . 3 Risk Factors . . . . . . . . . . . . . . . . . . 7 The Company . . . . . . . . . . . . . . . . . . . 16 Common Stock Price Ranges and Dividends . . . . . 18 Dividend Policy . . . . . . . . . . . . . . . . . 18 Use of Proceeds . . . . . . . . . . . . . . . . . 19 Dilution . . . . . . . . . . . . . . . . . . . . 20 Capitalization . . . . . . . . . . . . . . . . . 21 Selected Historical Financial Information . . . . 22 Management's Discussion and Analysis of Financial Condition and Results of Operations . 23 Business . . . . . . . . . . . . . . . . . . . . 27 Management . . . . . . . . . . . . . . . . . . . 38 Certain Relationships and Related Transactions . 41 Principal Stockholders . . . . . . . . . . . . . 44 Description of Securities . . . . . . . . . . . . 45 Shares Available for Future Sale . . . . . . . . 50 Underwriting . . . . . . . . . . . . . . . . . . 51 Legal Matters . . . . . . . . . . . . . . . . . . 54 Experts . . . . . . . . . . . . . . . . . . . . . 54 Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . F-1
------------------------------ UNTIL __________ (_____ DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. KARTS INTERNATIONAL INCORPORATED 1,400,000 SHARES OF COMMON STOCK AND 1,400,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS ------------------------------- P R O S P E C T U S ------------------------------- ARGENT SECURITIES, INC. ____________________, 1997 102 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Articles of Incorporation relieve its directors from liability for monetary damages to the full extent permitted by Nevada law. Sections 78.751 and 78.752 of the General Corporation Law of the State of Nevada authorize a corporation to indemnify, among others, any officer or director against certain liabilities under specified circumstances, and to purchase and maintain insurance on behalf of its officers and directors. The Underwriting Agreement between the Company and the Underwriters in connection with the Offering provides for reciprocal indemnification by each party of the other and its officers, directors and controlling persons under specified circumstances. Article Seventh and Article Eighth of the Company's Articles of Incorporation, included in Exhibit 3.1 hereto, which provide for certain limitations on the liability of directors and indemnification of directors and officers, respectively, are hereby incorporated by reference. The Company's Articles of Incorporation provide, in general, that no director of the Company shall be personally liable for monetary damages for breach of the director's fiduciary duty as a director, except for liability for (i) any breach of the director's duty of loyalty to the Company or its stockholders; (ii) an act or omission not in good faith that constitutes a breach of duty of the director to the Company or an act or omission that involves intentional misconduct or a knowing violation of other laws; (iii) a transaction from which the director received an improper personal benefit, whether or not the benefit resulted from an action taken within the scope of the director's office; or (iv) any act or omission for which the liability of a director is expressly provided by an applicable statute. Article VII, Section 7 of the Company's Bylaws, included in Exhibit 3.2 hereto, provides, in general, that the Company shall indemnify its directors and officers under the circumstances defined in Section 78.751 of the General Corporation Law of the State of Nevada and gives authority to the Company to purchase insurance with respect to such indemnification. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The Company will bear the following estimated expenses incurred in connection with this Offering:
Item Amount - ---- ------ SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,476.31 NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244.63 Nasdaq application and listing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000.00 Underwriters' non-accountable expense allowance . . . . . . . . . . . . . . . . . . . . . . . . . 194,250.00 Blue sky filing fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000.00 Transfer agent and registrar fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000.00 Printing and engraving expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000.00 Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000.00 Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000.00 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,279.06 ------------------ TOTAL $ 387,250.00 =================
103 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. a. PRIVATE OFFERING COMPLETED ON NOVEMBER 15, 1996. On November 15, 1996, the Company concluded the private sale of 25 Units (the "Units") for total proceeds of $625,000.00. Each Unit consisted of one share of convertible preferred stock, $0.001 par value per share (the "Convertible Preferred Stock") and 6,667 Redeemable Common Stock Purchase Warrants (the "1996 Warrants"). A total of 25 shares of Convertible Preferred Stock and 166,675 1996 Warrants were sold. Each 1996 Warrant entitles the holder thereof to purchase, for a period of 42 months after November 15, 1996, one share of the Company's Common Stock at an exercise price of $4.50 per 1996 Warrant, subject to adjustment in certain circumstances. Upon completion of this Offering, the Company has the option to require the holders of the Convertible Preferred Stock to convert each share of the Convertible Preferred Stock into either (a) $25,000.00 and 4,167 shares of Common Stock or (b) 8,334 shares of Common Stock. Under either option, the investor will continue to hold the 1996 Warrants. If for any reason the Company does not complete a public offering of its securities by November 15, 1997, each share of Convertible Preferred Stock will be automatically converted into 8,334 shares of Common Stock. Information concerning the sale of the Units is as follows:
No. of Units Date of Sale Purchaser Consideration ----- ------------ --------- ------------- 1 November 15, 1996 Ervin L. Betts $25,000 2 November 15, 1996 The Bisio Living Trust 50,000 2 November 15, 1996 Central Scale Profit Sharing Plan 50,000 1 November 15, 1996 Dean L. Duncan 25,000 1 November 15, 1996 Gary C. Evans 25,000 2 November 15, 1996 Mathew W. Geisser, Jr. and Barbara E. Geisser 50,000 2 November 15, 1996 Fred M. Harris 50,000 1 November 15, 1996 Roy Henrichs 25,000 1 November 15, 1996 Craig S. Jennings 25,000 1 November 15, 1996 Edward M. Kalinowski, Sr. 25,000 1 November 15, 1996 Harrison J. Kornfield 25,000 1 November 15, 1996 Chris Murray 25,000 2 November 15, 1996 A. L. Park 50,000 2 November 15, 1996 Putich Sales, Inc., DBPP 50,000 1 November 15, 1996 Alex Theriot, Jr. 25,000 1 November 15, 1996 Eva Dell W. Turner Trust 25,000 3 November 15, 1996 Ralph L. Zaun 75,000 --- -------- 25 $ 625,000
On March 6, 1997, the Company offered to each subscriber to the offering the option of the either receiving a refund of their investment, with interest applied thereon at a rate of 12% per annum, or retaining the investment and receiving an additional 13,334 1996 Warrants for each Unit subscribed for. The Company believes that none of the subscribers will seek a refund of their initial investment in the Company. Gary C. Evans is a director of the Company. Argent Securities, Inc. ("Argent"), Representative of the Underwriters in the Offering, acted as placement agent with regard to this private offering. As placement agent, Argent received a commission of eight percent of the aggregate amount of the offering, four percent of the offering proceeds (or $25,000.00) as additional compensation for investment banking services and three percent of the offering proceeds (or $18,750.00) for non-accountable expenses. With regard to all sales in this offering, the Company relied upon Section 4(2) of the Securities Act of 1933, as amended (the "Act") and/or Regulation D promulgated thereunder ("Regulation D") for an exemption from II-2 104 the registration requirements of the Act. The purchasers had access to information concerning the Company, its financial condition, assets, management, and proposed activities. For this offering, the Company offered and sold its securities only to persons who are accredited investors as that term is defined in Rule 501(a) of Regulation D and up to a maximum of 35 non-accredited investors. Each purchaser represented that he had the ability to bear economically a total loss of his investment. Each purchaser signed a subscription agreement, which included certain representations made by each purchaser. b. PRIVATE OFFERING COMPLETED ON MARCH 15, 1996. On March 15, 1996, the Company concluded the private sale of 233,334 shares of Common Stock at a purchase price of $2.25 per share for total gross proceeds of $525,000. Information concerning the sale of such securities is as follows:
No. of Shares Date of Sale Purchaser Consideration ------ ------------ --------- ------------- 37,778 March 15, 1996 The Brian Schlinger Trust $85,000 11,667 March 15, 1996 The Evert I. Schlinger, 26,250 23,334 March 15, 1996 Warren G. Schlinger 52,500 11,667 March 15, 1996 James C. Hays, M.D. 26,250 23,334 March 15, 1996 Stephen F. Chadwick 52,500 11,667 March 15, 1996 Dexter H. Housley 26,250 23,334 March 15, 1996 Forrest Johnson 52,500 11,667 March 15, 1996 Mark Mazanski 26,250 23,334 March 15, 1996 Christopher C. Jones 52,500 11,667 March 15, 1996 Larry W. Gonser 26,250 23,334 March 15, 1996 Kenneth A. Owen 52,500 11,667 March 15, 1996 Robert G. Farris 26,250 8,889 March 15, 1996 Franklin Gornick 20,000 ------- -------- 233,334 $ 525,000
No underwriter participated in any of the sales discussed above, nor did the Company pay any commissions or fees with respect to these issuances. With regard to all such sales, the Company relied upon Section 4(2) of the Act and/or Regulation D promulgated thereunder for an exemption from the registration requirements of the Act. The purchasers had access to information concerning the Company, its financial condition, assets, management, and proposed activities. For this offering, the Company offered and sold its shares only to investors who are accredited investors as that term is defined in Rule 501(a) of Regulation D and up to a maximum of 35 non-accredited investors. Each purchaser represented that he had the ability to bear economically a total loss of his investment. Each purchaser signed a subscription agreement, which included certain representations made by each purchaser. No purchaser was affiliated with the Company. Mr. Evert I. Schlinger owns 219,048 shares of the Company's Common Stock and is the sole trustee of the Brian Schlinger and Evert I. Schlinger, Jr. Trusts and has voting and dispositive powers over the shares of Common Stock owned by the Trusts but disclaims any beneficial ownership of such shares. c. PRIVATE OFFERING COMPLETED ON JULY 2, 1996. On July 2, 1996, the Company concluded the private sale of 3,333 shares of Common Stock and 66,667 Class A Warrants Units for a total of $17,500 cash. Each Class A Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $5.25 per share, as adjusted, until December 31, 1997. II-3 105 Information concerning the sale of such securities is as follows:
No. of No. of Shares Class A Warrants Date of Sale Purchaser Consideration ------ ---------------- ------------ --------- ------------- 3,333 66,667 July 2, 1996 Art Beroff $17,500
No underwriter participated in the sale discussed above, nor did the Company pay any commissions or fees with respect to said issuance. With regard to such sale, the Company relied upon Rule 504 of Regulation D promulgated under the Act for an exemption from the registration requirements of the Act. The purchaser signed a subscription agreement, which included certain representations made by such purchaser. The purchaser was not affiliated with the Company. d. ACQUISITION OF BRISTER'S THUNDER KARTS, INC.. On March 15, 1996, the Company, as partial consideration for the acquisition of all of the issued and outstanding capital stock of Brister's Thunder Karts, Inc. ("Brister's"), issued to Charles Brister, Brister's sole shareholder and a current director and principal stockholder of the Company, 516,667 shares of the Company's Common Stock valued at $3.1 million in accordance with the provisions of the related stock purchase agreement. The Company relied upon the exemption from registration provided in Section 4(2) of the Act in connection with the issuance of 516,667 shares of its Common Stock to Mr. Brister. No underwriter participated in the transaction, nor did the Company pay any commission or fees with respect to this transaction. Mr. Brister had access to information concerning the Company, its financial condition, assets, management and proposed activities. The shares of Common Stock were issued to Mr. Brister based on certain investment representations by Mr. Brister and the Company has impressed the stock certificate representing the shares with a restrictive legend. e. ACQUISITION OF USA INDUSTRIES, INC.. On November 20, 1996, the Company, as consideration for the acquisition of all of the issued and outstanding capital stock of USA Industries, Inc. ("USA"), paid an aggregate of $1.0 million payable $250,000 in cash and issued an aggregate of 166,667 shares of Common Stock to the four shareholders of USA. Pursuant to the stock purchase agreement between the Company, USA and its shareholders, the Common Stock was valued at $4.50 per share or an aggregate consideration of $750,000 for 166,667 shares. The Company relied upon the exemption from registration provided in Section 4(2) of the Act in connection with the issuance of 166,667 shares of its Common Stock to the USA shareholders. No underwriter participated in the transaction, nor did the Company pay any commission or fees with respect to this transaction. The USA shareholders had access to information concerning the Company, its financial condition, assets, management and proposed activities. The shares of Common Stock were issued to the USA shareholders based on certain investment representations by the USA shareholders and the Company has impressed the stock certificates representing the shares with a restrictive legend. Mr. Jerry M. Allen, a former USA shareholder, is currently the Vice President of USA. f. ISSUANCES TO THE SCHLINGER FOUNDATION. On March 15, 1996, as partial consideration for the $2,000,000.00 loan (the "Schlinger Note") from The Schlinger Foundation (the "Foundation") to the Company, the Company paid to the Foundation $21,000, consisting of $10,500 cash and the issuance of 70,000 restricted shares of Common Stock to the Foundation. Mr. Evert I. Schlinger who owns 219,048 shares of Common Stock of the Company is the Trustee of the Foundation and has voting and dispositive powers over the shares of Common Stock owned by the Foundation, although Mr. Schlinger disclaims any beneficial ownership of such shares. The Company relied upon the exemption from registration provided in Section 4(2) of the Act in connection with the afore-referenced issuances of the Schlinger Note and shares of its Common Stock to the Foundation. No underwriter participated in the issuances, nor did the Company pay any commission or other fees with respect to these transactions. The Foundation had access to information concerning the Company, its financial condition, assets, management and proposed activities. The shares of Common Stock were issued to the Foundation based II-4 106 on certain investment representations by the Foundation and the Company has impressed the stock certificates representing the shares of Common Stock with a restrictive legend. ITEM 27. EXHIBITS.
Exhibit Number Description of Exhibit ------ ---------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement in connection with the Offering. 1.2* Form of Underwriters' Warrant. 1.3 Form of Financial Advisory Agreement between the Company and Argent Securities, Inc. 1.4* Form of Lock-Up Agreement among the Company, Argent Securities, Inc. and the holders of the Convertible Preferred Stock. 1.5* Form of Lock-Up Agreement among the Company, Argent Securities, Inc. and V. Lynn Graybill, Chairman of the Board, Chief Executive Officer and President of the Company. 1.6* Form of Lock-Up Agreement among the Company, Argent Securities, Inc. and certain officers and directors of the Company. 2.1 Agreement and Plan of Merger, dated April 16, 1996, by and between Sarah Acquisition Corporation and the Company. 2.2 Stock Purchase Agreement, dated January 16, 1996, by and among Halter Financial Group, Inc. on behalf of the Company, Brister's Thunder Karts, Inc., and Charles Brister (Schedules have been omitted, but will be furnished to the Commission upon request). 2.3 Amendment to Stock Purchase Agreement, dated March 15, 1996, by and among Halter Financial Group, Inc. on behalf of the Company, Brister's Thunder Karts, Inc., and Charles Brister (Schedules have been omitted, but will be furnished to the Commission upon request). 2.4 Stock Purchase Agreement, dated October 4, 1996, by and among the Company, USA Industries, Inc., Jerry Michael Allen, Angela T. Allen, Johnny C. Tucker, and Carol Y. Tucker (Schedules have been omitted, but will be furnished to the Commission upon request). 2.5 Consulting Agreement, dated January 16, 1996, by and between Halter Financial Group, Inc. and Sarah Acquisition Corporation. 3.1 Articles of Incorporation of the Company. 3.2 Bylaws of the Company. 3.3 Certificate to Decrease Authorized Shares of Common Stock, dated March 12, 1997. 4.1 Specimen of Common Stock Certificate. 4.2 Form of Warrant Agreement covering the Warrants. 4.3* Form of Redeemable Common Stock Purchase Warrants issued on in connection with the sale of the Warrants. 4.4 Form of Redeemable Common Stock Purchase Warrant issued in the Company's private offering of Units, completed November 15, 1996 (the "1996 Warrants"). 4.5 Form of Common Stock Purchase Warrant issued in the Company's offering of Units pursuant to Rule 504, completed July 2, 1996 (the "Class A Warrants"). 4.6 Certificate of Designation Establishing Series of Preferred Stock, filed with the Secretary of State of Nevada on November 15, 1996. 4.7 Specimen of Convertible Preferred Stock Certificate.
II-5 107
Exhibit Number Description of Exhibit ------ ---------------------------------------------------------------------------------------------- 5.1* Opinion of Looper, Reed, Mark & McGraw Incorporated regarding legality of the securities being registered. 10.1 Lease Agreement, dated March 18, 1996, by and between Northpark Properties, L.L.C. and the Company. 10.2 License Agreement, dated March 15, 1996, by and between the Company and Charles Brister. 10.3 Addendum "A" to License Agreement, dated March 15, 1997, by and between the Company and Charles Brister. 10.4 Royalty Agreement, dated March 15, 1997, by and between the Company and Charles Brister. 10.5 $1,000,000.00 Subordinated Promissory Note, dated March 15, 1996, payable to Charles Brister, executed by Brister's Thunder Karts, Inc., as maker. 10.6 $200,000 Promissory Note, dated April 1, 1996, payable to Charles Brister, executed by the Company, as maker. 10.7 Commercial Security Agreement, by and among Charles Brister, as secured party, Brister's Thunder Karts, Inc., as borrower, and Robert W. Bell and Gary C. Evans, as pledgors. 10.8 $2,000,000.00 Promissory Note, dated March 15, 1996, payable to The Schlinger Foundation, executed by the Company, as maker, and by Brister's Thunder Karts, Inc., as pledgor. 10.9 Commercial Security Agreement, by and among The Schlinger Foundation, as secured party, the Company, as borrower, and Brister's Thunder Karts, Inc., as pledgor. 10.10 Vendor Agreement, dated June 5, 1996, by and between Wal-Mart Stores, Inc. and Brister's Thunder Karts, Inc. 10.11 Vendor Agreement, dated September 30, 1996, by and between Wal-Mart Stores, Inc. and USA Industries, Inc. 10.12 Floor Plan Agreement, dated September 9, 1996, by and among Deutsche Financial Services Corporation, the Company, and Brister's Thunder Karts, Inc. 10.13 Guaranty of Vendor, dated September 9, 1996, executed by the Company and Brister's Thunder Karts, Inc. in favor of Deutsche Financial Services Corporation. 10.14 Employment Agreement, as amended, dated March 15, 1996, by and between the Company and V. Lynn Graybill. 10.15 Consulting Engagement Letter, dated February 19, 1997, by and between Charles Brister, as consultant, and the Company. 10.16 Letter Agreement, dated January 21, 1997, by and between Bobby Labonte, as national spokesman for the Company, and the Company. 10.17 Consulting Agreement, dated March 16, 1997, by and between the Company and Halter Financial Group, Inc. 10.18 Form of Private Placement Subscription Participation Option Notice, dated March 6, 1997. 21.1 Subsidiaries of the Company. 23.1 Consent of S. W. Hatfield & Associates. 23.2* Consent of Looper, Reed, Mark & McGraw Incorporated (included in its opinion filed as Exhibit 5.1). 24.1 Power of attorney. Reference is made to page II-8 of this Registration Statement. 27.1 Financial Data Schedule.
______________________________ *To be filed by amendment. II-6 108 ITEM 28. UNDERTAKINGS. The undersigned Company hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) To include any prospectus required in Section 10(a)(3) of the Act; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions described under Item 24 above, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Company hereby undertakes that for purposes of determining any liability under the Securities Act, (i) the information omitted from the Prospectus filed as part of this Registration Statement, as permitted by Rule 430A of the Securities Act and to be contained in the form of Prospectus to be filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act, shall be deemed to be incorporated by reference into this Registration Statement at the time it is declared effective, and (ii) each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-7 109 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on the Registration Statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Covington, State of Louisiana, on the 27th day of March, 1997. KARTS INTERNATIONAL INCORPORATED (Company) By: /s/ V. Lynn Graybill ----------------------------------------- V. Lynn Graybill, Chief Executive Officer POWER OF ATTORNEY We, the below signed directors and officers of Karts International Incorporated, do hereby constitute and appoint V. Lynn Graybill, with full power of substitution our true and lawful attorney and agent, to do any and all acts and things in our names in the capacities indicated which V. Lynn Graybill may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in connection with this Registration Statement, including specifically, but not limited to, the power and authority to sign for us, or any of us in our names in the capacities indicated and any and all amendments (including post-effective amendments) to this Registration Statement; and we do hereby ratify and confirm all that V. Lynn Graybill shall do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, this Registration Statement on Form SB-2 has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ V. Lynn Graybill Chief Executive Officer, Chairman of March 27, 1997 ------------------------------------------------------ the Board of Directors -------------- V. Lynn Graybill /s/ Timothy P. Halter Vice President, Secretary and March 27, 1997 ------------------------------------------------------ Director -------------- Timothy P. Halter /s/ John V. Callegari, Jr. Vice President Administration and March 27, 1997 ------------------------------------------------------ Chief Financial Officer -------------- John V. Callegari, Jr. /s/ Charles Brister Director March 27, 1997 ------------------------------------------------------ -------------- Charles Brister /s/ Joseph R. Mannes Director March 27, 1997 ------------------------------------------------------ -------------- Joseph R. Mannes /s/ Ronald C. Morgan Director March 27, 1997 ------------------------------------------------------ -------------- Ronald C. Morgan /s/ Robert W. Bell Director March 27, 1997 ------------------------------------------------------ -------------- Robert W. Bell /s/ Gary C. Evans Director March 27, 1997 ------------------------------------------------------ -------------- Gary C. Evans
II-8 110 INDEX TO EXHIBITS EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ----------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement in connection with the Offering. 1.2* Form of Underwriters' Warrant. 1.3 Form of Financial Advisory Agreement between the Company and Argent Securities, Inc. 1.4* Form of Lock-Up Agreement among the Company, Argent Securities, Inc. and the holders of the Convertible Preferred Stock. 1.5* Form of Lock-Up Agreement among the Company, Argent Securities, Inc. and V. Lynn Graybill, Chairman of the Board, Chief Executive Officer and President of the Company. 1.6* Form of Lock-Up Agreement among the Company, Argent Securities, Inc. and certain officers and directors of the Company. 2.1 Agreement and Plan of Merger, dated April 16, 1996, by and between Sarah Acquisition Corporation and the Company. 2.2 Stock Purchase Agreement, dated January 16, 1996, by and among Halter Financial Group, Inc. on behalf of the Company, Brister's Thunder Karts, Inc., and Charles Brister (Schedules have been omitted, but will be furnished to the Commission upon request). 2.3 Amendment to Stock Purchase Agreement, dated March 15, 1996, by and among Halter Financial Group, Inc. on behalf of the Company, Brister's Thunder Karts, Inc., and Charles Brister (Schedules have been omitted, but will be furnished to the Commission upon request). 2.4 Stock Purchase Agreement, dated October 4, 1996, by and among the Company, USA Industries, Inc., Jerry Michael Allen, Angela T. Allen, Johnny C. Tucker, and Carol Y. Tucker (Schedules have been omitted, but will be furnished to the Commission upon request). 2.5 Consulting Agreement, dated January 16, 1996, by and between Halter Financial Group, Inc. and Sarah Acquisition Corporation. 3.1 Articles of Incorporation of the Company. 3.2 Bylaws of the Company. 3.3 Certificate to Decrease Authorized Shares of Common Stock, dated March 12, 1997. 4.1 Specimen of Common Stock Certificate. 4.2 Form of Warrant Agreement covering the Warrants. 4.3* Form of Redeemable Common Stock Purchase Warrants issued on in connection with the sale of the Warrants. 4.4 Form of Redeemable Common Stock Purchase Warrant issued in the Company's private offering of Units, completed November 15, 1996 (the "1996 Warrants").
111
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ----------------------------------------------------------------------------- 4.5 Form of Common Stock Purchase Warrant issued in the Company's offering of Units pursuant to Rule 504, completed July 2, 1996 (the "Class A Warrants"). 4.6 Certificate of Designation Establishing Series of Preferred Stock, filed with the Secretary of State of Nevada on November 15, 1996. 4.7 Specimen of Convertible Preferred Stock Certificate. 5.1* Opinion of Looper, Reed, Mark & McGraw Incorporated regarding legality of the securities being registered. 10.1 Lease Agreement, dated March 18, 1996, by and between Northpark Properties, L.L.C. and the Company. 10.2 License Agreement, dated March 15, 1996, by and between the Company and Charles Brister. 10.3 Addendum "A" to License Agreement, dated March 15, 1997, by and between the Company and Charles Brister. 10.4 Royalty Agreement, dated March 15, 1997, by and between the Company and Charles Brister. 10.5 $1,000,000.00 Subordinated Promissory Note, dated March 15, 1996, payable to Charles Brister, executed by Brister's Thunder Karts, Inc., as maker. 10.6 $200,000 Promissory Note, dated April 1, 1996, payable to Charles Brister, executed by the Company, as maker. 10.7 Commercial Security Agreement, by and among Charles Brister, as secured party, Brister's Thunder Karts, Inc., as borrower, and Robert W. Bell and Gary C. Evans, as pledgors. 10.8 $2,000,000.00 Promissory Note, dated March 15, 1996, payable to The Schlinger Foundation, executed by the Company, as maker, and by Brister's Thunder Karts, Inc., as pledgor. 10.9 Commercial Security Agreement, by and among The Schlinger Foundation, as secured party, the Company, as borrower, and Brister's Thunder Karts, Inc., as pledgor. 10.10 Vendor Agreement, dated June 5, 1996, by and between Wal-Mart Stores, Inc. and Brister's Thunder Karts, Inc. 10.11 Vendor Agreement, dated September 30, 1996, by and between Wal-Mart Stores, Inc. and USA Industries, Inc. 10.12 Floor Plan Agreement, dated September 9, 1996, by and among Deutsche Financial Services Corporation, the Company, and Brister's Thunder Karts, Inc. 10.13 Guaranty of Vendor, dated September 9, 1996, executed by the Company and Brister's Thunder Karts, Inc. in favor of Deutsche Financial Services Corporation. 10.14 Employment Agreement, as amended, dated March 15, 1996, by and between the Company and V. Lynn Graybill.
112
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ----------------------------------------------------------------------------- 10.15 Consulting Engagement Letter, dated February 19, 1997, by and between Charles Brister, as consultant, and the Company. 10.16 Letter Agreement, dated January 21, 1997, by and between Bobby Labonte, as national spokesman for the Company, and the Company. 10.17 Consulting Agreement, dated March 16, 1997, by and between the Company and Halter Financial Group, Inc. 10.18 Form of Private Placement Subscription Participation Option Notice, dated March 6, 1997. 21.1 Subsidiaries of the Company. 23.1 Consent of S. W. Hatfield & Associates. 23.2* Consent of Looper, Reed, Mark & McGraw Incorporated (included in its opinion filed as Exhibit 5.1). 24.1 Power of attorney. Reference is made to page II-8 of this Registration Statement. 27.1 Financial Data Schedule.
______________________________ *To be filed by amendment.
EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 1,400,000 Shares of Common Stock and 1,400,000 Redeemable Common Stock Purchase Warrants of KARTS INTERNATIONAL INCORPORATED UNDERWRITING AGREEMENT Atlanta, Georgia April ___, 1997 ARGENT SECURITIES, INC. 3340 Peachtree Road, N.E. Suite 450 Atlanta, Georgia 30326 Gentlemen: Karts International Incorporated, a Nevada corporation (the "Company"), confirms its agreement with Argent Securities, Inc. ("Argent"), and each of the other underwriters named in Schedule I hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 11), for whom Argent is acting as representative (in such capacity, Argent shall hereinafter be referred to as the "Representative"), with respect to the sale by the Company, and the purchase by the Underwriters, acting severally and not jointly, of One Million Four Hundred Thousand (1,400,000) shares (the "Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), and One Million Four Hundred Thousand (1,400,000) Redeemable Common Stock Purchase Warrants (the "Redeemable Warrants") ("Firm Securities"), each of the Redeemable Warrants entitles the holder thereof to purchase one share of Common Stock at an exercise price of $______ per share pursuant to a warrant agreement (the "Warrant Agreement") between the Company and the warrant agent, set forth in Schedule II, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 210,000 additional Shares and 210,000 Redeemable Warrants (the "Additional Securities") for the purpose of covering over-allotments, if any. The aforesaid Firm Securities together with all or any part of the Additional Securities are hereinafter collectively referred to as the "Securities." The Company also proposes to issue and sell to the Underwriters Page 1 2 for an approximate price of $140 ($0.001 per warrant), non-callable warrants entitling the Underwriters' to purchase from the Company [, AN OPTION (THE "UNDERWRITERS PURCHASE OPTION") PURSUANT TO THE UNDERWRITERS' COMMON STOCK AND WARRANT PURCHASE OPTION (THE "UNDERWRITERS' PURCHASE OPTION") FOR THE PURCHASE OF] an aggregate of 140,000 Shares (the "Underwriters' Shares") and 140,000 Redeemable Common Stock Purchase Warrants (the "Underwriters' Warrants"). The shares of Common Stock issuable upon exercise of the Redeemable Warrants and the Underwriters' Warrants are hereinafter sometimes referred to as the "Warrant Shares." The Shares, the Redeemable Warrants, the Common Stock and Underwriters' Shares, Underwriters' Warrants, and the Warrant Shares are more fully described in the Registration Statement (as defined in Subsection 1(a) hereof) and the Prospectus (as defined in Subsection 1(a) hereof) referred to below. Unless the context otherwise requires, all references to the "Company" shall include all subsidiaries (as defined in Subsection 2(c) hereof) referred to below and identified in the Prospectus, as if separately stated herein. All representations, warranties and opinions of counsel shall cover such subsidiaries. 1. Representations and Warranties of the Company. The Company represents and warrants to and agrees with each of the Underwriters as of the date hereof, and as of the Closing Date and any Option Closing Date, (as defined in Subsection 2 (c) hereof), if any, as follows: (a) The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement, and an amendment or amendments thereto, on Form SB-2 (File No. 333- _______) under the Act (the "Registration Statement"), including a prospectus subject to completion relating to the Shares and Redeemable Warrants which registration statement and any amendment or amendments have been prepared by the Company in material compliance with the requirements of the Act and the rules and regulations of the Commission under the Act. The term "Registration Statement" as used in this Agreement means the registration statement (including all financial schedules and exhibits), as amended at the time it becomes effective, or, if the registration statement became effective prior to the execution of this Agreement, as supplemented or amended prior to the execution of this Agreement. If it is contemplated, at the time this Agreement is executed, that a post- effective amendment to the registration statement will be filed and must be declared effective before the offering of the Shares may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. If an abbreviated registration statement is prepared and filed with the Commission in accordance with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the term "Registration Statement" as used in this Agreement includes the Abbreviated Registration Statement. The term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement, or, if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424(b). The term "Preliminary Prospectus" as used in this Agreement means the prospectus subject to completion in the form included in the registration statement at the time Page 2 3 of the initial filing of the registration statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. (b) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus, the Registration Statement or Prospectus or any part thereof and no proceedings for a stop order have been instituted or are pending or, to the best knowledge of the Company, threatened. Each of the Preliminary Prospectus, the Registration Statement and Prospectus at the time of filing thereof conformed in all material respects with the requirements of the Act and the Rules and Regulations, and neither the Preliminary Prospectus, the Registration Statement or Prospectus at the time of filing thereof contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein and necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by or on behalf of the Underwriters expressly for use in such Preliminary Prospectus, Registration Statement or Prospectus. (c) When the Registration Statement becomes effective and at all times subsequent thereto up to the Closing Date and each Option Closing Date and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Underwriters or a dealer, the Registration Statement and the Prospectus will contain all material statements which are required to be stated therein in material compliance with the Act and the Rules and Regulations, and will in all material respects conform to the requirements of the Act and the Rules and Regulations; neither the Registration Statement, nor any amendment thereto, at the time the Registration Statement or such amendment is declared effective under the Act, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus at the time the Registration Statement becomes effective, at the Closing Date and at any Option Closing Date, will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty does not apply to statements made or statements omitted in reliance upon and in conformity with information supplied to the Company in writing by or on behalf of the Underwriters expressly for use in the Registration Statement or Prospectus or any amendment thereof or supplement thereto. (d) The Company has been duly organized and is now, and at the Closing Date and any Option Closing Date will be, validly existing as a corporation in good standing under the laws of the State of Nevada. Other than the Company's Subsidiaries (as defined in Section (e)), the Company does not own, directly or indirectly, an interest in any corporation, partnership, trust, joint venture or other business entity; provided, that the foregoing shall not be applicable to the investment of the net proceeds from the sale of the Securities in short-term, low-risk investments as set forth under "Use of Proceeds" in the Prospectus. The Company is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of its properties or the character of its operations require such Page 3 4 qualification or licensing, except where the failure to so register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the subsidiaries taken as a whole (a "Material Adverse Effect"). The Company has all requisite power and authority (corporate and other), and has obtained any and all necessary material applications, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; the Company is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all material federal, state, local and foreign laws, rules and regulations; and the Company has not received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, would have a Material Adverse Effect. The disclosures in the Registration Statement concerning the effects of federal, state, local, and foreign laws, rules and regulations on the Company's business as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made. (e) The Company's subsidiaries (collectively, the "Subsidiaries") include Brister's Thunder Karts, Inc. and USA Industries, Inc. Each Subsidiary is a corporation duly organized, validly existing and in good standing in the jurisdiction of its incorporation, with full corporate power and authority to own, lease and operate its properties and to conduct its business, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not, singly or in the aggregate, have a Material Adverse Effect; all of the outstanding shares of capital stock of each of the Subsidiaries, have been duly authorized and validly issued, are fully paid and nonassessable, and are owned by the Company directly, or indirectly through one of the other Subsidiaries, free and clear of any lien, adverse claim, security interest, equity or other encumbrance. (f) The Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus under "Capitalization" and will have the adjusted capitalization set forth therein on the Closing Date and the Option Closing Date, if any, based upon the assumptions set forth therein, and the Company is not a party to or bound by any instrument, agreement or other arrangement providing for the Company to issue any capital stock, rights, warrants, options or other securities, except for this Agreement and as otherwise described in the Prospectus. The Securities, the Additional Securities, Underwriters Shares, the Underwriter's Warrants, and the Warrant Shares and all other securities issued or issuable by the Company conform or, when issued and paid for, will conform in all material respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any Page 4 5 security of the Company, or similar contractual rights granted by the Company. The Securities, the Additional Securities, the Underwriters' Shares, and the Underwriter's Warrants to be issued and sold by the Company hereunder, and the Warrant Shares issuable upon exercise of the Redeemable Warrants and the Underwriter's Warrants and payment therefor, are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof and thereof, will be validly issued, fully paid and non-assessable and will conform in all material respects to the descriptions thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities, the Additional Securities, the Underwriters' Shares, and the Underwriter's Warrants, and the Warrant Shares has been duly and validly taken; and the certificates representing the Securities, the Underwriter's Warrants, and the Warrant Shares will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the Securities to be sold by the Company hereunder, the Underwriters will acquire good and marketable title to such Securities free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever. (g) The financial statements of the Company, together with the related notes and schedules thereto, included in the Registration Statement, the Preliminary Prospectus and the Prospectus fairly present the financial position and the results of operations of the Company at the respective dates and for the respective periods to which they apply; and such financial statements have been prepared in conformity with generally accepted accounting principles, consistently applied throughout the periods involved. There has been no material adverse change or development involving a prospective change in the condition, financial or otherwise, or in the earnings, business affairs, position, prospects, value, operation, properties, business, or results of operation of the Company, whether or not arising in the ordinary course of business, since the dates of the financial statements included in the Registration Statement and the Prospectus and the outstanding debt, the property, both tangible and intangible, and the business of the Company, conforms in all material respects to the descriptions thereof contained in the Registration Statement and in the Prospectus. (h) S. W. Hatfield + Associates, whose report is filed with the Commission as a part of the Registration Statement, is an independent certified public accountant as required by the Act. (i) The Company (i) has paid all federal, state, local, and foreign taxes for which it is liable, including, but not limited to, withholding taxes and taxes payable under Chapters 21 through 24 of the Internal Revenue Code of 1986 (the "Code"), (ii) has furnished all tax and information returns it is required to furnish pursuant to the Code, and has established adequate reserves for such taxes which are not due and payable, and (iii) does not have knowledge of any tax deficiency or claims outstanding, proposed or assessed against it (other than certain state or local tax returns, as to which the failure to file, singly or in the aggregate, would not have a Material Adverse Effect.) Page 5 6 (j) The Company maintains insurance, which is in full force and effect, of the types and in the amounts which it reasonably believes to be necessary for its business, including, but not limited to, personal and product liability insurance covering all personal and real property owned or leased by the Company against fire, theft, damage and all risks customarily insured against. (k) There is no action, suit, proceeding, inquiry, investigation, litigation or governmental proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending (to the knowledge of the Company) or threatened against (or circumstances known to the Company that may give rise to the same), or involving the properties or business of the Company which: (i) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all respects); or (ii) singly or in the aggregate would have a Material Adverse Effect. (l) The Company has full legal right, power and authority to enter into this Agreement, [THE UNDERWRITERS' PURCHASE OPTION] and the Warrant Agreement and to consummate the transactions provided for in such agreements; and this Agreement, [THE UNDERWRITERS' PURCHASE OPTION] and the Warrant Agreement have each been duly and properly authorized, executed and delivered by the Company. Each of this Agreement, the Underwriters' Purchase Option and the Warrant Agreement, constitutes a legal, valid and binding agreement of the Company, subject to due authorization, execution and delivery by the Representative and/or the Underwriters, enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law). Neither the Company's execution or delivery of this Agreement, [THE UNDERWRITERS' PURCHASE OPTION], and the Warrant Agreement, its performance hereunder and thereunder, its consummation of the transactions contemplated herein and therein, nor the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest defect or other restriction or equity of any kind whatsoever upon any property or assets (tangible or intangible) of the Company pursuant to the terms of: (i) the Articles of Incorporation or By-Laws of the Company; (ii) any material license, contract, indenture, mortgage, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of its properties or assets (tangible or intangible) is or may be subject, other than conflicts that, singly or in the aggregate, will not have a Material Adverse Effect; or (iii) any statute, judgment, decree, order, rule or regulation applicable to the Company of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or any of its activities or properties. Page 6 7 (m) No consent, approval, authorization or order of, and no filing with, any court, regulatory body, government agency or other body, domestic or foreign, is required for the issuance of the Securities pursuant to the Prospectus and the Registration Statement, the performance of this Agreement and the transactions contemplated hereby, except such as have been or may be obtained under the Act or may be required under state securities or Blue Sky laws in connection with (i) the Underwriters' purchase and distribution of the Securities to be sold by the Company hereunder; or (ii) the issuance and delivery of [THE UNDERWRITERS' PURCHASE OPTION, THE UNDERWRITERS' SHARES,] the Underwriter's Warrants, the Redeemable Warrants or the Warrant Shares. (n) All executed agreements or copies of executed agreements filed as exhibits to the Registration Statement to which the Company is a party or by which the Company may be bound or to which any of its assets, properties or businesses may be subject have been duly and validly authorized, executed and delivered by the Company, and constitute the legal, valid and binding agreements of the Company, enforceable against it in accordance with its respective terms. The descriptions contained in the Registration Statement of contracts and other documents are accurate in all material respects and fairly present the information required to be shown with respect thereto by the Act and the Rules and Regulations and there are no material contracts or other documents which are required by the Act or the Rules and Regulations to be described in the Registration Statement or filed as exhibits to the Registration Statement which are not described or filed as required, and the exhibits which have been filed are complete and correct copies of the documents of which they purport to be copies. (o) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money in any material amount; (ii) entered into any transaction other than in the ordinary course of business; (iii) declared or paid any dividend or made any other distribution on or in respect of its capital stock; or (iv) made any changes in capital stock, material changes in debt (long or short term) or liabilities other than in the ordinary course of business, material changes in or affecting the general affairs, management, financial operations, stockholders equity or results of operations of the Company. (p) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, no default exists in the due performance and observance of any material term, covenant or condition of any license, contract, indenture, mortgage, installment sales agreement, lease, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the property or assets (tangible or intangible) of the Company is subject or affected. (q) To the best knowledge of the Company, the Company has generally enjoyed a satisfactory employer-employee relationship with its employees and is in compliance in all material respects with all federal, state, local, and foreign laws and regulations respecting Page 7 8 employment and employment practices, terms and conditions of employment and wages and hours. (r) To the best knowledge of the Company, since its inception, the Company has not incurred any liability arising under or as a result of the application of the provisions of the Act. (s) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, the Company does not presently maintain, sponsor or contribute to, and never has maintained, sponsored or contributed to, any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan" or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(l) and 3(37) respectively of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. (t) The Company is not in violation in any material respect of any domestic or foreign laws, ordinances or governmental rules or regulations to which it is subject, except to the extent that any such violation would not, singly or in the aggregate, have a Material Adverse Effect. (u) No holders of any securities of the Company or of any options, warrants or other convertible or exchangeable securities of the Company exercisable for or convertible or exchangeable for securities of the Company have the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company within twelve (12) months of the date hereof or to require the Company to file a registration statement under the Act during such twelve (12) month period, except such registration rights as have been waived or disclosed in the Prospectus. (v) Neither the Company, nor, to the Company's best knowledge, any of its employees, directors, principal stockholders or affiliates (within the meaning of the Rules and Regulations) has taken, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or otherwise. (w) Except as described in the Prospectus, to the best of the Company's knowledge, none of the patents, patent applications, trademarks, service marks, trade names and copyrights, or licenses and rights to the foregoing presently owned or held by the Company is in dispute or are in any conflict with the right of any other person or entity within the Company's current area of operations nor has the Company received notice of any of the foregoing. To the best of the Company's knowledge, the Company: (i) owns or has the right to use, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, all patents, trademarks, service marks, trade names and copyrights, technology and licenses and rights with respect to the Page 8 9 foregoing, used in the conduct of its business as now conducted or proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person, corporation or other entity under or with respect to any of the foregoing; and (ii) except as set forth in the Prospectus, is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright, know-how, technology or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise. (x) Except as described in the Prospectus, to the best of the Company's knowledge, the Company owns and has the unrestricted right to use all material trade secrets, trademarks, trade names, know-how (including all other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), inventions, designs, processes, works of authorship, computer programs and technical data and information (collectively herein "Intellectual Property") required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company, free and clear of and without violating any right, lien, or claim of others, including without limitation, former employers of its employees; provided, however, that the possibility exists that other persons or entities, completely independently of the Company, or employees or agents, could have developed trade secrets or items of technical information similar or identical to those of the Company. (y) The Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property owned or leased by it free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects, or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes or assessments not yet due and payable. (z) The Company has obtained such duly executed legally binding and enforceable agreements as required by the Representative pursuant to which the Company's President and certain Directors and affiliates described in the Prospectus, have agreed not to, directly or indirectly, offer to sell, sell, grant any option for the sale of, assign, transfer, pledge, hypothecate or otherwise encumber any of their shares of Common Stock or other securities of the Company (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein for certain periods of up to __ months subject to earlier release upon the Company's achievement of certain performance thresholds, following the effective date of the Registration Statement without the prior written consent of the Representative. The Company will cause the Transfer Agent, as defined below, to mark an appropriate legend on the face of stock certificates representing all of such shares of Common Stock and other securities of the Company. (aa) Except as disclosed in the Prospectus, the Company has not incurred any liability and there are no arrangements or understandings for services in the nature of a finder's or origination fee with respect to the sale of the Securities or any other arrangements, agreements, understandings, payments or issuances with respect to the Company or any of its Page 9 10 officers, directors, employees or affiliates that may adversely affect the Underwriters' compensation, as determined by the NASD. (bb) The Securities have been approved for quotation on the Nasdaq SmallCap Market of the Nasdaq Stock Market, Inc., subject to official notice of issuance. (cc) Neither the Company nor to the Company's best knowledge any of its respective officers, employees, agents or any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency (domestic or foreign) or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist the Company in connection with any actual or proposed transaction) which: (a) might subject the Company, or any other such person to any damage or penalty in any civil, criminal or governmental litigation or proceeding (domestic or foreign); (b) if not given in the past, might have had a materially adverse effect on the assets, business or operations of the Company; or (c) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company's internal accounting controls are sufficient to cause the Company to comply with the Foreign Corrupt Practices Act 1977, as amended. (dd) Except as set forth in the Prospectus, and to the best knowledge of the Company, no officer, director or principal stockholder of the Company, or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Rules and Regulations) of any such person or entity or the Company, has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company, or (B) purchases from or sells or furnishes to the Company any goods or services, except with respect to the beneficial ownership of not more than 1% of the outstanding shares of capital stock of any publicly-held entity; or (ii) a beneficial interest in any contract or agreement to which the Company is a party or by which it may be bound or affected. Except as set forth in the Prospectus under "Certain Relationships and Related Transactions," there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company, and any officer, director, or principal stockholder of the Company, or any affiliate or associate of any such person or entity, which is required to be disclosed pursuant to Rule 404 of Regulation S-B. (ee) Any certificate signed by any officer of the Company and delivered to the Underwriters or to the Underwriters' Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. (ff) The Company has entered into an employment agreement with V. Lynn Graybill as described in the Prospectus. Unless waived by the Representative, the Company shall use its reasonable efforts at reasonable cost to obtain a key-man life insurance policy in the Page 10 11 amount of not less than $1,000,000 on the life of Mr. Graybill, which policy shall be owned by the Company and shall name the Company as the sole beneficiary thereunder. (gg) No securities of the Company have been sold by the Company within three years prior to the date hereof, except as disclosed in Part II of the Registration Statement. (hh) The minute books of the Company have been made available to Underwriter's Counsel and contain a complete summary of all meetings and actions of the Board of Directors and Shareholders of the Company since the date of its incorporation. 2. Purchase, Sale and Delivery of the Securities, Additional Securities and Agreement to Issue Underwriters' Common Stock and Warrant Purchase Option. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter, severally and not jointly, agree to purchase from the Company at the price per share and the price per warrant set forth below, that proportion of the number of Common Stock and Redeemable Warrants set forth in Schedule I opposite the name of such Underwriter that such number of Common Stock and Redeemable Warrants bears to the total number of shares of Common Stock and Redeemable Warrants, respectively, subject to such adjustment as the Underwriters in their discretion shall make to eliminate any sales or purchases of fractional Securities, plus any additional numbers of Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 11 hereof. (b) In addition, on the basis of the representations, warranties, covenants and agreements, herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 210,000 Shares from the Company and 210,000 Redeemable Warrants at the prices set forth below. The option granted hereby will expire 45 days after the date of this Agreement, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Additional Securities upon notice by the Representative to the Company setting forth the number of Additional Securities as to which the Underwriters are then exercising the option and the time and date of payment and delivery for such Additional Securities. Any such time and date of delivery shall be determined by the Underwriters, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Date, as defined in paragraph (c) below, unless otherwise agreed to between the Representative and the Company. In the event such option is exercised, each of the Underwriters, acting severally and not jointly, shall purchase such number of Option Securities then being purchased which shall have been allocated to such Underwriter by the Representative, and which such Underwriter shall have agreed to purchase, subject in each case to such adjustments as the Underwriters in their discretion shall make to eliminate any sales or purchases of fractional Securities. Nothing herein contained shall obligate the Underwriters to make any over-allotments. No Additional Securities shall be delivered unless the Firm Securities shall be simultaneously delivered or shall theretofore have been delivered as herein provided. Page 11 12 (c) Payment of the purchase price for, and delivery of certificates for, the Firm Securities shall be made at the offices of counsel to the Representative in Atlanta, Georgia, or at such other place as shall be agreed upon by the Underwriters and the Company. Such delivery and payment shall be made at 10:00 a.m. (New York City time) on ___________, 1997 or at such other time and date as shall be designated by the Representative but not less than three (3) nor more than five (5) business days after the effective date of the Registration Statement (such time and date of payment and delivery being hereafter called "Closing Date"). In addition, in the event that any or all of the Additional Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for such Additional Securities shall be made at the above-mentioned office or at such other place and at such time (such time and date of payment and delivery being hereinafter called "Option Closing Date") as shall be agreed upon by the Representative and the Company on each Option Closing Date as specified in the notice from the Representative to the Company. Delivery of the certificates for the Additional Securities and the Additional Securities, if any, shall be made to the Underwriters against payment by the Underwriters of the purchase price for the Securities and the Option Securities, if any, to the order of the Company as the case may be by certified check in New York Clearing House funds or, at the election of the Representative, all or a portion of the funds may be paid by Bank wire transfer of funds or by Representative's commercial check. Certificates for the Firm Securities and the Additional Securities, if any, shall be in definitive, fully registered form, shall bear no restrictive legends and shall be in such denominations and registered in such names as the Underwriters may request in writing at least two (2) business days prior to Closing Date or the relevant Option Closing Date, as the case may be. The certificates or the Depository Trust Corporation electronic notifications, as the case may be, for the Securities and the Additional Securities, if any, shall be made available to the Underwriters at the above-mentioned office or such other place as the Underwriters may designate for inspection, checking and packaging no later than 9:30 a.m. on the last business day prior to Closing Date or the relevant Option Closing Date, as the case may be. The purchase price of the Common Stock and Redeemable Warrants to be paid by each of the Underwriters, severally and not jointly, to the Company for the Securities purchased under Clauses (a) and (b) above will be $______ per Share and $______ per Redeemable Warrant (which price is net of the Underwriters' discount and commissions). The Company shall not be obligated to sell any Securities hereunder unless all Securities to be sold by the Company are purchased hereunder. The Company agrees to issue and sell 1,400,000 shares of the Common Stock and the Company agrees to issue and sell 1,400,000 Redeemable Warrants to the Underwriters in accordance herewith. (d) On the Closing Date, the Company shall issue and sell to the Underwriters the Underwriters' Purchase Option at a purchase price of $140.00, which purchase option shall entitle the holders thereof to purchase an aggregate of 140,000 Shares and 140,000 Warrants. The Underwriters' Purchase Option shall be exercisable for a period of four (4) years commencing one (1) year from the closing date of the Registration Statement at an initial exercise price equal to one hundred twenty percent (120%) of the initial public offering price of the Shares and Redeemable Warrants. The Underwriter's Purchase Option Agreement and form of Purchase Option Certificate shall be substantially in the form filed as an Exhibit to the Registration Statement. Payment for the Underwriters' Purchase Option shall be made on Page 12 13 Closing Date. The Company has reserved and shall continue to reserve a sufficient number of Shares for issuance upon exercise of the Underwriters' Purchase Option. 3. Public Offering of the Securities. As soon after the Registration Statement becomes effective and as the Representative deems advisable, but in no event more than three (3) business days after such effective date, the Underwriters shall make a public offering of the securities (other than to residents of or in any jurisdiction in which qualification of the Securities is required and has not become effective) at the price and upon the other terms set forth in the Prospectus. The Underwriters may allow such concessions and discounts upon sales to other dealers as set forth in the Prospectus. 4. Covenants of the Company. The Company covenants and agrees with each of the Underwriters as follows: (a) The Company shall use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as practicable and will not at any time, whether before or after the effective date of the Registration Statement, file any amendment to the Registration Statement or supplement to the Prospectus or file any document under the Exchange Act (i) before termination of the offering of the Securities by the Underwriters, which the Underwriters shall not previously have been advised and furnished with a copy, or (ii) to which the Underwriters shall have objected or (iii) which is not in compliance with the Act, the Exchange Act or the Rules and Regulations. (b) As soon as the Company is advised or obtains knowledge thereof, the Company will advise the Underwriters and confirm by notice in writing: (i) when the Registration Statement, as amended, becomes effective, if the provisions of Rule 430A promulgated under the Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A and when any post-effective amendment to the Registration Statement becomes effective; (ii) of the issuance by the commission of any stop order or of the initiation, or the threatening of any proceeding, suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto, or the institution or proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the receipt of any comments from the Commission; and (v) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information. If the Commission or any state securities commission or regulatory authority shall enter a stop order or suspend such qualification at any time, the Company will make every effort to obtain promptly the lifting of such order. (c) The Company shall file the Prospectus (in form and substance satisfactory to the Underwriters) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission pursuant to Rule 424(b)(1) (or, if applicable and if consented to by the Underwriters pursuant to Rule 424(b)(4)) not later than the Commission's close of business Page 13 14 on the earlier of (i) the second business day following the execution and delivery of this Agreement and (ii) the fifth business day after the effective date of the Registration Statement. (d) The Company will give the Underwriters notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the corresponding prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the Rules and Regulations), will furnish the Underwriters with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such prospectus to which the Underwriters or Johnson & Montgomery ("Underwriters' Counsel") shall reasonably object. (e) The Company shall cooperate in good faith with the Underwriters, and Underwriters' Counsel, at or prior to the time the Registration Statement becomes effective, in endeavoring to qualify the Securities for offering and sale under the securities laws of such jurisdictions as the Underwriters may reasonably designate, and shall cooperate with the Underwriters and Underwriters' Counsel in the making of such applications, and filing such documents and shall furnish such information as may be required for such purpose; provided, however, the Company shall not be required to: (i) qualify as a foreign corporation or file a general consent to service of process in any such jurisdiction; or (ii) qualify or "blue sky" in any state which requires a lock-up of inside securities for a period greater than five (5) years (or such earlier date if the Representative has exercised the Underwriters' Purchase Option). In each jurisdiction where such qualification shall be effected, the Company will, unless the Underwriters agree that such action is not at the time necessary or advisable, use all reasonable efforts to file and make such statements or reports at such times as are or may reasonably be required by the laws of such jurisdiction to continue such qualification. (f) During the time when the Prospectus is required to be delivered under the Act, the Company shall use all reasonable efforts to comply with all requirements imposed upon it by the Act and the Exchange Act, as now and hereafter amended and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus, or any amendments or supplements thereto. If at any time when the Prospectus relating to the Securities is required to be delivered under the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify the Underwriters promptly and prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act, each such amendment or supplement to be reasonably satisfactory to Underwriters' Counsel, and the Company will furnish to the Underwriters a reasonable number of copies of such amendment or supplement. Page 14 15 (g) As soon as practicable, but in any event not later than 45 days after the end of the 12-month period commencing on the day after the end of the fiscal quarter of the Company during which the effective date of the Registration Statement occurs (90 days in the event that the end of such fiscal quarter is the end of the Company's fiscal year), the Company shall make generally available to its security holders, in the manner specified in Rule 158(b) of the Rules and Regulations, and to the Underwriters, an earnings statement which will be in such form and detail required by, and will otherwise comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which statement need not be audited unless required by the Act, covering a period of at least 12 consecutive months after the effective date of the Registration Statement. (h) During a period of five (5) years after the date hereof and provided that the Company is required to file reports with the Commission under Section 12 of the Exchange Act, the Company will provide the Representative's director Designee or Attendee, as defined herein, copies of the below described documents prior to release where applicable and will furnish to its stockholders and to the Underwriter as soon as practicable, annual reports (including financial statements audited by independent public accountants): (i) as soon as they are available, copies of all reports (financial or other) mailed to stockholders; (ii) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, the NASD or any securities exchange; (iii) every press release and every material news item or article of interest to the financial community in respect of the Company and any future subsidiaries or their affairs which was released or prepared by the Company; (iv) any additional information of a public nature concerning the Company and any future subsidiaries or their respective businesses which the Underwriters may reasonably request; (v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4 received or filed by the Company from time to time; (vi) such other information as may be requested with reference to the property, business, stockholders and affairs of the Company and its subsidiaries. During such five-year period, if the Company has active subsidiaries, the foregoing financial statements will be on a consolidated basis to the extent that the accounts of the Company and its subsidiaries are consolidated, and will be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (i) For as long as the Company is required to file reports with the Commission under Section 12 of the Exchange Act, the Company will maintain a Transfer Agent and a Warrant Agent, which may be the same entity, and, if necessary under the jurisdiction of Page 15 16 incorporation of the Company, a Registrar (which may be the same entity as the Transfer and Warrant Agent) for its Common Stock and Redeemable Warrants. (j) The Company will furnish to the Underwriters or pursuant to the Underwriters' direction, without charge, at such place as the Underwriters may designate, copies of each Preliminary Prospectus, the Registration Statement and any pre-effective or post-effective amendments thereto (two of which copies will be signed and will include all financial statements and exhibits), the Prospectus, and all amendments and supplements thereto, including any prospectus prepared after the effective date of the Registration Statement, in each case as soon as available and in such quantities as the Underwriters may reasonably request. (k) Neither the Company, nor its officers or directors, nor affiliates of any of them (within the meaning of the Rules and Regulations) will take, directly or indirectly, any action designed to, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company. (1) The Company shall apply the net proceeds from the sale of the Securities in substantially the manner, and subject to the provisions, set forth under "Use of Proceeds" in the Prospectus. Except for the redemption of the Company's outstanding Convertible Preferred Stock as disclosed in the Prospectus, no portion of the net proceeds will be used directly or indirectly to acquire any securities issued by the Company. (m) The Company shall timely file all such reports, forms or other documents as may be required (including but not limited to a Form SR as may be required pursuant to Rule 463 under the Act) from time to time, under the Act, the Exchange Act, and the Rules and Regulations, and all such reports, forms and documents filed will comply as to form and substance with the applicable requirements under the Act, the Exchange Act, and the Rules and Regulations. (n) The Company shall furnish to the Underwriters as early as practicable prior to each of the date hereof, the Closing Date and each Option Closing Date, if any, but no later than two (2) full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company (which in no event shall be as of a date more than forty-five (45) days prior to the date of the Registration Statement) which have been read by the Company's independent public accountants, as stated in their letters to be furnished pursuant to Section 6(k) hereof. (o) For a period of five (5) years from the Closing Date (or such earlier date if the Representative has exercised the Underwriters' [PURCHASE OPTION AGREEMENT]), the Company shall furnish to the Underwriters at the Company's sole expense, (i) daily consolidated transfer sheets relating to the Securities upon the Representative's reasonable request; (ii) a list of holders of Securities upon the Representative's reasonable request; (iii) a list of, if any, the securities positions of participants in the Depository Trust Company upon the Representative's reasonable request. Page 16 17 (p) For a period of five (5) years after the effective date of the Registration Statement (or such earlier date if the Representative has exercised the [UNDERWRITING PURCHASE OPTION AGREEMENT]), the Company shall use its best efforts to cause two (2) individuals (the "Designees") selected by the Representative to be elected to the Board of Directors of the Company (the "Board"), if requested by the Representative. Alternatively, the Representative shall be entitled to appoint an individual who shall be permitted to attend all meetings of the Board (the "Attendee") and to receive all notices and other correspondence and communications sent by the Company to members of the Board. Upon election to the Board, the Designees shall be entitled to call special meetings of the Board and to serve on the Audit and Compensation Committees. The Designees may be removed by the Board only for "justifiable cause" as that term is defined in the Employment Contract between the Company and V. Lynn Graybill. The Company shall reimburse the Representative's Designees or Attendee for his or her out-of-pocket expenses reasonably incurred and authorized in advance by the Company in connection with his or her attendance of the Board meetings and a fee of $1,000 month. The Designee or Attendee shall also be entitled to participate in any Stock Option Plans of the Company for non-employees. To the extent permitted by law, the Company agrees to indemnify and hold the Designee (as a director or Attendee) and the Representative harmless against any and all claims, actions, awards and judgements arising out of his or her service as a director or Attendee and in the event the Company maintains a liability insurance policy affording coverage for the action of its officer and directors, to include such Designee and the Representative as an insured under such policy. (q) For a period equal to the lesser of (i) five (5) years from the date hereof, or (ii) the sale to the public of the Warrant Shares, the Company will use its best efforts not to take any action or actions which may prevent or disqualify the Company's use of Forms S-1 or, if applicable, S-2 and S-3 (or other appropriate form) for the registration under the Act of the Warrant Shares. (r) For a period of five (5) years from the date hereof, the Company shall use its best efforts at its cost and expense to maintain the listing of the Securities on the Nasdaq SmallCap Market or NASDAQ National Market System if the Company meets all of the requirements and qualifications promulgated by the NASD. (s) On or before the effective date of the Registration Statement, the Company shall retain or make arrangements to retain a financial public relations firm and a publicist reasonably satisfactory to the Representative which shall be continuously engaged from such engagement date to a date 24 months from the effective date of the Registration Statement. Upon the expiration of such two (2) year period, such engagement shall continue until the expiration of any lock-up period provided for in the Lock-Up Agreement(s) with certain officers and directors of the Company subject to the Company's right to terminate any such firm with the consent of the Underwriter's director Designees. Further, the Company shall engage for a period of two years at least three firms (one of which shall be the Representative and one of which shall be Standard & Poor's Stock Reports Professional Edition) which are reasonably acceptable to the Representative to provide industry research and advice to the Company. Upon the expiration of such two-year period, such engagement shall continue until the expiration of Page 17 18 any lock-up period provided hereunder, subject to the Company's right to terminate any such firm with the consent of the Underwriters' director designee. (t) The Company shall (i) file a Form 8-A with the Commission providing for the registration under the Exchange Act of the Securities and (ii) promptly take all necessary and appropriate actions to be included in Standard and Poor's Corporation Descriptions and/or Moody's OTC Manual and to continue such inclusion for a period of not less than five (5) years, as soon as practicable, but in no event more than five (5) business days' after the effective date of the Registration Statement. (u) Following the Effective Date of the Registration Statement and for a period of five (5) years thereafter (or such earlier date if the Representative has exercised the Underwriters' Purchase Option), the Company shall, at its sole cost and expense, prepare and file such blue sky trading applications with such jurisdictions as the Representative may reasonably request after consultation with the Company, and on the Representative's request, furnish the Underwriters with a secondary trading survey prepared by securities counsel to the Company. (v) The Company shall not amend or alter any term of any written employment agreement nor Lock-Up Agreement between the Company and any executive officer, director or affiliate, during the term thereof, in a manner more favorable to such employee or entity, without the express written consent of the Representative until such time as the Underwriter's Purchase Option has been exercised in full. (w) Until the completion of the distribution of the Securities, the Company shall not, without the prior written consent of the Representative and Underwriters' Counsel, which consent shall not be unreasonably withheld, issue, directly or indirectly, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering contemplated hereby, other than trade releases issued in the ordinary course of the Company's business consistent with past practices with respect to the Company's operations. (x) Commencing one (1) year from the date hereof, upon the exercise of any Warrant, the exercise of which was solicited by the Underwriters in accordance with the applicable rules and regulations of the NASD prevailing at the time of such solicitation, the Company shall pay to the soliciting Underwriter a fee of 5% of the aggregate exercise price of such Warrant (the "Warrant Solicitation Fee") within five (5) business days of such exercise, so long as the Underwriters provided bona fide services in exchange for the Warrant Solicitation Fee and the Underwriters have been specifically designated in writing by the holders of the Warrants as the broker. The Company further agrees that it will not solicit the exercise of any Warrant other than through the Underwriters, unless either: (i) the Underwriters cannot legally solicit the exercise of the Warrants at the time of such solicitation; (ii) the Representative declines, in writing, to solicit the exercise of the Warrants within five (5) business days of such a written request by the Company; or (iii) the Representative consents to the solicitation of the exercise of the Warrants by the Company or another entity. Page 18 19 (y) The Company will use its best efforts to maintain its registration under the Exchange Act in effect for a period of five (5) years from the Closing Date. (z) For a period of twenty-four (24) months commencing on the Effective Date (or such earlier date if the Representative has exercised the UNDERWRITERS' PURCHASE OPTION), except with the written consent of the Underwriters, which consent shall not be unreasonably withheld, the Company will not issue or sell, directly or indirectly, any shares of its capital stock, or sell or grant options, or warrants or rights to purchase any shares of its capital stock, except pursuant to (i) this Agreement, (ii) THE PURCHASE OPTION AND the Underwriters' Warrants, (iii) warrants and options of the Company heretofore issued and described in the Prospectus, and (iv) the grant of options and the issuance of shares issued upon exercise of options issued or to be issued under a stock option plan to be adopted in the future by the Company with terms that are reasonable for a public entity the size of the Company which is described in the Prospectus; except that, during such period, the Company may issue up to ______ shares pursuant to certain employee stock options as is described in the Prospectus, and issue securities in connection with an acquisition, merger or similar transaction, provided that such securities are not publicly registered or issued pursuant to Regulation S of the Act, and the acquirer of the securities is not granted registration rights with respect thereto which are effective prior to 24 months after the Effective Date and until the Underwriter's Purchase Option is exercised, the Underwriter grants its consent. Notwithstanding anything to the contrary set forth in the prior sentence, the Company may not issue any class or series of Preferred Stock for a period of 24 months from the Effective Date without the unanimous vote or consent of all members of the Board of Directors of the Company. Prior to the Effective Date, the Company will not issue any options or warrants without the prior written consent of the Underwriters. (aa) The Company will not file any registration statement relating to the offer or sale of any of the Company's securities, including any registration statement on Form S-8, during the 12 months following the Closing Date without the Underwriters' prior written consent. (bb) Subsequent to the dates as of which information is given in the Registration Statement and Prospectus and prior to the Closing Dates, except as disclosed in or contemplated by the Registration Statement and Prospectus, (i) the Company will not have incurred any liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business; (ii) there shall not have been any change in the capital stock, funded debt (other than regular repayments of principal and interest on existing indebtedness) or other securities of the Company, any adverse change in the condition (financial or other), business, operations, income, net worth or properties, including any loss or damage to the properties of the Company (whether or not such loss is insured against), which could adversely affect the condition (financial or other), business, operations, income, net worth or properties of the Company; and (iii) the Company shall not pay or declare any dividend or other distribution on its Common Stock or its other securities or redeem or repurchase any of its Common Stock or other securities. (cc) The Company, for a period of twenty-four (24) months following the Effective Date (or such earlier date if the Representative has exercised the Underwriters' Page 19 20 Purchase Option), shall not redeem any of its securities, and shall not pay any dividends or make any other cash distribution in respect of its securities in excess of the amount of the Company's current or retained earnings derived after the Effective Date without obtaining the Underwriters' prior written consent, which consent shall not be unreasonably withheld. The Underwriters shall either approve or disapprove such contemplated redemption of securities or dividend payment or distribution within five (5) business days from the date the Underwriters receive written notice of the Company's proposal with respect thereto; a failure of the Underwriters to respond within the five (5) business day period shall be deemed approval of the transaction. (dd) The Company maintains and will continue to maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences, and (v) all quarterly reports filed on Form 10-Q shall be reviewed by the Company's accountant in accordance with SAS 71. (ee) The Company, for a period of twenty-four (24) months following the Effective Date (or such earlier date if the Representative has exercised the Underwriters' Purchase Option), shall implement the following procedures: (i) Sixty days prior to fiscal year end, the President will present to the Board of Directors a business plan to be adopted by the Board of Directors at fiscal year end. The business plan will include the following: a) monthly projections - including balance sheet, profit/loss statement and cash flow statements with underlying assumptions b) upon board approval, this document becomes the annual budget (ii) No later than the 20th day of each month, the Company will provide the Board with comparative financial statements for the previous month showing actual balance sheet, profit/loss and cash flow vs. budget with written explanations for deviation in excess of $50,000 or 10% of line item presented. (iii) Monthly Board meetings (which may be by telephone) by the 25th of each month to include discussion of the Monthly Report and approval of any changes to the business plan based on change of circumstances. (iv) Implementation of a compensation committee, which will be headed by an outside director and include one of the Underwriters' Designee Directors, to make recommendations to the Board for compensation for all outside consultants, officers and outside directors. Page 20 21 (v) Implementation of an audit committee which will have as its members one of the Underwriters Designee Directors and one outside Director. If the Company fails to comply with or breaches any provisions of this Section 4 of this Agreement, the Underwriters may cause the Company to retain one or more consultants, accountants or other professionals to assist the Company in curing the breach or failure and the Company will reimburse such third party directly for costs and expenses incurred. (ff) Financial Advisory Agreement. On the Closing Date, the Company shall execute a Financial Advisory Agreement with you for services, which shall include without limitation (i) advising the Company in connection with possible acquisitions (ii) facilitating shareholder communications and relations, including the preparation of the Company's annual report and (iii) advising and assisting the Company with long-term financial planning, corporate reorganization, expansion and capital structure and other financial matters. Such agreement shall have a term of two years and provide for compensation of $2,000 per month which amount shall be prepaid in full on the Closing Date. The Financial Advisory Agreement shall further provide that during the term of such agreement, in the event that you (i) introduce, negotiate or arrange on the Company's behalf a non-public equity financing or (ii) arrange on the Company's behalf a non-public debt financing or (iii) arrange for the purchase or sale of assets, or for a merger acquisition or joint venture for the Company, then the Company will compensate you (based on the Transaction Value, as defined below) for such services in an amount equal to: 5% on the first $1,000,000 of the Transaction Value; 4% on the amount from $1,000,001 to $2,000,000; 3% on the amount from $2,000,001 to $3,000,000; 2% on the amount from $3,000,001 to $4,000,000; 1% on the amount from $4,000,001 to $5,000,000; 1% on the amount in excess of $5,000,000. "Transaction Value" shall mean the aggregate value of all cash, securities and other property (i) paid to the Company, its affiliates or their shareholders in connection with any transaction referred to above involving any investment in or acquisition of the Company or any affiliates (or the assets of either), (ii) paid by the Company or any affiliate in any such transaction involving an investment in or acquisition of another party or its equity holdings by the Company or any affiliate, or (iii) paid or contributed by the Company or any affiliate and by the other party or parties in the event of any such transaction involving a merger, consolidation, joint venture or similar joint enterprise or undertaking. The value of any such securities (whether debt or equity) or other property shall be the fair market value thereof as determined by mutual agreement of the Company and the Underwriters or by an independent appraiser jointly selected by the Company and the Underwriters. 5. Payment of Expenses. (a) The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date (to the extent not paid at the Closing Date) all expenses and fees (other than Page 21 22 fees of Underwriters' Counsel, except as provided in (iv) below) incident to the performance of the obligations of the Company under this Agreement, including, without limitation: (i) the fees and expenses of accountants and counsel for the Company; (ii) all costs and expenses incurred in connection with the preparation, duplication, printing, filing, delivery and mailing (including the payment of postage with respect thereto) of the Registration Statement and the Prospectus and any amendments and supplements thereto and the printing, mailing and delivery of this Agreement, the Selected Dealer Agreements, the Agreement Among Underwriters, Underwriters Questionnaires, Powers of Attorney and related documents, including the cost of all copies thereof and of the Preliminary Prospectuses and of the Prospectus and any amendments thereof or supplements thereto supplied to the Underwriters in quantities as hereinabove stated; (iii) the printing, engraving, issuance and delivery of the Securities including any transfer or other taxes payable thereon; (iv) disbursements and fees of Underwriters' Counsel in connection with the qualification of the Securities under state or foreign securities or "Blue Sky" laws and determination of the status of such securities under legal investment laws, including the costs of printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments Survey," if any, which Underwriters' Counsel blue sky fees (exclusive of filing fees and disbursements) shall be $1,000 for each state in which application for registration or qualification is made up to an aggregate of $35,000 for all states combined; (v) advertising costs and expenses, including but not limited to costs and expenses in connection with the "road show," information meetings and presentations, and prospectus memorabilia all of which costs and expenses shall be approved in advance by the Company; (vi) fees and expenses of the transfer agent; (vii) the fees payable to the NASD; (viii) the fees and expenses incurred in connection with the listing of the Securities on the Nasdaq SmallCap Market and any other fees for application and admission to a registered Stock Exchange for which the Underwriter requires the Company to register its Securities; (ix) fees and expenses for any tombstone advertisements reasonably requested by the Representative; (x) Closing Binders; and (xi) Lucite cubes containing a miniature definite Prospectus. All fees and expenses payable to the Underwriters shall be payable at the Closing Date or Option Closing Date, as applicable. (b) If this Agreement is terminated by the Underwriters in accordance with the provisions of Section 6, Section 10(a) or Section 12, the Company shall reimburse and indemnify the Underwriters for all of their out-of-pocket expenses reasonably incurred in connection with the transactions contemplated hereby. (c) The Company further agrees that, in addition to the expenses payable pursuant to subsection (a) of this Section 5, it will pay to the Underwriters a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received by the Company from the sale of the Securities, $__________ of which has been paid to date to the Underwriters. The Company will pay the remainder of the non-accountable expense allowance on the Closing Date by direct payment to third parties for fees and expenses including, but not limited to, fees and expenses of Underwriter's Counsel and the balance by deduction from the proceeds of the offering contemplated herein. In the event the Underwriters elect to exercise the over-allotment option described in Section 2(b) hereof, the Company further agrees to pay to the Underwriters on the Option Closing Date (by deduction from the proceeds of the offering) a non-accountable Page 22 23 expense allowance equal to three percent (3%) of the gross proceeds received by the Company from the sale of the Option Securities. 6. Conditions of the Underwriters' Obligations. The obligations of the Underwriters hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company herein as of the Closing Date and each Option Closing Date, if any, as if they had been made on and as of the Closing Date or each Option Closing Date, as the case may be; the accuracy on and as of the Closing Date or Option Closing Date, if any, of the statements of officers of the Company made pursuant to the provisions hereof; and the performance by the Company on and as of the Closing Date and each Option Closing Date, if any, of each of its covenants and obligations hereunder and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:00 P.M., New York City time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Underwriters, and, at Closing Date and each Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Underwriter and Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the Rules and Regulations, the price of the Securities and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations within the prescribed time period, and prior to the Closing Date the Company shall have provided evidence satisfactory to the Underwriters of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. (b) The Underwriters shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact which, in the Underwriters' opinion, is material or omits to state a fact which, in the Underwriters' opinion, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact which, in the Underwriters' reasonable opinion, is material, or omits to state a fact which, in the Underwriters' reasonable opinion, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On or prior to the Closing Date and each Option Closing Date, as the case may be, the Underwriters shall have received from Underwriters' Counsel, such opinion or opinions with respect to the organization of the Company the validity of the Securities, the Registration Statement, the Prospectus and other related matters as the Underwriters reasonably may request and such counsel shall have received such papers and information as they request to enable them to pass upon such matters. Page 23 24 (d) At the Closing Date and the Option Closing Date the Underwriters shall have received an opinion of Looper, Reed, Mark & McGraw, counsel to the Company, dated the Closing Date, or Option Closing Date, as the case may be, addressed to the Underwriter and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) The Company: (A) has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Nevada with full corporate power and authority to own and operate its properties and to carry on its business as set forth in the Registration Statement and Prospectus; (B) to the best knowledge of such counsel, the Company is duly registered or qualified as a foreign corporation in all jurisdictions in which by reason of maintaining an office in such jurisdiction or by owning or leasing real property in such jurisdiction it is required to be so registered or qualified except where failure to register or qualify does not have, singly or in the aggregate, a Material Adverse Effect; and (C) to the best knowledge of such counsel, the Company has not received any notice of proceedings relating to the revocation or modification of any such registration or qualification. (ii) The Registration Statement, each Preliminary Prospectus that has been circulated and the Prospectus and any post-effective amendments or supplements thereto (other than the financial statements, schedules and other financial and statistical data included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and Regulations and the conditions for use of a registration statement on Form SB-2 have been satisfied by the Company. Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company and representatives of the Underwriters at which the contents of the Registration Statement, the Prospectus and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, on the basis of the foregoing, no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement or any amendment thereto at the time such Registration Statement or amendment became effective or the Prospectus as of the date thereof contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or to make the statements therein in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus or with respect to statements or omissions made therein in reliance upon information furnished in writing to the Company on behalf of any Underwriter expressly for use in the Registration Statement or the Prospectus). (iii) To the best of such counsel's knowledge, the Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus as of the date indicated therein, under "Capitalization." The Shares, Redeemable Warrants, the Purchase Option, the Underwriters' Warrants, and the Warrant Shares conform in all material respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof, to counsel's best knowledge, Page 24 25 are not subject to personal liability by reason of being such holders, and none of such securities were issued in violation of the preemptive rights of any holder of any security of the Company. (iv) The issuance of the Shares, Redeemable Warrants and the Warrant Shares have been duly authorized and when issued and paid for in accordance with this Agreement and the Warrant Agreement, respectively, will be validly issued, fully paid and non-assessable securities of the Company. The holders of the Securities when issued and paid for, will not be subject to personal liability by reason of being such holders. To the best of such counsel's knowledge, the Securities are not and will not be subject to the preemptive or similar contractual rights of any shareholder of the Company. All corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken. The certificates representing the Shares and Redeemable Warrants are in due and proper form. (v) Based solely on telephonic, verbal confirmation provided to such counsel by the staff of the Commission, the Registration Statement and all post-effective amendments, if any, have become effective under the Act, and, if applicable, filing of all pricing information has been timely made in the appropriate form under Rule 430A, and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and to the best of such counsel's knowledge, no proceedings for that purpose have been instituted or are pending or threatened or contemplated under the Act; and any required filing of the Prospectus pursuant to Rule 424(b) has been made. (vi) To the best of such counsel's knowledge, (A) there are no material contracts or other documents required to be described in the Registration Statement and the Prospectus and filed as exhibits to the Registration Statement other than those described in the Registration Statement and the Prospectus and filed as exhibits thereto, and (B) the descriptions in the Registration Statement and the Prospectus and any supplement or amendment thereto regarding such material contracts or other documents to which the Company is a party or by which it is bound, are accurate in all material respects and fairly represent the information required to be shown by Form SB-2 and the Rules and Regulations. (vii) This Agreement, the Underwriters Purchase Option Agreement, the Warrant Agreement, and the Financial Consulting Agreement have each been duly and validly authorized, executed and delivered by the Company, and assuming that it is a valid and binding agreement of the Underwriters, so as the case may be, constitutes a legal, valid and binding agreement of the Company enforceable as against the Company in accordance with its respective terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law or pursuant to public policy). (viii) Neither the execution or delivery by the Company of this Agreement, the Underwriter's Purchase Option Agreement, and the Warrant Agreement, nor its performance hereunder or thereunder, nor its consummation of the transactions contemplated herein or therein, nor the conduct of its business as described in the Registration Statement, the Page 25 26 Prospectus, and any amendments or supplements thereto, nor the issuance of the securities conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a material default under, or result in the creation or imposition of any material lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon any property or assets (tangible or intangible) of the Company pursuant to the terms of (A) the Articles of Incorporation of the Company, or (B) to the best knowledge of such counsel, and except to the extent it would not have a Material Adverse Effect on the Company, any statute, judgment, decree, order, rule or regulation applicable to the Company of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body, having jurisdiction over the Company or any of its respective activities or properties. (ix) No consent, approval, authorization or order, and no filing with, any court, regulatory body, government agency or other body, (other than such as may be required under state securities laws, as to which no opinion need be rendered) is required in connection with the issuance by the Company of the Securities pursuant to the Prospectus and the Registration Statement, the performance of this Agreement, the Underwriters' Purchase Option, the Financial Consulting Agreement and the Warrant Agreement by the Company, and the taking of any action by the Company contemplated hereby or thereby, which has not been obtained. (x) To the best of such counsel's knowledge, except as described in the Prospectus, no person, corporation, trust, partnership, association or other entity holding securities of the Company has the contractual right to include and/or register any securities of the Company in the Registration Statement, require the Company to file any registration statement or, if filed, to include any security in such registration statement for twelve months from the date hereof. (xi) After the public offering, the Securities will be eligible for listing on the Nasdaq SmallCap Market. In rendering such opinion such counsel may rely, (A) as to matters involving the application of laws other than the laws of the United States, the corporate laws of Nevada and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and in substance reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters' Counsel, familiar with the applicable laws, and (B) as to matters of fact, to the extent they deem proper, on certificates and written statements of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company; provided, that copies of any such statements or certificates shall be delivered to Underwriters' Counsel if requested. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, the Underwriters and they are justified in relying thereon. Page 26 27 (e) At each Option Closing Date, if any, the Underwriters shall have received the an opinion of counsel to the Company, each dated the Option Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel confirming as of Option Closing Date the statements made by such firm, in their opinion, delivered on the Closing Date. (f) On or prior to each of the Closing Date and the Option Closing Date, Underwriters' Counsel shall have been furnished such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in subsection (c) of this Section 6, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained. (g) Prior to the Closing Date and each Option Closing Date, if any: (i) there shall have been no material adverse change nor development involving a prospective change in the condition, financial or otherwise, prospects or the business activities of the Company, whether or not in the ordinary course of business, from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus; (ii) there shall have been no transaction, not in the ordinary course of business, entered into by the Company, from the latest date as of which the financial condition of the Company is set forth in the Registration Statement and Prospectus which is materially adverse to the Company; (iii) the Company shall not be in material default under any provision of any instrument relating to any outstanding indebtedness; (iv) no material amount of the assets of the Company shall have been pledged or mortgaged, except as set forth in the Registration Statement and Prospectus; (v) no action, suit or proceeding, at law or in equity, shall have been pending or to its knowledge threatened against the Company, or affecting any of its properties or businesses before or by any court or federal, state or foreign commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially adversely affect the business, operations, prospects or financial condition or income of the Company, except as set forth in the Registration Statement and Prospectus; and (vi) no stop order shall have been issued under the Act and no proceedings therefor shall have been initiated, threatened or contemplated by the Commission. (h) At the Closing Date and each Option Closing Date, if any, the Underwriters shall have received a certificate of the Company signed by the principal executive officer and by the chief financial or chief accounting officer of the Company, dated the Closing Date or Option Closing Date, as the case may be, to the effect that: (i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to such Closing Date or Option Closing Date, as the case may be; (ii) No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best of each of such person's knowledge, are contemplated or threatened under the Act; Page 27 28 (iii) The Registration Statement and the Prospectus and, if any, each amendment and each supplement thereto, contain all statements and information required to be included therein, and none of the Registration Statement, the Prospectus nor any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and neither the Preliminary Prospectus nor any supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and except as otherwise contemplated therein: (A) the Company has not incurred up to and including the Closing Date or the Option Closing Date as the case may be, other than in the ordinary course of its business, any material liabilities or obligations, direct or contingent; (B) the Company has not paid or declared any dividends or other distributions on its capital stock; (C) the Company has not entered into any transactions not in the ordinary course of business; (D) there has not been any change in the capital stock or any increase in long-term debt or any increase in the short-term borrowings (other than any increase in the short term borrowings in the ordinary course of business) of the Company; (E) the Company has not sustained any material loss or damage to its property or assets, whether or not insured; (F) there is no litigation which is pending or threatened against the Company which is required to be set forth in an amended or supplemented Prospectus which has not been set forth; (v) Neither the Company nor any of its officers or affiliates shall have taken, and the Company, its officers and affiliates will not take, directly or indirectly, any action designed to, or which might reasonably be expected to, cause or result in the stabilization or manipulation of the price of the Company's securities to facilitate the sale or resale of the Shares. References to the Registration Statement and the Prospectus in this subsection (i) are to such documents as amended and supplemented at the date of such certificate. (i) By the Closing Date, the Underwriters shall have received clearance from NASD as to the amount of compensation allowable or payable to the Underwriters, as described in the Registration Statement. (j) At the time this Agreement is executed, the Representative shall have received a letter, dated such date, addressed to the Representative in form and substance satisfactory in all respects (including the non-material nature of the changes or decreases, if any, referred to in clause (iii) below) to the Underwriters, from S. W. Hatfield + Associates: (i) confirming that they are independent public accountants with respect to the Company within the meaning of the Act and the applicable Rules and Regulations; Page 28 29 (ii) stating that it is their opinion that the condensed financial statements and supporting schedules of the Company included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations thereunder and that the Underwriters may rely upon the opinion of S.W. Hatfield + Associates with respect to the financial statements and supporting schedules included in the Registration Statement; (iii) stating that, on the basis of a limited review which included a reading of the latest available unaudited interim condensed financial statements of the Company (with an indication of the date of the latest available unaudited interim condensed financial statements), a reading of the latest available minutes of the stockholders and board of directors and the various committees of the boards of directors of the Company, consultations with officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (A) the unaudited condensed financial statements of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited condensed financial statements of the Company included in the Registration Statement, or (B) at a specified date not more than five (5) days prior to the effective date of the Registration Statement, there has been any change in the capital stock, or any increase in total borrowings of the Company, or any decrease in the stockholders' equity or working capital of the Company as compared with amounts shown in the financial statements included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any change or decrease, setting forth the amount of such change or decrease, and (C) during the period from ____________ to a specified date not more than five (5) days prior to the effective date of the Registration Statement, there was any decrease in revenue, net earnings or increase in net income or earnings per common share of the Company, in each case as compared with the corresponding period of the prior year other than as set forth in or contemplated by the Registration Statement, or, if there was any such decrease, setting forth the amount of such decrease; (iv) stating that they have compared specific dollar amounts, numbers of Securities, percentages of revenue and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures did not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; and (v) statements as to such other matters incident to the transaction contemplated hereby as the Underwriters may reasonably request. Page 29 30 (k) At the Closing Date and each Option Closing Date, the Underwriters shall have received from S. W. Hatfield + Associates, a letter, dated as of the Closing Date, or Option Closing Date, as the case may be, to the effect that they reaffirm that statements made in the letter furnished pursuant to Subsection (j) of this Section, except that the specified date referred to shall be a date not more than five days prior to the Closing Date and, if the Company has elected to rely on Rule 430A of the Rules and Regulations, to the further effect that they have carried out procedures as specified in clause (iii) of subsection (j) of this Section with respect to certain amounts, percentages and financial information as specified by the Underwriters and deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (iii). (l) On each of the Closing Date and the Option Closing Date, if any, there shall have been duly tendered to the Underwriters for the several Underwriters' accounts the appropriate number of Securities. (m) No order suspending the sale of the Securities in any jurisdiction designated by the Underwriters pursuant to subsection (e) of Section 4 hereof shall have been issued on either the Closing Date or the Option Closing Date, if any, and no proceedings for that purpose shall have been instituted or to its knowledge or that of the Company shall be contemplated. If any condition to the Underwriters' obligations hereunder to be fulfilled prior to or at the Closing Date or the relevant Option Closing Date, as the case may be, is not so fulfilled, the Underwriters may terminate this Agreement or, if the Underwriters so elect, it may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each of the Underwriters, including specifically each person who may be substituted for an Underwriter as provided in Section 11 hereof and each person, if any, who controls any Underwriter ("controlling person") within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions in respect thereof), whatsoever (including but not limited to any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever), as such are incurred, to which such Underwriter or such controlling person may become subject under the Act, the Exchange Act or any other federal or state statutory laws or regulations at common law or otherwise or under the laws of foreign countries arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained (i) in any Preliminary Prospectus (except that the indemnification contained in this paragraph with respect to any preliminary prospectus shall not inure to the benefit of the Underwriter or to the benefit of any person controlling the Underwriter on account of any loss, claim, damage, liability or expense arising from the sale of the Securities by the Underwriter to any person if a copy of the Prospectus, as amended or supplemented, shall not have been delivered or sent to such person within the time required by Page 30 31 the Act, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Preliminary Prospectus was corrected in the Prospectus, as amended and supplemented, and such correction would have eliminated the loss, claim, damage, liability or expense), the Registration Statement or the Prospectus (as from time to time amended and supplemented); (ii) in any post-effective amendment or amendments or any new registration statement and prospectus in which is included securities of the Company issued or issuable upon exercise of the Underwriters' Purchase Option; or (iii) in any application or other document or written communication (in this Section 8 collectively called "application") executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, Nasdaq Stock Market, Inc. or any other securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of the Prospectus, in the light of the circumstances under which they were made), unless such statement or omission was made in reliance upon and in conformity with written information furnished to the Company with respect to any Underwriter by or on behalf of such Underwriter expressly for use in any Preliminary Prospectus, the Registration Statement or Prospectus, or any amendment thereof or supplement thereto, in any post-effective amendment, new registration statement or prospectus or in any application, as the case may be, or (iv) any failure of the Company to comply with any provision of this Underwriting Agreement resulting in a claim or loss to the Underwriters. The indemnity agreement in this subsection (a) shall be in addition to any liability which the Company may have at common law or otherwise. (b) Each of the Underwriters agrees severally, but not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 20 of the Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to the Underwriters but only with respect to statements or omissions, if any, made in any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto in any post-effective amendment, new registration statement or prospectus, or in any blue sky application or any other such application made in reliance upon, and in strict conformity with, written information furnished to the Company with respect to any Underwriter by such Underwriter expressly for use in such Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any post-effective amendment, new registration statement or prospectus, or in any such application, provided that such written information or omissions only pertain to disclosures in the Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto, in any post-effective amendment, new registration statement or prospectus or in any such application, provided, further, that the liability of each Underwriter to the Company shall be limited to the amount of the net proceeds of the Offering received by the Company. The Company acknowledges that the statements with respect to the public offering of the Securities set forth under the heading "Underwriting" and the stabilization legend and the last paragraph of the cover page in the Prospectus have been furnished by the Underwriters expressly for use therein and any information furnished by or on behalf of the Page 31 32 Underwriter filed in any jurisdiction in order to qualify the Securities under State Securities laws or filed with the Commission, the NASD or any securities exchange constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Prospectus and the Underwriters hereby confirm that such statements and information are true and correct. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, suit or proceeding, such indemnified party shall, if a claim in respect thereof is to be made against one or more indemnifying parties under this Section 7, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent that it has been prejudiced in any material respect by such failure or from any liability which it may have otherwise avoided). In case any such action is brought against any indemnified party, and it notifies an indemnifying party or parties of the commencement thereof, the indemnifying party or parties will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. Notwithstanding the foregoing the indemnified party or parties shall have the right to employ its or their own counsel in any such case but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying parties in connection with the defense of such action at the expense of the indemnifying party, (ii) the indemnifying parties shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnifying party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying parties. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Anything in this Section 7 to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; provided however, that such consent was not unreasonably withheld. (d) In order to provide for just and equitable contribution in any case in which (i) an indemnified party makes claim for indemnification pursuant to this Section 7, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of this Section 7 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any indemnified party, then each indemnifying party in lieu of indemnifying such indemnified party shall contribute to the amount paid or payable by Page 32 33 such indemnified party as a result of such losses, claims, damages, expenses or liabilities (or actions in respect thereof) (A) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified on the other hand from the offering of the Securities or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (A) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In any case where the Company is the contributing party and the Underwriters are the indemnified party the relative benefits received by the Company on the one hand, and the Underwriters, on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) bear to the total underwriting discounts and commissions received by the Underwriters hereunder, in each case as set forth in the table on the Cover Page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to above in this subdivision (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subdivision (d), the Underwriters shall not be required to contribute any amount in excess of the amount of the net proceeds of the Offering received by the Company. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls the Company within the meaning of the Act, each officer of the Company who has signed the Registration Statement, and each director of the Company shall have the same rights to contribution as the Company, subject in each case to this subparagraph (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect to which a claim for contribution may be made against another party or parties under this subparagraph (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have hereunder or otherwise than under this subparagraph (d), or to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may have at common law or otherwise. 8. Representations and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or contained in certificates of officers of the Company submitted pursuant hereto, shall be deemed to be representations, warranties and agreements at the Closing Date and the Option Closing Date, as the case may be, and such representations, warranties and agreements of the Company and the indemnity agreements contained in Section 7 hereof, shall remain operative and in full force and effect regardless of Page 33 34 any investigation made by or on behalf of any Underwriter, the Company, or any controlling person, and shall survive termination of this Agreement or the issuance and delivery of the Securities to the Underwriters. 9. Effective Date. This Agreement shall become effective: (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at any time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post- effective amendment thereto to be declared effective before the offering of the Shares may commence, when notification of the effectiveness of the Registration Statement or such post-effective amendment has been released by the Commission. Until such time as this Agreement shall have become effective, it may be terminated by the Company, by notifying you, or by you, as Representatives of the several Underwriters, by notifying the Company. 10. Termination. (a) The Underwriters shall have the right to terminate this Agreement (i) if any calamitous domestic or international event or act or occurrence has materially disrupted, or in the Underwriters' opinion will in the immediate future materially disrupt general securities markets in the United States; or (ii) if trading on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market, or in the over-the-counter market shall have been suspended or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required on the over-the-counter market by the NASD or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a war or major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium in foreign exchange trading has been declared; or (vi) if the Company shall have sustained a material adverse loss, whether or not insured, by reason of fire, flood, accident or other calamity that materially impairs the investment quality of the Securities; or (vii) if there shall have been such material adverse change in the conditions or prospects of the Company, involving a change not contemplated by the Registration Statement. (b) Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement (including, without limitation, pursuant to Sections 9 and 10 hereof), and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. 11. Substitution of the Underwriters. If one or more of the Underwriters shall fail (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 6, Section 10 or Section 12 hereof) to purchase the Securities which it or they are obligated to purchase on such date under this Agreement (the "Defaulted Securities), the Underwriters shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other Underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the Page 34 35 terms herein set forth; if, however, the Underwriters shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the total number of Firm Securities to be purchased on such date, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all nondefaulting Underwriters; or (b) if the number of Defaulted Securities exceeds 10% of the total number of Firm Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriters. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of any default by such Underwriter under this Agreement. In the event of any such default which does not result in a termination of this Agreement, the Underwriters shall have the right to postpone the Closing Date for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 12. Default by the Company. If the Company shall fail at the Closing Date or any Option Closing Date, as applicable, to sell and deliver the number of Securities which it is obligated to sell hereunder on such date, then this Agreement shall terminate (or, if such default shall occur with respect to any Option Securities to be purchased on an Option Closing Date, the Underwriters may at the Underwriters option, by notice from the Underwriters to the Company, terminate the Underwriters' several obligations to purchase Securities from the Company on such date) without any liability on the part of any non-defaulting party other than pursuant to Section 5 and Section 7 hereof. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default. 13. Notices. All notices and communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representative at Argent Securities, Inc., 3340 Peachtree Road, Suite 450, Atlanta, GA 30326, with a copy to Johnson & Montgomery, One Buckhead Plaza, 3060 Peachtree Road, N.W., Suite 400, Atlanta, Georgia 30305, Attention: Robert E. Altenbach, Esq. Notices to the Company shall be directed to the Company. 14. Parties. This Agreement shall inure solely to the benefit of and shall be binding upon, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 7 hereof, and their respective successors, legal representatives and assigns, and their respective heirs and legal representatives and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. Page 35 36 15. Construction. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia without giving effect to the choice of law or conflict of laws principles. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which taken together shall be deemed to be one and the same instrument. If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, KARTS INTERNATIONAL INCORPORATED By: --------------------------------- CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN ON BEHALF OF THEMSELVES AND THE OTHER SEVERAL UNDERWRITERS NAMED IN SCHEDULE I HERETO: Argent Securities, Inc., as Representative of the Several Underwriters By: ------------------------------------------ Name: L. Phillips Reames Title: Chairman Page 36 37 SCHEDULE I Underwriter Number of Securities - ----------- -------------------- Argent Securities, Inc. 1,400,000 Shares of Common Stock 1,400,000 Redeemable Common Stock Purchase Warrants Page 37 38 SCHEDULE II Warrant Agent - Securities Transfer Corporation Page 38 EX-1.3 3 FINANCIAL ADVISORY AGREEMENT 1 EXHIBIT 1.3 FINANCIAL ADVISORY AGREEMENT THIS AGREEMENT (the "Agreement") is made effective ____________, 1997 between Argent Securities, Inc. ("Consultant") and Karts International Incorporation (hereinafter the "Company"). RECITALS A. Company desires to be assured of the association and services of Consultants in order to avail itself of Consultant's experience, skills and abilities, and background and knowledge, to facilitate long range planning, and to execute the Company's business and investment banking needs in an orderly and efficient manner, and is therefore willing to engage Consultant upon the terms and conditions herein contained. B. Consultant agrees to be engaged and retained by the Company and upon said terms and conditions. NOW, THEREFORE, in consideration of the recitals, promises and conditions in this Agreement, the Consultant and Company agree as follows: 1. Consulting Services. Company hereby retains Consultant to become the investment banking consultant to the Company and to render such advice, consultation and information to the Board of Directors or the officers of the Company regarding general financial matters, including, but not limited to, long-term financial planning, expansions, changes in capital structure, shareholder relations, the raising of capital from public and private sources, and investment banking transactions and services, as shall be requested in writing by the President of the Company from time to time. Consultant agrees, upon request, to make itself available to render such services as Consultant deems necessary. 2. Term. Except as otherwise provided in Section 3(b) of this Agreement, the term of this Agreement shall be for a period of two (2) years commencing ___________, 1997. 3. Compensation of Consultants. a. Advisory Fee. In exchange for the services provided hereunder, the Company hereby agrees to pay Consultant an advisory fee equal to $24,000 per year during the term of this Agreement. The Company shall pay $48,000 (representing prepayment in full of the fees for the two-year term of this Agreement) to Consultant on the closing date of the Company's public offering of 1,400,000 shares of the Company's common stock, par value $.001 per share ("Common Stock") and 1,400,000 redeemable warrants to purchase Common Stock, underwritten by Consultant. 2 b. Finder's Fees. In addition to the compensation and expenses paid or payable to Consultant pursuant to Sections 3(a) and 4 hereof, the Company agrees that, if a consultant, directly or indirectly, introduces the Company, during the term of this Agreement, to any person or entity that during the term hereof or within 18 months following the term hereof, provides any investment capital, loan or any other equity or debt financing to the Company or any affiliate thereof, or becomes a party to a merger, acquisition, joint venture, private placement or other similar transaction with the Company or any affiliate thereof, then the Company shall pay Consultant a cash finder's fee. Each cash finder's fee payable to Consultant under this Agreement shall be calculated as a percentage of the Transaction Value (as defined herein) in accordance with the following scale: 5% on the first $1,000,000 of the Transaction Value; 4% on the amount from $1,000,001 to $2,000,000; 3% on the amount from $2,000,001 to $3,000,000; 2% on the amount from $3,000,001 to $4,000,000; 1% on the amount from $4,000,001 to $5,000,000; 1% on the amount in excess of $5,000,000. "Transaction Value" shall mean the aggregate value of all cash, securities and other property (i) paid to the Company, its affiliates or their shareholders in connection with any transaction referred to above involving any investment in or acquisition of the Company or any affiliates (or the assets of either), (ii) paid by the Company or any affiliate in any such transaction involving an investment in or acquisition of another party or its equity holdings by the Company or any affiliate, or (iii) paid or contributed by the Company or any affiliate and by the other party or parties in the event of any such transaction involving a merger, consolidation, joint venture or similar joint enterprise or undertaking. The value of any such securities (whether debt or equity) or other property shall be the fair market value thereof as determined by mutual agreement of the Company and the Consultants or by an independent appraiser jointly selected by the Company and the Consultant. 4. Expenses. Company agrees to pay all reasonable business expenses authorized in advance by Company in writing and incurred by Consultant in furtherance of the business of Company, including travel, food, lodging and entertainment expenses, upon presentation by Consultant of receipt in form reasonably satisfactory to Company. 5. Relationship of Parties. This Agreement shall not constitute an employer-employee relationship. It is the intention of each party that each Consultant shall be an independent contractor and not an employee of the Company. Consultant shall not have the authority to act as the agent of the Company except when such authority as specifically delegated to Consultant by the Company. Subject to the express provisions herein, the manner and means utilized by Consultant in the performance of Consultant's services hereunder shall be under the sole control of the Consultant. 6. Liability of Consultant. The Company acknowledges that all opinions and advice, whether oral or written, given by Consultant to the Company in connection with this Agreement are intended solely for the benefit and use of the Company in considering the transaction to which they relate, and the Company agrees that no person or entity other than the Company shall -2- 3 be entitled to make use of or rely upon the advice of Consultants to be given hereunder, and no such opinion or advice shall be used by the Company for any other purpose or reproduced, disseminated, quoted or referred to by the Company in communications with third parties at any time, in any manner or for any purpose, nor may the Company make any public reference to Consultant or use Consultant's name in any annual report or any other report or release of the Company without Consultant's prior written consent, except that the Company may, without Consultant's further consent, disclose this Agreement (but not the information provided to the Company by Consultant) in the Company's filings with the Securities and Exchange Commission, if such disclosure is required by law. 7. Notices. Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing or when deposited in the United States mail, postage prepaid, addressed to the other party at the address appearing at the end of this Agreement. Either party may change its address by written notice make in accordance with this Section. 8. Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, administrators, executors, successors, subsidiaries and affiliates. 9. Governing Law. This Agreement is made and shall be governed and construed in accordance with the laws of the State of Georgia. 10. Assignment. Any attempt by either party to assign any rights, duties or obligations which arise under this Agreement without the prior written consent of the other party shall be void, and shall constitute a breach of the terms of this Agreement. 11. Entire Agreement, Modifications. This Agreement constitutes the entire agreement between the Company and the Consultant. No promises, guarantees, inducements or agreements, oral or written, expressed or implied, have been made other than as contained in this Agreement. This Agreement can only be modified or changed in writing signed by the party or parties to be charged. 12. Termination. This Agreement shall automatically terminate after the initial two (2) year term. If terminated by the Company, such action shall not alter Company's obligation to pay Consultant the agreed upon full compensation described in this Agreement. 13. Litigation Expenses. If any action is brought by either party to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to any other relief to which it may be entitled. -3- 4 IN WITNESS WHEREOF, the parties have executed this Agreement on the date indicated at the beginning of this Agreement. Argent Securities, Inc. 3340 Peachtree Road, NE, Suite 450 Atlanta, Georgia 30326 Dated: ----------------------- ------------------------------------- Name: --------------------------------- Title: -------------------------------- Karts International Incorporated 109 Northpark Boulevard, Suite 210 Covington, Louisiana 70433 Dated: ----------------------- -------------------------------------- Name: ---------------------------------- Title: --------------------------------- -4- EX-2.1 4 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, made this _____ day of February, 1996, by and between Sarah Acquisition Corporation, a Florida corporation ("SAC"), and Karts International Incorporated, a Nevada corporation ("KII") (the two corporate parties hereto being sometimes collectively referred to as the "Constituent Corporations"), W I T N E S S E T H : WHEREAS, the Boards of Directors of SAC and KII have adopted resolutions declaring the advisability of the proposed merger (the "Merger") of SAC with KII upon the terms hereinafter set forth and the Boards of Directors of SAC and KII have by resolution adopted and approved this Agreement and Plan of Merger (the "Agreement") and both such Boards of Directors have directed that this Agreement be submitted to the shareholders of SAC and KII for their approval; and WHEREAS, the Merger is intended to constitute a reorganization within the meaning of Section 368(a)(1)(F) or Section 368(a)(1)(A) of the Internal Revenue Code of 1986; and WHEREAS, as and when required by the provisions of this Agreement, all such action as may be necessary or appropriate shall be taken by SAC and KII, as appropriate, in order to consummate the Merger; NOW, THEREFORE, the Constituent Corporations do hereby agree to merge on the terms and conditions herein provided, as follows: ARTICLE I General 1.1 Agreement to Merge. The parties to this Agreement agree to effect the Merger herein provided for, subject to the terms and conditions set forth herein. 1.2 Effective Time of the Merger. The Merger shall be effective at 5:01 p.m. on the date the Articles of Merger are filed with the Secretary of State of Nevada. The date and time the Merger becomes effective is referred to as the "Effective Time of the Merger." 1.3 Surviving Corporation. Upon the Effective Time of the Merger, SAC shall be merged into KII, and KII shall be the surviving corporation, governed by the laws of the State of Nevada (hereinafter sometimes called the "Surviving Corporation"). 1.4 Articles of Incorporation and Bylaws. Upon the Effective Time of the Merger, the Articles of Incorporation and Bylaws of KII in effect immediately prior to the Effective Time of the Merger shall be the Articles of Incorporation and Bylaws of the Surviving Corporation, subject always to the right of the Surviving Corporation to amend its Articles of Incorporation 2 and Bylaws in accordance with the laws of the State of Nevada and the provisions of the Articles of Incorporation and Bylaws. 1.6 Directors and Officers. The directors and officers of KII in office at the Effective Time of the Merger shall be and constitute the directors and officers of the Surviving Corporation, each holding the same office and/or directorship in the Surviving Corporation as he or she held in KII for the terms elected and/or until their respective successors shall be elected or appointed and qualified. 1.7 Effect of the Merger. On and after the Effective Time of the Merger, subject to the terms and conditions of this Agreement, the separate existence of SAC shall cease, the separate existence of KII, as the Surviving Corporation, shall continue unaffected by the Merger, except as expressly set forth herein, and the Surviving Corporation shall succeed, without further action, to all the properties and assets of SAC of every kind, nature and description and to SAC's business as a going concern. The Surviving Corporation shall also succeed to all rights, title and interests to all real estate and other property owned by SAC without reversion or impairment, without further act or deed, and without any transfer or assignment having occurred, but subject to any existing liens thereon. All liabilities and obligations of SAC shall become the liabilities and obligations of the Surviving Corporation and any proceedings pending against SAC will be continued as if the Merger had not occurred. 1.8 Further Assurances. SAC hereby agrees that at any time, or from time to time, as and when requested by the Surviving Corporation, or by its successors and assigns, it will execute and deliver, or cause to be executed and delivered in its name by its last acting officers, or by the corresponding officers of the Surviving Corporation, all such conveyances, assignments, transfers, deeds or other instruments, and will take or cause to be taken such further or other action and give such assurances as the Surviving Corporation, its successors or assigns may deem necessary or desirable in order to evidence the transfer, vesting of any property, right, privilege or franchise or to vest or perfect in or confirm to the Surviving Corporation, its successors and assigns, title to and possession of all the property, rights, privileges, powers, immunities, franchises and interests referred to in this Article I and otherwise to carry out the intent and purposes thereof. KII, as the Surviving Corporation, agrees that it will promptly pay to any dissenting shareholder of any Constituent Corporation, in accordance with the applicable provisions of Florida and Nevada law, such amount as such dissenting shareholder shall be entitled to receive under Florida and Nevada law as a dissenting shareholder. ARTICLE II Capital Stock of the Constituent Corporations 2.1 KII Capital Stock. Upon the Effective Time of the Merger, by virtue of the Merger and without any action on the part of SAC, KII or the holders of any of the common stock ("KII Common Stock") of KII, each issued and outstanding share of KII Common Stock shall be cancelled and shall no longer be outstanding. 2.2 SAC Capital Stock. Upon the Effective Time of the Merger, by virtue of the Merger and without any action on the part of SAC, KII or the holders of any of the common 2 3 stock ("SAC Common Stock") of SAC, each share of issued and outstanding SAC Common Stock shall be converted into the right to receive 1/250 share of KII Common Stock. Upon the Effective Time of the Merger, any shares of capital stock held in the treasury of SAC shall be cancelled and no shares of KII Common Stock shall be issued in respect thereof. 2.3 Exchange Procedure. At or following the Effective Time of the Merger, upon surrender of any certificate representing SAC Common Stock, if applicable, the Surviving Corporation shall, in exchange therefor, cause to be issued to the holder of such certificate a new certificate representing KII Common Stock pursuant to Section 2.2, less any amount required to be withheld under applicable federal, state or local tax requirements, and such certificate forthwith shall be cancelled. Until so surrendered and exchanged, each such certificate shall represent solely the right to receive the merger consideration, without interest and less any tax withholding. 2.4 Dissenting Shares. Each share of SAC or KII Common Stock issued and outstanding immediately prior to the Effective Time of Merger not voted in favor of the Merger and the holder of which has given written notice of the exercise of dissenter's rights as required by applicable law is herein called a "Dissenting Share." Dissenting Shares shall not be converted into or represent the right to receive the merger consideration pursuant to Sections 2.1, 2.2, or 2.3 hereof and shall be entitled only to such rights as are available to such holder pursuant to applicable law unless the holder thereof shall have withdrawn or forfeited his dissenter's rights. Each holder of Dissenting Shares shall be entitled to receive the value of such Dissenting Shares held by him in accordance with the provisions of applicable law. If any holder of Dissenting Shares shall effectively withdraw or forfeit his dissenter's rights under applicable law, such Dissenting Shares shall be converted into the right to receive the merger consideration in accordance with the provisions of Sections 2.1, 2.2 and 2.3. ARTICLE III Termination and Amendment 3.1 Termination. This Agreement may be terminated and abandoned at any time prior to the Effective Time of the Merger, whether before or after action thereon by the shareholders of the Constituent Corporations, by the mutual written consent of the Boards of Directors of SAC and KII. 3.2 Consequences of Termination. In the event of the termination and abandonment of this Agreement pursuant to the provisions of Section 3.1 hereof, this Agreement shall be of no further force or effect. 3.3 Modification, Amendment, etc. Any of the terms or conditions of this Agreement may be waived at any time, whether before or after action thereon by the shareholders of the Constituent Corporations, by the party entitled to the benefits thereof, and this Agreement may be modified or amended at any time, whether before or after action thereon by the shareholders of the Constituent Corporations, to the full extent permitted by the corporate laws of the States of Florida and Nevada. Any waiver, modification or amendment shall be effective only if reduced to writing and executed by the duly authorized representatives of the Constituent Corporations. 3 4 ARTICLE IV Miscellaneous 4.1 Expenses. The Surviving Corporation shall pay all expenses of carrying this Agreement into effect and accomplishing the Merger herein provided for. 4.2 Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provisions of this Agreement. 4.3 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original instrument, and all such counterparts together shall constitute only one original. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by an officer duly authorized thereunto as of the date first above written. SARAH ACQUISITION CORPORATION By: /s/ TIMOTHY P. HALTER ------------------------------------ Timothy P. Halter, Vice President KARTS INTERNATIONAL INCORPORATED By: /s/ TIMOTHY P. HALTER ------------------------------------ Timothy P. Halter, Vice President 4 EX-2.2 5 STOCK PURCHASE AGREEMENT 1 EXHIBIT 2.2 STOCK PURCHASE AGREEMENT HALTER FINANCIAL GROUP, INC. ("HALTER"), BRISTER'S THUNDER KARTS, INC. (THE "COMPANY") AND CHARLES BRISTER (THE "SHAREHOLDER") JANUARY 16, 1996 2 TABLE OF CONTENTS
ARTICLE/ SECTION SUBJECT PAGE - ------- ------- ---- PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I REPRESENTATIONS OF THE SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Ownership of Brister Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Validity of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Financial Statements and No Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.8 Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.10 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.11 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.12 Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.15 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.17 Intellectual Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.20 Employment Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.22 Interests in Clients, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.23 Bank Accounts, Powers of Attorney and Compensation of Employees . . . . . . . . . . . . . . . . 7 1.24 No Changes Prior to Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.26 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.27 Agreements, Judgments and Decrees Affecting Shareholder . . . . . . . . . . . . . . . . . . . . 8 1.28 Copies of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.29 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.30 Investor Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.31 Product Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.32 Products Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.33 Environmental Site Asses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE II REPRESENTATIONS OF HALTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.1 Existence and Good Standing of Halter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2 Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.3 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.4 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.5 Issuance of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(i) 3 ARTICLE III SALE OF THE BRISTER SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.1 Sale of the Brister Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.2 Cash Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.3 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.4 Acquiring Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.5 Consulting and Non-competition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.6 Directors' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE IV CONDUCT OF BUSINESS; REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.2 Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.3 Review of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE V CONDITIONS TO HALTER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.1 Opinion of the Company's and the Shareholder's Counsel . . . . . . . . . . . . . . . . . . . 14 5.2 Good Standing and Tax Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.4 Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.5 Performance of Agreements/Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.6 No Litigation Threatened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.7 Company's Accountants Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.8 Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.9 Consulting and Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.10 Licensing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.11 Real Estate Option and Right of First Refusal Agreement . . . . . . . . . . . . . . . . . . . 17 5.12 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.13 Release of Shareholder Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.14 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.15 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.16 Site Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.17 Amendments to Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VI CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.1 Opinion of Halter's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.2 Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VII SURVIVAL OF REPRESENTATIONS: INDEMNITY; OFFSET . . . . . . . . . . . . . . . . . . . . . . . 19 7.1 Survival of Representations and Obligations to Indemnify . . . . . . . . . . . . . . . . . . 19 7.2 Indemnification by the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 7.3 Indemnification by the Acquiring Company . . . . . . . . . . . . . . . . . . . . . . . . . . 19 7.4 Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 7.5 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(ii) 4 ARTICLE VIII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 8.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.1 Knowledge of the Company and the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . 22 9.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.4 "Person" Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.5 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.8 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.13 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.14 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.15 Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.16 Separate Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.17 Joinder of Spouse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(iii) 5 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of January 16, 1996, is made and entered into by and among Halter Financial Group, Inc., a Texas corporation ("Halter"), Brister's Thunder Karts, Inc., a Louisiana corporation (the "Company") and Charles Brister (the "Shareholder"), the sole shareholder of the Company. W I T N E S S E T H: WHEREAS, the Shareholder is the owner and holder of all of the issued and outstanding shares of common stock, no par value per share, of the Company as set forth on Exhibit 1 hereto (the "Brister Shares"); and WHEREAS, the Shareholder desires to sell, and Halter, through a to-be-named public acquisition corporation (the "Acquiring Company"), desires to purchase, the Brister Shares pursuant to this Agreement. NOW, THEREFORE, IT IS AGREED: ARTICLE I REPRESENTATIONS OF THE SHAREHOLDER As a material inducement to Halter to enter into this Agreement and perform its obligations hereunder, the Company and the Shareholder jointly and severally represent, warrant and agree as follows: 1.1 Ownership of Brister Shares. The Shareholder is the lawful owner of the Brister Shares, free and clear of all liens, encumbrances, restrictions and claims of every kind; the Shareholder has full legal right, power and authority to enter into this Agreement and to sell, assign, transfer and convey the Brister Shares so owned by the Shareholder pursuant to this Agreement; and the delivery to the Acquiring Company of the Brister Shares pursuant to the provisions of this Agreement will transfer to the Acquiring Company valid title thereto, free and clear of all liens, encumbrances, restrictions and claims of every kind. 1.2 Validity of Transaction. This Agreement and each other agreement contemplated hereby are valid and legally binding obligations of the Company and the Shareholder, enforceable in accordance with their respective terms against the Company and the Shareholder, except as limited by bankruptcy, insolvency and similar laws affecting creditors generally, and by general principles of equity. When sold, assigned, transferred and conveyed to the Acquiring Company pursuant to this Agreement, the Brister Shares will be duly authorized, validly issued, fully paid, nonassessable, and free of any preemptive rights of any present shareholder or any future shareholder of the Company. The execution, delivery and performance of this Agreement and each other agreement contemplated hereby have been duly authorized by the Company and the Shareholder and will not violate any applicable federal or state law, any order of any court or government agency or the articles or certificate of incorporation of the Company. The execution, delivery and performance of this Agreement and each other agreement contemplated hereby will not result in any breach of or default under, or result in the creation of any encumbrance upon any of the assets of the Company pursuant to the terms of any agreement by which the Company or any of its respective assets may be bound. No consent, approval or authorization of, or STOCK PURCHASE AGREEMENT - Page 1 6 registration or filing with any governmental authority or other regulatory agency, is required for the validity of the execution and delivery by the Company and the Shareholder of this Agreement or any documents related thereto. 1.3 Existence and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Louisiana. The Company has the power to own its properties and to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing in each of the states listed in Schedule 1.3 hereto, which are the only jurisdictions in which the character or location of the properties owned or leased by the Company or the nature of the business conducted by the Company makes such qualification necessary. The Company has all necessary power and authority to conduct the business it proposes to conduct and enter into and perform its obligations under this Agreement. The Company will deliver to Halter and the Acquiring Company a Certificate of Officer dated as of the Closing Date (as hereinafter defined) certifying to the Company's existence and good standing, the accuracy and completeness of its articles or certificate of incorporation and its bylaws and the names and signatures of its officers and agents authorized to execute documents on behalf of Company. 1.4 Capital Stock. The Company has an authorized capitalization as set forth in Schedule 1.4 hereto. All such outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. Neither the Shareholder nor the Company are parties to or bound by, nor do they have any knowledge of, any outstanding options, warrants, rights, calls, commitments, conversion rights, rights of exchange, plans or other agreements of any character providing for the purchase, issuance or sale of any shares of the capital stock of the Company, other than as contemplated by this Agreement. As of the Closing Date, the Company will not be subject to any obligation, contingent or otherwise, to repurchase or otherwise acquire or redeem any shares of its capital stock. 1.5 Subsidiaries and Investments. The Company does not own, directly or indirectly, any of the capital stock of any other corporation or any equity, profit sharing, participation or other interest in any corporation, partnership, joint venture or other entity. 1.6 Financial Statements and No Material Changes. The Shareholder has heretofore furnished Halter with the unaudited balance sheet of the Company as of December 31, 1993, December 31, 1994, respectively, as well as the unaudited balance sheet as of November 30, 1995 and the related statements of income, all compiled by Durnin & James, certified public accountants (the consolidated balance sheet of the Company at November 30, 1995 is hereinafter referred to as the "Balance Sheet"). Such financial statements, except as indicated therein, have been prepared in accordance with Statements on Standards for Accounting and Review issued by the American Institute of Certified Public Accountants consistently followed throughout the periods indicated. The Balance Sheet fairly presents the financial condition of the Company at the date thereof and, except as indicated therein, reflects all claims against and all debts and liabilities of the Company, fixed or contingent, as at the date thereof and the related statement of income fairly presents the results of operations of the Company and the changes in its financial position for the periods indicated. Such other balance sheets fairly present the financial condition of the Company at the respective dates thereof and, except as indicated therein, reflect all claims against and all debts and liabilities of the Company, fixed or contingent, as at the respective dates thereof, and the related statements of income fairly present the results of the operations of the Company and the changes in its financial position for the periods indicated. Since November 30, 1995 (the "Balance Sheet Date"), there has been (i) no material adverse change in the assets or liabilities, or in the business STOCK PURCHASE AGREEMENT - Page 2 7 or condition, financial or otherwise, or in the results of operations, of the Company, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God or other public force or otherwise and (ii) no change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations, or prospects, of the Company except in the ordinary course of business; and to the best knowledge, information and belief of the Shareholder and the Company, no fact or condition exists or is contemplated or threatened which might cause such a change in the future. 1.7 Books and Records. The minute books of the Company, as heretofore delivered to Halter and its representatives, contain accurate records of all meetings of and corporate actions or written consents by the Shareholder and Board of Directors of the Company, respectively. The Company does not have any of its records, systems, controls, data or information recorded, stored, maintained, operated or otherwise wholly or partly dependent upon or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) that (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of the Company. The Company will make and keep books, records and accounts that in reasonable detail accurately and fairly reflect the transactions and dispositions of its assets. The Company will maintain its present system of internal accounting controls. The Company's present system of internal accounting controls is sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements and to maintain accountability for such assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals, and appropriate action is taken with respect to any differences. 1.8 Title to Properties; Encumbrances. The Company has good and marketable title to its properties. Except as set forth in Schedule 1.8 hereto, all properties of the Company are free and clear of any and all other encumbrances. 1.9 Real Property. The Company does not own any real property. 1.10 Leases. Schedule 1.10 contains an accurate and complete list and description of the terms of all leases to which the Company is a party as lessee or lessor. Each lease set forth in Schedule 1.10 (or required to be set forth in Schedule 1.10) is in full force and effect; all rents and additional rents due to date on each such lease have been paid; in each case, the lessee has been in peaceable possession since the commencement of the original term of such lease and is not in default thereunder and no waiver, indulgence or postponement of the lessee's obligations thereunder has been granted by the lessor; and there exists no event of default or event, occurrence, condition or act (including the purchase of the Brister Shares hereunder) that, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default under such lease. The Company has not violated any of the terms or conditions under any such lease in any material respect, and, to the best knowledge, information and belief of the Shareholder and the Company, all of the covenants to be performed by any other party under any such lease have been fully performed. The property leased by the Company is in a state of good maintenance and repair and is adequate and suitable for the purposes for which it is presently being used. STOCK PURCHASE AGREEMENT - Page 3 8 1.11 Material Contracts. Except as set forth in Schedule 1.11 hereto, the Company has not been or is not bound by (i) any agreement, contract or commitment relating to the employment of any person by the Company, or any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement or other employee benefit plan, (ii) any agreement, indenture or other instrument that contains restrictions with respect to payment of dividends or any other distribution in respect of its capital stock, (iii) any agreement, contract or commitment relating to capital expenditures, (iv) any loan or advance to, or investment in, any other Person (as hereinafter defined) or any agreement, contract or commitment relating to the making of any such loan, advance or investment, (v) any guarantee or other contingent liability in respect of any indebtedness or obligation of any other Person (other than the endorsement of negotiable instruments for collection in the ordinary course of business), (vi) any management service, consulting or any other similar type contract, (vii) any agreement, contract or commitment limiting the freedom of the Company to engage in any line of business or to compete with any other Person, (viii) any agreement, contract or commitment not entered into in the ordinary course of business that involves $25,000 or more and is not cancelable without penalty within 30 days or (ix) any agreement, contract or commitment that might reasonably be expected to have a potential adverse impact on the business or operations of the Company. Each contract or agreement set forth in Schedule 1.11 (or required to be set forth in Schedule 1.11) is in full force and effect, and there exists no default or event of default or event, occurrence, condition or act (including the purchase of the Brister Shares hereunder) that, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default thereunder. The Company has not violated any of the terms or conditions of any contract or agreement set forth in Schedule 1.11 (or required to be set forth in Schedule 1.11) in any material respect, and, to the best knowledge, information and belief of the Shareholder and the Company, all of the covenants to be performed by any other party thereto have been fully performed. Contracts made in the ordinary course of business involving less than $25,000 shall be deemed not to be material for purposes of this Section 1.11. 1.12 Restrictive Documents. Neither the Company nor the Shareholder is subject to, or a party to, any charter, bylaw, mortgage, lien, lease, license, permit, agreement, contract, instrument, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind or character, that materially adversely affects the business practices, operations or condition of the Company or any of its assets or property, or that would prevent consummation of the transactions contemplated by this Agreement, compliance by the Shareholder or the Company with the terms, conditions and provisions hereof or the continued operation of the Company's business after the date hereof or the Closing Date on substantially the same basis as heretofore operated or that would restrict the ability of the Company to acquire any property or conduct business in any area. 1.13 Litigation. Except as set forth in Schedule 1.13 hereto, there are no claims, actions, inquiries, investigations, suits, proceedings or arbitrations pending or threatened against the Shareholder or the Company, nor is the Shareholder or the Company aware of any claims, actions, inquiries, investigations, suits or arbitrations before any governmental agency, court or tribunal, domestic or foreign, or before any private arbitration tribunal, threatened or pending against the Shareholder or the Company involving the Company's properties or business that, if determined adversely to the Shareholder or the Company, would, individually or in the aggregate, result in any materially adverse change in the properties, business, management or business prospects of the Company nor is there any basis for any such action, suit, proceeding, arbitration, claim, investigation or inquiry. There are no outstanding orders, judgments or decrees of any court, governmental agency or other tribunal naming the Shareholder or the Company and enjoining STOCK PURCHASE AGREEMENT - Page 4 9 either the Shareholder or the Company from taking, or requiring the Shareholder or the Company to take, any action, or to which the Shareholder, the Company, the Company's business or properties are bound or subject. Except as disclosed in Schedule 1.13, there are no unsatisfied adverse judgments or court or administrative orders (whether or not on appeal) affecting the business of the Company and there are no judgment creditors asserting any claims, whether or not meritorious or material, against the Shareholder or the Company. Upon a breach of the representations and warranties made in this Section 1.13, Halter and the Acquiring Company may avail themselves to all rights and remedies provided for herein, including, but not limited to, all rights to indemnification and offset as set forth in Article VII hereof. 1.14 Taxes. The Company has filed or caused to be filed, within the times and within the manner prescribed by law, all federal, state, provincial and foreign tax returns and tax reports that are required to be filed by, or with respect to, the Company. Such returns and reports reflect accurately all liability for taxes of the Company for the periods covered thereby. All federal, state, local and foreign income, franchise, sales, use, occupancy, excise and other taxes and assessments (including interest and penalties) payable by, or due from, the Company have been fully paid or adequately disclosed and fully provided for in the books and financial statements of the Company. The federal income tax liability of the Company has been finally determined for all fiscal years to and including the fiscal year ended December 31, 1992. Except as set forth and described in Schedule 1.14 hereto, no examination of any tax return of the Company is currently in progress. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax return of the Company. The Company will pay and discharge, when due, (i) all material taxes, assessments and governmental priority claims and charges imposed upon its properties or upon the income or profits therefrom (in each case before the same becomes delinquent and before penalties accrue thereon), and (ii) all claims for labor, materials or supplies that, if unpaid, might by law become liens upon any of its properties, unless and to the extent that the same are being contested in good faith and by appropriate proceedings, and adequate reserves have been set aside on its books with respect thereto, in accordance with generally accepted accounting principles. The parties agree that the liability of the Shareholder under this Agreement for the statements contained in this Section 1.14 shall be limited in accordance with Section 7.2 hereof. 1.15 Liabilities. The Company has no outstanding claims, liabilities or indebtedness, contingent or otherwise, except as set forth in the Balance Sheet, other than liabilities incurred subsequent to the Balance Sheet Date in the ordinary course of business not involving borrowings by the Company. The Company is not in default in respect of the terms or conditions of any indebtedness. 1.16 Insurance. Set forth in Schedule 1.16 hereto is a complete list of insurance policies that the Company maintains with respect to its businesses, properties or employees. Such policies are in full force and effect free from any right of termination on the part of the insurance carriers. Such policies, with respect to their amounts and types of coverage, are adequate to insure fully against risks to which the Company, and its property and assets are normally exposed, in the operation of its businesses, except that the Company is self-insured with respect to its building improvements and contents thereof and the Shareholder is self-insured with respect to the building used by the Company. True, complete and correct copies of all such policies have been provided to Halter on or prior to the date hereof. 1.17 Intellectual Properties. Schedule 1.17 hereto contains an accurate and complete list of all domestic and foreign letters patent, patents, patent applications, patent licenses, software STOCK PURCHASE AGREEMENT - Page 5 10 licenses and know-how licenses, trade names, trademarks, copyrights, unpatented inventions, service marks, trademark registrations and applications, service mark registrations and applications and copyright registrations and applications owned or used by the Company in the operation of its business (collectively, the "Intellectual Property"). Unless otherwise indicated in such Schedule 1.17, the Company owns the entire right, title and interest in and to the Intellectual Property, trade secrets and technology used in the operation of its business (including, without limitation, the exclusive right to use and license the same) and each item constituting part of the Intellectual Property and trade secrets and technology that is owned by the Company has been, to the extent indicated in Schedule 1.17, duly registered with, filed in or issued by, as the case may be, the United States Patent and Trademark Office or such other government entities, domestic or foreign, as are indicated in Schedule 1.17; and such registrations, filings and issuances remain in full force and effect. To the best knowledge, information and belief of the Shareholder and the Company, except as stated in such Schedule 1.17, there are no pending or threatened proceedings or litigation or other adverse claims affecting or with respect to the Intellectual Property. Schedule 1.17 lists all notices or claims currently pending or received by either the Company or the Shareholder during the past two years that claim infringement by the Company or the Shareholder of any domestic or foreign letters patent, patent applications, patent licenses and know-how licenses, trade names, trademark registrations and applications, service marks, copyrights, copyright registrations or applications, trade secrets or other confidential proprietary information. Except as set forth in any Schedule hereto, there is, to the best knowledge, information and belief of the Shareholder and the Company, no reasonable basis upon which a claim may be asserted against either the Company or the Shareholder for infringement of any domestic or foreign letters patent, patents, patent applications, patent licenses and know-how licenses, trade names, trademark registrations and applications, common law trademarks, service marks, copyrights, copyright registrations or applications, trade secrets or other confidential proprietary information. To the best knowledge, information and belief of the Shareholder and the Company, except as indicated on Schedule 1.17, no Person is infringing the Intellectual Property. 1.18 Compliance with Laws. The Company is in compliance in all material respects with all applicable laws, regulations, orders, judgments and decrees. 1.19 Accounts Receivable. The amount of all accounts receivable, unbilled invoices and other debts due or recorded in the records and books of account of the Company as being due to the Company at the Closing Date (less the amount of any provision or reserve therefor made in the records and books of account of the Company) will be good and collectible in full in the ordinary course of business and, in any event, not later than 60 days after the Closing Date; and none of such accounts receivable or other debts is or will at the Closing Date be subject to any counterclaim or set-off except to the extent of any such provision or reserve. There has been no material adverse change since the Balance Sheet Date in the amount of accounts receivable or other debts due the Company or the allowances with respect thereto, or accounts payable of the Company, from that reflected in the Balance Sheet. 1.20 Employment Relations. (i) The Company is in substantial compliance with all federal, state, provincial or other applicable laws, domestic or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not and is not engaged in any unfair labor practice, (ii) no unfair labor practice complaint against the Company is pending before a labor commissioner or other competent authority, (iii) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving the Company, (iv) no representation question exists respecting the employees of the Company, (v) no grievance that might have an adverse effect upon the Company or the conduct of its businesses STOCK PURCHASE AGREEMENT - Page 6 11 exists, no arbitration proceeding arising out of or under any collective bargaining agreement is pending, and no claim therefor has been asserted, (vi) no collective bargaining agreement is currently being negotiated by the Company, and (vii) the Company has not experienced any material labor difficulty during the last three years. There has not been, and to the best knowledge, information and belief of the Company and the Shareholder, there will not be, any material adverse change in relations with employees of the Company as a result of any announcement of the transactions contemplated by this Agreement. Except as contemplated hereby, no key employee, or group of employees has any plans to terminate employment with the Company. 1.21 Employee Benefit Plans. The Company has (i) no employee benefit plans within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such Employee Benefit Plans are otherwise exempt from the provisions of ERISA, or (ii) no other employee benefit plans or any other foreign pension, welfare or retirement benefit plans. The Shareholder and the Company have delivered or caused to be delivered to Halter and its counsel true and complete copies of (i) all employee benefit plans as in effect, together with all amendments thereto that will become effective at a later date, as well as the latest Internal Revenue Service determination letter obtained with respect to any such employee benefit plan qualified under Section 401 or 501 of the Internal Revenue Code of 1986, as amended and (ii) Form 5500 for the most recent completed fiscal year for each employee benefit plan required to file such form. 1.22 Interests in Clients, Suppliers, Etc. Neither the Shareholder nor any officer or director of the Company possesses, directly or indirectly, any financial interest in, or is a director, officer or employee of, any corporation, firm, association or business organization that is a client, supplier, customer, or competitor or potential competitor of the Company. Ownership of securities of a company whose securities are registered under the Securities Exchange Act of 1934, as amended, not in excess of one percent (1%) of any class of such securities shall not be deemed to be a financial interest for purposes of this Section 1.22. 1.23 Bank Accounts, Powers of Attorney and Compensation of Employees. Set forth in Schedule 1.23 hereto is an accurate and complete list showing (i) the name and address of each bank in which the Company has an account or safe deposit box, the number of any such account or any such box and the names of all persons authorized to draw thereon or to have access thereto, (ii) the names of all persons, if any, holding powers of attorney from the Company and a summary statement of the terms thereof and (iii) the names of all persons whose compensation from the Company on the Balance Sheet Date exceeded an annualized rate of $25,000, together with a statement of the full amount paid or payable to each such person for services rendered during such fiscal year. 1.24 No Changes Prior to Closing Date. During the period from the Balance Sheet Date to and including the Closing Date, except as expressly contemplated hereby, the Company will not have (i) incurred any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise), except in the ordinary course of business, (ii) permitted any of its assets to be subjected to any mortgage, pledge, lien, security interest, encumbrance, restriction or charge of any kind, (iii) sold, transferred or otherwise disposed of any assets except in the ordinary course of business, (iv) made any capital expenditure or commitment therefor, except in the ordinary course of business, (v) declared or paid any dividend or made any distribution on any shares of its capital stock, or redeemed, purchased or otherwise acquired any shares of its capital stock or any option, warrant or other right to purchase or acquire any such shares, (vi) made any bonus or STOCK PURCHASE AGREEMENT - Page 7 12 profit sharing distribution or payment of any kind, (vii) increased its indebtedness for borrowed money, except current borrowings from banks in the ordinary course of business, or made any loan to any Person, (viii) written off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business charged to applicable reserves, none of which individually or in the aggregate is material to the Company, (ix) granted any increase in the rate of wages, salaries, bonuses or other remuneration of any executive employee or other employees, except in the ordinary course of business, (x) canceled or waived any claims or rights of substantial value, (xi) made any change in any method of accounting or auditing practice, (xii) otherwise conducted its business or entered into any transaction, except in the usual and ordinary manner and in the ordinary course of its business, or (xiii) agreed, whether or not in writing, to do any of the foregoing. There shall have been no material adverse change in the financial position, results of operations, business or prospects of Company since the Balance Sheet Date. The Company has not consolidated or merged with, nor sold, leased or otherwise disposed to its properties as an entirety or substantially as an entirety, to any Person. Notwithstanding the foregoing, the Company may make certain distributions and/or dividend payments to the Shareholder prior to the Closing Date; provided, however, such distributions and/or dividends shall not be made if they should cause the Company to fail to meet the financial performance criteria set forth in Section 5.8 hereof. 1.25 Disclosure. None of this Agreement, the financial statements referred to in Section 1.6 above, or any agreement, schedule, exhibit or certificate delivered in accordance with the terms hereof or any document or statement in writing that has been supplied by or on behalf of the Shareholder, or by any of the Company's directors or officers, in connection with the transactions contemplated hereby, contains any untrue statement of a material fact, or omits any statement of a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to the Company or the Shareholder that materially and adversely affects the business, prospects or financial condition of the Company or their respective properties or assets, that has not been set forth in this Agreement or in the schedules, exhibits or certificates or statements in writing furnished in connection with the transactions contemplated by this Agreement. There has not come to the attention of the Company or the Shareholder any facts that reasonably cause Company or the Shareholder to believe that any document connected with the transactions contemplated hereby contain any untrue statement or a material fact, or omit to state a material fact required to be stated herein or necessary in order to make the statements herein, the light of the circumstances existing on the Closing Date, not misleading. 1.26 Broker's or Finder's Fees. No agent, broker, person or firm acting on behalf of the Shareholder is, or will be, entitled to any commission or broker's or finder's fees from any of the parties hereto, or from any Person controlling, controlled by or under common control with any of the parties hereto, in connection with any of the transactions contemplated herein. 1.27 Agreements, Judgments and Decrees Affecting Shareholder. The Shareholder represents and warrants that he is not subject to any agreement, judgment or decree adversely affecting his ability to act as an employee of the Company, as the case may be. 1.28 Copies of Documents. The Shareholder and the Company have caused to be made available for inspection and copying by Halter and its advisers, true, complete and correct copies of all documents referred to in this Article I or in any schedule furnished by the Shareholder or the Company to Halter pursuant to this Agreement. All documents and instruments delivered to Halter on the Closing Date in connection with this transaction shall be satisfactory to Halter in its sole discretion. STOCK PURCHASE AGREEMENT - Page 8 13 1.29 Purchase for Investment. The Shareholder will acquire the Acquiring Company Shares (as hereinafter defined) for investment and not with a view to resale or for distributing all or any part thereof in any transaction which would constitute a "distribution" within the meaning of the Securities Act of 1933, as amended (the" Securities Act"). The offering of the Acquiring Company Shares to the Shareholder was made only through direct, personal communication between the Shareholder and a duly authorized representative of the Acquiring Company and not through public solicitation or advertising. The Shareholder acknowledges that the Acquiring Company Shares have not been registered under the Securities Act and that neither Halter nor the Acquiring Company is under any obligation to file a registration statement with the Securities and Exchange Commission with respect to the Acquiring Company Shares. 1.30 Investor Qualifications. The Shareholder (i) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Acquiring Company Shares and has the financial ability to assume the monetary risk associated therewith, (ii) is able to bear the complete loss of its investment in the Acquiring Company Shares, (iii) has received such other documents and information as it has requested and has had the opportunity to ask questions of, and receive answers from, Halter and the Acquiring Company and their management concerning the Acquiring Company and the terms and conditions of the offering of the Acquiring Company Shares and to obtain additional information, (iv) is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act, (v) is not an entity formed solely to make this investment, and (vi) is not relying upon any statements or instruments made or issued by any person other than Halter and the Acquiring Company and their officers in making its decision to invest in the Acquiring Company Shares. 1.31 Product Warranty. Each product manufactured, sold, leased, or delivered by the Company has been in conformity with all applicable contractual commitments and all express and implied warranties, and the Company does not have any liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any such liability) for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth on the face of the Balance Sheet as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company. Except as set forth in Schedule 1.31 hereto, no product manufactured, sold, leased, or delivered by the Company is subject to any guaranty, warranty, or other indemnity. 1.32 Products Liability. Except as set forth in Schedule 1.13 hereto, there is no claim, action, suit, inquiry, proceeding or investigation by or before any court or governmental or other regulatory or administrative agency or commission pending or threatened against or involving either the Shareholder or the Company relating to any product alleged to have been manufactured or sold by the Company and alleged to have been defective, or improperly designed or manufactured. 1.33 Environmental Site Assessments. For the purpose of this Agreement, the Company, the Shareholder and Halter agree that, unless the context otherwise specifies or requires, the following terms shall have the meaning herein specified: (a) "Environmental Laws" shall mean (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund STOCK PURCHASE AGREEMENT - Page 9 14 Amendments and Reauthorization Act of 1986, 42 U.S.C.A. 9601 et seq. ("CERCLA"), (ii) the Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C.A. 6901 et seq. ("RCRA"), (iii) the Clean Air Act, 42 U.S.C.A. 7401 et seq., (iv) the Federal Water Pollution Control Act, as amended, 33 U.S.C.A. 1251 et seq., (v) the Toxic Substances Control Act, 15 U.S.C.A. 2601 et seq., (vi) all applicable laws of the State of Louisiana, and (viii) all other laws and ordinances relating to municipal waste, solid waste, air pollution, water pollution and/or the handling, discharge, disposal or recovery of on-site or off-site hazardous substances or materials, as each of the foregoing has been or may hereafter be amended from time to time. (b) "Hazardous Materials" shall mean, among others, (i) any "hazardous waste" as defined by the RCRA, and regulations promulgated thereunder; (ii) any "hazardous substance" as defined by CERCLA, and regulations promulgated thereunder; (iii) any "toxic pollutant" as defined in the Federal Water Pollution Prevention and Control Act, as amended, 33 U.S.C. 1251 et seq., (commonly known as "CWA" for "Clear Water Act"), and any regulations thereunder; (iv) any "hazardous air pollutant" as defined in the Air Pollution Prevention and Control Act, as amended, 42 U.S.C. 7401 et seq. (commonly known as "CAA" for "Clear Air Act") and any regulations thereunder; (v) asbestos; (vi) polychlorinated biphenyls; (vii) underground storage tanks, whether empty, filled or partially filled with any substance; (viii) any substance the presence of which on the Business Location (as hereinafter defined) is prohibited by any Environmental Laws; and (ix) any other substance which is regulated by any Environmental Laws. (c) "Hazardous Materials Contamination" shall mean the contamination (whether presently existing or hereafter occurring) of the improvements, facilities, soil, groundwater, air or other elements on or at the location of the Company at Highway 51 South, Roseland, Louisiana 70456 or at any other location where the Company conducts business (collectively, the "Business Location") by Hazardous Materials, or the contamination of the buildings, facilities, soil, groundwater, air or other elements on or any other specific property or general area, as a result of Hazardous Materials emanating from the operations of the Company's business. Halter may, at its sole and absolute discretion, contract for the services of persons (the "Site Reviewers") to perform an environmental site assessment or assessments at the Business Location for the purpose of determining whether there exists at the Business Location any Hazardous Materials or Hazardous Materials Contamination which may reasonably be expected to result in any liability, cost or expense to Halter, the Acquiring Company or any affiliated party of Halter or the Acquiring Company under any Environmental Laws relating to Hazardous Materials or Hazardous Materials Contamination (the "Site Assessments"). The Site Assessments may be performed at any time or times prior to the Closing Date, upon reasonable notice to and under reasonable conditions imposed by the Shareholder and the Company which do not materially impede the performance of the Site Assessments. The Site Reviewers are hereby authorized to enter upon the Business Location for such purposes. The Site Reviewers are further authorized to perform both above and below ground testing for environmental damage or the presence of Hazardous Materials or Hazardous Materials Contamination at the Business Location and such other tests at the Business Location as may be reasonably necessary to conduct the Site Assessments. The Shareholder and the Company will supply to the Site Reviewers such historical and operational information which has been generated from the day to day operations of the Company's business regarding the Business Location and will make available for meetings with the Site Reviewers the appropriate personnel with knowledge of relevant matters as is necessary STOCK PURCHASE AGREEMENT - Page 10 15 to facilitate the Site Assessments. The cost of performing such Site Assessment shall be paid by Halter and/or the Acquiring Company. If Hazardous Materials Contamination is discovered at the Business Location prior to the Closing Date, Halter shall have the right, at its sole option, to terminate this Agreement without liability to the Shareholder or the Company in accordance with Article VIII of this Agreement. In the event that any party terminates this Agreement in accordance with Article VIII hereof, Halter agrees that it will keep confidential, and will cause the Acquiring Company to keep confidential, the results of the Site Assessments, provided, however, Halter or the Acquiring Company may disclose such results to their respective counsel, advisors and investors in connection with the transactions contemplated hereby. ARTICLE II REPRESENTATIONS OF HALTER Halter represents, warrants and agrees as follows: 2.1 Existence and Good Standing of Halter. Halter is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. Halter has corporate power and authority to make, execute, deliver and perform this Agreement, and this Agreement has been duly authorized and approved by all required corporate action of Halter. 2.2 Restrictive Documents. Halter is not subject to any charter, by-law, mortgage, lien, lease, agreement, instrument, order, law, rule, regulation, judgment or decree, or any other restriction of any kind or character, that would prevent consummation of the transactions contemplated by this Agreement. 2.3 Purchase for Investment. The Acquiring Company will acquire the Brister Shares for its own account for investment and not with a view toward any resale or distribution thereof. 2.4 Broker's or Finder's Fees. Except for the fee payable by the Company to William E. York & Associates at the Closing as previously disclosed to the Shareholder and the Company, no agent, broker, person or firm acting on behalf of Halter is, or will be, entitled to any commission or broker's or finder's fees from any of the parties hereto, or from any person controlling, controlled by or under common control with any of the parties hereto, in connection with any of the transactions contemplated herein. 2.5 Issuance of the Shares. The delivery to the Shareholder of the Acquiring Company Shares pursuant to the provisions of this Agreement will transfer to the Shareholder valid title thereto, free and clear of all liens, encumbrances, restrictions and claims of every kind, except as acknowledged by the Shareholder in Section 1.29 hereof. ARTICLE III SALE OF THE BRISTER SHARES 3.1 Sale of the Brister Shares. Subject to the terms and conditions herein stated, the Shareholder agrees to sell, assign, transfer and deliver to the Acquiring Company on the Closing Date, and Halter agrees to cause the Acquiring Company to purchase from the Shareholder on the Closing Date, the Brister Shares. The certificates representing the Brister Shares shall be duly endorsed in blank by the Shareholder transferring the same, with signatures guaranteed by a domestic commercial bank or trust company, with all necessary transfer tax and other revenue stamps acquired at the Shareholder's expense affixed and canceled. The Shareholder agrees to cure STOCK PURCHASE AGREEMENT - Page 11 16 any deficiencies with respect to the endorsement of the certificates representing the Brister Shares or with respect to the stock power accompanying any such certificates. 3.2 Cash Payment. In partial consideration for the purchase by the Acquiring Company of the Brister Shares, Halter shall cause the Acquiring Company to pay to the Shareholder on the Closing Date an aggregate of $2,000,000 (the "Cash Payment") payable by wire transfer or official bank check payable to the order of the Shareholder. Within 30 days following the execution of this Agreement (the "Deposit Date"), Halter shall cause to be deposited with Durnin & James, as escrow agent, $20,000 of the Cash Payment (the "Escrow Deposit") pursuant to an escrow agreement to be entered into on the Deposit Date by the Shareholder, Halter and Durnin & James in form and substance mutually satisfactory to the parties and substantially in accordance with the following terms and conditions: (a) The Escrow Deposit shall be held by the escrow agent and disbursed only in accordance with the provisions of the escrow agreement. (b) The Escrow Deposit shall be delivered to the Shareholder at Closing as a portion of the Cash Payment. In the event that this Agreement is terminated prior to the Closing by Halter in accordance with Section 8.1(b) or by the Shareholder or the Company in accordance with Section 8.1(c), the Escrow Deposit shall be returned to Halter. (c) Such provisions as are required by the escrow agent for its protection shall also be included therein. 3.3 Promissory Note. As additional consideration for the purchase by the Acquiring Company of the Brister Shares, Halter shall cause the Acquiring Company to execute and deliver on the Closing Date a subordinated promissory note of the Acquiring Company payable to the order of the Shareholder in the original principal amount of $1,000,000 (the "Note"), in substantially the same form as Exhibit 2 hereto. 3.4 Acquiring Company Common Stock. As further consideration for the purchase by Acquiring Company of the Brister Shares, Halter shall cause the Acquiring Company to issue and deliver to the Shareholder shares of its common stock (the "Acquiring Company Shares") as follows: (a) On the Closing Date, Halter shall cause the Acquiring Company to deposit with Securities Transfer Corporation, as escrow agent, 1,500,000 Acquiring Company Shares (the "Escrow Shares") pursuant to an escrow agreement to be entered into on the Closing Date by the Shareholder, Halter, the Acquiring Company and Securities Transfer Corporation in form and substance mutually satisfactory to the parties thereto. The Escrow Shares shall be held by the escrow agent and disbursed only in accordance with the provisions of the escrow agreement. Such provisions as are required by the escrow agent for its protection shall also be included therein. (b) Within 15 days of the Valuation Date (as hereinafter defined), Halter shall cause the Acquiring Company to deliver to the Shareholder a number of Acquiring Company Shares having an aggregate "market value" of $3,100,000. The "Valuation Date" shall be the 30th day (or the next business day following the 30th day, as the case may be) following the listing of the common stock of the Acquiring Company on the OTC STOCK PURCHASE AGREEMENT - Page 12 17 Bulletin Board, the Nasdaq Stock Market or any national or regional exchange. In the event that the Escrow Shares have an aggregate market value of less than $3,100,000, Halter shall cause the Acquiring Company to issue the number of additional shares of its common stock necessary to equal an aggregate market value of $3,100,000. In the event that the Escrow Shares have an aggregate market value in excess of $3,100,000, all excess Acquiring Company Shares shall be delivered to Halter. For the purpose of this Agreement, "market value" shall be computed as follows: (i) if the common stock of the Acquiring Company is listed on the OTC Bulletin Board or the Nasdaq Stock Market, the market value shall be the average of the closing bid and ask prices for the last seven business days subsequent to the Valuation Date, or (ii) if the common stock of the Acquiring Company is listed on any national or regional exchange, the market value shall be the average of the last reported sale prices for the last seven business days subsequent to the Valuation Date. 3.5 Consulting and Non-competition Agreement. In consideration for the purchase by Halter of the Brister Shares, at the Closing, Halter and the Shareholder will enter into a Consulting Agreement in substantially the same form as Exhibit 3 hereto and a Non-Competition Agreement in substantially the same form as Exhibit 4 hereto. 3.6 Directors' Fees. In consideration for the Shareholder's agreement to serve as a member of the Acquiring Company's Board of Directors, Halter agrees to cause the Acquiring Company to pay to the Shareholder $6,000 per annum (plus reimbursement of out-of- pocket expenses) in directors' fees. 3.7 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at 10 a.m. at the offices of legal counsel to Halter in Dallas, Texas within 60 days after the delivery of audited financial statements of the Company for its fiscal year ended December 31, 1995, or at such other time and date as the parties hereto shall designate. Such time and date are herein referred to as the "Closing Date." ARTICLE IV CONDUCT OF BUSINESS; REVIEW 4.1 Conduct of Business of the Company. During the period from the date of this Agreement to the Closing Date, the Company shall conduct its operations only according to its ordinary and usual course of business, and the Shareholder and the Company shall use their best efforts to preserve the Company's business organizations, keep available the services of the Company's officers and employees and maintain satisfactory relationships with licensors, suppliers, distributors, clients and others having business relationships with them. Notwithstanding the immediately preceding sentence, pending the Closing Date and except as may be first approved by Halter or as is otherwise permitted or required by this Agreement, the Shareholder and the Company shall cause (i) the Company's articles or certificate of incorporation and Bylaws to be maintained in their form on the date of this Agreement, (ii) the compensation payable or to become payable by the Company to any officer, employee or agent being paid $40,000 per year or more on the Balance Sheet Date to be maintained at their levels on the date of this Agreement, (iii) the Company to refrain from making any bonus, pension, retirement or insurance payment or arrangement to or with any such persons except those that may have already been accrued, (iv) the Company to refrain from entering into any contract or commitment except contracts in the ordinary course of business and (v) the Company to refrain from making any change affecting any bank, safe deposit or power of attorney arrangements of the Company. During the period from the date STOCK PURCHASE AGREEMENT - Page 13 18 of this Agreement to the Closing Date, the Shareholder shall cause the Company to confer on a regular and frequent basis with one or more designated representatives of Halter to report material operational matters and to report the general status of ongoing operations. The Shareholder and the Company shall promptly notify Halter of any unexpected emergency or other change in the normal course of its business or in the operation of its properties and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), adjudicatory proceedings, budget meetings or submissions involving any material property of the Company, and to keep Halter fully informed of such events and permit its representatives prompt access to all materials prepared in connection therewith. Notwithstanding the foregoing, it is expressly acknowledged and agreed that the Company will pay the Shareholder an aggregate of $1,000 per week for the period beginning January 1, 1996 until April 30, 1996 for services to be rendered to the Company, provided the Shareholder devotes at least 25 hours of service to the Company per week during said period. In addition, it is expressly acknowledged that the Shareholder shall have no obligation to train any new employee during the period between the date hereof and the Closing Date. 4.2 Exclusive Dealing. During the period from the date of this Agreement to the Closing Date, the Shareholder and the Company shall refrain from taking any action to, directly or indirectly, encourage, initiate or engage in discussions or negotiations with, or provide any information to, any corporation, partnership, person, or other entity or group, other than Halter, concerning any purchase of the Brister Shares or any merger, sale of substantial assets or similar transaction involving the Company. 4.3 Review of the Company. Halter may, prior to the Closing Date, through its representatives, review the properties, books and records of the Company and its financial and legal condition as they deem necessary or advisable to familiarize themselves with such properties and other matters; such review shall not, however, affect the representations and warranties made by the Company and the Shareholder hereunder. The Shareholder and the Company shall permit Halter and its representatives to have, after the date of execution hereof, full access to the premises and to all the books and records of the Company and to cause the officers of the Company to furnish Halter with such financial and operating data and other information with respect to the business and properties of the Company as Halter shall from time to time reasonably request. In the event of termination of this Agreement, Halter shall keep confidential any material information obtained from the Shareholder or the Company concerning the Company's properties or operations and business (unless readily ascertainable from public or published information or trade sources) until the same ceases to be material (or becomes so ascertainable) and shall return to the Company all copies of any schedules, statements, documents or other written information obtained in connection therewith. The Shareholder and the Company shall deliver or cause to be delivered on the Closing Date, and at such other times and places as shall be reasonably agreed upon, such additional instruments as Halter may reasonably request for the purpose of carrying out this Agreement. ARTICLE V CONDITIONS TO HALTER'S OBLIGATIONS The purchase of the Brister Shares by Halter on the Closing Date is conditioned upon receipt by Halter of the legal opinion and other documents listed in this Article V. 5.1 Opinion of the Company's and the Shareholder's Counsel. The Company and the Shareholder shall have furnished Halter with an opinion of Simpson & Schwartz, as counsel for STOCK PURCHASE AGREEMENT - Page 14 19 the Shareholder and the Company, dated the Closing Date, in form and substance satisfactory to Halter, to the effect that: (a) the Company (i) is a corporation validly existing and in good standing under the laws of its state of incorporation, (ii) is duly qualified and licensed under all applicable laws or regulations to own its assets and properties as now owned and to carry on its business as now conducted and (iii) is, to the best knowledge of such counsel, duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the failure to so qualify would have a material adverse effect upon its business; (b) the Company has full corporate power and authority to execute, deliver and perform this Agreement and the other agreements contemplated hereby; (c) the execution, delivery and performance of this Agreement and the other agreements contemplated hereby by the Company and the Shareholder have been duly authorized by all necessary corporate action on the part of the Company and this Agreement and the other agreements contemplated hereby constitute valid and binding obligations of the Company and the Shareholder enforceable against the Company and the Shareholder in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies; (d) the Company's authorized capital stock consists of (i) 1,000 shares of common stock, no par value, of which 1,000 shares are issued and outstanding and no such shares of capital stock are held in the treasury of the Company; and all of the Brister Shares are duly authorized, validly issued, fully paid and nonassessable; (e) to the best knowledge of such counsel, the Shareholder owns the Brister Shares, free and clear of any adverse claims, and has full power and authority to sell, transfer and deliver the Brister Shares in accordance with the terms of this Agreement; (f) to the best knowledge of such counsel, there are no existing options, warrants, subscriptions or other rights to purchase, or securities convertible into or exchangeable for, the capital stock of the Company and, to the best knowledge of such counsel, neither the Company nor the Shareholder are parties to or bound by any agreement, instrument, arrangement, contract, obligation, commitment or understanding of any character, whether written or oral, express or implied, relating to the sale, assignment, conveyance, encumbrance, transfer or delivery of any capital stock of the Company; (g) to the best knowledge of such counsel, except as disclosed in the schedules hereto, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending or threatened against the Company or affecting the Brister Shares or the assets or business of the Company, and, to the best knowledge of such counsel, except as disclosed in the schedules hereto, the Company is not in default with respect to any judgment, writ, injunction or decree of any court or governmental instrumentality or agency or in the performance, observance or fulfillment of any obligation, covenant or agreement by which it is bound or to which the Brister Shares or any of the assets of the Company are subject; (h) to the best knowledge of such counsel, neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated STOCK PURCHASE AGREEMENT - Page 15 20 hereby will conflict with, or result in a breach of the terms, conditions and provisions of, or constitute a default under, the certificate or articles of incorporation or bylaws of the Company or, to the best knowledge of such counsel, any agreement, indenture or other instrument under which the Company or the Shareholder are bound or to which the Brister Shares or any of the assets of the Company are subject, or result in the creation or imposition of any security interest, lien, charge or encumbrance upon the Brister Shares or any of the assets of the Company; and (i) to the best knowledge of such counsel, no consent of any person, corporation, association, company, partnership or other entity, and no consent, license, approval or authorization of, or registration or declaration with, any governmental body, authority, bureau or agency or federal, state or local court is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, or to the extent that any such consent or other action may be required, it has been validly procured or taken. 5.2 Good Standing and Tax Certificates. The Shareholder shall have delivered to Halter (i) copies of the Company's certificate or articles of incorporation, including all amendments thereto, certified by the secretary of state or other appropriate official of its jurisdiction of incorporation, (ii) certificates from the secretary of state or other appropriate official of the jurisdiction of incorporation to the effect that the Company is in good standing or subsisting in such jurisdiction and listing all charter documents of the Company on file, (iii) a certificate from the appropriate official in each jurisdiction in which the Company is qualified to do business to the effect that the Company is in good standing in such jurisdiction and (iv) certificates as to the tax status of the Company in the jurisdiction of incorporation and each other jurisdiction in which the Company is qualified to do business. 5.3 No Material Adverse Change. Prior to the Closing Date, there shall be no material adverse change in the assets or liabilities, the business or condition, financial or otherwise, the results of operations, or prospects of the Company, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God or other public force or otherwise, and the Company and the Shareholder shall have delivered to Halter a certificate, dated the Closing Date, to such effect. 5.4 Truth of Representations and Warranties. The representations and warranties of the Company and the Shareholder contained in this Agreement or in any schedule delivered pursuant hereto shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and the Company and the Shareholder shall have delivered to Halter on the Closing Date a certificate, dated the Closing Date, to such effect. 5.5 Performance of Agreements/Authorization. Each and all of the agreements of the Company and the Shareholder to be performed on or before the Closing Date pursuant to the terms hereof shall have been duly performed, and the Company and the Shareholder shall have delivered to Halter a certificate, dated the Closing Date, to such effect. Halter shall have also received (i) a copy of resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and all related documents and agreements, each certified by the Secretary of the Company as being true and correct copies of the originals thereof subject to no modifications or amendments, and (ii) a certificate of the President of the Company and of the STOCK PURCHASE AGREEMENT - Page 16 21 Shareholder, dated the Closing Date, as to the performance of and compliance by the Company and the Shareholder with all covenants contained herein on and as of the Closing Date and certifying that all conditions precedent of the Company and the Shareholder to the Closing Date have been satisfied. 5.6 No Litigation Threatened. No action or proceedings shall have been instituted or, to the best knowledge, information and belief of the Shareholder and the Company, shall have been threatened before a court or other government body or by any public authority to restrain or prohibit any of the transactions contemplated hereby, and the Shareholder and the Company shall have delivered to Halter a certificate, dated the Closing Date, to such effect. 5.7 Company's Accountants Letter. Halter shall have received a letter, dated the Closing Date, of Scott Hatfield + Associates, independent certified public accountants of the Company, in form and substance satisfactory to Halter in its sole discretion. 5.8 Financial Performance. The balance sheets of the Company for fiscal 1995, and the related statements of income, shareholders' equity and changes in financial position for the year then ended, all certified by Scott Hatfield + Associates and prepared in accordance with Generally Accepted Accounting Principles consistently followed throughout the periods indicated, must reflect results of the operations of the Company and the financial condition of the Company at December 31, 1995 and at the Closing Date as follows: (a) Net sales must be in excess of $7,000,000. (b) The sum of (i) salaries paid to the Shareholder, and (ii) earnings before depreciation and taxes, must be in excess of $1,200,000. (c) The shareholders' equity must be in excess of $1,500,000. 5.9 Consulting and Non-Competition Agreements. The Company shall have entered into a Consulting Agreement with the Shareholder substantially in the form of Exhibit 3 hereto and a Non-Competition Agreement with the Shareholder substantially in the form of Exhibit 4 hereto. 5.10 Licensing Agreement. The Company shall have entered into a licensing agreement with the Shareholder in form satisfactory to the parties hereto. Such licensing agreement shall provide that the Shareholder will (i) license to the Company all of the existing Intellectual Property owned by the Shareholder identified in Schedule 1.17 on terms at least as favorable as the Shareholder has received, or could have received, in arms-length transactions with third parties and (ii) for a period of five years following the date of execution of such licensing agreement, agree to license to the Company, at the Company's sole option, all Intellectual Property developed and/or owned by the Shareholder at any time subsequent to the Closing Date. The license referred to in Section 5.10 (ii) shall be exclusive and free of charge for a period of one year from the date of invention. Such license shall thereafter be at such prices and on such other terms that are at least as favorable as the Shareholder would receive in an arms-length transaction with any third party. 5.11 Real Estate Option and Right of First Refusal Agreement. The Company shall have entered into a real estate option and right of first refusal agreement with the Shareholder in form satisfactory to the parties hereto. Such real estate option agreement shall provide that the Company may, at its sole option, purchase the real property and improvements identified on Exhibit 5 hereto STOCK PURCHASE AGREEMENT - Page 17 22 for an aggregate purchase price of $550,000. Such option can first be exercised after December 31, 1997 and shall terminate on December 31, 2000. 5.12 Governmental Approvals. All governmental and other consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been received. 5.13 Release of Shareholder Claims. Halter shall have received duly executed documents in form satisfactory to Halter pursuant to which the Shareholder releases, relinquishes and waives any and all claims, demands, causes of action, suits, judgments or controversies of any kind whatsoever, whether known or unknown, that the Shareholder may have against the Company as of the Closing Date, for any reason whatsoever, including without limitation claims by such Shareholder against the Company with respect to dividends, repayment of loans, violation of preemptive rights, or payment of salaries or other compensation. 5.14 Proceedings. All proceedings to be taken in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be satisfactory in form and substance to Halter in its sole discretion, and Halter shall have received copies of all such documents and other evidences as Halter or its counsel may reasonably request in order to establish the consummation or such transactions and the taking of all proceedings in connection therewith. 5.15 Due Diligence Review. Halter and its representatives and advisors shall have completed a due diligence review of the business, operations and financial statements of the Company, the results of which shall be satisfactory to Halter in its sole discretion. 5.16 Site Assessments. In the event Halter contracts to perform Site Assessments as set forth in Section 1.33, such Site Assessments shall be completed, the results of which shall be satisfactory to Halter in its sole discretion. 5.17 Amendments to Lease. The Company, if required by Halter, shall have amended that Lease of Commercial Property by and between the Company and the Shareholder dated September 27, 1995, as amended on November 28, 1995 in form satisfactory to the parties thereto, provided, however, that the monthly rental payment shall be $6,025 (net of any payments for any insurance policy for the Company paid by the Shareholder) for the term stated therein. In addition, Halter shall have received a certificate of the Shareholder, dated the Closing Date, acknowledging that the Company has not violated any terms and conditions of such lease in any material respect as of the Closing Date. ARTICLE VI CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS The sale of the Brister Shares by the Shareholder on the Closing Date is conditioned upon receipt by the Shareholder of the legal opinion and other documents listed in this Article VI. 6.1 Opinion of Halter's Counsel. Halter shall have furnished the Shareholder with an opinion, dated the Closing Date, of legal counsel to Halter regarding the validity of the Acquiring Company Shares. 6.2 Truth of Representations and Warranties. The representations and warranties of Halter contained in this Agreement shall be true and correct on and as of the Closing Date with STOCK PURCHASE AGREEMENT - Page 18 23 the same effect as though such representations and warranties had been made on and as of such date; and Halter shall have delivered to the Shareholder on the Closing Date a certificate, dated the Closing Date, to such effect. 6.3 Governmental Approvals. All governmental consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been received. 6.4 Proceedings. All proceedings to be taken in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to the Shareholder and its counsel. ARTICLE VII SURVIVAL OF REPRESENTATIONS: INDEMNITY; OFFSET 7.1 Survival of Representations and Obligations to Indemnify. The respective representations and warranties of the Shareholder and Halter contained in this Agreement or in any schedule delivered pursuant hereto shall survive the purchase and sale of the Brister Shares contemplated hereby. The obligations to indemnify and hold harmless pursuant to this Article VII shall survive the consummation of the transactions contemplated by this Agreement. 7.2 Indemnification by the Shareholder. The Shareholder hereby agrees that notwithstanding any investigation which may have been made by or on behalf of Halter prior to the Closing, the Shareholder shall indemnify, defend and hold harmless Halter and the Acquiring Company (and any affiliated party of Halter and the Acquiring Company) at any time after consummation of the Closing, from and against all demands, claims, actions, or causes of action, assessments, losses, damages, liabilities, costs and expenses including, subject to Section 7.4 below, interest, penalties, court costs, and reasonable attorneys' fees and expenses asserted against, resulting to, imposed upon or incurred by Halter, the Acquiring Company or any affiliated party of Halter or the Acquiring Company, directly or indirectly, caused by reason of or resulting from or arising out of (i) a claim of products liability which results in either a settlement or award of damages in excess of stated insurance policy limits or (ii) any misrepresentation or any breach or nonfulfillment of any representation, covenant, warranty or agreement of the Company and/or the Shareholder contained in this Agreement, in any exhibit, schedule, certificate or financial statement delivered under this Agreement, or in any agreement made or executed in connection with the transactions contemplated by this Agreement. Notwithstanding the foregoing, the Shareholder shall not be liable under this Section 7.2 for any claims of products liability related to any suit or proceeding filed against the Company during the period between the date hereof and the Closing Date. The liability of the Shareholder under this Section 7.2 shall be limited to the Offset Period (as hereinafter defined) and to the value of the Offset Shares (as hereinafter defined) at such time as Halter or the Acquiring Company gives notice to the Shareholder of any claim or commencement of any action or proceeding in accordance with Sections 7.4 and 7.5 below. 7.3 Indemnification by the Acquiring Company. Halter agrees to cause the Acquiring Company to indemnify, defend and hold harmless the Shareholder (and any affiliated party of the Shareholder), at any time after consummation of the Closing, from and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, subject to Section 7.4 below, interest, penalties, court costs and reasonable attorneys' STOCK PURCHASE AGREEMENT - Page 19 24 fees and expenses asserted against, resulting to, imposed upon or incurred by the Shareholder, directly or indirectly, caused by reason of or resulting from or arising out of any misrepresentation or any breach or nonfulfillment of any representation, warranty, covenant and/or agreement of Halter contained in this Agreement, in any exhibit, schedule, certificate or financial statement delivered under this Agreement, or in any agreement made or executed in connection with the transactions contemplated by this Agreement. The liability of the Acquiring Company under this Section 7.3 shall be limited to an aggregate of $100,000. 7.4 Defense. (a) Promptly after the receipt by any person entitled to indemnification under Section 7.2 and 7.3 herein of notice of (i) any claim or (ii) the commencement of any action or proceeding, such party (the "Aggrieved Party") will, if claim with respect thereto is made against any party obligated to provide indemnification pursuant to Section 7.2 and 7.3 herein (the "Indemnifying Party"), give such Indemnifying Party written notice of such claim or the commencement of such action or proceeding and shall permit the Indemnifying Party to assume the defense of any such claim or any proceeding or litigation resulting from such claim, unless the action or proceeding seeks an injunction or other similar relief against the Aggrieved Party or there is a conflict of interest between it and the Indemnifying Party in the conduct of the defense of such action. Failure by the Indemnifying Party to notify the Aggrieved Party of its election to defend any such proceeding or action within a reasonable time, but in no event more than 15 days after written notice thereof shall have been given to the Indemnifying Party, shall be deemed a waiver by the Indemnifying Party of its right to defend such action. (b) If the Indemnifying Party assumes the defense of any such claim or litigation resulting therefrom with counsel reasonably acceptable to the Aggrieved Party, the obligations of the Indemnifying Party as to such claim shall be limited to taking all steps necessary in the defense or settlement of such claim or litigation resulting therefrom and to holding the Aggrieved Party harmless from and against any losses, damages and liabilities caused by or arising out of any settlement or any judgment in connection with such claim or litigation resulting therefrom. The Aggrieved Party may participate, at its expense, in the defense of such claim or litigation provided that the Indemnifying Party shall direct and control the defense of such claim or litigation. The Aggrieved Party shall cooperate and make available all books and records reasonably necessary and useful in connection with the defense. The Indemnifying Party shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment, except with the written consent of the Aggrieved Party, or enter into any settlement, except with the written consent of the Aggrieved Party. (c) If the Indemnifying Party shall not assume the defense of any such claim or litigation resulting therefrom, the Aggrieved Party may defend against such claim or litigation in such manner as it may deem appropriate and reasonably satisfactory to the Aggrieved Party. The Indemnifying Party shall promptly reimburse the Aggrieved Party for the amount of all expenses, legal or otherwise, as incurred by the Aggrieved Party in connection with the defense against or settlement of such claim or litigation. No settlement of claim or litigation shall be made without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. If no settlement of the claim or litigation is made, the Indemnifying Party shall promptly reimburse the Aggrieved Party for the amount of any judgment rendered with respect to such claim or in such litigation and of all STOCK PURCHASE AGREEMENT - Page 20 25 expenses, legal or otherwise, as incurred by the Aggrieved Party in the defense against such claim or litigation. (d) Subject to Section 7.5 hereof, the rights to indemnification hereunder (i) shall apply only to claims of any amount made by the Aggrieved Party from and after the point at which a single claim or an aggregate of several claims equals $5,000.00; and (ii) apply to claims made by either party against the other whereby written notice of the claim has been made and delivered within the period of the applicable statute of limitations. 7.5 Offset. The Shareholder agrees that the number of Acquiring Company Shares having an aggregate market value of $500,000 on the Valuation Date (the "Offset Shares") shall be held in escrow for a period of two years (the "Offset Period") from the Valuation Date, the terms of which to be set forth in an escrow agreement to be entered into on the Valuation Date, or as soon thereafter as reasonably practicable, by the Shareholder, Halter, the Acquiring Company and Securities Transfer Corporation, to be used to offset any amounts that may be owing at any time by the Shareholder to Halter or the Acquiring Company (including any affiliated party of Halter and the Acquiring Company) in respect of (i) a claim of products liability which results in either a settlement or award of damages in excess of stated insurance policy limits (provided, however, the Shareholder shall have no liability for the stated deductible amount under the applicable insurance policy), or (ii) any failure or breach of any representation, warranty, agreement or covenant of the Company or the Shareholder under or in connection with this Agreement or any other agreement with Halter or any transaction contemplated hereby or thereby. If Halter determines that such offset is appropriate, notice shall be given to the Shareholder of such determination at least 10 days prior to a disposition of any of the Offset Shares for the purpose of satisfying any liability imposed upon either Halter or the Acquiring Company (the "Notice Period"). If the conditions upon which the offset is based are cured by the Shareholder during the Notice Period, as determined by Halter, no offset shall be undertaken. Upon an event of offset, Halter and the Acquiring Company shall have sole discretion in selling or otherwise disposing of that number of the Offset Shares necessary to satisfy any outstanding liability or obligation imposed upon Halter or the Acquiring Company. All Offset Shares remaining at the expiration of the Offset Period shall be returned to the Shareholder. ARTICLE VIII TERMINATION 8.1 Termination Events. This Agreement may be terminated on written notice, on or before the Closing Date: (a) By mutual written consent of Halter, the Company and the Shareholder; (b) By Halter, if the conditions set forth in Article V are not satisfied (or are incapable of being satisfied) in the discretion of Halter before the close of business on the Closing Date; or (c) By the Shareholder and the Company if the conditions set forth in Article VI are not satisfied (or are incapable of being satisfied) in their discretion before the close of business on the Closing Date. 8.2 Effect of Termination. If this Agreement is validly terminated pursuant to Section 8.1 hereof, this Agreement shall forthwith become null and void, and there shall be no STOCK PURCHASE AGREEMENT - Page 21 26 liability on the part of the parties hereof (or any of their respective officers, directors, employees, agents, consultants or other representatives). ARTICLE IX MISCELLANEOUS 9.1 Knowledge of the Company and the Shareholder. Where any representation or warranty contained in this Agreement is expressly qualified by reference to the knowledge, information and belief of the Shareholder and the Company, the Shareholder and the Company confirm that they have made due and diligent inquiry as to the matters that are the subject of such representations and warranties. 9.2 Expenses. The parties hereto shall pay all of their own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel and financial advisers; provided, however, notwithstanding anything to the contrary herein, if the Shareholder or the Company terminates this Agreement, other than in accordance with Section 8.1(c), the Shareholder agrees to reimburse Halter of its out of pocket expenses not to exceed $100,000. 9.3 Governing Law. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of Texas. 9.4 "Person" Defined. "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or other department or agency thereof. 9.5 Captions. The Article and Section captions used herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 9.6 Publicity. Except as otherwise required by law, none of the parties hereto shall issue any press release or make any other public statement, in each case relating to or connected with or arising out of this Agreement or the matters contained herein, without obtaining the prior approval of all parties hereto to the contents and the manner of presentation and publication thereof. 9.7 Notices. Any notice or other communications required or permitted hereunder shall be sufficiently given if delivered in person or sent by telex or by registered or certified mail, postage prepaid, addressed as follows: If to Halter, to Halter Financial Group, Inc., 4851 LBJ Freeway, Suite 201, Dallas, Texas 75244, Attention: Tim Halter, with a copy to its counsel, True & Sewell, Eighty-Eighty Central Ninth Floor, Dallas, Texas 75206-1887, Telephone: (214)360-1560, Fax: (214)987-0696; and if to the Shareholder or the Company, to Charles Brister, Highway 51 South, Roseland, Louisiana 70456, with a copy to his counsel, Simpson & Schwartz, 305 East Mulberry Street, Amite, Louisiana 70422, Telephone: (504) 748-8362, Fax: (504) 748-7777 or such other address as shall be furnished in writing by any such party, and such notice or communication shall be deemed to have been given as of the date so delivered, sent by fax or mailed. 9.8 Parties in Interest. This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law. This Agreement shall be STOCK PURCHASE AGREEMENT - Page 22 27 binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. 9.9 Counterparts. This Agreement may be executed in two (2) or more counterparts, all of which taken together shall constitute one instrument. 9.10 Entire Agreement. This Agreement, including the other documents referred to herein that form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 9.11 Amendments. This Agreement can be waived, amended, supplemented or modified by written agreement of the parties. 9.12 Severability. In case any provision in this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof will not in any way be affected or impaired thereby. 9.13 Third Party Beneficiaries. Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto. 9.14 Time of Essence. The mere lapse of time shall have the effect to constitute of the parties hereto in default to perform any of its obligations under this Agreement. 9.15 Negotiation. Each party hereto declares that the provisions of this Agreement and of all documents annexed thereto or referred to therein, have been negotiated and declares having read this Agreement and those documents and having understood their scope and nature. 9.16 Separate Counsel. The Shareholder and the Company hereby expressly acknowledge that each of them have been advised that neither of them have been represented by Halter Financial Group, Inc.'s or the Company's attorneys in this matter and have been advised and urged to seek separate legal counsel for advice in this matter. Halter hereby expressly acknowledges that it has been advised that it has not been represented by the Shareholder's or the Company's counsel on this matter and has been advised and urged to seek separate legal counsel for advice in this matter. 9.17 Joinder of Spouse. The spouse of the Shareholder has joined in the execution and delivery of this Agreement for the express purpose of binding her community property interests, if any, in the Brister Shares. STOCK PURCHASE AGREEMENT - Page 23 28 IN WITNESS WHEREOF, Halter has caused its corporate name to be hereunto subscribed by its officer thereunto duly authorized, and the Shareholder has executed this Agreement, all as of the date first above written. HALTER FINANCIAL GROUP, INC. By: /s/ TIMOTHY P. HALTER ------------------------------------- Timothy P. Halter, President BRISTER'S THUNDER KARTS, INC. By: /s/ CHARLES BRISTER ------------------------------------- Charles Brister, President SHAREHOLDER By: /s/ CHARLES BRISTER ------------------------------------- Charles Brister By: /s/ MRS. CHARLES BRISTER ------------------------------------- Mrs. Charles Brister STOCK PURCHASE AGREEMENT - Page 24 29 EXHIBIT 1 Charles Brister 1,000 shares of common stock, no par value, of Brister's Thunder Karts, Inc., a Louisiana corporation STOCK PURCHASE AGREEMENT - Page 25
EX-2.3 6 AMENDMENT TO STOCK PURCHASE AGREEMENT 1 EXHIBIT 2.3 [HALTER FINANCIAL GROUP, INC. LETTERHEAD] March 15, 1996 Mr. Charles Brister, President Brister's Thunder Karts, Inc. Highway 51 South Roseland, Louisiana 70456 Re: STOCK PURCHASE AGREEMENT (THE "STOCK PURCHASE AGREEMENT") DATED JANUARY 16, 1996 BY AND AMONG HALTER FINANCIAL GROUP, INC., BRISTER'S THUNDER KARTS, INC., A LOUISIANA CORPORATION AND MR. CHARLES BRISTER Dear Chuck: In accordance with Section 9.11 of the Stock Purchase Agreement, this letter agreement amends the Stock Purchase Agreement as follows: 1. The Subordinated Promissory Note set forth on Exhibit 2 has been amended to read in its entirety as set forth on Exhibit 2 hereto; 2. The Non-competition Agreement set forth on Exhibit 4 of the Stock Purchase Agreement has been replaced by the Non-competition agreements set forth on Exhibits 4A and 4B hereto; and 3. The second to the last sentence of Section 4.1 is hereby amended to read in its entirety as follows: "Notwithstanding the foregoing, it is expressly acknowledged and agreed that the Company will pay the Shareholder an aggregate of $1,000 per week for the period beginning January 1, 1996 until the Closing Date for services to be rendered to the Company, provided the Shareholder devotes at least 25 hours of service to the Company per week during said period." If the foregoing correctly sets forth our understanding, please execute this letter agreement in the space provided below. Sincerely, Timothy P. Halter President AGREED and ACCEPTED on March 15, 1996: By: /s/ CHARLES BRISTER ------------------------------------------------- Charles Brister (individually and as President of Brister's Thunder Karts, Inc.) 2 EXHIBIT 2 EXCEPT AS OTHERWISE PROVIDED HEREIN, THE RIGHTS OF PAYEE (AS HEREINAFTER DEFINED) TO RECEIVE PAYMENT OF ANY PRINCIPAL OR INTEREST ON THIS SUBORDINATED PROMISSORY NOTE IS SUBJECT AND SUBORDINATE TO THE PRIOR PAYMENT OF THE PRINCIPAL OF, (AND PREMIUM, IF ANY) AND THE INTEREST ON, ALL OTHER INDEBTEDNESS OF MAKER (AS HEREINAFTER DEFINED), NOW OUTSTANDING, WHETHER SECURED OR UNSECURED, AND ANY DEFERRALS, RENEWALS, EXTENSIONS OF SUCH INDEBTEDNESS OR ANY DEBENTURES, BONDS, OR NOTES EVIDENCING SUCH INDEBTEDNESS (THE "SENIOR INDEBTEDNESS"). UPON ANY RECEIVERSHIP, INSOLVENCY, ASSIGNMENT FOR THE BENEFIT OF CREDITORS, BANKRUPTCY, REORGANIZATION, SALE OF SUBSTANTIALLY ALL OF THE ASSETS, DISSOLUTION, LIQUIDATION, OR ANY OTHER MARSHALLING OF THE ASSETS AND LIABILITIES OF MAKER OR IF THIS SUBORDINATED PROMISSORY NOTE IS DECLARED DUE AND PAYABLE IN ACCORDANCE WITH ITS TERMS, THEN NO AMOUNT SHALL BE PAID BY MAKER WITH RESPECT TO THE PRINCIPAL AND INTEREST HEREON UNLESS AND UNTIL THE PRINCIPAL OF, AND INTEREST ON, ALL SENIOR INDEBTEDNESS THEN OUTSTANDING IS PAID IN FULL. SUBORDINATED PROMISSORY NOTE $1,000,000 Dallas, Texas March 15, 1996 FOR VALUE RECEIVED, the undersigned, Brister's Thunder Karts, Inc., a Louisiana corporation ("Maker"), promises to pay to the order of Charles Brister, an individual residing in the state of Louisiana (together with all subsequent holders of this Note, collectively referred to as "Payee"), the principal sum of One Million Dollars ($1,000,000), payable as provided herein, plus accrued interest on the outstanding principal balance as herein specified. The principal and accrued interest thereon shall be due and payable by Maker to the Payee in accordance with the schedule set forth on Exhibit A hereto. All past due interest shall bear interest at the highest rate permitted by applicable law. Principal and accrued interest under this Note, or any portion thereof, may be prepaid without penalty. All payments and prepayments shall be applied first to accrued and unpaid interest, and the balance of any such payments or prepayments shall be applied to outstanding principal in the order of maturity. Notwithstanding anything to the contrary contained herein, no provisions of this Note shall require the payment or permit the collection of interest in excess of the maximum rate permitted by applicable law. If any interest in excess of such maximum rate is herein provided for, or shall be adjudicated to be so provided, in this Note or otherwise in connection with this transaction giving rise to the execution hereof, the provisions of this paragraph shall govern and prevail, and 3 neither Maker nor the sureties, guarantors, successors or assigns of Maker shall be obligated to pay the excess amount of such interest or any other excess sum paid for the use, forbearance or detention of sums loaned pursuant hereto. If for any reason interest in excess of the maximum rate of interest permitted by applicable law shall be deemed, charged, required or permitted by a court of competent jurisdiction, any such excess shall be applied as a payment and reduction of the principal of indebtedness evidenced by this Note; and, if the principal amount hereof has been paid in full, any remaining excess shall forthwith be paid to Maker. This Note is secured by a Security Agreement dated the date hereof executed by the Pledgors named therein ("Pledgors") in favor of Payee covering the collateral more fully described on Exhibit B hereto. Maker, and any endorser or guarantors of this Note and all other persons who may become liable for all or any part of the obligations represented by this Note, severally waive presentment for payment, protest, notice of protest and of nonpayment, notice of intention to accelerate, and notice of acceleration. In the event of default by Maker in the payment of any part of the principal or interest on this Note when due and the continuance thereof for fifteen (15) days following Maker's and Pledgors' receipt of written notice of such default, the entire unpaid balance of principal and accrued interest on this Note shall, at the option of Payee, become immediately due and payable. Failure by the holder to exercise any option upon one (1) default will not constitute a waiver thereof or the waiver of the right to exercise such option in the event of a subsequent default. If after default this Note is placed in the hands of an attorney for collection or is collected through judicial proceedings, Maker shall pay, in addition to the sums referred to above, a reasonable sum as collection or attorneys' fees and all other costs incurred by the holder in collection of the unpaid amounts due hereunder. In addition, in the event that the parent company of Maker, Karts International Incorporated, successfully completes an underwritten public offering of its common stock, the entire unpaid balance of principal and accrued interest on this Note shall, at the option of Payee, become immediately due and payable. This Note is made and is performable in Dallas, Dallas County, Texas. This Note shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America. IN WITNESS WHEREOF, the undersigned has executed this Note as of the 15th day of March, 1996. BRISTER'S THUNDER KARTS, INC. By: /s/ V. LYNN GRAYBILL -------------------------------- V. Lynn Graybill, President 2 4 EXHIBIT A PAYMENT SCHEDULE The following annualized amounts shall be paid in equal quarterly payments during the years set forth below beginning on June 15, 1996:
Principal Total Amount Year Interest Rate (%) Interest Payable Payable Payable ---- ----------------- ---------------- --------- ------------ 1996-1997 8 $ 80,00 $ 0 $ 80,000 1997-1998 9 90,000 0 90,000 1998-1999 10 100,000 0 100,000 1999-2000 11 110,000 250,000 360,000 2000-2001 12 90,000 250,000 340,000 2001-2002 13 65,000 250,000 315,000 2002-2003 14 35,000 250,000 285,000
5 EXHIBIT B COLLATERAL
Number of Shares Market Price Aggregate Company of Common Stock Per Share Market Value ------- ---------------- ------------ ------------- Hunter Resources, Inc. 1,000,000 $ .50 $ 500,000.00 NewCare Health Corporation 196,464 2.545 500,000.88 TOTAL $1,000,000.88
6 EXHIBIT 4A NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into as of the 15th day of March, 1996, by and between Karts International Incorporated. a Nevada corporation (the "Company") and Charles Brister ("Brister"), an individual residing in the state of Louisiana. WHEREAS, Brister's Thunder Karts, Inc. ("BTK") is a Louisiana corporation engaged in the business of designing, manufacturing, marketing and distributing go karts; WHEREAS, Brister, the sole shareholder of BTK, has entered into that Stock Purchase Agreement dated the date hereof by and among Halter Financial Group, Inc., BTK and Brister whereby Halter Financial Group, Inc. will cause the Company to acquire all of the issued and outstanding capital stock of BTK from Brister; and WHEREAS, as a condition to closing the transactions contemplated by such Stock Purchase Agreement, Brister is obligated to enter into this Agreement. NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereto agree as follows: 1. COVENANT NOT TO COMPETE: CONFIDENTIALITY (a) Covenant Not to Compete. Except as provided herein and in that Licensing Agreement dated the date hereof by and between Brister and the Company, during a period of five years from the date hereof (the "Term"), Brister shall not, within any jurisdiction in which the Company, BTK or any subsidiary or affiliate thereof (collectively referred to herein as the "Company") is duly qualified to do business or within any marketing area in which the Company is doing a substantial amount of business, directly or indirectly own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with, any business of the type and character engaged in and competitive with that conducted by the Company. For these purposes, Brister's ownership of securities of a public company not in excess of one percent of any class of such securities shall not be considered to be in competition with the Company. This Section 1 shall not apply to Mr. Brister's activities in the State of Louisiana, which shall be governed by that Non-competition Agreement (Louisiana Only) dated the date hereof by and between the parties hereto and by the laws of the State of Louisiana. In addition, during the same Term, Brister agrees to refrain from interfering with the employment relationship between the Company and its other employees by soliciting any of such individuals to participate in other business ventures and agrees to refrain from soliciting business from any client or prospective client of the Company for Brister or for any entity in which Brister has an interest. 7 It is the desire and intent of the parties that the provisions of this Section 1 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, to the extent that the covenants hereunder shall be adjudicated to be invalid or unenforceable in any one such jurisdiction, this Section 1 shall be deemed amended to delete therefrom or reform the portion thus adjudicated to be invalid or unenforceable, such deletion or reformation to apply only with respect to the operation of this Section 1 in the particular jurisdiction in which such adjudication is made. Moreover, each provision of this Agreement is intended to be severable; and in the event that any one or more of the provisions contained in this Agreement shall for any reason be adjudicated to be invalid or unenforceable in any jurisdiction, the same shall not affect the validity or enforceability of any other provisions of this Agreement in that jurisdiction, but this Agreement shall be construed in such jurisdiction as if such invalid or unenforceable provision had never been contained therein. (b) Confidentiality. Brister agrees that he will not divulge to anyone (other than the Company or any persons employed or designated by the Company) any knowledge or information of any type whatsoever of a confidential nature relating to the business of the Company (unless readily ascertainable from public or published information), including, without limitation, discoveries, ideas, designs, specifications, drawings, techniques, models, data, programs, documentation, processes, know-how, customer lists, marketing plans, and financial and technical information. Brister further agrees not to disclose, publish or make use of any such knowledge or information of a confidential nature without the prior written consent of the Company. Notwithstanding the foregoing, Brister may disclose to third parties certain types of intellectual property that he owns subject to the terms and conditions of that Licensing Agreement dated the date hereof by and between Brister and the Company. 2. BREACH BY BRISTER. In the event of the breach by Brister of the terms and conditions of this Agreement to be performed by Brister, or in the event Brister performs services for any person, firm or corporation engaged in a competing line of business with the Company, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enforce the specific performance thereof by Brister, or to enjoin Brister from performing services for any such other person, firm or corporation. 3. ASSIGNMENT. The rights and obligations of the Company hereunder shall be binding upon and run in favor of the successors and assigns of the Company. In the event of any attempted assignment or transfer of rights hereunder contrary to the provisions hereof, the Company shall have no further liability for payments hereunder. 2 8 4. CAPTIONS. This Agreement contains the entire agreement between the parties. It may not be changed orally, but only by agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought, and consented to in writing by the Company. Paragraph headings are for convenience of reference only and shall not be considered a part of this Agreement. 5. SEPARATE COUNSEL. Brister hereby expressly acknowledges that he has been advised that he has not been represented by Halter Financial Group, Inc.'s or the Company's attorneys in this matter and has been advised and urged to seek separate legal counsel for advice in this matter. 6. LAW GOVERNING. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. IN WITNESS WHEREOF, The Company has by its appropriate officer signed this Agreement, and Brister has signed this Agreement, on and as of the date first above written. KARTS INTERNATIONAL INCORPORATED By: ---------------------------------------- Name: ---------------------------------- Title: ---------------------------------- -------------------------------------------- Charles Brister, individually 3 9 EXHIBIT 4B NON-COMPETITION AGREEMENT (LOUISIANA ONLY) THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into as of the 15th day of March, 1996, by and between Karts International Incorporated, a Nevada corporation (the "Company") and Charles Brister ("Brister"), an individual residing in the state of Louisiana. WHEREAS, Brister's Thunder Karts, Inc. ("BTK") is a Louisiana corporation engaged in the business of designing, manufacturing, marketing and distributing go karts; WHEREAS, Brister, the sole shareholder of BTK, has entered into that Stock Purchase Agreement dated the date hereof by and among Halter Financial Group, Inc., BTK and Brister whereby Halter Financial Group, Inc. will cause the Company to acquire all of the issued and outstanding capital stock of BTK from Brister; WHEREAS, the transactions contemplated by the Stock Purchase Agreement include the acquisition of the goodwill of BTK; and WHEREAS, as a condition to closing the transactions contemplated by such Stock Purchase Agreement, Brister is obligated to enter into this Agreement. NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereto agree as follows: 1. COVENANT NOT TO COMPETE. Except as provided in that Licensing Agreement dated the date hereof by and between Brister and the Company, during a period of two years from the date hereof (the "Term"), Brister shall not, within the Parishes located in the State of Louisiana listed on Annex A hereto (the "Area"), so long as the Company engages in or carries on any like business in the Area, directly or indirectly own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with, any business of the type and character engaged in and competitive with that conducted by the Company. For these purposes, Brister's ownership of securities of a public company not in excess of one percent of any class of such securities shall not be considered to be in competition with the Company. Brister hereby acknowledges and represents that the Company engages in business in all of the Parishes listed on Annex A hereto. In addition, during the same Term, Brister agrees to refrain from interfering with the employment relationship between the Company and its other employees by soliciting any of such individuals to participate in other business ventures and agrees to refrain from soliciting business from any client or prospective client of the Company for Brister or for any entity in which Brister has an interest. 10 The parties acknowledge that Brister's business in other areas and the benefits to the Company derived pursuant to the Agreement are such that the restrictions appearing in this Section 1 will not impair Mr. Brister's ability to earn a livelihood. It is the desire and intent of the parties that the provisions of this Section 1 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, to the extent that the covenants hereunder shall be adjudicated to be invalid or unenforceable in any one such jurisdiction, this Section 1 shall be deemed amended to delete therefrom or reform the portion thus adjudicated to be invalid or unenforceable, such deletion or reformation to apply only with respect to the operation of this Section I in the particular jurisdiction in which such adjudication is made. Moreover, each provision of this Agreement is intended to be severable; and in the event that any one or more of the provisions contained in this Agreement shall for any reason be adjudicated to be invalid or unenforceable in any jurisdiction, the same shall not affect the validity or enforceability of any other provisions of this Agreement in that jurisdiction, but this Agreement shall be construed in such jurisdiction as if such invalid or unenforceable provision had never been contained therein. 2. BREACH BY BRISTER. In the event of the breach by Brister of the terms and conditions of this Agreement to be performed by Brister, or in the event Brister performs services for any person, firm or corporation engaged in a competing line of business with the Company, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enforce the specific performance thereof by Brister, or to enjoin Brister from performing services for any such other person, firm or corporation. 3. ASSIGNMENT. The rights and obligations of the Company hereunder shall be binding upon and run in favor of the successors and assigns of the Company. In the event of any attempted assignment or transfer of rights hereunder contrary to the provisions hereof, the Company shall have no further liability for payments hereunder. 4. CAPTIONS. This Agreement contains the entire agreement between the parties. It may not be changed orally, but only by agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought, and consented to in writing by the Company. Paragraph headings are for convenience of reference only and shall not be considered a part of this Agreement. 5. SEPARATE COUNSEL. Brister hereby expressly acknowledges that he has been advised that he has not been represented by Halter Financial Group, Inc.'s or the Company's attorneys in this matter and has been advised and urged to seek separate legal counsel for advice in this matter. 2 11 6. LAW GOVERNING. This Agreement shall be governed by and construed in accordance with the laws of the State of Louisiana. IN WITNESS WHEREOF. The Company, has by its appropriate officer signed this Agreement, and Brister has signed this Agreement, on and as of the date first above written. KARTS INTERNATIONAL INCORPORATED By: ---------------------------------------- Name: ---------------------------------- Title: ---------------------------------- -------------------------------------------- Charles Brister, individually 3
EX-2.4 7 STOCK PURCHASE AGREEMENT 1 EXHIBIT 2.4 STOCK PURCHASE AGREEMENT BY AND BETWEEN KARTS INTERNATIONAL INCORPORATED ("KARTS INTERNATIONAL"), USA INDUSTRIES, INC. (THE "COMPANY") AND JERRY MICHAEL ALLEN, ANGELA T. ALLEN, JOHNNY C. TUCKER AND CAROL Y. TUCKER (THE "SHAREHOLDERS") OCTOBER 4, 1996 2 TABLE OF CONTENTS
ARTICLE/ SECTION SUBJECT PAGE - ------- ------- ---- PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I REPRESENTATIONS OF THE COMPANY AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Ownership of USA Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Validity of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Financial Statements and No Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.8 Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.10 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.11 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.12 Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.15 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.17 Intellectual Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.20 Employment Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.22 Interests in Clients, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.23 Bank Accounts, Powers of Attorney and Compensation of Employees . . . . . . . . . . . . . . . . 7 1.24 No Changes Prior to Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.26 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.27 Copies of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.28 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.29 Investor Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.30 Product Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.31 Products Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.32 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.33 Customer Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.34 Insider Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.35 Representations as of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE II REPRESENTATIONS OF KARTS INTERNATIONAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.1 Existence and Good Standing of Karts International . . . . . . . . . . . . . . . . . . . . . 11 2.2 Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(i) 3 2.3 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.4 Issuance of the Karts International Shares . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.5 Representations as of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE III SALE OF THE USA SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.1 Sale of the USA Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.2 Cash Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.3 Determination of Amount of Karts International Shares . . . . . . . . . . . . . . . . . . . . 12 3.4 Non-competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE IV CONDUCT OF BUSINESS; REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.2 Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.3 Review of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.4 Review of Karts International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.1 Preserve Accuracy of Representation and Warranties . . . . . . . . . . . . . . . . . . . . . 14 5.2 Passage of Title and Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.4 Company Employees and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.6 Covenants Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 5.7 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 5.8 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE VI CONDITIONS TO KARTS INTERNATIONAL'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . 15 6.1 Opinion of the Company's and the Shareholders' Counsel . . . . . . . . . . . . . . . . . . . 15 6.2 Good Standing and Tax Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.4 Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.5 Performance of Agreements/Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.6 No Litigation Threatened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.7 Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.8 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.9 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.10 Release of Shareholders' Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.11 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.12 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.13 Resignation of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VII CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 19 7.1 Opinion of Karts International's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 19 7.2 Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 7.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 7.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(ii) 4 ARTICLE VIII CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.2 Actions of the Company and the Shareholders at Closing . . . . . . . . . . . . . . . . . . . 19 8.3 Actions of Karts International at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE IX SURVIVAL OF REPRESENTATIONS: INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.1 Survival of Representations and Obligations to Indemnify . . . . . . . . . . . . . . . . . . 22 9.2 Indemnification by the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.3 Indemnification by Karts International. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.4 Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE X TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.1 Knowledge of the Company and the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 24 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.4 "Person" Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.5 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.8 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.13 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.14 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.15 Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 EXHIBITS: Exhibit "A" Balance Sheet dated July 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 Exhibit "B" Form of Non-Competition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 SCHEDULES: Schedule 1.3 States the Company is Qualified To Do Business In . . . . . . . . . . . . . . . . . . . . . . S-1 Schedule 1.4 Authorized Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . S-2 Schedule 1.8 Liens, Mortgages and Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3 Schedule 1.9 Description of Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4 Schedule 1.10 Description of Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5 Schedule 1.11 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6 Schedule 1.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
(iii) 5 Schedule 1.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8 Schedule 1.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9 Schedule 1.17 Intellectual Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10 Schedule 1.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11 Schedule 1.30 Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12 Schedule 1.32 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13 Schedule 1.33 Customer Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14 Schedule 1.34 Insider Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
(iv) 6 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of October 4, 1996, is made and entered into by and among Karts International Incorporated, a Nevada corporation ("Karts International"), USA Industries, Inc., an Alabama corporation (the "Company"), and Jerry Michael Allen, Angela T. Allen, Johnny C. Tucker and Carol Y. Tucker (the "Shareholders"). W I T N E S S E T H: WHEREAS, the Shareholders are the owners and holders of 100 shares of common stock, no par value per share, of the Company (the "USA Shares"); WHEREAS, the Shareholders desire to sell, and Karts International desires to purchase, the USA Shares pursuant and subject to the terms and conditions of this Agreement; WHEREAS, the Company and Karts International have entered into an operating agreement (the "Operating Agreement") to facilitate the manufacture and delivery of fun karts per USA's Vendor's Agreement with Wal-Mart Stores, Inc.; and WHEREAS, the Operating Agreement will terminate upon the Closing (as defined herein) of the transactions contemplated by this Agreement. NOW, THEREFORE, IT IS AGREED: ARTICLE I REPRESENTATIONS OF THE COMPANY AND THE SHAREHOLDERS As a material inducement to Karts International to enter into this Agreement and perform its obligations hereunder, the Company and the Shareholders jointly and severally represent, warrant and agree as follows: 1.1 Ownership of USA Shares. The Shareholders are the record and beneficial owners of the USA Shares, free and clear of all liens, encumbrances, restrictions and claims of every kind; the Shareholders have full legal right, power and authority to enter into this Agreement and to sell, assign, transfer and convey the USA Shares to Karts International pursuant to the terms of this Agreement; and the delivery to Karts International of duly endorsed certificates representing the USA Shares pursuant to the provisions of this Agreement will transfer to Karts International valid title to the USA Shares, free and clear of all liens, encumbrances, restrictions and claims of every kind. 1.2 Validity of Transaction. This Agreement and each other agreement contemplated hereby are valid and legally binding obligations of the Company and the Shareholders, enforceable in accordance with their respective terms against the Company and the Shareholders, except as limited by bankruptcy, insolvency and similar laws affecting creditors generally, and by general principles of equity. When sold, assigned, transferred and conveyed to Karts International pursuant to this Agreement, the USA Shares will be duly authorized, validly issued, fully paid, nonassessable and free of any preemptive rights of any present shareholder or any future shareholder of the Company. The execution, delivery and performance of this Agreement and each STOCK PURCHASE AGREEMENT - Page 1 7 other agreement contemplated hereby have been duly authorized by the Company and the Shareholders and will not violate any applicable federal or state law, any order of any court or government agency or the articles or certificate of incorporation of the Company. The execution, delivery and performance of this Agreement and each other agreement contemplated hereby will not result in any breach of or default under, or result in the creation of any encumbrance upon any of the assets of the Company pursuant to the terms of any agreement by which the Company or any of its respective assets may be bound. No consent, approval or authorization of, or registration or filing with any governmental authority or other regulatory agency, is required for the validity of the execution and delivery by the Company and the Shareholders of this Agreement or any documents related thereto. 1.3 Existence and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Alabama. The Company has the power to own its properties and to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing in each of the states listed in Schedule 1.3 hereto, which are the only jurisdictions in which the character or location of the properties owned or leased by the Company or the nature of the business conducted by the Company makes such qualification necessary. The Company has all necessary power and authority to conduct the business it proposes to conduct and enter into and perform its obligations under this Agreement. The Company will deliver to Karts International a Certificate of Officer dated as of the Closing Date (as hereinafter defined) certifying to the Company's existence and good standing, the accuracy and completeness of its articles or certificate of incorporation and its bylaws and the names and signatures of its officers and agents authorized to execute documents on behalf of Company. 1.4 Capital Stock. The Company has an authorized capitalization as set forth in Schedule 1.4 hereto, which includes the name and address of each Shareholder of the Company and the number of USA Shares and any other securities of the Company owned by such Shareholders. The outstanding USA Shares have been duly authorized and validly issued and are fully paid and nonassessable. Neither the Shareholders nor the Company are parties to or bound by, nor do they have any knowledge of, any outstanding options, warrants, rights, calls, commitments, conversion rights, rights of exchange, plans or other agreements of any character providing for the purchase, issuance or sale of any shares of the capital stock of the Company, other than as contemplated by this Agreement. As of the Closing Date, the Company will not be subject to any obligation, contingent or otherwise, to repurchase or otherwise acquire or redeem any shares of its capital stock. 1.5 Subsidiaries and Investments. The Company does not own, directly or indirectly, any of the capital stock of any other corporation or any equity, profit sharing, participation or other interest in any corporation, partnership, joint venture or other entity. 1.6 Financial Statements and No Material Changes. The Company has heretofore furnished Karts International with the unaudited balance sheet of the Company as of July 31, 1996 and the related statements of income, all compiled by management of the Company (the consolidated balance sheet of the Company at July 31, 1996 is hereinafter referred to as the "Balance Sheet"). The entries on the Balance Sheet under Equity that are classified as "Due to/from Johnny Tucker -- $56,981.57; Tucker Erection -- $17,075.00; and Michael Allen -- $42,887.86" have been reclassified as contributions to equity by such Shareholders. A true and correct copy of the Balance Sheet, as restated, is attached hereto as Exhibit "A". The Balance Sheet fairly presents the financial condition of the Company at the date thereof and, except as STOCK PURCHASE AGREEMENT - Page 2 8 indicated therein, reflects all claims against and all debts and liabilities of the Company, fixed or contingent, as at the date thereof and the related statement of income fairly presents the results of the operations of the Company and the changes in its financial position for the periods indicated. Since July 31, 1996 (the "Balance Sheet Date") there has been (i) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations, of the Company, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God or other public force or otherwise and (ii) no change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations, or prospects, of the Company except in the ordinary course of business; and to the best knowledge of the Shareholders and the Company, no fact or condition exists or is contemplated or threatened which might cause such a change in the future. 1.7 Books and Records. The minute books of the Company, as heretofore delivered to Karts International and its representatives, contain accurate records of all meetings of and corporate actions or written consents by the Shareholders and Board of Directors of the Company, respectively. The Company does not have any of its records, systems, controls, data or information recorded, stored, maintained, operated or otherwise wholly or partly dependent upon or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) that (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of the Company. The Company will make and keep books, records and accounts that in reasonable detail accurately and fairly reflect the transactions and dispositions of its assets. The Company will maintain its present system of internal accounting controls. The Company's present system of internal accounting controls is sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements and to maintain accountability for such assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals, and appropriate action is taken with respect to any differences. 1.8 Title to Properties; Encumbrances. The Company has good, marketable and indefeasible title to all its properties, assets and leasehold estates, real and personal, as described in the Balance Sheet, and, except as set forth in Schedule 1.8 hereto, all such properties, both real and personal, are not subject to any mortgage, lien, pledge, security interest, conditional sales agreement or encumbrances of any kind. 1.9 Real Property. Schedule 1.9 contains an accurate and complete legal description of all real property and improvements situated thereon which is owned by the Company and a description of any mortgage, lien, pledge, security interest or encumbrance of any kind against the real property and improvements (the "Mortgage"). All payments due to date on each such Mortgage have been paid; in each case, the Company is not in default thereunder and no waiver, indulgence or postponement of the Company's obligations under any such Mortgage has been granted by the mortgage holder; and there exist no event of default or event, occurrence, condition or act (including the transactions contemplated under this Agreement) that, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default under any such Mortgage in any material respect, and, to the best knowledge of the Shareholders and the Company, all of the covenants to be performed by the Company under any such Mortgage have been fully performed. The real property and improvements owned by the STOCK PURCHASE AGREEMENT - Page 3 9 Company is in the state of good maintenance and repair and is adequate and suitable for the purposes for which is presently being used by the Company. 1.10 Leases. Schedule 1.10 contains an accurate and complete list and description of the terms of all leases to which the Company is a party as lessee or lessor. Each lease set forth in Schedule 1.10 (or required to be set forth in Schedule 1.10) is in full force and effect; all rents and additional rents due to date on each such lease have been paid; in each case, the lessee has been in peaceable possession since the commencement of the original term of such lease and is not in default thereunder and no waiver, indulgence or postponement of the lessee's obligations thereunder has been granted by the lessor; and there exists no event of default or event, occurrence, condition or act (including the purchase of the USA Shares hereunder) that, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default under such lease. The Company has not violated any of the terms or conditions under any such lease in any material respect, and, to the best knowledge of the Shareholders and the Company, all of the covenants to be performed by any other party under any such lease have been fully performed. The property leased by the Company is in a state of good maintenance and repair and is adequate and suitable for the purposes for which it is presently being used. 1.11 Material Contracts. Except as set forth in Schedule 1.11 hereto, the Company has not been or is not bound by (i) any agreement, contract or commitment relating to the employment of any person by the Company, or any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement or other employee benefit plan, (ii) any agreement, indenture or other instrument that contains restrictions with respect to payment of dividends or any other distribution in respect of its capital stock, (iii) any agreement, contract or commitment relating to capital expenditures, (iv) any loan or advance to, or investment in, any other Person (as defined in Section 11.4 herein) or any agreement, contract or commitment relating to the making of any such loan, advance or investment, (v) any guarantee or other contingent liability in respect of any indebtedness or obligation of any other Person (other than the endorsement of negotiable instruments for collection in the ordinary course of business), (vi) any management service, consulting or any other similar type contract, (vii) any agreement, contract or commitment limiting the freedom of the Company to engage in any line of business or to compete with any other Person, (viii) any agreement, contract or commitment not entered into in the ordinary course of business that involves $10,000 or more and is not cancelable without penalty within 30 days, or (ix) any agreement, contract or commitment that might reasonably be expected to have a potential adverse impact on the business or operations of the Company. Each contract or agreement set forth in Schedule 1.11 (or required to be set forth in Schedule 1.11) is in full force and effect, and there exists no default or event of default or event, occurrence, condition or act (including the purchase of the USA Shares hereunder) that, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default thereunder. The Company has not violated any of the terms or conditions of any contract or agreement set forth in Schedule 1.11 (or required to be set forth in Schedule 1.11) in any material respect, and, to the best knowledge of the Shareholders and the Company, all of the covenants to be performed by any other party thereto have been fully performed. Contracts made in the ordinary course of business involving less than $10,000 shall be deemed not to be material for purposes of this Section 1.11. 1.12 Restrictive Documents. Neither the Company nor the Shareholders are subject to, or a party to, any charter, bylaw, mortgage, lien, lease, license, permit, agreement, contract, instrument, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind or character, that materially adversely affects the business practices, operations or STOCK PURCHASE AGREEMENT - Page 4 10 condition of the Company or any of its assets or property, or that would prevent consummation of the transactions contemplated by this Agreement, compliance by the Shareholders or the Company with the terms, conditions and provisions hereof or the continued operation of the Company's business after the date hereof or the Closing Date on substantially the same basis as heretofore operated or that would restrict the ability of the Company to acquire any property or conduct business in any area. 1.13 Litigation. Except as set forth in Schedule 1.13 hereto, there are no claims, actions, inquiries, investigations, suits, proceedings or arbitrations pending or threatened against the Shareholders or the Company, nor are the Shareholders or the Company aware of any claims, actions, inquiries, investigations, suits or arbitrations before any governmental agency, court or tribunal, domestic or foreign, or before any private arbitration tribunal, threatened or pending against the Shareholders or the Company involving the Company's properties or business that, if determined adversely to the Shareholders or the Company, would, individually or in the aggregate, result in any materially adverse change in the properties, business, management or business prospects of the Company nor is there any basis for any such action, suit, proceeding, arbitration, claim, investigation or inquiry. There are no outstanding orders, judgments or decrees of any court, governmental agency or other tribunal naming the Shareholders or the Company and enjoining either the Shareholders or the Company from taking, or requiring the Shareholders or the Company to take, any action, or to which the Shareholders, the Company, the Company's business or properties are bound or subject. Except as disclosed in Schedule 1.13, there are no unsatisfied adverse judgments or court or administrative orders (whether or not on appeal) affecting the business of the Company and there are no judgment creditors asserting any claims, whether or not meritorious or material, against the Shareholders or the Company. Upon a breach of the representations and warranties made in this Section 1.13, Karts International may avail itself to all rights and remedies provided for herein, including, but not limited to, all rights to indemnification as set forth in Article IX hereof. 1.14 Taxes. The Company has filed or caused to be filed, within the times and within the manner prescribed by law, all federal, state and foreign tax returns and tax reports that are required to be filed by, or with respect to, the Company. Such returns and reports reflect accurately all liability for taxes of the Company for the periods covered thereby. All federal, state, local and foreign income, franchise, sales, use, occupancy, excise and other taxes and assessments (including interest and penalties) payable by, or due from, the Company have been fully paid or adequately disclosed and fully provided for in the books and financial statements of the Company. The federal income tax liability of the Company has been finally determined for all fiscal years to and including the fiscal year ended December 31, 1995. Except as set forth and described in Schedule 1.14 hereto, no examination of any tax return of the Company is currently in progress by any state or federal administrative or regulatory agency. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax return of the Company. The Company will pay and discharge, when due, (i) all material taxes, assessments and governmental priority claims and charges imposed upon its properties or upon the income or profits therefrom (in each case before the same becomes delinquent and before penalties accrue thereon), and (ii) all claims for labor, materials or supplies that, if unpaid, might by law become liens upon any of its properties, unless and to the extent that the same are being contested in good faith and by appropriate proceedings, and adequate reserves have been set aside on its books with respect thereto, in accordance with generally accepted accounting principles. 1.15 Liabilities. The Company has no outstanding claims, liabilities or indebtedness, contingent or otherwise, except as set forth in the Balance Sheet, other than liabilities incurred STOCK PURCHASE AGREEMENT - Page 5 11 subsequent to the Balance Sheet Date in the ordinary course of business and a credit line with Deposit Guaranty National Bank, Hammond, Louisiana Branch ("Deposit Guaranty"). The Company is not in default in respect of the terms or conditions of any indebtedness. 1.16 Insurance. Set forth in Schedule 1.16 hereto is a complete list of insurance policies that the Company maintains with respect to its businesses, properties or employees. Such policies are in full force and effect free from any right of termination on the part of the insurance carriers. Such policies, with respect to their amounts and types of coverage, are adequate to insure fully against risks to which the Company, and its property and assets are normally exposed, in the operation of its businesses. True, complete and correct copies of all such policies have been provided to Karts International on or prior to the date hereof. 1.17 Intellectual Properties. Schedule 1.17 hereto contains an accurate and complete list of all domestic and foreign letters patent, patents, patent applications, patent licenses, product license agreements, software licenses and know-how licenses, trade names, trademarks, copyrights, unpatented inventions, service marks, trademark registrations and applications, service mark registrations and applications and copyright registrations and applications owned or used by the Company in the operation of its business (collectively, the "Intellectual Property"). Unless otherwise indicated in such Schedule 1.17, the Company owns the entire right, title and interest in and to the Intellectual Property, trade secrets and technology used in the operation of its business (including, without limitation, the exclusive right to use and license the same) and each item constituting part of the Intellectual Property and trade secrets and technology that is owned by the Company has been, to the extent indicated in Schedule 1.17, duly registered with, filed in or issued by, as the case may be, the United States Patent and Trademark Office or such other government entities, domestic or foreign, as are indicated in Schedule 1.17; and such registrations, filings and issuances remain in full force and effect. To the best knowledge of the Shareholders and the Company, except as stated in such Schedule 1.17, there are no pending or threatened proceedings or litigation or other adverse claims affecting or with respect to the Intellectual Property. Schedule 1.17 lists all notices or claims currently pending or received by either the Company or the Shareholders during the past two years that claim infringement by the Company or the Shareholders of any domestic or foreign letters patent, patent applications, patent licenses and know-how licenses, trade names, trademark registrations and applications, service marks, copyrights, copyright registrations or applications, trade secrets or other confidential proprietary information. Except as set forth in Schedule 1.17, there is, to the best knowledge of the Shareholders and the Company, no reasonable basis upon which a claim may be asserted against either the Company or the Shareholders for infringement of any domestic or foreign letters patent, patents, patent applications, patent licenses and know-how licenses, trade names, trademark registrations and applications, common law trademarks, service marks, copyrights, copyright registrations or applications, trade secrets or other confidential proprietary information. To the best knowledge of the Shareholders and the Company, except as indicated on Schedule 1.17, no Person is infringing upon the Intellectual Property. 1.18 Compliance with Laws. The Company is in compliance in all material respects with all applicable laws, regulations, orders, judgments and decrees. 1.19 Accounts Receivable. The amount of all accounts receivable, unbilled invoices and other debts due or recorded in the records and books of account of the Company as being due to the Company at the Closing Date (less the amount of any provision or reserve therefor made in the records and books of account of the Company) will be good and collectible in full in the ordinary course of business and, in any event, not later than 60 days after the Closing Date; and STOCK PURCHASE AGREEMENT - Page 6 12 none of such accounts receivable or other debts is or will at the Closing Date be subject to any counterclaim or set-off except to the extent of any such provision or reserve. There has been no material adverse change since the Balance Sheet Date in the amount of accounts receivable or other debts due the Company or the allowances with respect thereto, or accounts payable of the Company, from that reflected in the Balance Sheet. 1.20 Employment Relations. (i) The Company is in substantial compliance with all federal, state, provincial or other applicable laws, domestic or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not and is not engaged in any unfair labor practice, (ii) no unfair labor practice complaint against the Company is pending before a labor commissioner or other competent authority, (iii) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving the Company, (iv) no union representation question exists respecting the employees of the Company, (v) no grievance that might have an adverse effect upon the Company or the conduct of its businesses exists, no arbitration proceeding arising out of or under any collective bargaining agreement is pending, and no claim therefor has been asserted, (vi) no collective bargaining agreement is currently being negotiated by the Company, and (vii) the Company has not experienced any material labor difficulty during the last three years. There has not been, and to the knowledge of the Company and the Shareholders, there will not be, any material adverse change in relations with employees of the Company as a result of any announcement of the transactions contemplated by this Agreement. No key employee, or group of employees has any plans to terminate employment with the Company. 1.21 Employee Benefit Plans. The Company has (i) no employee benefit plans within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such Employee Benefit Plans are otherwise exempt from the provisions of ERISA, or (ii) no other employee benefit plans or any other foreign pension, welfare or retirement benefit plans. The Shareholders and the Company have delivered or caused to be delivered to Karts International and its counsel true and complete copies of (i) all employee benefit plans as in effect, together with all amendments thereto that will become effective at a later date, as well as the latest Internal Revenue Service determination letter obtained with respect to any such employee benefit plan qualified under Section 401 or 501 of the Internal Revenue Code of 1986, as amended and (ii) Form 5500 for the most recent completed fiscal year for each employee benefit plan required to file such form. 1.22 Interests in Clients, Suppliers, Etc. Neither the Shareholders nor any officer or director of the Company possesses, directly or indirectly, any financial interest in, or is a director, officer or employee of, any corporation, firm, association or business organization that is a client, supplier, customer, or competitor or potential competitor of the Company. Ownership of securities of a company whose securities are registered under the Securities Exchange Act of 1934, as amended, not in excess of one percent (1%) of any class of such securities shall not be deemed to be a financial interest for purposes of this Section 1.22. 1.23 Bank Accounts, Powers of Attorney and Compensation of Employees. Set forth in Schedule 1.23 hereto is an accurate and complete list showing (i) the name and address of each bank in which the Company has an account or safe deposit box, the number of any such account or any such box and the names of all persons authorized to draw thereon or to have access thereto, (ii) the names of all persons, if any, holding powers of attorney from the Company and a summary statement of the terms thereof, and (iii) the names of all persons whose compensation from the Company on the Balance Sheet Date exceeded an annualized rate of $25,000, together with a STOCK PURCHASE AGREEMENT - Page 7 13 statement of the full amount paid or payable to each such person for services rendered during such fiscal year. 1.24 No Changes Prior to Closing Date. During the period from the Balance Sheet Date to and including the Closing Date, except as expressly contemplated hereby, the Company will not have (i) incurred any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise), except in the ordinary course of business and under the credit line with Deposit Guaranty, (ii) permitted any of its assets to be subjected to any mortgage, pledge, lien, security interest, encumbrance, restriction or charge of any kind except as may be required under the Deposit Guaranty credit line, (iii) sold, transferred or otherwise disposed of any assets except in the ordinary course of business, (iv) made any capital expenditure or commitment therefor, except in the ordinary course of business, (v) declared or paid any dividend or made any distribution on any shares of its capital stock, or redeemed, purchased or otherwise acquired any shares of its capital stock or any option, warrant or other right to purchase or acquire any such shares, (vi) made any bonus or profit sharing distribution or payment of any kind, (vii) increased its indebtedness for borrowed money, except current borrowings from banks in the ordinary course of business and the Deposit Guaranty credit line, or made any loan to any Person, (viii) written off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business charged to applicable reserves, none of which individually or in the aggregate is material to the Company, (ix) granted any increase in the rate of wages, salaries, bonuses or other remuneration of any executive employee or other employees, except in the ordinary course of business, (x) canceled or waived any claims or rights of substantial value, (xi) made any change in any method of accounting or auditing practice, (xii) otherwise conducted its business or entered into any transaction, except in the usual and ordinary manner and in the ordinary course of its business, or (xiii) agreed, whether or not in writing, to do any of the foregoing. There shall have been no material adverse change in the financial position, results of operations, business or prospects of Company since the Balance Sheet Date. The Company shall not have not consolidated or merged with, nor sold, leased or otherwise disposed of its properties as an entirety or substantially as an entirety, to any Person. 1.25 Disclosure. None of this Agreement, the financial statements referred to in Section 1.6 above, or any agreement, schedule, exhibit or certificate delivered in accordance with the terms hereof or any document or statement in writing that has been supplied by or on behalf of the Company, the Shareholders, or by any of the Company's directors or officers, in connection with the transactions contemplated hereby, contains any untrue statement of a material fact, or omits any statement of a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to the Company or the Shareholders that materially and adversely affects the business, prospects or financial condition of the Company or its properties or assets, that has not been set forth in this Agreement or in the schedules, exhibits or certificates or statements in writing furnished in connection with the transactions contemplated by this Agreement. There has not come to the attention of the Company or the Shareholders any facts that reasonably cause the Company or the Shareholders to believe that any document connected with the transactions contemplated hereby contain any untrue statement or a material fact, or omit to state a material fact required to be stated herein or necessary in order to make the statements herein, in light of the circumstances existing on the Closing Date, not misleading. 1.26 Broker's or Finder's Fees. No agent, broker, person or firm acting on behalf of the Company or the Shareholders is, or will be, entitled to any commission or broker's or finder's fees from any of the parties hereto, or from any Person controlling, controlled by or under STOCK PURCHASE AGREEMENT - Page 8 14 common control with any of the parties hereto, in connection with any of the transactions contemplated herein. 1.27 Copies of Documents. The Shareholders and the Company have caused to be made available for inspection and copying by Karts International and its representatives, attorneys and accountants, true, complete and correct copies of all documents referred to in this Article I or in any schedule or exhibit furnished by the Shareholders or the Company to Karts International pursuant to this Agreement. All documents and instruments delivered to Karts International on the Closing Date in connection with this transaction shall be satisfactory to Karts International in its sole discretion. 1.28 Purchase for Investment. The Shareholders will acquire the Karts International Shares (as hereinafter defined) for investment and not with a view to resale or for distributing all or any part thereof in any transaction which would constitute a "distribution" within the meaning of the Securities Act of 1933, as amended (the" Securities Act"). The offering of the Karts International Shares to the Shareholders was made only through direct, personal communication between the Shareholders and a duly authorized officer of Karts International and not through public solicitation or advertising. The Shareholders acknowledge that Karts International Shares are "restricted securities" and have not been registered under the Securities Act and that Karts International is not under any obligation to file a registration statement with the Securities and Exchange Commission or any state securities agency with respect to the Karts International Shares. 1.29 Investor Qualifications. The Shareholders (i) have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of their investment in the Karts International Shares and have the financial ability to assume the monetary risk associated therewith, (ii) are able to bear the complete loss of their investment in the Karts International Shares, (iii) have received such other documents and information as they have requested and have had the opportunity to ask questions of, and receive answers from, Karts International and its management concerning Karts International and the terms and conditions of the offering of Karts International and to obtain additional information, (iv) are not an entity formed solely to make this investment, and (v) are not relying upon any statements or instruments made or issued by any person other than Karts International and its officers in making their decision to invest in the Karts International Shares. 1.30 Product Warranty. Each product manufactured, sold, leased or delivered by the Company has been in conformity with all applicable contractual commitments and all express and implied warranties, and the Company does not have any liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against any of them giving rise to any such liability) for replacement or repair thereof or other damages in connection therewith. Except as set forth in Schedule 1.30 hereto, no product manufactured, sold, leased or delivered by the Company is subject to any guaranty, warranty, or other indemnity. 1.31 Products Liability. Except as set forth in Schedule 1.13 hereto, there is no claim, action, suit, inquiry, proceeding or investigation by or before any court or governmental or other regulatory or administrative agency or commission pending or threatened against or involving either the Shareholders or the Company relating to any product alleged to have been manufactured or sold by the Company and alleged to have been defective, or improperly designed or manufactured. STOCK PURCHASE AGREEMENT - Page 9 15 1.32 Environmental Compliance. Except as set forth in Schedule 1.32, to the best knowledge of the Shareholders and the Company (i) the conduct of the business at the Company in connection with the ownership, use, maintenance or operation of any real property which has ever been owned or leased by the Company, and the conduct of business thereon, complies and complied with, and the Company is not in violation of, any applicable federal, state, county or local statutes, laws, regulations, rules, ordinances, codes, licenses, permits (granted to the Company) or orders (naming the Company) of any governmental authorities relating to environmental matters, including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), and any other law, statute, ordinance or regulation relating to the protection of the public health and/or the environment, whether promulgated by the United States, any state, municipality and/or other governmental body, each as amended (hereinafter collectively referred to as "Environmental Laws"), (ii) the conduct of the business at the Company is and has at all times been performed in conformance with all Environmental Laws and regulations pertaining thereto, and all permits or other documents required for the conduct of the business in accordance with the Environmental Laws are and at all times have been in full force and effect; (iii) there are no notices of violation of any Environmental Laws requiring any work, repairs, construction, capital expenditures or otherwise with respect to the business of the Company which have been received by the Company, and there are no writs, notices, injunctions, decrees, orders, liens or judgments outstanding, no lawsuits based upon either the Environmental Laws or the common law, claims, proceedings or investigations pending relating to the operations of the Company with respect to the disposal of hazardous wastes or hazardous substances by the Company, and (iv) there has been no release (as defined in CERCLA) of a hazardous substance (as defined in CERCLA) or hazardous waste or any similar hazardous or toxic materials, substances, pollutants, contaminants or wastes to the extent prohibited by the Environmental Laws, at or on any premises which have ever been leased or owned by the Company, nor have such premises been used at any time by any person as a landfill or a waste disposal site for any hazardous substances or hazardous wastes. 1.33 Customer Commitments. Schedule 1.33 is a description of all oral arrangements and written contracts, agreements, understandings, commitments and the like under the terms of which the Company has agreed to pay any bonus, rebate, financing, discount, waiver of payment, incentive or the like, from January 1, 1994 to the Balance Sheet Date, to any of the Company's customers or their employees. 1.34 Insider Interests. Except as set forth in Schedule 1.34, no shareholder, employee, officer or director of the Company has any material interest in any personal or real property, tangible or intangible, including, without limitation, inventions or other Intellectual Property, used in or pertaining to the assets or business of the Company. 1.35 Representations as of Closing. The representations and warranties made by the Company and the Shareholders in this Article I and the schedules hereto will be correct in all material respects on and as of the Closing Date with the same force and effect as if such representations and warranties and schedules had been made on the Closing Date. The liability of the Company and the Shareholders for their warranties and representations under this Article I shall terminate three years after the Closing Date. STOCK PURCHASE AGREEMENT - Page 10 16 ARTICLE II REPRESENTATIONS OF KARTS INTERNATIONAL As a material inducement to the Company and the Shareholders to enter into this Agreement and perform their respective obligations hereunder, Karts International represents, warrants and agrees as follows: 2.1 Existence and Good Standing of Karts International. Karts International is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Karts International has corporate power and authority to make, execute, deliver and perform this Agreement, and this Agreement has been duly authorized and approved by all required corporate action of Karts International. Each person executing this Agreement on behalf of Karts International is authorized to do so. 2.2 Restrictive Documents. Karts International is not subject to any charter, by-law, mortgage, lien, lease, agreement, instrument, order, law, rule, regulation, judgment or decree, or any other restriction of any kind or character, that would prevent consummation of the transactions contemplated by this Agreement. 2.3 Broker's or Finder's Fees. No agent, broker, person or firm acting on behalf of Karts International is, or will be, entitled to any commission or broker's or finder's fees from any of the parties hereto, or from any person controlling, controlled by or under common control with any of the parties hereto, in connection with any of the transactions contemplated herein. 2.4 Issuance of the Karts International Shares. The delivery to the Shareholders of the Karts International Shares pursuant to the provisions of this Agreement will transfer to the Shareholders valid title thereto, free and clear of all liens, encumbrances, restrictions and claims of every kind, except as acknowledged by the Shareholders in Section 1.28. 2.5 Representations as of Closing. The representations and warranties made by Karts International in this Article II will be correct in all material respects on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on the Closing Date. The liability of Karts International for its warranties and representations under this Article II shall terminate three years after the Closing Date. ARTICLE III SALE OF THE USA SHARES 3.1 Sale of the USA Shares. Subject to the terms and conditions herein stated, the Shareholders agree to sell, assign, transfer and deliver to Karts International on the Closing Date, and Karts International agrees to purchase from the Shareholders on the Closing Date, the USA Shares. The certificates representing the USA Shares shall be duly endorsed in blank by the Shareholders transferring the same, with signatures guaranteed by a domestic commercial bank or trust company, with all necessary transfer tax and other revenue stamps acquired at the Shareholders' expense affixed and canceled. The Shareholders agree to cure any deficiencies with respect to the endorsement of the certificates representing the USA Shares or with respect to the stock power accompanying any such certificates. 3.2 Cash Payment. In consideration for the purchase by Karts International of the USA Shares, Karts International shall pay to the Shareholders by wire transfer or official bank check STOCK PURCHASE AGREEMENT - Page 11 17 on the Closing Date an aggregate of $250,000 (the "Cash Payment") payable to the order of each Shareholder as follows:
Number and Percentage Cash Consideration Name of Shareholder of USA Shares Owned To be Received - ------------------- ------------------- -------------- Jerry M. Allen 25 Shares - 25% $62,500 Angela T. Allen 25 Shares - 25% $62,500 Johnny C. Tucker 25 Shares - 25% $62,500 Carol Y. Tucker 25 Shares - 25% $62,500
3.3 Determination of Amount of Karts International Shares. As additional consideration for the purchase of the USA Shares, Karts International shall issue and deliver to Shareholders at Closing an amount (rounded to the nearest whole share) of its shares of common stock, par value $.001 per share, which shall have an aggregate market value equal to $750,000 (the "Stock Amount"). The aggregate number of Karts International Shares to be issued to the Shareholders shall be determined by dividing the Stock Amount by the price per share of common stock of Karts International which shall be the closing bid price per share of Karts International's common stock as reported on the OTC Bulletin Board System on the business day preceding the Closing Date. The shares of Karts International's common stock to be issued to the Shareholders pursuant to this Section 3.3 are referred to herein as the "Karts International Shares." Each Shareholder shall receive the same percentage of the Karts International Shares as he/she received of the cash consideration as set forth in Section 3.2 herein. 3.4 Non-competition Agreements. As further consideration for the purchase by Karts International of the USA Shares, at the Closing, Karts International and the Shareholders will enter into a Non-Competition Agreement in substantially the same form as Exhibit "B" hereto. ARTICLE IV CONDUCT OF BUSINESS; REVIEW 4.1 Conduct of Business of the Company. During the period from the date of this Agreement to the Closing Date, the Company shall conduct its operations only according to its ordinary and usual course of business, and the Shareholders and the Company shall use their best efforts to preserve the Company's business organizations, keep available the services of the Company's officers and employees and maintain satisfactory relationships with licensors, suppliers, distributors, clients and others having business relationships with them. Notwithstanding the immediately preceding sentence, to the Closing Date and except as may be first approved by Karts International or as is otherwise permitted or required by this Agreement, the Shareholders and the Company shall cause (i) the Company's articles or certificate of incorporation and Bylaws to be maintained in their form on the date of this Agreement, (ii) the compensation payable or to become payable by the Company to any officer, employee or agent being paid $25,000 per year or more on the Balance Sheet Date to be maintained at their levels on the date of this Agreement, (iii) the Company to refrain from making any bonus, pension, retirement or insurance payment or arrangement to or with any such persons except those that may have already been accrued, (iv) the Company to refrain from entering into any contract or commitment except contracts in the ordinary course of business, and (v) the Company to refrain from making any change affecting any bank, safe deposit or power of attorney arrangements of the Company. During the period from the date of this Agreement to the Closing Date, the Shareholders shall cause the Company to confer on a regular and frequent basis with one or more designated representatives of Karts International to STOCK PURCHASE AGREEMENT - Page 12 18 report material operational matters and to report the general status of ongoing operations. The Shareholders and the Company shall promptly notify Karts International of any unexpected emergency or other change in the normal course of its business or in the operation of its properties and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), adjudicatory proceedings, budget meetings or submissions involving any material property of the Company, and to keep Karts International fully informed of such events and permit its representatives prompt access to all materials prepared in connection therewith. 4.2 Exclusive Dealing. During the period from the date of this Agreement to the Closing Date, the Shareholders and the Company shall refrain from taking any action to, directly or indirectly, encourage, initiate or engage in discussions or negotiations with, or provide any information to, any corporation, partnership, person, or other entity or group, other than Karts International, concerning any purchase of the USA Shares or any merger, sale of substantial assets or similar transaction involving the Company. 4.3 Review of the Company. Karts International may, prior to the Closing Date, through its representatives, review the properties, books and records of the Company and its financial and legal condition as they deem necessary or advisable to familiarize themselves with such properties and other matters. The Shareholders and the Company shall permit Karts International and its representatives to have, after the date of execution hereof, full access to the premises and to all the books and records of the Company and to cause the officers of the Company to furnish Karts International with such financial and operating data and other information with respect to the business and properties of the Company as Karts International shall from time to time reasonably request. In the event of termination of this Agreement, Karts International shall keep confidential any material information obtained from the Shareholders or the Company concerning the Company's properties or operations and business (unless readily ascertainable from public or published information or trade sources) until the same ceases to be material (or becomes so ascertainable) and shall return to the Company all copies of any schedules, statements, documents or other written information obtained in connection therewith. The Shareholders and the Company shall deliver or cause to be delivered on the Closing Date, and at such other times and places as shall be reasonably agreed upon, such additional instruments as Karts International may reasonably request for the purpose of carrying out this Agreement. 4.4 Review of Karts International. The Company and the Shareholders may, prior to the Closing Date, through their representatives, review the properties, books and records of Karts International and its financial and legal condition as they deem necessary or advisable to familiarize themselves with such properties and other matters. Karts International shall permit the Company and their representatives to have, after the date of execution hereof, full access to the premises and to all the books and records of the Company and to cause the officers of Karts International to furnish the Company and Shareholders with such financial and operating data and other information with respect to the business and properties of Karts International as the Company and the Shareholders shall from time to time reasonably request. In the event of termination of this Agreement, the Company and the Shareholders shall keep confidential any material information obtained from Karts International concerning Kart International's properties or operations and business (unless readily ascertainable from public or published information or trade sources) until the same ceases to be material (or becomes so ascertainable) and shall return to Karts International all copies of any schedules, statements, documents or other written information obtained in connection therewith. STOCK PURCHASE AGREEMENT - Page 13 19 ARTICLE V ADDITIONAL AGREEMENTS 5.1 Preserve Accuracy of Representation and Warranties. Each of the parties hereto shall refrain from taking any action that would render any representation or warranty contained herein inaccurate as of the Closing Date. 5.2 Passage of Title and Risk of Loss. Possession and legal and equitable title and risk of loss with respect to the USA Shares to be transferred hereunder shall not pass to Karts International until the USA Shares are transferred to Karts International at the Closing on the Closing Date. 5.3 Consents. The Company and the Shareholders agree to use their best efforts to obtain such consents as may be required under any contract, mortgage, lease, license or other instrument requiring the consent of another party thereto as a result of the transactions contemplated by this Agreement. 5.4 Company Employees and Benefits. While it is the present intention of Karts International and the Company to generally maintain the work force of the Company after Closing, nothing herein shall obligate the Company or Karts International to make any offer of employment to, or to employ in any capacity or to continue the employment of, any employee presently employed by the Company. After Closing, the Company and Karts International intend to continue the employment of Jerry M. Allen as a Vice President of the Company with an annual salary of $57,500 and the employment of Johnny Tucker as production Manager of the Company with an annual salary of $42,000. Employees, including officers of the Company, after Closing will continue to receive the same or similar health and dental insurance programs that are currently available from the Company. Current or similar vacation, holiday and other employee benefits and policies will remain in effect after Closing provided such benefits and policies are reasonable, usual and customary and based on prior Company practices. After Closing, stock options for Karts International common stock shall be granted to employees based on performance and at the sole discretion of the Board of Directors of Karts International. Nothing herein shall restrict or prohibit the Company or Karts International, after Closing, to terminate the employment of any employee or require the Company or Karts International to provide any employee of the Company or group or classification of employees any particular level of compensation or benefits. It is understood between the parties hereto that after Closing the employees of the Company will be employed solely on an "at will" basis by the Company. 5.5 Continuing Obligations of the Company. The nature of this Agreement and the obligations of Karts International is that of a purchase of all the outstanding common stock of the Company and, except as otherwise expressly provided for in this Agreement, Karts International specifically assumes no liability or responsibility under any of the Company's benefit plans, programs, arrangements, agreements, coverages or policies as a successor employer or otherwise. Karts International shall not, under any circumstances, be liable for any expense or liability that may arise from employment with or termination of any employee of the Company. The Company shall recognize and shall bear the full cost and expense of any entitlement to benefits applicable to the employees of the Company and persons who have retired or will retire from such employment prior to the Closing Date, under the Company's benefit plans, programs, arrangements, agreements, coverages and policies or otherwise. The Company shall also continue and bear the expense of any such plans, programs, arrangements, coverages, agreements and STOCK PURCHASE AGREEMENT - Page 14 20 policies for any employee on paid leave of absence of any type for any reason as of the Closing Date until the expiration of such leave under the provisions of the Company's presently existing programs, arrangements, coverages, policies and plans. The Company intends to continue after Closing the same or similar health, dental and other benefit plans as currently in effect with the Company. 5.6 Covenants Not to Compete. At the Closing, Karts International and the Shareholders will enter into a Non-Competition Agreement in substantially the same form as Exhibit "B" hereto. 5.7 Notification. The Company and the Shareholders shall notify Karts International immediately in writing if either determines that they cannot timely fulfill any of their covenants, conditions and responsibilities to be complied with and performed on or before the Closing Date. 5.8 Schedules and Exhibits. Exhibits and Schedules, as applicable, shall be brought current to the Closing Date and delivered to Karts International at Closing. ARTICLE VI CONDITIONS TO KARTS INTERNATIONAL'S OBLIGATIONS The obligations of Karts International hereunder are, at its sole option, subject to and conditioned upon the satisfaction and fulfillment by the Company and Shareholders, on or prior to the Closing Date of each of the following conditions unless waived in writing by Karts International. 6.1 Opinion of the Company's and the Shareholders' Counsel. The Company and the Shareholders shall have furnished Karts International with an opinion of McDowell, Faulk & McDowell, as counsel for the Shareholders and the Company, dated the Closing Date, in form and substance satisfactory to Karts International and its counsel, to the effect that: (a) the Company (i) is a corporation validly existing and in good standing under the laws of its state of incorporation, (ii) is duly qualified and licensed under all applicable laws or regulations to own its assets and properties as now owned and to carry on its business as now conducted, and (iii) is, to the best knowledge of such counsel, duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the failure to so qualify would have a material adverse effect upon its business; (b) the Company has full corporate power and authority to execute, deliver and perform this Agreement and the other agreements contemplated hereby; (c) the execution, delivery and performance of this Agreement and the other agreements contemplated hereby by the Company and the Shareholders have been duly authorized by all necessary corporate action on the part of the Company and this Agreement and the other agreements contemplated hereby constitute valid and binding obligations of the Company and the Shareholders enforceable against the Company and the Shareholders in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies; STOCK PURCHASE AGREEMENT - Page 15 21 (d) the Company's authorized capital stock consists of (i) 100 shares of common stock, no par value, of which 100 shares are issued and outstanding and no such shares of capital stock are held in the treasury of the Company; and all of the USA Shares are duly authorized, validly issued, fully paid and non- assessable; (e) the Shareholders own the USA Shares, free and clear of any adverse claims, and have full power and authority to sell, transfer and deliver the USA Shares in accordance with the terms of this Agreement; (f) there are no existing options, warrants, subscriptions or other rights to purchase, or securities convertible into or exchangeable for, the capital stock of the Company and neither the Company nor the Shareholders are parties to or bound by any agreement, instrument, arrangement, contract, obligation, commitment or understanding of any character, whether written or oral, express or implied, relating to the sale, assignment, conveyance, encumbrance, transfer or deliver of any capital stock of the Company; (g) except as disclosed in the schedules hereto, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending or threatened against the Company or affecting the USA Shares or the assets or business of the Company, and, except as disclosed in the schedules hereto, the Company is not in default with respect to any judgment, writ, injunction or decree of any court or governmental instrumentality or agency or in the performance, observance or fulfillment of any obligation,, covenant or agreement by which it is bound or to which the USA Shares or any of the assets of the Company are subject; (h) neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated hereby will conflict with, or result in a breach of the terms, conditions and provisions of, or constitute a default under, the certificate or articles of incorporation or bylaws of the Company, or any agreement, indenture or other instrument under which the Company or the Shareholders are bound or to which the USA Shares or any of the assets of the Company are subject, or result in the creation or imposition of any security interest, lien, charge or encumbrance upon the USA Shares or any of the assets of the Company; (i) no consent of any person, corporation, association, company, partnership or other entity, and no consent, license, approval or authorization of, or registration or declaration with, any governmental body, authority, bureau or agency or federal, state or local court is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, or to the extent that any such consent or other action may be required, it has been validly procured or taken; (j) the Company has good and marketable title to, or valid and enforceable leasehold estates in, the items of real and personal property stated in this Agreement to be owned or leased by it as lessee, in each case free and clear of all liens, encumbrances, claims, security interests, defects or other equities of any material nature whatsoever, other than those referred to in this Agreement, and except as may occur in the ordinary course of the Company's business, liens for taxes not yet due and payable, and liens, encumbrances, claims, security interests and defects, the effect of which in the aggregate is not material to the Company. To the Company's Counsel's knowledge, the Company's STOCK PURCHASE AGREEMENT - Page 16 22 current and intended products, services and processes do not infringe on patents, trademarks, service marks, service names and trade names held by third parties nor do they infringe upon rights or claimed rights of any person, corporation or other entity nor is such counsel aware of any plans contemplated by the Company that would infringe on trademarks, service marks, service names and trade names held by third parties; and (k) to such Company's counsel's knowledge after investigation, except as and to the extent set forth in this Agreement, the Company is not under any obligation to pay to any third party royalties or fees of any kind whatsoever with respect to any Intangibles developed, employed or used by the Company. In rendering its opinion, the Company's Counsel may rely upon (A) opinions of local counsel acceptable to Karts International's Counsel with respect to matters relating to the laws of any jurisdiction other than Alabama or the United States of America; and (B) the certificates of government officials and officers and directors of the Company as to matters of fact, provided that the Company's Counsel shall state that they have no reason to believe, and do not believe, that they are not justified in relying upon such opinions or such certificates of government officials and officers and directors of the Company as to matters of fact, as the case may be. The opinion letter delivered pursuant to this Article 6.1 shall state that any opinion given therein qualified by the phrase "to the best of our knowledge" or "to our knowledge" is being given by the Company's Counsel after due investigation of the matters therein discussed. 6.2 Good Standing and Tax Certificates. The Company and the Shareholders shall have delivered to Karts International (i) copies of the Company's certificate or articles of incorporation, including all amendments thereto, certified by the secretary of state or other appropriate official of its jurisdiction of incorporation, (ii) certificates from the secretary of state or other appropriate official of the jurisdiction of incorporation to the effect that the Company is in good standing or subsisting in such jurisdiction and listing all charter documents of the Company on file, (iii) a certificate from the appropriate official in each jurisdiction in which the Company is qualified to do business to the effect that the Company is in good standing in such jurisdiction, and (iv) certificates as to the tax status of the Company in the jurisdiction of incorporation and each other jurisdiction in which the Company is qualified to do business. 6.3 No Material Adverse Change. Prior to the Closing Date, there shall be no material adverse change in the assets or liabilities, the business or condition, financial or otherwise, the results of operations, or prospects of the Company, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God or other public force or otherwise, and the Company and the Shareholders shall have delivered to Karts International a certificate, dated the Closing Date, to such effect. 6.4 Truth of Representations and Warranties. The representations and warranties of the Company and the Shareholders contained in this Agreement or in any schedule delivered pursuant hereto shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and the Company and the Shareholders shall have delivered to Karts International on the Closing Date a certificate, dated the Closing Date, to such effect. STOCK PURCHASE AGREEMENT - Page 17 23 6.5 Performance of Agreements/Authorization. Each and all of the agreements of the Company and the Shareholders to be performed on or before the Closing Date pursuant to the terms hereof shall have been duly performed, and the Company and the Shareholders shall have delivered to Karts International a certificate, dated the Closing Date, to such effect. Karts International shall have also received (i) a copy of resolutions of the Board of Directors and Shareholders of the Company authorizing the execution, delivery and performance of this Agreement and all related documents and agreements, each certified by the Secretary of the Company as being true and correct copies of the originals thereof subject to no modifications or amendments, and (ii) a certificate of the President of the Company and of the Shareholders, dated the Closing Date, as to the performance of and compliance by the Company and the Shareholders with all covenants contained herein on and as of the Closing Date and certifying that all conditions precedent of the Company and the Shareholders to the Closing date have been satisfied. 6.6 No Litigation Threatened. No action or proceedings shall have been instituted or, to the best knowledge, information and belief of the Shareholders and the Company, shall have been threatened before a court or other government body or by any public authority to restrain or prohibit any of the transactions contemplated hereby, and the Shareholders and the Company shall have delivered to Karts International a certificate, dated the Closing Date, to such effect. 6.7 Non-Competition Agreements. Karts International shall have entered into a Non-Competition Agreement with the Shareholders substantially in the form of Exhibit "B" hereto. 6.8 Consents. Written consents as may be required under any contract, mortgage, lease, license or other instrument requiring consent of another party thereto as a result of the transactions contemplated by this Agreement shall have been obtained by the Company and the Shareholders and delivered to Karts International. 6.9 Governmental Approvals. All governmental and other consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been received. 6.10 Release of Shareholders' Claims. Karts International shall have received duly executed documents in form satisfactory to Karts International pursuant to which the Shareholders release, relinquish and waive any and all claims, demands, causes of action, suits, judgments or controversies of any kind whatsoever, whether known or unknown, that the Shareholders may have against the Company as of the Closing Date, for any reason whatsoever, including without limitation claims by such Shareholders against the Company with respect to dividends, repayment of loans, violation of preemptive rights, or payment of salaries or other compensation. 6.11 Proceedings. All proceedings to be taken in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be satisfactory in form and substance to Karts International in its sole discretion, and Karts International shall have received copies of all such documents and other evidences as Karts International or its counsel may reasonably request in order to establish the consummation or such transactions and the taking of all proceedings in connection therewith. 6.12 Due Diligence Review. Karts International and its representatives and advisors shall have completed a due diligence review of the business, operations and financial statements of the Company, the results of which shall be satisfactory to Karts International and its counsel in their sole discretion. STOCK PURCHASE AGREEMENT - Page 18 24 6.13 Resignation of Officers. On the Closing Date, each officer and director of the Company shall deliver to Karts International his/her executed resignation as an officer and director of the Company effective as of the Closing Date. ARTICLE VII CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS The obligations of the Shareholders hereunder are, at their sole option, subject to and conditioned upon the satisfaction and fulfillment by Karts International, on or prior to the Closing Date, of each of the following conditions unless waived in writing by the Shareholders. 7.1 Opinion of Karts International's Counsel. Karts International shall have furnished the Shareholders with an opinion, dated the Closing Date, of Looper, Reed, Mark & McGraw Incorporated, legal counsel to Karts International, regarding the authorization of Karts International to consummate the transactions contemplated by this Agreement, pending litigation, if any, required consents, if any, and the issuance, delivery and validity of the Karts International Shares. 7.2 Truth of Representations and Warranties. The representations and warranties of Karts International contained in this Agreement shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; and Karts International shall have delivered to the Shareholders and the Company on the Closing Date a certificate, dated the Closing Date, to such effect. 7.3 Governmental Approvals. All governmental consents and approvals, if any, and any other consents necessary to permit Karts International to consummate the transactions contemplated by this Agreement shall have been received by Karts International and delivered to the Company and the Shareholders. 7.4 Proceedings. All proceedings to be taken in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and the Shareholders and their counsel. ARTICLE VIII CLOSING 8.1 Closing. The consummation of the sale and purchase of the USA Shares and the other transactions contemplated by and described in this Agreement shall take place at a closing (the "Closing") to be held on a date as may be mutually agreed to in writing by the parties hereto, which in no event shall be later than November 30, 1996 (the "Closing Date"). The Closing shall be held at the offices of Looper, Reed, Mark & McGraw Incorporated, 1601 Elm Street, Suite 4100, Dallas, Texas 75201, or at such other place as may be mutually agreed to in writing by the parties hereto and at a time mutually agreed to by the parties hereto. All transactions contemplated by this Agreement shall be deemed effective as of the Closing Date. 8.2 Actions of the Company and the Shareholders at Closing. At the Closing, the Company or the Shareholders, as the case shall be, shall deliver to Karts International the following: STOCK PURCHASE AGREEMENT - Page 19 25 (a) The Shareholders shall deliver to Karts International the certificate(s) representing the USA Shares duly endorsed in favor of Karts International, or accompanied by appropriate stock powers duly executed in blank. (b) The Company and the Shareholders shall deliver to Karts International an opinion letter from McDowell, Faulk & McDowell, counsel for the Company and the Shareholders in accordance with the provisions of Section 6.1 herein. (c) The Company and the Shareholders shall deliver to Karts International the written and executed resignations of all officers and directors of the Company, dated as of the Closing Date. (d) The Company and the Shareholders shall deliver to Karts International the minute book, stock issue and transfer records and the corporate seal of the Company. (e) The Company and the Shareholder shall have delivered to Karts International a certificate, which shall be dated as of the Closing Date and which shall be signed by each Shareholder and the President and Chief Executive Officer of the Company, certifying (i) the authority of the Shareholders and the Company to enter into and consummate the transactions contemplated by this Agreement, (ii) the authority of the officers of the Company to execute and deliver any document contemplated by this Agreement on behalf of the Company, (iii) that the representations and warranties of the Company and the Shareholders contained in Article I hereof were true and correct when made and are true and correct as of the Closing Date (except to the extent that any representation or warranty of the Company or the Shareholders specifically relates to an earlier date), and (iv) that each and every covenant and agreement of the Company and the Shareholders contained in this Agreement to be performed by the Company or the Shareholders on or prior to the Closing Date has been performed by the Company or the Shareholders, as the case may be. (f) The Non-Competition Agreements executed by each Shareholder in the form attached hereto as Exhibit "B". (g) Certificates of Incumbency for the officers of the Company making certifications for Closing dated as of the Closing Date. (h) A copy of resolutions duly and unanimously adopted by the Company's Shareholders and Board of Directors, as required by law, authorizing and approving the Company's and Shareholders' performance of the transactions contemplated hereby and the execution and delivery of the documents described herein, certified as true and in full force as of the Closing Date by an authorized officer of the Company. (i) Exhibits and schedules, as applicable, which have been brought current to the Closing Date. (j) Good standing and tax certificates as required by Section 6.2 of this Agreement. (k) Certificate executed by the President of the Company and each Shareholder in accordance with Section 6.6 of this Agreement. STOCK PURCHASE AGREEMENT - Page 20 26 (l) All written consents as may be required under any contract, mortgage, lease, license or other instrument requiring consent of another party thereto as a result of the transactions contemplated by this Agreement. (m) An executed release by each Shareholder in accordance with the provisions of Section 6.10 of this Agreement. (n) Such other instruments and documents as Karts International reasonably deems necessary to effect the transactions contemplated hereby. 8.3 Actions of Karts International at Closing. At the Closing, Karts International shall deliver to the Company or the Shareholders, as the case shall be, the following: (a) Karts International shall issue and deliver to the Shareholders certificates representing the Karts International Shares in each Shareholder's name and in the amount of Shares as determined pursuant to Section 3.3 of this Agreement. (b) Karts International shall deliver to each Shareholder the cash consideration to be received for the USA Shares in accordance with Section 3.2 of this Agreement. (c) Karts International shall deliver to the Shareholders an opinion letter from Looper, Reed, Mark & McGraw Incorporated, counsel for Karts International, in accordance with the provisions of Section 7.1 of this Agreement. (d) Certified copies of the resolutions of the Board of Directors of Karts International authorizing the execution, delivery and performance of this Agreement and the transactions contemplated hereby and Certificates of Incumbency for the officers of Karts International making certifications for Closing dated as of the Closing Date. (e) Karts International shall have delivered to the Company and the Shareholders a certificate, which shall be dated as of the Closing Date and which shall be signed by a duly authorized officer of Karts International, certifying (i) the authority of the Karts International to enter into and consummate the transactions contemplated by this Agreement, (ii) the authority of the officers of Karts International to execute and deliver any document contemplated by this Agreement on behalf of Karts International, (iii) that the representations and warranties of Karts International contained in Article II hereof were true and correct when made and are true and correct as of the Closing Date, and (iv) that each and every covenant and agreement of Karts International contained in this Agreement to be performed by Karts International on or prior to the Closing Date has been performed by Karts International. (f) All governmental consents and approvals and any other consents, if any, necessary to permit Karts International to consummate the transactions contemplated by this Agreement shall be delivered to the Company and the Shareholders. (g) Good standing and tax certificates for Karts International. (h) Such other instruments and documents as the Company or the Shareholders reasonably deems necessary to effect the transactions contemplated hereby. STOCK PURCHASE AGREEMENT - Page 21 27 ARTICLE IX SURVIVAL OF REPRESENTATIONS: INDEMNITY 9.1 Survival of Representations and Obligations to Indemnify. The respective representations and warranties of the Shareholders and Karts International contained in this Agreement or in any Schedule delivered pursuant hereto shall survive the purchase and sale of the USA Shares contemplated hereby. The obligations to indemnify and hold harmless pursuant to this Article IX shall survive the consummation of the transactions contemplated by this Agreement. 9.2 Indemnification by the Shareholders. The Shareholders hereby agrees that notwithstanding any investigation which may have been made by or on behalf of Karts International prior to the Closing, the Shareholders shall indemnify, defend and hold harmless Karts International (and any affiliated party of Karts International) at any time after consummation of the Closing, from and against all demands, claims, actions, or causes of action, assessments, losses, damages, liabilities, costs and expenses including, subject to Section 9.4 below, interest, penalties, court costs, and reasonable attorneys' fees and expenses asserted against, resulting to, imposed upon or incurred by Karts International or any affiliated party of Karts International, directly or indirectly, caused by reason of or resulting from or arising out of any misrepresentation or any breach or nonfulfillment of any representation, covenant, warranty or agreement of the Company and/or the Shareholders contained in this Agreement, in any exhibit, schedule, certificate or financial statement delivered under this Agreement, or in any agreement made or executed in connection with the transactions contemplated by this Agreement. 9.3 Indemnification by Karts International. Karts International agrees to indemnify, defend and hold harmless the Shareholders (and any affiliated party of the Shareholders), at any time after consummation of the Closing, from and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, subject to Section 9.4 below, interest, penalties, court costs and reasonable attorneys' fees and expenses asserted against, resulting to, imposed upon or incurred by the Shareholders, directly or indirectly, caused by reason of or resulting from or arising out of (i) a claim of products liability against the Company and/or the Shareholders for an incident which occurred prior to the Closing Date (provided neither the Shareholders nor the Company knew of the occurrence of such incident prior to or on the Closing Date) and which results in a settlement or award of damages in excess of stated insurance policy limits, or (ii) any misrepresentation or any breach or nonfulfillment of any representation, warranty, covenant and/or agreement of Karts International contained in this Agreement, in any exhibit, schedule, certificate or financial statement delivered under this Agreement, or in any agreement made or executed in connection with the transactions contemplated by this Agreement. 9.4 Defense. (a) Promptly after the receipt by any person entitled to indemnification under Section 9.2 and 9.3 herein of notice of (i) any claim or (ii) the commencement of any action or proceeding, such party (the "Aggrieved Party") will, if claim with respect thereto is made against any party obligated to provide indemnification pursuant to Section 9.2 and 9.3 herein (the "Indemnifying Party"), give such Indemnifying Party written notice of such claim or the commencement of such action or proceeding and shall permit the Indemnifying Party to assume the defense of any such claim or any proceeding or litigation resulting from such claim, unless the action or proceeding seeks an injunction or other similar relief against the Aggrieved Party or there is a conflict of interest between it and the STOCK PURCHASE AGREEMENT - Page 22 28 Indemnifying Party in the conduct of the defense of such action. Failure by the Indemnifying Party to notify the Aggrieved Party of its election to defend any such proceeding or action within a reasonable time, but in no event more than 15 days after written notice thereof shall have been given to the Indemnifying Party, shall be deemed a waiver by the Indemnifying Party of its right to defend such action. (b) If the Indemnifying Party assumes the defense of any such claim or litigation resulting therefrom with counsel reasonably acceptable to the Aggrieved Party, the obligations of the Indemnifying Party as to such claim shall be limited to taking all steps necessary in the defense or settlement of such claim or litigation resulting therefrom and to holding the Aggrieved Party harmless from and against any losses, damages and liabilities caused by or arising out of any settlement or any judgment in connection with such claim or litigation resulting therefrom. The Aggrieved Party may participate, at its expense, in the defense of such claim or litigation provided that the Indemnifying Party shall direct and control the defense of such claim or litigation. The Aggrieved Party shall cooperate and make available all books and records reasonably necessary and useful in connection with the defense. The Indemnifying Party shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment, except with the written consent of the Aggrieved Party, or enter into any settlement, except with the written consent of the Aggrieved Party. (c) If the Indemnifying Party shall not assume the defense of any such claim or litigation resulting therefrom, the Aggrieved Party may defend against such claim or litigation in such manner as it may deem appropriate and reasonably satisfactory to the Aggrieved Party. The Indemnifying Party shall promptly reimburse the Aggrieved Party for the amount of all expenses, legal or otherwise, as incurred by the Aggrieved Party in connection with the defense against or settlement of such claim or litigation. No settlement of claim or litigation shall be made without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. If no settlement of the claim or litigation is made, the Indemnifying Party shall promptly reimburse the Aggrieved Party for the amount of any judgment rendered with respect to such claim or in such litigation and of all expenses, legal or otherwise, as incurred by the Aggrieved Party in the defense against such claim or litigation. (d) The rights to indemnification hereunder shall apply to claims made by either party against the other whereby written notice of the claim has been made and delivered within the period of the applicable statute of limitations. ARTICLE X TERMINATION 10.1 Termination Events. This Agreement may be terminated on written notice, on or before the Closing Date: (a) By mutual written consent of Karts International, the Company and the Shareholders; (b) By Karts International, if the conditions set forth in Article VI are not satisfied (or are incapable of being satisfied) in the discretion of Karts International before the close of business on the Closing Date; or STOCK PURCHASE AGREEMENT - Page 23 29 (c) By the Shareholders and the Company if the conditions set forth in Article VII are not satisfied (or are incapable of being satisfied) in their discretion before the close of business on the Closing Date. 10.2 Effect of Termination. If this Agreement is validly terminated pursuant to Section 10.1 hereof, this Agreement shall forthwith become null and void, and there shall be no liability on the part of the parties hereof (or any of their respective officers, directors, employees, agents, consultants or other representatives), except as provided in Article IX and Section 11.2 of this Agreement. ARTICLE XI MISCELLANEOUS 11.1 Knowledge of the Company and the Shareholders. Where any representation or warranty contained in this Agreement is expressly qualified by reference to the knowledge, information and belief of the Shareholders and the Company, the Shareholders and the Company confirm that they have made due and diligent inquiry as to the matters that are the subject of such representations and warranties. 11.2 Expenses. The parties hereto shall pay all of their own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel, accountants, and financial advisers; provided, however, notwithstanding anything to the contrary herein, if the Shareholders or the Company terminate this Agreement, other than in accordance with Section 10.1(c), the Shareholders jointly and severally agree to reimburse Karts International for its out-of-pocket expenses incurred in connection with this transaction not to exceed $100,000. 11.3 Governing Law. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of Texas. 11.4 "Person" Defined. "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or other department or agency thereof. 11.5 Captions. The Article and Section captions used herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 11.6 Publicity. Except as otherwise required by law, none of the parties hereto shall issue any press release or make any other public statement, in each case relating to or connected with or arising out of this Agreement or the matters contained herein, without obtaining the prior approval of all parties hereto to the contents and the manner of presentation and publication thereof. 11.7 Notices. Any notice or other communications required or permitted hereunder shall be sufficiently given if delivered in person or sent by telex or by registered or certified mail, postage prepaid, addressed as follows: If to Karts International, to Karts International Incorporated, 109 North Park Boulevard, Covington, Louisiana 70433, Attention: V. Lynn Graybill, with a copy to its counsel, Looper, Reed, Mark & McGraw Incorporated, 1601 Elm Street, Suite 4100, Dallas, Texas 75201, Telephone: (214) 954-4135, Fax: (214) 953-1332; and if to the Shareholders, to Jerry Michael Allen, 142 Village Creek Road, Prattville, Alabama 36067, STOCK PURCHASE AGREEMENT - Page 24 30 with a copy to his counsel, McDowell, Faulk & McDowell, 145 W. Main Street, Prattville, Alabama 36067, Telephone: (334) 365-5924, Fax: (334) 365-6016, or such other address as shall be furnished in writing by any such party, and such notice or communication shall be deemed to have been given as of the date so delivered, sent by fax or mailed. 11.8 Parties in Interest. This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. 11.9 Counterparts. This Agreement may be executed in two (2) or more counterparts, all of which taken together shall constitute one instrument. 11.10 Entire Agreement. This Agreement, including the other documents referred to herein that form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 11.11 Amendments. This Agreement can be waived, amended, supplemented or modified by written agreement of the parties. 11.12 Severability. In case any provision in this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof will not in any way be affected or impaired thereby. 11.13 Third Party Beneficiaries. Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto. 11.14 Time of Essence. The mere lapse of time shall have the effect to constitute of the parties hereto in default to perform any of its obligations under this Agreement. 11.15 Negotiation. Each party hereto declares that the provisions of this Agreement and of all documents annexed thereto or referred to therein, have been negotiated and declares having read this Agreement and those documents and having understood their scope and nature. STOCK PURCHASE AGREEMENT - Page 25 31 IN WITNESS WHEREOF, Karts International and the Company has caused their respective corporate names to be hereunto subscribed by their respective officers thereunto duly authorized, and the Shareholders have executed this Agreement, all as of the date first above written. KARTS INTERNATIONAL INCORPORATED By: /s/ V. LYNN GRAYBILL ------------------------------------ V. Lynn Graybill, President USA INDUSTRIES, INC. By: /s/ JERRY M. ALLEN ------------------------------------ Jerry M. Allen, President SHAREHOLDERS /s/ JERRY MICHAEL ALLEN -------------------------------------- JERRY MICHAEL ALLEN /s/ ANGELA T. ALLEN -------------------------------------- ANGELA T. ALLEN /s/ JOHNNY C. TUCKER -------------------------------------- JOHNNY C. TUCKER /s/ CAROL Y. TUCKER -------------------------------------- CAROL Y. TUCKER STOCK PURCHASE AGREEMENT - Page 26
EX-2.5 8 CONSULTING AGREEMENT 1 EXHIBIT 2.5 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement") is entered into on this the 16th day of January, 1996, by and between HALTER FINANCIAL GROUP, INC., a Texas corporation ("HFG"), and SARAH ACQUISITION CORPORATION, a Florida corporation ("Sarah"). W I T N E S S E T H: WHEREAS, on even date herewith, HFG, Brister's Thunder Karts, Inc., a Louisiana corporation ("Brister's") and Charles Brister (the "Shareholder") entered into that certain Stock Purchase Agreement (the "Purchase Agreement") for the purpose of setting forth the terms and conditions pursuant to which all of the outstanding shares of Brister's (the "Brister's Shares") will be acquired by a to-be-named public acquisition corporation (the "Brister's Acquisition"); WHEREAS, it is the intention of Sarah to become the acquiror of the Brister's Shares upon payment of the consideration to the Shareholder as specifically set forth in the Purchase Agreement; WHEREAS, Sarah has relied and will continue to rely upon the expertise of HFG to effect the closing of the Brister's Acquisition, and HFG is committed to assisting Sarah in this effort to the extent that it has aided Sarah with (i) its previous and pending corporate reorganization, (ii) certain capital raising activities, and (iii) its identification and retention of consultants, industry specialists and legal counsel necessary to consummate the transactions contemplated by Purchase Agreement; WHEREAS, HFG, for the benefit of Sarah, has paid to Brister's a non-refundable deposit of $20,000 to cover Brister's expenses in the event the Brister's Acquisition is not consummated; WHEREAS, HFG is solely responsible for the payment of all fees and expenses incurred by HFG and Sarah in connection with the Brister's Acquisition if the parties are unable to close the transaction in accordance with the terms of the Purchase Agreement; WHEREAS, in consideration for HFG's past and expected future services in connection with the Brister's Acquisition and pending the closing thereof, Sarah desires to pay to HFG a consulting fee of $15,000 (the "Consulting Fee") to be paid in accordance with Section 1 of this Agreement; and WHEREAS, all defined terms used herein shall have the meaning ascribed to them in the Purchase Agreement unless otherwise defined herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and confessed, the parties hereto hereby agrees as follows: 1. Payment of the Consulting Fee. If the number of Acquiring Company Shares to be delivered to HFG by the Shareholder in accordance with Section 3.4 of the Purchase Agreement is less than 500,000, then HFG, upon the closing of the Brister's Acquisition and the settlement 2 thereof, shall receive from Sarah a cash payment of $10,000 plus the number of available Acquiring Company Shares in full and final satisfaction of the Consulting Fee. HFG and Sarah further agree that if the number of Acquiring Company Shares to be delivered to HFG by the Shareholder exceeds 500,000, then HFG will accept that number of Acquiring Company Shares as full and final satisfaction of the Consulting Fee. 2. Miscellaneous. This Agreement may not be modified, altered, amended or terminated except by the written agreement of all the parties. If a court of competent jurisdiction determines that any provision contained in this Agreement is void, illegal or unenforceable, the other provisions shall remain in full force and effect and the provision held to be void, illegal or unenforceable shall be limited so that it shall remain in effect to the extent permissible by law. The parties agree to perform and execute all instruments necessary or appropriate to carry out the terms of this Agreement. This Agreement is made and is performable in Dallas County, Texas and shall be governed by the laws of the State of Texas. This Agreement sets forth the entire understanding of the parties and supersedes all prior representations, understandings and agreements, oral or written, made between the parties hereto. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. HALTER FINANCIAL GROUP, INC. By: /s/ TIMOTHY P. HALTER ---------------------------------- Timothy P. Halter, President SARAH ACQUISITION CORPORATION By: /s/ TIMOTHY P. HALTER ---------------------------------- Timothy P. Halter, Vice President CONSULTING AGREEMENT - Page 2 EX-3.1 9 ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF KARTS INTERNATIONAL INCORPORATED FIRST. The name of the corporation is Karts International Incorporated. SECOND. Its registered office in the State of Nevada is located at One East First Street, Reno, Nevada 89501. The name of its resident agent at that address is The Corporation Trust Company of Nevada. THIRD. The purpose for which the Corporation is organized is the transaction of any or all lawful business for which corporations may be incorporated under the Nevada General Corporation Law. FOURTH. The aggregate number of shares of capital stock that the Corporation will have authority to issue is 30,000,000, 20,000,000 of which will be shares of Common Stock, having a par value of $.001 per share, and 10,000,000 of which will be shares of Preferred Stock, having a par value of $.001 per share. Preferred Stock may be issued in one or more series as may be determined from time to time by the Board of Directors. All shares of any one series of Preferred Stock will be identical except as to the date of issue and the dates from which dividends on shares of the series issued on different dates will cumulate, if cumulative. Authority is hereby expressly granted to the Board of Directors to authorize the issuance of one or more series of Preferred Stock, and to fix by resolution or resolutions providing for the issue of each such series the voting powers, designations, preferences, and relative, participating, optional, redemption, conversion, exchange or other special rights, qualifications, limitations or restrictions of such series, and the number of shares in each series, to the full extent now or hereafter permitted by law. FIFTH. No shareholder of the Corporation will, solely by reason of his holding shares of any class, have any preemptive or preferential right to purchase or subscribe for any shares of the Corporation, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into or carrying warrants, rights or options to purchase shares of any class, now or hereafter to be authorized, whether or not the issuance of any such shares or such notes, debentures, bonds or other securities would adversely affect the dividend, voting or any other rights of such shareholder. The Board of Directors may authorize the issuance of, and the Corporation may issue, shares of any class of the Corporation, or any notes, debentures, bonds or other securities convertible into or carrying warrants, rights or options to purchase any such shares, without offering any shares of any class to the existing holders of any class of stock of the Corporation. SIXTH. The governing board of this Corporation shall be known as directors, and the number of directors may from time to time be increased or decreased in such manner as shall 2 be provided by the bylaws of this corporation. The names and addresses of the first members of the Board of Directors are as follows:
Name Address ---- ------- Timothy P. Halter 4851 LBJ Freeway, Suite 201 Dallas, Texas 75244 Glenn A. Little 211 West Wall Street Midland, Texas 79701
SEVENTH. The Corporation will, to the fullest extent permitted by the Nevada General Corporation Law, as the same exists or may hereafter be amended, indemnify any and all persons who it has power to indemnify under such statute from and against any and all of the expenses, liabilities or other matters referred to in or covered by such statute. Such indemnification may be provided pursuant to any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his director or officer capacity and as to action in another capacity while holding such office, will continue as to a person who has ceased to be a director, officer, employee or agent, and inure to the benefit of the heirs, executors and administrators of such a person. EIGHTH. To the fullest extent permitted by the laws of the State of Nevada as the same exist or may hereafter be amended, a director or officer of the Corporation will not be liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director or officer. NINTH. The name and address of the incorporator signing the articles of incorporation is as follows:
Name Address ---- ------- Klara A. Albaral 4851 LBJ Freeway, Suite 201 Dallas, Texas 75244
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the Nevada General Corporation Law, do make and file these articles of incorporation, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set my hand this 21st day of February, 1996. /s/ KLARA A. ALBARAL ---------------------------- Klara A. Albaral 3 STATE OF TEXAS ) ) COUNTY OF DALLAS ) On this 21st day of February, 1996, before me, a Notary Public, personally appeared Klara A. Albaral, who acknowledged that she executed the above instrument. /s/ MICHELLE TITUS ------------------------- Notary Public (Stamp) 3 4 CERTIFICATE OF ACCEPTANCE OF APPOINTMENT BY RESIDENT AGENT The Corporation Trust Company of Nevada hereby accepts the appointment as Resident Agent of the above named corporation. The Corporation Trust Company of Nevada. Resident Agent By: /s/ NAME ILLEGIBLE Date DATE ILLEGIBLE --------------------------------- ------------------------- (Assistant Secretary)
EX-3.2 10 BY-LAWS 1 EXHIBIT 3.2 BYLAWS OF KARTS INTERNATIONAL INCORPORATED 2 TABLE OF CONTENTS ARTICLE I OFFICES Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II STOCKHOLDERS Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 3. List of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 5. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 7. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 8. Method of Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 9. Record Date; Closing Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE III BOARD OF DIRECTORS Section 1. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2. Qualification; Election; Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 3. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 4. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 5. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 6. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 7. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 8. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 9. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 10. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 11. Interested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 12. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 13. Action by Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 14. Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE IV NOTICE Section 1. Form of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE V OFFICERS AND AGENTS Section 1. In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3 Section 3. Other Officers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 4. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5. Term of Office and Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 6. Employment and Other Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 7. Chairman of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 8. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 9. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 10. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 11. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 12. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 13. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 14. Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 4. Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE VII GENERAL PROVISIONS Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3. Telephone and Similar Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 4. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 6. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 9. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 10. Amendment of Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 11. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 12. Relation to Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4 BYLAWS OF KARTS INTERNATIONAL INCORPORATED ARTICLE I OFFICES Section 1. Registered Office. The registered office and registered agent of Karts International Incorporated (the "Corporation") will be as from time to time set forth in the Articles of Incorporation. Section 2. Other Offices. The Corporation may also have offices at such other places, both within and without the State of Nevada, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders for the election of Directors will be held at such place, within or without the State of Nevada, as may be fixed from time to time by the Board of Directors. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Nevada, as may be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. An annual meeting of the stockholders will be held at such time as may be determined by the Board of Directors, at which meeting the stockholders will elect a Board of Directors and transact such other business as may properly be brought before the meeting. Section 3. List of Stockholders. At least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of voting shares registered in the name of each, will be prepared by the officer or agent having charge of the stock transfer books. Such list will be kept on file at the registered office of the Corporation for a period of ten (10) days prior to such meeting and will be subject to inspection by any stockholder at any time during usual business hours. Such list will be produced and kept open at the time and place of the meeting during the whole time thereof, and will be subject to the inspection of any stockholder who may be present. Section 4. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law, the Articles of Incorporation or these Bylaws, 5 may be called by the President or the Board of Directors, or will be called by the President or Secretary at the request in writing of the holders of not less than ten percent (10%) of all the shares issued, outstanding and entitled to vote (unless a different percentage is specified in the Articles of Incorporation). Such request will state the purpose or purposes of the proposed meeting. Business transacted at all special meetings will be confined to the purposes stated in the notice of the meeting unless all stockholders entitled to vote are present and consent. Section 5. Notice. Written or printed notice stating the place, day and hour of any meeting of the stockholders and the purpose or purposes for which the meeting is called, will be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the President, the Secretary, or the officer or person calling the meeting, to each stockholder of record entitled to vote at the meeting. If mailed, such notice will be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. Section 6. Quorum. At all meetings of the stockholders, the presence in person or by proxy of the holders of a majority of the shares issued and outstanding and entitled to vote on that matter will be necessary and sufficient to constitute a quorum for the transaction of business except as otherwise provided by law, the Articles of Incorporation or these Bylaws. If, however, such quorum is not present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, will have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. Section 7. Voting. When a quorum is present at any meeting of the Corporation's stockholders, the vote of the holders of a majority of the shares entitled to vote that are actually voted on any question brought before the meeting will be sufficient to decide such question; provided that if the question is one upon which, by express provision of law, the Articles of Incorporation or these Bylaws, a different vote is required, such express provision shall govern and control the decision of such question. Section 8. Method of Voting. Each outstanding share of the Corporation's capital stock, regardless of class, will be entitled to one (1) vote on each matter submitted to a vote at a meeting of stockholders, except to the extent that the voting rights of the shares of any class or series are limited or denied by the Articles of Incorporation, as amended from time to time or any other document defining the rights and preferences of such shares. At any meeting of the stockholders, every stockholder having the right to vote will be entitled to vote in person or by proxy executed in writing by such stockholder and bearing a date not more than eleven (11) months prior to such meeting, unless such instrument provides for a longer period. A telegram, telex, cablegram or similar transmission by the stockholder, or a photographic, photostatic, facsimile or similar reproduction of a writing executed by the stockholder, shall be treated as an execution in writing for purposes of the preceding sentence. Each proxy will be revocable -2- 6 unless expressly provided therein to be irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. Such proxy will be filed with the Secretary of the Corporation prior to or at the time of the meeting. Voting for directors will be in accordance with Article III of these Bylaws. Voting on any question or in any election may be by voice vote or show of hands unless the presiding officer orders or any stockholder demands that voting be by written ballot. Section 9. Record Date; Closing Transfer Books. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such record date to be not less than ten (10) nor more than sixty (60) days prior to such meeting, or the Board of Directors may close the stock transfer books for such purpose for a period of not less than ten (10) nor more than sixty (60) days prior to such meeting. In the absence of any action by the Board of Directors, the date upon which the notice of the meeting is mailed will be the record date. ARTICLE III BOARD OF DIRECTORS Section 1. Management. The business and affairs of the Corporation will be managed by or under the direction of the Board of Directors, who may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, the Articles of Incorporation or these Bylaws directed or required to be exercised or done by the stockholders. Section 2. Qualification; Election; Term. None of the Directors need be a stockholder of the Corporation or a resident of the State of Nevada. The Directors will be elected by plurality vote at the annual meeting of the stockholders, except as hereinafter provided, and each Director elected will hold office until whichever of the following occurs first: his successor is elected and qualified, his resignation, his removal from office by the stockholders or his death. Section 3. Number. The number of Directors of the Corporation will be at least one (1) and not more than twelve (12). The number of Directors authorized will be fixed as the Board of Directors may from time to time designate, or if no such designation has been made, the number of Directors will be the same as the number of members of the initial Board of Directors as set forth in the Articles of Incorporation. No decrease in the number of Directors will have the effect of shortening the term of any incumbent Director. Section 4. Removal. Any Director may be removed either for or without cause at any special meeting of stockholders by the affirmative vote of at least a majority in number of shares of the stockholders present in person or represented by proxy at such meeting and entitled to vote for the election of such Director; provided, that notice of intention to act upon such matter has been given in the notice calling such meeting. Section 5. Vacancies. Any vacancy occurring in the Board of Directors by death, resignation, removal or otherwise may be filled by an affirmative vote of at least a majority of the remaining Directors though less than a quorum of the Board of Directors. A Director -3- 7 elected to fill a vacancy will be elected for the unexpired term of his predecessor in office. A directorship to be filled by reason of an increase in the number of Directors may be filled by the Board of Directors for a term of office only until the next election of one or more Directors by the stockholders. Section 6. Place of Meetings. Meetings of the Board of Directors, regular or special, may be held at such place within or without the State of Nevada as may be fixed from time to time by the Board of Directors. Section 7. Annual Meeting. The first meeting of each newly elected Board of Directors will be held without further notice immediately following the annual meeting of stockholders and at the same place, unless the Directors then elected and serving shall change such time or place by unanimous consent. Section 8. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as is from time to time determined by resolution of the Board of Directors. Section 9. Special Meetings. Special meetings of the Board of Directors may be called by the President on oral or written notice to each Director, given either personally, by telephone, by telegram or by mail; special meetings will be called by the President or the Secretary in like manner and on like notice on the written request of at least two (2) Directors. Except as may be otherwise expressly provided by law, the Articles of Incorporation or these Bylaws, neither the business to be transacted at, nor the purpose of, any special meeting need be specified in a notice or waiver of notice. Section 10. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of Directors then in office will be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the Directors present at any meeting at which there is a quorum will be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Articles of Incorporation or these Bylaws. If a quorum is not present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum is present. Section 11. Interested Directors. No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of the Corporation's Directors or officers are Directors or officers or have a financial interest, will be void or voidable solely for this reason, solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum, (ii) the material facts as to his relationship or interest and as to the contract or -4- 8 transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction. Section 12. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board, designate committees, each committee to consist of two (2) or more Directors of the Corporation, which committees will have such power and authority and will perform such functions as may be provided in such resolution. Such committee or committees will have such name or names as may be designated by the Board and will keep regular minutes of their proceedings and report the same to the Board of Directors when required. Section 13. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee of the Board of Directors may be taken without such a meeting if a consent or consents in writing, setting forth the action so taken, is signed by all the members of the Board of Directors or such committee, as the case may be. Section 14. Compensation of Directors. Directors will receive such compensation for their services and reimbursement for their expenses as the Board of Directors, by resolution, may establish; provided that nothing herein contained will be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV NOTICE Section 1. Form of Notice. Whenever by law, the Articles of Incorporation or these Bylaws, notice is to be given to any Director or stockholder, and no provision is made as to how such notice is to be given, such notice may be given: (i) in writing, by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation or (ii) in any other method permitted by law. Any notice required or permitted to be given by mail will be deemed to be given at the time the same is deposited in the United States mail. Section 2. Waiver. Whenever any notice is required to be given to any stockholder or Director of the Corporation as required by law, the Articles of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, will be equivalent to the giving of such notice. Attendance of a stockholder or Director at a meeting will constitute a waiver of notice of such meeting, except where such stockholder or Director attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. -5- 9 ARTICLE V OFFICERS AND AGENTS Section 1. In General. The officers of the Corporation will be elected by the Board of Directors and will be a President, a Secretary and a Treasurer. The Board of Directors may also elect a Chairman of the Board, Vice Chairman of the Board, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any two or more offices may be held by the same person. Section 2. Election. The Board of Directors, at its first meeting after each annual meeting of stockholders, will elect the officers, none of whom need be a member of the Board of Directors. Section 3. Other Officers and Agents. The Board of Directors may also elect and appoint such other officers and agents as it deems necessary, who will be elected and appointed for such terms and will exercise such powers and perform such duties as may be determined from time to time by the Board. Section 4. Compensation. The compensation of all officers and agents of the Corporation will be fixed by the Board of Directors or any committee of the Board, if so authorized by the Board. Section 5. Term of Office and Removal. Each officer of the Corporation will hold office until his death, his resignation or removal from office, or the election and qualification of his successor, whichever occurs first. Any officer or agent elected or appointed by the Board of Directors may be removed at any time, for or without cause, by the affirmative vote of a majority of the entire Board of Directors, but such removal will not prejudice the contract rights, if any, of the person so removed. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Section 6. Employment and Other Contracts. The Board of Directors may authorize any officer or officers or agent or agents to enter into any contract or execute and deliver any instrument in the name or on behalf of the Corporation, and such authority may be general or confined to specific instances. The Board of Directors may, when it believes the interest of the Corporation will best be served thereby, authorize executive employment contracts that will have terms no longer than ten (10) years and contain such other terms and conditions as the Board of Directors deems appropriate. Nothing herein will limit the authority of the Board of Directors to authorize employment contracts for shorter terms. Section 7. Chairman of the Board of Directors. If the Board of Directors has elected a Chairman of the Board, he will preside at all meetings of the stockholders and the Board of Directors. Except where by law the signature of the President is required, the Chairman will have the same power as the President to sign all certificates, contracts and other instruments of the Corporation. During the absence or disability of the President, the Chairman will exercise the powers and perform the duties of the President. -6- 10 Section 8. President. The President will be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, will supervise and control all of the business and affairs of the Corporation. He will, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and the Board of Directors. The President will have all powers and perform all duties incident to the office of President and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe. Section 9. Vice Presidents. Each Vice President will have the usual and customary powers and perform the usual and customary duties incident to the office of Vice President, and will have such other powers and perform such other duties as the Board of Directors or any committee thereof may from time to time prescribe or as the President may from time to time delegate to him. In the absence or disability of the President and the Chairman of the Board, a Vice President designated by the Board of Directors, or in the absence of such designation the Vice Presidents in the order of their seniority in office, will exercise the powers and perform the duties of the President. Section 10. Secretary. The Secretary will attend all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary will perform like duties for the Board of Directors and committees thereof when required. The Secretary will give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors. The Secretary will keep in safe custody the seal of the Corporation. The Secretary will be under the supervision of the President. The Secretary will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to him. Section 11. Assistant Secretaries. The Assistant Secretaries in the order of their seniority in office, unless otherwise determined by the Board of Directors, will, in the absence or disability of the Secretary, exercise the powers and perform the duties of the Secretary. They will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to them. Section 12. Treasurer. The Treasurer will have responsibility for the receipt and disbursement of all corporate funds and securities, will keep full and accurate accounts of such receipts and disbursements, and will deposit or cause to be deposited all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer will render to the Directors whenever they may require it an account of the operating results and financial condition of the Corporation, and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to him. Section 13. Assistant Treasurers. The Assistant Treasurers in the order of their seniority in office, unless otherwise determined by the Board of Directors, will, in the absence or disability of the Treasurer, exercise the powers and perform the duties of the Treasurer. They will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to them. -7- 11 Section 14. Bonding. The Corporation may secure a bond to protect the Corporation from loss in the event of defalcation by any of the officers, which bond may be in such form and amount and with such surety as the Board of Directors may deem appropriate. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of Certificates. Certificates, in such form as may be determined by the Board of Directors, representing shares to which stockholders are entitled, will be delivered to each stockholder. Such certificates will be consecutively numbered and entered in the stock book of the Corporation as they are issued. Each certificate will state on the face thereof the holder's name, the number, class of shares, and the par value of such shares or a statement that such shares are without par value. They will be signed by the President or a Vice President and the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent, or an assistant transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on such certificate or certificates, ceases to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation or its agents, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it may require and/or to give the Corporation a bond, in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. When a certificate has been lost, apparently destroyed or wrongfully taken, and the holder of record fails to notify the Corporation within a reasonable time after such holder has notice of it, and the Corporation registers a transfer of the shares represented by the certificate before receiving such notification, the holder of record is precluded from making any claim against the Corporation for the transfer of a new certificate. Section 3. Transfer of Shares. Shares of stock will be transferable only on the books of the Corporation by the holder thereof in person or by such holder's duly authorized attorney. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it will be the duty of the Corporation or the transfer agent of the -8- 12 Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation will be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by law. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, subject to the provisions of the Nevada General Corporation Law and the Articles of Incorporation. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to receive payment of any dividend, such record date to be not more than sixty (60) days prior to the payment date of such dividend, or the Board of Directors may close the stock transfer books for such purpose for a period of not more than sixty (60) days prior to the payment date of such dividend. In the absence of any action by the Board of Directors, the date upon which the Board of Directors adopts the resolution declaring such dividend will be the record date. Section 2. Reserves. There may be created by resolution of the Board of Directors out of the surplus of the Corporation such reserve or reserves as the directors from time to time, in their discretion, deem proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Corporation, or for such other purpose as the Directors may deem beneficial to the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Surplus of the Corporation to the extent so reserved will not be available for the payment of dividends or other distributions by the Corporation. Section 3. Telephone and Similar Meetings. Stockholders, directors and committee members may participate in and hold meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Participation in such a meeting will constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting had not been lawfully called or convened. Section 4. Books and Records. The Corporation will keep correct and complete books and records of account and minutes of the proceedings of its stockholders and Board of Directors, and will keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of the shares held by each. -9- 13 Section 5. Fiscal Year. The fiscal year of the Corporation will be fixed by resolution of the Board of Directors. Section 6. Seal. The Corporation may have a seal, and such seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Any officer of the Corporation will have authority to affix the seal to any document requiring it. Section 7. Indemnification. The Corporation will indemnify its directors to the fullest extent permitted by the Nevada General Corporation Law and may, if and to the extent authorized by the Board of Directors, so indemnify its officers and any other person whom it has the power to indemnify against liability, reasonable expense or other matter whatsoever. Section 8. Insurance. The Corporation may at the discretion of the Board of Directors purchase and maintain insurance on behalf of the Corporation and any person whom it has the power to indemnify pursuant to law, the Articles of Incorporation, these Bylaws or otherwise. Section 9. Resignation. Any director, officer or agent may resign by giving written notice to the President or the Secretary. Such resignation will take effect at the time specified therein or immediately if no time is specified therein. Unless otherwise specified therein, the acceptance of such resignation will not be necessary to make it effective. Section 10. Amendment of Bylaws. These Bylaws may be altered, amended or repealed at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the Directors present at such meeting. Section 11. Invalid Provisions. If any part of these Bylaws is held invalid or inoperative for any reason, the remaining parts, so far as possible and reasonable, will be valid and operative. Section 12. Relation to Articles of Incorporation. These Bylaws are subject to, and governed by, the Articles of Incorporation. The undersigned, being the Secretary of the Corporation, confirms the adoption and approval of the foregoing Bylaws, effective as of February 21, 1996. /s/ GLENN A. LITTLE -------------------------------- Glenn A. Little -10-
EX-3.3 11 CERTIFICATE TO DECREASE AUTHORIZED SHARES 1 EXHIBIT 3.3 CERTIFICATE TO DECREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF KARTS INTERNATIONAL INCORPORATED WE, the undersigned, President and Secretary of Karts International Incorporated, a Nevada corporation (the "Corporation"), pursuant to the provisions of Section 78.207 of the Nevada General Corporation Law, do hereby certify: A. The current number of authorized shares of common stock, par value $.001 per share (the "Common Stock"), of the Corporation is 20,000,000 shares and the current number of authorized shares of the Corporation's preferred stock, $.001 par value per share (the "Preferred Stock"), is 10,000,000 shares. B. The number of authorized shares of Common Stock is to be reduced from 20,000,000 shares to 14,000,000 shares, while the authorized number of shares of Preferred Stock will remain unchanged. C. The Corporation currently has issued and outstanding 4,075,933 shares of Common Stock. After the Effective Date (as defined below), of the two-for-three reverse stock split (the "Reverse Stock Split") whereby two shares of Common Stock will be issued in exchange for every three shares of Common Stock currently outstanding, the Corporation will have issued and outstanding approximately 2,717,650 shares of Common Stock. D. For stockholders entitled to receive fractional shares as a result of the Reverse Stock Split, the Corporation will issue one full share of Common Stock to each stockholder entitled to receive fractional shares as a result of the Reverse Stock Split. E. Approval of the stockholders is not required and has therefore not been obtained in order to effect the transactions contemplated by this Certificate. F. The reduction of the authorized number of shares of Common Stock and the Reverse Stock Split shall be effective at the close of business on March 24, 1997 (the "Effective Date"). KARTS INTERNATIONAL INCORPORATED By: /s/ V. LYNN GRAYBILL ----------------------------- V. Lynn Graybill, President By: /s/ TIMOTHY P. HALTER ----------------------------- Timothy P. Halter, Secretary CERTIFICATE - Page 1 2 STATE OF LOUISIANA ) ) PARISH OF ST. TAMMANY ) This instrument was acknowledged before me this ______ day of March, 1997, by V. Lynn Graybill, President of Karts International Incorporated, a Nevada corporation, on behalf of said corporation. /s/ NAME ILLEGIBLE ---------------------------------- NOTARY PUBLIC, STATE OF LOUISIANA STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me this ______ day of March, 1997, by Timothy P. Halter, Secretary of Karts International Incorporated, a Nevada corporation, on behalf of said corporation. /s/ MICHELLE TITUS ---------------------------------- NOTARY PUBLIC, STATE OF TEXAS CERTIFICATE - Page 2 EX-4.1 12 SPECIMEN OF COMMON STOCK CERTIFICATE 1 EXHIBIT 4.1 See "Description of Securities -- Common Stock" EX-4.2 13 FORM OF WARRANT AGREEMENT 1 EXHIBIT 4.2 WARRANT AGREEMENT WARRANT AGREEMENT dated as of ____________, 1996 between Karts International Incorporated, a Nevada corporation, having its principal place of business at 109 Northpark Boulevard, Suite 210, Covington, Louisiana 70433, (the "Company") and Securities Transfer Corporation, a Texas corporation, having its principal place of business at 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248 (the "Warrant Agent"). W I T N E S S E T H : WHEREAS, the Company proposes to issue and sell to the public in a secondary public offering (the "Secondary Offering") 1,400,000 shares of the Company's Common Stock, par value $.01 per share ("Shares"), and 1,400,000 Redeemable Common Stock Purchase Warrants (the "Public Warrants") (plus an additional 210,000 shares and 210,000 Warrants to cover overallotments); WHEREAS, the Company also proposes to issue and sell to Argent Securities, Inc. (the "Underwriter") in the Secondary Offering an option to purchase 140 Shares and 140,000 Warrants (the "Underwriter Warrants" and together with the Public Warrants sometimes hereinafter referred to as the "Warrants"); WHEREAS, the Warrants shall be evidenced by certificates substantially in the form of Exhibit A annexed hereto (the "Warrant Certificate"), each Warrant entitling the holder thereof to purchase one share of Common Stock; WHEREAS, the Warrants will have an exercise price of $_______ per share of Common Stock, subject to certain adjustments (the "Warrant Price"), will be exercisable commencing on the first anniversary of the effective date of the Secondary Offering ("First Exercise Date") until a date which is the fifth anniversary of the effective date of the Secondary Offering ("Last Exercise Date"), unless extended by the Company, and, except for the Underwriter's Warrants, will be exercisable during any period of time fixed for that Warrant's redemption in a Redemption Notice (hereinafter defined in Section 2.03), which period of time will terminate on a stated Redemption Date (hereinafter defined in Section 2.03); WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act in connection with the issuance, registration, transfer, exchange and replacement of the Warrant Certificates and exercise of the Warrants; and WHEREAS, the Company and the Warrant Agent desire to set forth in this Agreement the terms and conditions upon which the Warrant Certificates shall be issued, transferred, exchanged and placed and the Warrants exercised, and to provide for the rights of the holders of the Warrants; 2 NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and the respective undertakings herein below set forth, the Company and the Warrant Agent agree as follows: ARTICLE I ISSUANCE AND EXECUTION OF WARRANTS SECTION 1.01. The Company hereby appoints the Warrant Agent to act on behalf of the Company in accordance with the terms and conditions herein set forth, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with such provisions. SECTION 1.02. The Warrant Certificates for the Warrants shall be issued in registered form only. The text of the Warrant Certificate, including the form of assignment and subscription printed on the reverse side thereof, shall be substantially in the form of Exhibit A annexed hereto, which text is hereby incorporated in this Agreement by reference as though fully set forth herein and to whose terms and conditions the Company and the Warrant Agent hereby agree. Each Warrant Certificate shall evidence the right, subject to the provisions of this Agreement and of such Warrant Certificate, to purchase the number of validly issued, fully paid and non-assessable shares of Common Stock, as that term is defined in Section 1.05 of this Agreement, stated therein, free of preemptive rights, subject to adjustment as provided in Article III of this Agreement. SECTION 1.03. Upon the written order of the Company, signed by the President or any Vice President, and the Secretary, Treasurer, Assistant Secretary or Assistant Treasurer of the Company, the Warrant Agent shall issue and register Warrants in the names and denominations specified in that order, and will countersign and deliver Warrant Certificates evidencing the same in accordance with that order. Each Warrant Certificate shall be dated the date of its countersignature. Each Warrant Certificate shall be executed on behalf of the Company by the manual or facsimile signature of the President of the Company, under its corporate seal, affixed or facsimile, attested by the manual or facsimile signature of the Secretary of the Company and shall be countersigned manually by the Warrant Agent. The Warrant Certificates shall not be valid for any purpose unless so countersigned. In case any officer whose facsimile signature has been placed upon any Warrant Certificate shall have ceased to be such before such Warrant Certificate is issued, it may be issued with the same effect as if such officer had not ceased to be such on the date of issuance. SECTION 1.04. Except as otherwise expressly stated herein, all terms used in the Warrant Certificate have the meanings provided in this Agreement. SECTION 1.05. As used herein, the term "Common Stock" shall mean the aggregate number of shares that the Company, by its Certificate of Incorporation, as from time to time amended, is authorized to issue, which are not limited by its Certificate of Incorporation to a fixed sum or percentage of the book value in respect of the rights of the holders thereof to participate in dividends or in distribution of assets upon the voluntary or involuntary liquidation, dissolution, or winding up the Company. -2- 3 SECTION 1.06. The Warrant Agent understands and agrees that the Public Warrants and shares of Common Stock are being sold separately in the Secondary Offering and that the Shares and the Public Warrants will be traded separately immediately upon the closing of the Secondary Offering. ARTICLE II WARRANT PRICE, DURATION AND EXERCISE OF WARRANTS, CALL OF WARRANTS AND TRADING OF WARRANTS SECTION 2.01. (a) Each Warrant shall entitle the person in whose name at the time the Warrant shall be registered upon the books to be maintained by the Warrant Agent for that purpose (the "Warrant Holder"), subject to the provisions of the Warrant Certificates and of this Agreement, to purchase from the Company any time on or after the First Exercise Date but at or before the Last Exercise Date, up to the number of shares of Common Stock stated therein, as adjusted, at the Warrant Price in effect at such date, payable in full at the time of purchase in the manner provided in Section 2.02 of this Agreement. (b) Each Warrant shall be exercisable in accordance with the terms herein and in the Warrant Certificate which, among other things, contains certain terms as to the Warrant Price. SECTION 2.02. (a) The Warrant Holder may exercise a Warrant, in whole or in part, by surrender of the Warrant Certificate, with the form of subscription thereon duly executed by the Warrant Agent at its corporate office, together with the Warrant Price for each share of Common Stock to be purchased in lawful money of the United States, or by certified check, bank draft, or postal or express money order payable in United States Dollars to the order of the Company. (b) Upon receipt of a Warrant Certificate with the form of election to purchase thereon duly executed and accompanied by payment of the aggregate Warrant Price for the shares of Common Stock for which the Warrant is then being exercised, the Warrant Agent shall requisition from the transfer agent certificates for the total number of the shares of Common Stock for which the Warrant is being exercised in such names and denominations as are required for delivery to the Warrant Holder, and the Warrant Agent shall thereupon deliver such certificates to or in accordance with the instructions of the Warrant Holder. The Company covenants and agrees that it has duly authorized and directed its transfer agent (and will authorize and direct all its future transfer agents) to comply with all such requests of the Warrant Agent. (c) In case any Warrant Holder shall exercise his Warrant with respect to less than all of the shares of Common Stock that may be purchased under the Warrant, a new -3- 4 Warrant Certificate for the balance shall be countersigned and delivered to or upon the order of the Warrant Holder. (d) The Company covenants and agrees that it will pay when due and payable any and all taxes which may be payable in respect to the issuance of Warrants, or the issuance of any shares of Common Stock upon the exercise of Warrants. However, neither the Company nor the Warrant Agent shall be required to issue or deliver any Warrant Certificate or shares of Common Stock in a name other than that of the Warrant Holder at the time of surrender if any tax is payable in respect of such transfer until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid or shall not be due and payable. In the event that any transfer tax is due and payable, the Warrant Agent shall be under no obligation to issue or deliver any Warrant Certificate or shares of Common Stock in a name other than that of the Warrant Holder until the Company has notified the Warrant Agent that the transfer tax, if any, has been paid, or in the alternative, that no transfer tax is due and payable by reason of an exemption. (e) The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently account to the Company for all moneys received by the Warrant Agent for the purchase of shares of Common Stock upon the exercise of Warrants. (f) The Warrant Agent covenants and agrees that upon the exercise of any of the Warrants, the Warrant Agent shall provide written notice to the Company at 109 Northpark Boulevard, Suite 210,Covington, Louisiana 70433 and to the Underwriter at its office at 3340 Peachtree Street, N.E., Suite 450, Atlanta, Georgia 30326, the expense of which notice shall be borne by the Company. Each notice shall contain the name of the exercising Warrant Holder, the number of shares of Common Stock that the Warrant Holder has elected to purchase, the purchase price paid on a per share basis and the cumulative number of Warrants exercised by all of the Warrant Holders as of the date of the transaction which is the subject of the aforesaid notice. Such notice shall be made on the date of the exercise of the Warrant. Nothing contained herein shall be construed so as to prevent the Warrant Agent from providing the information required in this Section 2.02 (f) in a consolidated or tabular form, provided that all other provisions of this Section are complied with. (g) The Warrant Agent covenants and agrees that it shall provide a list of each and every holder of the Warrants to the Company and the Underwriter at such time or from time to time as shall be required by the Company or the Underwriter, but in no event shall such a list be provided less frequently than once per annum at a date as shall be determined by the Company. SECTION 2.03. (a) Commencing on the first anniversary of the effective date of the Secondary Offering, the Company may, subject to the conditions set forth herein, redeem all, but not less than all, the Warrants then outstanding at a redemption price of $0.01 per Warrant upon not less than thirty (30) days prior written notice (the "Redemption Notice") to the holders thereof provided that the average closing price of the Common Stock for the 20 consecutive trading days ending three (3) days prior to the date of the Redemption Notice is at least $_____, subject to adjustment for stock dividends, stock splits and other anti-dilution provisions as provided for under Article III herein. For purposes of this Section 2.03, "closing price" at any -4- 5 date shall be deemed to be: (i) the last sale price regular way as reported on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (ii) if the Common Stock is not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices regular way for the Common Stock as reported by the Nasdaq National Market or Nasdaq Small Cap Market of the Nasdaq Stock Market, Inc. ("NASDAQ") or (iii) if the Common Stock is not listed or admitted for trading on any national securities exchange, and is not reported by NASDAQ, the average of the closing bid and asked prices in the over-the-counter market as furnished by the National Quotation Bureau, Inc. or if no such quotation is available, the fair market value of the Common Stock as determined in good faith by the Board of Directors of the Company. The Redemption Notice shall be deemed effective upon mailing and the time of mailing is the "Effective Date of the Notice". The Redemption Notice shall state a redemption date not less than thirty (30) days from the Effective Date of the Notice (the "Redemption Date") . No Redemption Notice shall be mailed unless all funds necessary to pay for redemption of all Warrants then outstanding shall have first been set aside by the Company in trust with the Warrant Agent for the benefit of all Warrant Holders so as to be and continue to be available therefor. The redemption price to be paid to the Warrant Holders will be $____ for each share of the Common Stock of the Company to which the Warrant Holder would then be entitled upon exercise of the Warrant being redeemed, as adjusted from time to time as provided herein (the "Redemption Price"). In the event the number of shares of Common Stock issuable upon exercise of the Warrant being redeemed are adjusted pursuant to Article III hereof, then upon each such adjustment the Redemption Price will be adjusted by multiplying the Redemption Price in effect immediately prior to such adjustment by a fraction, the numerator of which is the number of shares of Common Stock issuable upon exercise of the Warrant being redeemed immediately prior to such adjustment and the denominator of which is the number of shares of Common Stock issuable upon exercise of such Warrant being redeemed immediately after such adjustment. The Warrants may only be redeemed if the Company has in effect a current Registration Statement or post-effective amendment covering the shares underlying the Warrants. The Warrant Holders may exercise their Warrants between the Effective Date of the Notice and the Redemption Date, such exercise being effective if done in accordance with Section 2.02 (a), and if the Warrant Certificate, with form of election to purchase duly executed and the Warrant Price, as applicable for such Warrant subject to redemption for each share of Common Stock to be purchased is actually received by the Warrant Agent at its office located at 16910 Dallas Parkway, Suite 100, Dallas, TX 75248, no later than 5:00 P.M. New York time on the Redemption Date. (b) If any Warrant Holder does not wish to exercise any Warrant being redeemed, the Warrant Holder should mail such Warrant to the Warrant Agent at its office located at 16910 Dallas Parkway, Suite 100, Dallas, TX 75248, after receiving the Redemption Notice required by this Section. If such Redemption Notice shall have been so mailed, and if on or before the Effective Date of the Notice all funds necessary to pay for redemption of all Warrants then outstanding shall have been set aside by the Company in trust with the Warrant Agent for the benefit of all Warrant Holders so as to be and continue to be available therefor, then, on and after said Redemption Date, notwithstanding that any Warrant subject to redemption shall not have been surrendered for redemption, the obligation evidenced by all Warrants not surrendered for redemption or effectively exercised shall be deemed no longer outstanding, and all rights with respect thereto shall forthwith cease and terminate, except only the right of the holder of each Warrant subject to redemption to receive the Redemption Price for each share of -5- 6 Common Stock to which he would be entitled if he exercised the Warrant upon receiving the Redemption Notice of the Warrant subject to redemption held by the Holder hereof. (c) Notwithstanding anything contained in this Article II, the Underwriter's Warrants shall not be eligible for redemption by the Company. ARTICLE III ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE AND OF WARRANT PRICE SECTION 3.01. In case the Company shall at any time after the date of this Agreement (i) declare a dividend on the outstanding Common Stock in shares of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock by reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then, in each case, the Warrant Price, and the number and kind of shares of Common Stock receivable upon exercise, in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination, or reclassification shall be proportionately adjusted so that the holder of any Warrant exercised after such time shall be entitled to receive the aggregate number and kind of shares which if such Warrant had been exercised immediately prior to such time, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination, or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. SECTION 3.02. In case the Company after the date hereof shall issue rights, options, or warrants to all holders of Common Stock entitling them to subscribe for or purchase Common Stock (or securities convertible into or exchangeable for Common Stock) at a price per share (or having a conversion price per share, if a security convertible into or exchangeable for Common Stock) less than the "current market price" (as defined in Section 3.04 hereof) per share of Common Stock on the record date established for the issuance of such rights, options or warrants, then, in such case, the Warrant Price shall be adjusted by multiplying the Warrant Price in effect on the record date of such issuance by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the record date for such issuance plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be issued (or the aggregate initial conversion price of the convertible securities to be issued or sold) would purchase at such "current market price" and of which the denominator shall be the number of shares of Common Stock outstanding on the record date for such issuance plus the number of additional shares of Common Stock to be issued (or into which the convertible or exchangeable securities to be issued or sold are initially convertible or exchangeable). Such adjustment shall become effective at the close of business on such record date; provided, however, that, to the extent the shares of Common Stock (or securities convertible to or exchangeable for shares of Common Stock) are not delivered, the Warrant Price shall be readjusted after the expiration of such rights, options, or warrants (but only with respect to Warrants exercised after such expiration), to the Warrant Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been -6- 7 made upon the basis of delivery of only the number of shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock actually issued. In case any subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the board of directors of the Company, whose determination shall be conclusive absent manifest error. Shares of Common Stock owned by or held for the account of the Company or any majority-owned subsidiary shall not be deemed outstanding for the purpose of any such computation. Notwithstanding the foregoing, no adjustment in the Warrant Price or the number of shares of Common Stock issuable upon exercise of the Warrants shall be made upon (i) the issuance of options (or upon exercise thereof) by the Company pursuant to its Stock Option Plans, (ii) the issuance of the Underwriter's Warrants, or (iii) any other options and warrants outstanding as of the date hereof. SECTION 3.03. In case the Company shall distribute to all holders of Common Stock (including any such distribution made to the stockholders of the Company in connection with a consolidation or merger in which the Company is the continuing corporation) evidences of its indebtedness or assets (other than cash dividends distributions and dividends payable in shares of Common Stock), subscription rights, options, or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in Section 3.02 hereof), then, in each case, the Warrant price shall be adjusted by multiplying the Warrant Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the "current market price" per share of Common Stock on such record date, less the fair market value (as determined in good faith by the board of directors of the Company, whose determination shall be conclusive absent manifest error) of the portion of the evidences of indebtedness or assets so to be distributed, or of such subscription rights, options, or warrants, convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, applicable to the share, and of which the denominator shall be such "current market price" per share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of such distribution retroactive to the record date for the determination of stockholders entitled to receive such distribution. SECTION 3.04. For the purpose of any computation under sections 3.02 and 3.03 hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the 20 consecutive trading days ending three (3) days prior to such date. The closing price for each day shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the closing bid price regular way, in either case on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the highest reported bid price as furnished by NASDAQ. If on any such date the Common Stock is not quoted on NASDAQ or any such organization, the closing price shall be deemed to be the average of the closing bid and asked prices in the over-the-counter market as reported by the National Quotation Bureau or if no such quotation is available, the fair value of the Common Stock on such date, as determined in good faith by -7- 8 the board of directors of the Company, whose determination shall be conclusive absent manifest error. SECTION 3.05. No adjustment in the Warrant Price shall be required if such adjustment is less than $____; provided, however, that any adjustments which by reason of this Section 3.05 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article III shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be. SECTION 3.06. In any case in which this Article III shall require that an adjustment in the Warrant Price be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the holder of any Warrant exercised after such record date, the shares, if any, issuable upon such exercise over and above the shares, if any, issuable upon such exercise on the basis of the Warrant Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. SECTION 3.07. Upon each adjustment of the Warrant Price as a result of the calculations made in Section 3.01, 3.02, or 3.03 hereof, each Warrant outstanding prior to the making of the adjustment in the Warrant Price shall thereafter evidence the right to purchase, at the adjusted Warrant Price, that number of shares (calculated to the nearest thousandth) obtained by dividing (A) the product obtained by multiplying the number of shares purchasable upon exercise of a Warrant prior to adjustment of the number of shares by the Warrant Price in effect prior to adjustment of the Warrant Price by (B) the Warrant Price in effect after such adjustment of the Warrant Price. SECTION 3.08. In case of any capital reorganization of the Company, or of any reclassification of the Common Stock (other than a reclassification of the Common Stock referred to in Section 3.01 hereof), or in the case of the consolidation of the Company with or the merger of the Company into any other coporation or of the sale, transfer, or lease of the properties and assets of the Company as, or substantially as, an entirety to any other corporation or other entity, each Warrant shall after such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, transfer, or lease, be exerciwsable, on the same terms and conditions specified in this Agreement, for the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares purchasable (at the time of such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, transfer, or lease) upon exercise of such Warrant would have been entitled upon such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, transfer, or lease; and in any such case, if necessary, the provisions set forth in this Article III with respect to the rights and interests thereafter of the holders of the Warrants shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock, other securities, assets, or cash thereafter deliverable on the exercise of the Warrants. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares shall not be deemed to be a reclassification of the Common Stock for the purposes of this subsection. The Company shall not effect any such consolidation, merger, transfer, or lease, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the -8- 9 Company) resulting from such consolidation or merger or the Corporation purchasing, receiving, or leasing such assets or other appropriate corporation or entity shall expressly assume, by written instrument in form satisfactory to the Underwriter, the obligation to deliver to the holder of each Warrant such shares of stock, securities, or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase and to perform the other obligations of the Company under this Agreement. SECTION 3.09. The Company may make such reductions in the Warrant Price, in addition to those required by this Article III, as it shall, in it sole discretion, determine to be advisable. ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF WARRANT HOLDERS SECTION 4.01. No Warrant Holder, as such, shall be entitled to vote or receive dividends or be deemed the holder of shares of Common Stock for any purposes, nor shall anything contained in any Warrant Certificate be construed to confer upon any Warrant Holder, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any action by the Company, whether upon any recapitalization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise, receive dividends or subscription rights, or otherwise, until in connection with the exercise of any Warrant, such Warrant shall have been surrendered and the purchase price or the shares of Common Stock for which such Warrant is being exercised shall have been received by the Warrant Agent; provided, however, that any such surrender and payment on any date when the stock transfer books of the Company shall be closed shall constitute the person or persons in whose name or names the certificate or certificates for those shares of Common Stock are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open and the Warrant surrendered shall not be deemed to have been exercised, in whole or in part, as the case maybe, until such next succeeding day on which stock transfer books are open. SECTION 4.02. The Company covenants and agrees that it shall contemporaneously provide to all Warrant Holders of record any publication, mailing or notice of an event which it shall provide to all of its shareholders of record and which event shall result in the adjustment to the Warrant Price as provided in Article III hereof. For purposes of this Section 4.02, the Warrant Holders of record shall be those Warrant Holders who are of record on a date even with the date chosen by the Company for the purpose of determining the shareholders of record who shall be entitled to receive such publication, mailing or notice. SECTION 4.03. If any Warrant Certificate is lost, stolen, mutilated or destroyed, the Company and the Warrant Agent may, on such terms as to indemnity or otherwise as they may in their discretion reasonably impose, which shall, in the case of a mutilated Warrant Certificate, include the surrender thereof, issue a new Warrant Certificate of like denomination and tenor as, and in substitution for, the Warrant Certificate so lost, stolen mutilated or destroyed. -9- 10 SECTION 4.04. (a) The Company covenants and agrees that at all times it shall reserve and keep available for the exercise of outstanding Warrants such number of authorized shares of Common Stock and the aggregate number and kind of any other securities which the Warrants are exercisable for, pursuant to the provisions of Article III hereof, as are sufficient to permit the exercise in full of such Warrants and that it will make available to the Warrant Agent from time to time a number of duly executed certificates representing shares of Common Stock and other securities, sufficient therefor. (b) The Company shall use its best efforts to secure the listing, upon official notice of issuance, of the shares of Common Stock issuable upon exercise of Warrants upon any securities exchange upon which the Common Stock becomes listed. (c) The Company covenants that all shares of Common Stock issued on exercise of Warrants shall be validly issued, fully paid, non-assessable and free of preemptive rights. (d) The Company has filed a Registration Statement on Form SB-2 (Registration No. 333- ) for the registration of, among other things, the sale of the Warrants and the shares of Common Stock issuable upon exercise thereof under the Securities Act of 1933, as amended (the "Act"). The Company shall use its best efforts to secure the effectiveness of the Registration Statement under the Act, and to register or qualify such Warrants and shares of Common Stock under the laws of any states in which the sale of the Warrants and shares of Common Stock was registered or qualified at the time of the Secondary Offering and shall use its reasonable good faith efforts to register and qualify such Warrants and shares of Common Stock in such additional states and jurisdictions as may be appropriate. The Company further agrees to use its best efforts to maintain the effectiveness of such Registration Statement and such state qualifications, as aforesaid, by the filing of any and all amendments to the Registration Statement and such state qualifications as may be required from time to time under the Act or the laws of the various states until the expiration or termination of all the Warrants in accordance herewith. (e) The Company will furnish to the Warrant Agent, upon request, an opinion of counsel satisfactory to the Warrant Agent to the effect that (i) a Registration Statement under the Act is then in effect with respect to the Warrants and shares of Common Stock issuable upon the exercise of the Warrants and that the prospectus included therein complies as to form in all material respects, (except as to financial statements, including schedules, and other accounting and financial data, as to which such counsel need express no opinion), with the requirements of the Act and the rules and regulations of the Commission thereunder; or a Registration Statement under the Act with respect to said shares of Common Stock is not required. In the event that said opinion states that such a Registration Statement is in effect, the Company will from time to time furnish the Warrant Agent with current prospectuses meeting the requirements of the Act and such rules and regulations in sufficient quantity to permit the Warrant Agent to deliver a prospectus ("Prospectus") to each Warrant Holder upon exercise thereof. The Company further agrees to pay all fees, costs and expenses in connection with the preparation and delivery to the Warrant Agent of the foregoing opinions and Prospectuses and the above mentioned registrations -10- 11 and other actions, and to immediately notify the Warrant Agent in the event that (i) the Commission shall have issued or threatened to issue any order preventing or suspending the use of any Prospectus; (ii) at any time any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) for any reason it shall be necessary to amend or supplement any Prospectus in order to comply with the Act. SECTION 4.05. If the number of shares purchasable upon the exercise of each Warrant is adjusted pursuant to Section 3.07 hereof, the Company shall not be required to issue fractions of shares upon exercise of the Warrants or to distribute share certificates which evidence fractional shares. In lieu of fractional shares, the Company, in its sole discretion, may pay to the registered holders of Warrant Certificates at the time such Warrants are exercised as herein provided an amount in cash equal to the same fraction of the current market value of a share. For purposes of this Section 4.05, the current market value of a share issuable upon the exercise of a Warrant shall be the closing price of a share of Common Stock, as determined pursuant to the second and third sentences of Section 3.04, for the trading day immediately prior to the date of such exercise. ARTICLE V TREATMENT OF WARRANT HOLDERS SECTION 5.01. Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the Warrant Holder as the absolute owner of such warrant, notwithstanding any notation of ownership or other writing thereon, for the purpose of any exercise thereof and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. ARTICLE VI CONCERNING THE WARRANT AGENT AND OTHER MATTERS SECTION 6.01. The Company will from time to time promptly pay, subject to the provisions of Section 2.02 (d) of this Agreement, all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of shares of Common Stock upon the exercise of Warrants. SECTION 6.02. (a) The Warrant Agent may resign and be discharged from its duties under this Agreement upon sixty (60) days notice in writing, mailed to the Company by registered or certified mail, and to each Warrant Holder. The Company may remove the Warrant Agent or any successor warrant agent upon sixty (60) days notice in writing, mailed to the Warrant Agent or successor Warrant Agent, as the case may be, by registered or certified mail, and to each Warrant Holder; provided, however, the Company shall appoint a new Warrant Agent as hereinafter provided and such removal shall not become effective until a successor Warrant -11- 12 Agent has been appointed and has accepted such appointment. If the Warrant Agent shall resign or shall otherwise become capable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of sixty (60) days after it has been notified in writing of such resignation or incapability by the Warrant Agent by a Warrant Holder, who shall, with such notice, submit his Warrant Certificate for inspection by the Company, then any Warrant Holder may apply to any court of competent jurisdiction or the appointment of a successor to the Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or by such a court shall be a registered transfer agent, bank or trust company, subject to the terms and conditions of this Section 6.02, in good standing and incorporated under the laws of any State of the United States, having its principal office in the United States of America. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed. The former Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it hereunder and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Failure to give any notice provided for in this Section, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. (b) Any corporation into which the Warrant Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Warrant Agent shall succeed to the agency created by this Agreement, any of the Warrant Certificates shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the original Warrant Agent and deliver such Warrant Certificates so countersigned, and in case at that time any of the Warrant Certificates shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrant Certificate in its own name or in the name of the successor Warrant Agent; and in all such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and this Agreement. In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under this prior name and deliver Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and in this Agreement. SECTION 6.03. The Company agrees to pay the Warrant Agent a reasonable fee for all services rendered by it hereunder. The Company also agrees to indemnify the Warrant Agent for, and to hold it harmless against, any loss, liability or expense, incurred without gross negligence, willful misconduct or bad faith on the part of the Warrant Agent, arising out of or in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. -12- 13 SECTION 6.04. The Company covenants and agrees that it shall, at the Company's expense, provide to the Warrant Agent copies of its current prospectus, if any, in such quantity as to enable the Warrant Agent to deliver one copy of such current prospectus to such Warrant Holder who shall exercise his rights under a Warrant. Notwithstanding anything else contained in this Section 6.04, the Company shall not be obligated to provide copies of its current prospectus for the purpose of allowing the Warrant Agent to deliver such copies to any Warrant Holder who delivers all of his redeemable warrants for redemption pursuant to Section 2.03 or who shall notice the Company of his intent to permit redemption of all of his Warrants pursuant to Section 2.03 herein or to any person who shall hold any Warrant subject to the terms of this Agreement after the earlier of the Redemption Date or the Last Exercise Date of the Warrants. SECTION 6.05. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Warrant certificates, by their acceptance thereof, shall be bound: (a) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, that fact or matter, unless other evidence in respect thereof be herein specifically prescribed, may be deemed to be conclusively proved and established by a certificate signed by the President or the Secretary of the Company and delivered to the Warrant Agent. That certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon that certificate. (b) The Warrant Agent shall be liable hereunder only for its own gross negligence, willful misconduct or bad faith. (c) The Warrant Agent shall not be liable for or by reason of any of the statements of fact or recitals continaed in this Agreement or in the Warrant Certificates, except its countersignature thereof, or b required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (d) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof, except the due execution hereof by the Warrant Agent, or in respect of the validity or execution of any Warrant Certificate, except its countersignature thereof; nor shall it be responsible for any Warrant Certificate; nor shall it be responsible for the adjustment of the Warrant Price or the making of any change in the number of shares of Common Stock required under the provisions of Article III of this Agreement or responsible for the manner, method or amount of any such change or the ascertaining of the existence of facts that would require any such adjustment or change except with respect to the exercise of Warrant Certificates after actual notice of any adjustment of the Warrant Price; nor shall it by any act under this Agreement be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Warrant Certificate or as to whether any share of Common Stock will when issued be validly issued, fully paid, non-assessable and free of preemptive rights. -13- 14 (e) The Warrant Agent and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrant Certificates or other securities of the Company to retain a pecuniary interest in any transaction in which the Company may be interested or contract with or lend money to or otherwise act as fully and freely as though it was not the Warrant Agent or subject to this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (f) The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any officer or assistant officer of the Company, and to apply to any such officer or assistant officer for advice or instructions in connection with its duties, and shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer or assistant officer. (g) The Warrant Agent may consult with its counsel or other counsel satisfactory to it, including counsel for the Company, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, offered, or omitted by it hereunder in good faith and in accordance with the opinion of such counsel. (h) The Warrant Agent shall incur no liability to the Company or to any holder of any Warrant for any action taken by it in reliance upon any Warrant Certificate or certificate for Common Stock, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed, and where necessary, certified or acknowledged, by the proper person or persons. SECTION 6.06. The Warrant Agent may, without the consent or concurrence of the Warrant Holders, by supplemental agreement or otherwise, concur with the Company in making any changes or corrections in this Agreement that (i) it shall have been advised by counsel, who may be counsel for the Company, are required to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error herein contained, or (ii) as provided in Section 3.09, the Company deems necessary of advisable and which shall not be inconsistent with the provisions of the Warrant Certificates, provided such changes or corrections do not adversely affect the privileges or immunities of the Warrant Holders. SECTION 6.07. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 6.08. Forthwith upon the appointment after the date thereof of any transfer agent for the Common Stock, or of any subsequent transfer agent for the Common Stock, the Company will file with the Warrant Agent a statement setting forth the name and address of such transfer agent. SECTION 6.09. Notice or demand pursuant to this Agreement to be given or made by the Warrant Agent or by any Warrant Holder to or on the Company shall be sufficiently given or made and effective on the third business day after posting thereof, unless otherwise -14- 15 provided in this Agreement, if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent) as follows: Karts International Incorporated 109 Northpark Boulevard, suite 210 Covington, Louisiana 70433 Attn: V. Lynn Graybill, President notice or demand pursuant to this Agreement to be given or made by the Company or any Warrant Holder to or on the Warrant Agent shall be sufficiently given or made and effective on the third business day after posting thereof, unless otherwise provided in this Agreement, if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company) as follows: Securities Transfer Corporation 16910 Dallas Parkway, Suite 100 Dallas TX 75248 Attn: Compliance Department notice or demand pursuant to this Agreement to be given or made by the Company or the Warrant Agent to or on the Underwriter shall be sufficiently given or made and effective on the third business day after posting thereof, unless otherwise provided in this Agreement, if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Underwriter with the Company) as follows: Argent Securities, Inc. 3340 Peachtree Street, Suite 450 Atlanta, Georgia 30326 Attn: L. Phillips Reames notice or demand pursuant to this Agreement to be given or made by the Company or the Warrant Agent to or on any Warrant Holder shall be sufficiently given or made and effective on the third business day after posting thereof, unless otherwise provided in this Agreement, if sent by first-class mail, postage prepaid, addressed to such Warrant Holder at his last known address as it shall appear in the records of the Company, if such notice shall be given by the Company, or, if such notice shall be given by the Warrant Agent, as it shall appear on the register maintained by the Warrant Agent. A copy of any Notice or demand given or made pursuant to this Agreement on the Warrant Agent, Company or Underwriter shall be promptly forwarded by the recipient thereof to each of the Company, Warrant Agent or Underwriter who shall not have received or made such demand or Notice. SECTION 6.10. The validity, interpretation and performance of this Agreement and the Warrants shall be governed by the law of the State of Nevada. SECTION 6.11. Nothing in this Agreement shall be construed to give to any person or corporation other than the parties hereto and the Warrant Holders any right, remedy or claim -15- 16 under promise or agreement hereof. All covenants, conditions, stipulations, promises and agreements contained in this Agreement shall be for the sole and exclusive benefit of the Company and the Warrant Agent and their successors and of the Warrant Holders, and their heirs, representatives, successors, assigns and transferees. SECTION 6.12. A copy of this Agreement shall be available for inspection by any Warrant Holder during the regular business hours and at the corporate office of the Warrant Agent in Dallas, Texas, at which time the Warrant Agent may require any Warrant Holder to submit his Warrant Certificate for inspection by it. SECTION 6.13. This Agreement shall terminate on the Last Exercise Date, or such earlier date upon which all Warrants have been exercised or redeemed, except that the Warrant Agent shall account to the Company pursuant to Section 2.02 (e) of this Agreement for all cash held by it. The provisions of Section 6.03 and 6.04 of this Agreement shall survive such termination. SECTION 6.14. The Article headings in this Agreement are for convenience only and are not part of this Agreement and shall not affect the interpretation thereof. SECTION 6.15. This Agreement may be executed in any number counterparts, each of which is so executed shall be deemed to be an original, and all such counterparts shall together constitute but one and the same agreement. ATTEST: KARTS INTERNATIONAL INCORPORATED By: --------------------------------- V. Lynn Graybill, President and Chief Executive Officer ATTEST: SECURITIES TRANSFER CORPORATION By: --------------------------------- Name: ------------------------------- Title: ------------------------------ -16- DRAFT V.02 March 24, 1997 EX-4.4 14 FORM OF REDEEMABLE COMMON STOCK 1 EXHIBIT 4.4 WARRANT TO PURCHASE SHARES OF COMMON STOCK OF KARTS INTERNATIONAL INCORPORATED NOVEMBER 15, 1996 THE WARRANTS ARE BEING ISSUED PURSUANT TO THE COMPANY'S PRIVATE OFFERING (THE "OFFERING") OF UNITS, THE TERMS OF WHICH ARE MORE PARTICULARLY SET FORTH IN THAT CERTAIN CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM DATED OCTOBER 28, 1996. THE OFFERING PROVIDES THAT THE COMPANY WILL ISSUE AN AGGREGATE OF 250,000 WARRANTS TO PURCHASE AN AGGREGATE OF 250,000 SHARES OF COMMON STOCK. THIS WARRANT AND THE SHARES OF COMMON STOCK OF KARTS INTERNATIONAL INCORPORATED TO BE ISSUED UPON ANY EXERCISE OF THE WARRANT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED OR OFFERED FOR SALE OR TRANSFER UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS WITH RESPECT TO SUCH SECURITIES IS THEN IN EFFECT, OR IN THE OPINION OF COUNSEL, SUCH REGISTRATION UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS IS NOT REQUIRED. This certifies that, for value received, ____________________________ and any subsequent transferee pursuant to the terms of the Agreement (as defined below) of even date and this Warrant (each, a "Holder") is entitled to purchase, subject to the provisions of this Warrant, from Karts International Incorporated, a Nevada corporation (the "Issuer"), at any time or from time to time on or after the date hereof and on or before _________________, 2000 (the "Expiration Date"), _______________________ (_______________) fully paid and nonassessable shares of common stock (the "Common Stock"), of the Issuer at an exercise price of ____________________ and No/100 Dollars ($__________) per share, subject to adjustment pursuant to the terms hereunder (the "Exercise Price") (such shares of Common Stock and other securities issued and issuable upon exercise of this Warrant, the "Warrant Shares"). Section 1. Definitions. Except as otherwise specified herein, terms defined herein shall have the meanings assigned to them in the Issuer's Confidential Private Placement Memorandum, dated October 28, 1996 (the "Memorandum"), and the Subscription Agreement, Questionnaire and Investment Representation by and between the Issuer and Holder (with the "Memorandum" being collectively referred to herein as the "Agreement"). Section 2. Exercise of Warrant. (a) Subject to the provisions hereof, this Warrant may be exercised, in whole or in part, but not as to a fractional share, at any time or from time to time on or after the date hereof and on or before the Expiration Date, by presentation and surrender hereof to the Issuer at the address which, in accordance with the provisions of Section 9 hereof, is then effective for notices to the Issuer, with the Election to Purchase Form annexed hereto as SCHEDULE ONE, duly executed and accompanied by payment to the Issuer as further set forth below in this Section 2, for the - 1 - 2 account of the Issuer, of the Exercise Price for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Issuer shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder hereof to purchase the balance of the Warrant Shares purchasable hereunder. The Issuer shall maintain at its principal place of business a register for the registration of this Warrant and registration of transfer of this Warrant. The Exercise Price for the number of Warrant Shares specified in the Election to Purchase Form shall be payable in United States Dollars by certified or official bank check payable to the order of the Issuer or by wire transfer of immediately available funds to an account specified by the Issuer for that purpose. (b) Unless otherwise registered pursuant to an effective registration statement filed with the United States Securities and Exchange Commission (the "Commission"), certificates representing Warrant Shares shall bear the following restrictive legend: "The securities evidenced by this certificate may not be offered or sold, transferred, pledged, hypothecated or otherwise disposed of except (i) pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under the Act relating to the disposition of securities) or (iii) if an exemption from registration under such Act is available. Notwithstanding the foregoing, the securities to be issued upon exercise of this Warrant are subject to the registration rights set forth in that certain Registration Rights Agreement by and between the Holder hereof and the Issuer, a copy of which is on file at the Company's principal executive office." Section 3. Reservation of Shares; Preservation of Rights of Holder. The Issuer hereby agrees that there shall be reserved for issuance and/or delivery upon exercise of this Warrant, such number of Warrant Shares as shall be required for issuance or delivery upon exercise of this Warrant. The Warrant surrendered upon exercise shall be canceled by the Issuer. After the Expiration Date, no shares of Common Stock shall be subject to reservation is respect of this Warrant. The Issuer further agrees (i) that it will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observation or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Issuer, (ii) promptly to take such action as may be required of the Issuer to permit the Holder to exercise this Warrant and the Issuer duly and effectively to issue shares of its Common Stock or other securities as provided herein upon the exercise hereof, and (iii) promptly to take all action required or provided herein to protect the rights of the Holder granted hereunder against dilution. Without limiting the generality of the foregoing, should the Warrant Shares at any time consist in whole or in part of shares of capital stock having a par value, the Issuer agrees that before taking any action which would cause an adjustment of the Exercise Price so that the same would be less than the then par value of such Warrant Shares, the Issuer shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Issuer may validly and legally issue fully paid and nonassessable shares of such Common Stock at the Exercise Price as so adjusted. The Issuer further agrees that it will not establish a par value for its Common Stock while this Warrant is outstanding in an amount greater than the Exercise Price. Section 4. Exchange, Transfer, Assignment or Loss of Warrant. Any attempted transfer of this Warrant, the Warrant Shares or any new Warrant not in accordance with this Section shall be null and void, and the Issuer shall not in any way be required to give effect to such transfer. No transfer of -2- 3 this Warrant shall be effective for any purpose hereunder until (i) written notice of such transfer and of the name and address of the transferee has been received by the Issuer, and (ii) the transferee shall first agree in a writing deposited with the Secretary of the Issuer to be bound by all the provisions of this Warrant and the Agreement. Upon surrender of this Warrant to the Issuer by any transferee authorized under the provisions of this Section 4, the Issuer shall, without charge, execute and deliver a new Warrant registered in the name of such transferee at the address specified by such transferee, and this Warrant shall promptly be canceled. The Issuer may deem and treat the registered holder of any Warrant as the absolute owner thereof for all purposes, and the Issuer shall not be affected by any notice to the contrary. Any Warrant, if presented by an authorized transferee, may be exercised by such transferee without prior deliver of a new Warrant issued in the name of the transferee. Upon receipt by the Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Issuer will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute a separate contractual obligation on the part of the Issuer, whether or not the Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. Section 5. Rights of Holder. Neither a Holder nor his transferee by devise of the laws of descent and distribution or otherwise shall be, or have any rights or privileges of, a shareholder of the Issuer with respect to any Warrant Shares, unless and until certificates representing such Warrant Shares shall have been issued and delivered thereto. Section 6. Adjustments in Exercise Price and Warrant Shares. The Exercise Price and Warrant Shares shall be subject to adjustment from time to time only as provided in this Section 6. (a) If the Issuer is recapitalized through the subdivision or combination of its outstanding shares of Common Stock into a larger or smaller number of shares, the number of shares of Common Stock for which this Warrant may be exercised shall be increased or reduced, as of the record date for such recapitalization, in the same proportion as the increase or decrease in the outstanding shares of Common Stock, and the Exercise Price shall be adjusted so that the aggregate amount payable for the purchase of all Warrant Shares issuable hereunder immediately after the record date for such recapitalization shall equal the aggregate amount so payable immediately before such record date. (b) If the Issuer declares a dividend on Common Stock, or makes a distribution to holders of Common Stock, and such dividend or distribution is payable or made in Common Stock or securities convertible into or exchangeable for Common Stock, or rights to purchase Common Stock or securities convertible into or exchangeable for Common Stock, the number of shares of Common Stock for which this Warrant may be exercised shall be increased, as of the record date for determining which holders of Common Stock shall be entitled to receive such dividend or distribution, in proportion to the increase in the number of outstanding shares (and shares of Common Stock issuable upon conversion of all such securities convertible into Common Stock) of Common Stock as a result of such dividend or distribution, and the Exercise Price shall be adjusted so that the aggregate amount payable for the purchase of all the Warrant Shares issuable hereunder immediately after the record date for such dividend or distribution shall equal the aggregate amount so payable immediately before such record date. (c) If the Issuer declares a dividend on Common Stock (other than a dividend covered by subsection (b) above) or distributed to holders of its Common Stock, other than as part of its dissolution or liquidation or the winding up of its affairs, any shares of its capital stock, any evidence of indebtedness or any cash or other of its assets (other than Common Stock or -3- 4 securities convertible into or exchangeable for Common Stock), the Holder shall receive notice of such event as set forth in Section 8 below. (d) In case of any consolidation of the Issuer with, or merger of the Issuer into, any other corporation (other than a consolidation or merger in which the Issuer is the continuing corporation and in which no change occurs in its outstanding Common Stock), or in case of any sale or transfer of all or substantially all of the assets of the Issuer, the corporation formed by such consolidation or the corporation resulting from such merger or the corporation which shall have acquired such assets of the Issuer, as the case may be, shall execute and deliver to the Holder simultaneously therewith a new Warrant, satisfactory in form and substance to the Holder, together with such other documents as the Holder may reasonably request, entitling the Holder thereof to receive upon exercise of such Warrant the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale or transfer, or upon the dissolution following such sale or other transfer, by a holder of the number of shares of Common Stock purchasable upon exercise of this Warrant immediately prior to such consolidation, merger, sale or transfer. Such new Warrant shall contain the same basic other terms and conditions as this Warrant and shall provide for adjustments which, for events subsequent to the effective date of such written instrument, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this paragraph (d) shall similarly apply to successive consolidations, mergers, sales or other transfers covered hereby. (e) If the Issuer shall, at any time before the expiration of this Warrant, dissolve, liquidate or wind up its affairs, the Holder shall, upon exercise of this Warrant have the right to receive, in lieu of the shares of Common Stock of the Issuer that the Holder otherwise would have been entitled to receive, the same kind and amount of assets as would have been issued, distributed or paid to the Holder upon any such dissolution, liquidation or winding up with respect to such shares of Common stock of the Issuer had the Holder been the holder of record of such shares of Common Stock receivable upon exercise of this Warrant on the date for determining those entitled to receive any such distribution. If any such dissolution, liquidation or winding up results in any cash distribution in excess of the Exercise Price provided by this Warrant for the shares of Common Stock receivable upon exercise of this Warrant, the Holder may, at the Holder's option, exercise this Warrant without making payment of the Exercise Price and, in such case, the Issuer shall, upon distribution to the Holder, consider the Exercise Price to have been paid in full and, in making settlement to the Holder, shall obtain receipt of the Exercise Price by deducting an amount equal to the Exercise Price for the shares of Common Stock receivable upon exercise of this Warrant from the amount payable to the Holder. For purposes of this paragraph, the sale of all or substantially all of the assets of the Issuer and distribution of the proceeds thereof to the Issuer's shareholders shall be deemed a liquidation. (f) The term "Common Stock" shall mean the Common Stock of the Issuer as the same exists at the Closing Date of the Offering or as such stock may be constituted from time to time, except that for the purpose of this Section 6, the term "Common Stock" shall include any stock of any class of the Issuer which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Issuer and which is not subject to redemption by the Issuer. (g) Whenever the number of Warrant Shares or the Exercise Price shall be adjusted as required by the provisions of this Section 6, the Issuer forthwith shall file in the custody of its secretary or an assistant secretary, at its principal office, and furnish to each Holder hereof, a certificate showing the adjusted number of Warrant Shares and the Exercise Price and setting forth in reasonable detail the circumstances requiring the adjustments. -4- 5 (h) Notwithstanding any other provision, this Warrant shall be binding upon and inure to the benefit of any successors and assigns of the Issuer. (i) No adjustment in the Exercise Price in accordance with the provisions of this Section 6 need be made if such adjustment would amount to a change in such Exercise Price of less than $0.25 (25 cents); provided, however, that the amount by which any adjustment is not made by reason of the provisions of this paragraph (i) shall be carried forward and taken into account at the time of any subsequent adjustment in the Exercise Price. (j) If an adjustment is made under this Section 6 and the event to which the adjustment relates does not occur, then any adjustments in accordance with this Section 6 shall be readjusted to the Exercise Price and the number of Warrant Shares which would be in effect had the earlier adjustment not been made. Section 7. Taxes on Issue or Transfer of Common Stock and Warrant. The Issuer shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock or other securities on the exercise of this Warrant. The Issuer shall not be required to pay any tax which may be payable in respect of any transfer of this Warrant or in respect of any transfers involved in the issue or delivery of shares or the exercise of this Warrant in a name other than that of the Holder and the person requesting such transfer, issue or delivery shall be responsible for the payment of any such tax (and the Issuer shall not be required to issue or deliver said shares until such tax has been paid or provided for). Section 8. Notice of Adjustment. So long as this Warrant shall be outstanding, (a) if the Issuer shall propose to pay any dividends or make any distribution upon the Common Stock, or (b) if the Issuer shall offer generally to the holders of Common Stock the right to subscribe to or purchase any shares of any class of Common Stock or securities convertible into Common Stock or any other similar rights, or (c) if there shall be any proposed capital reorganization of the Issuer in which the Issuer is not the surviving entity, recapitalization of the capital stock of the Issuer, consolidation or merger of the Issuer with or into another corporation, sale, lease or other transfer of all or substantially all of the property and assets of the Issuer, or voluntary or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if the Issuer shall give to its stockholders any notice, report or other communication respecting any significant or special action or event, then in such event, the Issuer shall give to the Holder, at least thirty (30) days prior to the relevant date described below (or such shorter period as is reasonably possible if thirty days is not reasonably possible), a notice containing a description of the proposed action or event and stating the date or expected date on which a record of the Issuer's shareholders is to be taken for any of the foregoing purposes, and the date or expected date on which any such dividend, distribution, subscription, reclassification, reorganization, consolidation, combination, merger, conveyance, sale, lease or transfer, dissolution, liquidation or winding up is to take place and the date or expected date, if any is to be fixed, as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such event. Section 9. Notice. Any notice to be given or to be served upon any party in connection with the Debentures must be in writing and will deemed to have been given and received upon confirmed receipt, if sent by facsimile, or two (2) days after it has been submitted for delivery by Federal Express or an equivalent carrier, charges prepaid and addressed to the following addresses with a confirmation of delivery: If to the Issuer, to: Karts International Incorporated 109 Northpark Boulevard, Suite 210 Covington, Louisiana 70433 -5- 6 If to the Holder, to: The Holder at the address as set forth in the Subscription Documents executed by Holder in connection with the Offering Any party may, at any time by giving notice to the other party, designate any other address in substitution of an address established pursuant to the foregoing to which such notice will be given. Section 10. Choice of Law; Conflict of Law; Jurisdiction and Venue. Except as otherwise expressly provided herein, the terms, conditions and enforceability of this Warrant shall be governed by and interpreted under the laws of the State of Texas. Any claim, dispute or disagreement relating to the terms and conditions of this Warrant, or arising from this Warrant, or the subject matter of this Warrant, may be brought only in the Courts of Dallas County in the State of Texas or in the United States District Court for the Northern District of Texas, which shall have exclusive jurisdiction thereof. The parties to this Warrant consent to such jurisdiction and venue and hereby knowingly and voluntarily waive all objections thereto on the basis of lack of personal jurisdiction, venue or convenience. Date: , 1996 ---------------- KARTS INTERNATIONAL INCORPORATED By: ----------------------------------- V. Lynn Graybill Chairman of the Board, President and Chief Executive Officer ATTEST: - -------------------------------- Timothy P. Halter, Secretary -6- 7 SCHEDULE ONE ELECTION TO PURCHASE The undersigned hereby irrevocably elects to exercise this Warrant and to purchase ____________________ shares of Karts International Incorporated Common Stock issuable upon the exercise of this Warrant, and requests that certificates for such shares be issued in the name of: ________________________________________________________________________________ (Name) ________________________________________________________________________________ (Address) ________________________________________________________________________________ (United States Social Security or other taxpayer identifying number, if applicable) and, if different from above, be delivered to: ________________________________________________________________________________ (Name) ________________________________________________________________________________ (Address) and, if the number of Warrant Shares so purchased are not all of the Warrant Shares issuable upon exercise of this Warrant, that a Warrant to purchase the balance of such Warrant Shares be registered in the name of, and delivered to, the undersigned at the address stated below. Date:______________________________________ Name of Registered Owner:______________________________________________________ ________________________________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________________ Signature:______________________________________________________________________ -7- EX-4.5 15 FORM OF COMMON STOCK PURCHASE WARRANT 1 EXHIBIT 4.5 SUBSCRIPTION AGREEMENT Karts International Incorporated 109 North Park Boulevard, Suite 210 Covington, Louisiana 70433 Gentlemen: The undersigned (the "Investor") hereby subscribes for _______________ investment unit(s) ("Units") in Karts International Incorporated (the "Corporation"), a Nevada corporation, at an offering price of $3.50 each, with each Unit consisting of (i) one (1) share of common stock and (ii) twenty (20) Class A Warrants, each Class A Warrant to purchase one share of common stock at a price of $3.50 per share for a period of 3 months after the close of the Private Offering. 1. Subscription Payment. As full payment for this subscription, simultaneously with the execution hereof the Investor is delivering his/her/its check payable to the order of the Corporation in the amount set forth in paragraph 13 below. 2. Representations of the Investor. The Investor hereby represents and warrants to the Corporation as follows: 2.1 Investment Intent. The Units purchased by the Investor are being acquired for investment for such Investor's own account, not as a nominee or agent, and not for resale or with a view to the distribution of any part thereof. 2.2 Suitability as an Investor. The Investor, together with its or his investment advisor, if any, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of an investment in the Units; the Investor has the ability to bear the risk of loss of the Investor's entire investment in the Corporation; the Investor's investment in the Units does not represent a material investment when compared to the Investor's total financial capacity; and the Investor has the capacity to protect the Investor's own interests in connection with the transactions contemplated by this Agreement. 2.3 Nature of Investment. The Investor hereby acknowledges his understanding that the Units are not being registered or qualified under the Securities Act of 1933, as amended (the "Act"), or any state securities laws, on the grounds that the issuance and sale of the Units to the Investor is exempt under Section 4(2) of the Act and/or Regulation D promulgated 2 thereunder as not involving a public offering, and that there will be no public market for the Units or the underlying securities comprising the Unit, other than sale and issuance to New York residents, to which a qualified exemption exists. The Investor is aware that the Units and the underlying securities must be held indefinitely unless they are subsequently registered or an exemption from such registration is available and that the Corporation is under no obligation to register the Units or the underlying securities or take any step to enable it to secure or an exemption from registration, nor does it presently have any intention to do so. However, as of the date hereof, such an exemption presently exists under Rule 504 of Regulation D. 2.4 Requisite Authority. All action on the part of the Investor necessary for the acquisition of the Units and the consummation of the transactions contemplated herein has been duly and validly taken, and this Agreement is a valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights and by equitable principles of general application which may limit the availability of certain equitable remedies, such as specific performance. 2.5 Risk Factors. The Investor is aware of and understands the high degree of risk associated with an investment in the Corporation. 2.6 Full Access to Information. The Investor (i) has had the full opportunity to ask questions of, and receive answers from, the Corporation (or its executive officers and other persons acting on its behalf) regarding the terms and conditions of the offering and this Agreement, the Units and any other documents and materials delivered to it, and the transactions contemplated thereby, as well as the business, operations and affairs of the Corporation and related matters, (ii) has not relied on any information in connection with this investment other than that provided to it in writing by the Corporation or contained in its books and records, and (iii) has had all such questions answered and all such review concluded to the Investor's full satisfaction. 2.7 Corporate Entity. If the Investor is an entity such as a corporation, partnership or trust, (i) it is authorized and otherwise duly qualified to purchase and hold Units in the Corporation, has its principal place of business as set forth on the signature page hereof, (ii) has not been formed for the specific purpose of acquiring Units in the Corporation unless all of its equity owners qualify as accredited individual investors, and (iii) the individual signing the Agreement on such entity's behalf is duly authorized to sign this Agreement. 3. Representations of the Corporation. The Corporation hereby represents and warrants to the Investor that: 3.1 Due Authorization. The execution, delivery and performance by the Corporation of this Agreement has been duly authorized by all required corporate action on the part of the Corporation. The Units have been duly authorized and, upon the execution and delivery of this Agreement by the Investor and the Corporation, the shares of Common Stock comprising the Units shall be validly issued, fully paid and non-assessable and the shares of Common Stock underlying the Warrants, when paid for in accordance with the terms thereof, shall be validly issued, fully paid and non-assessable. 2 3 3.2 Organization and Authority. The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has all requisite corporate power and authority to own its properties and to carry on its business as currently conducted. 3.3 No Violations. The Corporation is not in violation or default under, nor will its execution, delivery and performance of this Agreement result in a violation of or constitute a default under, its Certificate of Incorporation or By-Laws or any material instrument of indebtedness, mortgage or security agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except such violations or defaults which would not have a material adverse effect on its business or financial condition. 4. Indemnification. The Investor agrees to indemnify and hold harmless the Corporation and its officers, directors, employees, representatives, agents and affiliates against any and all loss, liability, claim damage and expense whatsoever (including, but not limited to, any and all expenses reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation or warranty or breach of a representation or warranty or failure by the Investor to comply with any covenant or agreement made by the Investor herein or in any other document furnished by the Investor to the Corporation in connection with this transaction. 5. Survival of Representations, Warranties or Covenants. The representations, warranties, and covenants contained herein shall survive the delivery of, and payment for, the Units and the consummation of the transactions contemplated hereby. 6. Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been given, if mailed by certified mail, return receipt requested, or delivered against receipt of the party to whom it is to be given (a) if to the Corporation, at the address set forth above, or (b) if to the Investor, at the address set forth on the signature page hereof (or, in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 6). Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof except for a notice changing a party's address, which shall be deemed given at the time of receipt thereof. 7. Unenforceability. If any provision of this Agreement, or portion hereof, shall be held invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall attach only to such provision, or portion thereof, and shall not in any manner affect or render invalid or unenforceable any other provision, or portion thereof. 8. Further Assurances. Each party hereto shall cooperate and shall take such further action and shall execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. 9. Execution in Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same agreement. 3 4 10. Governing Law. Except to the extent that the Nevada General Corporation Law shall be applicable with respect to matters relating to the internal corporate affairs of the Corporation, this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed wholly within the State of New York. 11. Jurisdiction. The Investor hereby consents and submits to the exclusive jurisdiction of the courts of the State of New York in New York City and of the Federal courts located in the Southern District of New York with respect to any action, dispute or controversy relating to this Agreement or the Units. The Investor also hereby waives personal service of any and all process upon the Investor, and agrees that all such service of process may be made by registered mail directed to the Investor at the address provided in Section 6 hereof and that service so made shall be deemed to be completed three (3) business days after the same shall have been deposited in the United States mails, postage prepaid. The Investor and the Corporation waive trail by jury and waive any objection to venue of any action instituted hereunder and consent to the granting of such legal or equitable relief as is deemed appropriate by the court. 12. Headings. The section and other headings contained herein are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. (Intentionally Blank) 4 5 13. Subscription and Method of Payment. The Investor hereby subscribes for _______________ Units at $3.50 per Unit for an aggregate price of $_________________, and encloses a certified check or money order payable to "Karts International Incorporated" in the amount of $_______________. __________________________________________ Signature of Investor __________________________________________ Print or Type Name __________________________________________ Title, if applicable Address of Investor: __________________________________________ __________________________________________ Taxpayer Identification or Social Security Number of Investor: __________________________________________ The foregoing subscription is hereby accepted by the Corporation this ______ day of ___________, 1996 for _____________ Unit(s). KARTS INTERNATIONAL INCORPORATED __________________________________________ V. Lynn Graybill, President 5 EX-4.6 16 CERTIFICATE OF DESIGNATION 1 EXHIBIT 4.6 KARTS INTERNATIONAL INCORPORATED (A NEVADA CORPORATION) -------------------------------- CERTIFICATE OF DESIGNATION (PURSUANT TO THE PROVISIONS OF SECTION 78.1955 OF THE GENERAL CORPORATION LAW OF THE STATE OF NEVADA) It is hereby certified that: 1. The name of the corporation is KARTS INTERNATIONAL INCORPORATED (the "Corporation"). 2. Set forth hereinafter is a copy of a resolution, dated October 22, 1996, containing a statement of the voting powers, preferences, limitations, restrictions, and relative rights of the series of stock hereinafter designated, adopted by the Board of Directors of the Corporation, pursuant to a provision of the articles of incorporation relating to the issuance of said series of stock by resolution of the Board of Directors: BE IT RESOLVED that, pursuant to the authority expressly granted and vested in the Board of Directors of the Corporation in accordance with Article Fourth of the Corporation's Articles of Incorporation, authorizing 10,000,000 shares of blank check preferred stock (the "Preferred Stock"), $0.001 par value per share, the Board of Directors of the Corporation does hereby approve and adopt the following resolutions designating and authorizing for issuance, in accordance with the applicable provisions of the General Corporation Law of the State of Nevada (the "NGCL"), the Convertible Preferred Stock (as hereinafter defined) of the Corporation, said resolutions hereby effected being prior to the issuance of any shares of Convertible Preferred Stock. "Convertible Preferred Stock" shall mean Preferred Stock consisting of 25 shares, each having a par value of $0.001 per share, and each of which shares of Convertible Preferred Stock shall have the dividend rights, voting powers, redemption provisions, liquidation preferences and the relative, optional or other special rights, and shall be subject to the qualifications, limitations or restrictions set forth below and the remaining 9,975,000 authorized shares of the Preferred Stock shall remain undesignated and reserved for future issuance subject to the future action of the Board of Directors of the Corporation. Rights and Preferences of Convertible Preferred Stock 1. Dividends. The holders of Convertible Preferred Stock shall not be entitled to receive any dividends on their shares of Convertible Preferred Stock. 2. Voting Rights and Notice of Meetings. The holders of the Convertible Preferred Stock shall have no right or power whether authorized by the NGCL or otherwise to vote on any matter or in any proceeding or to be represented at or to receive notice of any meeting of the shareholders of the Corporation. 3. Conversion. (a) Right of Corporation. At the completion of the Public Offering (as hereinafter defined), the Corporation shall have the option to require the holders of the Convertible Preferred Stock to convert the Convertible Preferred Stock into either (a) $25,000 and 6,250 shares of Common Stock ("Option One"), or (b) 12,500 shares of Common Stock ("Option Two"). -1- 2 The Corporation will use its best efforts to FILE with the Securities and Exchange Commission (the "Commission") within 180 days after the closing date (the "Closing Date") of its private offering of securities pursuant to that certain Confidential Private Placement Memorandum, dated October 28, 1996 (the "Memorandum") a registration statement (the "Initial Registration Statement") under the Securities Act of 1933, as amended (the "Act"), related to its proposed public offering and sale of securities of the Corporation (the "Public Offering"). If for any reason the Company does not complete the Public Offering within one year after the Closing Date, each share of Preferred Stock will be automatically converted into 12,500 shares of Common Stock. (b) Surrender of Shares. On or after the date fixed for conversion, each holder of Convertible Preferred Stock converted shall surrender such holder's certificates for such shares of Convertible Preferred Stock to the Corporation at the place designated in the Conversion Notice and shall thereupon be entitled to receive the consideration set forth in paragraph (a) of this Section 3 (the "Conversion Consideration"). (c) Cancellation of Redeemed Shares. All shares of Convertible Preferred Stock that are converted shall be canceled and such shares shall be restored to the status of authorized but unissued shares of Preferred Stock. (d) Payment of Taxes on Conversion of Convertible Preferred Stock. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of the Conversion Consideration on conversion of shares of Convertible Preferred Stock pursuant hereto. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that in which the shares of Convertible Preferred Stock so converted were registered and no such issue or delivery shall be made unless and until the person requesting it has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. (e) Reservation of Sufficient Common Stock. So long as any shares of Convertible Preferred Stock shall remain outstanding and the holders thereof shall have the right to convert said shares in accordance with the provisions of this Section 3, the Corporation will at all times reserve from the authorized and unissued shares of its Common Stock a sufficient number of shares to provide for such conversions, and will take such other corporate action as may be necessary from time to time in order that it may validly and legally issue fully-paid and non-assessable shares of such Common Stock upon conversion of the Convertible Preferred Stock. (f) Definition of Common Stock. In each case where reference is made to the Common Stock of the Corporation in this Section, unless a different intention is expressed, such reference is to the class of Common Stock of the Corporation as such class of stock exists at the date of the adoption of these provisions, or stock into which the same may be changed from time to time. 4. Liquidation Rights. (a) Liguidation Preference Amount. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the business or affairs of the Corporation, and after payment of, or adequate provision for payment of, the debts, liabilities and other claims of the Corporation as determined by its Board of Directors, each holder of the Convertible Preferred Stock shall be entitled to receive, out of the remaining net assets of the Corporation legally available for distribution to its shareholders, before any payment or distribution shall be made on the Common Stock, or on any other class of stock of the Corporation ranking junior to the shares of Convertible Preferred Stock upon liquidation, the amount of Twenty-Five Thousand and No/100 Dollars ($25,000) per share of Convertible Preferred Stock. -2- 3 (b) Proportionate Distribution Where Assets Insufficient. In the event the assets of the Corporation available for distribution to the holders of shares of Convertible Preferred Stock upon dissolution, liquidation or winding up of the Corporation whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section, no such distribution shall be made on account of any shares of any class of capital stock of the Corporation ranking on a parity with the shares of Convertible Preferred Stock upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of Convertible Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (c) Nonparticipation Right. After the payment to the holders of the shares of Convertible Preferred Stock of the full preferential amounts provided for in either paragraph (a) or (b) of this Section, as applicable, the holders of Convertible Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. (d) Excluded Transactions. Neither the consolidation nor merger of the Corporation with or into any other corporation, nor the sale, mortgage, exchange or conveyance of all or substantially all of the properties, assets or business of the Corporation, nor any liquidation, dissolution or winding up of the Corporation occurring substantially concurrently with any such transaction shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning hereof, unless otherwise determined by the Board of Directors of the Corporation. 5. No Preemptive Rights. No holder of shares of the Convertible Preferred Stock shall, as such holder, have any preemptive right to subscribe to or purchase any shares of any class of capital stock of the Corporation now or hereafter authorized or issued, whether or not exchangeable for any capital stock of the Corporation of any class or classes now or hereafter authorized or issued; nor shall any holder of shares of the Convertible Preferred Stock, as such holder, have any right to purchase, acquire or subscribe for any securities which the Corporation may issue or sell whether or not convertible into or exchangeable for shares of capital stock of the Corporation of any class or classes, and whether or not any such securities have attached or appurtenant thereto warrants, options or other instruments which entitle the holders thereof to purchase, acquire or subscribe for shares of capital stock of any class or classes of the Corporation. 6. Covenants of the Corporation. The Corporation will not, by amendment to its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the preferences and limitations of Convertible Preferred Stock to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions set forth herein relating to Convertible Preferred Stock and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Convertible Preferred Stock against dilution or other impairment. EXECUTED ON 1996. ----------- KARTS INTERNATIONAL INCORPORATED By: /s/ V. LYNN GRAYBILL ------------------------------ V. Lynn Graybill, President By: /s/ TIMOTHY P. HALTER ------------------------------ Timothy P. Halter, Secretary -3- 4 STATE OF ) ) COUNTY OF ) On , 1996, personally appeared before me, a Notary Public, for the State and County aforesaid, V. Lynn Graybill, as President of Karts International Incorporated, who acknowledged that he executed the above instrument. ------------------------------------ NOTARY PUBLIC, State of Louisiana STATE OF ) ) COUNTY OF ) On , 1996, personally appeared before me, a Notary Public, for the State and County aforesaid, Timothy P. Halter, as Secretary of Karts International Incorporated, who acknowledged that he executed the above instrument. /s/ MICHELLE TITUS ------------------------------------ NOTARY PUBLIC, State of Texas -4- EX-4.7 17 SPECIMEN - CONVERTIBLE PREFERRED STOCK CERTIFICATE 1 EXHIBIT 4.7 See "Description of Securities -- Convertible Preferred Stock" EX-10.1 18 LEASE AGREEMENT 1 EXHIBIT 10.1 LEASE THIS LEASE made and entered into this 18th day of March, 1996, between NORTHPARK PROPERTIES, L.L.C., hereinafter referred to as "Landlord", and Karts International, Incorporated, hereinafter referred to as "Tenant". W I T N E S S E T H: LEASED PREMISES 1. (a) Landlord hereby leases unto Tenant, for the term, at the rental and upon the other terms and conditions hereinafter set forth, the premises known as the Northpark Corporate Center, on the second (2nd) floor comprising approximately 3,479 rentable square feet as shall be determined by Article 1(b) below of a total of 103,222 rentable square feet of office rentable area, hereinafter referred to as the "Leased Premises" as further shown on the annexed plan marked Exhibit "A" in the building, (the "Building"), located at 109 Northpark Boulevard, Suite 210, Covington, Louisiana, as well as the parking lot, green space, and other common areas (the "Common Areas"). (b) The rentable area on each office floor is that area enclosed within the perimeter of the exterior glass line of the Building excluding all vertical penetrations (elevator shafts, stairwells, fresh air shafts, and vertical risers enclosed in pipe chase) and the interior walls enclosing such penetrations. If a tenant's rentable area is less than a full office floor, the rentable area is that area (i) enclosed by the midpoint of the demising partitions, the exterior glass line of the Building, and the corridor side of the finished corridor wall plus (ii) a pro rata portion of the public area of the floor. The public area on a floor is defined as the rentable area of an office floor less the area available for tenants defined by (i) above. The rentable area on each floor shall also include an allocation of the first floor common areas utilized by all tenants in the Building. (c) The Leased Premises shall be used and occupied by Tenant for general office use. Tenant shall not use, or permit to be used, the Leased Premises for any other purpose. Tenant will not occupy or use, nor permit to be occupied or used any portion of the Leased Premises for any business or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner, or in a manner constituting a nuisance of any kind or hazardous on account of fire, nor permit anything to be done which will in any way increase the rate of fire insurance on the Building or its contents. Tenant shall comply with all laws, orders, rules and regulations relating to the use, condition and occupancy of the Building. TERM 2. The term of this shall be five (5) years or until sooner terminated as herein provided, commencing thirty (30) days after Landlord obtains building permit and turns space over to Tenant, (the "Commencement Date"). If Landlord shall be unable to give possession of the Leased Premises on the Commencement Date of the term hereof, and provided Tenant is not responsible for such delays, the rent reserved and covenanted to be paid herein shall not commence until the Leased Premises are available for occupancy, and the term of this lease will be extended for a period of time equal to the period of such delay in availability. No such failure to make the Leased Premises available on the date of commencement of the term shall affect the validity of the lease or the rights of the parties hereunder, or subject Landlord to liability of any nature. In the event that there is a delay in the availability of the Leased Premises and term of this lease is thereby extended, Landlord and Tenant shall execute a supplement to this Lease setting forth the date for the commencement of the payment of rent and extended term of this Lease. Nothing herein shall prohibit Tenant from occupancy and use of the Leased Premises prior to the Commencement Date. RENTAL 3. (a) This lease is made for and in consideration of an annual base rental ("Base Rent") of: Year 1: $14.00 per sq. ft./$48,706.00 per year/$4,058.83 per month Year 2: $14.33 per sq. ft./$49,854.07 per year/$4,154.41 per month Year 3: $14.83 per sq. ft./$51,593.57 per year/$4,299.26 per month Year 4: $15.33 per sq. ft./$53,333.07 per year/$4,444.42 per month Year 5: $15.83 per sq. ft./$55,072.57 per year/$4,589.38 per month payable in advance on the first day of each calendar month without prior notice or demand, to Landlord or its agent at: 1 2 Northpark Properties, L. L. C. c/o Stirling Properties, Inc. 109 Northpark Boulevard, Suite 300 Covington, Louisiana 70433 or to such other party or at such other address as Landlord may designate in writing. If the term of this lease shall commence on any day other than the first day of the calendar month, the rent for such fractional month shall be prorated in the proportion that the number of days this lease was in effect bears to 30. (b) All rent more than fifteen (15) days in arrears shall bear interest at the rate of ten percent (10%) per annum from the date due until paid. Any payment of interest shall also include the rent due. (c) Simultaneously with the execution of the lease, Tenant has deposited with Landlord the sum of $4,058.83, receipt of which is hereby acknowledged by Landlord, as security (but not as a trust fund) for the performance by Tenant of the terms, covenants and conditions of this lease to be kept and performed by Tenant. Such security deposit shall be returned to Tenant, without interest, upon the termination of this lease, provided Tenant has complied with all terms, covenants, and conditions hereof. ADJUSTMENTS TO RENT 4. (a) Operating Expense Adjustment (i) The term "Base Year" shall refer to the Calendar Year of 1996. Tenant's proportionate share of Operating Expense Differential (as such term is hereinafter defined in paragraph (a) (ii) of the Article 4) shall be 3.4%; such share is a fraction, the numerator of which is the rentable square footage of the Leased Premises and the denominator is the total rentable square footage of the Building. For purposes of this article, the term "Operating Expenses" shall mean any and all costs and expenses paid or incurred by Landlord, or its agents, for any calendar year in connection with the operation, servicing, maintenance and repair of the Building, determined in accordance with generally accepted accounting principles, property taxes, insurance (including public liability, property damage, and fire and extended coverage insurance for the full replacement cost of the Building), management fees, if included in the Operating Expenses for the Base Year in an amount not to exceed management fees charged in comparable office buildings in St. Tammany Parish, Louisiana, and any tax imposed upon gross receipt of rents, but shall exclude: (1) provisions for depreciation; (2) interest on indebtedness, except as provided for hereinafter; (3) income taxes; (4) dividends; (5) capital repairs and improvements; (6) management fees in excess of that customarily charged for comparable office buildings, and (7) other expenses which do not relate to the operations of the Building. (ii) The Operating Expenses of the Building and Common Areas for the Base Year shall be the actual operating expenses of the Building for 1996 (the "Operating Base Expense"). If in any full calendar year during the term hereof, the Operating Expenses of the office area of the Building should exceed the Operating Base Expense (such excess being hereinafter referred to as the "Operating Expense Differential"), then Tenant shall pay as additional rent Tenant's proportionate share of the Operating Expense Differential for that year shall be due. Such payment shall be due by Tenant within thirty (30) days of being notified by Landlord of the amount due. (iii) Once annually, during the term of this Lease, and after the Operating Base Expense is established, but no later than twenty (20) days prior to the date a rental payment is due, Landlord may deliver to Tenant a written estimate of any additional rent which may be reasonably anticipated hereunder, whereupon the monthly rental for such full or partial calendar year shall be increased by the amount estimated divided by the number of months remaining in the calendar year. (iv) Statements showing the actual Operating Expenses of the Building and Tenant's proportionate share of the Operating Expense Differential, if any, (hereinafter referred to as "Statement of Actual Adjustment") shall be delivered by Landlord to Tenant within ninety (90) days after the end of each calendar year. Within fifteen (15) days after the delivery by Landlord to Tenant of such Statement of Actual Adjustment, Tenant shall pay to Landlord the amount of any additional rentals shown as being due and unpaid thereon. Should such Statement of Actual Adjustment show the Tenant had paid to Landlord an aggregate amount in excess of the additional rental due for the preceding calendar year and Tenant is not then in default hereunder, Landlord shall credit the amount thereof to the monthly rent or rents next becoming due from Tenant and Tenant's monthly rent for the then current year shall be reduced by the amount of the credit divided by the number of months remaining in the calendar year. (v) If the term of this Lease begins on a day other than the first day of a calendar year, or should this Lease terminate on a day other than the last day of a calendar year, the amount shown as due by Tenant on the Statement of Actual Adjustment shall reflect a proration based on the proportion that the number of days this Lease was in effect during such calendar years bears to 365. 2 3 (b) The obligations of Landlord and Tenant under this Article 4 shall survive the expiration or other termination of this Lease. (c) Tenant shall be entitled from time to time to audit and verify the operations of the Building and/or the related books and records of Landlord to ensure that the Operating Expenses from time to time reported by Landlord are in keeping with the provisions of this Lease. As to any calendar year, any such undertaking by Tenant must be initialed before the end of the following calendar year and, absent fraud or gross negligence on Landlord's part, the Operating Expenses as timely reported by Landlord for such calendar year shall be deemed controlling unless Tenant challenges any and/or all thereof in writing delivered to Landlord on or before the expiration of Tenant's audit and verification rights for such calendar year under this section. In the event, and only in the event, that Tenant delivers any such writing within sixty (60) days after receipt of Landlord's demand for payment of Operating Expenses, extended by the number of days between the date of any request to audit under this section and the date Landlord permits such audit to begin, Tenant may withhold any disputed payment on its part until resolution of such dispute, provided, however, that no payment on the part of Tenant shall prejudice any or all of its rights under this Lease. In the event of any errors, the appropriate party shall make a correction payment in full to the other party within thirty (30) days after the determination and communication to all parties of the amount of such error. In the event of any errors on the part of Landlord in excess of $10,000.00, Landlord shall also reimburse Tenant for all costs of such audit and verification reasonably incurred by Tenant within such thirty (30) day period. USE 5. Tenant shall use and occupy the Leased Premises as general offices for the conduct of Tenant's business and for no other purpose without the written consent of Landlord. UTILITIES AND SERVICES 6. (a) As long as Tenant is not in default under any of the covenants of this Lease, Landlord shall, except as hereinafter stipulated, provide for or to the Premises, the following: (i) Normal air conditioning and heating ("HVAC") as required in the reasonable judgement of Landlord to maintain an average temperature of 70 degrees throughout the Premises, from 7:00 A.M. to 6:00 P.M., Monday through Friday and from 7:00 A.M. to Noon on Saturday (such hours and days being referred to throughout this Lease as "Normal Business Hours"). All HVAC services at any other times and all special equipment which may be required for such services and all above normal service and special equipment which may be requested for such services during Normal Business Hours or otherwise shall be furnished only upon the request and at the cost of the Tenant. Extra hours will be charged at $35.00 per hour, per floor subject to change. (ii) Landlord shall provide cold water for drinking, lavatory and toilet purposes and hot water for lavatory purposes from the regular building supply (at the prevailing temperature) through fixtures installed by Landlord. (iii) Janitorial service which shall include restroom supplies and cleaning, in and about the Building and premises, five (5) days per week, holidays excepted, and periodic window washing and janitorial service in a manner consistent with the operation and maintenance of other buildings of a similar character in the St. Tammany Parish Metropolitan area; however, Tenant shall pay the additional costs attributable to any janitorial service in excess of janitorial services provided to other tenants of the Building. (iv) Passenger elevator service in common with others during Normal Business Hours as well as twenty-four (24) hour per day access. The use of the passenger and freight elevator shall be subject to such reasonable rules and regulations as may be established from time to time by Landlord. (v) A building directory appropriately framed in the entrance lobby with name and address within the Building of Tenant properly numbered and lettered. (vi) Electricity for electrical outlets (120 volt single phase) in an amount not exceeding one (1) watt per square foot of rentable area within the Premises and for ceiling lighting in an amount not exceeding two (2) watts per square foot of rentable area within the Premises. The cost of all wiring and equipment required by Tenant for electrical service beyond that provided as aforesaid shall be paid by Tenant. (vii) In the event that the Building has a loading dock, Tenant may use the same during Normal Business Hours and Tenant agrees not to delay in its receipt of any item left at the loading dock for Tenant. The use of the loading dock shall be subject to such reasonable Rules and Regulations as may be established from time to time by Landlord. 3 4 (viii) New Year's Day, July 4, Labor Day, Thanksgiving Day and Christmas Day and Mardi Gras Day, shall be holidays and excluded from the definitions of Normal Business Hours under this Lease. (b) With reasonable notice to Tenant (except in the event of an emergency), Landlord shall have the right to stop services of the heating, elevators, plumbing, air conditioning, electrical power or other utilities or services when necessary by reason of accident or for repairs, alterations, replacements or improvements which are necessary or desirable for as long as may be necessary by reason of such repairs alteration, replacements or improvements or by reason of strikes, accidents, laws, orders, regulations, unavailability or other factors beyond the control of Landlord, and no such interruption or cessation of utilities or service shall render Landlord liable in any respect for damages to any person or property, or place Landlord in default of Tenant or result in an abatement of rent, or alter in any way the obligations of Tenant hereunder. To the extent reasonably possible, Landlord shall cause such work to be done after Normal Business Hours. (c) Tenant obligates itself to use such means as are reasonably available to it, and as may be directed by Landlord to conserve energy if it does not interfere with the normal business operation of Tenant as determined by Tenant. Tenant furthermore agrees to notify Landlord in advance should Tenant anticipate that the use and consumption of any one or more utilities in the Premises will substantially and regularly exceed that normally furnished as aforesaid by Landlord, or that Tenant will regularly require such utilities, heating and/or air conditioning at times other than Normal Business Hours, in which event Landlord may at his option install special equipment at Tenant's expense to accommodate such excess use, but in either event Tenant shall be liable for the charges for such energy use computed on a monthly basis. (d) Landlord shall have the right to require at Landlord's sole expense that the utilities provided to any one or more floors of the Building be separately metered on a floor-by-floor basis and to install meters for that purpose. (e) If both parties agree that Tenant's electrical usage is excessive in relation to a normal business office use, taking into account Tenant's right to access and use of the Premises on a 24-hour per day basis, Tenant shall pay for the cost of such excess electrical usage. (f) If Landlord is required to make any capital expenditures by any city, state or federal agency for energy conservation or other purposes during the term of this Lease, such expenditures by Landlord shall be reimbursed as additional rent by Tenant. Such expenditures will be amortized over a five year period including prevailing interest and Tenant shall bear its pro-rata share payable monthly during the existence of this Lease. (g) If Landlord makes any voluntary capital expenditures that result in energy saving to Tenant then such capital expenditures, if made with Tenant's prior written approval, shall be reimbursed as additional rent by Tenant. Such expenditures shall be amortized in the amount of the energy saving to the Tenant on a pro-rata basis payable monthly. However, in no event shall the charge to Tenant exceed the energy cost saved by Tenant. QUIET ENJOYMENT 7. Landlord covenants that so long as Tenant is not in default hereunder, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises during the term of this lease and any renewal or extension hereof. MAINTENANCE 8. (a) Tenant leases and accepts the Premises in its condition at the beginning of the term of this Lease, acknowledges that the Premises are in a good and satisfactory condition and, except as otherwise expressly provided in this Article 8, assumes responsibility throughout the term of this Lease for maintaining said premises in a good, orderly and safe condition and state of repair, including, without limitation, replacement of any glass broken on the Premises, and maintenance of lighting fixtures and replacement of lamps, bulbs and ballasts. Tenant shall furthermore promptly repair all damage or injury to other parts of the Building, if such damage or injury is caused by or attributable to the activities or omissions of Tenant, its servants, agents, employees, invitees or licensees, (b) All such maintenance and repair shall be of a class or quality which is in Landlord's reasonable opinion at least equal to the original work or construction in the Building and shall otherwise be completed to the satisfaction of Landlord and shall be done only by engineers, contractors, carpenters, electricians, painters, mechanics or others approved by Landlord, but at the expense of Tenant. (c) Tenant shall give Landlord prompt notice of any needed repairs to plumbing, (including that plumbing located in the restroom(s) utilized by Tenant in Tenant's Premises), heating or air conditioning, or electrical lines located in, servicing or passing through the Premised, and following such notice Landlord shall promptly remedy the condition with due diligence and at its expense, unless such 4 5 repairs are necessitated by damage or injury attributable to Tenant, Tenant's servants, agents, employees, invitees or licensees in which event Tenant shall bear the expense of any such repairs. (d) If Tenant fails after ten (10) days notice to proceed with due diligence to make repairs required to the Leased Premises which are necessary in the judgement of Landlord, then Landlord may (but shall not be obligated to) make such repairs at the expense of Tenant, and the expense thereof incurred by Landlord shall be collected as additional rent in the next installment of rent falling due. (e) Landlord and Tenant agree that as to repairs (emergency excluded) required to be made by Landlord to the Premises, Tenant shall give Landlord written notice of the need of such repairs and if within thirty (30) from the date of the receipt of such written notice, Landlord has not commenced to make and complete such repairs or, having commenced to make the same, does not continue with due diligence until they are completed, Tenant shall have the right (but not the obligation) to make such repairs and pay the costs thereof Should Tenant make any such repairs after Landlord's failure to do so, it shall give Landlord immediate notice thereof and Landlord agrees to reimburse Tenant within twenty (20) days after demand for the actual cost thereof. Should Landlord fail to reimburse Tenant, Tenant shall have the right to deduct the cost of such repairs from rent due or to become due hereunder and any such deductions by Tenant shall not be deemed to constitute a failure to pay rent or any other default hereunder. If it be later determined that such deductions, or any part thereof, were unauthorized, improper or illegal, Tenant shall reimburse Landlord within ten (10) days after such determination (whether judicially or otherwise made) the amount so deducted together with interest at the legal interest rate then in effect in the State of Louisiana from the date of such deduction until paid. Tenant agrees not to expend any sums under this Section 8 without first (or simultaneously with the giving of notice to Landlord) giving written notice to any mortgagee of the Leased Premises (provided such mortgagee has in writing furnished Tenant its then proper mailing address), and allowing such mortgagee the same period of time within which to make such repairs, from receipt of such written notice, as is allowed in this paragraph to Landlord. ALTERATIONS 9. (a) Tenant shall make no installations, alterations, additions or improvements in or to the Leased Premises without Landlord's prior written consent, and then at the sole expense of Tenant and only by engineers, contractors or mechanics approved by Landlord and subject to such conditions as Landlord may impose. Tenant shall, before making any installations, alterations, additions or improvements, obtain all permits, approvals and certificates required by any governmental body or agency, and certificates of final approval thereof, and shall deliver promptly duplicates of all such permits, approvals and certificates to Landlord. Tenant agrees to carry, or cause Tenant's contractor and subcontractors to carry, such workmen's compensation, general liability, personal and property damage insurance as Landlord may reasonably require. Any lien filed against the Leased Premises or Building for work claimed to have been done for, or for materials claimed to have been furnished to Tenant, shall be discharged by Tenant within ten (10) days thereafter, if legally possible, at Tenant's expense, unless Tenant has a reasonable basis for contesting such lien and has commenced legal proceedings to do so. If Tenant fails to discharge or contest any such lien, then Landlord, at Landlord's option, may discharge such lien and charge costs incurred in such discharge as additional rent on the next installment of rent falling due. (b) All ad valorem taxes upon any improvements made by Tenant, or on behalf of Tenant by the Landlord within the Leased Premises or upon any movable property of Tenant situated within the Leased Premises shall be the sole responsibility of and shall be timely paid by Tenant. (c) Tenant shall not in any manner deface or injure the Building or any part thereof, or overload the floors of the Leased Premises, it being mutually agreed that in no event shall any weight placed upon said floors exceed fifty pounds per square foot. LIABILITY 10. (a) Tenant shall indemnify and hold Landlord, its agents, servants, and employees harmless against and from liability and claims of any kind for loss or damage of property of Landlord or any other person, or for any injury to or death of any person while in the Leased Premises provided that such damage or injury is not caused by or due to the gross negligence of the Landlord, its agents, servants, or employees. (b) Landlord shall indemnify and hold harmless Tenant, its agents, servants and employees against and from liability and claims of any kind for loss or damage of property of Tenant or any other person, or for any injury to or death of any person while in, on or about the parking areas associated with the Building and any other common or public areas of the Building, or resulting from Landlord's failure to maintain in 5 6 good repair such areas of the Building or any other area for which Landlord is obligated to maintain, provided that such damage or injury is not caused by or due to the negligence of the Tenant, its agents, servants, or employees. INSURANCE 11. Tenant shall, at its expense, at all times during the term of this Lease maintain general public liability insurance against claims for bodily injury and death occurring in, on or about the Leased Premises, with such insurance to afford protection to a single limit of not less than $500,000.00 with respect to bodily injury or death arising our of any one occurrence or for damage or injury to property occurring in, on or about the Leased Premises or the Building. Tenant shall furnish Landlord proof thereof. Landlord shall provide comparable liability insurance for the public or common areas of the Building and parking lot. FIRE OR OTHER CASUALTY 12. (a) In case of fire or other casualty, Tenant shall give immediate notice thereof to Landlord. (b) If the Leased Premises, without fault or neglect of Tenant, its servants, agents, employees, invitees or licensees, shall be partially destroyed by fire or other casualty so as to render the Leased Premises partially untenable the rental herein recited shall be proportionately abated until such time as the Premises so damaged are made tenantable by Landlord. In case of the total destruction of the Leased Premises without fault or neglect of Tenant, its servants, agents, employees, invitees or licensees, or if there shall be such partial destruction that prevents the use of the Leased Premises, then unless Landlord decides to rebuild, all rental and other sums due to Landlord up to the time of such partial or total destruction shall be paid by Tenant, whereupon this Lease shall cease and terminate. Provided, however, that if Landlord should decide to rebuild following total destruction of the Leased Premises, Landlord shall give Tenant written notification thereof (including the estimated time for such rebuilding and confirmation that the cost thereof will be covered by insurance or paid by Landlord) within forty-five (45) days of such total destruction and shall commence operations for such reconstruction within a reasonable period of time following settlement of the insurance claim on the Building and shall continue such operations with reasonable diligence, whereupon this lease will be extended for a period of time equal to the period from the date of destruction through the date upon which the Leased Premises are available for re-occupancy by Tenant unless rebuilding will take longer than three (3) months, in which case, Tenant will have the option to cancel this lease. In no event, however, shall Landlord be obligated to expend on such repairs any amount in excess of that actually recovered by Landlord from its insurance coverage. In case of total destruction of the Building without fault or neglect of Tenant, its servants, agents, employees, invitees or licensees, and Landlord should elect not to rebuild within forty-five (45) days of such total destruction, Tenant or Landlord shall have the right to terminate the Lease by providing notice to either party within thirty (30) days of the date of such destruction. (c) Landlord shall keep the Building insured against such contingencies as are normally covered by fire and extended coverage insurance for the full replacement cost but shall not insure and will not be responsible for any loss or damage to any property belonging to Tenant. Tenant agrees that it will obtain such insurance covering its own property. (d) Tenant and Landlord agree that insurance carried by each of them against loss or damage by fire or other casualty shall contain a clause whereby the insurer waives its right to subrogation against the other party and the other tenants in the Building. EMINENT DOMAIN 13. In the event all or any portion of the Leased Premises, or the real property of which they form a part, is taken by any governmental authority under the exercise of its right of eminent domain or similar right (or by act in lieu thereof) all right, title and interest in and to any award granted (or sums paid in lieu thereof) shall belong entirely to Landlord, and Tenant hereby assigns to Landlord all of its interest, title or claim, if any, in and to such award (or sums paid in lieu thereof), including, but not limited to, any part of such award attributable to Tenant's leasehold interest, if any, except for that portion of the award attributable to tenant-installed improvements and Tenant's trade fixtures. In the event of a partial taking, rent shall be reduced as of the date of such taking by a percentage equal to the percentage obtained by relating the space taken to the total space leased hereunder, and, if such taking is substantial, or Tenant shall have the option, to be exercised by notice in writing to the Landlord, within sixty (60) days after such taking, of terminating this Lease, or, if such taking is total, this Lease shall terminate upon the taking. In the event of a temporary taking, that is, if all or any portion of the Leased Premises or the real property of which they form a part, is taken by any governmental authority under the exercise of its right to eminent 6 7 domain or similar right (or by act in lieu thereof) for a period of time which is less than the remaining term of this Lease, rent during the period of such taking, but not thereafter, shall be proportionately abated if the temporary taking is partial, or totally abated if the temporary taking is total, but such taking shall not terminate this Lease, unless the taking is for thirty (30) days or more in which case Tenant shall have the right to terminate this Lease. SUBSTITUTION OF PREMISES 14. Landlord reserves the right on ninety (90) days written notice to Tenant to substitute for the Leased Premises, at the same rental as required of Tenant herein, including adjustment, other premises within the Building, or in the case of total destruction of the Leased Premises, within another building, for all uses and purpose as though originally leased to Tenant at the time of execution and delivery of this Lease and subject to all terms and provisions hereof. In event Landlord elects to cause such substitution of premises, Landlord agrees to pay all reasonable expenses of Tenant incidental thereof including compensation for Tenant's leasehold improvements. If Landlord elects to substitute Tenant's premises and Tenant determines that the new premises cannot fill Tenant's needs, then Tenant may elect to cancel this lease with 30 days notice. SUBORDINATION 15. (a) This lease is subject and subordinate to any mortgage which now or hereafter encumbers or affects the Building of which the Leased Premises form a part and/or the land on which the Building is situated, and to all renewals, modifications, consolidation, replacements and extensions thereof. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee or Landlord. In confirmation of such subordination, however, Tenant shall, at Landlord's request, promptly execute any appropriate certificate or instrument that Landlord may request. Tenant hereby constitutes and appoints Landlord as Tenant's attorney in fact to execute any such certificate or instrument for and on behalf of Tenant, if Tenant fails to do so within twenty (20) days after written request therefor. In the event of the enforcement by the holder of any such instrument of the remedies provided for by law or by such mortgage or land lease, Tenant will, upon request of any person or party succeeding to the interest of Landlord as a result of such enforcement, automatically become the Tenant of such successor in interest without change in the terms or other provisions of this lease. Upon request by such successor in interest, Tenant shall execute and deliver an instrument or instruments confirming the attornment herein provided for. (b) At Landlord's request, Tenant will execute either an estoppel certificate or a three-party agreement certifying as to such facts and agreeing to such notice provisions and other matters as may reasonably be required. SALE OR ASSIGNMENT BY LANDLORD 16. Any sale by Landlord of the Building shall be subject to this Lease and Landlord may assign this Lease to buyer in the event of such a sale, and all of the provisions of this Lease as to the rights and obligations of Tenant shall thereupon apply to such purchaser or assignee, and assignor shall thereupon be divested of all rights and released from all future obligations hereunder. Nothing contained in this paragraph shall prevent Landlord from assigning this lease or the revenue derived therefrom to any lender. CHANGE OF BUILDING 17. Landlord shall have the right to name and from time to time to change the name of the Building, with the prior written consent of Tenant, not to be unreasonably withheld or denied. BUILDING ACCESS TO PREMISES 18. Landlord and Landlord's agents shall have the right at all times to enter the Leased Premises, by pass key or otherwise, for janitorial services, or after reasonable notice to Tenant, to make such repairs, decorations, additions or alterations as may be necessary or desirable for the safety, betterment, improvement and/or preservation of the Leased Premises, or the Building, or any portion of the Building, without in any manner affecting the obligations of Tenant hereunder. DEFAULT 19. (a) In case of failure by Tenant to pay any installment of rent when due and said default continues for a period of fifteen (15) days or failure to remedy promptly upon a demand a default by Tenant with respect to any of the other covenants, conditions and agreements contained herein or in any rider or other addendum hereto, and such failure continues for thirty (30) days after receipt of written notice from Landlord, or if a petition in bankruptcy is filed by Tenant or if proceedings under any bankruptcy or debtor's relief law shall be filed against Tenant, or if Tenant becomes insolvent, or if proceedings are taken by or against Tenant seeking the appointment of a receiver or similar relief, or if Tenant, without the 7 8 written consent of Landlord, closes the Leased Premises, or discontinues active business therein or abandons, vacates, or misuses the Leased Premises, or makes or attempts to make any sale or removal of the movable property in the Leased Premises on which Landlord has a lien, Landlord may, in addition to any other right or rights which Landlord may have under the provisions of this lease or by law, and at Landlord's option: (1) proceed for past due installments of rent, reserving its right to proceed later for the remaining installments, or (2) declare all of the unpaid installments of rent at once due and payable, whereupon the whole thereof shall become and be immediately due and payable, anything herein to the contrary notwithstanding, and proceed to enforce its legal remedies hereunder, or (3) declare this lease to be terminated and immediately expel Tenant, without, however, waiving Landlord's right to collect all installments of rent and other payments due or owing for the period up to the time Landlord regains occupancy. All rights and remedies of Landlord under this Lease shall be cumulative except that Landlord shall not be entitled to accelerate Tenant's rent and terminate this Lease or Tenant's occupancy of the Leased Premises, and none shall exclude any other right or remedy allowed by this lease or by law. (b) If Landlord fails to perform any covenant, condition or agreement contained in this Lease within thirty (30) days after receipt of written notice from Tenant specifying such default or if such default cannot reasonably be cured within thirty (30) days, if Landlord fails to commence or cure within that thirty (30) day period, then Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's breach, provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any defaults or other claims arising under this Lease, that judgment shall be satisfied only (1) out of the rents, issues, profits, and other income annually received on account of Landlord's right, title and interest in the Leased Premises, Building or other property associated with the Building, and no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord (if any) wherever situated, shall be subject to levy to satisfy such judgment, and/or (2) as an offset against any rent due or to become due by Tenant to Landlord under this Lease. If after notice to Landlord of default, Landlord (or any first mortgagee or first deed of trust beneficiary of Landlord) fails to cure the default as provided herein, then Tenant shall have the right (i) to cure the default at Landlord's expense and to withhold, reduce or offset any amount against any payments of rent or any other charges due and payable under this Lease; or (ii) terminate this Lease if after one (1) additional thirty (30) day written notice from Tenant to Landlord, the default remains uncured. FAILURE TO INSIST ON STRICT PERFORMANCE 20. The failure of Landlord or Tenant to insist, in any one or more instances, upon a strict performance of any covenant of this lease shall not be construed as a waiver or relinquishment thereof, but the same shall continue and remain in full force and effect. The receipts by Landlord of rent with knowledge of the breach of any covenant of Tenant hereunder shall not be deemed a waiver of the rights of Landlord with respect to such breach, and no waiver by Landlord of any provision hereof shall be deemed to have been made unless expressed in writing and signed by the Landlord. RE-ENTRY LESSOR 21. (a) Tenant shall, upon the termination of this Lease, by lapse of time or otherwise, return the Leased Premises to Landlord in as good condition as when received, loss by fire or other unavoidable casualty and ordinary wear excepted. It is understood and agreed that the exception made as to "loss by fire or other unavoidable casualty" does not include damages, fires or casualties caused or contributed to by the act or neglect of Tenant, its servants, agents, employees, invitees or licenses, and not compensated for by insurance. (b) All installations, additions, fixtures and improvements in or upon the Leased Premises, whether placed there by Landlord or Tenant, and including, without limitation, paneling, decoration, fixed partitions, railing, carpeting and flooring, shall become the property of Landlord and shall remain upon the Leased Premises at the termination of the lease without compensation, allowance or credit to the Tenant. (c) Should Tenant fail to vacate the Premises at the termination hereof, Tenant hereby agrees to pay, as liquidated damages for each day during which Tenant's occupancy continues, an amount equal to one and one-half (1 1/2) times the daily rental for which Tenant was obligated hereunder during the last month of the term of this Lease, together with such sums as may be necessary to restore the premises to the condition in which Tenant is obligated to return them to Landlord as aforesaid. (d) Any furniture, equipment, machinery or other movable property brought onto the Leased Premises during Tenant's occupancy thereof and not removed at the termination of the lease may be removed by Landlord, at the cost, expense and risk of Tenant, with no liability upon Landlord for loss or injury thereto and without prejudice to Landlord's lien and privilege securing all sums due hereunder. 8 9 (e) Tenant expressly waives any notice to vacate and all legal delays to which it may be entitled at the end of the lease term or at the termination of this Lease for any other cause and hereby consents that Landlord may immediately take possession of the Leased Premises upon the expiration or termination of this Lease. Should the Landlord allow Tenant to remain in the Leased Premises beyond the term of this Lease, there shall result a lease from month to month which may be terminated by either party upon thirty (30) days written notice to the other, but otherwise upon the terms and conditions of this Lease, and no such holding over or payment of rent resulting therefrom shall constitute a reconduction of this Lease. INSURANCE 22. Tenant will not do or suffer to be done on the Leased Premises any act which shall result in an increase of the rate or premium for fire and extended coverage insurance for the Building or any Tenant thereof. If, in spite of this provision, Tenant's actions or occupancy should cause an increase in the insurance rate or premium, Tenant shall immediately pay to Landlord, as additional rent hereunder, the amount of such increase. EXPENSES AND ATTORNEY'S FEES 23. If any action or proceeding is brought by either party against the other party pertaining to or arising out of this Lease, the prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys fees, incurred on account of such action or proceeding. OBLIGATIONS OF TENANT 24. If Landlord shall be put to any charge or expense or make any expenditures for which Tenant is responsible or which Tenant should make, or if Tenant should fail to make any payment other than rent which Tenant is obligated to make under the terms and provisions of the lease and all riders and other addenda hereto, then the amount thereof may at Landlord's option, and upon ten (10) days notice to Tenant, be added to and be deemed a part of any installment of rent then due or thereafter falling due. COMPLIANCE WITH LAWS 25. Tenant, in its use of the Leased Premises, shall at all times hereafter, at its sole cost and expense, promptly comply with all present and future laws, ordinances and regulations and all requirements, of all Federal, State, Municipal, and local governments, commissions and boards and all lawful directions of public officials. Landlord warrants, to the best of its knowledge, that as of the date of this Lease, the Building shall be in compliance with all such laws, ordinances and regulations. COMPLIANCE WITH RULES 26. Tenant and Tenant's servants, employees, agents, visitors and licensees shall observe and comply with the Rules and Regulations which are annexed hereto and made a part hereof as Exhibit "C" and such other reasonable rules and regulations as Landlord may from time to time adopt, provided that such Rules and Regulations are uniformly applied to and enforced against all tenants of the Building. Should Tenant fail to comply with any of the Rules and Regulations, Landlord shall give written notice to Tenant of such failure and Tenant shall have thirty (30) days within which to cure said default. Notice of any additional rules and regulations shall be given in writing by Landlord to Tenant, whereupon they will become a part of the lease for all purposes, to the same extent as if originally set forth herein. ASSIGNMENT 27. (a) Tenant shall have the right, subject to Landlord's prior written approval, which shall not be unreasonably withheld or delayed, at any time after the Commencement Date, to assign this Lease, to sublease the Leased Premises (or any portion thereof), and to grant concessions therein for general office use. When requesting Landlord's consent to assign or sublease, Tenant shall provide Landlord with the name and business experience of the proposed assignee or sublessee and complete and current financial statements of the proposed assignee or sublessee. Consent to one subletting or assignment shall not be deemed to be consent by Landlord to any further subletting or assignment. In the event Landlord disapproves of Tenant's assignee or sublessee, Tenant shall have the right to terminate Lease with respect to the portion of the Leased Premises for which such approval was sought, which termination shall be effective upon thirty (30) days written notice. If this lease be assigned, or if the Leased Premises or any part thereof be sublet or occupied by any person other than Tenant, then Landlord may collect all rent from the assignee, sublessee or occupant, and apply the amount collected to the rent for which Tenant is obligated to Landlord under the terms hereof any may retain for its own account any additional amount remaining, but no such collection shall be deemed a waiver of this covenant or the acceptance of the assignee, sublessee, or occupant as Tenant. (b) The making of any such assignment or subletting or granting of any such concession shall in all other respects be subject to the terms of this Lease and shall not relieve Tenant of its obligations hereunder; and Landlord agrees, in the event of default thereafter, to give Tenant the same notices and rights to cure given to any assignee, as provided hereinafter. 9 10 AIR RIGHTS 28. This Lease does not grant any rights to light, view and air over property. NOTICE 29. Any notice to be given under this Lease by Landlord to Tenant, or by Tenant to Landlord, shall be considered as duly given if made in writing, addressed to the other party by (i) certified mail, return receipt requested; (ii) hand delivery by a reputable courier service requiring receipt on delivery, or (iii) delivery by a national or regional overnight courier service, to the following addresses, or to such address of Landlord as Landlord may from time to time designate in writing or to such address of Tenant as Tenant may from time to time designate in writing: LANDLORD: WITH A COPY TO: Northpark Properties, L.L.C. Northpark Properties, LLC c/o Stirling Properties, Inc. c/o Stewart Commercial Real Estate 109 Northpark Blvd., Suite 300 111 Veterans Boulevard, Suite 1800 Covington, Louisiana 70433 Metairie, Louisiana 70005 TENANT: Karts International, Incorporated Corporate Headquarters 4851 LBJ Freeway, Suite 201 Dallas, Texas 75244 Notice shall be effective upon the earlier of actual receipt or forty-eight (48) hours after deposit in the U.S. Mail or permitted courier. Notices of any default by Landlord shall be given by Tenant to any mortgagee of whom Tenant has been notified in writing, and said mortgagee shall have the right to cure said default within the same period of time that Landlord is given under the Lease for such default. LOUISIANA CONTRACT 30. This Lease is a Louisiana Contract, to be interpreted and enforced under and in accordance with the laws of the State of Louisiana. SUCCESSORS AND ASSIGNS; MULTIPLE TENANTS 31. The covenants, agreements, stipulations and conditions contained in this lease shall bind and inure to the benefit of Landlord and Tenant and their respective legal representative, heirs, successors and assigns. In the event that this lease is executed by more than one tenant, all of such tenants shall there be bound in solido for the payment of the rent and the performance of all covenants, agreements, stipulations and conditions hereof. CONSTRUCTION OF LEASE 32. Notwithstanding the fact that this lease may have been prepared by Landlord, the language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for nor against either Landlord or Tenant. Paragraph headings in this Lease are for convenience only and are not to be construed as part of this lease or in any way defining, limiting or amplifying the provisions thereof. Landlord and Tenant agree that in the event any term, covenant or condition herein contained is held to be invalid or void by any court of competent jurisdiction, the invalidity of any such term, covenant or condition shall in no way affect any other term, covenant or condition herein contained. REASONABLE CONSENT 33. Landlord agrees not to unreasonably withhold its approval of or consent to any act of Tenant, where such approval or consent is required by the terms of this Lease. MORTGAGEE PROTECTION CLAUSE 34. Tenant agrees to give any Mortgagee, by registered mail or overnight courier service, a copy of any notice of default served upon the Landlord, provided that prior to such notice Tenant has been notified in writing of the address of such Mortgagee. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this lease, then Mortgagee shall have an additional 30 days within which to cure such default, or if such default cannot be cured within that time, then such additional time as may be necessary, if within such 30 days Mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceeding if necessary to effect such cure), in which event this lease shall not be terminated while such remedies are being so diligently pursued. 10 11 LANDLORD'S LIABILITY LIMITATION 35. It is understood and agreed by Tenant that any obligations undertaken in this Lease by Landlord shall not exceed the Landlord's net equity value in the Building and in no event shall result in any liability over and above said net equity value of the Landlord and the general partners, if any. BROKERAGE AND COMMISSION 36. In consideration of the services performed by Stirling Properties, Inc. (hereinafter referred to as "Agent") in negotiating this Lease, Landlord agrees to pay Agent commissions pursuant to a separate Agreement entered into by Landlord and Agent. ADDENDUM 37. The addenda annexed hereto and executed by the parties are made part of this Agreement for all purposes as though set forth in full herein. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this agreement in the presence of the undersigned competent witnesses on the date first above written. WITNESSES: LANDLORD: Northpark Properties, L.L.C. By: Northshore Partners One By: /s/ GERALD E. SONGY - -------------------------------- ------------------------------------- Gerald E. Songy Its: Managing Partner - ------------------------------- Date: ----------------------------------- WITNESSES: LANDLORD: Northpark Properties, L.L.C. By: Northpark Acquisition Group, L.L.C. By: - -------------------------------- ------------------------------------- Its: - -------------------------------- ------------------------------------- Date: ----------------------------------- WITNESSES: TENANT: Karts International, Incorporated By: /s/ V. LYNN GRAYBILL - -------------------------------- ------------------------------------- V. Lynn Graybill Its: President - ------------------------------- Date: 3/19/96 ----------------------------------- 12 13 ADDENDUM Attached hereto and made a part of that Lease Agreement dated 18th day of March, 1996, by and between Northpark Properties, L.L.C., (Landlord), and Karts International, Incorporated, (Tenant). 38. Landlord shall make all improvements to the Leased Premises at Landlord's sole cost and expense, in accordance with the plans and specifications attached hereto and made a part hereof as Exhibit "C". Landlord's contribution (herein "Tenant Allowance") shall not exceed $10.00 per rentable square feet of Leased Premises. 39. Tenant shall have the one-time right to terminate this Lease at the end of month thirty-six (36) by giving Landlord six (6) months prior written notice of its intent to terminate the Lease. Tenant, upon exercising such right, shall pay to Landlord the unamortized Tenant Allowance, unamortized leasing commissions and a Lease buyout penalty of $6,462.00, which all shall be payable along with the written notice. 40. Landlord, its successors or assigns agree to pay to Stirling Properties, Inc., (herein "Lead Broker"), and Century 21/Pat Tucker Realty (herein "Co-Broker"), their successors, or assigns, a commission of two (2%) percent each of the net rents due during the primary lease term. The commission shall be due one-half (1/2) upon execution by Landlord and Tenant of the Lease and one-half (1/2) on the Commencement Date. Landlord ---------- Tenant VLG ---------- 14 RULES AND REGULATIONS EXHIBIT "B" 1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors, or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than ingress and egress to and from the Premises. 2. No awnings or other projects shall be attached to the outside walls of the building without the prior written consent of the Landlord. No curtains, blinds, shades, or screens shall be attached to, hung in, or used in connection with any window or door of the Leased Premises without the prior written consent of the Landlord. Such awnings, projections, curtains, blinds, shades, screens or other fixtures must be quality, type, design and color, and attached in the manner approved by the Landlord. 3. No sign advertisement, notice or other lettering shall be exhibited, inscribed, painted, or affixed by any Tenant on any part of the outside of the Premises or Building without the prior written consent of the Landlord. In the event of the violation of the foregoing by any Tenant, the Landlord after notice as provided in Article 26 of the Lease may remove the same without any liability, and may charge the expense incurred by such removal to the Tenant or Tenants violating this rule. Interior signs on doors shall be inscribed, painted, or affixed for each Tenant by the Landlord at the expense of such Tenant, and shall be of a size, color and style acceptable to the Landlord. 4. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways, or other public places in the building shall not be covered or obstructed by any Tenant, nor shall any bottles, parcels, or other articles be placed on the window ledges. 5. No showcase or other articles shall be put in front of or affixed on any part of the exterior of the building nor placed in the halls, corridors, or vestibules, without prior written consent of the Landlord. 6. The water, wash closets, and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the Tenant who, or whose servants, employees, or agents, shall have caused the same. 7. No Tenant shall mark, paint, drill into, or in any way deface any part of the Leased Premises or the building of which they form a part. No boring, cutting, or stringing of wires shall be permitted except with the prior written consent of Landlord and as it may direct. No Tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the Premises, and if linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt shall be first affixed to the floor by a paste or other similar material soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 8. No bicycles, baby carriages, vehicles, birds, or animals of any kind shall be brought into or kept in or about the premises, and no cooking (other than through microwave ovens) shall be done or permitted by any Tenant on the said Leased Premises. However, this does not prevent Tenant from having coffee, soft drinks, candy and other items for use of Tenant's employees, servants, agents or visitors. Tenant shall not cause or permit any unusual or objectionable odors to be produced upon or permeate from the Leased Premises. 9. No space in the Building shall be used for manufacturing, or for the sale of property of any kind at auction. 10. No Tenant shall make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of this Building or those having business with them. No Tenant shall throw anything out of the doors, windows, or skylights, or down the passageways. 11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any Tenant, nor shall any changes be made in existing locks or the mechanism thereof, without the prior written approval of Landlord, which approval shall not be unreasonably withheld. Tenant will be supplied, free of charge, with two keys for each door on the Leased Premises. Each Tenant must, upon the termination of his tenancy, restore to the Landlord all keys of stores, offices and toilet rooms, either furnished to or otherwise procured by such Tenant. 12. All removals or the carrying in or out of any safes, freight, furniture, or bulky matter of any description must take place during the hours which the Landlord or its agent may reasonably determine from time to time. The Landlord reserves the right to prescribe the weight and position of all safes, which must be placed upon two-inch plank strips to distribute the weight. The moving of safes or other fixtures or bulky matter of any kind must be made upon previous notice to the superintendent of the Building and under his supervision. Tenant agrees not to place a load upon any floor of the Premises exceeding the floor load per square foot area which such floor was (and is) designed to carry and which is allowed by law. Business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient, in Landlord's reasonable judgement, to absorb and prevent vibration, noise and annoyance. 13. No Tenant shall occupy or permit any portion of the Premises to him to be occupied as an office for a public stenographer or a public typist, for the manufacture or sale of liquor, narcotics, dope or tobacco in any form, as a barber or manicure Landlord ---------- Tenant VLG ---------- 15 shop, or as an employment bureau. No Tenant shall advertise for laborers giving an address at the said premises, without prior written consent of Landlord, which consent shall not be unreasonably withheld. 14. No Tenant shall open, or permit windows in the Premises to be opened at any time. 15. The Leased Premises shall not be used for lodging or sleeping, or for any immoral or illegal purpose. 16. The requirements of Tenants will be attended to only upon application at the office of the Landlord in the Building. Employees shall not perform any work or do anything outside of their regular duties unless under special instructions from the office of the Landlord. 17. Canvassing, soliciting, and peddling in the building are prohibited, and each Tenant shall cooperate to prevent the same. 18. The Landlord specifically reserves the right to refuse admittance to the building after 6:00 P.M. and before 7:00 A.M. daily, or on Sundays or on legal holidays, to any person or persons who cannot furnish satisfactory identification that he or she is an employee, servant, agent or authorized visitor of Tenant, or to any person or persons who, for any reason in Landlord's reasonable judgement, should be denied access to the Leased Premises. ACCEPTED BY: Karts International, Incorporated By: /s/ V. LYNN GRAYBILL ----------------------------------------- V. Lynn Graybill Its: President Landlord ---------- Tenant VLG ---------- EX-10.2 19 LICENSE AGREEMENT 1 EXHIBIT 10.2 LICENSE AGREEMENT THIS LICENSE AGREEMENT ("Agreement"), entered into and effective as of the 15th day of March, 1996, by and between Charles Brister, an individual, ("LICENSOR") and Brister's Thunder Karts, Inc., a Louisiana corporation ("LICENSEE"): WITNESSETH THAT: Whereas Charles Brister is the Owner of TECHNOLOGY as defined below, and Whereas LICENSEE desires to obtain from the LICENSOR a license under said TECHNOLOGY; WHEREAS both parties agree that the TECHNOLOGY has been and will be incorporated into various LICENSED PRODUCTS developed by the LICENSEE; WHEREAS both parties represent that they are able to comply with and otherwise satisfy the terms and conditions set forth in this Agreement; NOW THEREFORE, in consideration of the sum of ten dollars ($10 U.S.) and other good and valuable consideration now paid by each of the parties hereto to the other, the receipt of all of which hereby irrevocably acknowledged by each party, it is agreed as follows: SECTION 1 DEFINITIONS 1.1 PATENT RIGHTS shall mean (a) United States Patent Number 5,477,940, issued December 26, 1995, for "ACCELERATOR PEDAL OVERRIDE APPARATUS FOR SELF-PROPELLED MOTORIZED CART WITH ALIGNED BRAKE AND ACCELERATOR PUSHROD TYPE OPERATOR PEDALS", and (b) applications for patents that have been filed or may be filed in the future for improvements relating to LICENSED PRODUCTS, the inventions described and claimed therein, and any BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 1 2 divisions, continuations, continuations-in-part, patents issuing thereon or reissues thereof; and any and all foreign patents and patent applications corresponding thereto; which will be automatically incorporated in and added to this Agreement and shall periodically be added to Appendix A attached to this Agreement and made a part thereof. 1.2 LICENSED PRODUCTS shall mean products claimed in PATENT RIGHTS or products made in accordance with or by means of LICENSED PROCESSES or products made utilizing PROPRIETARY LICENSED PROCESSES or products made utilizing PROPRIETARY MATERIALS or incorporating some portion of PROPRIETARY MATERIALS. 1.3 LICENSED PROCESSES shall mean the processes claimed in PATENT RIGHTS or processes utilizing PROPRIETARY MATERIALS or some option thereof. 1.4 PROPRIETARY MATERIALS shall mean the materials supplied by LICENSOR together with any of the know-how and all related rights, trade secrets, and TECHNOLOGY, owned by LICENSOR and relating to a family of go-kart products and go-kart components as they presently exist and as they may be acquired, developed or modified in the future. 1.5 TECHNOLOGY shall mean any and all confidential information, PROPRIETARY MATERIALS, or PATENT RIGHTS supplied by LICENSOR to LICENSEE. The confidential information shall not include information which: (a) is known to LICENSEE on a non-confidential basis prior to disclosure by LICENSOR; or (b) is part of the public domain and know to the general public at the time it was disclosed to LICENSEE. 1.6 TERRITORY means the entire United States of America, its territories and possessions, and foreign countries in which Patent Rights exist. BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 2 3 SECTION 2 GRANT OF LICENSE 2.1 SCOPE OF LICENSE. Subject to the terms and conditions of this Agreement, LICENSOR hereby grants to LICENSEE a License (the "License"): 2.1.1 to use the information or secrets disclosed in the TECHNOLOGY to develop Brister's Thunder Karts LICENSED PRODUCTS; 2.1.2 to incorporate the information or secrets disclosed in the TECHNOLOGY in Brister's Thunder Karts LICENSED PRODUCTS; 2.1.3 to manufacture or have manufactured Brister's Thunder Karts LICENSED PRODUCTS containing the information or secrets disclosed in the TECHNOLOGY; 2.1.4 to sell or have sold Brister's Thunder Karts LICENSED PRODUCTS containing the information or secrets disclosed in the TECHNOLOGY. 2.2 NON-EXCLUSIVE LICENSE. The License is a non-exclusive License in the TERRITORY for the TECHNOLOGY for Brister's Thunder Karts LICENSED PRODUCTS. 2.3 LICENSE TERM. The term of the License granted in Section 2 of this Agreement with respect to PATENT RIGHTS shall begin on the Effective Date and shall terminate on the last Patent expiration date of the PATENT RIGHTS. The license granted in Section 2 of this Agreement with respect to PROPRIETARY MATERIALS, not including PATENT RIGHTS, shall survive any termination of this Agreement. 2.4 ROYALTY. All fees and royalties are on terms at least as favorable as LICENSOR has received or could have received in arms-length transactions with third parties. 2.5 IMPLEMENTATION. LICENSOR and LICENSEE agree that LICENSEE (i) will implement or integrate the information or secrets contained in the TECHNOLOGY into the Brister's Thunder Karts Products and (ii) shall be the exclusive owner of such Brister's Thunder Karts Products. 2.6 SUBLICENSING. LICENSEE shall have, with the written consent by the LICENSOR, (i) the right to sublicense purchases of the Brister's Thunder Karts Products to use the BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 3 4 information or secrets contained in the TECHNOLOGY as part of the Brister's Thunder Karts Products and (ii) the right to sublicense developers of Brister's Thunder Karts Products to use the information or secrets contained in the Licensed Technology for the sole purpose of developing Brister's Thunder Karts Products to be owned by Brister's Thunder Karts. The LICENSEE is not empowered by this clause to veto subsequent licenses. 2.7 RIGHTS RETAINED. All rights not specifically assigned to LICENSEE are retained by LICENSOR. 2.8 The terms and rights established under Section 2 of this Agreement in no way affect the terms and rights established under Section 4 of this Agreement. SECTION 3 TITLE 3.1 TITLE TO THE LICENSED TECHNOLOGY. LICENSOR represents and warrants that it is the sole owner of all right, title and interest in and to the TECHNOLOGY, except as otherwise provided in Appendix A, attached hereto. SECTION 4 LICENSE OPTION 4.1 TERMS. For a period of five (5) years beginning on the Effective Date of this Agreement, LICENSEE shall have a License Option. Under this License Option, LICENSOR agrees to license to the LICENSEE, at LICENSEE's sole option, all TECHNOLOGY developed and/or owned by LICENSOR during this five-year period wherein: 4.1.1 if a patent application or a provisional application is filed for such TECHNOLOGY during the term of this License Option, then LICENSOR shall give written notice accordingly to LICENSEE. Upon receipt of the written notice, LICENSEE shall have the exclusive right and option, exercisable upon written notice BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 4 5 to LICENSOR at any time during a period of thirty (30) days from the date of receipt, to purchase a license to the patent application or provisional application and any subsequently-issued patent. The license shall be exclusive and free of charge for a period of one year from the filing date of the patent application or the provisional application. Thereafter, such license shall be at such prices and on such other terms as the parties hereto may mutually agree provided that such terms are at least as favorable as the LICENSOR would receive in an arms-length transaction with any third party. If LICENSEE fails to exercise its option, then LICENSOR shall be free to offer such TECHNOLOGY to third parties; or 4.1.2 if a patent application or a provisional application is not filed and will not be filed for such TECHNOLOGY by LICENSOR, and the TECHNOLOGY has achieved a commercially viable status that LICENSOR seeks to take advantage of, then LICENSOR shall give written notice to LICENSEE setting out this TECHNOLOGY in detail. Upon receipt of the detailed written notice, LICENSEE shall have the exclusive right and option, exercisable upon written notice to LICENSOR at any time during a period of thirty (30) days from the date of receipt of notice from LICENSOR, to purchase a license of the TECHNOLOGY. Such a license shall be exclusive and free of charge for a period of one year from receipt of the detailed written notice from LICENSEE. Thereafter, such license shall be at such prices and on such other terms as the parties hereto may mutually agree provided that such terms are at least as favorable as the LICENSOR would receive in an arms-length transaction with any third party. If LICENSEE fails to exercise its option, then LICENSOR shall be free to offer such TECHNOLOGY to third parties. SECTION 5 LIMITATIONS OF LIABILITY 5.1 DISCLAIMER. Except as specifically set forth herein, LICENSOR makes no warranties, express or implied, regarding or relating to the TECHNOLOGY or to any other materials or services furnished or provided to the LICENSEE hereunder. BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 5 6 5.2 LIMITATION OF LIABILITY. In no event shall the LICENSOR or any person or entity involved in creating the TECHNOLOGY be liable under any claim, demand or action arising out of or relating to performance or lack thereof under this Agreement for any special, indirect, incidental, exemplary or consequential damages, whether or not LICENSOR or such person has been advised of the possibility of such claim, demand or action. 5.3 LICENSOR represents and warrants that it has sufficient right, title and interest in and to the TECHNOLOGY to enter into this Agreement, and further warrants that the TECHNOLOGY does not, to the best of LICENSOR'S knowledge, infringe any patent, copyright or other proprietary right of a third party when used as contemplated by this Agreement and that LICENSOR has not been notified of a possibility that the TECHNOLOGY might infringe any patent, copyright or other proprietary rights of a third party. SECTION 6 TERMINATION 6.1 TERMINATION BY EITHER PARTY. Either party may terminate this Agreement upon 30 (thirty) days written notice to the other party if the other party commits a material breach of any term hereof and fails to cure said breach within the 30 (thirty) day period. Such notice shall set forth the basis of termination. A material breach is considered to be, but not limited to, the following: (1) default of performance; (2) failure to meet payments; (3) failure to provide reports and access to records; or (4) unauthorized disclosures. 6.2 AUTOMATIC TERMINATION. If LICENSEE shall be adjudicated insolvent, is the subject of an involuntary petition in bankruptcy not dismissed within the 60 days of the filing of said involuntary petition, or files a petition in bankruptcy, or for reorganization, or if LICENSEE shall take advantage of any insolvency act, or make an assignment for the benefit of creditors, then, and in any such event, this Agreement shall forthwith terminate and the license herein granted shall not constitute an asset in BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 6 7 reorganization, bankruptcy or insolvency which may be assigned or which may accrue to any court or creditor appointed referee, receiver or committee. 6.3 ACTIONS UPON TERMINATION. Upon termination of this Agreement for any reason, LICENSEE shall immediately cease use of, and forthwith return to LICENSOR the TECHNOLOGY and tangible manifestations or copies thereof and all licenses theretofore granted by LICENSEE under this Agreement will be transferred and assigned by LICENSEE to LICENSOR or to that person, firm, or corporation LICENSOR designates for that purpose. SECTION 7 MISCELLANEOUS 7.1 ASSIGNMENT. Except as provided herein, LICENSEE shall not sell, transfer, assign or subcontract any right or obligation hereunder without prior written consent of the LICENSOR, provided however, LICENSEE may upon ten (10) days written notice to, but without prior consent of the LICENSOR assign this Agreement pursuant to: 7.1.1 the merger or consolidation of the LICENSEE; or 7.1.2 the sale of substantially of all the assets of the LICENSEE to a third party, provided the party remains fully liable for its obligation hereunder and such third party agrees to be liable for the party's obligations hereunder. 7.2 SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the successors and permitted assigns of the parties hereto. 7.3 DISPUTE RESOLUTION. The parties will conduct friendly negotiations to resolve any dispute. Failing resolution, disputes will be finally resolved by arbitration in Dallas, Texas, pursuant to the Commercial rules of the American Arbitration Association, by one arbitrator appointed in accordance with such rules. The parties agree that any arbitral award and any matter requiring injunctive or other provisional relief may be instituted and enforced in any court having jurisdiction. In the event of any dispute BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 7 8 between the parties relating to this Agreement, the party substantially prevailing will be entitled to recover all costs and expenses of any subsequent proceedings (including trial, arbitration and appellate proceedings), including the attorney fees incurred therein. 7.4 CHOICE OF LAW. The interpretation and construction of this Agreement shall be governed by the laws of the State of Texas. 7.5 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to law, the remaining provisions of this Agreement will remain in full force and effect. 7.6 NOTICE. Any notice required or permitted to be made or given by either party under this Agreement shall be deemed to have been duly given if delivered, postage prepaid, certified mail, return receipt requested: If LICENSOR to: Charles Brister 505 Ellis Road Amite, Louisiana 70422 If LICENSEE to: Brister's Thunder Karts, Inc. Highway 51 South Roseland, Louisiana 70456 and/or to any such person(s) address(es) as either part shall have specified in writing to the other. 7.7 MARKING OF PRODUCTS. LICENSEE shall accordingly affix or cause to be affixed proper statutory patent, trademark and/or copyright notices to each apparatus made by LICENSEE under this Agreement. 7.8 ENTIRE AGREEMENT. The provisions herein together with the Appendix attached hereto, constitute the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, oral or written, and all other communications relating to the subject matter hereof. No amendment or modification BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 8 9 of any provision of this Agreement will be effective unless set forth in a document that purports to amend this Agreement and that is executed by both parties hereto. 7.9 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be an original and will be effective as of the date set forth on the first page when signed on behalf of LICENSOR and LICENSEE. IN WITNESS WHEREOF, the parties have caused this Agreement to be effective as of the date first set forth above: Charles Brister Brister's Thunder Karts, Inc. By: /s/ CHARLES BRISTER By: /s/ V. LYNN GRAYBILL ------------------------------ ---------------------------- Title: PRESIDENT ---------------------------- BRISTER-BRISTER'S THUNDER KARTS LICENSE AGREEMENT - Page 9 10 APPENDIX A 1. United States Patent Number 5,477,940, issued December 26, 1995, for "ACCELERATOR PEDAL OVERRIDE APPARATUS FOR SELF-PROPELLED MOTORIZED CART WITH ALIGNED BRAKE AND ACCELERATOR PUSHROD TYPE OPERATOR PEDALS." BRISTER-BRISTER'S THUNDER KARTS, INC APPENDIX A EX-10.3 20 ADDENDUM "A" TO LICENSE AGREEMENT 1 EXHIBIT 10.3 ADDENDUM "A" TO LICENSE AGREEMENT (License Fee) This Addendum "A" to License Agreement (the "Addendum A") is entered into on this 15th day of March, 1997, by and among Charles Brister, an individual ("Licensor"), Brister's Thunder Karts, Inc., a Louisiana corporation ("Brister's") and Karts International Incorporated, a Nevada corporation ("Licensee"). W I T N E S S E T H WHEREAS, Brister's is a wholly owned subsidiary of Licensee; WHEREAS, Licensor and Brister's entered into that certain License Agreement effective March 15, 1996 (the "License Agreement"); WHEREAS, the License Agreement granted to Brister's a license to utilize United States Patent Number 5,477,940, issued December 26, 1995, for "Acceleration Pedal Override Apparatus for Self-Propelled Motorized Cart with Aligned Brake and Accelerator Pushrod Type Operator Pedals" (the "Pedal Override Apparatus"); WHEREAS, Brister's desires to assign its rights under the License Agreement to Licensee and Licensee agrees to accept such assignment; WHEREAS, Licensor and Licensee desire to modify the License Agreement to set forth the fee which Licensee will pay to Licensor specifically for the extension of the license relating to the Pedal Override Apparatus; and WHEREAS, unless otherwise defined, all defined terms contained herein shall have the same meanings assigned to them in the License Agreement. NOW THEREFORE, in consideration of the sum of ten dollars ($10.00) and other good and valuable consideration, the receipt of which is hereby irrevocably acknowledged, the parties hereto hereby agree as follows: 1. Assignment. Brister's assigns to Licensee all of its right, title and interest under the License Agreement and Licensee accepts all of Brister's right, title and interest under the License Agreement. Licensor hereby consents to such assignment. 2. License. Without in any other way modifying the other terms and conditions of the License Agreement, except as set forth herein, Licensee, and any of its affiliates or subsidiaries are granted, during the term of this Addendum A, an exclusive license to the Pedal Override Apparatus. 3. Term. The term of this Addendum A shall be for a period of three years commencing on the Effective Date. ADDENDUM "A" TO LICENSE AGREEMENT - Page 1 2 4. License Fee. Solely with regard to the licensing of the Pedal Override Apparatus as set forth in Section 1 hereof, Licensee, simultaneously with the execution of this Addendum A, hereby agrees to pay to Licensor for exclusive use of the Pedal Override Apparatus, during the term of this Addendum A, an initial license fee of $10,000. 5. Royalty. No royalty payment is due Licensor for use of the Pedal Override Apparatus pursuant to this Agreement. 6. Miscellaneous. The parties hereto acknowledge and incorporate herein by reference those provisions in Section 7 of the License Agreement. IN WITNESS WHEREOF, the parties have caused this Addendum to be effective as of March 15, 1997 (the "Effective Date"). CHARLES BRISTER BRISTER'S THUNDER KARTS, INC. Charles Brister By: /s/ V. LYNN GRAYBILL - ------------------------- ---------------------------- V. Lynn Graybill, President KARTS INTERNATIONAL INCORPORATED By: /s/ V. LYNN GRAYBILL ---------------------------- V. Lynn Graybill, President ADDENDUM "A" TO LICENSE AGREEMENT - Page 2 EX-10.4 21 ROYALTY AGREEMENT 1 EXHIBIT 10.4 ROYALTY AGREEMENT This Royalty Agreement (the "Agreement") is entered into on this 15th day of March, 1997, by and among Charles Brister, an individual ("Licensor") and Karts International Incorporated, a Nevada corporation ("Licensee"). W I T N E S S E T H WHEREAS, Brister's Thunder Karts, Inc., a Louisiana corporation ("Brister's") is a wholly owned subsidiary of Licensee; WHEREAS, Licensor and Brister's entered into that certain License Agreement effective March 15, 1996 (the "License Agreement"), which was amended and assigned to Licensee on March 15, 1997, by that certain Addendum "A" to License Agreement ("Addendum A") (the License Agreement and Addendum A will hereinafter collectively be referred to as the "License Agreement"); WHEREAS, the License Agreement granted to Licensee a license to utilize United States Patent Number 5,477,940, issued December 26, 1995, for "Acceleration Pedal Override Apparatus for Self-Propelled Motorized Cart with Aligned Brake and Accelerator Pushrod Type Operator Pedals" (the "Pedal Override Apparatus"); WHEREAS, Licensor and Licensee desire to set forth the royalties which Licensee will pay to Licensor specifically for the license relating to the Pedal Override Apparatus; and WHEREAS, the License Agreement is incorporated herein by this reference and, unless otherwise defined, all defined terms contained herein shall have the same meanings assigned to them in the License Agreement. NOW THEREFORE, in consideration of the sum of ten dollars ($10.00) and other good and valuable consideration, the receipt of which is hereby irrevocably acknowledged, the parties hereto hereby agree as follows: 1. License. Licensee and any of its affiliates or subsidiaries are granted, during the term of this Agreement, an exclusive license to the Pedal Override Apparatus. 2. Term. The term of this Agreement shall be for a period of three years commencing on the Effective Date. 3. Royalty. With regard to the licensing of the Pedal Override Apparatus as set forth in Section 1 hereof, Licensee hereby agrees to pay to Licensor royalties as follows: (i) a royalty of $1.00 for each of the Licensed Products sold by Licensee or any of its affiliates or subsidiaries containing or utilizing the Pedal Override Apparatus during the period beginning March 15, 1997 and ending December 31, 1997, (ii) a royalty equal to $1.00 for each of the Licensed Products sold by Licensee or any of its affiliates or subsidiaries containing or utilizing ROYALTY AGREEMENT - Page 1 2 the Pedal Override Apparatus during the period beginning January 1, 1998 and ending December 31, 1998, however, in the event that the number of Licensed Products sold by Licensee and any of its affiliates or subsidiaries does not exceed 20,000 for such period, Licensee agrees to pay Licensor a royalty payment of $20,000 for said period, (iii) a royalty equal to $1.00 for each of the Licensed Products sold by Licensee or any of its affiliates or subsidiaries containing or utilizing the Pedal Override Apparatus during the period beginning January 1, 1999 and ending December 31, 1999, however, in the event the number of Licensed Products sold by Licensee and any of its affiliates or subsidiaries does not exceed 20,000 for such period, Licensee agrees to pay Licensor a royalty payment of $20,000 for said period, and (iv) a royalty of $1.00 for each of the Licensed Products sold by Licensee or any of its affiliates or subsidiaries containing or utilizing the Pedal Override Apparatus during the period beginning January 1, 2000 and ending March 14, 2000. Licensee shall remit payment of accrued royalties on June 30 and December 31 of each year during the term of this Agreement with any remaining accrued royalties due on termination of this Agreement. 4. Miscellaneous. The parties hereto acknowledge and incorporate herein by reference those provisions in Section 7 of the License Agreement. IN WITNESS WHEREOF, the parties have caused this Addendum to be effective as of March 15, 1997 (the "Effective Date"). CHARLES BRISTER KARTS INTERNATIONAL INCORPORATED /s/ CHARLES BRISTER By: /s/ V. LYNN GRABILL - ---------------------------- ----------------------------- V. Lynn Graybill, President ROYALTY AGREEMENT - Page 2 EX-10.5 22 1,000,000 SUBORDINATED PROMISSORY NOTE 1 EXHIBIT 10.5 EXCEPT AS OTHERWISE PROVIDED HEREIN, THE RIGHTS OF PAYEE (AS HEREINAFTER DEFINED) TO RECEIVE PAYMENT OF ANY PRINCIPAL OR INTEREST ON THIS SUBORDINATED PROMISSORY NOTE IS SUBJECT AND SUBORDINATE TO THE PRIOR PAYMENT OF THE PRINCIPAL OF, (AND PREMIUM, IF ANY) AND THE INTEREST ON, ALL OTHER INDEBTEDNESS OF MAKER (AS HEREINAFTER DEFINED), NOW OUTSTANDING, WHETHER SECURED OR UNSECURED, AND ANY DEFERRALS, RENEWALS, EXTENSIONS OF SUCH INDEBTEDNESS OR ANY DEBENTURES, BONDS, OR NOTES EVIDENCING SUCH INDEBTEDNESS (THE "SENIOR INDEBTEDNESS"). UPON ANY RECEIVERSHIP, INSOLVENCY, ASSIGNMENT FOR THE BENEFIT OF CREDITORS, BANKRUPTCY, REORGANIZATION, SALE OF SUBSTANTIALLY ALL OF THE ASSETS, DISSOLUTION, LIQUIDATION, OR ANY OTHER MARSHALLING OF THE ASSETS AND LIABILITIES OF MAKER OR IF THIS SUBORDINATED PROMISSORY NOTE IS DECLARED DUE AND PAYABLE IN ACCORDANCE WITH ITS TERMS, THEN NO AMOUNT SHALL BE PAID BY MAKER WITH RESPECT TO THE PRINCIPAL AND INTEREST HEREON UNLESS AND UNTIL THE PRINCIPAL OF, AND INTEREST ON, ALL SENIOR INDEBTEDNESS THEN OUTSTANDING IS PAID IN FULL. SUBORDINATED PROMISSORY NOTE $1,000,000 Dallas, Texas March 15, 1996 FOR VALUE RECEIVED, the undersigned, Brister's Thunder Karts. Inc., a Louisiana corporation ("Maker"), promises to pay to the order of Charles Brister, an individual residing in the state of Louisiana (together with all subsequent holders of this Note, collectively referred to as "Payee"), the principal sum of One Million Dollars ($1,000,000), payable as provided herein, plus accrued interest on the outstanding principal balance as herein specified. The principal and accrued interest thereon shall be due and payable by Maker to the Payee in accordance with the schedule set forth on Exhibit A hereto. All past due interest shall bear interest at the highest rate permitted by applicable law. Principal and accrued interest under this Note, or any portion thereof, may be prepaid without penalty. All payments and prepayments shall be applied first to accrued and unpaid interest, and the balance of any such payments or prepayments shall be applied to outstanding principal in the order of maturity. Notwithstanding anything to the contrary contained herein, no provisions of this Note shall require the payment or permit the collection of interest in excess of the maximum rate permitted by applicable law. If any interest in excess of such maximum rate is herein provided for, or shall be adjudicated to be so provided, in this Note or otherwise in connection with this transaction giving rise to the execution hereof, the provisions of this paragraph shall govern and prevail, and neither Maker nor the sureties, guarantors, successors or assigns of Maker shall be obligated to 2 pay the excess amount of such interest or any other excess sum paid for the use, forbearance or detention of sums loaned pursuant hereto. If for any reason interest in excess of the maximum rate of interest permitted by applicable law shall be deemed, charged, required or permitted by a court of competent jurisdiction, any such excess shall be applied as a payment and reduction of the principal of indebtedness evidenced by this Note; and, if the principal amount hereof has been paid in full, any remaining excess shall forthwith be paid to Maker. This Note is secured by a Security Agreement dated the date hereof executed by the Pledgors named therein ("Pledgors") in favor of Payee covering the collateral more fully described on Exhibit B hereto. Maker, and any endorser or guarantors of this Note and all other persons who may become liable for all or any part of the obligations represented by this Note, severally waive presentment for payment, protest, notice of protest and of nonpayment, notice of intention to accelerate, and notice of acceleration. In the event of default by Maker in the payment of any part of the principal or interest on this Note when due and the continuance thereof for fifteen (15) days following Maker's and Pledgors' receipt of written notice of such default, the entire unpaid balance of principal and accrued interest on this Note shall, at the option of Payee, become immediately due and payable. Failure by the holder to exercise any option upon one (1) default will not constitute a waiver thereof or the waiver of the right to exercise such option in the event of a subsequent default. If after default this Note is placed in the hands of an attorney for collection or is collected through judicial proceedings, Maker shall pay, in addition to the sums referred to above, a reasonable sum as collection or attorneys' fees and all other costs incurred by the holder in collection of the unpaid amounts due hereunder. In addition, in the event that the parent company of Maker, Karts International Incorporated, successfully completes an underwritten public offering of its common stock, the entire unpaid balance of principal and accrued interest on this Note shall, at the option of Payee, become immediately due and payable. This Note is made and is performable in Dallas, Dallas County, Texas. This Note shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America. IN WITNESS WHEREOF, the undersigned has executed this Note as of the 15th day of March, 1996. BRISTER'S THUNDER KARTS, INC. By: /s/ V. LYNN GRAYBILL -------------------------------- V. Lynn Graybill, President 2 3 EXHIBIT A PAYMENT SCHEDULE The following annualized amounts shall be paid in equal quarterly payments during the years set forth below beginning on June 15, 1996:
Principal Total Amount Year Interest Rate (%) Interest Payable Payable Payable ---- ----------------- ---------------- --------- ------------ 1996-1997 8 $ 80,00 $ 0 $ 80,000 1997-1998 9 90,000 0 90,000 1998-1999 10 100,000 0 100,000 1999-2000 11 110,000 250,000 360,000 2000-2001 12 90,000 250,000 340,000 2001-2002 13 65,000 250,000 315,000 2002-2003 14 35,000 250,000 285,000
4 EXHIBIT B COLLATERAL
Number of Shares Market Price Aggregate Company of Common Stock Per Share Market Value ------- ---------------- ------------ ------------- Hunter Resources, Inc. 1,000,000 $ .50 $ 500,000.00 NewCare Health Corporation 196,464 2.545 500,000.88 TOTAL $1,000,000.88
EX-10.6 23 200,000 PROMISSORY NOTE 1 EXHIBIT 10.6 PROMISSORY NOTE $200,000.00 Dallas, Texas April 1, 1996 FOR VALUE RECEIVED, the undersigned, Karts International Incorporated, a Nevada corporation, with its principal office at 109 North Park Blvd., Suite 210, Covington, Louisiana 70433 (the "Maker") hereby unconditionally promises to pay to the order of Charles Brister, an individual residing in Amite, Tangipahoa Parish, Louisiana (the "Lender"), at 505 Ellis Road, Amite, Louisiana 70422, or at such place as the Lender may from time to time designate in writing, the principal sum of TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($200,000.00), in lawful money of the United States of America, together with interest as set forth below. ARTICLE I. INTEREST RATE The unpaid principal balance hereof that is not past due shall bear interest (calculated on the basis of the actual days elapsed in a year consisting of 360 days) from the date hereof until maturity at a rate of ten percent (10%) per annum. Notwithstanding anything to the contrary herein contained, Maker shall never be required to pay interest in excess of the Maximum Rate permitted by law. Maker and Lender agree that the "Maximum Rate" to be charged shall be the maximum rate of interest permitted to be charged under the laws of the State of Louisiana. Regardless of any provision contained in this Note, no holder of this Note shall ever be entitled to receive, collect or apply, as interest on any amount owing hereunder, any amount in excess of the Maximum Rate of interest permitted to be charged by applicable law, and in the event any holder of this Note ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and if the principal amount of this Note is paid in full, any remaining excess shall forthwith be paid to the Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Maximum Rate, the undersigned and any holder of this Note shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) amortize, prorate, allocate and spread, in equal parts, the total amount of interest throughout the entire contemplated term of this Note so that the interest rate is uniform throughout the term of this Note; provided that if this Note is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence hereof exceeds the Maximum Rate, the holder of this Note shall refund to the undersigned the amount of such excess or credit the amount of such excess against the principal amount of this Note, and in such event, no holder of this Note shall be subject to any penalties provided by any laws for contracting for, charging or receiving interest in excess of the Maximum Rate. If, at any time and from time to time, Lender is prevented from collecting the rate of interest and the fees specified in this Note, by applicable law or governmental regulation, it shall be entitled to recoup the amount it would have otherwise been able to collect when such recoupment will not violate such applicable law or governmental regulation. Such recoupment shall be accomplished by Maker paying interest at the Maximum Rate until such time as Lender shall have fully recouped the interest it would have otherwise been able to collect from the Maker in the absence of such applicable law or government regulation. During any such period of recoupment, interest collected by Lender shall first be credited to payment of current interest due at the rate specified in this Note, then any 2 remaining interest collected shall be applied to recoupment. When Lender shall have recouped all such interest, the interest rate charged hereunder shall revert to the rate specified in this Note. In no event, however, shall the interest rate charged hereunder ever exceed the Maximum Rate of interest permitted by law. ARTICLE II. PAYMENT OF INTEREST AND PRINCIPAL Principal and interest shall be due and payable in accordance with the payment schedule set forth in Schedule "A" attached hereto, which Schedule is incorporated herein by this reference. All past due principal, and if permitted, accrued interest on this Note shall bear interest at the Maximum Rate until paid. All such payments shall be made at Lender's address set forth above. If any payment of principal or interest on this Note shall become due on a Saturday, Sunday or public holiday under the laws of the State of Louisiana, or on any other day on which banking institutions are authorized or obligated by law to close in the City of Amite, State of Louisiana, such payment shall be made on the next succeeding business day, and such extension of time shall in such case be included in computing interest in connection with such payment. Maker shall have the right to prepay, at any time and from time to time without premium or penalty, the entire unpaid principal balance of this Note or any portion thereof. ARTICLE III. EVENTS OF DEFAULT Maker shall be in default under this Note upon the happening of any of the following events or conditions (the "Events of Default"): A. Any sum payable on account of the principal or interest of this Note is not paid in full within ninety (90) days after said sum is due under this Note; B. The Maker shall make a general assignment for the benefit of creditors, or file a petition in voluntary bankruptcy or a petition or answer seeking reorganization of the Maker or a readjustment of its indebtedness under the federal bankruptcy laws, or consent to the appointment of a receiver or trustee of its properties; or C. The Maker shall be adjudged bankrupt or insolvent, or a petition or proceedings for bankruptcy or for reorganization shall be filed against it and it shall admit the material allegations thereof, or an order, judgment or decree shall be made approving such a petition and such order, judgment or decree shall not be vacated or stayed within thirty (30) days of its entry, or a receiver or trustee shall be appointed for the Maker or its properties or any part thereof and remain in possession thereof for thirty (30) days. ARTICLE IV. DEFAULT Upon the occurrence of any of the Events of Default, the holder hereof may, at its option, declare the entire unpaid principal of and accrued interest owing upon this Note accelerated and thereupon immediately due and payable without declaration, notice, presentment, protest or demand 3 of any kind, notice of intent to accelerate or notice of acceleration, all of which are hereby expressly waived, and upon such declaration, the same shall become and shall be accelerated and immediately due and payable and the Lender or the holder hereof shall have the right to foreclose or otherwise enforce all liens or security interests securing payment hereof, or any part hereof, and offset against this Note any sum or sums owed by the Lender or holder hereof to the Maker. Provided, however, that upon the occurrence of any of the Events of Default under Article III., Sections B. or C. thereof, the entire unpaid principal of and accrued interest owing upon this Note shall become automatically accelerated and thereupon immediately due and payable without declaration, notice, presentment, protest or demand, notice of intent to accelerate, or notice of acceleration, all of which are hereby expressly waived. ARTICLE V. WAIVER OF PROTEST AND EXTENSION OF TIME The Maker of this Note does hereby waive demand, grace, presentment for payment and protest, notice of intent to accelerate, and notice of acceleration; and, further, does hereby agree and consent that this Note may be renewed and the time of payment extended without notice, and without releasing the Maker. ARTICLE VI. WAIVER If, after any of said Events of Default shall occur, the Lender shall waive its powers or rights arising thereunder, such waiver shall not be deemed to waive Lender's powers or rights upon the later occurrence or recurrence of any of the Events of Default. No delay or omission on the part of the Lender in exercising any right hereunder shall operate as a waiver of such right, or of any other right under this Note. ARTICLE VII. NOTICES Any notice or communication required or permitted hereunder to be given to the Maker pursuant to the terms hereof shall be given in writing, sent by (i) personal delivery, or (ii) expedited delivery service with proof of delivery, or (iii) United States mail, postage prepaid, registered or certified mail or, (iv) prepaid telegram or telex (provided that such telegram or telex is confirmed by expedited delivery service or by mail in the manner previously described), addressed to the Maker at its above stated address or to such other address as the Maker may from time to time file with the Lender. Any such notice or communication shall be deemed to have been given either at the time of personal delivery or in the case of mail, as of two (2) days after postmark when sent by United States mail at the address and in the manner provided herein, or in the case of telegram or telex, upon receipt. ARTICLE VIII. MISCELLANEOUS A. Maker and each co-maker, surety, endorser, guarantor and other party ever liable for payment for any sums of money payable on this Note, jointly and severally waive presentment and demand for payment, protest, notice of protest and nonpayment, notice of dishonor, notice of acceleration or notice of intention to accelerate, bringing of suit and diligence in taking any action to collect any amount called for hereunder and in handling of securities at any time in connection 4 herewith, and agree that their liability under this Note shall not be affected by any renewal or extension in the time of payment hereof, or in any indulgences, or by any release or change in any security for payment of this Note, and hereby consent to any and all renewals, extensions, indulgences, releases or changes regardless of the number of such renewals, extensions, indulgences, releases or changes. B. As evidenced by his signature below, Lender acknowledges that this Note reflects the method of payment pursuant to which Maker shall satisfy its obligation to Lender under paragraph 4. of the "Post-Closing Matters" section of the Memorandum of Closing II -- Stock Purchase Agreement executed on March 15, 1996. C. In the event that Maker successfully completes an underwritten public offering of its common stock, the entire unpaid balance of principal and accrued interest on this Note shall, at the option of Lender, become immediately due and payable. D. This Note is performable in Amite, Tangipahoa Parish, Louisiana, and Maker and each surety, guarantor, endorser, and any other party ever liable for payment of any sums of money payable on this Note, jointly and severally waive the right to be sued hereon elsewhere. This Note shall be governed by and construed in accordance with the laws of the State of Louisiana and the applicable laws of the United States of America. MAKER: KARTS INTERNATIONAL INCORPORATED, a Nevada corporation By: /s/ V. LYNN GRAYBILL --------------------------------- V. Lynn Graybill, President The provisions of Article VIII(B) are acknowledged and accepted by Lender on this 9th day of June, 1996. LENDER: /s/ CHARLES BRISTER - ----------------------------- Charles Brister 5 SCHEDULE "A" PROMISSORY NOTE Schedule of Payments of Principal and Interest - -------------------------------------------------------------------------------- Amount of Amount of Unpaid Payment Principal Principal Date Due Paid Balance - -------------------------------------------------------------------------------- April 1, 1997 $ 20,000(1) $ - 0 - $ 200,000 July 1, 1997 $ 55,000 $ 50,000 $ 150,000 October 1, 1997 $ 53,750 $ 50,000 $ 100,000 January 1, 1998 $ 52,500 $ 50,000 $ 50,000 April 1, 1998 $ 51,250 $ 50,000 $ - 0 - EX-10.7 24 COMMERCIAL SECURITY AGREEMENT 1 EXHIBIT 10.7 COMMERCIAL SECURITY AGREEMENT This Commercial Security Agreement (the "Agreement") is entered as of the date hereinafter set forth by and between: CHARLES BRISTER (the "Secured Party"), an individual residing in Tangipahoa Parish, Louisiana, whose Social Security number is , and ROBERT W. BELL, an individual residing in Pinellas County, Florida, whose Social Security number is , ("Bell"), and GARY C. EVANS, an individual residing in Dallas County, Texas, whose Social Security number is , ("Evans"), (Bell and Evans are individually referred to as "Pledgor" and jointly referred to herein as the "Pledgors"), and BRISTER'S THUNDER KARTS, INC. (the "Borrower"), Tax Identification Number 75-2639196, a Louisiana corporation having its principal place of business at Highway 51 South, Roseland, Louisiana, 70456 represented herein by V. Lynn Graybill, its President, duly authorized by resolution attached hereto, under the following terms and conditions: SECTION 1. GRANT OF SECURITY INTEREST. For value received and in order to secure the prompt and punctual payment and satisfaction of the Obligations as defined hereinafter, the Pledgors do by these presents hereby grant a continuing security interest in favor of the Secured Party as affecting the Collateral described in the Description of Collateral (Section 3) section of this Agreement and agrees with the Secured Party as hereinafter provided. The security interest granted in the Collateral described in the Description of Collateral section of this Agreement in favor of the Secured Party will continue until such time as all of the Obligations as defined hereinafter are fully paid and satisfied and this Agreement is cancelled or terminated by the Secured Party under a written cancellation instrument and the Collateral in the possession of the Secured Party or a financial intermediary (as defined in R.S.10:8-313(4)) has been placed in the possession of Pledgors or their designated agents. SECTION 2. OBLIGATIONS SECURED. The security interest granted hereby is granted to secure the prompt and punctual payment and satisfaction of the following (which is herein separately and collectively referred to as the "Obligations"): A. That loan indebtedness of Borrower to the Secured Party represented by that certain subordinated promissory note made by Borrower dated March 15, 1996 payable to the order of the Secured Party and all subsequent holders of the note, in the 2 principal amount of ONE MILLION AND NO 100 ($1,000,000.00) DOLLARS, with interest and attorney's fees and payable as provided therein. B. Any advances or expenditures made by the Secured Party or expenses incurred by the Secured Party in protection or in furtherance of its rights under this Agreement. SECTION 3. DESCRIPTION OF COLLATERAL. Pledgors hereby grant to Secured Party a security interest in and agree that Secured Party shall continue to have a security interest in the following property (the "Collateral") to-wit: The securities described below, together with all instruments and general intangibles related thereto and all monies, income, proceeds and benefits attributable or accruing to said property, including, but not limited to, all stock rights, options, rights to subscribe, any dividends (except cash dividends), new security or other properties or benefits to which Pledgors are or may hereafter become entitled to receive on account of said property:
Company No. of Common Shares Pledgor - ------- -------------------- ------- Hunter Resources, Inc. 1,000,000 Evans NewCare Health Corporation 196,464 Bell
together with any accessions, additions and attachments to the foregoing and the proceeds and products thereof (except immovable property), including without limitation, all cash, general intangibles, accounts, inventory, equipment, fixtures, farm products, notes, drafts, acceptances, securities, instruments, chattel paper, insurance proceeds payable because of loss or damage, or other property, benefits or rights arising therefrom, and in and to all returned or repossessed goods arising from or relating to any of the property described herein or other proceeds of any sale or other disposition of such property. On each anniversary date of the Agreement, the market value of the Collateral shall be determined based upon the closing price of such Collateral on its applicable trading market on the day immediately preceding such anniversary date. On such date or as soon as practicable thereafter (i) if the market value of the Collateral pledged by each Pledgor exceeds 50% of the principal amount of the Obligations due and owing on such date, such Pledgor will be entitled to have released to him a number of shares having a market value equal to such excess, or (ii) if the market value of the Collateral pledged by each Pledgor is less than 50% of the principal amount of the Obligations due and owing on such date, such Pledgor shall pledge additional securities having a market value equal to such deficiency. Any such additional securities shall be included in the definition of Obligations hereunder and shall be subject to the terms and conditions of the Agreement. 2 3 SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGORS. Pledgors represent and warrant as follows: A. OWNERSHIP; NO ENCUMBRANCES. Except for the security interest granted hereby, Evans is the owner of the Hunter Resources, Inc. shares and Bell is the owner of the NewCare Health Corporation shares, and Pledgors are and during the term of this Agreement will be, the owners of their respective stock constituting the Collateral free and clear from all charges, liens, security interests, adverse claims and encumbrances of any and every nature whatsoever. B. NO FINANCING STATEMENTS. There is no financing statement, notice of security interest, pledge agreement, assignment, notice of assignment or similar document now on file or of record in any public office covering any part of the Collateral, and Pledgors will not execute and there will not be on file or of record in any public office any financing statement(s), notice of security interest, pledge agreement, assignment, notice of assignment or similar document except the financing statement(s) filed or to be filed in favor of Secured Party. C. PERFECTION OF SECURITY INTEREST. The Pledgors shall transfer a security interest in the Collateral, and maintain such security interest in the Collateral during the term of this Agreement at the option of the Pledgors by (i) placing the Collateral in the possession of the Secured Party, or (ii) by placing a financial intermediary in possession of certificated securities representing the Collateral appropriately endorsed in blank and the financial intermediary shall send confirmation to the Secured Party and also by book entry or otherwise identify the security interest in compliance with La. R.S.10:8-313. D. ACCURACY OF INFORMATION. All information furnished to Secured Party concerning Pledgors, the Collateral and the Obligations, or otherwise for the purpose of obtaining or maintaining credit, is or will be at the time the same is furnished, accurate and complete in all material respects. E. AUTHORITY. Each of the Pledgors have the full right and authority to execute and perform this Agreement and to create the security interest created by this Agreement. The making and performance by Pledgors of this Agreement will not violate any articles of incorporation, bylaws or similar document respecting Pledgors, any provision of law or any previous agreement of Pledgors. F. IDENTIFICATION. The Pledgors' correct Social Security Numbers are shown on the first page of this Agreement, and each Pledgor shall give notice to the Secured Party 3 4 immediately of any change in that number. Each Pledgor warrants to give notice to the Secured Party immediately should there be any change in Pledgor's name or legal status. G. CONTINUING OBLIGATIONS. The above representations and warranties and all other representations and warranties contained in this Agreement are and will be continuing in nature and will remain in full force and effect until such time as this Agreement is cancelled in the manner provided above. H. ADDITIONAL WARRANTIES. As to each and all securities and similar property included within the Collateral (including securities hereafter acquired that are part of the Collateral), Pledgors further represent and warrant (as of the time of delivery of same to Secured Party) as follows: (a) such securities are genuine, validly issued and outstanding, fully paid and nonassessable, and are not issued in violation of the preemptive rights of any person or of any agreement by which the issuer or obligor thereof or Pledgors are bound, (b) such securities are not subject to any interest, option or right of any third person, (c) such securities are in compliance with applicable law concerning form, content and manner of preparation and execution and (d) Pledgors acquired and hold the securities in compliance with all applicable laws and regulations. I. DIVIDENDS AND PROCEEDS. Any and all payments, dividends, other distributions (including stock redemption proceeds), or other securities in respect of or in exchange for the Collateral, whether by way of any dividends (except cash dividends), stock dividends, recapitalizations, mergers, consolidations, stock splits, combinations or exchanges of shares or otherwise, received by Pledgors shall be held by Pledgors or the financial intermediary, as the case may be, in trust for Secured Party and Pledgors shall immediately deliver same to Secured Party or a financial intermediary to be held as part of the Collateral. Pledgors may retain ordinary cash dividends. J. VOTING RIGHTS. Secured Party shall have no voting rights unless there has been a default under this Agreement and Secured Party has obtained ownership of the Collateral. K. FURTHER ASSURANCES. Pledgors agree to execute such stock powers, endorse such instruments, or execute such additional pledge agreements or other documents as may be required by Secured Party in order effectively to grant to Secured Party the security interest in the Collateral and to enforce and exercise Secured Party's rights regarding same. 4 5 L. SECURITIES LAWS. In the event of default, Pledgors hereby agree to cooperate fully with Secured Party in order to permit Secured Party to sell, at foreclosure or public or private sale, the Collateral pledged hereunder. Specifically, Pledgors agree to fully comply with the securities laws of the United States and of the State of Louisiana. SECTION 7. GENERAL COVENANTS: Pledgors covenant and agree as follows: A. NOTICES AND REPORTS; RECORDS. Each Pledgor shall promptly notify Secured Party in writing of any change in the name, identity or structure of such Pledgor, any charge, lien, security interest, claim or encumbrance asserted against the Collateral, any theft, loss, injury or similar incident involving the Collateral, and any other material matter adversely affecting Pledgor or the Collateral. B. ADDITIONAL FILINGS. Pledgors agree to execute and deliver such financing statement or statements, or amendments thereof or supplements thereto, or other documents as Secured Party may from time to time reasonably require in order to comply with the Commercial Laws of Louisiana, the Uniform Commercial Code (or other applicable state law of the jurisdiction where any of the Collateral is located) and to preserve and protect the Secured Party's rights to the Collateral. C. PROTECTION OF COLLATERAL. Secured Party, at its option, whether before or after default, but without any obligation whatsoever to do so, may (a) discharge taxes, claims, charges, liens, security interests, assessments or other encumbrances of any and every nature whatsoever at any time levied, placed upon or asserted against the Collateral, (b) pay all filing, recording, licensing or certification fees or other fees and charges related to the Collateral, or (c) take any other action to preserve and protect the Collateral and Secured Party's rights and remedies under this Agreement as Secured Party may deem necessary and appropriate. Pledgors agree that Secured Party shall have no duty or obligation whatsoever to take any of the foregoing action. D. INSPECTION. Pledgors shall at all reasonable times allow Secured Party by or through any of its officers, agents, attorneys or accountants, to examine the Collateral. SECTION 8. EVENTS OF DEFAULT: Pledgors shall be in default hereunder upon the happening of any of the following events or conditions: A. Failure by either Borrower to pay the principal of or any installment of the principal of the obligations when due, or failure to pay any interest on the obligations when due, and 5 6 such nonpayment shall have continued for a period of fifteen (15) days after receipt of written notice thereof; B. If any representation or warranty made in this Agreement that shall prove to have been untrue or misleading in any material respect when made; C. Default in the observance or performance of any covenant or agreement contained in this Agreement, and if such default shall have continued for a period of fifteen (15) days after receipt of written notice thereof; D. If either Borrower or Pledgors shall commence any case, proceeding or other action (i) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution, composition or other relief with respect to it or its debts; or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, or either Borrower or Pledgors shall make a general assignment for the benefit of its creditors; or (iii) there shall be commenced against either Borrower or Pledgors any case, proceeding or other action of a nature referred to in clauses (i) or (ii) above or seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its property, which case, proceeding or other action results in the entry of an order for relief or remains undismissed, undischarged or unbonded for a period of 60 days; or (iv) either Borrower or Pledgors shall take any action indicating its consent to, approval of, or acquiescence in, or in furtherance of, any of the acts set forth in clauses (i), (ii) or (iii) above; or (v) either Borrower or Pledgors shall generally not, or shall be unable to, pay its debts as they become due or shall admit in writing its inability to pay its debts; SECTION 9. REMEDIES: Upon the occurrence of any event of default and the applicable notice thereof, if any, Secured Party, at its option, shall be entitled to exercise any one or more of the following remedies (all of which are cumulative): A. DECLARE OBLIGATIONS DUE. Secured Party, at its option, may declare the Obligations or any part thereof immediately due and payable, without demand, notice of intention to accelerate, notice of acceleration, notice of nonpayment, presentment, protest, notice of dishonor, or any other notice whatsoever, all of which are hereby waived by Pledgors and any 6 7 maker, endorser, guarantor, surety or other party liable in any capacity for any of the obligations. B. DEFAULT REMEDIES. Should any event of default occur, and in addition to the rights of Secured Party with respect to possessory collateral, Secured Party shall have the right, at its sole discretion, to accelerate payment of all amounts that either Borrower may then owe to Secured Party, which will then entitle Secured Party to foreclose under this Agreement under ordinary or executory process procedures, and to cause the Collateral to be immediately seized wherever found, and sold with or without appraisal, in regular session of court or in vacation, in accordance with applicable Louisiana law, subject to Paragraph C of this Subsection and the notice provisions in Section 8 herein. Should the Collateral for any reason be located in another state at or following any default under the Obligations or under this Agreement, or should there be a subsequent change in Louisiana law permitting self-help remedies with regard to non-possessory collateral, Pledgors agree that Secured Party may take possession of the Collateral in any manner then permitted under the laws of the state in which the Collateral is then located or under the laws of Louisiana as then applicable. Should Secured Party for any reason have or acquire possession of the Collateral at or following default, Secured Party may sell the Collateral at public or private sale as authorized by Louisiana law or the applicable provisions of the Uniform Commercial Code or similar laws in effect in the state where the Collateral is then located. Pledgor agrees that the requirement of reasonable notice shall be met if the Secured Party mails such notice to Borrower and Pledgors at Pledgors' addresses as shown in this Agreement and to any financial intermediary in possession of the Collateral at least ten (10) days before the time of any public sale or, if disposition is by private sale, at least ten (10) days before the time after which private sale may occur. During such notice period, Borrower, Pledgors, or any third party on behalf of Borrower or Pledgors may cure any default. If public sale is held, there will be sufficient compliance with all requirements of notice to the public by a single publication in a newspaper in general circulation in the parish or county where the Collateral is then located. This notice should include the time and place of sale, and a brief description of the property to be sold. C. PRO RATA SEIZURE OF COLLATERAL. SECURED PARTY AGREES THAT IN THE EVENT OF SEIZURE OF THE COLLATERAL UPON A DEFAULT, SUCH COLLATERAL OF EVANS AND BELL SHALL BE SEIZED AND SOLD ON A PRO RATA BASIS ONLY. BY WAY OF EXAMPLE, IN THE EVENT OF $100,000 REMAINED OWED TO THE SECURED PARTY UPON DEFAULT, SO MUCH OF EVANS AND BELL'S SHARES SHALL BE SEIZED AND SOLD SO 7 8 THAT THE SHARES OF EVANS AND BELL EACH ACCOUNT FOR $50,000 OF THE $100,000 DEBT. IN THE EVENT THE COLLATERAL PLEDGED BY EITHER PLEDGOR WHEN SOLD ON A PRO RATA BASIS IS EXHAUSTED WITHOUT THE OBLIGATION TO THE SECURED PARTY HAVING BEEN FULLY REPAID, SECURED PARTY MAY PROCEED TO SEIZE AND SELL THE ADDITIONAL COLLATERAL PLEDGED BY THE OTHER PLEDGOR NECESSARY TO FULLY REPAY THE OBLIGATIONS. BY WAY OF EXAMPLE, IF $1,000,000 REMAINED OWED TO SECURED PARTY AND BELL'S COLLATERAL HAD A PRESENT MARKET VALUE OF $400,000, AND EVAN'S COLLATERAL HAD A PRESENT MARKET VALUE OF $700,000, THE SECURED PARTY WOULD SEIZE AND SELL ALL OF BELL'S COLLATERAL RESULTING IN $400,000 AND THAT PORTION OF EVAN'S COLLATERAL TO SATISFY THE OBLIGATION ($400,000 PLUS AN ADDITIONAL $200,000). D. PROCEEDS; SURPLUS; DEFICIENCIES. Secured Party may apply any proceeds derived or to be derived from the sale, collection or other disposition of the Collateral first to the reimbursement of any reasonable expenses incurred by Secured Party in connection therewith, including the fees of Secured Party's attorney and court costs; and then to the payment of any additional sums that Secured Party may advance on Pledgor's and/or Borrower's behalf under this Agreement, together with interest thereon at the rate of twelve (12%) percent per annum; and then to the payment of the Obligations in such order and with such priority as Secured Party may determine within its sole discretion. Pledgors shall be entitled to any surplus if one results after application of the proceeds and Borrower shall remain liable for any deficiency. E. EXPENSES. Borrower shall be liable for and agrees to pay on demand the reasonable expenses incurred by Secured Party in enforcing its rights and remedies, in retaking, holding, testing, repairing, improving, selling, leasing or disposing of the Collateral, or like expenses, including, without limitation, attorney's fees and legal expenses incurred by Secured Party. These expenses, together with interest thereon at the rate of twelve (12%) percent per annum from the date incurred until paid by Borrower which Borrower agrees to pay, shall constitute additional Obligations and shall be secured by and entitled to the benefits of this Agreement. F. REMEDIES CUMULATIVE. The rights and remedies of Secured Party are cumulative and the exercise of any one or more of the rights or remedies shall not be deemed an election of rights or remedies or a waiver of any other right or remedy. Pledgor agrees that nothing under this Agreement shall limit or restrict the remedies available to Secured Party following any event of default. Secured Party may remedy any default and may waive any default without waiving the default remedied or without waiving any other prior or subsequent default. 8 9 SECTION 10. PROTECTION OF SECURED PARTY'S SECURITY RIGHTS: Pledgors agree to be fully responsible for any losses that Secured Party may suffer as a result of anyone other than Secured Party asserting any rights or interest in the Collateral. Pledgors further agree to appear in and defend all actions and proceedings purporting to affect Secured Party's security rights and interest. Should Pledgors fail to do what is required of it under this Agreement, or if any action or proceeding is commenced naming Secured Party as a party, or affecting Secured Party's security interest, or the rights and powers granted under this Agreement, then Secured Party may, without releasing Pledgor from any of its obligations, do whatever Secured Party believes is necessary and proper within its sole discretion, including advancing additional sum on Pledgors' behalf as provided herein, to protect Secured Party's security rights and interests. SECTION 11. OTHER AGREEMENTS: A. USE OF COPIES; FILING FEES. Any carbon, photographic or other reproduction of this Security Agreement or any financing statement signed by Pledgors is sufficient as a financing statement for all purposes, including without limitation, filing in any state as may be permitted by the provisions of the Uniform Commercial Code of such state. Pledgors agree that Secured Party may file a carbon, photographic, facsimile or other type of copy of this Agreement, or of a UCC Financing Statement, in lieu of filing an original containing the signatures of Pledgors or of Pledgors' duly authorized representative. Pledgors further agrees to reimburse Secured Party for the cost of filing, amending, continuing, terminating and releasing Pledgors' ucc Financing Statement(s), to the extent applicable, which costs shall be considered additional Obligations secured under this Agreement. B. RELATIONSHIP TO OTHER AGREEMENTS. This Security Agreement and the security interests (and pledges and assignments as applicable) herein granted are in addition to (and not in substitution, novation or discharge of) any and all prior or contemporaneous security agreements, security interests, pledges, assignments, liens, rights, titles or other interests in favor of Secured Party or assigned to Secured Party by others in connection with the Obligations. All rights and remedies of Secured Party in all such agreements are cumulative, but in the event of actual conflict in terms and conditions, the terms and conditions of the latest security agreement shall govern and control. C. NOTICES. Any notice or demand given by Secured Party to Borrower and Pledgors in connection with this Agreement, the Collateral or the Obligations shall be deemed given and effective upon deposit in the United States by certified mail, postage 9 10 prepaid, addressed to Borrowers and Pledgors at the addresses of Borrowers and Pledgors designated at the beginning of this Agreement. Actual notice to Borrowers and Pledgors shall always be effective no matter how given or received. D. HEADINGS AND GENDER. Paragraph headings in this Agreement are for convenience only and shall be given no meaning or significance in interpreting this Agreement. All words used herein shall be construed to be of such gender or number as the circumstances require. E. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Louisiana. F. EXEMPTIONS FROM SEIZURE. In entering into this Agreement, Pledgors are, to the extent applicable, waiving any exemption from seizure with regard to the Collateral to which Pledgors may be entitled under applicable Louisiana law and the laws of the United States. G. AGREEMENTS, REPRESENTATIONS, COVENANTS AND WARRANTIES OF EVANS AND BELL. Any agreement, representation, covenant or warranty made herein by Evans shall only apply to Evans or Evans' stock in Hunter Resources, Inc. Evans makes no representations, warranties, covenants or agreements of any nature with respect to Bell or Bell's shares of NewCare Health Corporation. Any agreement, representation, covenant or warranty made herein by Bell shall apply only to Bell or Bell's stock in NewCare Health corporation. Bell makes no representations, warranties, covenants or agreements of any nature with respect to Evans or Evans' shares of Hunter Resources, Inc. H. ACKNOWLEDGMENT OF MERGER NEGOTIATIONS. Secured Party acknowledges that NewCare Health Corporation is presently in merger negotiations with Retirement Care Associates (NYSE:RCA) and that Hunter Resources, Inc. is presently in merger negotiations with Magnum Petroleum, Inc. (AMEX:MPM). Merger agreements have been executed in both proposed mergers but there is no certainty that either of these mergers will be consummated. Secured Party acknowledges that in the event either merger occurs, or a merger with any other company occurs, known or unknown at this time, no default under the terms of this agreement will result from the conversion of shares resulting from the merger. I. SEPARATE COUNSEL. Secured Party expressly acknowledges that he has been advised that he has not been represented by Borrower or Halter Financial Group, Inc.'s legal counsel in this matter and has been advised and urged to seek separate legal counsel for advice in this matter. 10 11 IN WITNESS WHEREOF, this Agreement is executed by Robert W. Bell at Pinelms County, Largo, Florida on March 14, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Robert W. Bell /s/ Joyce K. Reynolds By: /s/ Robert W. Bell - -------------------------------- -------------------------------- Robert W. Bell /s/ John W. Konlren - -------------------------------- IN WITNESS WHEREOF, this Agreement is executed by Gary C. Evans at _________ County, _______, ________ on ________, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Gary C. Evans By: - -------------------------------- -------------------------------- Gary C. Evans - -------------------------------- IN WITNESS WHEREOF, this Agreement is executed by the Borrower at __________ County, ________, _______ on ________, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Brister's Thunder Karts, Inc. By: - -------------------------------- -------------------------------- V. Lynn Graybill President - -------------------------------- 11 12 SIGNATURES: IN WITNESS WHEREOF, this Agreement is executed by the Secured party at Tangipahoa Parish, Roseland, Louisiana, on ___________, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Charles Brister /s/ Klara Albaral By: /s/ Charles Brister - -------------------------------- -------------------------------- Charles Brister /s/ George Johnson - -------------------------------- IN WITNESS WHEREOF, this Agreement is executed by Robert W. Bell at _________ County, _______, Florida on ________, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Robert W. Bell By: - -------------------------------- -------------------------------- Robert W. Bell - -------------------------------- IN WITNESS WHEREOF, this Agreement is executed by Gary C. Evans at Dallas County, Texas, on March 15, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Gary C. Evans /s/ Vicki Newman By: /s/ Gary C. Evans - -------------------------------- -------------------------------- Gary C. Evans /s/ Brenda M. Yerian - -------------------------------- 11 13 IN WITNESS WHEREOF, this Agreement is executed by the Borrower at Dallas County, Texas, ________ on March 15, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Brister's Thunder Karts, Inc. /s/ Klara Albaral By: /s/ V. Lynn Graybill - -------------------------------- -------------------------------- V. Lynn Graybill /s/ George Johnson President - -------------------------------- 12
EX-10.8 25 2,000,000 PROMISSORY NOTE 1 EXHIBIT 10.8 PROMISSORY NOTE Secured by Borrower's Assets $2,000,000 dated effective as of March 15, 1996 "Borrower" promises to pay to the order of The Schlinger Foundation "Holder," at its office at 1944 Edison Street, Santa Ynez, California 93460, or at such other place as the holder may designate in writing, in lawful money of the United States of America the principal sum of Two Million and No/100 Dollars ($2,000,000), with interest thereon until maturity at fourteen percent (14%) per annum. This Note is non negotiable. Interest shall be payable on the 15th day of each consecutive month beginning on the date this Note is endorsed and continuing through February 15, 2001, plus a final installment equal to the entire unpaid principal balance and all accrued and unpaid interest on March 15, 2001. The loan evidenced by this Note shall bear interest as set forth above and shall be payable as follows:
YEARS* INTEREST MONTHLY ANNUAL TOTAL TOTAL ANNUAL RATE INTEREST PRINCIPAL MONTHLY AMOUNT PAYABLE PAYABLE PAYABLE - -------------------------------------------------------------------------------- 1996 - 14% $23,333.33 -0- $23,333.33 $280,000.00 1997 1997 - 14% 23,333.33 -0- 23,333.33 280,000.00 1998 1998 - 14% 23,333.33 + 399,996.00 23,333.33 680,000.00 1999 1999 - 14% 18,666.66 + 399,996.00 18,666.71 623,999.92 2000 2000 - 14% 14,000.00 +1,200,008.00 14,000.00 1,368,000.00 2001 --------------------------------------------------------- TOTALS $3,231,991
* THE NOTE YEAR SHALL BE FROM MARCH 15 TO MARCH 14 OF EACH YEAR. NOTE: THIS SCHEDULE IS BASED ON A FIVE (5) YEAR NOTE, THE FIRST TWO OF WHICH ARE INTEREST ONLY PAYMENTS. ALL PAYMENTS ARE BASED ON SIMPLE INTEREST. PRINCIPAL PAYMENTS ARE DUE AT THE NOTE YEAR'S END OF EACH OF YEARS 3, 4 AND ALL PAYMENTS ARE DUE AND PAYABLE AT THE END OF YEAR 5. MONTHLY PAYMENTS SHALL BE MADE BY ELECTRONIC DEPOSIT TO THE BANK OF CALIFORNIA, WALNUT CREEK REGIONAL OFFICE, 100 PRINGLE AVENUE, SUITE 150, WALNUT CREEK, CALIFORNIA 94596, WITH INSTRUCTIONS TO DEPOSIT TO ACCOUNT NO. 2 OR AT DIFFERENT PLACE IF REQUIRED BY HOLDER. THIS NOTE CAN BE PREPAID WITHOUT PENALTY. Principal, interest and all other sums owed Holder shall be evidenced by entries in records maintained by Holder for such purpose. Each payment on and any other credits with respect to principal, interest and all other sums outstanding shall be evidenced by entries in such records. Holder's records shall be conclusive evidence thereof. Notwithstanding the rights given to Borrower pursuant to provisions in the laws of the state specified in the governing law clause of this document (and any amendments or successors thereto), to designate how payments will be applied, Borrower hereby waives such rights and Holder shall have the right in its sole discretion to determine the order and method of the application of payments to this Note. If the proceeds of the loan evidenced by this Note are, at Borrower's request, to be wire transferred to Borrower or any other individual or entity, including without limitation Holder where the context so permits and in Holder's sole discretion. Such transfer shall be subject to all applicable laws and regulations, and the policy of the Board of Governors of the Federal Reserve System on Reduction of Payments System Risk in effect from time to time ("Applicable Law and Policy"). Borrower acknowledges that as a result of Applicable Law and Policy, the transmission of the proceeds of any advance under this Note which Borrower has requested to be wire-transferred may be significantly delayed. Any unpaid payments of principal or interest on this Note shall bear interest from their respective maturities, whether scheduled or accelerated, until paid in full, whether before or after judgment. In no event shall Borrower be obligated to pay interest at a rate in excess of the highest rate permitted by applicable law from time to time in effect. The occurrence of any of the following shall at Holder's option make all sums of interest, principal and any other amounts owing under this Note immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor or any other notices or demands; and give Holder the right to exercise any other right or remedy provided by contract or applicable law: (a) Borrower shall fail to make any payment of principal or interest when due under this Note or to pay any fees or other charges when due, or Borrower or any other Person shall fail to provide Holder with, or to perform any obligation under, 2 3 this Note or any contract, instrument, addenda or document executed in connection with this Note, including without limitation any guaranty, pledge agreement, security agreement or deed of trust (including this Note, each a "Loan Document"). Any default in the provisions of this Note are subject to the notice provisions set forth in Section 10 of the Commercial Security Agreement. Said Agreement is attached as Exhibit "A" hereto and incorporated herein by this reference. This incorporation by reference shall, however, not prevent Holder from proceeding on the Note itself under California law at Holder's option. In that event, references to notices under Louisiana law shall be read as references to California law. (b) Any representation or warranty made, or financial statement, certificate or other document provided, by Borrower or any guarantor ("Guarantor") of the obligations evidenced by this Note ("Obligations") shall prove to have been false or misleading. (c) Borrower or any Guarantor shall fail to pay its debts generally as they become due or shall file any petition or action for relief under any bankruptcy, insolvency, reorganization, moratorium, creditor composition law, or any other law for the relief of or relating to debtors; an involuntary petition shall be filed under any bankruptcy law against Borrower or any Guarantor, or a custodian, receiver, trustee, assignee for the benefit of creditors, or other similar official, shall be appointed to take possession, custody or control of the properties of Borrower or any Guarantor; or the death, incapacity, dissolution or termination of the business of Borrower or any Guarantor. (d) Borrower or any Guarantor shall fail to perform under any other agreement involving the borrowing of money, the purchase of property, the advance of credit or any other monetary liability of any kind to any Person which shall have a material adverse effect upon the business operations of the Borrower; or any guaranty of the Obligations shall be revoked or terminated. (e) Any governmental or regulatory authority shall take any action, any defined benefit pension plan maintained by Borrower or any Guarantor shall have any unfunded liabilities, or any other event shall occur, any of which, in the judgment of Holder, might have a material adverse effect on the financial condition or business of Borrower or any Guarantor. (f) Any sale, transfer or other disposition of all or a substantial or material part of the assets of Borrower or any Guarantor, including without limitation to any trust or similar entity, shall occur. 3 4 (g) Failure to perform Borrower's obligations under the terms of any promissory note, contract or other obligation that is held by Holder as collateral for the Obligations; or Holder shall not have a perfected security interest in, or shall not maintain full collateralization of the Note with respect to the value of, any collateral being held for the Obligations. (h) Any judgment(s) shall be entered against Borrower or any Guarantor, or any involuntary lien(s) of any kind or character shall attach to any assets or property of Borrower or any Guarantor, any of which might have a material adverse effect on the collateral securing this agreement or the financial condition or business of Borrower or any Guarantor. (i) Borrower shall fail to perform any of its duties or obligations under any Loan Document not specifically referenced hereinabove. No failure or delay on the part of Holder in exercising any power, right or privilege under any Loan Document shall operate as a waiver thereof, and no single or partial exercise of any such power, right or privilege shall preclude any further exercise thereof or the exercise of any other power, right or privilege. Holder has the right at its sole option to continue to accept interest and/or principal payments due under the Loan Documents after default, and such acceptance shall not constitute a waiver of said default or an extension of the maturity date unless Holder agrees otherwise in writing. DISPUTE RESOLUTION (Sections (a) and (b) below are to be construed in accordance with California law) (a) MANDATORY MEDIATION/ARBITRATION. Any controversy or claim between or among the parties, their agents, employees and affiliates, including but not limited to those arising out of or relating to this Note or any related agreements or instruments ("Subject Documents"), including without limitation any claim based on or arising from an alleged tort, shall, at the option of any party, and at that party's expense, be submitted to mediation, using either the American Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services, Inc. ("JAMS") . If mediation is not used, or if it is used and it fails to resolve the dispute within 30 days from the date AAA or JAMS is engaged, then the dispute shall be determined by arbitration in accordance with the rules of either JAMS or AAA (at the option of the party initiating the arbitration) and Title 9 of the U.S. Code, notwithstanding any other choice of law provision in the Subject Documents. All statutes of limitations or any waivers 4 5 contained herein which would otherwise be applicable shall apply to any arbitration proceeding under this subparagraph (a). The parties agree that related arbitration proceedings may be consolidated. The arbitrator shall prepare written reasons for the award. Judgment upon the award rendered may be entered in any court having jurisdiction. This subparagraph (a) shall apply only if, at the time of the proposed submission to AAA or JAMS, none of the obligations to Holder described in or covered by any of the Loan Documents are secured by real property collateral, or, if so secured all parties consent to such submission. (b) JURY WAIVER/JUDICIAL REFERENCE. If the controversy or claim is not submitted to arbitration as provided and limited in subparagraph (a), but becomes the subject of a judicial action, each party hereby waives its respective right to trial by jury of the controversy or claim. In addition, any party may elect to have all decisions of fact and law determined by a referee appointed by the court in accordance with applicable state reference procedures. The party requesting the reference procedure shall ask AAA or JAMS to provide a panel of retired judges and the court shall select the referee from the designated panel. The referee shall prepare written findings of fact and conclusions of law. Judgment upon the award rendered shall be entered in the court in which each proceeding was commenced. (c) PROVISIONAL REMEDIES, SELF HELP, AND FORECLOSURE. To the extent allowed under applicable law no provision of, or the exercise of any rights under, subparagraph (a), shall limit the right of any party to exercise self help remedies such as setoff, to foreclose against any real or personal property collateral, or to obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from a court having jurisdiction before, during or after the pendency of any mediation or arbitration. The institution and maintenance of an action for judicial relief or pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to mediation or arbitration. To the extent any provision of the dispute resolution clause is unenforceable in the jurisdiction under which it is asserted the applicable law shall control. Borrower shall pay and protect, defend and indemnify Holder and Holder's employees, officers, directors, shareholders, affiliates, correspondents, agents and representatives (other than Holder, collectively "Agents") against, and hold Holder and each such Agent harmless from, all claims, actions, proceedings, liabilities, damages, losses, expenses (including, without limitation, 5 6 attorneys' fees and costs) and other amounts incurred by Holder and each such Agent, arising from (i) the matters contemplated by this Note or any Loan Document or (ii) any contention that Borrower has failed to comply with any law, rule, regulation, order or directive applicable to Borrower's sales, leases or performance of services to Borrower's customers, including without limitation those sales leases and services requiring consumer or other disclosures; PROVIDED, HOWEVER, that this indemnification shall not apply to any of the foregoing incurred solely as the result of Holder's or any Agent's gross negligence or willful conduct. This indemnification shall survive the payment and satisfaction of all of Borrower's obligations and liabilities to Holder. Borrower shall reimburse Holder for all costs and expenses, including without limitation reasonable attorneys' fees and disbursements (and fees and disbursements of Holder's in-house counsel) expended or incurred by Holder in connection with (a) the negotiation, preparation, amendment, interpretation and enforcement of the Loan Documents, including without limitation during any workout, attempted workout, and/or in connection with the rendering of legal advice as to Holder's rights, remedies and obligations under the Loan Documents, (b) collecting any sum which becomes due Holder under any Loan Document, (c) any proceeding for declaratory relief, any counterclaim to any proceeding, or any appeal, or (d) the protection, reservation or enforcement of any rights of Holder. For the purposes of this section, attorneys' fees shall include, without limitation, fees incurred in connection with the following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other activity of any kind in connection with a bankruptcy proceeding or case arising out of or relating to any petition under Title 11 of the United States Code, as the same shall be in effect from time to time, or any similar law; (4) garnishment, levy, and debtor and third party examinations; and (5) post- judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment. Each Borrower is jointly and severally liable for the obligations evidenced by this Note, and all references to "Borrower" shall be to "each" or "any" Borrower as the context requires. This Note shall be governed by, and construed in accordance with, the laws of the State of California or Louisiana at Holder's option as authorized by applicable law. Holder's principal office is in California and the collateral for this loan are Borrower's business assets in Louisiana. All terms and conditions of the security agreement and/or other written agreements between the parties are incorporated by this reference. 6 7 BORROWER KARTS INTERNATIONAL INCORPORATED A Nevada Corporation By /s/ V. LYNN GRAYBILL ------------------------------ V. LYNN GRAYBILL, President Brister's Thunder Karts, Inc., the Pledgor under the Commercial Security Agreement attached hereto as Exhibit "A", acknowledges this Note. BRISTER'S THUNDER KARTS, INC. By: /s/ V. LYNN GRAYBILL ------------------------------- V. LYNN GRAYBILL, President 7
EX-10.9 26 COMMERCIAL SECURITY AGREEMENT 1 EXHIBIT 10.9 COMMERCIAL SECURITY AGREEMENT This Commercial Security Agreement (the "Agreement") is entered as of the date hereinafter set forth by and between: THE SCHLINGER FOUNDATION (the "Secured Party"), a California nonprofit public benefit corporation, organized under the laws of the State of California, having its principal place of business at 1944 Edison Street, Santa Ynez, California, 93460, represented herein by Evert I. Schlinger, its duly authorized President, and BRISTER'S THUNDER KARTS, INC. (the "Pledgor"), Tax Identification Number 72-0797992, a Louisiana corporation having its principal place of business at Highway 51 South, Roseland, Louisiana, 70456 represented herein by V. Lynn Graybill, its President, duly authorized by resolution attached hereto, KARTS INTERNATIONAL INCORPORATED (the "Borrower"), Tax Identification Number 59-2621118, a Nevada corporation having its principal place of business at 4851 LBJ Freeway, Suite 201, Dallas, Texas 75244, represented herein by V. Lynn Graybill, its President, duly authorized by resolution attached hereto, under the following terms and conditions: SECTION 1. GRANT OF SECURITY INTEREST. For value received and in order to secure the prompt and punctual payment and satisfaction of the Obligations as defined hereinafter, the Pledgor does by these presents hereby grant a continuing security interest in favor of the Secured Party as affecting the Collateral described in the Description of Collateral (Section 3) section of this Agreement and agrees with the Secured Party as hereinafter provided. The security interest granted in the Collateral described in the Description of Collateral section of this Agreement in favor of the Secured Party will continue until such time as all of the Obligations as defined hereinafter are fully paid and satisfied and this Agreement is cancelled or terminated by the Secured Party under a written cancellation instrument. SECTION 2. OBLIGATIONS SECURED. The security interest granted hereby is granted to secure the prompt and punctual payment and satisfaction of the following (all of which are herein separately and collectively referred to as the "Obligations"): A. That loan indebtedness of Borrower to the Secured Party represented by that certain promissory note made by Borrower March 15, 1996 payable to the order of the Secured Party, in the principal amount of TWO MILLION AND NO/100 ($2,000,000.00) 2 DOLLARS, with interest and attorney's fees and payable provided therein; and B. Any and all present and future advances, loans, extensions of credit and/or other financial accommodations obtained and/or to be obtained by either Borrower or Pledgor from the Secured Party, as well as from the successors and assigns of the Secured Party, from time to time, one or more times, now or in the future, and any and all promissory notes and other instruments or agreements evidencing such present and future loan advances, extensions of credit and/or other financial accommodations, as well as any and all other obligations and liabilities that either Borrower or Pledgor, may now and/or in the future owe to or incur in favor of the Secured Party; and C. Any advances or expenditures made by the Secured Party or expenses incurred by the Secured Party in protection or in furtherance of its rights under this Agreement, including but not limited to the expenditures, expenses and rights referred to in Section 8G., Section 10C. and Section 11 of this Agreement. SECTION 3. DESCRIPTION OF COLLATERAL. Pledgor hereby grants to Secured Party a security interest in and agrees that Secured Party shall continue to have a security interest in the following property (the "Collateral") to-wit: Any and all of the Pledgor's present and future rights, title and interest in and to all of its equipment (as defined in R.S.10:9-109(2)); Any and all of the Pledgor's present and future rights, title and interest in and to all of its accounts receivable or accounts (as defined in R.S.10:9-106); Any and all of Pledgor's present and future rights, title and interest in and to inventory (as defined in R.S.10:9-109(4)); together with any accessions, additions and attachments to the foregoing and the proceeds and products thereof (except immovable property), including without limitation, all cash, general intangibles, accounts, inventory, equipment, fixtures, farm products, notes, drafts, acceptances, securities, instruments, chattel paper, insurance proceeds payable because of loss or damage, or other property, benefits or rights arising therefrom, and in and to all returned or repossessed goods arising from or relating to any of the property described herein or other proceeds of any sale or other disposition of such property; and SECTION 4: ADDITIONAL SECURITY IN DEPOSIT ACCOUNTS. As additional security for the punctual payment and performance of the 2 3 Obligations (with the exception of obligations under consumer credit card accounts), and as part of the Collateral, Pledgor hereby grants to Secured Party a security interest in, and a pledge and assignment of, any and all money, property (except immovable property), deposit accounts, accounts, securities, documents, chattel paper, claims, demands, instruments, items or deposits of the Pledgor, and each of them. After ten (10) days written notice to the Pledgor, Secured Party may exercise its rights granted above at any time when an event of default, as defined in Section 9 herein, has occurred. Secured Party's rights and remedies under this paragraph shall be in addition to and cumulative of any other rights or remedies at law and equity, including, without limitation, any rights of setoff to which Secured Party may be entitled. SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Pledgor represents and warrants as follows: A. USE OF THE COLLATERAL. The Collateral will be used by the Pledgor primarily for business use. B. OWNERSHIP; NO ENCUMBRANCES. Except for the security interest granted hereby, the Pledgor is, and as to any property acquired after the date hereof which is included within the Collateral, Pledgor will be, the owner of all such Collateral free and clear from all charges, liens, security interests, adverse claims and encumbrances of any and every nature whatsoever. C. ACCURACY OF INFORMATION. All information furnished to Secured Party concerning Pledgor, the Collateral and the Obligations, or otherwise for the purpose of obtaining or maintaining credit, is or will be at the time the same is furnished, accurate and complete in all material respects. D. AUTHORITY. Pledgor has full right and authority to execute and perform this Agreement and to create the security interest created by this Agreement. The making and performance by Pledgor of this Agreement will not violate any articles of incorporation, bylaws or similar document respecting Pledgor, any provision of law or any previous agreement of Pledgor. E. ADDRESS, IDENTIFICATION. The address of Pledgor designated at the beginning of this Agreement is Pledgor's place of business if Pledgor has only one place of business; Pledgor's principal place of business if Pledgor has more than one place of business; or Pledgor's residence if Pledgor has no place of business. Pledgor agrees not to change such address without advance written notice to Secured Party. The Pledgor's correct Social Security Number or Tax Identification Number is shown on the first page of this Agreement, and the 3 4 Pledgor shall give notice to the Secured Party, immediately of any change in that number. The Pledgor warrants to give notice to the Secured Party, immediately should there be any change in Pledgor's name or legal status. F. CONTINUING OBLIGATIONS. The above representations and warranties and all other representations and warranties contained in this Agreement are and will be continuing in nature and will remain in full force and effect until such time as this Agreement is cancelled in the manner provided above. SECTION 6. LOCATION OF COLLATERAL. The security interest of the Secured Party will affect the Collateral wherever located. Except in the ordinary course of business, Pledgor agrees not to remove or relocate or to permit the removal or relocation of the Collateral from the State of Louisiana for a period in excess of sixty (60) consecutive days without first obtaining the prior written consent of the Secured Party. To the extent that the Collateral consists of a titled motor vehicle or motor vehicles, the vehicle or vehicles will be kept at the following address whenever not in use elsewhere: Highway 51 South, Roseland, LA 70456. SECTION 7. PROHIBITIONS REGARDING THE COLLATERAL: So long as this Agreement remains in effect, and to the extent applicable, Pledgor agrees not to, without the prior written consent of Secured Party: (a) except in the ordinary course of business, sell, assign, transfer, convey, option, mortgage or lease the Collateral; (b) grant or permit any lien, encumbrance or other security interest to be placed on or attached to the Collateral; (c) permit any of the Collateral to be attached to real (and movable) property so as to become a "fixture" within the context of LSA-R.S.10:9-313(l); (d) do any thing or permit any thing to be done that may in any way impair the security interest and rights of the Secured Party in and to the Collateral; or (e) modify, adjust, compromise, settle, waive or forego any rights that Pledgor may have with regard to the Collateral. SECTION 8. GENERAL COVENANTS: Pledgor covenants and agrees as follows: A. OPERATION OF THE COLLATERAL. Pledgor agrees to maintain and use the Collateral solely in the conduct of its own business, in a careful and proper manner, and in conformity with all applicable laws, ordinances, regulations, permits and licenses. Pledgor shall comply in all respects with all applicable statutes, laws, ordinances and regulations. B. CONDITION. Pledgor shall maintain, service and repair the Collateral so as to keep it in good operating condition and shall pay any charges due for the same. Pledgor will not make 4 5 or permit to be made any alterations to the Collateral that may reduce or impair Collateral's use or value. C. ASSESSMENTS, TAXES. Pledgor shall promptly pay when due all taxes, assessments, license fees, registration fees, and governmental charges levied or assessed against Pledgor or with respect to the Collateral or any part thereof. Pledgor will additionally provide the Secured Party with evidence of such payment. D. NOTICES AND REPORTS; RECORDS. Pledgor shall promptly notify Secured Party in writing of any change in the name, identity or structure of Pledgor, any charge, lien, security interest, claim or encumbrance asserted against the Collateral, any material litigation against Pledgor or the Collateral, any theft, loss, injury or similar incident involving the Collateral, and any other material matter adversely affecting Pledgor or the Collateral. Pledgor shall furnish such other reports, information and data regarding Pledgor's financial condition and operations, the Collateral and such other matters as Secured Party may request from time to time. Pledgor will keep proper books and records with regard to the business activities of Pledgor and the Collateral subject to this Agreement. E. LANDLORD'S WAIVERS. Pledgor shall furnish to Secured Party, if requested, a landlord's waiver of all liens with respect to any Collateral covered by this Agreement that is or may be located upon leased premises, such landlord's waivers to be in such form and upon such terms as are acceptable to Secured Party. F. ADDITIONAL FILINGS. Pledgor agrees to execute and deliver such financing statement or statements, or amendments thereof or supplements thereto, or other documents as Secured Party may from time to time require in order to comply with the Commercial Laws of Louisiana, the Uniform Commercial Code (or other applicable state law of the jurisdiction where any of the Collateral is located) and to preserve and protect the Secured Party's rights to the Collateral. G. PROTECTION OF COLLATERAL. Secured Party, at its option, whether before or after default, but without any obligation whatsoever to do so, may (a) discharge taxes, claims, charges, liens, security interests, assessments or other encumbrances of any and every nature whatsoever at any time levied, placed upon or asserted against the Collateral, (b) place and pay for insurance on the Collateral, including insurance that only protects Secured Party's interest, (c) pay for the repair, improvement, testing, maintenance and preservation of the Collateral, (d) pay all filing, recording, registration, licensing or certification fees or other fees and charges 5 6 related to the Collateral, or (e) take any other action to preserve and protect the Collateral and Secured Party's rights and remedies under this Agreement as Secured Party may deem necessary and appropriate. Pledgor agrees that Secured Party shall have no duty or obligation whatsoever to take any of the foregoing action. Pledgor agrees to promptly reimburse Secured Party upon demand for any payment made or any expense incurred by the Secured Party pursuant to this authorization. These payments and expenditures, together with interest thereon from date incurred until paid by Pledgor at the rate of eighteen (18%) percent per annum until paid, which Pledgor agrees to pay, shall constitute additional Obligations and shall be secured by and entitled to the benefits of this Agreement. H. INSPECTION. Pledgor shall at all reasonable times allow Secured Party by or through any of its officers, agents, attorneys or accountants, to examine the Collateral, wherever located, and to examine and make extracts from Pledgor's books and records. I. INSURANCE. Pledgor shall have and maintain insurance at Pledgor's sole expense at all times with respect to all Collateral insuring against risks of fire (including so-called extended coverage), theft and other risks as Secured Party may require, containing such terms, in such form and amounts and written by such companies as may be satisfactory to Secured Party. Pledgor will name Secured Party as a loss payee beneficiary under such insurance policies, which policies must contain a non-contributory lender loss payable endorsement in favor of Secured Party. Such policies of insurance must also contain a provision prohibiting the cancellation or alteration of such insurance without at least thirty (30) days prior written notice to Secured Party. Pledgor further will provide the Secured Party with originals or certified copies of such insurance policies along with evidence that the Pledgor has paid the policy premiums and all renewal premiums when due. The Secured Party shall have the right to directly receive all proceeds payable under such insurance policies and Secured Party is hereby authorized to act as agent for Pledgor in obtaining, adjusting, settling and cancelling such insurance and endorsing any drafts or instruments. Should Pledgor receive any such insurance proceeds, Pledgor will immediately turn such proceeds over to and pay the same to Secured Party. Secured Party shall apply such insurance proceeds (after payment of all reasonable costs, expenses and attorney fees incurred by Secured Party) for the purpose of (a) repairing, replacing or restoring the lost, stolen or damaged Collateral or (b) reducing the outstanding balance of the Obligations. Pledgor specifically authorizes Secured Party to disclose 6 7 information from the policies of insurance to prospective insurers regarding the Collateral. SECTION 9. EVENTS OF DEFAULT: Pledgor shall be in default hereunder upon the happening of any of the following events or conditions: A. Failure by either Borrower or Pledgor to pay the principal of or any installment of the principal of the Obligations when due, or failure to pay any interest on the Obligations when due, and such nonpayment shall have continued for a period of fifteen (15) days after receipt of written notice thereof; B. If any representation or warranty made in this Agreement or in any certificate, financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been untrue or misleading in any material respect when made; C. Default in the observance or performance of any covenant or agreement contained in this Agreement, and if such default shall have continued for a period of fifteen (15) days after receipt of written notice thereof; D. If either Borrower or Pledgor shall commence any case, proceeding or other action (i) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution, composition or other relief with respect to it or its debts; or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, or either Borrower or Pledgor shall make a general assignment for the benefit of its creditors; or (iii) there shall be commenced against either Borrower or Pledgor any case, proceeding or other action of a nature referred to in clauses (i) or (ii) above or seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its property, which case, proceeding or other action results in the entry of an order for relief or remains undismissed, undischarged or unbonded for a period of 60 days; or (iv) either Borrower or Pledgor shall take any action indicating its consent to, approval of, or acquiescence in, or in furtherance of, any of the acts set forth in clauses (i), (ii) or (iii) above; or (v) either Borrower or Pledgor shall generally not, or shall be unable to, pay its debts as they become due or shall admit in writing its inability to pay its debts; 7 8 SECTION 10. REMEDIES: Upon the occurrence of any event of default and the applicable notice thereof, if any, Secured Party, at its option, shall be entitled to exercise any one or more of the following remedies (all of which are cumulative): A. DECLARE OBLIGATIONS DUE. Secured Party, at its option, may declare the Obligations or any part thereof immediately due and payable, without demand, notice of intention to accelerate, notice of acceleration, notice of nonpayment, presentment, protest, notice of dishonor, or any other notice whatsoever, all of which are hereby waived by Pledgor and any maker, endorser, guarantor, surety or other party liable in any capacity for any of the Obligations. B. DEFAULT REMEDIES. Should any event of default occur, and in addition to the rights of Secured Party with respect to possessory collateral, Secured Party shall have the right, at its sole discretion, to accelerate payment of all amounts that either Borrower or Pledgor may then owe to Secured Party, which will then entitle Secured Party to foreclose under this Agreement under ordinary or executory process procedures, and to cause the Collateral to be immediately seized wherever found, and sold with or without appraisal, in regular session of court or in vacation, in accordance with applicable Louisiana law, without the necessity of further demanding payment from either Borrower or Pledgor or of notifying or either Borrower or Pledgor placing either Borrower or Pledgor in default, subject to the notice provisions in Section 8(D) herein. For purposes of foreclosure under Louisiana executory process procedures, Pledgor confesses judgment and acknowledges to be indebted to Secured Party up to the full amount of the Obligations, in principal, interest, costs, expenses, attorney's fees and other fees and charges, and all other amounts secured by this Agreement. Should the Collateral for any reason be located in another state at or following any default under the Obligations or under this Agreement, or should there be a subsequent change in Louisiana law permitting self-help remedies with regard to non-possessory collateral, Pledgor agrees that Secured Party may take possession of the Collateral in any manner then permitted under the laws of the state in which the Collateral is then located or under the laws of Louisiana as then applicable. Should Secured Party for any reason have or acquire possession of the Collateral at or following default, Secured Party may sell the Collateral at public or private sale as authorized by Louisiana law or the applicable provisions of the Uniform Commercial Code or similar laws in effect in the state where the Collateral is then located. If Secured Party is required by law to give Pledgor notice of the public or private sale of the Collateral, Pledgor agrees that the requirements of reasonable notice shall be met if the 8 9 Secured Party mails such notice to Pledgor at Pledgor's address as shown in this Agreement at least ten (10) days before the time of any public sale or, if disposition is by private sale, at least ten (10) days before the time after which private sale may occur. If public sale is held, there will be sufficient compliance with all requirements of notice to the public by a single publication in a newspaper in general circulation in the parish or county where the Collateral is then located. This notice should include the time and place of sale, and a brief description of the property to be sold. C. PROCEEDS; SURPLUS; DEFICIENCIES. Secured Party may apply any proceeds derived or to be derived from the sale, collection or other disposition of the Collateral first to the reimbursement of any expenses incurred by Secured Party in connection therewith, including the fees of Secured Party's attorney and court costs; and then to the payment of any additional sums that Secured Party may advance on Pledgor's and/or Borrower's behalf under this Agreement, together with interest thereon at the rate of eighteen (18%) percent per annum; and then to the payment of the Obligations in such order and with such priority as Secured Party may determine within its sole discretion. Pledgor shall be entitled to any surplus if one results after application of the proceeds and the debtors to the obligations shall remain liable for any deficiency. D. EXPENSES. Pledgor shall be liable for and agrees to pay on demand the reasonable expenses incurred by Secured Party in enforcing its rights and remedies, in retaking, holding, testing, repairing, improving, selling, leasing or disposing of the Collateral, or like expenses, including, without limitation, attorney's fees and legal expenses incurred by Secured Party. These expenses, together with interest thereon at the rate of eighteen (18%) percent per annum from the date incurred until paid by Pledgor, which Pledgor agrees to pay, shall constitute additional Obligations and shall be secured by and entitled to the benefits of this Agreement. E. REMEDIES CUMULATIVE. The rights and remedies of Secured Party are cumulative and the exercise of any one or more of the rights or remedies shall not be deemed an election of rights or remedies or a waiver of any other right or remedy. Pledgor agrees that nothing under this Agreement shall limit or restrict the remedies available to Secured Party following any event of default. Secured Party may remedy any default and may waive any default without waiving the default remedied or without waiving any other prior or subsequent default. SECTION 11. PROTECTION OF SECURED PARTY'S SECURITY RIGHTS: Pledgor agrees to be fully responsible for any losses that Secured 9 10 Party may suffer as a result of anyone other than Secured Party asserting any rights or interest in the Collateral. Pledgor further agrees to appear in and defend all actions and proceedings purporting to affect Secured Party's security rights and interest. Should Pledgor fail to do what is required of it under this Agreement, or if any action or proceeding is commenced naming Secured Party as a party, or affecting Secured Party's security interest, or the rights and powers granted under this Agreement, then Secured Party may, without releasing Pledgor from any of its obligations, do whatever Secured Party believes is necessary and proper within its sole discretion, including advancing additional sums on Pledgor's behalf as provided herein, to protect Secured Party's security rights and interests. SECTION 12. OTHER AGREEMENTS: A. USE OF COPIES; FILING FEES. Any carbon, photographic or other reproduction of this Security Agreement or any financing statement signed by Pledgor is sufficient as a financing statement for all purposes, including without limitation, filing in any state as may be permitted by the provisions of the Uniform Commercial Code of such state. Pledgor agrees that Secured Party may file a carbon, photographic, facsimile or other type of copy of this Agreement, or of a UCC Financing Statement, in lieu of filing an original containing the signature of Pledgor or of Pledgor's duly authorized representative. Pledgor further agrees to reimburse Secured Party for the cost of filing, amending, continuing, terminating and releasing Pledgor's UCC Financing Statement(s), to the extent applicable, which costs shall be considered additional Obligations secured under this Agreement. B. RELATIONSHIP TO OTHER AGREEMENTS. This Security Agreement and the security interests (and pledges and assignments as applicable) herein granted are in addition to (and not in substitution, novation or discharge of) any and all prior or contemporaneous security agreements, security interests, pledges, assignments, liens, rights, titles or other interests in favor of Secured Party or assigned to Secured Party by others in connection with the Obligations. All rights and remedies of Secured Party in all such agreements are cumulative, but in the event of actual conflict in terms and conditions, the terms and conditions of the latest security agreement shall govern and control. C. NOTICES. Any notice or demand given by Secured Party to Pledgor in connection with this Agreement, the Collateral or the Obligations shall be deemed given and effective upon deposit in the United States mail, postage prepaid, addressed to Pledgor at the address of Pledgor designated at the 10 11 beginning of this Agreement. Actual notice to Pledgor shall always be effective no matter how given or received. D. HEADINGS AND GENDER. Paragraph headings in this Agreement are for convenience only and shall be given no meaning or significance in interpreting this Agreement. All words used herein shall be construed to be of such gender or number as the circumstances require. E. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Louisiana. F. EXEMPTIONS FROM SEIZURE. In entering into this Agreement, Pledgor is, to the extent applicable, waiving any exemption from seizure with regard to the Collateral to which Pledgor may be entitled under applicable Louisiana law and the laws of the United States. SIGNATURES: IN WITNESS WHEREOF, this Agreement is executed by the Secured party at Santa Barbara County, Solvang, California on March 13, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: The Schlinger Foundation /s/ BRAD O. HELMS By: /s/ EVERT I. SCHLINGER - --------------------------------- --------------------------------- Evert I. Schlinger /s/ JULIA A. SUMMERS President - --------------------------------- 11 12 IN WITNESS WHEREOF, this Agreement is executed by the Pledgor at Dallas County, Dallas, Texas, on March 15, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Brister's Thunder Karts, Inc. /s/ RICHARD GOODNER By: V. LYNN GRAYBILL - --------------------------------- --------------------------------- V. Lynn Graybill /s/ GEORGE DIAMOND President - --------------------------------- IN WITNESS WHEREOF, this Agreement is executed by the Borrower at Dallas County, Texas, on March 15, 1996 in the presence of the undersigned two competent witnesses after due reading of the whole. WITNESSES: Karts International Incorporated /s/ RICHARD GOODNER By: /s/ V. LYNN GRAYBILL - --------------------------------- --------------------------------- V. Lynn Graybill /s/ GEORGE DIAMMOND President - --------------------------------- 12 EX-10.10 27 VENDOR AGREEMENT 6-5-96 1 EXHIBIT 10.10 VENDOR AGREEMENT WAL-MART STORES, INC. Effective VENDOR NO DEPT SEQ Corporate Office Date 6/5/96 150170 6 30 Bentonville, AR 72716 (501) 273-4000 [ ] WAL-MART [ ] EXISTING VENDOR [ ] PURCHASE/MDSE CATEGORY [X] SAM'S CLUB [X] NEW VENDOR [ ] EXPENSE & DEPARTMENT [ ] SUPERCENTER [ ] UPDATE Type ________ BUYER Sherry Bridges [ ] OTHER__________ [ ] NEW SEQ.
================================================================================ Enter the Federal Taxpayer Identification Number (TIN) of the Payee Named Below. If a "TIN" has not been issued, enter the Employer's Social Security Number. 72-0797992 OR -- -- ------- -------- -------- TYPE OF PAYEE (CHECK ONLY ONE): Individual/Sole Proprietorship X Corporation --- --- Partnership Other --- --- PURCHASER RESERVES THE RIGHT TO REMIT TO THE PARTY TO WHOM THE PURCHASE ORDER IS ISSUED ADDRESS TO MAIL PAYMENT: ADDRESS TO SEND PURCHASE ORDERS: Vendor Name Brister's Thunder Karts, Inc. Vendor Name Brister's Thunder Karts, Inc. ----------------------------------- ---------------------------------------------- Address P.O. Box 324 Attention Mr. Mike Passman ---------------------------------------- ------------------------------------------------ City Roseland State LA Zip 70456 Address P.O. Box 324 ----------------- ------- --------- -------------------------------------------------- Factor Name City Roseland State LA Zip 70456 ------------------------------------ -------------------------- -------- -------- Vendor Also Doing Business As (Attach a list Street Address for use by delivery services other than to this Agreement if space below is insufficient) the U.S. Mail, if not already shown in the Purchase Order address above. Vendor # Room - ----------------------- ----------------- ------------------------------------------ -------- Expedite Orders: Phone -- -- ---------- ---------- -------- ADDRESS TO MAIL CLAIM DOCUMENTATION: ADDRESS TO SEND PRICING TICKETS: Attention Mr. Mike Passman Vendor Name Brister's Thunder Karts, Inc. -------------------------------------- ---------------------------------------------- Address P.O. Box 324 Attention Mr. Mike Passman ---------------------------------------- ------------------------------------------------ City Roseland State LA Zip 70456 Address P.O. Box 324 ----------------- ------- --------- -------------------------------------------------- Accounting Phone Number 800-438-5278 City Roseland State LA Zip 70456 ----------------------- -------------------------- --------- -------- Toll Free Number 800-438-5278 ------------------------------- FAX Number 800-867-5278 -------------------------------------
================================================================================ VENDOR FINANCIAL INFORMATION Vendor agrees to furnish, when returning this completed agreement, a complete set of current financial statements. Publicly held companies should include the Annual Report to Shareholders, Management Proxy information and AIF, if any. If financial statements are not available, a Dun & Bradstreet should be furnished. 12/31/95 ================================================================================ NOTICE REGARDING ASSIGNMENT OF ACCOUNTS The Vendor shall provide Purchaser written notice of an assignment, factoring, or other transfer of its right to receive payments arising under this agreement 30 days prior to such assignment, factoring, or other transfer taking legal effect. Such written notice shall include the name and address of assignee/transferee, date assignment is to begin, and terms of the assignment, and shall be considered delivered upon receipt of such written notice by the Vendor Master Clerk. Vendor shall be allowed to have only one assignment, factoring or transfer legally effective at any one point in time. No multiple assignments, factorings or transfers by the Vendor shall be permitted. Vendor shall indemnify Purchaser against and hold Purchaser harmless from any and all lawsuits, claims, actions, damages (including reasonable attorney fees, obligations, liabilities, and liens) arising or imposed in connection with the assignment or transfer of any account or right arising thereunder where the vendor has not complied with the notification assignment requirements of this section. Vendor also releases and waives any right, claim, or action against Purchaser for amounts due and owing under this agreement where vendor has not complied with the notice requirements of this section. Such notice shall be mailed directly to: INVOICE CONTROL DEPT. ATTN: VENDOR MASTER CLERK BENTONVILLE, AR 72716-8002 ================================================================================ VENDOR ELECTRONIC DATA INTERCHANGE RESPONSIBILITIES VENDOR AGREES TO RECEIVE ORDERS AND SEND WAL-MART INVOICES VIA EDI (ELECTRONIC TRANSMISSION) UNLESS SPECIFICALLY WAIVED BY WAL-MART. 1. Vendor will establish a user I.D. to identify its company. The presence of this user I.D. in the EDI interchange will be sufficient to verify the source of the data and the authenticity of the document. 2. Documents containing the user I.D. will constitute a signed writing and neither party shall contest the validity or enforceability of the document on this basis. 3. EDI documents or printout thereof shall constitute an original when maintained in the normal course of business. Vendor waiver is approved. G.M.M. WAIVER ================================================================================ SHIPPING TERMS FREIGHT TERMS No charge to vendor for sub-standard MINIMUM FOR PREPAID FREIGHT TERMS: pallets - pallet exchange vendor [X] COLLECT - FOB VENDOR ___ POUNDS [ ] PREPAID - FOB PURCHASER ___ UNITS [ ] PREPAID TO CONSOLIDATOR - FOB PURCHASER'S CONSOLIDATOR ___ DOLLARS
CONDITION OF SALE Attach Details of Available Programs. Programs that are accepted will become an addendum to Agreement. [X] Guaranteed Sales [ ] Consignment [ ] Preticketing [ ] Prepricing [ ] Stock Balancing [ ] Coop Advertising [ ] Other ================================================================================ STANDARD PURCHASE ORDER ALLOWANCE
- ---------------------------------------------------------------------------------------------------------------------------------- DISC HOW PAID WHEN PAID SPECIAL INSTRUCTIONS Each Inv. Other CODE ALLOWANCE % OI CM CK EI Q S A - ---------------------------------------------------------------------------------------------------------------------------------- SA Line Level New Store Discount X X (% Applied to each line item for --- --- --- --- --- --- --- --- each new store) OL P.O. Level New Store Discount (% Applied to total amount of --- --- --- --- --- --- --- --- each purchase order) NW New Distribution Center --- --- --- --- --- --- --- --- WA Warehouse Allowance --- --- --- --- --- --- --- --- QD Warehouse Distribution Allow (Order Type 33 Only) --- --- --- --- --- --- --- --- DM Defective/Returned Mdse. Allowance --- --- --- --- --- --- --- --- SD Soft Goods Defective Allow --- --- --- --- --- --- --- --- PA Promotional Allowance --- --- --- --- --- --- --- --- VD Volume Discount --- --- --- --- --- --- --- --- FA Freight Allowance --- --- --- --- --- --- --- --- AA Advertising Allowance --- --- --- --- --- --- --- --- TR TV/Radio Media Allowance --- --- --- --- --- --- --- --- DA Display/Endcap Allowance --- --- --- --- --- --- --- --- EB Early Buy Allowance --- --- --- --- --- --- --- --- HA Handling Allowance --- --- --- --- --- --- --- --- - ----------------------------------------------------------------------------------------------------------------------------------
OI-Off.Invoice CM-Credit Memo CK-Check EI-Each Invoice Q-Quarterly S-Semi-Annually A-Annually Page 1 of 6 2 CONDITION OF MERCHANDISE Vendor agrees to only ship goods which comply with the "Warranties and Guarantees" section of the "Purchase Order Terms and Conditions" which is attached hereto and incorporated herein. ================================================================================ PRICE GUARANTEE Prices are guaranteed by Vendor against manufacturer's or Vendor's own price decline and against legitimate competition until date of shipment with Purchaser's owned inventories price protected by credit memo. In the event that prior to the final shipment under any order Vendor sells or offers to others goods substantially of the same kind as ordered at lower prices and or on terms more favorable to a third party than those stated on the purchase order, the prices and terms shall be deemed automatically revised to equal the lowest prices and most favorable terms at which Vendor shall have sold or shall have offered such goods and payment shall be made accordingly. In the event Purchaser shall become entitled to such lower prices, but shall have made payment at any prices in excess thereof, Vendor shall promptly refund the difference in price to Purchaser. In the event that a court or regulatory agency or body finds that the prices on an order are in excess of that allowed by any law or regulation of any governmental agency, the prices shall be automatically revised to equal a price which is not in violation of said law or regulations. If Purchaser shall have made payment before it is determined that there has been a violation, Vendor shall promptly refund an amount of money equal to the difference between the price paid for the goods and the price which is not in violation of said regulations. ================================================================================ NOTICE REGARDING PRICE INCREASES Purchaser requires at least 60 days written notice prior to any price increase. ================================================================================ DEBIT BALANCES If Vendor has a Debit Balance with Purchaser, the amount owed Purchaser will be deducted from the next remittance or a check from Vendor to clear this amount will be paid within 30 days at the option of Purchaser. Purchaser reserves the right to charge the Vendor penalties and interest for any Debit Balances not paid within 30 days. Unless waived by Purchaser, the Vendor will be required to submit a Letter of Credit for the amount specified below. $ X D.M.M. Waiver -------------- ------------ ================================================================================ **IMPORTANT NOTICE** ALL PAYMENTS OF MONIES MUST BE MAILED TO THE ADDRESS INDICATED BELOW: [ ] P.O. BOX 889, LOWELL, AR 72745 [ ] P.O. BOX 18045 B, ST. LOUIS, MO 63160 [ ] P.O. BOX 500646, ST. LOUIS, MO 63150-0646 (Allowance Checks) [ ] P.O. BOX 60128, ST. LOUIS, MO 63160 (Special Divisions) ================================================================================ WARRANTY POLICY - -------------------------------------------------------------------------------- VENDOR MUST CHECK OPTIONS BELOW AND COMPLETE INFORMATION BEFORE AGREEMENT CAN BE APPROVED - -------------------------------------------------------------------------------- Vendor will be charged current costs plus a 10% handling charge for all returned merchandise except where a Defective/Returned Merchandise Allowance is given by the vendor. Returned merchandise will be shipped with return freight charges billed back to the vendor. Returns are F.O.B. Purchaser. [ ] VENDOR OPTION #1: VENDOR WANTS RETURNED MERCHANDISE SENT TO THEM: [ ] Returned merchandise will be sent to the vendor direct from each store. Permanent return authorization #________________________, if required for shipment. If automatic return is not possible, an 800 number should be provided or the vendor must accept purchaser's collect calls to secure return authorization over the phone. Phone ____ -- ____ -- ____ Contact__________________________ [ ] Returned merchandise will be sent from store locations to the return center and sent to the vendor. Permanent return authorization #________________________, if required for shipment. The practice of requesting a separate return authorization number for each return claim (shipment) will be discontinued. ADDRESS TO SHIP RETURNS TO: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMMENTS: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ ] VENDOR OPTION #2: VENDOR DOES NOT WANT RETURNED MERCHANDISE SENT TO THEM [ ] Returned merchandise will be sent from store locations to the Return Center for disposal [ ] Return Center may dispose of returned merchandise through salvage outlets. [ ] Return Center must destroy returned merchandise. [ ] Returned merchandise must be disposed of by the individual store. COMMENTS: See vendors warranty - Attachment A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ ] VENDOR OPTION #3: DEFECTIVE/RETURNED MERCHANDISE ALLOWANCE Vendor will allow the Defective/Returned Merchandise Allowance shown on the reverse side of this agreement. The percentage must be adequate to cover all defective/returned merchandise or additional claims will be filed by the Return Center at our fiscal year end. [ ] Return Center may dispose of returned merchandise through salvage outlets. [ ] Return Center must destroy returned merchandise. [ ] Returned merchandise will be sent from store locations to the Return Center and sent to the vendor. If vendor requests the returned merchandise to be sent to them, they will be charged a 10% handling charge and the merchandise will be shipped with return freight charges billed back to the vendor. ADDRESS TO SHIP RETURNS TO: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMMENTS: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ PAYMENT TERMS ALL DATING SHALL BEGIN AT THE DATE OF RECEIPT OF THE GOODS AT PURCHASER'S DOCK. ON ALL E.O.M. (END OF MONTH) DATINGS, GOODS RECEIVED AFTER THE 24TH OF ANY MONTH SHALL BE PAYABLE AS IF RECEIVED IN THE FOLLOWING MONTH INVOICES SHOULD BE MAILED OR ELECTRONICALLY TRANSMITTED ON THE SAME GOODS ARE SHIPPED AND SHALL DATE FROM PURCHASER'S RECEIPT OF THE GOODS CASH DISCOUNT WILL BE CALCULATED ON THE GROSS AMOUNT OF VENDOR'S INVOICE. 1. Cash Discount -- Enter whole percents - --- --- --- Cash Discount Days Available must be filled in if a - --- --- --- Cash Discount is used 3 0 2. Net Payment Days Available - --- --- --- Yes No X 3. E.O.M. --- --- NEW STORE/WHSE TERMS IF DIFFERENT THAN REGULAR TERMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ INSURANCE REQUIREMENTS A copy of your current Certificate of Insurance with the following requirements must be attached to this Vendor Agreement. Certificate Holder should read: WAL-MART STORES, INC. ITS SUBSIDIARIES & ITS AFFILIATES 702 SW 8th Street Bentonville, AR 72716-9078 Attn: Risk Management 1. COMMERCIAL GENERAL LIABILITY Including Contractual. Products and Completed Operations with certificate holder named as Additional Insured as evidenced by attached endorsement. LIMITS: $2,000,000* Per Occurrence 2. WORKERS' COMPENSATION required provided vendor will be entering Wal-Mart premises: Workers' Compensation STATUTORY EMPLOYERS' LIABILITY $1,000,000 Waiver of Subrogation where permitted by law 3. Notice of Cancellation must be for 30 days. 4. Your Vendor number needs to be stated on certificate of insurance. Vendor number for new vendors will be assigned upon receipt of vendor agreement. 5. Renewals of certificates of insurance must be submitted prior to expiration of insurance with vendor number stated. 6. Please direct any questions regarding your insurance to Risk Management at (501) 273-6516. 7. If certificate of insurance does not comply with requests, vendor agreement will be returned until compliances are met. 8. CONTACT FOR PRODUCT LIABILITY CLAIMS: NAME: Brister's Thunder Karts, Inc. -------------------------------------------------------------- ADDRESS: P.O. Box 324 -------------------------------------------------------------- CITY: Roseland STATE LA ZIP 70456 -------------------------------- --------- ----------- ATTN: Mr. Mike Passman PHONE 800-438-5278 ----------------------------------------- --------------- FAX 800-867-5278 --------------- INSURING COMPANY: Palomar Insurance Corp. -------------------------------- PHONE: 334-270-0105 ----------------------------------------------------------------- *$5,000,000 if determined by Wal-Mart as a high risk vendor ================================================================================ COMPLIANCE WITH STANDARDS FOR VENDOR PARTNERS Vendor agrees to comply with the obligations expressed in the "WAL-MART STANDARDS FOR VENDOR PARTNERS: which is attached hereto and incorporated herein. ================================================================================ Vendor shall protect, defend, hold harmless and indemnify Purchaser from and against any and all claims, actions, liabilities, losses, costs and expenses, even if such claims are groundless, fraudulent or false, arising out of any actual or alleged infringement of any patent, trademark or copyright by any merchandise sold to the purchaser hereunder, or arising out of any actual or alleged death of or injury to any person, damage to any property, or any other damage or loss, by whomsoever suffered, resulting or claimed to result in whole or in part from any actual or alleged defect in such merchandise, whether latent or patent, including actual or alleged improper construction or design of said merchandise or the failure of said merchandise to comply with specifications or with any express or implied warranties of Vendor, or arising out of any actual or alleged violation by such merchandise, or its manufacturer, possession or use or sales, of any law, statute or ordinance of any governmental administrative order, rule or regulation arising out of Vendor's installation of merchandise covered by this agreement. The duties and obligations of Vendor created hereby shall not be affected or limited in any way by Purchaser's extension of express or implied warranties to its customers, except to the extent that any such warranties expressly extend beyond the scope of Vendor's warranties, express or implied, to Purchaser. It is further agreed that all duties and obligations of Vendor set forth in this paragraph shall extend in full force and effect to pallet at the direction of Vendor. ================================================================================ ALL PURCHASES MADE BY PURCHASER SHALL BE CONTROLLED BY THE PURCHASER'S PURCHASE ORDER "TERMS AND CONDITIONS", WHICH IS ATTACHED AS A PART OF THIS AGREEMENT AND INCLUDED WITH EACH MANUALLY TRANSMITTED ORDER. THIS AGREEMENT AND ALL DISPUTES ARISING HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARKANSAS. THE PARTIES AGREE THAT THE EXCLUSIVE JURISDICTION OF ANY DISPUTE ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY DISPUTE RELATING TO THE SERVICES OR GOODS PROVIDED HEREUNDER SHALL BE IN THE STATE AND FEDERAL COURTS OF THE COUNTIES OF BENTON OR WASHINGTON, STATE OF ARKANSAS. By the execution of this Vendor Merchandise Agreement. Vendor agrees to the representations stated above, and on the following page. Vendor further agrees that Purchaser may rely on these representations in placing any purchase orders pursuant to information contained in this Agreement. Any changes to this Agreement must be in writing and executed by both parties. SELLER: By: /s/ MIKE PASSMAN DATE 6/5/96 ------------------------------------------------------------ ----------- (Principal of the company) (Signature needed on all copies) Title: Vice President & Plant Manager ------------------------------------------------------------------------- PURCHASER: By: /s/ SHERRY BRIDGES DATE 6/11/96 ------------------------------------------------------------ ----------- (Buyer) By: DATE ------------------------------------------------------------ ----------- (Division Merchandise Manager) Salesman: Mike Passman ----------------------------------------------------------------------- Address: P.O. Box 324 ----------------------------------------------------------------------- Roseland, LA 70456 ----------------------------------------------------------------------- Phone Number: 800-438-5278 ---------------------- Sales Mgr. or V.P. Sales: Mike Passman ------------------------------------------------------- Address: P.O. Box 324 ----------------------------------------------------------------------- Roseland, LA 70456 ----------------------------------------------------------------------- Phone Number: 800-438-5278 ---------------------- Pres. Name: V. Lynn Graybill --------------------------------------------------------------- Address: 109 Northpark Blvd., Suite 210 --------------------------------------------------------------- Covington, LA 70433 --------------------------------------------------------------- Page 2 of 6
EX-10.11 28 VENDOR AGREEMENT 9-30-96 1 EXHIBIT 10.11 Vendor No. Department No. Effective Date -------------- ------------ ----------- WAL-MART STORES, INC. STANDARDS FOR VENDOR PARTNERS Wal-Mart Stores, Inc. ("Wal-Mart") has enjoyed success by adhering to three basic principles since its founding in 1962. The FIRST PRINCIPLE is the concept of providing value and service to our customers by offering quality merchandise at low prices every day. Wal-Mart has built the relationship with its customers on this basis, and we believe it is a fundamental reason for the Company's rapid growth and success. The SECOND PRINCIPLE is corporate dedication to a partnership between the Company's associates (employees), ownership and management. This concept is extended to Wal-Mart's Vendor Partners who have increased their business as Wal-Mart has grown. The THIRD PRINCIPLE is a commitment by Wal-Mart to the United States and the communities in which stores and distribution centers are located. Wal-Mart strives to conduct its business in a manner that reflects these three basic principles and the resultant fundamental values. Each of our Vendor Partners, including our Vendor Partners outside the United States, are expected to conform to those principles and values and to assure compliance in all contracting, subcontracting or other relationships. Since Wal-Mart believes that the conduct of its Vendor Partners can be transferred to Wal-Mart and affect its reputation, Wal-Mart requires that its Vendor Partners conform to standards of business practices which are consistent with the three principles described above. More specifically, Wal-Mart requires conformity from its Vendor Partners with the following standards, and hereby reserves the right to make periodic, unannounced inspections of Vendor Partner's facilities to satisfy itself of Vendor Partner's compliance with these standards: 1. COMPLIANCE WITH APPLICABLE LAWS All Vendor Partners shall comply with the legal requirements and standards of their industry under the national laws of the countries in which the Vendor Partners are doing business. Should the legal requirements and standards of the industry conflict, Vendor Partners must, at a minimum, be in compliance with the legal requirements of the country in which the products are manufactured. If, however, the industry standards exceed the country's legal requirements, Wal-Mart will favor Vendor Partners who meet such industry standards. Vendor Partners shall comply with all import requirements of the U.S. Customs Service and all U.S. Government agencies. Necessary invoices and required documentation must be provided in compliance with U.S. law. Vendor Partners shall warrant to Wal-Mart that no merchandise sold to Wal-Mart infringes the patents, trademarks or copyrights of others and shall provide to Wal-Mart all necessary licenses for selling merchandise sold to Wal-Mart which is under license from a third party to protect intellectual property rights in the United States or elsewhere. All merchandise shall be accurately marked or labeled with its country of origin in compliance with the laws of the United States and those of the country of manufacture. All shipments of merchandise will be accompanied by the requisite documentation issued by the proper governmental authorities, including but not limited to Form A's, import licenses, quota allocations and visas and shall comply with orderly marketing agreements, voluntary restraint agreements and other such agreements in accordance with U.S. law. The commercial invoice shall, in English, accurately describe all the merchandise contained in the shipment, identify the country of origin of each article contained in the shipment, and shall list all payments, whether direct or indirect, to be made for the merchandise, including, but not limited to any assists, selling commissions or royalty payments. Backup documentation, and any Wal-Mart required changes to any documentation, will be provided by Vendor Partners promptly. 2. EMPLOYMENT Wal-Mart is a success because its associates are considered partners and a strong level of teamwork has developed within the Company. Wal-Mart expects the spirit of its commitment to be reflected by its Vendor Partners with respect to their employees. At a minimum, Wal-Mart expects its Vendor Partners to meet the following terms and conditions of employment: COMPENSATION Vendor Partners shall fairly compensate their employees by providing wages and benefits which are in compliance with the national laws of the countries in which the Vendor Partners are going business and which are consistent with the prevailing local standards in the countries in which the Vendor Partners are doing business, if the prevailing local standards are higher. HOURS OF LABOR Vendor Partners shall maintain reasonable employee work hours in compliance with local standards and applicable national laws of the countries in which the Vendor Partners are doing business. Employees shall not work more hours in one week than allowable under applicable law, and shall be compensated as appropriate for overtime work. We favor Vendor Partners who utilize less than sixty-hour work weeks, and we will not use suppliers who, on a regularly scheduled basis, require employees to work in excess of a sixty-hour week. Employees should be permitted reasonable days off (which we define as meaning at least one day off for every seven-day period--in other words, the employee would work six days and have at least one day off during a seven day period) and leave privileges. FORCED LABOR/PRISON LABOR Vendor Partners shall maintain employment on a voluntary basis. Forced or prison labor will not be tolerated by Wal-Mart. Wal-Mart will not accept products from Vendor Partners who utilize in any manner forced labor or prison labor in the manufacture or in their contracting, subcontracting or other relationships for the manufacture of their products. CHILD LABOR Wal-Mart will not tolerate the use of child labor in the manufacture of products it sells. We will not accept products from Vendor Partners that utilize in any manner child labor in their contracting, subcontracting or other relationships for the manufacture of their products. For a definition of "Child", we will look first to the national laws of the country in which the Vendor Partner is doing business. If, however, the laws of that country do not provide such a definition or if the definition includes individuals below the age of 15, Wal-Mart will define "Child", for purposes of determining use of illegal child labor, as any one who is: a. less than 15 years of age; or b. younger than the compulsory age to be in school in the country in which the Vendor Partner is doing business, if that age is higher than 15. Wal-Mart supports legitimate workplace apprenticeship education programs for younger persons. Page 5 of 6 2 DISCRIMINATION/HUMAN RIGHTS Wal-Mart recognizes that cultural differences exist and different standards apply in various countries, however, we believe that all terms and conditions of employment should be based on an individual's ability to do the job, not on the basis of personal characteristics or beliefs. Wal-Mart favors Vendor Partners who have a social and political commitment to basic principles of human rights and who do not discriminate against their employees in hiring practices or any other term or condition of work, on the basis of race, color, national origin, gender, religion, disability, sexual orientation or political opinion. 3. WORKPLACE ENVIRONMENT Wal-Mart maintains a safe, clean, healthy and productive environment for its associates and expects the same from its Vendor Partners. Vendor Partners shall furnish employees with safe and healthy working conditions. Factories working on Wal-Mart merchandise shall provide adequate medical facilities, fire exits and safety equipment, well lit and comfortable workstations, clean restrooms, and adequate living quarters where necessary. Wal-Mart will not do business with any Vendor Partner which provides an unhealthy or hazardous work environment or which utilizes mental or physical disciplinary practices. 4. CONCERN FOR THE ENVIRONMENT We believe it is our role to be a leader in protecting our environment. We encourage our customers and associates to always Reduce, Reuse, and Recycle. We also encourage our Vendor Partners to reduce excess packaging and to use recycled and non-toxic materials whenever possible. We will favor Vendor Partners who share our commitment to the environment. 5. BUY AMERICAN COMMITMENT Wal-Mart has a strong commitment to buy as much merchandise made in the United States as feasible. Vendor Partners are encouraged to buy as many materials and components from United States sources as possible and communicate this information to Wal-Mart. Further, Vendor Partners are encouraged to establish U.S. manufacturing operations. 6. REGULAR INSPECTION AND CERTIFICATION BY VENDOR PARTNER Vendor Partner shall designate, on a copy of the Wal-Mart Vendor Partner Inspection and Certification Form, one or more of its officers to inspect each of its facilities which produces merchandise sold to Wal-Mart. Such inspections shall be done on at least a quarterly basis to insure compliance with the standards, terms and conditions set forth herein. The Vendor Partner Officer designated to perform such inspections shall certify to Wal-Mart following each inspection that he or she performed such inspection and that the results reflected on such compliance inspection form are true and correct. 7. RIGHT OF INSPECTION To further assure proper implementation of and compliance with the standards set forth in this Memorandum of Understanding, Wal-Mart or a third party designated by Wal-Mart will undertake affirmative measures, such as on-site inspection of production facilities, to implement and monitor said standards. Any Vendor Partner which fails or refuses to comply with these standards is subject to immediate cancellation by Wal-Mart of all its outstanding orders with that Vendor partner as well as refusal by Wal-Mart to continue to do business in any manner with that Vendor Partner. As an officer of __________________, a Vendor Partner of Wal-Mart, I have read the principles and terms described in this document and understand my company's business relationship with Wal-Mart is based upon said company being in full compliance with these principles and terms. I further understand that failure by a Vendor Partner to abide by any of the terms and conditions stated herein may result in the immediate cancellation by Wal-Mart of all outstanding orders with that Vendor Partner and refusal by Wal-Mart to continue to do business in any manner with said Vendor Partner. I am signing this statement, as a corporate representative of ______________________, to acknowledge, accept and agree to abide by the standards, terms and conditions set forth in this Memorandum of Understanding between my company and Wal-Mart. I hereby affirm that all actions, legal and corporate, to make this Agreement binding and enforceable against __________________ have been completed. VENDOR PARTNER COMPANY NAME, ADDRESS, TELEPHONE AND FAX NUMBER - --------------------------------- Representative Name: /s/ MIKE PASSMAN - --------------------------------- --------------------------------- - --------------------------------- Typed Name: Mike Passman --------------------- - --------------------------------- Title Vice President & Plant Manager --------------------------------- - --------------------------------- Date: 6-7-96 --------------------------------- Page 6 of 6 3 Attachment A Warranty Policy Brister's Thunder Karts, Inc. Brister's Thunder Karts, Inc. (manufacturer) warrants its fun kart products on a limited warranty basis for a period of ninety (90) days against manufacturers defects only. Any of the manufacturer's products must be sent to an authorized service center as designated by Brister's Thunder Karts, Inc. for evaluation and repair. If the kart is covered under warranty, the service center will repair and file a claim against the appropriate party. If it is determined that the manufacturer's product is defective, Sam's club can then file a 20% markdown allowance and sell the item. If it is determined by the service center that the product was abused and not defective, no credit will be allowed and no markdown allowance filed. Examples of abuse or other types of returns for which credit will not be allowed are: 1. Axles torn off 2. No oil was put in crankcase 3. Kart will not "go fast enough" 4. Metal parts of the kart are bent 5. Any other evidence of abuse of the kart 4 VENDOR AGREEMENT WAL-MART STORES, INC. Corporate Office Bentonville, AR 72716 (501) 273-4000 THIS AGREEMENT IS A LEGALLY BINDING DOCUMENT AND THE PARTIES HERETO AGREE TO BE BOUND BY ALL TERMS AND CONDITIONS HEREIN; HOWEVER, THIS VENDOR AGREEMENT AND OTHER TERMS, CONDITIONS AND STANDARDS INCORPORATED HEREIN DO NOT CREATE AN OBLIGATION FOR PURCHASER TO PURCHASE MERCHANDISE OR OTHER GOODS. TO BE COMPLETED BY PURCHASER Effective Date VENDOR NO DEPT SEQ --------------------- 211394 6 0 [X] WAL-MART [ ] EXISTING VENDOR [X] PURCHASE/MDSE CATEGORY [ ] SAM'S CLUB [X] NEW VENDOR [ ] EXPENSE & --------------------------------------------- [ ] SUPERCENTER [ ] UPDATE Type DEPARTMENT 16 [ ] OTHER [X] NEW SEQ. --------- ------------------------------------------- ---------- BUYER S. McCall EXT ---------------------------- ---------------
================================================================================ GENERAL VENDOR INFORMATION Company Classification: (Please disregard this section if you are not a minority owned business) Minority Owned? Woman-Owned? ------- ------- B Black P Asian-Pacific American I Asian Indian N Eskimo --- --- --- --- H Hispanic N American Indian N Aleut N Native American --- --- --- --- IF YOUR COMPANY FALLS WITHIN ANY OF THE ABOVE MINORITY CLASSES AND HAS BEEN CERTIFIED AS MINORITY OWNED BY A GOVERNMENT AGENCY OR PURCHASING COUNCIL, YOU ARE QUALIFIED FOR THE FIRST STEP IN THE WAL-MART MINORITY OWNED BUSINESS DEVELOPMENT PROGRAM. A COPY OF YOUR CERTIFICATION MUST BE ATTACHED TO QUALIFY. - -------------------------------------------------------------------------------- Enter the Federal Taxpayer Identification Number (TIN) of the Payee Named Below. If a "TIN" has not been issued, enter the Employer's Social Security Number. 63-1059139 OR -- -- ------- -------- -------- TYPE OF PAYEE (CHECK ONLY ONE): Individual/Sole Proprietorship X Corporation --- --- Partnership Other --- --- PURCHASER RESERVES THE RIGHT TO REMIT TO THE PARTY TO WHOM THE PURCHASE ORDER IS ISSUED ADDRESS TO MAIL PAYMENT: ADDRESS TO SEND PURCHASE ORDERS: Vendor Name USA INDUSTRIES, INC. Vendor Name USA INDUSTRIES, INC. -------------------------------------- ---------------------------------------------- Address P.O. Box 45547 Attention MICHAEL ALLEN ------------------------------------------- ------------------------------------------------ City ATLANTA State GA Zip 30320-0547 Address 202 CHALLENGE AVENUE ----------------- ------- ------------ -------------------------------------------------- Factor Name City PRATTVILLE State AL Zip 36067 --------------------------------------- -------------------------- -------- -------- Vendor Also Doing Business As (Attach a list to Street Address for use by delivery services other than this Agreement if space below is insufficient) the U.S. Mail, if not already shown in the Purchase Order address above. Vendor # Room - ----------------------- ----------------- ------------------------------------------ -------- Expedite Orders: Phone -- -- ---------- ---------- -------- ADDRESS TO MAIL CLAIM DOCUMENTATION: ADDRESS TO SEND PRICING TICKETS: Attention Mr. MICHAEL ALLEN Vendor Name -------------------------------------- ---------------------------------------------- Address 202 CHALLENGE AVENUE Attention ---------------------------------------- ------------------------------------------------ City PRATTVILLE State AL Zip 36067 Address ----------------- ------- --------- ------------------------------------------------- Accounting Phone Number 800-774-9393 City State Zip ----------------------- -------------------------- --------- -------- Toll Free Number 800-774-9393 ------------------------------- FAX Number 334-365-9345 -------------------------------------
================================================================================ VENDOR FINANCIAL INFORMATION Vendor shall furnish to Purchaser, when returning this completed agreement, a complete set of current financial statements. If such statements are not available, a Dun & Bradstreet financial report shall be provided by Vendor. Publicly-held companies shall provide to Purchaser the most recent Annual Report to Shareholders and Management Proxy information. In the event that Purchaser's purchases from Vendor constitutes twenty percent (20%) or more of Vendor's gross annual sales, Vendor agrees to notify Purchaser of the fact in writing within thirty (30) days of said event. ================================================================================ NOTICE REGARDING ASSIGNMENT OF ACCOUNTS The Vendor shall provide Purchaser written notice of an assignment, factoring, or other transfer of its right to receive payments arising under this agreement 30 days prior to such assignment, factoring, or other transfer taking legal effect. Such written notice shall include the name and address of assignee/transferee, date assignment is to begin, and terms of the assignment, and shall be considered delivered upon receipt of such written notice by the Vendor Master Clerk. Vendor shall be allowed to have only one assignment, factoring or transfer legally effective at any one point in time. No multiple assignments, factorings or transfers by the Vendor shall be permitted. Purchaser shall have the right to take deduction or other set-offs against any payment assigned, transferred, or factored by the Vendor and Vendor shall indemnify Purchaser against and hold Purchaser harmless from any and all lawsuits, claims, actions, damages (including reasonable attorney fees, court costs, obligations, liabilities, or liens) arising or imposed in connection with the such deductions or set-offs or with the assignment or transfer of factoring of any account or right arising thereunder Vendor also releases and waives any right, claim or action against Purchaser for amounts due and owing under this Agreement where Vendor has not complied with the notice requirements of this provision. Such notice shall be mailed directly to: INVOICE CONTROL DEPT. ATTN: VENDOR MASTER CLERK BENTONVILLE, AR 72716-8002 ================================================================================ VENDOR ELECTRONIC DATA INTERCHANGE RESPONSIBILITIES Vendor agrees to receive orders and send Wal-Mart invoices VIA EDI (electronic transmission) unless specifically waived by Purchaser. 1. Vendor will establish a user I.D. to identify its company. The presence of this user I.D. in the EDI interchange will be sufficient to verify the source of the data and the authenticity of the document. 2. Documents containing the user I.D. will constitute a signed writing and neither party shall contest the validity or enforceability of the document on this basis. 3. EDI documents or printout thereof shall constitute an original when maintained in the normal course of business. Vendor waiver is approved. EDI WAIVER REQUESTED * Purchaser agrees to waive the EDI requirements of vendor. Purchase orders will be sent via overnight mail at vendors expense. G.M.M. WAIVER ------------- ================================================================================ SHIPPING TERMS FREIGHT TERMS MINIMUM FOR PREPAID FREIGHT TERMS: WHOLE [X] COLLECT - FOB VENDOR ___ POUNDS ___ UNITS ___ DOLLARS [ ] PREPAID - FOB PURCHASER [ ] PREPAID TO CONSOLIDATOR - FOB PURCHASER'S CONSOLIDATOR
================================================================================ SHIPPER LOAD AND COUNT RESPONSIBILITIES The Vendor who is shipping collect to Wal-Mart/Sam's a full truckload, will be responsible for monitoring their shipping process including closing the trailer and securing it with a vendor provided seal. This seal number MUST be referenced and identified as the seal number on all copies of the Bill of Lading. If the Vendor fails to seal the trailer, the driver will seal the trailer on the Vendor's behalf. The driver will then document that seal number on the Bill of Lading before providing the Vendor with his/her copy. If the load is properly sealed and a shortage does occur, Vendor shall be liable for said shortage. ================================================================================ CONDITION OF SALE Attach Details of Available Programs. Programs that are accepted will become an addendum to Agreement. [X] Guaranteed Sales [ ] Consignment [ ] Preticketing [ ] Prepricing [ ] Stock Balancing [ ] Shelf Labels ================================================================================ STANDARD PURCHASE ORDER ALLOWANCE
- ---------------------------------------------------------------------------------------------------------------------------------- DISC HOW PAID WHEN PAID MEMO Each Inv. Other CODE ALLOWANCE % OI CM CK EI M Q S A - ---------------------------------------------------------------------------------------------------------------------------------- SA Item Level New Store/Club Discount 10 X X (% Applied to each line item for --- --- --- --- --- --- --- --- --- each new store) OL P.O. Level New Store/Club Discount (% Applied to total amount of --- --- --- --- --- --- --- --- --- each purchase order) NW New Distribution Center --- --- --- --- --- --- --- --- --- WA Warehouse Allowance --- --- --- --- --- --- --- --- --- QD Warehouse Distribution Allow (Order Type 33 Only) --- --- --- --- --- --- --- --- --- DM Defective/Returned Mdse. Allowance --- --- --- --- --- --- --- --- --- SD Soft Goods Defective Allow --- --- --- --- --- --- --- --- --- PA Promotional Allowance DEPT/SEQ 160 --- VENDOR # 211394 --- --- --- --- --- --- --- --- VD Volume Discount CODE 1 --- KEY DATE 10-2-96 --- --- --- --- --- --- --- --- FA Freight Allowance VM CJM --- --- --- --- --- --- --- --- --- AA Advertising Allowance --- --- --- --- --- --- --- --- --- TR TV/Radio Media Allowance --- --- --- --- --- --- --- --- --- DA Display/Endcap Allowance --- --- --- --- --- --- --- --- --- EB Early Buy Allowance --- --- --- --- --- --- --- --- --- HA Handling Allowance --- --- --- --- --- --- --- --- --- - ----------------------------------------------------------------------------------------------------------------------------------
OI-Off.Invoice CM-Credit Memo CK-Check EI-Each Invoice M-Monthly Q-Quarterly S-Semi-Annually A-Annually 5 CONDITION OF MERCHANDISE Vendor agrees to only ship goods which comply with the "Warranties and Guarantees" section of the "Purchase Order Terms and Conditions" which is attached hereto and incorporated herein. ================================================================================ PRICE GUARANTEE AND NOTICE OF PRICE INCREASES Prices are guaranteed by Vendor against manufacturer's or Vendor's own price decline and against legitimate competition until date of shipment with Purchaser's owned inventories price protected by credit memo. In the event that prior to the final shipment under any order Vendor sells or offers to others goods substantially of the same kind as ordered at lower prices and or on terms more favorable to a third party than those stated on the purchase order, the prices and or terms shall be deemed automatically revised to equal the lowest prices and most favorable terms at which Vendor shall have sold or shall have offered such goods and payment shall be made accordingly. In the event Purchaser shall become entitled to such lower prices, but shall have made payment at any prices in excess thereof, Vendor shall promptly refund the difference in price to Purchaser. In the event that a court or regulatory agency or body finds that the prices on an order are in excess of that allowed by any law or regulation of any governmental agency, the prices shall be automatically revised to equal a price which is not in violation of said law or regulations. If Purchaser shall have made payment before it is determined that there has been a violation, Vendor shall promptly refund an amount of money equal to the difference between the price paid for the goods and the price which is not in violation of said regulations. In the event of a prior increase, Vendor shall give Wal-Mart written notice of any such increase at least (60) days prior to the effective date of the increase. ================================================================================ DEBIT BALANCES If Vendor has a Debit Balance with Purchaser, the amount owed Purchaser will be deducted from the next remittance or a check from Vendor to clear this amount will be paid within 30 days at the option of Purchaser. Purchaser reserves the right to charge the Vendor penalties and interest for any Debit Balances not paid within 30 days. ================================================================================ **IMPORTANT NOTICE** ALL PAYMENTS OF MONIES MUST BE MAILED TO THE ADDRESS INDICATED BELOW: [ ] P.O. BOX 889, LOWELL, AR 72745 [ ] P.O. BOX 18045 B, ST. LOUIS, MO 63160 [ ] P.O. BOX 500646, ST. LOUIS, MO 63150-0646 (Allowance Checks) [ ] P.O. BOX 60128, ST. LOUIS, MO 63160 (Special Divisions) ================================================================================ WARRANTY POLICY - -------------------------------------------------------------------------------- VENDOR MUST CHECK OPTIONS BELOW AND COMPLETE INFORMATION BEFORE AGREEMENT CAN BE APPROVED - -------------------------------------------------------------------------------- Vendor will be charged current costs plus a 10% handling charge for all returned merchandise except where a Defective/Returned Merchandise Allowance is given by the vendor. Returned merchandise will be shipped with return freight charges billed back to the vendor. Returns are F.O.B. Purchaser. [X] VENDOR OPTION #1: VENDOR WANTS RETURNED MERCHANDISE SENT TO THEM: [X] Returned merchandise will be sent to the vendor direct from each store. Permanent return authorization #________________________, if required for shipment. If automatic return is not possible, an 800 number should be provided or the vendor must accept purchaser's collect calls to secure return authorization over the phone. Phone 800-774-9393 Contact Michael Allen --------------------- -------------------------- [ ] Returned merchandise will be sent from store locations to the return center and sent to the vendor. Permanent return authorization #________________________, if required for shipment. The practice of requesting a separate return authorization number for each return claim (shipment) will be discontinued. ADDRESS TO SHIP RETURNS TO: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMMENTS: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ ] VENDOR OPTION #2: VENDOR DOES NOT WANT RETURNED MERCHANDISE SENT TO THEM [ ] Returned merchandise will be sent from store locations to the Return Center for disposal [ ] Return Center may dispose of returned merchandise through salvage outlets. [ ] Return Center must destroy returned merchandise. [ ] Returned merchandise must be disposed of by the individual store. COMMENTS: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ ] VENDOR OPTION #3: DEFECTIVE/RETURNED MERCHANDISE ALLOWANCE Vendor will allow the Defective/Returned Merchandise Allowance shown on the reverse side of this agreement. The percentage must be adequate to cover all defective/returned merchandise or additional claims will be filed by the Return Center at our fiscal year end. [ ] Return Center may dispose of returned merchandise through salvage outlets. [ ] Return Center must destroy returned merchandise. [ ] Returned merchandise will be sent from store locations to the Return Center and sent to the vendor. If vendor requests the returned merchandise to be sent to them, they will be charged a 10% handling charge and the merchandise will be shipped with return freight charges billed back to the vendor. ADDRESS TO SHIP RETURNS TO: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMMENTS: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ PAYMENT TERMS ALL DATING SHALL BEGIN AT THE DATE OF RECEIPT OF THE GOODS AT PURCHASER'S DOCK ON ALL E.O.M. (END OF MONTH) DATINGS, GOODS RECEIVED AFTER THE 24TH OF ANY MONTH SHALL BE PAYABLE AS IF RECEIVED IN THE FOLLOWING MONTH INVOICES SHOULD BE MAILED OR ELECTRONICALLY TRANSMITTED ON THE SAME GOODS ARE SHIPPED AND SHALL DATE FROM PURCHASER'S RECEIPT OF THE GOODS CASH DISCOUNT WILL BE CALCULATED ON THE GROSS AMOUNT OF VENDOR'S INVOICE. 1. Cash Discount - --- --- --- Cash Discount Days Available - --- --- --- 3 0 2. Net Payment Days Available (must be at least one - --- --- --- day more than Cash Discount Days Available) Yes No X 3. E.O.M. --- --- NEW STORE/WHSE TERMS IF DIFFERENT THAN REGULAR TERMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ INSURANCE REQUIREMENTS A copy of your current Certificate of Insurance with the following requirements must be attached to this Vendor Agreement. Certificate Holder should read: WAL-MART STORES, INC. ITS SUBSIDIARIES & ITS AFFILIATES 702 SW 8th Street Bentonville, AR 72716-9078 Attn: Risk Management 1. COMMERCIAL GENERAL LIABILITY Including Contractual. Products and Completed Operations with certificate holder named as Additional Insured as evidenced by attached endorsement. LIMITS: $2,000,000* Per Occurrence 2. WORKERS' COMPENSATION required provided vendor will be entering Wal-Mart premises: Workers' Compensation STATUTORY EMPLOYERS' LIABILITY $1,000,000 Waiver of Subrogation where permitted by law 3. Notice of Cancellation must be for 30 days. 4. Your Vendor number needs to be stated on certificate of insurance. Vendor number for new vendors will be assigned upon receipt of vendor agreement. 5. Renewals of certificates of insurance must be submitted prior to expiration of insurance with vendor number stated. 6. Please direct any questions regarding your insurance to Risk Management at (501) 273-6516. 7. If certificate of insurance does not comply with requests, vendor agreement will be returned until compliances are met. 8. CONTACT FOR PRODUCT LIABILITY CLAIMS: NAME: USA INDUSTRIES, INC. -------------------------------------------------------------- ADDRESS: 202 CHALLENGE AVE. -------------------------------------------------------------- CITY: PRATTVILLE STATE AL ZIP 36067 -------------------------------- --------- ----------- ATTN: MICHAEL ALLEN PHONE 800-774-9393 ----------------------------------------- --------------- FAX 334-365-9345 -------------- INSURING COMPANY: PALOMAR INSURANCE CORPORATION -------------------------------- PHONE: 334-270-0105 ----------------------------------------------------------------- *$5,000,000 if determined by Wal-Mart as a high risk vendor ================================================================================ COMPLIANCE WITH STANDARDS FOR VENDOR PARTNERS Vendor agrees to comply with the obligations expressed in the "WAL-MART STANDARDS FOR VENDOR PARTNERS" which is incorporated herein as part of this Vendor Agreement. Wal-Mart reserves the right to cancel any outstanding order, refuse any shipments and otherwise cease to do business with Vendor in the event Vendor fails to comply with all terms of said Standards or if Wal-Mart has reason to believe Vendor has failed to comply with said Standards. ================================================================================ Vendor shall protect, defend, hold harmless and indemnify Purchaser from and against any and all claims, actions, liabilities, losses, costs and expenses, even if such claims are groundless, fraudulent or false, arising out of any actual or alleged infringement of any patent, trademark or copyright by any merchandise sold to the purchaser hereunder, or arising out of any actual or alleged death of or injury to any person, damage to any property, or any other damage or loss, by whomsoever suffered, resulting or claimed to result in whole or in part from any actual or alleged defect in such merchandise, whether latent or patent, including actual or alleged improper construction or design of said merchandise or the failure of said merchandise to comply with specifications or with any express or implied warranties of Vendor, or arising out of any actual or alleged violation by such merchandise, or its manufacturer, possession or use or sales, of any law, statute or ordinance of any governmental administrative order, rule or regulation arising out of Vendor's installation of merchandise covered by this agreement. The duties and obligations of Vendor created hereby shall not be affected or limited in any way by Purchaser's extension of express or implied warranties to its customers, except to the extent that any such warranties expressly extend beyond the scope of Vendor's warranties., express or implied, to Purchaser. It is further agreed that all duties and obligations of Vendor set forth in this paragraph shall extend in full force and effect to pallet at the direction of Vendor. ================================================================================ ALL PURCHASES MADE BY PURCHASER SHALL BE CONTROLLED BY THE PURCHASER'S PURCHASE ORDER "TERMS AND CONDITIONS", WHICH IS ATTACHED AS A PART OF THIS AGREEMENT AND INCLUDED WITH EACH MANUALLY TRANSMITTED ORDER. THIS AGREEMENT AND ALL DISPUTES ARISING HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARKANSAS. THE PARTIES AGREE THAT THE EXCLUSIVE JURISDICTION OF ANY DISPUTE ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY DISPUTE RELATING TO THE SERVICES OR GOODS PROVIDED HEREUNDER SHALL BE IN THE STATE AND FEDERAL COURTS OF THE COUNTIES OF BENTON OR WASHINGTON, STATE OF ARKANSAS. ANY LEGAL ACTION BROUGHT BY VENDOR AGAINST PURCHASER WITH RESPECT TO THIS AGREEMENT SHALL BE FILLED IN ONE OF THE ABOVE-REFERENCED JURISDICTIONS WITHIN TWO (2) YEARS AFTER THE CAUSE ACTION ARISES. THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTOOD THIS CLAUSE AND AGREE ______________________ LIMITATION OF DAMAGES. IN NO EVENT SHALL WAL-MART BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING WITHOUT LIMITATION, LOSS OF PROFITS OR BUSINESS, OR OTHER CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, DAMAGES ARISING OUT OF WAL-MART'S CANCELLATION OF ORDERS OR THE TERMINATION OF BUSINESS RELATIONS WITH VENDOR) EVEN IF WAL-MART HAS BEEN ADVISED BY VENDOR OF THE POSSIBILITY OF SUCH DAMAGES. By the execution of this Vendor Merchandise Agreement. Vendor agrees to the representations stated above, and on the following page. Vendor further agrees that Purchaser may rely on these representations in placing any purchase orders pursuant to information contained in this Agreement. Any changes to this Agreement must be in writing and executed by both parties. Furthermore, in the event of a conflict of terms between the Vendor Agreement and a Purchase Order, the Vendor Agreement shall be the controlling document. SELLER: By: /s/ MICHAEL ALLEN DATE 9/25/96 ------------------------------------------------------------ ----------- (Principal of the company) (Signature needed on all copies) Title: President ------------------------------------------------------------------------- PURCHASER: By: /s/ SCOTT MCCALL DATE 9/30/96 ------------------------------------------------------------ ----------- (Buyer) By: /s/ SCOTT MCCALL DATE 9/30/96 ------------------------------------------------------------ ----------- (Division Merchandise Manager) Salesman: ----------------------------------------------------------------------- Address: ----------------------------------------------------------------------- ----------------------------------------------------------------------- Phone Number: ---------------------- Sales Mgr. or V.P. Sales: ------------------------------------------------------- Address: ----------------------------------------------------------------------- ----------------------------------------------------------------------- Phone Number: ---------------------- Pres. Name: MICHAEL ALLEN --------------------------------------------------------------- 202 CHALLENGE AVE. --------------------------------------------------------------- PRATTVILLE AL 36067 --------------------------------------------------------------- 6 ATTACHMENT A WARRANTY/RETURN POLICY USA INDUSTRIES, INC. REVISED 10-01-96 USA Industries, Inc. (manufacturer) warrants its fun kart products on a limited warranty basis for a period of ninety (90) days against manufacturers defects only. Any of the manufacturers products must be sent to an authorized service center as designated by USA Industries, Inc. for evaluation and repair. If the kart is covered under warranty, the service center will repair and file a claim against the appropriate party. If it is determined that the manufacturers product is defective, Wal-Mart can then file for a "Return Authorization Number" from the factory by calling 1-800-774-9393. If it is determined by the service center that the product was abused and not defective, no credit will be allowed and no return authorization will be given. Examples of abuse or other types of returns for which credit will not be allowed are: 1. Axles torn off 2. No oil was put in the crank case 3. Kart will not "go fast enough" 4. Metal parts of the kart are bent 5. Any other evidence of abuse of the kart The warranty will be considered void if the repairs are not handled through an authorized service center. 7 I, Michael Allen, President of USA Industries, Inc. give permission to Charity, Assistant to Scott McCall, with Wal-Mart Corporation, the authorization to change the appropriate box on our vendors agreement to reflect the attached warranty/return policy revision of 10-01-96. /s/ MICHAEL ALLEN - ------------------------------------
EX-10.12 29 FLOOR PLAN AGREEMENT 1 EXHIBIT 10.12 FLOORPLAN AGREEMENT This Floorplan Agreement ("Agreement") is made as of September 9, 1996 between DEUTSCHE FINANCIAL SERVICES CORPORATION ("DFS"), having a principal place of business at 655 Maryville Centre Drive, St. Louis, Missouri 63141, and KARTS INTERNATIONAL/BRISTER'S THUNDER KARTS, INC. [Full and exact name of Vendor] ("Vendor"), having a principal place of business located at Highway 51 South Roseland, LA 70456. Vendor sells various products ("Merchandise") to dealers and/or distributors (individually and collectively "Dealer") who may require financial assistance in order to make such purchases from Vendor. To induce DFS to finance the acquisition of Merchandise by any Dealer and in consideration thereof, Vendor and DFS agree that: 1. VENDOR'S WARRANTIES. Whenever a Dealer requests the shipment of Merchandise from Vendor and that DFS finance such Merchandise, Vendor may deliver to DFS an invoice(s) describing the Merchandise. By delivery of an invoice, Vendor and DFS warrant the following: a. That Vendor transfers to Dealer all right, title and interest in and to the Merchandise so described, contingent upon DFS' approval to finance the transaction; b. That Vendor's title to the Merchandise is free and clear of all liens and encumbrances when transferred to Dealer; c. That the Merchandise is in salable condition suitable for ordinary retail sale, free of any defects; d. That the Merchandise is the subject of a bona fide order by Dealer placed with and accepted by Vendor, and that Dealer has requested the transaction be financed by DFS; and e. That the Merchandise subject to the transaction has been shipped to Dealer not more than ten (10) days prior to the invoice date. If Vendor breaches any of the above-described warranties, Vendor will immediately: (i) pay to DFS an amount equal to the total unpaid balance (being principal and finance charges) owed to DFS on all Merchandise related to the breach; and (ii) reimburse DFS for all costs and expenses (including, but not limited to, reasonable attorneys' fees) incurred by DFS as a result of the breach. 2. FINANCING OF MERCHANDISE. DFS will only be bound to finance Merchandise which DFS has accepted to finance (such acceptances will be indicated by DFS' issuance of an approval number, draft or other instrument to Vendor in payment of the invoice, less the amount of DFS' charges as agreed upon from time to time) and only if: (a) the Merchandise is delivered to Dealer within thirty (30) days following DFS' acceptance; (b) DFS has received Vendor's invoice for such Merchandise within ten (10) days from the date of delivery of the Merchandise to Dealer; and (c) DFS has not revoked its acceptance prior to the shipment of the Merchandise to Dealer. 3. PURCHASE OF MERCHANDISE. Whenever DFS deems it necessary in its sole discretion to repossess or if DFS otherwise comes into possession, actual or constructive, of any Merchandise in which it has a security interest or other lien, Vendor will purchase such Merchandise from DFS at the time of DFS' repossession or other acquisition of possession in accordance with the following terms and conditions: a. Vendor will purchase such Merchandise, regardless of its condition, at the point where DFS repossesses it or where it otherwise comes into DFS' possession; 1 2 b. The purchase price Vendor will pay to DFS for such Merchandise will be due and payable immediately in full, and will be an amount equal to (i) the total unpaid balance (being principal and finance charges) owed to DFS with respect to such Merchandise, or Vendor's original invoice price for such Merchandise, whichever is greater, and (ii) all costs and expenses (including, but not limited to, reasonable attorneys' fees) paid or incurred by DFS in connection with the repossession of such Merchandise; and c. Vendor shall not assert or obtain any interest in or to any Merchandise acquired by Vendor until the purchase price therefor is paid in full. 4. ADDITIONAL TERMS OF PURCHASE. In addition to Vendor's obligations set forth above, if DFS at any time repossesses or otherwise comes into possession of any Merchandise from any Dealer who received the Merchandise from a third party and not directly from Vendor, Vendor shall purchase such Merchandise from DFS on demand, in accordance with the terms set forth above in Section 3; provided, however; (a) DFS will first request such third party to purchase such Merchandise from DFS; and (b) if such third party fails to immediately purchase such Merchandise from DFS, Vendor shall immediately purchase such Merchandise and pay DFS a purchase price therefor in an amount equal to the total unpaid balance (being principal and finance charges) owed to DFS with respect to such Merchandise and all costs and expenses (including, without limitation, reasonable attorneys' fees) paid or incurred by DFS in connection with its repossession of such Merchandise, but in no event will Vendor's liability with respect to any item of such Merchandise exceed Vendors invoice price for such item. 5. EXTENSION OF TIME; WAIVERS. DFS may extend the time of a Dealer in default to fulfill its obligations to DFS without notice to Vendor and without altering Vendor's obligations hereunder. Vendor waives any rights it may have to notice of nonpayment, nonperformance, dishonor, the amount of indebtedness of a Dealer outstanding at any time, any legal proceeding against a Dealer, and any other demands and notices except as required by law, and any rights it may have to require DFS to proceed against a Dealer or the Merchandise or to pursue any other remedy in DFS' power. Vendor's liability to DFS is direct and unconditional and will not be affected by any change in the terms of payment or performance of any agreement between DFS and Dealer, or the release, settlement or compromise of or with any party liable for the payment or performance thereof, the release or non-perfection of any security thereunder, any change in Dealer's financial condition, or the interruption of business relations between DFS and Dealer. 6. EXPENSES; RELEASE OF INFORMATION. Vendor will pay all DFS' expenses (including, but not limited to, court costs, arbitration fees and reasonable attorneys' fees) in the event DFS is required to enforce its rights against Vendor. Vendor will release to DFS any credit, financial or other information on any Dealer upon each request by DFS. Vendor will immediately notify DFS if Vendor reasonably believes that Dealer has violated the terms of any franchise, permission, license or right to sell or deal in the Merchandise. DFS' failure to exercise any rights granted hereunder shall not operate as a waiver of those rights. 7. INVOICES. Invoices submitted to DFS by Vendor should indicate that the Merchandise is "Sold to (Name of Dealer) and "Financed by Deutsche Financial Services Corporation." However, if Vendor's invoices read "Sold to Deutsche Financial Services Corporation", and, regardless of the invoice, Vendor acknowledges and agrees that DFS is not purchasing Merchandise, but is only financing said Merchandise for Dealer. 8. SUCCESSORS AND ASSIGNS; OBLIGATIONS. This Agreement will be binding upon and inure to the benefit of DFS' successors and assigns. Vendor cannot assign this Agreement without DFS' prior written consent. DFS may perform or cause to be performed any or all of its obligations hereunder by any of its subsidiaries and/or affiliated companies. Vendor's obligations under this Agreement inure to the benefit of any of DFS' subsidiaries and/or affiliated companies. 2 3 9. EVENTS OF DEFAULT. The occurrence of any of the following events shall be deemed an "Event of Default" under this Agreement: (a) Vendor's failure to pay when due any amount owed DFS hereunder or under any other agreement between DFS and Vendor; (b) Vendor's failure to perform or observe any covenant, term or provision hereunder or under any other agreement between DFS and Vendor; (c) termination or impairment of any guaranty of Vendor's obligations hereunder; (d) Vendor shall cease existence as a corporation, partnership, limited liability company or trust, as applicable; (e) Vendor ceases or suspends business; (f) Vendor makes a general assignment for the benefit of creditors; (g) Vendor becomes insolvent or voluntarily or involuntarily becomes subject to the Federal Bankruptcy Code, any state insolvency law or any similar law; (h) any receiver is appointed for any assets of Vendor; (i) Vendor sells, transfers or assigns all or substantially all of its assets; (j) Vendor merges its business with another business, regardless of whether Vendor is the surviving entity; or (k) there is any material adverse change in Vendor's financial condition. 10. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default, DFS shall have the right, at DFS' option, to immediately exercise one or more of the following remedies: (a) refuse to extend any further financing to Dealers; (b) terminate the Agreement; or (c) exercise any other rights it may have under the laws of the state governing this Agreement. 11. TERMINATION. Either party may terminate this Agreement by notice to the other in writing, the termination to be effective thirty (30) days after receipt (which receipt is presumed to be five (5) business days after the same is sent) of notice by the other party provided, however, that DFS may terminate this Agreement immediately if an Event of Default has occurred. In any event, no termination of this Agreement will affect any of Vendor's (or its assignees, whether permitted or unpermitted) liability with respect to any financial transactions entered into by DFS with any Dealer prior to the effective date of termination, including, without limitation, transactions that will not be completed until after the effective date of termination. 12. MISCELLANEOUS. Vendor will notify DFS of any change in its name or business structure. Vendor waives notice of DFS' acceptance of this Agreement. This Agreement is not intended, nor shall it be deemed to, directly or indirectly, benefit any person or entity, including any Dealer, who is not a party hereto. 13. NO ORAL AGREEMENTS. There are no oral or unwritten agreements between DFS and Vendor regarding the subject matter hereof. Vendor and DFS acknowledge and agree that all agreements and understandings between them are set forth in this Agreement and any terms letters executed in connection herewith (as the same may be revised from time to time without necessitating an amendment of this Agreement) or in any other writing between the parties relating hereto. 14. BINDING ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, the relationship resulting in or from this Agreement, the breach of any duties hereunder or any other relationship, transaction or dealing between the parties (collectively "Disputes") will be settled by binding arbitration in accordance with the Commercial Arbitration Rules of The American Arbitration Association, 140 West 51st Street, New York, New York 10020-1203. Except as otherwise stated herein, all notices, arbitration claims, responses, requests and documents will be sufficiently given or served if mailed or delivered: (a) to DFS at 655 Maryville Centre Drive, St. Louis, Missouri 63141-5832. Attention: General Counsel; and (b) to any other party at the address specified herein; or such other address as the parties may specify from time to time in writing. The parties agree that all arbitrators selected will be attorneys with at least five (5) years secured transactions experience. Any award rendered by the arbitrator(s) may be entered as a judgment or order and confirmed or enforced by either party in any state or federal court having competent jurisdiction thereof. If either party brings or appeals any judicial action to vacate or modify any award rendered pursuant to arbitration or opposes the confirmation of such award and the party bringing or appealing such action 3 4 or opposing confirmation of such award does not prevail, such party will pay all of the costs and expenses (including, without limitation, court costs, arbitrators fees and expenses and attorneys' fees) incurred by the other party in defending such action. Additionally, if either party brings any action for judicial relief in the first instance without pursuing arbitration prior thereto, the party bringing such action for judicial relief will be liable for and will immediately pay to the other party all of the other party's costs and expenses (including, without limitation, court costs and attorneys' fees) to stay or dismiss such judicial action and/or remove it to arbitration. The failure of either party to exercise any rights granted hereunder shall not operate as a waiver of any of those rights. THE LAWS OF THE STATE OF ILLINOIS WILL GOVERN THIS AGREEMENT AND ALL TRANSACTIONS HEREUNDER AS TO INTERPRETATION, ENFORCEMENT VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS; PROVIDED, HOWEVER, THAT THE FEDERAL ARBITRATION ACT ("FAA"), TO THE EXTENT INCONSISTENT, WILL SUPERSEDE THE LAWS OF SUCH STATE AND GOVERN. This Agreement concerns transactions involving commerce among the several states. The arbitrators will not be empowered to award punitive damages. The agreement to arbitrate will survive termination of this Agreement. IF THIS AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS LOCATED WITHIN SUCH STATE AND AGREE THAT ALL LEGAL PROCEEDINGS WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. EACH PARTY WAIVES ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING. THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE WAIVER PROVISIONS. KARTS INTERNATIONAL/BRISTER'S THUNDER KARTS, INC. ------------------------------------------------- ATTEST: /s/ TIMOTHY P. HALTER By: /s/ V. LYNN GRAYBILL - -------------------------- --------------------------------------------- Name: V. Lynn Graybill -------------------------------------------- Title: President ------------------------------------------- DEUTSCHE FINANCIAL SERVICES CORPORATION By: ---------------------------------------------- Name: -------------------------------------------- Title: ------------------------------------------- - --------- (1) Name of Vendor (2) Signature of Vendor's Authorized Representative (3) Signature of Vendor's Secretary, if Vendor is a Corporation, Otherwise a Witness' Signature 4 EX-10.13 30 GUARANTY OF VENDOR 1 EXHIBIT 10.13 GUARANTY OF VENDOR TO: DEUTSCHE FINANCIAL SERVICES CORPORATION In consideration of financing provided or to be provided by you to dealers and/or distributors of __________________________________ ("Vendor"), under the terms of that certain FLOORPLAN AGREEMENT entered into between you and Vendor on __________, 1996, and all current and future amendments and addenda thereto ("Agreement"), and for other good and valuable consideration received, we jointly, severally, unconditionally and absolutely guaranty to you, from property held separately, jointly or in community, the immediate payment when due of all current and future liabilities owed by Vendor to you under the Agreement, whether such liabilities are direct, indirect or owed by Vendor to a third party and acquired by you ("Liabilities"). We will pay you on demand the full amount of all Liabilities due from Vendor, together with all costs and expenses (including, without limitation, reasonable attorneys' fees). We also indemnify and hold you harmless from and against all (a) losses, costs and expenses you incur and/or are liable for (including, without limitation, reasonable attorneys' fees) and (b) claims, actions and demands made by Vendor or any third party against you, which in any way relate to any relationship or transaction between you and Vendor. Our guaranty will not be released, discharged or affected by, and we irrevocably consent to, any: (a) change in the manner, place, interest rate, finance or other charges, or terms of payment or performance in any current or future agreement between you and Vendor, and/or any Dealer or distributor of Vendor (collectively "Dealer"), the release, settlement or compromise of or with any party liable for the payment or performance thereof or the substitution, release, non-perfection, impairment, sale or other disposition of any collateral thereunder; (b) change in Vendor's and/or any of Dealer's financial condition; (c) interruption of relations between Vendor and you or us; (d) interruption of relations between you and any Dealer; (e) claim or action by Vendor, and/or any Dealer, against you; and/or (f) increases or decreases in any credit you may provide to Vendor and/or any Dealer. We will pay you even if you have not (i) notified Vendor that it is in default of the Liabilities, or (ii) exercised any of your rights or remedies against Vendor, any Dealer, any other person or any current or future collateral. This Guaranty is assignable by you and will inure to the benefit of your assignee. If Vendor hereafter undergoes any change in its ownership, identity or organizational structure, this Guaranty will extend to all current and future obligations which such new or changed legal entity owes to you. We irrevocably waive: notice of your acceptance of this Guaranty, presentment, demand, protest, nonpayment, nonperformance, notice of breach or default, any right of contribution from other guarantors, dishonor, the amount of indebtedness of Vendor, and/or any Dealer, outstanding at any time, the number and amount of advances made by you to any Dealer in reliance on this Guaranty and any claim or action against Vendor and/or any dealer or distributor of Vendor; notice and hearing as to any prejudgment remedy against Vendor and/or any Dealer; all other demands and notices required by law directly or indirectly relating to Vendor and/or any Dealer; all rights of offset and counterclaims against you or Vendor; all rights in, and notices or demands relating to, any collateral now or hereafter securing any Liabilities (including, without limitation, all rights, notices or demands directly or indirectly relating to the sale or other disposition of such collateral or the manner of such sale or other disposition); all defenses to the enforceability of this Guaranty (including, without limitation, fraudulent inducement). We further waive all defenses based on suretyship or impairment of collateral, and defenses which the Vendor may assert on the underlying debt, including but not limited to, failure of consideration, breach of warranty, fraud, payment, statute of frauds, bankruptcy, lack of legal capacity, statute of limitations, lender liability, deceptive trade practices, accord and satisfaction and usury. We also waive all rights to claim, arbitrate for or sue for any punitive or exemplary damages. In addition, we hereby irrevocably subordinate to you any and all of our present and 1 2 future rights and remedies: (a) of subrogation against Vendor to any of your rights or remedies against Vendor and/or any Dealer; (b) of contribution, reimbursement, indemnification and restoration from Vendor and/or any Dealer; and (c) to assert any other claim or action against Vendor, and/or any Dealer directly or indirectly relating to this Guaranty, such subordinations to last until you have been paid in full for all Liabilities. All our waivers and subordinations herein will survive any termination of this Guaranty. We have made an independent investigation of the financial condition of Vendor and give this Guaranty based on that investigation and not upon any representation made by you. We have access to current and future Vendor financial information which enables us to remain continuously informed of Vendor's financial condition. We represent and warrant to you that we have received and will receive substantial direct or indirect benefit by making this Guaranty and incurring the Liabilities. We will provide you with financial statements on us each year within ninety (90) days after the end of our fiscal year end. We warrant and represent to you that all financial statements and information relating to us or Vendor which have been or may hereafter be delivered by us or Vendor to you are true and correct and have been and will be prepared in accordance with generally accepted accounting principles consistently applied and, with respect to previously delivered statements and information, there has been no material adverse change in the financial or business condition of us or Vendor since the submission to you, either as of the date of delivery, or if different, the date specified therein, and we acknowledge your reliance thereon. This Guaranty will survive any federal and/or state bankruptcy or insolvency action involving Vendor. We are solvent and our execution of this Guaranty will not make us insolvent. If you are required in any action involving Vendor to return or rescind any payment made to or value received by you from or for the account of Vendor, this Guaranty will remain in full force and effect and will be automatically reinstated without any further action by you and notwithstanding any termination of this Guaranty or your release of us. Any delay or failure by you, or your successors or assigns, in exercising any of your rights or remedies hereunder will not waive any such rights or remedies. Oral agreements or commitments to loan money, extend credit or to forbear from enforcing repayment of a debt including promises to extend or renew such debt are not enforceable. To protect us and you from misunderstanding or disappointment, any agreements we reach covering such matters are contained in this writing, which is the complete and exclusive statement of the agreement between us, except as specifically provided herein or as we may later agree in writing to modify it. Notwithstanding anything herein to the contrary: (a) you may rely on any facsimile copy, electronic data transmission or electronic data storage of this Guaranty, any agreement between you and Vendor, any Statement of Transaction, billing statement, invoice from Vendor, financial statements or other report, and (b) such facsimile copy, electronic data transmission or electronic data storage will be deemed an original, and the best evidence thereof for all purposes, including, without limitation, under this Guaranty or any other agreement between you and us, and for all evidentiary purposes before any arbitrator, court or other adjudicatory authority. We may terminate this Guaranty by a written notice to you, the termination to be effective sixty (60) days after you receive and acknowledge it, but the termination will not terminate our obligations hereunder arising prior to the effective termination date. We have read and understood all terms and provisions of this Guaranty. We acknowledge receipt of a true copy of this Guaranty and of all agreements between you and Vendor. The meanings of all terms herein are equally applicable to both the singular and plural forms of such terms. BINDING ARBITRATION. Except as otherwise specified below, all actions, disputes, claims and controversies under common law, statutory law or in equity of any type or nature whatsoever (including, without limitation, all torts, whether regarding negligence, breach of fiduciary duty, restraint of trade, fraud, conversion, duress, interference, wrongful replevin, wrongful sequestration, fraud in the inducement, usury or any other tort, all contract actions, whether regarding express or implied terms, such as implied covenants of good faith, fair dealing, and the commercial reasonableness 2 3 of any collateral disposition, or any other contract claim, all claims of deceptive trade practices or lender liability, and all claims questioning the reasonableness or lawfulness of any act), whether arising before or after the date of this Guaranty, and whether directly or indirectly relating to: (a) this Guaranty and/or any amendments and addenda hereto, or the breach, invalidity or termination hereof; (b) any previous or subsequent agreement between you and us; (c) any act committed by you or by any parent company, subsidiary or affiliated company of you (the "DFS Companies"), or by an employee, agent, officer or director of a DFS Company, whether or not arising within the scope and course of employment or other contractual representation of the DFS Companies provided that such act arises under a relationship, transaction or dealing between you and Vendor or you and us; and/or (d) any other relationship, transaction, dealing or agreement between you and Vendor or you and us (collectively the "Disputes"), will be subject to and resolved by binding arbitration. All arbitration hereunder will be conducted in accordance with the Commercial Arbitration Rules of The American Arbitration Association ("AAA"). If the AAA is dissolved, disbanded or becomes subject to any state or federal bankruptcy or insolvency proceeding, the parties will remain subject to binding arbitration which will be conducted by a mutually agreeable arbitral forum. The parties agree that all arbitrator(s) selected will be attorneys with at least five (5) years secured transactions experience. The arbitrator(s) will decide if any inconsistency exists between the rules of any applicable arbitral forum and the arbitration provisions contained herein. If such inconsistency exists, the arbitration provisions contained herein will control and supersede such rules. The site of all arbitrations will be in the Division of the Federal Judicial District in which AAA maintains a regional office that is closest to Vendor. Discovery permitted in any arbitration proceeding commenced hereunder is limited as follows: No later than thirty (30) days after the filing of a claim for arbitration, the parties will exchange detailed statements setting forth the facts supporting the claim(s) and all defenses to be raised during the arbitration, and a list of all exhibits and witnesses. No later than twenty-one (21) days prior to the arbitration hearing, the parties will exchange a final list of all exhibits and all witnesses, including any designation of any expert witness(es) together with a summary of their testimony; a copy of all documents and a detailed description of any property to be introduced at the hearing. Under no circumstances will the use of interrogatories, requests for admission, requests for the production of documents or the taking of depositions be permitted. However, in the event of the designation of any expert witness(es), the following will occur: (a) all information and documents relied upon by the expert witness(es) will be delivered to the opposing party, (b) the opposing party will be permitted to depose the expert witness(es), (c) the opposing party will be permitted to designate rebuttal expert witness(es), and (d) the arbitration hearing will be continued to the earliest possible date that enables the foregoing limited discovery to be accomplished. The Arbitrator(s) will not have the authority to award exemplary or punitive damages. All arbitration proceedings, including testimony or evidence at hearings, will be kept confidential, although any award or order rendered by the arbitrator(s) pursuant to the terms of this Guaranty may be entered as a judgment or order in any state or federal court and may be entered as a judgment or order within the federal judicial district which includes the residence of the party against whom such award or order was entered. This Guaranty concerns transactions involving commerce among the several states. The Federal Arbitration Act ("FAA") will govern all arbitration(s) and confirmation proceedings hereunder. Nothing herein will be construed to prevent your or our use of bankruptcy, receivership, injunction, repossession, replevin, claim and delivery, sequestration, seizure, attachment, foreclosure, dation and/or any other prejudgment or provisional 3 4 action or remedy relating to any Collateral for any current or future debt owed by either party to the other. Any such action or remedy will not waive your or our right to compel arbitration of any Dispute. If either we or you bring any other action for judicial relief with respect to any Dispute (other than those set forth in the immediately preceding paragraph), the party bringing such action will be liable for and immediately pay all of the other party's costs and expenses (including attorneys' fees) incurred to stay or dismiss such action and remove or refer such Dispute to arbitration. If either we or you bring or appeal an action to vacate or modify an arbitration award and such party does not prevail, such party will pay all costs and expenses, including attorneys' fees, incurred by the other party in defending such action. Additionally, if we sue you or institute any arbitration claim or counterclaim against you in which you are the prevailing party, we will pay all costs and expenses (including attorneys' fees) incurred by you in the course of defending such action or proceeding. Any arbitration proceeding must be instituted: (a) with respect to any Dispute for the collection of any debt owed by either party to the other, within two (2) years after the date the last payment was received by the instituting party; and (b) with respect to any other Dispute, within two (2) years after the date the incident giving rise thereto occurred, whether or not any damage was sustained or capable of ascertainment or either party knew of such incident. Failure to institute an arbitration proceeding within such period will constitute an absolute bar and waiver to the institution of any proceeding with respect to such Dispute. Except as otherwise stated herein, all notices, arbitration claims, responses, requests and documents will be sufficiently given or served if mailed or delivered: (i) to us at our address below; (ii) to you at 655 Maryville Centre Drive, St. Louis, Missouri 63141-5832, Attention: General Counsel; or such other address as the parties may specify from time to time in writing. The agreement to arbitrate will survive the termination of this Guaranty. IF THIS GUARANTY IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. WE WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING. We acknowledge and agree that this Guaranty and all agreements between Vendor and you have been substantially negotiated, and will be performed, in the state of Illinois. Accordingly, we agree that all Disputes will be governed by, and construed in accordance with, the laws of such state, except to the extent inconsistent with the provisions of the FAA which will control and govern all arbitration proceedings hereunder. THIS GUARANTY CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES WAIVER PROVISIONS. Date: September 9, 1996 (1) INDIVIDUAL GUARANTOR(S): (2) CORPORATE, PARTNERSHIP OR LIMITED LIABILITY COMPANY GUARANTOR: Signed By: KARTS INTERNATIONAL/ ---------------------------- BRISTER'S THUNDER KARTS, INC. -------------------------------------- (Print Name: ) (Name of Corporate, Partnership or ------------------------- Limited Liability Company Guarantor) WITNESS: /s/ COURTENAY ROLSTON By: /s/ V. LYNN GRAYBILL ----------------------------- ---------------------------------- (Print Name: Courtenay Rolston ) (Print Name: V. Lynn Graybill ) ------------------------- ------------------------- Title: President ------------------------------- 4 5 SIGNED By: (3) ------------------------- (Print Name: ) Address of Guarantor(s): ----------------------- WITNESS: (4) -------------------------------------- --------------------------- (Print Name: ) -------------------------------------- ----------------------- -------------------------------------- (1)NOTARY STATEMENT On this 9th day of September, 1996, before me, the subscriber, a Notary Public, personally appeared V. Lynn Graybill(7) known to me to be the person(s) described in and who executed the above Guaranty of Vendor, and who acknowledged the execution thereof to be their free act and deed. Notary Public: /s/ JOHN J. RABALAIS -------------------- My Commission Expires: at death, 19 ----- (SEAL) JOHN J. RABALAIS NOTARY PUBLIC State of Louisiana My Commission Is Issued For Life 5 6 (6)SECRETARY'S CERTIFICATE I hereby certify that I am the Secretary or Assistant Secretary of KARTS INTERNATIONAL & BRISTER'S THUNDERKARTS, INC. ("Guarantor") and that execution of the above Guaranty of Vendor was ratified, approved and confirmed by the Shareholders at a meeting, if necessary, and pursuant to a resolution of the Board of Directors of Guarantor at a meeting of the Board of Directors duly called, and which is currently in effect, which resolution was duly presented, seconded and adopted and reads as follows: "BE IT RESOLVED that any officer of this corporation is hereby authorized to execute a guaranty of the obligations of KARTS INTERNATIONAL/ BRISTER'S THUNDERKARTS, INC., ("Vendor") to Deutsche Financial Services Corporation on behalf of the corporation, which instrument may contain such terms as the above named persons may see fit including, but not limited to a waiver of notice of the acceptance of the guaranty; presentment; demand; protest; notices of nonpayment, nonperformance, dishonor, the amount of indebtedness of Vendor, and/or any dealer or distributor of Vendor, outstanding at any time, any legal proceedings against Vendor and/or any dealer or distributor of Vendor, and any other demands and notices required by law directly or indirectly relating to Vendor and/or any dealer or distributor of Vendor; any right of contribution from other guarantors; and all offsets." IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal on this 9th day of September, 1996. (SEAL) Secretary: /s/ Timothy P. Halter ----------------------------- - ------------- (1) Complete this Section only if Individual Guarantor(s) (2) Complete this Section only if Corporate, Partnership or Limited Liability Company Guarantor (3) Individual Guarantor's Signature (4) Signature of Witness to Individual Guarantor's Signature (Must be DFS Employee) (5) Signature of Corporate, Partnership or Limited Liability Company Representative (6) Title of Corporate, Partnership or Limited Liability Company Representative (7) Name of Each Individual Guarantor (8) Complete this Section only if Corporate Guarantor EX-10.14 31 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT This Agreement is made on March 15, 1996, by and between Karts International Incorporated, a Nevada corporation (the "Corporation"), and Mr. V. Lynn Graybill (the "Employee"). WHEREAS, the Corporation is engaged in the business of designing, manufacturing, distributing and marketing go karts; and WHEREAS, the Corporation desires to retain the services of the Employee in the capacity of its President, Chief Executive Officer and Chairman of the Board. NOW, THEREFORE, for and in consideration of the mutual promises and covenants contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: Section 1. Employment. The Corporation agrees to employ the Employee and the Employee agrees to accept the employment described in this Agreement. Section 2. Duties. The Employee shall serve as President, Chief Executive Officer and Chairman of the Board, with such duties, power and authority as are customarily associated with such positions. Without limiting the generality of the foregoing, the Employee shall be responsible for and have complete authority for: (a) day-to-day operations; (b) implementation of strategic plans approved by the Board of Directors; (c) all personnel decisions including complete hire and fire authority; and (d) determining an employee organizational structure. The Employee will be a voting member of the Board of Directors and be entitled to attend any and all meetings of the Board of Directors or any committees established by the Board of Directors. The Employee shall report to the Board of Directors. Without limiting the generality of the foregoing, the Employee shall have the following reporting obligations to the Board of Directors; (a) monthly operating financial statements; (b) quarterly presentations at mutually agreed upon dates and times regarding the Corporation's operations. In addition, without limiting the generality of the foregoing, the Employee shall submit the following to the Board of Directors for approval: (a) an annual budget; and (b) any proposals regarding capital expenditures exceeding an aggregate of $40,000, provided that such expenditures shall not include those incurred in the ordinary course of business. Leases for the subsidiary company plant sites and the Karts International corporate offices will be considered in the category of ordinary course of business provided that such leases were approved in the annual budget by the Board of Directors. Section 3. Extent of Services. The Employee shall devote his entire working time, (exclusive of vacation, reasonable personal matters, funeral leave, illness, temporary disability, holidays and weekends) attention, and energies to the performance of his duties. The Employee shall at all times faithfully and to the best of his ability perform his duties under this Agreement. 2 The duties shall be rendered at the Corporation's principal office, at any of the subsidiary company locations, or at such other place or places and at such times as the needs of the Corporation may from time-to-time dictate. Section 4. Term. The term of this Agreement shall begin on March 15, 1996 ("Effective Date"), and shall continue for a three-year period. The parties presently anticipate that the employment relationship may continue beyond this three-year term. This Agreement shall not give the Employee any enforceable right to employment beyond this term. Section 5. Compensation. (a) Base Compensation. (i) The Employee will receive a base salary of $150,000 per year, payable in accordance with the Corporation's standard payroll procedures. (ii) The Employee shall receive, in the manner set forth herein, 210,000 shares of common stock of the Corporation. As soon as practicable after the date hereof, the Corporation will place such shares (the "Escrow Shares") in an escrow account pursuant to an escrow agreement by and among the Corporation, the Employee and the escrow agent. Such escrow agreement shall provide as follows: (A) 105,000 of the Escrow Shares shall be delivered to the Employee upon the completion of the first year of his employment with the Corporation; (B) 52,500 of the Escrow Shares shall be delivered to the Employee upon the completion of the second year of his employment with the Corporation; and (C) 52,500 of the Escrow Shares shall be delivered to the Employee upon the completion of the third year of his employment with the Corporation. In the event that this Agreement is terminated by the Company "for cause" (as hereinafter defined) or by the Employee for any reason, the Employee shall not receive any Escrow Shares remaining in the escrow account at the time of such termination. In the event that this Agreement is terminated for any other reason, the Employee shall be entitled to receive any escrow shares remaining in the escrow account at the time of such termination. (iii) The Employee is eligible for performance-based bonuses in the form of common stock options. Such bonuses will be paid, if at all, in the sole discretion of the Board of Directors. The Employee shall not be entitled to additional compensation by reason of service as a director of the Corporation. (b) Benefits. The Employee and his spouse shall receive medical insurance with the terms thereof to be mutually agreed by the parties hereto, provided that the cost of such insurance will not exceed $7,200 per year. (c) Expenses. The Corporation shall reimburse the Employee for reasonable out-of-pocket expenses incurred by the Employee in connection with his relocation to Louisiana, 3 provided such expenses shall not exceed $25,000. In addition, the Corporation shall reimburse the Employee for reasonable out-of-pocket expenses incurred by the Employee in fulfilling his duties. In addition, the Corporation shall provide the Employee and any corporate staff members recruited by the Employee with suitable office facilities not to exceed 3,500 square feet, at class A office market rates, located on the North shore area in St. Tammany Parish, Louisiana or other reasonable location selected by the Employee. Section 6. Termination. (a) For Cause. The Corporation may terminate the Employee's employment at any time "for cause" with immediate effect upon delivering written notice to the Employee. For purposes of this Agreement, "for cause" shall include: (i) embezzlement, theft, larceny, material fraud, or other acts of dishonesty; (ii) material violation by the Employee of any of his obligations under this Agreement; (iii) conviction of or entrance of a plea of guilty or nolo contendere to a felony or other crime which has or may have a material adverse effect on the Employee's ability to carry out his duties under this Agreement or upon the reputation of the Corporation; (iv) conduct involving moral turpitude; (v) material or repeated insubordination to the Board of Directors; or (vi) material and continuing failure by the Employee to perform the duties described in Section 2 above in a quality and professional manner for at least thirty (30) days after written warning by the Board of Directors. Upon termination for cause, with the exception of cause items (v) and (vi) above, the Corporation's sole and exclusive obligation will be to pay the Employee his compensation earned under Section 5 (a)(i) hereof through the date of termination, and the Employee shall not be entitled to any compensation after the date of termination. If termination occurs for cause items (v) or (vi) the Employee will receive severance pay in the amount of the Employee's compensation, including health care benefits, then in effect for a period of three (3) months subsequent to the date of termination. (b) Upon Death. In the event of the Employee's death during the term of this Agreement, the Corporation's sole and exclusive obligation will be to pay to the Employee's spouse, if living, or to his estate, if his spouse is not then living, the Employee's compensation earned through the date of death. (c) Upon Disability. The Corporation may terminate the Employee's employment upon the Employee's total disability. The Employee shall be deemed to be totally disabled if he is unable to perform his duties under this Agreement by reason of mental or physical illness or accident for a period of three consecutive months. Upon termination by reason of the Employee's disability, the Corporation's sole and exclusive obligation will be to pay the Employee his compensation earned through the date of termination. (d) Without Cause. The Corporation may terminate the Employee's employment without cause at any time after expiration of the three-year term of this Agreement. If termination occurs without cause, the Employee shall receive severance pay in the amount of the Employee's compensation, including health care benefits, then in effect for a period of six (6) months subsequent to the date of termination. 3 4 Section 7. Covenant Not to Compete. (a) Covenant. Except as provided herein, for the period during which the Employee is employed by the Corporation, and for a three-year period after the Employee's employment with the Corporation has been terminated by either party, the Employee will not directly or indirectly: (i) enter into or attempt to enter into the "Restricted Business" (as defined below) in any area in which the Corporation engages in the Restricted Business; (ii) induce or attempt to persuade any former, current or future employee, agent, manager, consultant, director, or other participant in the Corporation's business to terminate such employment or other relationship in order to enter into any relationship with the Employee, any business organization in which the Employee is a participant in any capacity whatsoever, or any other business organization in competition with the Corporation's business; or (iii) use contracts, proprietary information, trade secrets, confidential information, customer lists, mailing lists, goodwill, or other intangible property used or useful in connection with the Corporation's business. This Section 7 will not apply to the Employee's activities in the State of Louisiana, which will be governed by that Noncompetition Agreement dated the date hereof by and between the parties hereto and by the laws of the State of Louisiana. (b) Indirect Activity. The term "indirectly," as used in this Section 7, includes acting as a paid or unpaid director, officer, agent, representative, employee of, or consultant to any enterprise, or acting as a proprietor of an enterprise, or holding any direct or indirect participation in any enterprise as an owner, partner, limited partner, joint venturer, shareholder, or creditor. (c) Restricted Business. The term "Restricted Business" means the the design, manufacture, distribution and marketing of go karts. Nevertheless, the Employee may own not more than five percent of the outstanding equity securities of a corporation that is engaged in the Restricted Business if the equity securities are listed for trading on a national stock exchange or are registered under the Securities Exchange Act of 1934. Section 8. Miscellaneous (a) Severability. It is the desire and intent of the parties that the provisions of Section 7 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, to the extent that the covenants hereunder shall be adjudicated to be invalid or unenforceable in any one such jurisdiction, Section 7 shall be deemed amended to delete therefrom or reform the portion thus adjudicated to be invalid or unenforceable, such deletion or reformation to apply only with respect to the operation of Section 7 in the particular jurisdiction in which such adjudication is made. Moreover, each provision of this Agreement is intended to be severable; and in the event 4 5 that any one or more of the provisions contained in this Agreement shall for any reason be adjudicated to be invalid or unenforceable in any jurisdiction, the same shall not affect the validity or enforceability of any other provisions of this Agreement in that jurisdiction, but this Agreement shall be construed in such jurisdiction as if such invalid or unenforceable provision had never been contained therein. (b) Confidentiality. The Employee acknowledges that he will develop and be exposed to information that is or will be confidential and proprietary to the Corporation. The information includes customer lists, marketing plans, pricing data, product plans, software, and other intangible information. Such information shall be deemed confidential to the extent not generally known within the trade. The Employee agrees to make use of such information only in the performance of his duties under this Agreement, to maintain such information in confidence and to disclose the information only to persons with a need to know. (c) Remedies. The Employee acknowledges that monetary damages would be inadequate to compensate the Corporation for any breach by the Employee of the covenants set forth in Section 7 above. The Employee agrees that, in addition to other remedies which may be available, the Corporation shall be entitled to obtain injunctive relief against the threatened breach of this Agreement or the continuation of any breach, or both, without the necessity of proving actual damages. (d) Waiver. The waiver by the Corporation of the breach of any provision of this Agreement by the Employee shall not operate or be construed as a waiver of any subsequent breach by the Employee. (e) Notices. Any notices permitted or required under this Agreement shall be deemed given upon the date of personal delivery or forty-eight (48) hours after deposit in the United States mail, postage fully prepaid, return receipt requested, addressed to the Corporation at: Timothy P. Halter 4851 LBJ Freeway, Suite 201 Dallas, Texas 75244 addressed to the Employee at: V. Lynn Graybill 24 Oak Forest Drive Longview, Texas 75605 or at any other address as any party may, from time to time, designate by notice given in compliance with this Section. (f) Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. 5 6 (g) Titles and Captions. All section titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the context nor effect the interpretation of this Agreement. (h) Entire Agreement. This Agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this Agreement. (i) Agreement Binding. This Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. (j) Attorney Fees. In the event an arbitration, suit or action is brought by any party under this Agreement to enforce any of its terms, or in any appeal therefrom, it is agreed that the prevailing party shall be entitled to reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or appellate court. (k) Computation of Time. In computing any period of time pursuant to this Agreement, the day of the act, event or default from which the designated period of time begins to run shall be included, unless it is a Saturday, Sunday, or a legal holiday, in which event the period shall begin to run on the next day which is not a Saturday, Sunday, or legal holiday, in which event the period shall run until the end of the next day thereafter which is not a Saturday, Sunday, or legal holiday. (l) Pronouns and Plurals. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular, or plural as the identity of the person or persons may require. (m) Presumption. This Agreement or any section thereof shall not be construed against any party due to the fact that said Agreement or any section thereof was drafted by said party. (n) Further Action. The parties hereto shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of the Agreement. (o) Parties in Interest. Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party. (p) Savings Clause. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. (q) Separate Counsel. The parties acknowledge that the Corporation has been represented in this transaction by its own attorneys, that the Employee has not been represented 6 7 in this transaction by the Corporation's attorneys, and the Employee has been advised to seek separate legal advice and representation in this matter. IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the day first above written. KARTS INTERNATIONAL INCORPORATED By: /s/ TIMOTHY P. HALTER ---------------------------------- Timothy P. Halter Vice President By: /s/ V. LYNN GRAYBILL ---------------------------------- V. Lynn Graybill, individually 7 8 ADDENDUM TO EMPLOYMENT AGREEMENT BETWEEN KARTS INTERNATIONAL INCORPORATED AND V. LYNN GRAYBILL THIS ADDENDUM TO THE EMPLOYMENT AGREEMENT, dated March 15, 1996, entered into by and between Karts International Incorporated, a Nevada corporation (the "Corporation"), and Mr. V. Lynn Graybill (the "Employee") is made and effective as of March 15, 1996 (the "Effective Date"). WHEREAS, the Corporation and Employee began negotiations for an agreement reflecting the terms and conditions of the Employee's employment by the Corporation during December 1995 and early January 1996; WHEREAS, on January 17, 1996, the Employee and Halter Financial Group, Inc., as representative of Karts International Incorporated, agreed to a letter of intent which set forth the basic terms and conditions of Employee's employment with the Corporation; WHEREAS, on March 15, 1996, the parties executed an Employment Agreement; WHEREAS, immediately after execution of the Employment Agreement, the parties agreed and determined that Section 5(a)(ii) did not accurately set forth the previous agreement and understanding between the Employee and Corporation regarding the subject matter as set forth in said Section; and WHEREAS, the parties now desire to amend the Employment Agreement, and in particular, Section 5(a)(ii) of the Employment Agreement to accurately set forth and reflect the parties' previous understanding and agreements. NOW, THEREFORE, for and in consideration of the mutual promises and covenants contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: a. The parties hereto agree that Section 5(a)(ii) of the Employment Agreement should be deleted in its entirety and in its place and stead the parties have hereto agreed to the following provisions: Section 5(a)(ii). The Employee shall receive as additional consideration for entering into this Agreement with the Corporation and for accepting employment with the Corporation under the terms and conditions as herein set forth, a signing bonus in the amount of 10% of the Employee's base salary of $150,000 (or $15,000) to be paid concurrent with the execution of this Agreement by the Corporation with the issuance to Employee of 210,000 shares of common stock of the Corporation. It is further agreed and understood between the parties that the 210,000 shares of common stock of the Corporation to be issued to Employee (the "Escrowed Shares") shall be subject to an Escrow Agreement by and among the Corporation, the Employee and the Escrow Agent. Such Escrow Agreement shall provide, in part, as follows: ADDENDUM TO EMPLOYMENT AGREEMENT - Page 1 9 (a) If the Employee's employment with the Corporation is terminated for cause or voluntarily by Employee prior to the completion of the first year of his employment with the Corporation, the Corporation shall have the right to buy back all of the Escrowed Shares from the Employee for $16,800 or $0.08 per share; (b) If the Employee's employment with the Corporation is terminated for cause or voluntarily by Employee prior to the completion of the second year of his employment with the Corporation, then the Corporation shall have the right to purchase from the Employee 105,000 of the Escrowed Shares for $8,400 or $0.08 per share; and (c) If the Employee's employment with the Corporation is terminated for cause or voluntarily by Employee prior to the completion of the third year of his employment with the Corporation, then the Corporation shall have the right to purchase from the Employee 52,500 of the Escrowed Shares for $4,200 or $0.08 per share. In the event that this Agreement is terminated for any reason other than "for cause" (as hereinafter defined in this Agreement) or voluntarily by the Employee for any reason, the provisions relating to the repurchase right of the Corporation of the Escrowed Shares shall terminate and any such Escrowed Shares which shall remain subject to such repurchase right of the Corporation shall be delivered to the Employee or his legal representatives. IN WITNESS WHEREOF, on this 15th day of March, 1996, the parties have executed this Addendum to the Employment Agreement to be effective as of March 15, 1996. KARTS INTERNATIONAL INCORPORATED By: /s/ TIMOTHY P. HALTER ---------------------------------- Timothy P. Halter, Vice President /s/ V. LYNN GRAYBILL ----------------------------------- V. LYNN GRAYBILL, Individually ADDENDUM TO EMPLOYMENT AGREEMENT - Page 2 EX-10.15 32 CONSULTING ENGAGEMENT LETTER 1 EXHIBIT 10.15 109 Northpark Blvd., Suite 210 Covington, LA 70433 (504) 875-7350 Phone (504) 875-7353 Fax Date: 2-19-97 CONSULTING ENGAGEMENT LETTER PROJECT DESCRIPTION: Torque Converter Development with Max-Torque For Application to Big Thunder, Landrunner, Coyote & TCII Models PROJECT NO.: 100 CONSULTING FIRM: Chuck Brister Dear Mr. Brister: The above identified project is authorized by Karts International Incorporated (the Company) and Chuck Brister (Consultant) subject to your acceptance as an independent contractor on the following terms: The estimated range of consulting hours for the subject project are: 40 to 60 Hours. The hourly consulting rate for the project is $400 per day in the Roseland, LA area and $800 per day while traveling in connection with the above stated project. Payment shall be made on the 15th day of each month. Consultant's travel involved with the project will be billed to KARTS INTERNATIONAL including first class air fare, lodging and other reasonable out of pocket expenses to support the above named project. The project is to commence on Feb 26, 1997 and conclude on March 28, 1997. Chuck Brister, Consultant, agrees that he will not use his knowledge of the Company's business for the benefit of any other person or company or divulge to others information or data concerning the Company's affairs. Karts International Incorporated and Chuck Brister, Consultant, agree that Consultant assumes no liability whatsoever, now or in future, for the consulting advice provided to Karts International related to this project. Karts International Incorporated fully indemnifies Chuck Brister, Consultant, from and against any and all claims, actions, liabilities, losses, costs and expenses, even if such claims are groundless, fraudulent or false, arising out of the consulting advice provided to the Company. Agreed to this 19th day of February, 1997. Karts International Incorporated Consultant By: /s/ V. LYNN GRAYBILL By: /s/ CHUCK BRISTER ---------------------------- ---------------------------------- EX-10.16 33 LETTER AGREEMENT 1 EXHIBIT 10.16 [EASY CARE LETTERHEAD] January 21, 1997 Mr. V. Lynn Graybill Chairman, President and CEO Karts International Incorporated 109 Northpark Blvd., Suite 210 Covington, LA 70433 Dear Lynn: Per your request, the following is a quote for services from Bobby Labonte. There are two options, one with the appearance at the show in Louisville and one without. Bobby Labonte will become the national spokesperson for Karl International, Inc. products. This would included o The right for Kart to use Bobby Labonte's likeness as well as the picture of the #44 Busch Grand National car in all of its brochures and advertising materials, on promotions for their products that might run on the Internet and in trade magazines. Labonte Racing will provide a standard color photo or negative of Bobby and the car. All cost of brochures or advertisements are the responsibility of Karts International o Mr. Labonte or his representatives will have the right to approve each particular advertisement and picture that is used. Permission to use any particular ad or picture will not be unreasonably withheld. o Kart International will have the right to have a decal approximately 3" by 12" displayed on the #44 Busch Grand National Car. Labonte racing will determine the location of the decal on the car. The cost for the above endorsement and promotional activities is $80,000 for 1997 with an option to renew for 1998, if Labonte Racing enters a Busch Grand National car for the 1998 season, at a rate of $88,000. o Karts International may choose to have Bobby Labonte appear at the Lawn and Garden Expo in Louisville, KY along with the #38 Busch Grand National Show Car for an additional fee of $24,000 plus travel, food and lodging expenses. Bobby travels in his own plane and Kart would be charged $800 per hour of actual flying time estimated at approximately 3-4 hours round trip. First class hotel accommodations and transportation to and from the airport, hotel and event would be handled by Kart. The Show Car would arrive on Friday evening, July 25, 1997 at the event in Louisville, KY and be available for display for July 26, 27, 28. Bobby would be available for a maximum of 6 hours per day on July 27 and July 28 to sign autographs, meet clients and promote Kart International go karts. 2 Lynn, this is obviously not a legal contract, but I have spoken with Bobby and these numbers are acceptable to him. If you agree I will have my in house counsel draw up a real short contract for both of you to sign. I have enclosed some information about Bobby. I personally believe you cannot get a more professional individual in racing to be your spokesperson. Our EasyCare relationship with Bobby has been excellent and he has done a great job of promoting our products to our clients. Some other things you will need to consider. o You will want to do an autograph card. I have enclosed one of ours and some others from the industry that you can get some ideas from. We can assist you in developing yours. The idea is a picture of car and driver, your logo on front and history of driver and sponsor. o You will want to prepare a press release to announce the association and I can get a quote from Bobby, once he has reviewed the information about your products, which will fit well. If you want some assistance in writing the press release let me know. o Also, our people in can tell you which publications in racing you want to send the release to, but you will want to choose the trade journals and I believe you could get a good story written about the association with racing if you made a few calls. Please call me once you have reviewed this. Sincerely, /s/ Larry Dorfman - ---------------------------- Larry Dorfman President CEO LD/li Accepted as stated above with the addition of payment terms as follows: $52,000 upon signing the agreement (check is enclosed) 26,000 payable on 4-1-97 26,000 payable on 6-1-97 Bobby Labonte would agree to provide Karts International with a Federal ID Number. Attached please find financial statements for KII as of 12-31-96 (calendar fiscal year end) /s/ V. Lynn Graybill -------------------------- V. Lynn Graybill, CEO Karts International Incorporated EX-10.17 34 CONSULTING AGREEMENT 1 EXHIBIT 10.17 CONSULTING AGREEMENT This Consulting Agreement (the "Agreement") is made and entered into effective as of the 16th day of March, 1997, by and among Halter Financial Group, Inc., a Texas corporation ("HFG") and Karts International Incorporated, a Nevada corporation (the "Client"). RECITALS A. HFG owns 15% of the outstanding capital stock of the Client. B. HFG is experienced in assisting publicly-held companies in shareholder and investor relations and financial public relations. C. HFG will provide certain consulting services to the Client on the terms and conditions set forth in this Agreement. NOW, THEREFORE, for and in consideration of the mutual promises and covenants contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Consulting Services. HFG hereby agrees to provide the following consulting services to the Client under the terms and conditions set forth in this Agreement: (a) Preparing a program of shareholder communications and relations including, but not limited to: (i) preparation or review of periodic letters to shareholders; (ii) preparation of a Company Profile; and (iii) preparation or review and distribution of press releases; (b) Preparing a program of communication with brokerage professionals, investment bankers, and market- makers including, but not limited to: (i) written communication with brokerage firms, investment bankers, and market- maker(s); (ii) introductions to retail brokers and investment bankers; (iii) assistance with brokerage presentations; (iv) coordinating conference calls with brokers; and (c) Providing such other general assistance and advice as may be mutually agreed by the parties. 2. Compensation. As compensation for entering into this Agreement, the Client will pay to HFG $10,000. 3. Expenses. The Client will be responsible for all costs, fees and expenses that HFG incurs in connection with the performance of the services under this Agreement. In the event that the parties agree that HFG will undertake any project for or on behalf of the Client outside the scope of this Agreement, the Client will approve and authorize the projected costs and expenses for such project. HFG will provide the Client with an itemized list of such costs 2 and expenses that it incurs on behalf of the Client and the Client will reimburse HFG for such costs and expenses within 30 days of receipt thereof. 4. Term. This Agreement shall commence on the execution date of this Agreement and shall continue for a term of 12 months, unless terminated earlier pursuant to Section 5 hereof. 5. Termination. This Agreement may be terminated: (a) if there has been a material breach of this Agreement and such breach has not been cured by the alleged breaching party on or before 30 days from the date of the receipt of written notice from the non-breaching party detailing the breach; or (b) upon the mutual written agreement of the parties. 6. Remedies. Upon termination of this Agreement for any reason, the Client agrees to immediately pay all sums due to HFG in accordance with this Agreement. The Client agrees to pay a late charge of 1 1/2% per month on any amount due to HFG which has not been paid within the five days immediately following its due date until such amount shall have been paid in full. 7. Accuracy of Information and Indemnification. The Client agrees to fully cooperate with HFG in the performance of HFG's consulting services as HFG may request. In this regard, the Client agrees to furnish to HFG complete, truthful and accurate information in all respects. The Client agrees to indemnify and hold harmless HFG from any loss, liability, damages, costs and expenses (including attorneys' and other professional fees) that HFG may incur as a result of the Client furnishing to HFG any untruthful or inaccurate information or failing to provide any material information necessary to make the statements being made or the information being furnished accurate and truthful in light of all the circumstances. 8. Miscellaneous. (a) Assignability. Unless otherwise agreed to in writing by both parties hereto, the rights, obligations and benefits established by this Agreement shall be nonassignable by either of the parties hereto and any such attempt of assignment shall be null and void and of no effect whatsoever. (b) Relationship of the Parties. The management and employees of HFG shall not be considered employees of the Client. Furthermore, the parties agree that HFG shall not be deemed to be an employee, servant, partner or joint venturer of the Client. HFG shall be considered an independent contractor for all purposes. (c) Entire Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof, and may not be changed except by a writing signed by the party against whom enforcement or discharge is sought. 2 3 (d) Waiver of Breach. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. (e) Construction of Language. The language used in this Agreement shall be construed as a whole according to its fair meaning, and not strictly for nor against either party. (f) Captions and Headings. The paragraph headings throughout this Agreement are for convenience and reference only, and shall in no way be deemed to define, limit or add to the meaning of any provision of this Agreement. (g) State Law. This Agreement, its interpretation and its application shall be governed by the laws of the State of Texas. (h) Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Execution and delivery of this Agreement by exchange of facsimile copies bearing facsimile signature of a party shall constitute a valid and binding execution and delivery of this Agreement by such party. Such facsimile copies shall constitute enforceable original documents. (i) Costs. In the event of any legal proceeding between any of the parties to enforce or defend the terms and rights set forth in this Agreement, the prevailing party or parties shall be paid all reasonable costs of such legal proceeding, including but not limited to, attorneys' fees by the other party or parties. (j) Notices and Waivers. Any notice or waiver required or permitted to be given by the parties hereto shall be in writing and shall be deemed to have been given, when delivered, three business days after being mailed by certified or registered mail, faxed during regular business hours of the recipient and there is confirmation of receipt, or sent by prepaid full rate telegram to the following addresses: To HFG: Timothy P. Halter, President Halter Financial Group, Inc. 4851 LBJ Freeway, Suite 201 Dallas, Texas 75244 To the Client: Mr. V. Lynn Graybill, President Karts International Incorporated 109 North Park Boulevard, Suite 210 Covington, Louisiana 70433 3 4 IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the day first above written. HALTER FINANCIAL GROUP, INC. By: /s/ TIMOTHY P. HALTER -------------------------------- Timothy P. Halter, President KARTS INTERNATIONAL INCORPORATED By: /s/ V. LYNN GRAYBILL -------------------------------- V. Lynn Graybill, President 4 EX-10.18 35 FORM OF PRIVATE PLACEMENT SUBSCRIPTION 1 EXHIBIT 10.18 [KARTS INTERNATIONAL INCORPORATED LETTERHEAD] Ervin L. Betts 25 Garner Street Norwalk, CT 06854 RE: PRIVATE PLACEMENT SUBSCRIPTION PARTICIPATION OPTION NOTICE Dear Ervin L. Betts: Karts International Incorporated (the"Company") is in the process of preparing a secondary public offering of the Company's securities and is simultaneously attempting to gain SmallCaps listing status of the Company's common shares and common stock purchase warrants on Nasdaq's market quotation system. To help facilitate the Company's application to Nasdaq, the Company is currently in the process of effectuating a reverse split whereby existing security holders will receive two shares (or warrants) in the exchange for every three shares (or warrants) owned. The resulting reduction in the number of outstanding securities should have a positive effect on the market price of the Company's securities and help the Company meet Nasdaq's initial listing requirements. Additionally, in working with Nasdaq on the listing application, the Company has been informed that Nasdaq will not pass favorably on the Company's application if any securities have been issued by the Company within the immediate prior twelve month period in any "bridge financing" transaction. The Company has determined that the recently closed private placement of preferred stock and redeemable common stock purchase warrants as closed on November 15, 1996 (the "Private Placement") may be determined by Nasdaq as such a "bridge financing" transaction. Therefore, in order for the Company to satisfy Nasdaq's listing criteria and move forward with the proposed secondary offering, the Company must formally offer you a choice of the following two options with regard to the Private Placement in which you are a subscriber ("Subscriber"): (i) The Company hereby offers each Subscriber the right to receive a refund of the original Private Placement funds submitted to the Company with simple interest applied thereon at 12.0% per annum (or the legal rate prescribed by governing state law, if any). If this option is selected, funds will be payable to the Subscriber on the day of closing of the secondary offering upon surrender of the Subscriber's preferred stock and warrant certificates; or, (ii) The Subscriber may retain the original participation in the Private Placement. This includes commitments of all monies and securities as described in the subscription documents. Additionally, for each unit of the Private Placement purchased, the Subscriber will receive an additional 20,000 redeemable common stock purchase warrants with an exercise price equal to the secondary offering price. However, all the Subscriber's securities (the preferred stock and any securities the preferred stock is convertible into including all common shares and all warrants) must be voluntarily locked-up and may not be sold by the Subscriber for 18 months from the closing of the Company's secondary public offering. Accordingly, the registration rights contained in the subscription documents must be waived by the Subscriber. Upon release of the lock-up, the securities may then be sold in accordance with Rule 144 of the Securities and Exchange Act of 1934, which places certain volume limitations on the sale of securities. Furthermore, by electing this option, the Subscriber will be deemed an affiliate of any underwriter of the secondary public securities offering by the Company and as such the Subscriber will not be eligible to purchase any securities offered at the time of the secondary public offering. 2 Private Placement Subscription Participation Option Notice March 6, 1997 Page Two Accordingly, the Company asks that you please indicate the option you wish to select on the accompanying sheet and return the signed and notarized original to the Company. While you have thirty days from the date of this notice to make your decision, the Company asks that you respond immediately so the Company may more quickly proceed with the proposed secondary public offering and the application for listing the Company's securities with Nasdaq. To facilitate this time request, the Company has included a pre-paid Federal Express return label for your use. PLEASE NOTE: IF THE COMPANY DOES NOT RECEIVE ANY RESPONSE FROM YOU SELECTING ONE OF THE TWO OPTIONS GIVEN ON THE FORM PROVIDED, THEN THE COMPANY WILL PROCEED UNDER A DETERMINATION THAT THE NON-RESPONSIVE SUBSCRIBER HAS ELECTED OPTION #1. If there are any questions with regard to this notice, please call Tim Halter at (972) 233-0300. Sincerely yours, KARTS INTERNATIONAL INCORPORATED V. Lynn Graybill Chief Executive Officer 3 Mr. V. Lynn Graybill Chief Executive Officer Karts International Incorporated 109 Northpark Boulevard - Suite 210 Covington, Louisiana 70433 Dear Mr. Graybill: I acknowledge receipt of your March 5, 1997 Private Placement Subscription Participation Option Notice and as a subscriber ("Subscriber") to the Karts International Incorporated (the"Company") private placement of preferred stock and redeemable common stock purchase warrants as closed on November 15, 1996 (the "Private Placement") have accordingly selected the option indicated below: [ ] I elect to receive a refund of the original Private Placement funds submitted to the Company with simple interest applied thereon at 12.0% per annum (or the legal rate prescribed by governing state law, if any). I understand that by selecting this option all funds due will be payable to the Subscriber on the day of closing of the secondary offering upon surrender of the Subscriber's preferred stock and warrant certificates. [ ] I elect to retain the original participation in the Private Placement. This includes commitments of all monies and securities as described in the subscription documents. Additionally, for each unit of the Private Placement purchased, I will receive an additional 20,000 redeemable common stock purchase warrants with an exercise price equal to the secondary offering price. However, I acknowledge and agree that all the Subscriber's securities (the preferred stock and any securities the preferred stock is convertible into including all common shares and all warrants) will be voluntarily locked-up and will not be sold for 18 months from the closing of the Company's secondary public offering. Accordingly, I formally waive any and all registration rights as contained in the subscription documents for the Private Placement. I further agree that upon expiration of the lock-up term, my securities in the Company will only be sold in compliance with all provisions of Rule 144 of the Securities and Exchange Act of 1934. I further acknowledge that by electing this option I have accepted designation as an affiliate of any underwriter of any secondary public securities offering by the Company and I acknowledge that as such I will not be eligible to purchase any securities of the Company offered at the time of the secondary public offering. SIGNED BY: Number of Private Placement Units Subscribed: - ----------------------------------- ----------------------------- Ervin L. Betts Date 25 Garner Street Norwalk, CT 06854 NOTARY PUBLIC: State of: , County of: -------------- ----------------- I hereby affirm that the above signed person personally appeared before me and affixed their seal in my presence. - ------------------------------------- Date My Commission Expires: ---------------- EX-21.1 36 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 SUBSIDIARIES Brister's Thunder Karts, Inc., a Louisiana Corporation USA Industries, Inc., a Alabama Corporation EX-23.1 37 CONSENT OF S.W. HATFIELD & ASSOC. 1 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the use in the Form SB-2 Registration Statement under The Securities Act of 1933 of Karts International Incorporated (a Nevada corporation) of our report dated February 28, 1997 (except for Note 1 as to which the date is March 6, 1997) on the consolidated financial statements of Karts International Incorporated as of December 31, 1996 and 1995 and for each of the years then ended, accompanying the financial statements contained in such Form SB-2 Registration Statement Under The Securities Act of 1933, and to the use of our name and the statements with respect to us as appearing under the heading "Experts". S. W. HATFIELD + ASSOCIATES Dallas, Texas March 25, 1997 EX-27.1 38 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DEC-31-1996 AUDITED FINANCIAL STATEMENTS OF KARTS INTERNATIONAL INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN FORM SB-2 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 630,028 0 1,800,802 5,000 958,381 3,391,290 771,374 34,598 10,094,717 1,382,932 0 625,000 0 2,718 4,751,407 10,084,717 8,327,316 8,327,316 5,842,532 1,855,436 0 5,000 396,589 661,921 193,575 468,346 0 0 0 468,346 0.15 0
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