<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1997
REGISTRATION NO. 333-24145
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------------
KARTS INTERNATIONAL INCORPORATED
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
-------------------------------
NEVADA 3944 75-2639196
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
-------------------------------
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 (Name, Address and Telephone Number
Executive of Agent for Service)
Offices and Principal Place of Business)
-------------------------------
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
</TABLE>
-------------------------------
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
<TABLE>
<CAPTION>
====================================================================================================================================
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 $7.52 $1,052,800 $319.00
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Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,531.46(6)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 145% 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.
(6) The amount of $5476.31 was previously paid.
-------------------------
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.
================================================================================
<PAGE> 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. These 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 MAY 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 (or at the initial public
offering price per share of Common Stock, whatever price that may be) 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
(or twice the initial public offering per share of Common Stock) 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 May 27, 1997, the closing bid and ask prices of
the Common Stock were $4.00 and $5.00 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.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING DISCOUNTS PROCEEDS TO
TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock . . . . . . . $__________ $__________ $__________
- ----------------------------------------------------------------------------------------------------------------------
Per Warrant . . . . . . . . . . . . . . $__________ $__________ $__________
- ----------------------------------------------------------------------------------------------------------------------
Total(3) . . . . . . . . . . . . . $__________ $__________ $__________
======================================================================================================================
</TABLE>
(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 145% of the price per share of
Common Stock offered hereby and 145% of the price per warrant offered hereby
(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
<PAGE> 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. This Prospectus contains a summary of the
material provisions of all material contracts, agreements or other documents
filed as exhibits to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document
referred to herein are necessarily summaries of the material provisions of such
contracts, agreements or other documents and, where such contract, 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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
THE WARRANTS, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
-2-
<PAGE> 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 options to purchase an aggregate of 66,004 shares of Common
Stock with an exercise price of $4.875 per share, (vi) assume no exercise of
outstanding warrants, including Warrants offered hereby, the 1996 Warrants, the
Class A Warrants and the Underwriters' Warrants, and (vii) 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 Fun Karts market. Proforma consolidated revenues of the
Company for the fiscal year ended December 31, 1996 were approximately $10.7
million as compared with combined revenues of approximately $8.5 million for
the fiscal year ended December 31, 1995. For the three-month period ended
March 31, 1997, the Company's consolidated revenues were approximately $1.3
million, as compared with combined revenues of approximately $1.0 million for
the three-month period ended March 31, 1996. 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, 9,000 racing karts and
11,000 concession karts. Historically, Brister's and USA have concentrated
their 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.
-3-
<PAGE> 5
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 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 (or at the
initial public offering price per
share of Common Stock, whatever price
that may be) 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 (or twice the initial public
offering price per share of Common
Stock, whatever price that may be),
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-
<PAGE> 6
<TABLE>
<CAPTION>
OUTSTANDING SECURITIES . . . . . . . Securities
Securities Outstanding Upon
Presently Completion of the
Outstanding Offering
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<S> <C> <C>
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
</TABLE>
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) 125,359 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-
<PAGE> 7
SUMMARY HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL INFORMATION
The following table presents summary historical financial data of the
Company on either a consolidated basis as of December 31, 1996 and March 31,
1997 or a combined basis as of December 31, 1995 and 1994, respectively, and
March 31, 1996. This information has been derived from the Company's audited
financial statements included elsewhere in this Prospectus or other unaudited
financial information provided by the Company. The summary financial
information should be read in conjunction with "Selected Historical
Consolidated and Combined 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, this financial information includes all
material adjustments necessary to present historical results of the Company as
if Karts International Incorporated, Brister's Thunder Karts, Inc. and USA
Industries, Inc. had been a single operating entity as of the first day of the
first period presented. This financial 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, this financial information
does not purport to be indicative of the financial position or results of
operations that may be obtained in the future.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended (Unaudited) (Unaudited)
December 31, December 31, December 31, Three Months Ended Three Months Ended
1996 1995 1994 March 31, 1997 March 31, 1996
(Historical) (Combined) (Combined) (Historical) (Combined)
------------ ------------ ------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net . . . . . . . . . . . . . . $ 8,327,316 $ 8,514,460 $ 7,069,500 $ 1,300,784 $ 997,493
Cost of goods sold . . . . . . . . . . . 5,842,532 6,184,340 5,186,245 1,154,430 503,635
Operating expenses . . . . . . . . . . . 1,458,847 1,639,583 1,423,933 555,929 344,586
Income from operations . . . . . . . . . 1,025,937 690,537 459,322 (409,575) 150,272
Net income . . . . . . . . . . . . . . . 468,346 355,701 341,036 (489,427) 34,551
Net income per proforma weighted-
average share of common stock
outstanding
Primary . . . . . . . . . . . . . . . $0.22 $0.17 $0.16 ($0.18) $0.05
Fully diluted . . . . . . . . . . . . $0.22 $0.17 $0.16 N/A $0.05
Number of weighted-average shares
of common stock outstanding
Primary . . . . . . . . . . . . . . . 2,083,456 2,083,456 2,083,456 2,742,748 712,531
Fully diluted . . . . . . . . . . . . 2,110,209 2,110,209 2,110,209 N/A 712,531
Proforma income assuming use of proceeds
to $ 768,346
retire certain outstanding debt . . . .
Proforma earnings per share assuming
retirement
of certain outstanding debt
Primary . . . . . . . . . . . . . . . $0.37
Fully diluted . . . . . . . . . . . . $0.36
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, March 31, March 31,
1996 1995 1995 1997 1997
(Historical) (Historical) (Combined) (Unaudited) (As adjusted)(1)
--------------- ------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets . . . . . . . . . . . . . . . . . . . $ 3,391,290 $ - $ 2,054,177 $ 2,317,233 $ 3,932,483
Total assets . . . . . . . . . . . . . . . . . . . . 10,094,717 - 8,268,481 9,104,677 10,719,927
Current liabilities . . . . . . . . . . . . . . . . . 1,382,932 4,010 1,335,057 780,987 780,987
Total liabilities . . . . . . . . . . . . . . . . . . 4,715,592 4,010 4,610,490 4,214,979 1,014,979
Convertible preferred stock . . . . . . . . . . . . . 625,000 - - 625,000 -
Stockholders' equity . . . . . . . . . . . . . . . . 4,754,125 (4,010) 3,657,991 4,264,698 9,704,948
Working capital . . . . . . . . . . . . . . . . . . . 2,008,358 (4,010) 719,120 1,536,246 3,151,496
</TABLE>
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(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."
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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 OFFERING PROCEEDS ALLOCATED FOR 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
(22% of net proceeds) 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 (36.8% of net proceeds)
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 (58.8% of net proceeds), the Company will pay to holders of the
Company's Convertible Preferred Stock $625,000 (11.5% of net proceeds) upon the
conversion of the outstanding Convertible Preferred Stock at the closing of the
Offering. 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 a significantly higher price per
share for the Common Stock offered hereby 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
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<PAGE> 9
its products, the Company will be required to deliver increasing volumes of its
products to its customers on a 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 intends to use $400,000 of the net
proceeds to purchase equipment (7.4% of net proceeds), $150,000 for advertising
and marketing expenses (2.8% of net proceeds), $100,000 for product development
and design (1.8% of net proceeds) and $965,250 for working capital (17.7% of
net proceeds). 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."
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<PAGE> 10
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 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
Brister's 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."
THE COMPANY DOES NOT OWN ANY PATENTS; 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 ("ATOS") on its Fun Karts. The Company's
success is dependent upon, among other things, its
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<PAGE> 11
continued ability to use these certain patented items and other proprietary
materials. The three-year license agreement with Mr. Brister provides for a
one-time only $10,000 license fee and a royalty payment of $1.00 for each
Company Fun Kart on which the ATOS is installed during the first year of the
agreement. During the second and third year of the license agreement, the
Company will pay to Mr. Brister each year a royalty of $1.00 for each Company
Fun Kart on which the ATOS is installed or $20,000 annually, whichever is
greater. The license agreement expires March 15, 2000. The termination of the
license agreement with Mr. Brister prior to its term would have an adverse
effect upon the Company's ability to produce its current line of Fun Karts.
Furthermore, there can be no assurance 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 combined 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.
Although no one dealer or group of affiliated dealers accounted for 10% or more
of the Company's 1996 revenues, sales to lawn and garden stores accounted for
approximately 36% of the Company's 1996 unit sales. 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
or if there is a significant decrease in sales in the lawn and garden industry,
the Company's financial condition and results of operations would be adversely
affected. See "Business -- Sales and Marketing."
GEOGRAPHIC CONCENTRATION OF SALES. In 1996, the Company sold
approximately 61% of its Fun Karts to approximately 250 dealers located in
Louisiana, Texas, Mississippi and Florida. Although these states,
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<PAGE> 12
particularly Texas and Florida, have been among the fastest growing areas of
the United States and in recent years have enjoyed general economic growth, if
there is a broad base economic decline in these core market areas, consumer
demand for the Company's products may be adversely affected which may
negatively impact the Company's ability to sustain past levels of sales, or to
continue its sales growth or profitability. 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 combined
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 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
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immediate substantial dilution in the net tangible book value per share of the
Common Stock after this Offering in the amount of $3.60 per share or 80% of the
price per share of Common Stock paid by the investors in this Offering
(assuming an offering price of $4.50 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. The Company does not
currently have any plans, arrangements, commitments or understandings to issue
any additional shares of preferred 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."
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
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<PAGE> 14
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
145% of the price per share of the Common Stock and 145% of the price per
Warrant offered hereby. 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 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 (or twice the initial public offering price per share of Common Stock,
whatever price that may be) 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
-13-
<PAGE> 15
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
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 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
-14-
<PAGE> 16
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 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 REPRESENTATIVE; 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-
<PAGE> 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 consolidated and
combined 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 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-
<PAGE> 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. The Company has been advised by all the holders of the Convertible
Preferred Stock that they will accept the latter option. See "Description of
Securities -- Convertible Preferred Stock, -- 1996 Warrants and -- Bridge
Financing."
ACQUISITIONS
BRISTER'S ACQUISITION. Effective at the close of business on March
31, 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 or
$6.00 per share. The $6.00 price per share was the average of the closing bid
and ask prices of the Company's Common Stock as quoted on the NASD Electronic
Bulletin Board on the 30th day after the Company's Common Stock was listed on
the NASD Electronic Bulletin Board. 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," "Business -- Patents and Proprietary Technology,"
"Management," "Certain Relationships and Related Transactions" and "Principal
Stockholders."
USA ACQUISITION. Effective at the close of business on November 21,
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 shareholders and the Company at an
aggregate of $750,000 or $4.50 per share (the "USA Acquisition"). Each USA
shareholder, Jerry Michael Allen, Angela T. Allen, Johnny C. Tucker and Carol
Y. Tucker, received $62,500 cash and 41,667 restricted shares of the Company's
Common Stock. The price per share of the Company's Common Stock issued to the
USA shareholders was based on the closing bid price per share of the Company's
Common Stock on the closing date of the USA Acquisition. See "Note B --
Acquisition of Subsidiaries of Notes to Consolidated Financial Statements" and
"Note I -- Capital Stock Transactions of Notes to Consolidated Financial
Statements."
The purchase price paid by the Company for the acquisition of
Brister's and USA was determined as a result of arms-length negotiations
between unrelated representatives of the Company and the then shareholders of
Brister's and USA, respectively. In negotiating and agreeing upon the
respective purchase price of Brister's and USA, Company management (i)
evaluated the respective market share, geographic markets and the condition and
capacity of each entities' manufacturing facility; (ii) analyzed the economic
benefits and feasibility of each entity's product lines, management of each
respective entity, the overall growth strategy of the Company and any potential
economies of scale which could result from each respective acquisition; and
(iii) projected future product demand, estimated the fair market value of
Brister's and USA's tangible assets and liabilities, reviewed
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<PAGE> 19
historical book value of each entity, and the historical results of operations
and the overall market position of each respective entity.
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, either the
consolidated or combined results of operations of the Company, Brister's and
USA as if the respective acquisitions had occurred on January 1, 1994 (the
first day of the first financial period presented herein). See "Selected
Historical Consolidated and Combined Financial Information."
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.
-18-
<PAGE> 20
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.
<TABLE>
<CAPTION>
Common Stock
Bid Price(1)
-----------------------------------------------
Calendar Year 1997 Low High
------------------ ---------------------- -----------------------
<S> <C> <C>
First Quarter $ 4.13 $ 4.88
Second Quarter (through May 20, 1997) $ 4.00 $ 4.50
</TABLE>
<TABLE>
<CAPTION>
Common Stock
Bid Price
-----------------------------------------------
Calendar Year 1996 Low High
------------------ ---------------------- -----------------------
<S> <C> <C>
Second Quarter(2) $5.63 $5.63
Third Quarter $4.13 $5.63
Fourth Quarter $4.13 $4.88
</TABLE>
- ------------------------------
(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 May 27, 1997, the closing bid and ask prices for the Common Stock
were $ 4.00 and $ 5.00, respectively, per share. As of May 27, 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. The
Company has agreed that, for a period of two years from the closing of this
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 of this Offering. See "Underwriting."
-19-
<PAGE> 21
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:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage
Application of Proceeds(1) Dollar Amount of Net Proceeds
-------------------------- --------------- ------------------
<S> <C> <C>
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%
========= =====
</TABLE>
- ------------------------------
(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.
-20-
<PAGE> 22
DILUTION
At March 31, 1997, the Company had a net tangible book value of
approximately ($1.65) million or approximately $(0.61) 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 March 31, 1997 would have been approximately $3.79 million or
approximately $0.90 per share, representing an immediate increase in net
tangible book value of $1.51 per share to existing stockholders, and an
immediate dilution in net tangible book value of $3.60 per share to purchasers
of the Securities offered hereby. The following table illustrates the
resulting dilution with respect to the Common Stock offered hereby:
<TABLE>
<S> <C> <C>
Public offering price (per share of Common Stock)(1) . . . . . . . . . . . . . . . . . . . . $4.50
Net tangible book value per share as of March 31, 1997 . . . . . . . . . . . . . . . $(0.61)
Increase per share attributable to new investors . . . . . . . . . . . . . . . . . . 1.51
------
Proforma net tangible book value per share after the Offering(2) . . . . . . . . . . . . . . 0.90
-------
Dilution of net tangible book value per share to new investors
attributable to purchase of Common Stock by new investors . . . . . . . . . . . . . . . $ 3.60
======
</TABLE>
- ------------------------------
(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:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------------- ------------------------- Average Price
Amount Percent Amount Percent Per Share
--------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders . . 2,717,653 66.0% $4,289,789 41.9% $1.63
New investors . . . . . . 1,400,000 34.0 5,950,000 58.1 $4.50
--------- ------ ----------- ------
Total . . . . . 4,117,653 100.0% $10,239,789 100.0%
========= ===== ========== ======
</TABLE>
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, including the
Warrants offered hereby, 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."
-21-
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and as adjusted giving effect to the sale by the Company of
1,400,000 shares of Common Stock (assuming an offering price of $4.50 per
share) and 1,400,000 Warrants (assuming an offering price of $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.
<TABLE>
<CAPTION>
March 31, 1997
------------------------------------------
Actual Adjustments(1) As Adjusted
----------- --------------- ------------
<S> <C> <C> <C>
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 317,690 $ -- $ 317,690
Current maturities of long-term debt . . . . . . . . . . . . 9,085 -- 9,085
Long-term debt(2) . . . . . . . . . . . . . . . . . . . . . . 3,433,992 (3,200,000) 233,992
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 . . . . . . . . . . . . . . 4,385,767 (3,825,000) 560,767
---------- -------------- ------------
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 . . . . . . . . . . . . . . . . . . . . . . (512,925) -- (512,925)
---------- -------------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . 4,264,698 5,440,250 9,704,948
---------- -------------- ------------
Total capitalization . . . . . . . . . . . . . . . . . . . $8,650,465 $ 1,615,250 $ 10,265,715
========= ============= ===========
</TABLE>
- ------------------------------
(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 "The
Company -- Recent Financings" and "Description of Securities -- Bridge
Financing."
-22-
<PAGE> 24
SELECTED HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL INFORMATION
The following selected financial information has been presented in a
consolidated format for the periods ended December 31, 1996 and March 31, 1997
and a combined format for the periods ended December 31, 1995 and 1994 and
March 31, 1996, respectively. This information has been derived from the
audited financial statements of the Company and Brister's. The information
pertaining to 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 either the consolidated or combined results of
operations of all entities as if the respective acquisitions had occurred on
January 1, 1994 (the first day of the first period presented).
In the opinion of management, this financial information includes all
material adjustments necessary to present historical results of the Company as
if Karts International Incorporated, Brister's Thunder Karts, Inc. and USA
Industries, Inc. had been a single operating entity as of the first day of the
first period presented. This financial 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, this financial information
does not purport to be indicative of the financial position or results of
operations that may be obtained in the future.
This 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.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended (Unaudited) (Unaudited)
December 31, December 31, December 31, Three Months Ended Three Months Ended
1996 1995 1994 March 31, 1997 March 31, 1996
STATEMENT OF OPERATIONS DATA: (Historical) (Combined) (Combined) (Historical) (Combined)
------------ ------------ ------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Revenues, net . . . . . . . . . . . . . . $ 8,327,316 $ 8,514,460 $ 7,069,500 $ 1,300,784 $ 997,493
Cost of goods sold . . . . . . . . . . . 5,842,532 6,184,340 5,186,245 1,154,430 503,635
Operating expenses . . . . . . . . . . . 1,458,847 1,639,583 1,423,933 555,929 344,586
Income from operations . . . . . . . . . 1,025,937 690,537 459,322 (409,575) 150,272
Net income . . . . . . . . . . . . . . . 468,346 355,701 341,036 (489,427) 34,551
Net income per proforma weighted-average
share of common stock outstanding
Primary . . . . . . . . . . . . . . . $0.22 $0.17 $0.16 ($0.18) $0.05
Fully diluted . . . . . . . . . . . . $0.22 $0.17 $0.16 N/A $0.05
Number of weighted-average shares
of common stock outstanding
Primary . . . . . . . . . . . . . . . 2,083,456 2,083,456 2,083,456 2,742,748 712,531
Fully diluted . . . . . . . . . . . . 2,110,209 2,110,209 2,110,209 N/A 712,531
Proforma income assuming use of proceeds
to retire certain outstanding debt . . $ 768,346
Proforma earnings per share assuming
retirement of certain outstanding debt
Primary . . . . . . . . . . . . . . . $0.37
Fully diluted . . . . . . . . . . . . $0.36
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, March 31, March 31,
1996 1995 1995 1997 1997
BALANCE SHEET DATA: (Historical) (Historical) (Combined) (Unaudited) (As adjusted)(1)
------------- ------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . $ 3,391,290 $ - $ 2,054,177 2,317,233 $ 3,932,483
Total assets . . . . . . . . . . . . . . . . . . . 10,094,717 - 8,268,481 9,104,677 10,719,927
Current liabilities . . . . . . . . . . . . . . . . 1,382,932 4,010 1,335,057 780,987 780,987
Total liabilities . . . . . . . . . . . . . . . . . 4,715,592 4,010 4,610,490 4,214,979 1,014,979
Convertible preferred stock . . . . . . . . . . . . 625,000 - - 625,000 -
Stockholders' equity . . . . . . . . . . . . . . . 4,754,125 (4,010) 3,657,991 4,264,698 9,704,948
Working capital . . . . . . . . . . . . . . . . . . 2,008,358 (4,010) 719,120 1,536,246 3,151,496
</TABLE>
- ------------------------------
(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."
-23-
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information includes forward-looking statements, the
realization of which may be impacted by certain important factors discussed
under "Risk Factors -- Forward-Looking Statements and Associated Risk."
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 "The
Company" and "Business."
Effective at the close of business on March 31, 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 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."
Effective at the close of business on November 21, 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 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 following discussion reflects historical consolidated financial
data for the periods ended December 31, 1996 and March 31, 1997 and reflects
combined financial information for the periods ended December 31, 1995 and 1994
and March 31, 1996, respectively. In the opinion of management, the financial
information presented herein includes all material adjustments necessary to
present historical results of the Company as if the Company, Brister's and USA
had been a single operating entity as of the first day of the first period
presented. The financial information presented herein and the accompanying
discussion 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. See
"Selected Historical Consolidated and Combined Financial Information."
-24-
<PAGE> 26
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 AS COMPARED TO QUARTER ENDED MARCH 31,
1996. The financial information discussed herein is derived from the unaudited
financial records of the Company for the period ended March 31, 1997 and from
the unaudited combined financial records of Brister's and USA, respectively,
for the period ended March 31, 1996.
For the first quarter of 1997, the Company realized net revenues of
approximately $1.3 million versus approximately $997,000 for Brister's and USA
combined during the first quarter of 1996. This increase in sales is primarily
attributable to mass merchandiser sales by Brister's and USA during the first
three months of 1997 since this distribution channel had not been developed
during the comparable time period of the preceding year. The Company continues
to experience slow seasonal product demand during the first quarter of each
operating year. This seasonality has been somewhat mitigated by the addition
of the mass merchandiser distribution channel; however, a complete elimination
of weak first quarter sales due to seasonality is not anticipated to occur.
Costs of sales related to direct and indirect costs, exclusive of
depreciation, for the first quarter of 1997 increased to approximately $1.154
million as compared to approximately $504,000 for Brister's and USA combined
during the first quarter of 1996. The increase in cost of sales was primarily
due to the Company adjusting its standard cost model during the quarter ended
March 31, 1997. The adjustments to the standard cost model created a higher
and, in the opinion of management, more conservative cost of sales calculation.
Gross profit for the quarter ended March 31, 1997 was approximately $146,000
(or approximately 11% of net revenues) compared to approximately $94,000 (or
approximately 9% of net revenues) for the combined quarter ended March 31, 1996.
Operating expenses increased by approximately $211,000 from
approximately $345,000 for the first combined quarter of 1996 to approximately
$556,000 for the first quarter of 1997. The majority of the increase relates
to increased expenses, principally officer salaries and amortization of
goodwill, related to the Company's general corporate office overhead expenses
that were not present in the first quarter of 1996. These expenditure levels
are anticipated to remain relatively constant during future periods.
Net income for the quarter ended March 31, 1997 was approximately
$(489,000) compared to approximately $35,000 for the combined quarter ended
March 31, 1996. The aforementioned increase in cost of sales and the increase
in operating expenses are the principal reasons for this decrease in net
income. Primary earnings per share for the first quarter 1997 were
approximately $(0.18) as compared to approximately $0.05 for the first combined
quarter of 1996.
CONSOLIDATED FISCAL YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO
COMBINED FISCAL YEAR ENDED DECEMBER 31, 1995. The Company, on a consolidated
basis, realized net sales for the year ended December 31, 1996 of approximately
$10.7 million as compared to combined revenues of 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 Brister's and USA 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.
Prior to the USA Acquisition, USA had revenues of approximately $1.4
million and incurred a net loss of approximately $227,000 for the period from
January 1, 1996 to November 21, 1996. Management anticipates that USA will
increase its Fun Kart sales to approximately $2.5 million with a resulting
income before tax of approximately $200,000 for 1997. Management attributes
the anticipated increase in sales volume and income for USA during 1997 to be a
result of anticipated sales of Fun Karts to Wal-Mart and expense controls and
monitoring procedures installed by Company management at the USA facilities.
As a result of the USA Acquisition, the Company improved its geographic market
penetration, manufacturing capacity, product line and dealer network which
management believes will result in additional sales of Fun Karts during 1997.
-25-
<PAGE> 27
The Company 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 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 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 Acquisition, (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 goodwill
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.
COMBINED FISCAL YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO COMBINED
FISCAL YEAR ENDED DECEMBER 31, 1994. The Company realized combined net sales
for the year ended December 31, 1995 of approximately $8.5 million as compared
to approximately $7.0 million combined net sales 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.
The Company 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 direct result of increased unit
sales in 1995.
Operating expenses 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
-26-
<PAGE> 28
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 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, totalling $3.2 million,
with a portion of the proceeds of this Offering.
As of December 31, 1996 and December 31, 1995, respectively, the
Company had positive 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 and are not anticipated to recur in future periods.
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."
USA has currently available to it a $500,000 revolving line of credit
from Deposit Guaranty National Bank of Louisiana ("Deposit Guaranty"), which
matures on September 30, 1997. The credit line is secured with certain
purchase orders and accounts receivable due USA on its Wal-Mart accounts
receivable. The interest rate on the revolving line is at the lending
institution's prime rate (8.5% at March 31, 1997). There was no outstanding
loan balance on the credit facility at March 31, 1997. The USA credit line is
guaranteed by the Company. During the term of the credit line, the Company
must maintain a net worth of not less than $2.5 million and a ratio of current
assets to current liabilities of not less than 1.5 to 1.0 as of the last day of
each fiscal quarter. As of March 31, 1997, the Company was in compliance with
all material covenants, financial ratios and restrictions under the loan
agreement between USA, the Company and Deposit Guaranty. It is management's
opinion that the USA revolving credit facility is renewable under similar terms
and will be adequate for any anticipated short-term credit requirements for
USA.
Brister's has a $300,000 revolving credit line with Deposit Guaranty
which matures on August 11, 1997. The credit line is secured with accounts
receivables due Brister's on its Sam's Club accounts. The Company has
guaranteed payment of the Brister's credit line. The interest rate on the
Brister's credit line is 8.25% per annum. Management believes that the
Brister's credit facility is renewable under similar terms and will be adequate
for short-term credit requirements for Brister's. At March 31, 1997, the
Brister's credit line balance was $300,000. Management anticipates that the
Brister's credit line balance will be reduced during the second and third
fiscal quarters as payment is received on outstanding accounts receivables,
including the Sam's Club
-27-
<PAGE> 29
accounts. At April 30, 1997, the Company had approximately $500,000
outstanding accounts receivable of which approximately $150,000 was owned by
Sam's Club.
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. The proforma effect of these savings for the year ended December
31, 1996 yields additional after-tax income of approximately $198,000 or $0.10
per share. See "Use of Proceeds."
The Company expects that its cash flow from operations, along with its
currently available lines 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 lines of credit will be available to meet the Company's cash
requirements over the next 12 to 18 months. See "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 that USA and Brister's have historically been
able to pass on increased costs of production to the price charged for their
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."
-28-
<PAGE> 30
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 Fun Karts market. 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. For
the three-month period ended March 31, 1997, the Company's revenues were
approximately $1.3 million as compared with combined revenues of approximately
$1.0 million for the three-month period ended March 31, 1996. 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, 9,000 racing karts
and 11,000 concession karts. Historically, Brister's and USA have concentrated
their 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
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
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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
Management does not believe that specific reliable public information
with respect to Fun Kart sales is available since the go-kart industry is
substantially composed of private, family-owned manufacturers which are not
required to publicly report financial and operational information. Management
has, instead, relied upon reports of kart engine sales from Briggs & Stratton,
the industry's primary source for engines, and information obtained from Kart
Marketing International ("KMI"), a kart industry marketing publication.
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, which had approximately
14% market share, plus its three primary competitors accounted for over 60% of
the Fun Karts sold in the United States in 1996.
In 1995, there were an estimated 70,000 kart racers and significantly
more Fun Kart enthusiasts in the United States and Canada, according to KMI.
Annually, according to KMI, 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, management believes, as a result of its research,
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 by KMI at approximately
9,000 in 1995. Concession karts, used by commercial providers of tracks for
entertainment, were estimated at approximately 10,500 units in 1995, according
to KMI. Management believes that 1996 sales of concession and racing karts
were similar to 1995 sales. Each of these segments is addressed by different
manufacturers than those manufacturing Fun Karts.
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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 believes 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.
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
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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 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. The Company believes that the maximum annual capacity of its
manufacturing facilities is approximately 28,000 Fun Karts. Management
believes it would be necessary to increase its manufacturing and shipping
personnel from approximately 80 employees to 150 employees to achieve maximum
annual capacity of the Company's manufacturing facilities. Additional labor at
reasonable costs is readily available in the vicinity of the Company's
manufacturing facilities. Management believes that with limited expansion of
its current facilities, the Company will be able to meet projected increased
customer demand for the Company's products for the foreseeable future. See "--
Manufacturing Operations."
DIVERSIFICATION OF DOMESTIC DISTRIBUTION CHANNELS. The historical
marketing strategy of Brister's and USA 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
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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, Brister's 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 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
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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 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 "-- Patents and Proprietary Technology" and "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."
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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. Between January and May, the Company generally
utilizes a ten-hour work day four days a week at its plants. In June, the work
week expands to five days and peaks in November at six days. From June through
December, daily output is approximately 125 to 150 Fun Karts. The Company
believes that the maximum annual capacity of its manufacturing facilities is
approximately 28,000 Fun Karts. The Company believes it would be necessary to
increase its manufacturing and shipping personnel from approximately 80
employees to 150 employees to achieve maximum annual capacity of the Company's
manufacturing facilities. Additional labor at reasonable costs is readily
available in the vicinity of the Company's manufacturing facilities.
Management believes that with limited expansion of its current facilities, the
Company will be able to meet projected increased customer demand for the
Company's products for the foreseeable future.
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. Neither Brister's
nor USA have historically incurred any significant warranty claims and have
never had a recall of any of their 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
("ATOS") 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."
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 March 15, 1996, 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 agreed to enter into
subsequent agreements defining the license fee and royalty payments based on
terms at least as favorable as Mr. Brister has
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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 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 ATOS developed and patented by Mr. Brister. The Company has 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 annually
whichever is greater.
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.
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 dealers who meet certain credit
requirements, the Company offers a dealer floor plan financing program through
an unaffiliated financial services company. The floor plan agreement may be
terminated at any time by the Company or the financial services company with 30
days written notice to the other party and may be terminated by the financial
services company upon an event of default by the Company, which includes
failure by the Company to pay any amounts owed to the lender when due,
cessation of business or bankruptcy of the Company or a material adverse change
in the Company's financial condition. The Company, at its option, will allow
approved dealers up to 120 days of interest-free financing under the floor plan
agreement. The floor plan arrangements require the Company to repurchase units
in the event of dealer default. The Company does not currently have any
significant contingent liability under the repurchase obligation of the floor
plan agreement.
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. Lawrence E. Schwall, III, the Company's Sales and Marketing
Vice President. The Company does not currently engage
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<PAGE> 38
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 historical marketing strategy of Brister's and USA 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 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
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<PAGE> 39
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 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 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:
<TABLE>
<CAPTION>
Date Leased Expiration of Approximate
Location or Acquired Description Lease Term Square Footage
--------------------------- ------------ --------------------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------------
(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 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 $232,000 at March 31,
1997 with interest at the financial institution's commercial base rate (10%
at March 31, 1997). 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.
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<PAGE> 40
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, which had approximately 14% market share, plus its three primary
competitors accounted for over 60% of the Fun Karts sold in the United States
in 1996.
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.
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<PAGE> 41
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
Brister's 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."
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<PAGE> 42
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
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
Lawrence E. Schwall, III 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 49 Director
Robert W. Bell(2) 59 Director
Gary C. Evans 40 Director
</TABLE>
- ------------------------------
(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 accounting matters,
Exchange Act reporting, cash management, risk management, audit and taxes,
human
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<PAGE> 43
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.
Lawrence E. Schwall, III, 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, Mr.
Bell was President and Chairman of Bell Realty and Land Company, a residential
land development and home construction business in Mississippi.
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<PAGE> 44
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
Hunter Resources, 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., prior to its merger with Hunter. 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 1977 to 1981, he served in various capacities
with National Bank of Commerce (currently BankTexas, N.A.) 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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
----------------------------- -----------------------------
Awards
-----------------------------
Securities
Other Annual Restricted Underlying
Name/Title Year Salary/Bonus Compensation Stock Awards Options/SARs
---------- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
V. Lynn Graybill, Chairman of the 1996 $ 121,731 $15,000(1) -0- -0-
Board, Chief Executive Officer
and President
</TABLE>
- ------------------------------
(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 a three-year 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. In year two of the
Employment Agreement, which ends on March 15, 1998, the Company may buy back up
to 70,000 Graybill Shares for $8,400 or $0.12 per share and in year three,
which ends on March 15, 1999, up to 35,000 Graybill Shares for $4,200 or $0.12
per share if Mr. Graybill is either terminated for cause or Mr. Graybill
terminates his employment voluntarily prior to the expiration of the Employment
Agreement. 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 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.
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<PAGE> 45
The Employment Agreement restricts the ability of Mr. Graybill to
compete with the Company (the "Covenant Not to Compete") by becoming involved
directly or indirectly with any business that designs, manufactures,
distributes or markets Fun Karts during the term of the Employment Agreement or
for a period of three years following the termination of the Employment
Agreement by either Mr. Graybill or the Company. The enforceability of the
Covenant Not to Compete is governed by the statutory and case law authority of
the State of Texas. Generally, a covenant not to compete is enforceable in the
State of Texas if the limitations contained therein are reasonable as to the
time, geographical area and scope of the activity which they cover.
Enforceability is generally determined on a case by case basis and hinges on
the showing that the limitations are reasonable and they are necessary to
protect the goodwill or other business interest of the entity seeking
enforcement. The Company believes the Covenant Not to Compete is enforceable
in light of the foregoing standards. However, if its enforceability is
challenged in a court of law, the Covenant Not to Compete may be substantially
altered to limit the scope of its application.
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. During 1996, the Company
issued to certain 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.
On January 30, 1997, the Company issued to certain employees,
including John V. Callegari, Jr., the Vice President, Administration and Chief
Executive Officer of the Company, and Lawrence E. Schwall, III, the Vice
President, Sales and Marketing of the Company, options to purchase an aggregate
of 66,004 shares of Common Stock at an exercise price of $4.875 per share which
are exercisable after January 30, 1998 and expire on January 30, 2002. Mr.
Callegari and Mr. Schwall each received options to purchase 6,667 shares of
Common Stock for $4.875 per share. The exercise price per share of all options
issued by the Company was based on the closing bid price of the Company's
Common Stock as quoted on the Electronic Bulletin Board of NASD on the date of
grant of such options.
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.
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<PAGE> 46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From December 1989 until March 31, 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 "The Company," "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 agreed to assist the Company with its corporate reorganization,
capital raising activities, employment of legal and accounting firms and the
Brister's Acquisition. For the benefit of the Company, HFG paid to Brister's a
deposit of $20,000 to cover Brister's legal and auditing expenses in the event
the Brister's Acquisition was not consummated. Additionally, HFG agreed to pay
all legal and other professional fees relating to the reorganization and
recapitalization of the Company, and the Brister's Acquisition, if the
Brister's Acquisition was not consummated. For such services and assumption of
contingent liabilities, the Company agreed to pay HFG a consulting fee of
$15,000 and reimbursement of expenses only if the Brister's Acquisition was
consummated. The $15,000 consulting fee was payable by the Company at the
Brister's closing in cash and/or a number of Brister's Escrow Shares (as
defined below) to be determined at the valuation date (as defined below). In
accordance with the terms of the HFG consulting agreement, if Mr. Brister
received 500,000 or more of the Brister's Escrow Shares, the Company would pay
the consulting fee with a cash payment of $10,000 and the delivery of the
remaining Brister's Escrow Shares, if any, to HFG. If Mr. Brister received
less than 500,000 of the Brister's Escrow Shares, the $15,000 consulting fee
would be satisfied by delivery to HFG of the remaining Brister's Escrow Shares.
In July 1996, HFG received 483,333 Brister's Escrow Shares as full payment of
the $15,000 consulting fee. Additionally, at the Brister's closing, HFG
received reimbursement of $36,400 from the Company for legal and other
professional fees paid by HFG relating to the Company's reorganization and
Brister's Acquisition. Brister's also returned to HFG the initial $20,000
deposit.
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."
At the closing of the Brister's Acquisition, effective at the close of
business on March 31, 1996, 1,000,000 shares of the Company's Common Stock (the
"Brister's Escrow Shares") were issued and delivered to an escrow agent to be
held until the valuation date for such shares. Under the terms of the
Brister's stock purchase agreement, Mr. Charles Brister, a director and
principal stockholder of the Company, was to receive, in addition to other
consideration, the number of Brister's Escrow Shares having a market value of
$3.1 million on the valuation date. The valuation date was defined in the
Brister's stock purchase agreement as the 30th day following the listing date
of the Company's Common Stock on the NASD Electronic Bulletin Board. On the
valuation date (July 29, 1996), the market value, as defined in the Brister's
stock purchase agreement, was the average of the closing bid and ask prices per
share of the Company's Common Stock as quoted on the NASD Electronic Bulletin
Board or $6.00 per share. The Company, in July 1996, delivered to Mr. Brister
516,667 of the Brister's Escrow Shares.
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
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<PAGE> 47
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 or HFG
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 Brister's stock
purchase agreement. 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 January 1, 1998 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 with 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 March 15, 1996, 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 agreed to 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 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 annually, 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.
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<PAGE> 48
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.
In connection with the Brister's Acquisition, Charles Brister and the
Company entered into two Non-Competition Agreements. The first
Non-Competition Agreement (the "Texas Agreement") provides that Mr. Brister
will not compete with the Company (a) in any jurisdiction in which the Company
or any of its subsidiaries or affiliates is duly qualified to transact
business, (b) within any marketing area in which the Company is doing a
substantial amount of business or (c) by directly or indirectly owning,
managing, operating, controlling or being employed by any entity engaged in a
business which is in competition with that being conducted by the Company. Mr.
Brister is subject to the Texas Agreement until March 15, 2001. The Texas
Agreement is governed by the laws of the State of Texas and does not cover Mr.
Brister's activities in the State of Louisiana. The enforceability of the
Texas Agreement is governed by the statutory and case law authority of the
State of Texas. Generally, a covenant not to compete is enforceable in the
State of Texas if the limitations contained therein are reasonable as to the
time, geographical area and scope of the activity which they cover.
Enforceability is generally determined on a case by case basis and hinges on
the showing that the limitations are reasonable and they are necessary to
protect the goodwill or other business interest of the entity seeking
enforcement. The Company believes that the Texas Agreement is enforceable in
light of the foregoing standards.
The Company and Mr. Brister also entered into the Non-Competition
Agreement (Louisiana Only) (the "Louisiana Agreement") for the purpose of
defining Mr. Brister's covenant not to compete within the State of Louisiana.
Under the Louisiana Agreement, Mr. Brister is prohibited from engaging in the
same activities as enumerated in the Texas Agreement within the State of
Louisiana for a period of two years from March 15, 1996. The enforceability of
the Louisiana Agreement is governed by the statutory and case law authority of
the State of Louisiana. Generally, a covenant not to compete is enforceable in
the State of Louisiana if the parishes within Louisiana in which a party can
not compete are defined and the agreement is not for a term in excess of two
years. Enforceability is generally determined on a case by case basis. The
Company believes that the Louisiana Agreement is enforceable in light of the
foregoing standards.
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
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<PAGE> 49
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.
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
ownership of the Company's shares of Common Stock as of May 15, 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.
<TABLE>
<CAPTION>
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)
---- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
V. Lynn Graybill(3) . . . . . . . . . . . . . . . 140,000 5.2 3.3
John V. Callegari(4) . . . . . . . . . . . . . . 667 * *
Lawrence E. Schwall, III(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%
====== ======
</TABLE>
- --------------------------------
*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. Evert I. Schlinger is the sole trustee of the Brian
Schlinger and Evert I. Schlinger, Jr. Trusts and has sole voting and
dispositive power over the shares held by these trusts. However, Mr.
Evert I. 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.
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<PAGE> 51
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.
The Company does not currently have any plans, arrangements, commitments or
understandings to issue any additional shares of preferred stock.
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
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<PAGE> 52
Preferred Stock into either (a) $25,000 and 4,167 shares of Common Stock
("Option One"), or (b) 8,334 shares 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. The Company does
not currently have any plans, arrangements, commitments or understandings to
issue any additional shares of Convertible Preferred 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 or at the initial public offering
price per share of Common Stock, whatever price that may be, 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 (or twice the initial public offering price per share of Common Stock)
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
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<PAGE> 53
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. 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
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<PAGE> 54
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 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 been
advised by all holders of the Convertible Preferred Stock that they 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. 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
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<PAGE> 55
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
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 Common Stock and Warrant Agent
for the Warrants is Securities Transfer Corporation, 16910 Dallas Parkway,
Suite 100, Dallas, Texas 75248.
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<PAGE> 56
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 2,228,718 shares of Common Stock (2,438,718
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)
125,359 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."
Effective April 29, 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. 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
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<PAGE> 57
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:
<TABLE>
<CAPTION>
Number of Number of
Underwriters Shares Warrants
------------ ------ --------
<S> <C> <C>
Argent Securities, Inc. . . . . . . . . . . . . . . .
--------------- ---------------
Total . . . . . . . . . . . . . . . . . . .
=============== ===============
</TABLE>
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 and 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 and Warrants offered hereby.
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<PAGE> 58
In connection with this Offering, certain Underwriters and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock
and Warrants. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which such
persons may bid for or purchase Common Stock or Warrants for the purpose of
stabilizing their respective market prices. The Underwriters also may create a
short position for the account of the Underwriters by selling more shares of
Common Stock or Warrants in connection with the Offering than they are
committed to purchase from the Company, and in such case may purchase shares of
Common Stock or Warrants in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position by exercising the
over-allotment option. In addition, the Representative, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to shares of Common Stock and Warrants that are
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock and
Warrants at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The Company has agreed with the Representative 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 which are exercised
pursuant to a solicitation of exercise of the Warrants or in connection with a
redemption and to the extent not inconsistent with the guidelines of the NASD
and the rules and regulations of 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 in violation of Regulation M of the Exchange Act; (f) the Underwriters
provided bona fide services in exchange for the Warrant Solicitation Fee; and
(g) the Underwriters have been specifically designated in writing by the
holders of the Warrants as the broker. Unless granted an exemption by the
Commission from Regulation M 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 five business
days prior to any solicitation by the Underwriters of the Exercise of any
Warrant until the termination of such solicitation activity by the
Underwriters. The foregoing five-day restriction period is reduced by one day
where the security has an average daily trading volume of $100,000 and the
public float for the issuer's equity securities is at least $25 million; and
there is no restrictive period where the average daily trading volume of the
security is $1 million and the public float for the issuer's equity securities
is at least $150 million. 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 or Warrants 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) and the expense of all
pre- and post-closing advertisements relating to this Offering.
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<PAGE> 59
The Company has agreed to sell to the Representative for an aggregate
purchase price of $140 ($.001 per warrant), 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 145% of the price per share of Common Stock offered hereby
and 145% of the price per Warrant offered hereby. 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, 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.
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<PAGE> 60
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.
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 certified 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.
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<PAGE> 61
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEX TO FINANCIAL STATEMENTS F-1
KARTS INTERNATIONAL INCORPORATED
Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996 F-2
Consolidated Statement of Operations
for the three months ended March 31, 1997 and 1996 F-4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
Report of Independent Certified Public Accountants F-8
Consolidated Balance Sheets
as of December 31, 1996 and 1995 F-9
Consolidated Statements of Operations
for the years ended December 31, 1996 and 1995 F-11
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 1996 and 1995 F-12
Consolidated Statements of Cash Flows
for the years ended December 31, 1996 and 1995 F-14
Notes to Consolidated Financial Statements F-16
Introduction to Proforma Consolidated Financial Information F-31
Proforma Consolidated Statement of Income
for the year ended December 31, 1996 F-32
Proforma Consolidated Statement of Income
for the year ended December 31, 1995 F-33
Proforma Consolidated Statement of Income
for the year ended December 31, 1994 F-34
Notes to Proforma Consolidated Financial Information F-35
BRISTER'S THUNDER KARTS, INC.
Accountant's Review Report F-36
Balance Sheet as of March 31, 1996 F-37
Statement of Income and Changes in Retained Earnings
for the three months ended March 31, 1996 F-38
Statement of Cash Flows
for the three months ended March 31, 1996 F-39 Notes to Financial
Statements F-40 Report of Independent Certified Public Accountants F-44
Balance Sheets as of December 31, 1995 and 1994 F-45 Statements of Income
for the years ended December 31, 1995 and 1994 F-46
Statement of Changes in Shareholder's Equity
for the years ended December 31, 1995 and 1994 F-47
Statements of Cash Flows
for the years ended December 31, 1995 and 1994 F-48
Notes to Financial Statements F-50
</TABLE>
F-1
<PAGE> 62
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash on hand and in bank $ 677,737 $ 630,028
Accounts receivable
Trade, net of allowance for doubtful
accounts of approximately $5,000
and $5,000, respectively 511,070 1,795,802
Other 1,544 1,052
Inventory 913,602 958,381
Prepaid expenses 213,280 6,027
------------ ------------
TOTAL CURRENT ASSETS 2,317,233 3,391,290
------------ ------------
PROPERTY AND EQUIPMENT - AT COST
Buildings and related improvements 334,362 331,360
Equipment 450,487 317,665
Furniture and fixtures 65,784 65,299
Vehicles 57,050 57,050
------------ ------------
907,683 771,374
Less accumulated depreciation (61,444) (34,598)
------------ ------------
846,239 736,776
Land 32,800 32,800
------------ ------------
NET PROPERTY AND EQUIPMENT 879,039 769,576
------------ ------------
OTHER ASSETS
Deposits and other 25,763 19,060
Organization costs, net of accumulated
amortization of $23,770 and $19,514
respectively 127,982 104,741
Loan costs, net of accumulated amortization
of $20,960 and $20,120, respectively 101,073 101,913
Goodwill, net of accumulated amortization
of $205,835 and $151,286, respectively 5,653,587 5,708,137
------------ ------------
TOTAL OTHER ASSETS 5,908,405 5,933,851
------------ ------------
TOTAL ASSETS $ 9,104,677 $ 10,094,717
============ ============
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these consolidated financial
statements.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
F-2
<PAGE> 63
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 1997 and December 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, December 31,
_ 1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Note payable to a bank $ 317,690 $ 140,020
Current portion of long-term debt 9,085 116,390
Accounts payable - trade 327,232 766,833
Accrued liabilities 41,938 90,472
Accrued income taxes payable 85,042 269,217
------------ ------------
TOTAL CURRENT LIABILITIES 780,987 1,382,932
------------ ------------
LONG-TERM LIABILITIES
Long-term debt, net of current maturities
Related parties 3,200,000 3,200,000
Banks and individuals 233,992 132,660
------------ ------------
TOTAL LIABILITIES 4,214,979 4,715,592
------------ ------------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE PREFERRED STOCK
$0.001 par value. 25 shares allocated, issued and
outstanding 625,000 625,000
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock - $0.001 par value. 10,000,000 shares
authorized. None issued and outstanding -- --
Common stock - $0.001 par value. 14,000,000 shares
authorized. 2,717,653 issued and outstanding, respectively 2,718 2,718
Additional paid-in capital 4,774,905 4,774,905
Retained earnings (512,925) (23,498)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 4,264,698 4,754,125
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,104,677 $ 10,094,717
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
F-3
<PAGE> 64
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months Three months
ended ended
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Kart sales $ 1,300,784 $ --
------------ ------------
COST OF SALES
Purchases and direct expenses 1,132,947 --
Depreciation 21,483 --
------------ ------------
Total cost of sales 1,154,430 --
------------ ------------
GROSS PROFIT 146,354 --
------------ ------------
OPERATING EXPENSES
General and administrative expenses 481,528 2,772
Depreciation and amortization 74,401 439
------------ ------------
TOTAL OPERATING EXPENSES 555,929 3,211
------------ ------------
INCOME FROM OPERATIONS (409,575) (3,211)
OTHER INCOME (EXPENSES)
Interest and other miscellaneous 51,286 --
Interest expense (131,138) (14,715)
------------ ------------
INCOME BEFORE INCOME TAXES (489,427) (17,926)
INCOME TAX (EXPENSE) BENEFIT -- --
------------ ------------
NET LOSS $ (489,427) $ (17,926)
============ ============
Earnings per share of common stock outstanding
Primary $ (0.18) $ (0.03)
============ ============
Weighted-average number of shares outstanding 2,742,748 712,531
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
F-4
<PAGE> 65
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months Three months
ended ended
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (489,427) $ (17,926)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 95,884 579
(Increase) decrease in
Accounts receivable 1,284,240 (100)
Inventory 44,779 --
Prepaid expenses (213,956) (27,665)
Increase (decrease) in
Accounts payable and other accrued liabilities (672,310) 41,116
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 49,210 (3,996)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition of Brister's Thunder Karts, Inc. -- (2,043,552)
Cash paid for reorganization expenses (27,497) (52,690)
Proceeds from sale of fixed assets 6,666 --
Purchases of property and equipment (152,367) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (173,198) (2,096,242)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from sale of common stock -- 290,201
Proceeds from long-term borrowings -- 2,000,000
Proceeds from bank line of credit 200,000 --
Cash paid for loan costs -- (12,731)
Payments on long-term borrowings (28,303) --
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES 171,697 2,277,470
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 47,709 177,232
Cash and cash equivalents at beginning of period 630,028 --
------------ ------------
Cash and cash equivalents at end of period $ 677,737 $ 177,232
============ ============
SUPPLEMENTAL DISCLOSURES OF INTEREST AND INCOME TAXES PAID
Interest paid during the period $ 134,237 $ 2,301
============ ============
Income taxes paid (refunded) $ 184,175 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
F-5
<PAGE> 66
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
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.
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. 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.
During interim periods, the Company follows the accounting policies set forth
in its audited financial statements as of and for the year ended December 31,
1996 presented elsewhere in this section. The December 31, 1996 balance sheet
data was derived from audited financial statements of the Company, but does not
include all disclosures required by generally accepted accounting principles.
Users of financial information provided for interim periods should refer to the
annual financial information and footnotes contained elsewhere in this section
when reviewing the interim financial results presented herein.
In the opinion of management, the accompanying interim financial statements are
unaudited, prepared in accordance with the instructions for Form 10-QSB and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal
year ending December 31, 1997.
F-6
<PAGE> 67
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - BASIS OF PRESENTATION - 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, as appropriate based upon their
respective acquisition date(s). All significant intercompany transactions have
been eliminated. The consolidated entities are collectively referred to as
Company.
NOTE 2 - LITIGATION
The Company's subsidiaries continue as named defendant in several product
liability lawsuits related to its "fun karts". The Company and its subsidiaries
continue to have commercial liability coverage to cover these exposures with a
$50,000 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.
On February 7, 1997, litigation was filed against the Company and 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 continues to be 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.
The Company anticipates no material impact to either the results of operations,
its financial condition or liquidity based on the uncertainty of outcome, if
any, of existing litigation, either collectively and/or individually, at this
time.
NOTE 3 - CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Primary
Weighted-average shares outstanding 2,717,288 712,531
Net effect of dilutive stock options and warrants based on
the treasury stock method using average market price 25,460 --
----------- -----------
Total weighted-average shares outstanding 2,742,748 712,531
=========== ===========
Net income $ (489,427) $ (17,926)
=========== ===========
Per share amount $ (0.18) $ (0.03)
=========== ===========
</TABLE>
The convertible preferred stock is considered anti-dilutive for the three
months ended March 31, 1997 and 1996, respectively.
F-7
<PAGE> 68
[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/ S. W. HATFIELD + ASSOCIATES
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
February 28, 1997 (except for
Note I as to which the date
is March 6, 1997)
F-8
<PAGE> 69
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(FORMERLY SARAH ACQUISITION CORPORATION)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
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 $ --
============== ============
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 70
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(FORMERLY SARAH ACQUISITION CORPORATION)
CONSOLIDATED BALANCE SHEET - CONTINUED
DECEMBER 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to banks $ 140,020 $ --
Current maturities of notes payable 116,390 --
Accounts payable - trade 766,833 4,010
Other accrued liabilities
Payroll and sales taxes payable 55,944 --
Interest payable 33,099 --
Other 1,429 --
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
Related parties 3,200,000 --
Banks and individuals 132,660 --
------------ ------------
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 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 71
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
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 --
Other operating expenses 472,481 630
Depreciation and amortization 205,397 --
----------- -----------
TOTAL OPERATING EXPENSES 1,458,847 630
----------- -----------
INCOME (LOSS) FROM OPERATIONS 1,025,937 (630)
OTHER INCOME (EXPENSE)
Interest expense (396,589) --
Interest and other income 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
Primary $ 0.22 nil
=========== ===========
Fully diluted $ 0.22 nil
=========== ===========
Weighted-average number of shares
of common stock outstanding
Primary 2,083,456 124,616
=========== ===========
Fully diluted 2,110,209 124,616
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 72
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
Shares Amount Shares Amount
------- -------- ---------- ------------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995,
AS REPORTED -- $ -- 31,254,621 $ 1,563
Retirement of treasury stock -- -- (102,600) --
Effect of 1 for 250 reverse
stock split, post treasury
stock retirement, including
rounding, as of February 23,
1996 -- -- (31,027,405) (1,438)
Effect of 2 for 3 reverse stock
split, including rounding, as
of March 24, 1997 -- -- (41,175) (42)
------- -------- ---------- ------------
BALANCES AT JANUARY 1, 1995,
AS RESTATED -- -- 83,441 83
Net loss for the year -- -- -- --
------- -------- ---------- ------------
BALANCES AT DECEMBER 31, 1995 -- -- 83,441 83
Sale of common stock
to current and former directors
in February 1996 -- -- 1,017,545 1,018
under private placement
memorandum in March 1996 -- -- 233,333 233
less cost of raising capital -- -- -- --
under private sale document in July 1996 -- -- 6,667 7
<CAPTION>
Additional
paid-in Accumulated Treasury
capital deficit Stock Total
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995,
AS REPORTED $ 492,940 $ (491,214) $ (6,669) $ (3,380)
Retirement of treasury stock (6,669) -- 6,669 --
Effect of 1 for 250 reverse
stock split, post treasury
stock retirement, including
rounding, as of February 23,
1996 1,438 -- -- --
Effect of 2 for 3 reverse stock
split, including rounding, as
of March 24, 1997 42 -- -- --
------------ ------------ --------- ---------
BALANCES AT JANUARY 1, 1995,
AS RESTATED 487,751 (491,214) -- (3,380)
Net loss for the year -- (630) -- (630)
------------ ------------ --------- ---------
BALANCES AT DECEMBER 31, 1995 487,751 (491,844) -- (4,010)
Sale of common stock
to current and former directors
in February 1996 1,371 -- -- 2,389
under private placement
memorandum in March 1996 524,767 -- -- 525,000
less cost of raising capital (163,100) -- -- (163,100)
under private sale document in July 1996 34,993 -- -- 35,000
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 73
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sale of convertible preferred
stock under private
placement memorandum
in November 1996 25 $ 625,000 -- $ --
Issuance of common stock for
payment of January 1996 professional
services for corporate reorganization
and consulting related to the then-
proposed acquisition of Brister's
Thunder Karts, Inc. -- -- 483,333 483
settlement of January 1996 negotiated
employment contract signing bonus -- -- 140,000 140
payment of March 1996 loan
origination fees -- -- 70,000 70
July 1996 settlement of the acquisition
of Brister's Thunder Karts, Inc. -- -- 516,667 517
November 1996 acquisition of
USA Industries, Inc. -- -- 166,667 167
Net income for the year -- -- -- --
---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1996 25 $ 625,000 2,717,653 $ 2,718
========== ========== ========== ==========
<CAPTION>
Additional
paid-in Accumulated Treasury
capital deficit Stock Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sale of convertible preferred
stock under private
placement memorandum
in November 1996 $ -- $ -- $ -- $ --
Issuance of common stock for
payment of January 1996 professional
services for corporate reorganization
and consulting related to the then-
proposed acquisition of Brister's
Thunder Karts, Inc. 14,517 -- -- 15,000
settlement of January 1996 negotiated
employment contract signing bonus 14,860 -- -- 15,000
payment of March 1996 loan
origination fees 10,430 -- -- 10,500
July 1996 settlement of the acquisition
of Brister's Thunder Karts, Inc. 3,099,483 -- -- 3,100,000
November 1996 acquisition of
USA Industries, Inc. 749,833 -- -- 750,000
Net income for the year -- 68,346 -- 468,346
---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1996 $4,774,905 $ (23,498) $ -- $4,754,125
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 74
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
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 --
Increase (Decrease) in:
Accounts payable (458,548) 630
Other accrued liabilities 3,944 --
Income taxes payable 165,675 --
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (113,889) --
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment (71,734) --
Cash paid for reorganization costs (109,255) --
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 (2,179,206) --
----------- -----------
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 $ --
=========== ===========
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 75
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
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 $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 76
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 December 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-16
<PAGE> 77
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 (516,667
post-March 24, 1997 reverse split 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.
<TABLE>
<S> <C>
Purchase price $6,100,000
Assets acquired (2,017,394)
Liabilities assumed 781,367
----------
Goodwill related to Brister's $4,863,973
==========
</TABLE>
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 (166,667 post-March 24, 1997 reverse split
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-17
<PAGE> 78
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.
<TABLE>
<S> <C>
Purchase price $ 1,000,000
Assets acquired (1,496,970)
Liabilities assumed 1,492,420
-----------
Goodwill related to USA $ 995,450
===========
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues $10,698,824 $ 8,514,460
=========== ===========
Net income $ 340,343 $ 121,324
=========== ===========
Earnings per share $ 0.10 $ 0.04
=========== ===========
</TABLE>
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
The Company considers all cash on hand and in banks, 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 in the Southeastern
United States, principally Texas, Louisiana, Mississippi, Alabama, Georgia
and Florida. 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-18
<PAGE> 79
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - 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:
<TABLE>
<S> <C>
Raw materials $ 875,450
Work in process 37,661
Finished goods 45,270
---------
$ 958,381
=========
</TABLE>
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.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company adopted the policy of evaluating
all qualifying assets as of the end of each reporting quarter.
F-19
<PAGE> 80
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
9. Income (Loss) per share
Primary earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of the conversion factor of
outstanding convertible preferred stock at the highest optional conversion
rate. In all instances, the exercise of outstanding options and warrants
and the conversion of convertible preferred stock is assumed to occur at
either the beginning of the respective period presented or the date of
issuance, whichever is later.
10. Accounting standards to be adopted
Upon the adoption of a formal stock compensation plan, the Company
anticipates using the "fair value based method" of accounting for
compensation based stock options pursuant to Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
Under the fair value based method, compensation cost will be measured at
the grant date of the respective option based on the value of the award
and will be recognized as a charge to operations over the service period,
which will usually be the respective vesting period of the granted
option(s).
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following components:
<TABLE>
<CAPTION>
Estimated
1996 1995 useful life
------------- ------------- ---------------
<S> <C> <C> <C>
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 $ --
============= =============
</TABLE>
Total depreciation expense charged to operations for the years ended December
31, 1996 and 1995 was approximately $34,598 and $-0-, respectively.
F-20
<PAGE> 81
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
$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 and
guaranteed by the Company $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 $ --
======== ========
</TABLE>
Additionally, USA has a line of credit with a bank, bearing interest at the
bank's prime interest rate and matures on September 30, 1997. Advances on this
line are made at the rate of 40% per qualifying purchase order received by USA
(as defined in the line of credit agreement) and an additional 45% of each
eligible receivable (as defined in the line of credit agreement). The total
available credit available is $500,000 and no amounts are outstanding at
December 31, 1996. The USA line of credit is collateralized by specific
accounts receivable from a single significant customer of USA and is also
guaranteed by the Company.
The lines of credit are maintained at the same bank and the USA line of credit
contains certain restrictive covenants related to the maintenance of certain
current ratios and minimum net worth. The Company was in compliance with all
covenants as of December 31, 1996.
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Related parties
$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 $ --
</TABLE>
F-21
<PAGE> 82
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG-TERM DEBT - CONTINUED
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Related parties - continued
$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 --
--------- ---------
Total related party long-term debt 3,200,000 --
--------- ---------
Banks and individuals
$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 --
$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 --
</TABLE>
F-22
<PAGE> 83
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG-TERM DEBT - CONTINUED
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Banks and individuals - continued
$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 to banks and individuals 249,050 --
----------- -----------
Total long-term debt 3,449,050 --
Less current maturities (116,390) --
----------- -----------
Long-term portion $ 3,332,660 $ --
=========== ===========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ----------
<S> <C> <C>
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
==========
</TABLE>
NOTE G - INCOME TAXES
The components of income tax expense for the years ended December 31, 1996 and
1995, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Federal:
Current $ 156,675 $ --
Deferred -- --
----------- -----------
156,675 --
----------- -----------
State:
Current 36,900 --
Deferred -- --
----------- -----------
36,900 --
----------- -----------
Total $ 193,575 $ --
=========== ===========
</TABLE>
F-23
<PAGE> 84
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES - CONTINUED
The Company's income tax expense for the years ended December 31, 1996 and
1995, respectively, differed from the statutory federal rate of 34 percent as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Statutory rate applied to earnings (loss) before income taxes $ 225,053 $ --
Increase (decrease) in income taxes resulting from:
State income taxes 36,900 --
Difference caused by use of statutory amortization
periods for deduction of goodwill (37,724) --
Utilization of pre-acquisition net operating loss
of USA Industries, Inc. (38,173) --
Other 7,519 --
----------- -----------
Income tax expense $ 193,575 $ --
=========== ===========
</TABLE>
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 January 1, 1998 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 ultimately 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 and the consulting contract.
Upon final settlement, the $15,000 fee was paid through the issuance of
approximately 725,000 pre-reverse stock split shares (483,333 post-reverse
stock split shares) to the consulting company.
F-24
<PAGE> 85
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
the 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.
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.
On March 6, 1997, the Company offered to each holder of the Convertible
Preferred Stock the option of either (i) receiving a refund of $25,000 (the
initial Unit price) plus simple interest at 12.0% 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 a pending secondary offering upon the previously agreed
terms along with the issuance of an additional 13,334 1996 Warrants for each
share of Convertible Preferred Stock held as additional 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. The lock-up agreement requires that 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, 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.
F-25
<PAGE> 86
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 Stock 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 in July 1996 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-26
<PAGE> 87
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.
<TABLE>
<CAPTION>
Warrants Warrants Warrants
granted exercised outstanding Exercise price
------- --------- ----------- --------------
<S> <C> <C> <C> <C>
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
======= ====== =======
</TABLE>
F-27
<PAGE> 88
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.
<TABLE>
<CAPTION>
Options Options Options
granted exercised outstanding Exercise price
------- --------- ----------- --------------
<S> <C> <C> <C> <C>
1996 options 59,355 -- 59,355 $5.63 per share
======= ======== ========
Shares allocated 125,377
=======
</TABLE>
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 the Company and 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.
The Company anticipates no material impact to either the results of operations,
its financial condition or liquidity based on the uncertainty of outcome, if
any, of existing litigation, either collectively and/or individually, at this
time.
F-28
<PAGE> 89
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, pursuant to a January 1996 letter agreement, 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 earned 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-29
<PAGE> 90
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.
<TABLE>
<S> <C> <C>
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%
========== ==========
</TABLE>
NOTE O - EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Primary
Weighted-average shares outstanding 2,079,728 124,616
Net effect of dilutive stock options and warrants
based on the treasury stock method using
average market price 3,728 --
---------- ----------
Total weighted-average shares outstanding 2,083,456 124,616
========== ==========
Net income $ 468,346 $ (630)
========== ==========
Per share amount $ 0.22 nil
========== ==========
Fully diluted
Weighted-average shares outstanding 2,079,728 124,616
Net effect of dilutive stock options and warrants
based on the treasury stock method using
average market price 3,728 --
Assumed conversion of convertible preferred stock
at conversion rate of 8,333 common shares per
preferred share outstanding 26,753 --
---------- ----------
Total weighted-average shares outstanding 2,110,209 124,616
========== ==========
Net income $ 468,346 $ (630)
========== ==========
Per share amount $ 0.22 nil
========== ==========
</TABLE>
F-30
<PAGE> 91
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, 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.
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.
<TABLE>
<CAPTION>
Brister's USA
Thunder Industries,
Karts, Inc. Inc.
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
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-31
<PAGE> 92
KARTS INTERNATIONAL INCORPORATED
COMBINED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
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
----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
============
</TABLE>
F-32
<PAGE> 93
KARTS INTERNATIONAL INCORPORATED
COMBINED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Pro Forma
Karts Brister's USA effect of
International Thunder Industries, amortization Pro Forma
Incorporated Karts, Inc. Inc. of goodwill Combined
---------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
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
===========
</TABLE>
F-33
<PAGE> 94
KARTS INTERNATIONAL INCORPORATED
COMBINED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Pro Forma
Karts Brister's USA effect of
International Thunder Industries, amortization Pro Forma
Incorporated Karts, Inc. Inc. of goodwill Combined
--------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
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
===========
</TABLE>
F-34
<PAGE> 95
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-35
<PAGE> 96
[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/ S. W. HATFIELD + ASSOCIATES
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
May 10, 1996
F-36
<PAGE> 97
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
BALANCE SHEET
March 31, 1996
UNAUDITED
<TABLE>
<S> <C>
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
===========
</TABLE>
See Accountant's Review Report.
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 98
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
UNAUDITED
<TABLE>
<S> <C>
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
===========
</TABLE>
See Accountant's Review Report.
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 99
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996
UNAUDITED
<TABLE>
<S> <C>
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
===========
</TABLE>
See Accountant's Review Report.
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 100
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 Company's issued and outstanding stock to Karts International
Incorporated (KII). The Company became a wholly-owned subsidiary of KII at that
date.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for interim financial statements,
are unaudited and contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial condition,
results of operations and cash flows of the Company for the respective interim
periods presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal
year ending December 31, 1997.
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, 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 in the
Southeastern United States, principally Texas, Louisiana, Mississippi,
Alabama, Georgia and Florida. 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:
<TABLE>
<S> <C>
Raw materials $506,022
Work in process 211,825
Finished goods 134,784
--------
$852,631
========
</TABLE>
F-40
<PAGE> 101
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:
<TABLE>
<CAPTION>
Estimated
useful life
-----------
<S> <C> <C>
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
========
</TABLE>
NOTE D - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<S> <C>
$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
========
</TABLE>
F-41
<PAGE> 102
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:
<TABLE>
<S> <C>
$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
=======
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ------
<S> <C> <C>
1996 $4,190
1997 4,494
1998 870
------
$9,554
======
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
The non-current deferred tax liability results from the usage of statutory
accelerated tax depreciation and amortization methods.
F-42
<PAGE> 103
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:
<TABLE>
<S> <C>
Federal:
Current $78,502
Deferred --
-------
78,502
State:
Current 11,173
Deferred --
-------
11,173
Total $89,675
=======
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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. As of March 31, 1996, approximately $50,000 has been accrued and
charged to operations for anticipated future litigation. The Company
anticipates no material impact to either the results of operations, its
financial condition or liquidity based on the uncertainty of outcome, if any,
of existing litigation, either collectively and/or individually, at this time.
F-43
<PAGE> 104
[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/ S. W. HATFIELD + ASSOCIATES
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
March 9, 1996
F-44
<PAGE> 105
BRISTER'S THUNDER KARTS, INC.
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 106
BRISTER'S THUNDER KARTS, INC.
STATEMENTS OF INCOME
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 107
BRISTER'S THUNDER KARTS, INC.
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
------------------------- Retained
# shares Amount earnings Totals
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 108
BRISTER'S THUNDER KARTS, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
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 FLOES 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
=========== ===========
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 109
BRISTER'S THUNDER KARTS, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
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 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 110
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, 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
Southeastern United States, principally Texas, Louisiana, Mississippi,
Alabama, Georgia and Florida. 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:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 522,849 $ 223,490
Work in process 49,150 147,360
Finished goods -- 10,893
----------- -----------
$ 571,999 $ 381,743
=========== ===========
</TABLE>
F-50
<PAGE> 111
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:
<TABLE>
<CAPTION>
Estimated
1995 1994 useful life
--------- --------- -----------
<S> <C> <C> <C>
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
========= =========
</TABLE>
NOTE D - NOTES PAYABLE
Notes payable consists of the following at December 31, 1995 and 1994,
respectively,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
$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
=========== ===========
</TABLE>
F-51
<PAGE> 112
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,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
$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
=========== ===========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ------
<S> <C> <C>
1996 $ 4,191
1997 4,494
1998 1,914
--------
$ 10,599
========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
The non-current deferred tax liability results from the usage of statutory
accelerated tax depreciation and amortization methods.
F-52
<PAGE> 113
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:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
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. As of December 31, 1996, approximately $100,000 has been accrued and
charged to operations for anticipated future litigation. The Company
anticipates no material impact to either the results of operations, its
financial condition or liquidity based on the uncertainty of outcome, if any,
of existing litigation, either collectively and/or individually, at this time.
F-53
<PAGE> 114
================================================================================
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . 7
The Company . . . . . . . . . . . . . . . . . . . 16
Common Stock Price Ranges and Dividends . . . . . 19
Dividend Policy . . . . . . . . . . . . . . . . . 19
Use of Proceeds . . . . . . . . . . . . . . . . . 20
Dilution . . . . . . . . . . . . . . . . . . . . 21
Capitalization . . . . . . . . . . . . . . . . . 22
Selected Historical Consolidated and Combined
Financial Information . . . . . . . . . . . . . 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations . 24
Business . . . . . . . . . . . . . . . . . . . . 29
Management . . . . . . . . . . . . . . . . . . . 41
Certain Relationships and Related Transactions . 45
Principal Stockholders . . . . . . . . . . . . . 49
Description of Securities . . . . . . . . . . . . 50
Shares Eligible for Future Sale . . . . . . . . . 55
Underwriting . . . . . . . . . . . . . . . . . . 56
Legal Matters . . . . . . . . . . . . . . . . . . 59
Experts . . . . . . . . . . . . . . . . . . . . . 59
Index to Consolidated Financial Statements . . . F-1
</TABLE>
------------------------------
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
--------------------
================================================================================
<PAGE> 115
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:
<TABLE>
<CAPTION>
Item Amount
- ---- ------
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,531.46
NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,307.37
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,161.17
----------------
TOTAL $ 387,250.00
================
</TABLE>
II-1
<PAGE> 116
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:
<TABLE>
<CAPTION>
No. of
Units Date of Sale Purchaser Consideration
----- ------------ --------- -------------
<S> <C> <C> <C>
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
=== =========
</TABLE>
On March 6, 1997, the Company offered to each subscriber to the
offering the option of 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 as 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. 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.
II-2
<PAGE> 117
With regard to all sales in this offering, the Company relied upon
Rule 506 of Regulation D ("Regulation D") promulgated under the Securities Act
of 1933, as amended (the "Securities Act") for an exemption from the
registration requirements of the Securities 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 represented to the Company that
they were accredited investors as that term is defined in Rule 501(a) of
Regulation D. Each purchaser represented that he had the ability to bear
economically a total loss of his investment in the Company's securities, was
acquiring the securities for his own account and for investment purposes only
and not for resale or further distribution thereof, and was a sophisticated and
knowledgeable investor who fully understood the risks associated with an
investment in the Company's securities. 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:
<TABLE>
<CAPTION>
No. of
Shares Date of Sale Purchaser Consideration
------ ------------ --------- -------------
<S> <C> <C> <C>
37,778 March 15, 1996 The Brian Schlinger Trust $85,000
11,667 March 15, 1996 The Evert I. Schlinger, 26,250
Jr. Trust
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
======== =========
</TABLE>
No underwriter participated in any of the sales discussed above, nor
did the Company pay any commissions with respect to these issuances. With
regard to all such sales, the Company relied upon Rule 506 of Regulation D
promulgated under the Securities Act for an exemption from the registration
requirements of the Securities 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 to nine investors who represented to the Company that they were
accredited investors as that term is defined in Rule 501(a) of Regulation D.
Messrs. Housley, Mazanski, Gonser and Gornick were non-accredited investors.
Each purchaser represented that he had the ability to bear economically a total
loss of his investment in the Company's securities, was acquiring the
securities for his own account and for investment purposes only and not for
resale or further distribution thereof, and was a sophisticated and
knowledgeable investor who fully understood the risks associated with an
investment in the Company's securities. Each purchaser signed a subscription
agreement, which included certain investment 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.
II-3
<PAGE> 118
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.
Information concerning the sale of such securities is as follows:
<TABLE>
<CAPTION>
No. of No. of
Shares Class A Warrants Date of Sale Purchaser Consideration
------ ---------------- ------------ --------- -------------
<S> <C> <C> <C> <C>
3,333 66,667 July 2, 1996 Art Beroff $ 17,500
</TABLE>
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..
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"), which was effective at the close of business on March 31, 1996,
delivered, in July 1996, 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 with respect to the
issuance of such shares. 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 including that he (i) had such
knowledge and experience in financial and business matters that he was capable
of evaluating the merits and risks of an investment in the Company and had the
financial ability to assume the monetary risks associated therewith, (ii) was
able to bear the complete loss of his investment in the Company, (iii) had
received such other documents and information as he has requested and had an
opportunity to ask questions of and receive answers from representatives of the
Company, (iv) is an "accredited investor" as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act, and (v) is acquiring the
shares of Common Stock of the Company for his own account, for investment
purposes and not with a view to a further distribution thereof. The Company
has impressed the stock certificates representing the 516,667 shares with a
restrictive legend.
e. ACQUISITION OF USA INDUSTRIES, INC..
Effective at the close of business on November 21, 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. Each USA shareholder, Jerry Michael Allen, Angela T. Allen, Johnny C.
Tucker and Carol Y. Tucker (the "USA Shareholders"), received $62,500 cash and
41,667 restricted shares of the Company's Common Stock.
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 commissions with respect to the
issuance of such shares. 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, including that they were acquiring the Company's shares of Common
Stock for investment and not with a view to resale or for further distribution
of all or any part thereof in any
II-4
<PAGE> 119
transaction which would constitute a "distribution" within the meaning of the
Securities Act. Each USA Shareholder acknowledged to the Company that the
shares of the Company's Common Stock received by each shareholder were
"restricted securities" and had not been registered under the Securities Act
and that the Company was not under any obligation to file a registration
statement with the Securities and Exchange Commission or any state securities
agency with respect to the shares of the Company's Common Stock acquired by
them. Each USA Shareholder represented to the Company that they (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 Company's
shares of Common Stock and have the financial ability to assume the monetary
risks associated therewith, (ii) are able to bear the complete loss of their
investment in the shares of Common Stock of the Company, and (iii) are not
relying upon any statements or instruments made or issued by any person other
than the Company and its officers in making their decision to invest in the
Company's shares of Common Stock. 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. Mr. Schlinger has
represented to the Company that he is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D.
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
commissions with respect to these transactions. The Foundation and Mr.
Schlinger 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 on certain investment representations
by the Foundation, including representations that (i) the Company's securities
were acquired by the Foundation for its own account, for investment purposes
only and not with a view towards distribution thereof, (ii) the Foundation had
the ability to bear economically a total loss of its investment in the Company,
and (iii) was a sophisticated and knowledgeable investor in the type of
securities acquired from the Company. The Company has impressed the stock
certificates representing the shares of Common Stock with a restrictive legend.
g. ISSUANCES TO FORMER DIRECTOR AND HFG.
On February 20, 1996, the Company sold 50,000 restricted shares of its
Common Stock to Glenn A. Little, a former director of the Company, for $938
cash. Subsequently, on March 7, 1996, the Company sold 967,545 restricted
shares of Common Stock to HFG for $1,451 cash. 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.
The Company relied upon the exemption from registration provided in
Section 4(2) of the Securities Act in connection with the afore-referenced
issuances of shares to Mr. Little and HFG. No underwriter participated in the
transactions, nor did the Company pay any commissions with respect to these
transactions. Mr. Little and HFG had access to information concerning the
Company, its financial condition, assets, management and proposed activities.
The shares of Common Stock were issued to Mr. Little and HFG based on certain
investment representations by them, including representations that (i) the
Company's securities were being acquired by Mr. Little and HFG for their own
account, for investment purposes only and not with a view towards distribution
thereof, (ii) Mr. Little and HFG had the ability to bear economically a total
loss of their investment in the Company, and (iii) Mr. Little and HFG were
sophisticated and knowledgeable investors in the type of securities acquired
from the Company. The Company has impressed the stock certificates
representing the shares of Common Stock issued to Mr. Little and HFG with a
restrictive legend.
II-5
<PAGE> 120
h. ISSUANCE OF 483,333 SHARES OF COMMON STOCK TO HFG.
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 agreed to assist the Company with its corporate reorganization,
recapitalization and the Brister's Acquisition for a fee of $15,000. The
consulting fee was payable at the closing of the Brister's Acquisition in
shares of Common Stock of the Company or $10,000 cash and shares of Common
Stock of the Company, 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 $15,000 consulting fee was subsequently paid by the
Company upon the closing of the Brister's Acquisition with the delivery, in
July 1996, to HFG of 483,333 restricted shares of the Company's Common Stock.
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.
The Company relied upon the exemption from registration provided in
Section 4(2) of the Securities Act in connection with the afore-referenced
issuance of securities to HFG. No underwriter participated in the transaction,
nor did the Company pay any commissions with respect to this transaction. HFG
had access to information concerning the Company, its financial condition,
assets, management and proposed activities. The shares of Common Stock were
issued to HFG based on certain investment representations by HFG, including
representations that (i) the Company's securities were acquired by HFG for its
own account, for investment purposes only and not with a view towards
distribution thereof, (ii) HFG had the ability to bear economically a total
loss of its investment in the Company, and (iii) was a sophisticated and
knowledgeable investor in the type of securities acquired from the Company.
The Company impressed the stock certificates representing the shares of Common
Stock issued to HFG with a restrictive legend.
i. ISSUANCE OF 140,000 SHARES OF COMMON STOCK TO V. LYNN
GRAYBILL.
On March 15, 1996, the Company entered into a three-year 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. In year two of the
Employment Agreement, which ends on March 15, 1998, the Company may buy back up
to 70,000 Graybill Shares for $8,400 or $0.12 per share and in year three,
which ends on March 15, 1998, up to 35,000 Graybill Shares for $4,200 or $0.12
per share if Mr. Graybill is either terminated for cause or Mr. Graybill
terminates his employment voluntarily prior to the expiration of the Employment
Agreement. 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 currently serves as the Company's Chairman
of the Board, President and Chief Executive Officer.
The Company relied upon the exemption from registration provided in
Section 4(2) of the Securities Act in connection with the afore-referenced
issuance of securities to Mr. Graybill. No underwriter participated in the
transaction, nor did the Company pay any commissions with respect to this
transaction. Mr. Graybill had access to information concerning the Company,
its financial condition, assets, management and proposed activities. The
shares of Common Stock were issued to Mr. Graybill based on certain investment
representations by Mr. Graybill, including representations that (i) the
Company's securities were acquired by Mr. Graybill for his own account, for
investment purposes only and not with a view towards distribution thereof, (ii)
Mr. Graybill had the ability to bear economically a total loss of his
investment in the Company, and (iii) was a sophisticated and knowledgeable
investor in the type of securities acquired from the Company. The Company has
impressed the stock certificates representing the shares of Common Stock issued
to Mr. Graybill with a restrictive legend.
II-6
<PAGE> 121
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------------------
<S> <C>
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.
1.7* Form of Selected Dealers Agreement.
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 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.
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.
</TABLE>
II-7
<PAGE> 122
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------------------
<S> <C>
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.
10.19* $300,000.00 Universal Note, dated August 13, 1996, payable to
Deposit Guaranty National Bank, executed by Brister's Thunder
Karts, Inc., as borrower.
10.20* Security Agreement, dated August 13, 1996, by and between
Brister's Thunder Karts, Inc., as debtor, and Deposit Guaranty
National Bank, as secured party, relating to the $300,000.00
Universal Note referenced as Exhibit 10.19.
10.21* Collateral Pledge Agreement, dated August 13, 1996, by Brister's
Thunder Karts, Inc., as pledgor, relating to the $300,000.00
Universal Note referenced as Exhibit 10.19.
10.22* Guaranty, dated August 13, 1996, executed by the Company, as
guarantor, for the benefit of Deposit Guaranty National Bank, as
lender, and Brister's Thunder Karts, Inc., as borrower, relating
to the $300,000.00 Universal Note referenced as Exhibit 10.19.
</TABLE>
II-8
<PAGE> 123
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------------------
<S> <C>
10.23* $500,000 Loan Agreement, dated October 1, 1996, by and between
USA Industries, Inc., as debtor, and Deposit Guaranty National
Bank of Louisiana, as secured party, relating to the $500,000.00
Universal Note referenced as Exhibit 10.24.
10.24* $500,000.00 Universal Note, dated October 1, 1996, by and
between USA Industries, Inc., as borrower, and Deposit Guaranty
National Bank, as lender.
10.25* Security Agreement, dated October 1, 1996, by and between USA
Industries, Inc., as debtor, and Deposit Guaranty National Bank
of Louisiana, as secured party, relating to the $500,000.00
Universal Note referenced as Exhibit 10.24.
10.26* Financing Statement, by and between USA Industries, Inc., as
debtor, and Deposit Guaranty National Bank of Louisiana, as
secured party, relating to the Universal Note referenced as
Exhibit 10.24.
10.27* Guaranty, dated October 1, 1996, executed by Karts International
Incorporated, as guarantor, for the benefit of Deposit Guaranty
National Bank, as lender, and USA Industries, Inc., as borrower,
relating to the $500,000.00 Universal Note referenced as Exhibit
10.24.
10.28* Placement Agency Agreement, dated November 8, 1996, by and
between the Company and Argent Securities, Inc.
10.29* Option Agreement, dated March 15, 1996, by and between Charles
Brister, as seller, and Brister's Thunder Karts, Inc., as
Purchaser.
10.30* Lease of Commercial Property, dated September 27, 1995, by and
between Charles Brister, as lessor, and Brister's Thunder Karts,
Inc., as lessee, as amended by that certain Amended Lease of
Commercial Property, dated November 30, 1995, as amended by that
certain First Amendment to Lease of Commercial Property, dated
March 15, 1996.
10.31* Non-Competition Agreement, dated March 15, 1996, by and between
Charles Brister and the Company.
10.32* Non-Competition Agreement (Louisiana), dated March 15, 1996, by
and between Charles Brister and the Company.
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.
27.1* Financial Data Schedule.
</TABLE>
- -------------------------
*Filed herewith.
**Previously filed.
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,
II-9
<PAGE> 124
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-10
<PAGE> 125
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 Form SB-2 and has authorized this Amendment
No. 1 to its registration statement 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 May, 1997.
KARTS INTERNATIONAL INCORPORATED
(Company)
By: /s/ V. Lynn Graybill
---------------------------------
V. Lynn Graybill, President and
Chief Executive Officer
POWER OF ATTORNEY
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ V. Lynn Graybill President, Chief Executive Officer, May 27, 1997
-------------------------------------- Chairman of the Board of Directors
V. Lynn Graybill
/s/ Timothy P. Halter* Vice President, Secretary and May 27, 1997
-------------------------------------- Director
Timothy P. Halter
/s/ John V. Callegari, Jr.* Vice President, Administration and May 27, 1997
-------------------------------------- Chief Financial Officer
John V. Callegari, Jr.
/s/ Charles Brister* Director May 27, 1997
--------------------------------------
Charles Brister
/s/ Joseph R. Mannes* Director May 27, 1997
--------------------------------------
Joseph R. Mannes
/s/ Ronald C. Morgan* Director May 27, 1997
--------------------------------------
Ronald C. Morgan
/s/ Robert W. Bell* Director May 27, 1997
--------------------------------------
Robert W. Bell
/s/ Gary C. Evans* Director May 27, 1997
--------------------------------------
Gary C. Evans
*By: /s/ V. Lynn Graybill
----------------------------------
V. Lynn Graybill, Attorney-in-fact
</TABLE>
II-11
<PAGE> 126
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------------------
<S> <C>
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.
1.7* Form of Selected Dealers Agreement.
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 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.
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.
</TABLE>
<PAGE> 127
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------------------
<S> <C>
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.
10.19* $300,000.00 Universal Note, dated August 13, 1996, payable to
Deposit Guaranty National Bank, executed by Brister's Thunder
Karts, Inc., as borrower.
10.20* Security Agreement, dated August 13, 1996, by and between
Brister's Thunder Karts, Inc., as debtor, and Deposit Guaranty
National Bank, as secured party, relating to the $300,000.00
Universal Note referenced as Exhibit 10.19.
10.21* Collateral Pledge Agreement, dated August 13, 1996, by Brister's
Thunder Karts, Inc., as pledgor, relating to the $300,000.00
Universal Note referenced as Exhibit 10.19.
10.22* Guaranty, dated August 13, 1996, executed by the Company, as
guarantor, for the benefit of Deposit Guaranty National Bank, as
lender, and Brister's Thunder Karts, Inc., as borrower, relating
to the $300,000.00 Universal Note referenced as Exhibit 10.19.
</TABLE>
<PAGE> 128
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------------------
<S> <C>
10.23* $500,000 Loan Agreement, dated October 1, 1996, by and between
USA Industries, Inc., as debtor, and Deposit Guaranty National
Bank of Louisiana, as secured party, relating to the $500,000.00
Universal Note referenced as Exhibit 10.24.
10.24* $500,000.00 Universal Note, dated October 1, 1996, by and
between USA Industries, Inc., as borrower, and Deposit Guaranty
National Bank, as lender.
10.25* Security Agreement, dated October 1, 1996, by and between USA
Industries, Inc., as debtor, and Deposit Guaranty National Bank
of Louisiana, as secured party, relating to the $500,000.00
Universal Note referenced as Exhibit 10.24.
10.26* Financing Statement, by and between USA Industries, Inc., as
debtor, and Deposit Guaranty National Bank of Louisiana, as
secured party, relating to the Universal Note referenced as
Exhibit 10.24.
10.27* Guaranty, dated October 1, 1996, executed by Karts International
Incorporated, as guarantor, for the benefit of Deposit Guaranty
National Bank, as lender, and USA Industries, Inc., as borrower,
relating to the $500,000.00 Universal Note referenced as Exhibit
10.24.
10.28* Placement Agency Agreement, dated November 8, 1996, by and
between the Company and Argent Securities, Inc.
10.29* Option Agreement, dated March 15, 1996, by and between Charles
Brister, as seller, and Brister's Thunder Karts, Inc., as
Purchaser.
10.30* Lease of Commercial Property, dated September 27, 1995, by and
between Charles Brister, as lessor, and Brister's Thunder Karts,
Inc., as lessee, as amended by that certain Amended Lease of
Commercial Property, dated November 30, 1995, as amended by that
certain First Amendment to Lease of Commercial Property, dated
March 15, 1996.
10.31* Non-Competition Agreement, dated March 15, 1996, by and between
Charles Brister and the Company.
10.32* Non-Competition Agreement (Louisiana), dated March 15, 1996, by
and between Charles Brister and the Company.
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.
27.1* Financial Data Schedule.
</TABLE>
- -------------------------
*Filed herewith.
**Previously filed.
<PAGE> 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
May ___, 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 for an approximate price of $140 ($0.001 per warrant),
non-callable warrants entitling the Underwriters' to purchase from the Company
an Underwriters'
Page 1
<PAGE> 2
Warrant (the "Underwriters' Warrant") 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. 333-24145) 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
Page 2
<PAGE> 3
statement at the time 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
Page 3
<PAGE> 4
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 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
Page 4
<PAGE> 5
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 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
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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.)
(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' Warrant and the Warrant
Agreement and to consummate the transactions provided for in such agreements;
and this Agreement, the Underwriters' Warrant and the Warrant Agreement have
each been duly and properly authorized, executed and delivered by the Company.
Each of this Agreement, the Underwriters' Warrant 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' Warrant,
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
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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.
(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' Warrant, 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,
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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 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.
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<PAGE> 9
(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
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
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<PAGE> 10
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 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
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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 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 since its date of incorporation, 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' Warrant.
(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
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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.
(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.
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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' Warrant 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 (145%) 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' Warrant shall be made on Closing Date. The Company has reserved
and shall continue to reserve a sufficient number of Shares for issuance upon
exercise of the Underwriters' Warrant.
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.
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(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
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
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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' Warrant). 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.
(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):
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(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 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
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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'
Warrant), 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.
(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 Underwriters' Warrant), 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 "Advisor") 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 Advisor
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 equal to the
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amount paid to the other outside directors of the Company. The Designee or
Advisor 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 Advisor) and the
Representative harmless against any and all claims, actions, awards and
judgements arising out of his or her service as a director or Advisor 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
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'
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Warrant), 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.
(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' Warrant), 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
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
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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' Warrant), 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.
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(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' Warrant), shall implement the following procedures:
(i) Thirty 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) quarterly 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.
(v) Implementation of an audit committee which
will have as its members one of the Underwriters Designee Directors and one
outside Director.
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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
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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) fees and expenses of the transfer
agent; (vi) the fees payable to the NASD; (vii) 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;
(viii) fees and expenses for any tombstone advertisements reasonably requested
by the Representative; (ix) Closing Binders; and (x) 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 expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Option
Securities.
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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.
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(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,
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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, 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
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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
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'
Warrant, 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
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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.
(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
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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;
(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.
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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;
(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
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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.
(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.
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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 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' Warrant; 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.
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(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 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
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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 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
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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 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 on Wednesday, May 27 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.
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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 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.
Page 36
<PAGE> 37
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 Karts
International Incorporated, 109 Northpark Blvd, Suite 210, Covington, Louisiana
70433, Attention: V. Lynn Graybill, with a copy to Looper Reed Mark & McGraw,
4100 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201, Attention:
Richard B. Goodner, Esq.
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.
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.
Page 37
<PAGE> 38
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 38
<PAGE> 39
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Number of Securities
- ----------- --------------------
<S> <C>
Argent Securities, Inc. 1,400,000 Shares of Common Stock
1,400,000 Redeemable Common Stock
Purchase Warrants
</TABLE>
Page 39
<PAGE> 40
SCHEDULE II
Warrant Agent - Securities Transfer Corporation
Page 40
<PAGE> 1
EXHIBIT 1.2
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF SUCH
OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A PROSPECTUS
MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933, AS
AMENDED, FORMING A PART OF A REGISTRATION STATEMENT, OR POST-EFFECTIVE
AMENDMENT THERETO, WHICH IS EFFECTIVE UNDER SAID ACT, OR UNLESS IN THE OPINION
OF COUNSEL TO THE CORPORATION, SUCH OFFER AND SALE IS EXEMPT FROM THE
APPLICABLE PROVISIONS OF SECTION 5 OF SAID ACT.
WARRANT
For the Purchase of
_____ Share(s) of Common Stock, Par Value $.001 Per Share
and
_____ Redeemable Common Stock Purchase Warrant(s)
of
KARTS INTERNATIONAL INCORPORATED
Incorporated Under the Laws of the
State of Nevada
Void After 5 P.M. New York, New York, time
on _____________, ________
No. ______________ Warrant to Purchase _____ Shares
THIS IS TO CERTIFY, that, for value received, Argent Securities, Inc., a
Georgia, corporation (the "Underwriter"), or registered assigns, is entitled,
subject to the terms and conditions hereinafter set forth on or after ________,
1997, and at any time prior to 5 P.M., New York, New York, time on ___________,
______, but not thereafter, to purchase _____ shares of Common Stock, par value
$.001 per share ("Common Stock"), and ______ Warrants to purchase ____ share(s)
of Common Stock each (the "Warrants"), of KARTS INTERNATIONAL INCORPORATED, a
Nevada corporation (the "Corporation"), from the Corporation upon payment to
the Corporation of $_____ per share of Common Stock and $_____ per Warrant (the
"Purchase Price"), if and to the extent this Warrant is exercised, in whole or
in part, during the period this Warrant remains in force, subject in all cases
to adjustment as provided in Article II hereof, and to receive certificates
representing the Common Stock and Warrants so purchased, upon presentation and
surrender to the Corporation of this Warrant, with the form of subscription
attached hereto duly executed, and accompanied by payment of the Purchase Price
of each Share purchased as provided herein; provided, however, that the
exercise price of each Warrant shall be $______ per share of Common Stock
purchasable upon exercise of a Warrant, subject to adjustment, but shall
contain all other terms and conditions of a warrant. This Warrant shall be
redeemable in accordance with the terms of the Redeemable Common Stock Purchase
Warrants sold to public investors pursuant to the Company's Prospectus
dated ________. This Warrant may not be transferred prior to ________________,
______.
<PAGE> 2
ARTICLE I - TERMS OF THE WARRANT
Section 1.01 Subject to the provisions of Sections 1.05 and 3.01
hereof, this Warrant may be exercised at any time and from time to time after
9:00 A.M., New York, New York, time, on __________________, 199__ (the
"Exercise Commencement Date"), but no later than 5:00 P.M., New York, New York,
time on ______________, 19___ (the "Expiration Time"). If _______________,
199__, is a day on which banking institutions are authorized by law to close,
then the date on which this Warrant shall expire shall be the next succeeding
day which shall not be such a day. If this Warrant is not exercised on or
before the Expiration Time it shall become void, and all rights hereunder shall
thereupon cease.
Section 1.02 (1) The holder of this Warrant (the "Holder") may
exercise this Warrant, in whole or in part, upon surrender of this Warrant with
the form of subscription attached hereto duly executed, to the Corporation at
its corporate office located at 109 Northpark Boulevard, Suite 210 Covington,
LA 70433 together with the full Purchase Price for the Securities to be
purchased in lawful money of the United States, or by check, bank draft or
postal or express money order payable in United States dollars to the order of
the Corporation, and upon compliance with and subject to the conditions set
forth herein.
(2) Upon receipt of this Warrant with the form of subscription duly
executed and accompanied by payment of the aggregate Purchase Price for the
Securities for which this Warrant is then being exercised, together with all
taxes applicable upon such exercise, the Corporation shall cause to be issued
certificates for the total number of whole shares of Common Stock and Warrants
for which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Corporation shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to
less than all of the Securities that may be purchased under this Warrant, the
Corporation shall execute a new Warrant for the balance of the Shares that may
be purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Corporation covenants and agrees that it will pay when due
and payable any and all taxes that may be payable in respect of the issue of
this Warrant, or the issue of any shares of Common Stock or Warrants upon the
exercise of this Warrant. The Corporation shall not, however, be required to
pay any tax that may be payable in respect of any transfer involved in the
issuance or delivery of this Warrant or of the shares of Common Stock or
Warrants in a name other than that of the Holder at the time of surrender, and
until the payment of such tax the Corporation shall not be required to issue
such shares of Common Stock or Warrants.
Section 1.03 This Warrant may be split-up, combined or exchanged for
another Warrant or Warrants of like tenor to purchase a like aggregate number
of Securities. If the Holder desires to split-up, combine, or exchange this
Warrant, he shall make such request in writing delivered to the Corporation at
its corporate office and shall surrender this Warrant and any other Warrants to
be so
<PAGE> 3
split-up, combined or exchanged at such office. Upon any such surrender for a
split-up, combination or exchange, the Corporation shall execute and deliver to
the person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Corporation shall not be required to effect any split-up,
combination or exchange that will result in the issuance of a Warrant entitling
the Holder to purchase upon exercise a fraction of the Shares. The Corporation
may require the holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split-up, combination or
exchange of Warrants.
Section 1.04 Prior to due presentment for registration or transfer of
this Warrant, the Corporation may deem and treat the Holder, as registered on
the books of the Corporation maintained for that purpose, as the absolute owner
of this Warrant (notwithstanding any endorsement or notation of ownership or
other writing hereon) for the purpose of any exercise hereof and for all other
purposes and the Corporation shall not be affected by any notice to the
contrary.
Section 1.05 Prior to _______, 199__, this Warrant may not be sold,
hypothecated, exercised, assigned, or transferred, except to any member of the
National Association of Securities Dealers, Inc. participating in the offering
contemplated in Section 3.01 hereof and to individuals who are the bona fide
officers or partners of the Underwriter or such members, or any successor to
their respective businesses or pursuant to the laws of descent and
distribution, and thereafter and until its expiration shall be assignable and
transferable in accordance with and subject to the provisions of the Securities
Act of 1933, as amended (the "Act"), if this Warrant is exercised immediately
upon assignment or transfer. If this Warrant is not exercised immediately upon
assignment or transfer, this Warrant shall lapse.
Section 1.06 Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Corporation at its principal office with the
Form of assignment attached hereto duly executed and funds sufficient to pay
any transfer tax. In such event, the Corporation shall, without charge,
execute and deliver a new Warrant in the name of the assignee named in such
instrument of assignment and this Warrant shall promptly be canceled. This
Warrant may be divided or combined with other Warrants that carry the same
rights upon presentation thereof at the corporate office of the Corporation
together with a written notice signed by the Holder, specifying the names and
denominations in which such new Warrants are to be issued.
Section 1.07 Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive notice
as a stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Corporation. If, however, at any time prior to the
expiration of this Warrant and prior to its exercise, any of the following
shall occur:
a. the Corporation shall declare any dividend payable in
stock to the holders of its Common Stock or make any other distribution in
property other than cash to the holders of its Common Stock; or
<PAGE> 4
b. the Corporation shall offer to the holders of its Common
Stock rights to subscribe for or purchase any shares of any class of stock or
any other purchase any shares of any class of stock or any other rights or
options or securities exchangeable for or convertible into shares of any class
of stock; or
c. the Corporation shall effect any reclassification of its
Common Stock (other than a reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock) or any capital
reorganization, or any consolidation or merger (other than a merger in which no
distribution of securities or other property is made to holders of Common
Stock), or any sale, transfer or other disposition of its property, assets and
business substantially as an entirety, or the liquidation, dissolution or
winding up of the Corporation; or
d. the Corporation shall issue any shares of Common Stock in
exchange for shares of preferred stock or indebtedness of the Corporation,
other than upon conversion of such shares of preferred stock or indebtedness;
then, in each such case, the Corporation shall cause notice of such proposed
action to be mailed to the Holder. Such notice shall specify (i) the date on
which the books of the Corporation shall close, or a record be taken, for
determining holders of Common Stock entitled to receive such stock dividend or
other distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution, winding up or exchange shall take place
or commence, as the case may be, (ii) the date as of which it is expected that
holders of record of Common Stock shall be entitled to receive securities or
other property deliverable upon such action, if any such date has been fixed
(on such date in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the right to exercise this
Warrant shall terminate), and (iii) such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Purchase Price and the kind and amount of the Commons Stock and other
securities and property deliverable upon exercise of this Warrant. Such notice
shall be mailed in the case of any action covered by Subsection 1.07(a) and
1.07(b) above, at least ten (10) days prior to the record date of determining
holders of the Common Stock for purposes of receiving such payment or offer,
and in the case of any action covered by Subsection 1.07(c) or 1.07(d) above,
at least ten (10) days prior to the earlier of the date upon which such action
is to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property.
Without limiting the obligation of the Corporation to provide notice to
the Holder of actions hereunder, it is agreed that failure of the Corporation
to give notice shall not invalidate such action of the Corporation.
Section 1.08 If this Warrant is lost, stolen, mutilated or destroyed,
the Corporation shall, on such reasonable terms as to indemnity or otherwise as
it may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination and tenor as, and
in substitution for, this Warrant, which shall thereupon become void. Any such
new Warrant shall constitute an independent contractual obligation of the
Corporation, whether or not the Warrant so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
<PAGE> 5
Section 1.09 (1) The Corporation covenants and agrees that at all
times it shall reserve and keep available for the exercise of this Warrant such
number of authorized shares of Common Stock and Warrants (and shares of Common
Stock underlying such Warrants) as are sufficient to permit the exercise in
full of this Warrant.
(2) Prior to this issuance of any shares of Common Stock upon
exercise of this Warrant or the Warrants, the Corporation shall secure the
listing of such shares upon any securities exchange upon which the shares of
the Corporation's Common Stock may at the time be listed for trading, if any.
(3) The Corporation covenants that all shares of Common Stock when
issued upon the exercise of this Warrant or the Warrants will be validly
issued, fully paid, nonassessable and free of preemptive rights.
ARTICLE II -- ADJUSTMENT OF PURCHASE PRICE
AND NUMBER OF SHARES OF COMMON STOCK
PURCHASABLE UPON EXERCISE
Section 2.01 Subject to the provisions of this Article II, the Purchase
Price in effect from time to time shall be subject to adjustment as follows:
(a) In the case the Corporation shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of
its Common Stock, (ii) subdivide the outstanding shares of its Common
Stock into a greater number of shares, (iii) combine the outstanding
shares of its Common Stock into a smaller number of shares, (iv) issue
any shares of its Common Stock shares, (iv) issue any shares of its
Common Stock by reclassification of the Common Stock, then in each case
the Purchase Price in effect immediately after the record date for such
dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal
the price determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, of which the numerator shall be
the number of shares of Common Stock outstanding immediately before such
dividend, distribution, subdivision, combination or reclassification,
and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such dividend, distribution,
subdivision, combination or reclassification. Any shares of Common
Stock of the Corporation issuable in payment of a dividend shall be
deemed to have been issued immediately prior to the record date for such
dividend.
(b) All calculations under this Section 2.01 shall be made to the
nearest whole cent.
Section 2.02 No adjustment in the Purchase Price in accordance with the
provisions of Subsection 2.01(a) hereof need be made if such adjustment would
amount to a change of less than 1% in such Purchase Price; provided that the
amount by which any adjustment is not
<PAGE> 6
made by reason of the provisions of this Section 2.02 shall be carried forward
and taken into account at the time of any subsequent adjustment in the Purchase
Price.
Section 2.03 Upon each adjustment of the Purchase Price pursuant to
Subsection 2.01(a) each Warrant shall thereupon evidence the right to purchase
Shares comprised of the same number of Warrants and that number of shares of
Common Stock (calculated to the nearest whole share) obtained by multiplying
the number of shares of Common Stock purchasable immediately prior to such
adjustment and dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment.
Section 2.04 In case of any capital reorganization, other than in the
cases referred to in Section 2.01 hereof, or the consolidation or merger of the
Corporation with or into another corporation (other than a merger or
consolidation in which the Corporation is the merger or consolidation in which
the Corporation is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock or the conversion of
the outstanding shares of Common Stock into shares of other stock or other
securities or property), or the sale of the property of the Corporation as an
entirety or substantially as an entirety, or the conversion, however effected,
of the Corporation into another form of entity (collectively such actions being
hereinafter referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of any Warrant (as to the shares of Common Stock
subject thereto and in lieu of the number of shares of Common Stock theretofore
deliverable) the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock that would otherwise
have been deliverable upon the exercise of such Warrant would have been
entitled upon such Reorganization if such Warrant had been exercised in full
immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the Board of Directors
of the Corporation, shall be made in the application of the provisions herein
set forth with respect to the rights and interests of Warrant holders so that
the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of Warrants. The Corporation shall not effect any such
Reorganization, unless upon or prior to the consummation thereof the successor
entity, or if the Corporation shall be the surviving entity in any such
Reorganization and is not the issuer of the shares of stock or other securities
or property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer shall assume by
written instrument the obligation to deliver to the Holder such shares of
stock, securities, cash or other property as the Holder shall be entitled to
purchase in accordance with the foregoing provisions. In the event of a sale
or conveyance or other transfer of all or substantially all of the assets of
the Corporation as a part of a plan for liquidation of the Corporation, all
rights to exercise any Warrant shall terminate on the date such sale or
conveyance or other transfer is to be consummated.
Section 2.05 The Corporation may select a firm of independent certified
public accountants acceptable to the Holder hereof, which selection may be
changed from time to
<PAGE> 7
time, to verify the computations made in accordance with this Article II. The
certificate, report or other written statement of any such firm shall be
conclusive evidence of the correctness of any computation made under this
Article II.
Section 2.06 Irrespective of any adjustments pursuant to this Article
II, Warrants theretofore or thereafter issued need not be amended or replaced,
but certificates thereafter issued shall bear an appropriate legend or other
notice of any adjustments.
Section 2.07 The Corporation shall not be required upon the exercise of
any Warrant to issue fractional shares of Common Stock that may result from
adjustments in accordance with this Article II to the Purchase Price or number
of shares of Common Stock purchasable under each Warrant. If more than one
Warrant is exercised at one time by the same Holder, the number of full shares
of Common Stock and Warrants that shall be deliverable shall be computed based
on the number of shares of Common Stock and Warrants deliverable in exchange
for the aggregate number of Warrants exercised. With respect to any final
fraction of a share called for upon the exercise of any Warrant or Warrants,
the Corporation shall pay a cash adjustment in respect of such final fraction
in an amount equal to the same fraction of the market value of a share of
Common Stock on the business day next preceding the date of such exercise. The
Holder, by his acceptance of the Warrant, shall expressly waive any right to
receive any fractional share of Common Stock upon exercise of the Warrants.
For the purposes of this Section 2.07, the market price per share of Common
Stock at any date shall mean the last reported sale price regular way or, in
case no such reported sale takes place on such date, the average of the last
reported bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is admitted to trading
or listed if that is the principal market for the Common Stock or if not listed
or admitted to trading on any national securities exchange or if such national
security exchange is not the principal market for the Common Stock, the closing
bid price (or closing sales price, if reported) as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or its
successor, if any. If the price of the Common Stock is not so reported, then
such market price shall mean the last known price paid per share by a purchaser
of such stock in an arms' length transaction. All calculations under this
Section 2.07 shall be made to the nearest 1/100th of a share.
Section 2.08 In no event shall the Purchase Price be adjusted below the
par value per share of the Common Stock.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.01 The sale of this Warrant and the shares of Common Stock
and the Warrants issuable upon exercise of this Warrant have been registered
under the Act on Form SB-2, SEC File No. 333-24145 (the "Registration
Statement").
<PAGE> 8
Upon exercise, in part or in whole, of this Warrant, the
certificates representing in the Warrants shall bear the legend specified
thereby and the certificates representing the shares of Common Stock upon such
exercise and the shares issuable upon exercise of the Warrants shall bear the
following legend:
"The shares represented by this certificate have been registered
under the Securities Act of 1933, as amended, solely for sale to the holder of
a warrant to purchase, which holder may be deemed to be an underwriter of such
shares within the provisions and for purposes only of the Securities Act of
1933, as amended. The issuer of these shares will agree to a transfer hereof
only if (1) an amended or supplemented prospectus setting forth the terms of
the offer has been filed as part of a post-effective amendment to the
Registration Statement under which these shares are registered or as part of a
new registration statement, if then required, and such post-effective amendment
or new registration statement has become effective under the Securities Act of
1933, as amended, or (2) counsel to the issuer is satisfied that no such
post-effective amendment or new registration statement is required."
The Corporation agrees that it shall be satisfied that no
post-effective amendment or new registration statement is required for the
public sale of the shares of Common Stock if it shall be presented with a
letter from the Staff of the Securities and Exchange Commission (the
"Commission") stating in effect that, based upon stated facts that the
Corporation shall have no reason to believe are not true in any material
respect, the Staff of the Commission will not recommend any action to the
Commission if such shares are offered and sold without delivery of a
prospectus, and that, therefore, no post-effective amendment to the
Registration Statement under which the sale of such shares is registered or new
registration statement is required to be filed.
Section 3.02 The Corporation agrees and undertakes that, upon
written request of the then holder(s) of not less than 50% of the total
Warrants that were originally issued to the Underwriter, made at any time
within the period commencing one year after ________________, 19___, and ending
five (5) years after the effective date of the Registration Statement, the
Corporation will file not more than once a registration statement or offering
statement under the Act, registering or qualifying, as the case may be, the
sale of the Common Stock underlying the Warrants and the Warrants (which are
deliverable upon exercise of the Warrants). The Corporation must file a
registration statement or offering statement if the Common Stock underlying the
Warrants and such Warrants cannot be sold under Regulation A because of the
limited exemption. The Corporation agrees to use its best efforts to cause the
above filing to become effective. All expenses of such registration or
qualification, including but not limited to, legal, accounting and printing
fees, will be paid by the Corporation.
In addition to the above, the Corporation understands and agrees
that if at any time during the period referred to above it should file a
registration statement or offering
<PAGE> 9
statement pursuant to the Act for a public offering of securities, the
Corporation, at its own expense, will offer to the Holder the opportunity to
register or qualify the offering and sale of the Shares underlying the Warrants
and the Warrants (which are deliverable upon exercise of the Warrants)
(limited, in the case of a Regulation A offering, to the amount of the
available exemption remaining after all shares of Common Stock to be offered by
the Company have been accommodated). This paragraph is not applicable to a
registration statement filed with the Commission on Form S-4 or S-8, or any
successor Forms, and shall apply only if at least 25% of the underlying shares
of Common Stock of this Warrant and such Warrants are so presented for sale.
Section 3.03 In connection with any registration under Section
3.02 hereof, the Corporation covenants and agrees as follows:
(a) The Corporation shall use its best efforts to have
any post-effective amendment or new registration statement declared effective
at the earliest possible time, and shall furnish such number of prospectuses as
shall reasonably be requested by the Holder selling Shares.
(b) The Corporation shall pay all costs, fees, and
expenses in connection with all post-effective amendments or new registration
statements under Section 3.02 hereof including, without limitation, the
Corporation's legal and accounting fees, printing expenses, blue sky fees and
expenses, except that the Corporation shall not pay any of the following costs,
fees or expenses: (i) underwriting discounts and commissions allocable to the
Shares, (ii) state transfer taxes, (iii) brokerage commissions and (iv) fees
and expenses of counsel and accountants for the holders of the Warrants,
Warrants, and/or shares of Common Stock.
(c) The Corporation will take all necessary action to
qualify or register the securities included in a post-effective amendment or
new registration statement for offering and sale under the securities or blue
sky laws of such states as are requested by the holders of such securities,
provided that the Corporation shall not be obligated to execute or file any
general consent to service of process or to qualify as a foreign corporation to
do business under the law of any such jurisdiction.
(d) The Holder shall be entitled to pay the Purchase
Price for the Securities and the exercise price of the underlying Warrants
purchasable upon the exercise of this Warrant out of the proceeds of any sale
of the securities purchasable upon their exercise, provided such exercise and
sale occur simultaneously.
Section 3.04 (a) The Corporation shall indemnify and hold
harmless each person registering the sale of securities pursuant to this
Article III (the "Seller") and each underwriter, within the meaning of the Act,
who may purchase from or sell for any Seller any of the Shares from and against
any and all losses, claims, damages and liabilities caused by any
<PAGE> 10
untrue statement or alleged untrue statement of a material fact contained in
any post-effective amendment or new registration statement or any supplemented
prospectus under the Act included therein required to be filed or furnished by
reason of Section 3.02, or caused by any omission or alleged omission to state
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished or required to be furnished in writing to the
Corporation by such Seller or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such Seller
or underwriter within the meaning of the Act; provided, however, that the
indemnity agreement by the Corporation set forth in this Section 3.04 with
respect to any prospectus that shall be subsequently amended or supplemented
prior to the written confirmation of the sale of any securities shall not inure
to the benefit of any Seller or underwriter from whom the person asserting such
securities that are the subject thereof (or to the benefit of any person
controlling such Seller or underwriter), if such Seller or underwriter failed
to send or give a copy of the prospectus as amended or supplemented to such
person at or prior to written confirmation of the sale of such securities to
such person and if such amended or supplemented prospectus did not contain any
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such cause, claim, damage or liability.
(b) Each Seller that avails itself of the procedures
under Article III shall indemnify, and secure the agreement of any underwriter
which the Seller employs to indemnify, the Corporation, its directors, each
officer signing the related post-effective amendment or registration statement
and each person, if any, who controls the Corporation within the meaning of the
Act from and against any and all losses, claims, damages and liabilities caused
by any untrue statement or alleged untrue statement of a material fact
contained in any post-effective amendment or registration statement or any
prospectus required to be filed or furnished by reason of Section 3.02, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, insofar as such losses, claims, damages or liabilities are caused
by any untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished in writing to the Corporation by any
such Seller or underwriter expressly for use therein.
Section 3.05 The agreements in this Article III shall continue
in effect regardless of the exercise and surrender of this Warrant.
ARTICLE IV -- OTHER MATTERS
Section 4.01 The Corporation will from time to time promptly
pay, subject to the provisions of paragraph (4) of Section 1.02 hereof, all
taxes and charges that may be imposed upon the Corporation in respect of the
issuance or delivery of this Warrant or the shares of Common Stock and Warrants
purchasable upon the exercise of this Warrant.
<PAGE> 11
Section 4.02 All the covenants and provisions of this Warrant by
or for the benefit of the Corporation shall bind and inure to the benefit of it
successors and assigns hereunder.
Section 4.03 Notices or demands pursuant to this Warrant to be
given or made by the Holder to or on the Corporation shall be sufficiently
given or made if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed, until another address is designated
in writing by the Corporation, as follows:
Karts International Incorporated
109 Northpark Boulevard, Suite 210
Covington, LA 70433
Attention: President
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Corporation if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Corporation.
Section 4.04 The validity, interpretation and performance of this
Warrant shall be governed by the substantive laws of the State of
_____________________.
Section 4.05 Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be construed,
to confer upon, or give to, any person or corporation other than the
Corporation and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements contained in this Warrant shall be for the sole and exclusive
benefit of the Corporation and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.06 The headings herein are for convenience only and are not
part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this, Warrant has been duly executed by the
Corporation under its corporate seal as of the ____ day of __________, 1997.
KARTS INTERNATIONAL INCORPORATED
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
[CORPORATE SEAL]
Attest:
- -----------------------------
Secretary
<PAGE> 12
KARTS INTERNATIONAL INCORPORATED
Subscription Form
(To be executed by the registered holder to exercise the right to purchase
Common Stock and Warrants evidenced by the foregoing warrant)
Karts International Incorporated
109 Northpark Boulevard, Suite 210
Covington, LA 70433
The undersigned hereby irrevocably subscribes for the purchase of _____
shares of your Common Stock and ____ Warrants to purchase ___ shares of your
Common Stock pursuant to and in accordance with the terms and conditions of
this Warrant, and herewith makes payment, covering the purchase of such
Securities. Certificates for the shares of Common Stock and the Warrants
should be delivered to the undersigned at the address stated below. If such
number of Securities shall not be all of the Securities purchasable hereunder,
please deliver a new Warrant of like tenor for the balance of the remaining
Securities purchasable hereunder to the undersigned at the address stated
below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any such shares of Common Stock being
purchased hereunder or the shares of Common Stock underlying the Warrants
being purchased hereunder unless either (a) a registration statement, or
post-effective amendment thereto, covering the sale of such shares of Common
Stock has been filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended (the "Act"), and such sale, transfer or
other disposition is accompanied by a prospectus meeting the requirements of
Section 10 of the Act forming a part of such registration statement, or
post-effective amendment thereto, which is in effect under the Act covering the
sale of the shares of Common Stock to be sold, transferred or otherwise
disposed of, or (b) counsel acceptable to Karts International Incorporated and
satisfactory to the undersigned has rendered an opinion acceptable to the
Company in writing and addressed to the Company that such proposed offer, sale,
transfer or other disposition of the shares of Common Stock is exempt from the
provisions of Section 5 of the Act in view of the circumstances of such
proposed offer, sale, transfer or other disposition; (2) the Company may notify
the transfer agent for its Common Stock that the certificates for the Common
Stock acquired by the undersigned pursuant hereto are not to be transferred
unless the transfer agent receives advance from the Company that one or both of
the conditions referred to in (1)(a) and (1)(b) above have been satisfied; and
(3) the Company may affix the legend set forth in Section 3.01 of this Warrant
to the certificates for shares of Common Stock hereby subscribed for and
purchasable upon exercise of the Warrants, if such legend is applicable.
Dated: Signed:
---------------------- --------------------------
Signature guaranteed: Address
-------------------------
-------------------------
-------------------------
<PAGE> 13
KARTS INTERNATIONAL INCORPORATED
Assignment Form
(To be executed by the registered holder to effect assignment of the foregoing
warrant)
FOR VALUE RECEIVED _________________________________ hereby sells, assigns and
transfers unto _________________________________ the right to purchase _____
shares of Common Stock, par value $.001 per share and ____ Warrants, to
purchase _____ shares of such Common Stock of the Corporation purchasable
pursuant to the within Warrant, on the terms and conditions set forth therein,
and does hereby irrevocably constitute and appoint____________________ and/or
its transfer agent Attorney, to transfer on the books of the Corporation
Warrants representing such rights, with full power of substitution.
Dated:
-------------------------
Signed:
----------------------
Signature guaranteed:
- ------------------------------
<PAGE> 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 and 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 reasonably
requested by the President of the Company and within the scope of this
Agreement.
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.
<PAGE> 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
-2-
<PAGE> 3
relate, and the Company agrees that no person or entity other than the Company
shall 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-
<PAGE> 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-
<PAGE> 1
EXHIBIT 1.4
May ___, 1997
Argent Securities, Inc.
3340 Peachtree Road, Suite 450
Atlanta, Georgia 30326
RE: KARTS INTERNATIONAL INCORPORATED
Gentlemen:
The undersigned understands that Karts International Incorporated (the
"Company") has filed a Registration Statement on Form SB-2 (the "Registration
Statement") with the Securities and Exchange Commission in connection with a
proposed public offering (the "Offering") underwritten by Argent Securities,
Inc. (the "Underwriter") of 1,400,000 shares of common stock, par value $.001
per share (the "Common Stock") and 1,400,000 warrants (the "Warrants") to
purchase shares of Common Stock. In addition, the Underwriter has been granted
an option to purchase from the Company up to an additional aggregate of 140,000
shares of Common Stock and 140,000 Warrants for the sole purpose of covering
over-allotments, if any.
In connection with the Offering, the undersigned agrees that, except
as hereinafter provided, such undersigned will not, without the Underwriter's
prior written consent, sell, contract to sell or otherwise dispose of any
shares of Common Stock issued upon conversion of the Preferred Shares, 1996
Warrants, common stock issued upon exercise of the 1996 Warrants, options,
convertible securities, or other equity securities of the Company (including
any other securities of the Company issuable upon exercise or conversion of any
warrants, options or convertible securities), now owned or hereinafter
acquired, whether directly or indirectly or beneficially (as defined in Section
13 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder) by such undersigned (all such securities
referred to collectively herein as the "Securities") for a period of eighteen
months from the effective date ("Effective Date") of the Registration
Statement.
Notwithstanding the foregoing, the undersigned reserves the right to
sell or otherwise dispose of the Securities owned by such undersigned in a
privately negotiated transaction, provided that (i) the purchaser agrees in
advance in writing with the Underwriters to the restrictions on transfer of the
Securities set forth herein and (ii) the disposition is otherwise in accordance
with the federal securities and other laws.
<PAGE> 2
Argent Securities, Inc.
May ___, 1997
Page 2
Further, during the four year period following the Effective Date of
the Registration Statement, the undersigned grants to the Underwriters the
right of first refusal to sell any and all securities owned by the undersigned
which the undersigned may desire to sell, provided that the price and terms of
execution offered by the Underwriters are at least favorable as may be obtained
by the undersigned from other brokerage firms.
The undersigned will permit an appropriate restrictive legend to be
applied to all certificates evidencing the Securities and will cause the
transfer agent for the Company to note such restriction on the transfer books
and records of the Company.
This agreement shall be binding upon any pledgee or any transferee of
the undersigned and shall be binding on the heirs, legal representatives,
transferees and assigns of the undersigned. Any attempted sale, transfer or
other disposition in violation of the agreement shall be null and void. The
undersigned acknowledges that this agreement was a material inducement to the
Underwriters to act as the Company's underwriters and agrees that the
Underwriter's remedies at law may be inadequate in the event of a violation of
this agreement and, in such event, agrees to pay the Underwriter's costs and
expenses, including attorney's fees, of enforcing this agreement, which may
include costs of an action seeking to enjoin such violation.
The undersigned hereby represents and warrants that, as of the
Effective Date, the undersigned owns (or will own) the amount and type of
securities set forth below:
-----------------------------------------
-----------------------------------------
-----------------------------------------
----------------------------
Signature
----------------------------
Print Name
----------------------------
Print Address
<PAGE> 1
EXHIBIT 1.5
LOCK-UP LETTER AGREEMENT
May __, 1997
ARGENT SECURITIES, INC.
3340 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Gentlemen:
I am the owner of ________ shares of Common Stock par value of $.01 per
share (the "Common Stock") of Karts International Incorporation, a Nevada
corporation (the "Company").
The Company intends to conduct an initial public offering of its Common
Stock ("IPO") which shall be underwritten by, among others, Argent Securities,
Inc. ("Argent") as expressed in a letter of intent between the Company and
Argent (the "Letter of Intent") dated January 29, 1997. The undersigned
recognizes the benefits which the Company will derive from the IPO. For and in
consideration of Argent entering into the Letter of Intent and its willingness
to conduct the IPO contemplated thereby on mutually acceptable terms, I hereby
agree to the following lock-up arrangement restricting the sale of its Company
Common Stock.
A. THE LOCK-UP
1. During the period commencing on the date hereof and ending on the
date which is 60 months from the closing of the IPO (such period herein
referred to as the "Lock-Up Period"), I will not sell, pledge, hypothecate,
grant an option for sale or otherwise dispose of, or transfer or grant any
rights with respect thereto in any manner (either privately or publicly
pursuant to Rule 144 of the General Rules and Regulations under the Securities
Act of 1933, as amended, or otherwise) any of the shares of Common Stock
(directly or indirectly owned or controlled by me on the date hereof) (the
"Securities"), without Argent's prior written consent; provided, however, that
Securities may be sold or otherwise transferred in a private transaction during
the Lock-Up Period so long as the acquiror of the Securities, by written
agreement with Argent entered into at the time of acquisition and delivered to
Argent prior to the consummation of such acquisition, agrees to be bound by the
terms of this Paragraph A.1. for the balance of the Lock-Up Period, and by the
terms of Paragraph A.2. below; and, provided further, that the Securities, or
any portion thereof, may be transferred (I) by any such transferee to a trust
for the benefit of, or as gifts to, either individually or collectively in any
number, such transferee, or his or her spouse and children, (a "Permitted
Transferee") and in such event the trustee of such trust or donor shall execute
this Lock-Up Letter Agreement and agree to be bound thereby; or (ii) by court
order or pursuant to the laws of descent and distribution.
2. In the event I desire to sell any of the Securities at any time
during the term of the Lock-Up Period or within 12 months after termination of
the Lock-Up Period as described below, publicly under Rule 144 or otherwise, I
will sell such securities through Argent, so long as the price and terms of
execution offered by Argent are at least as favorable as may be obtained from
other brokerage firms.
<PAGE> 2
3. Notwithstanding the provision of Paragraph 4 below, on
__________, 1999, 2000, and 2001, _______ Shares shall be released from the
restrictions set forth in Paragraph A(i) and may be sold in accordance with the
provisions of Paragraph A(2) above, provided, however, that the price of the
Shares must be equal to or in excess of the price of the Shares sold in the
IPO, except for any sale made before the second anniversary of the Closing Date
where the price of the Shares must be equal to or in excess of $_____ per
Share.
4. The Securities shall be released from the restrictions set forth
in paragraph A(1) in the increments indicated below upon the Company's
achievement of three targets for applicable years as set forth in the following
table and the footnotes thereunder (the "Chart").
<TABLE>
<CAPTION>
==========================================================================================
EARNINGS PER SHARE OF EARNINGS PER SHARE OF
FYE SHARES (a) SHARES (b) STOCK
1/31 ---------------------------------------------------- PRICE
Current Cumulative Current Cumulative OF ANNUAL
------- ---------- ------- ---------- SHARES(c) REVENUE
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
1997 0 0 $ $ $ --
- ------------------------------------------------------------------------------------------
1998 0 0 $ $ $ $
- ------------------------------------------------------------------------------------------
1999 $ $ $ $
- ------------------------------------------------------------------------------------------
2000 $ $ $ $
- ------------------------------------------------------------------------------------------
2001 $ $ $ $
- ------------------------------------------------------------------------------------------
2002 $ $ $ $
==========================================================================================
</TABLE>
(a) For the year in which the Company attains (i) the earnings per share
(EPS) on a cumulative basis, (ii) the target stock price for Shares or
(iii) Annual Revenue on a cumulative basis after ______, any Shares not
previously released shall be released in addition to the Shares released
for the applicable year. In addition, for any fiscal year in which the
Company attains earnings per share, target stock price or cumulated
Annual Revenue targets applicable to a subsequent fiscal year, any
shares eligible for release in such subsequent fiscal year shall also be
released. Regardless of whether the EPS target, Target Stock Price or
Annual Revenue is achieved, all of the shares shall be released on
_________.
(b) Earnings per share is defined as net income per share of the Company as
reported in its audited financial statements for the applicable fiscal
year.
(c) The stock price of shares shall be defined as the average of the closing
bid sales price of the Common Stock of the last 20 trading days prior to
the end of the fiscal year.
-2-
<PAGE> 3
5. Notwithstanding anything herein to the contrary, all of the
Securities shall be released from the restrictions set forth in paragraph A(1),
to the extent not previously released, on ________________.
B. PROVISIONS APPLICABLE TO SHARES
The Company and the undersigned hereby acknowledge and represent that:
(a) A copy of this Lock-up Agreement will be available from
the Company or its transfer agent upon request and without charge and a copy of
this Lock-Up Agreement may be filed with the Securities Commissions of various
states, including, without limitation, any state securities commission
requiring its availability.
(b) A typed legend will be placed on the reverse side of each
stock certificate representing the Common Stock covered by the Lock-up
Agreement which states that the sale or transfer of the shares evidenced by the
certificate is subject to certain restrictions pursuant to an agreement between
the shareholder (whether beneficial or of record) and Argent, which agreement
is on file with the Company and the Company's stock transfer agent from whom a
copy is available, upon request and without charge.
(c) The terms and conditions of this Lock-up Agreement can
only be modified (including premature termination thereof), upon the written
consent of Argent and the prior approval of any state securities commission
which requires such consent.
(d) Stop transfer instructions will be placed with the
transfer agent against all shares of the Company's Common Stock subject to the
restrictions contained in paragraph A(1) of this Lock-up Agreement.
Notwithstanding the foregoing, shares subject to this Lock-Up Agreement may be
transferred by the transfer agent when shares are accompanied by an opinion of
company counsel certifying that such transfer is a permitted transfer.
(e) This Lock-Up Letter Agreement shall terminate and be of no
force and effect if it, or any of Argent's rights and obligations hereunder,
are assigned to any third party by Argent.
(f) 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.
If this agreement is acceptable to Argent, please sign the form of
acceptance below and deliver one of the counterparts hereof to me. This will
become a binding agreement between us upon execution by each of the parties
hereto.
-3-
<PAGE> 4
Very truly yours,
-------------------------------------
V. Lynn Graybill
-------------------------------------
(Number of Shares Beneficially Owned)
AGREED to and ACCEPTED
this ____ day of May, 1997.
ARGENT SECURITIES, INC.
By
-----------------------------
Authorized Signature
-4-
<PAGE> 1
EXHIBIT 1.6
LOCK-UP LETTER AGREEMENT
May __, 1997
ARGENT SECURITIES, INC.
3340 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Gentlemen:
I am the owner of ________ shares of Common Stock par value of $.01
per share (the "Common Stock") of Karts International Incorporation, a Nevada
corporation (the "Company").
The Company intends to conduct an initial public offering of its
Common Stock ("IPO") which shall be underwritten by, among others, Argent
Securities, Inc. ("Argent") as expressed in a letter of intent between the
Company and Argent (the "Letter of Intent") dated January 29, 1997. The
undersigned recognizes the benefits which the Company will derive from the IPO.
For and in consideration of Argent entering into the Letter of Intent and its
willingness to conduct the IPO contemplated thereby on mutually acceptable
terms, I hereby agree to the following lock-up arrangement restricting the sale
of its Company Common Stock.
A. THE LOCK-UP
1. During the period commencing on the date hereof and ending on the
date which is 60 months from the closing of the IPO (such period herein
referred to as the "Lock-Up Period"), I will not sell, pledge, hypothecate,
grant an option for sale or otherwise dispose of, or transfer or grant any
rights with respect thereto in any manner (either privately or publicly
pursuant to Rule 144 of the General Rules and Regulations under the Securities
Act of 1933, as amended, or otherwise) any of the shares of Common Stock
(directly or indirectly owned or controlled by me on the date hereof) (the
"Securities"), without Argent's prior written consent; provided, however, that
Securities may be sold or otherwise transferred in a private transaction during
the Lock-Up Period so long as the acquiror of the Securities, by written
agreement with Argent entered into at the time of acquisition and delivered to
Argent prior to the consummation of such acquisition, agrees to be bound by the
terms of this Paragraph A.1. for the balance of the Lock-Up Period, and by the
terms of Paragraph A.2. below; and, provided further, that the Securities, or
any portion thereof, may be transferred (I) by any such transferee to a trust
for the benefit of, or as gifts to, either individually or collectively in any
number, such transferee, or his or her spouse and children, (a "Permitted
Transferee") and in such event the trustee of such trust or donor shall execute
this Lock-Up Letter Agreement and agree to be bound thereby; or (ii) by court
order or pursuant to the laws of descent and distribution.
2. In the event I desire to sell any of the Securities at any time
during the term of the Lock-Up Period or within 12 months after termination of
the Lock-Up Period as described below, publicly under Rule 144 or otherwise, I
will sell such securities through Argent, so long as the price and terms of
execution offered by Argent are at least as favorable as may be obtained from
other brokerage firms.
<PAGE> 2
3. Notwithstanding the provision of Paragraph 4 below, on __________,
1999, 2000, and 2001, _______ Shares shall be released from the restrictions
set forth in Paragraph A(i) and may be sold in accordance with the provisions
of Paragraph A(2) above, provided, however, that the price of the Shares must
be equal to or in excess of the price of the Shares sold in the IPO, except for
any sale made before the second anniversary of the Closing Date where the price
of the Shares must be equal to or in excess of $_____ per Share.
4. The Securities shall be released from the restrictions set forth in
paragraph A(1) in the increments indicated below upon the Company's achievement
of three targets for applicable years as set forth in the following table and
the footnotes thereunder (the "Chart").
<TABLE>
<CAPTION>
===================================================================================================
RELEASE PERCENTAGE OF EARNINGS PER SHARE OF
SHARES (a) SHARES (b) STOCK
FYE ----------------------- ---------------------- PRICE OF ANNUAL
1/31 Current Cumulative Current Cumulative SHARES(c) REVENUE
---- ------- ------------ ------- ---------- ---------- -------
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1997 0 0 $ $ $ --
1998 0 0 $ $ $ $
1999 $ $ $ $
2000 $ $ $ $
2001 $ $ $ $
2002 $ $ $ $
===================================================================================================
</TABLE>
(a) For the year in which the Company attains (i) the earnings per share
(EPS) on a cumulative basis, (ii) the target stock price for Shares
or (iii) Annual Revenue on a cumulative basis after ______, any
Shares not previously released shall be released in addition to the
Shares released for the applicable year. In addition, for any fiscal
year in which the Company attains earnings per share, target stock
price or cumulated Annual Revenue targets applicable to a subsequent
fiscal year, any shares eligible for release in such subsequent
fiscal year shall also be released. Regardless of whether the EPS
target, Target Stock Price or Annual Revenue is achieved, all of the
shares shall be released on _________.
(b) Earnings per share is defined as net income per share of the Company
as reported in its audited financial statements for the applicable
fiscal year.
(c) The stock price of shares shall be defined as the average of the
closing bid sales price of the Common Stock of the last 20 trading
days prior to the end of the fiscal year.
- 2 -
<PAGE> 3
5. Notwithstanding anything herein to the contrary, all of the
Securities shall be released from the restrictions set forth in paragraph A(1),
to the extent not previously released, on ________________.
B. PROVISIONS APPLICABLE TO SHARES
The Company and the undersigned hereby acknowledge and represent that:
(a) A copy of this Lock-up Agreement will be available from
the Company or its transfer agent upon request and without charge and a copy of
this Lock-Up Agreement may be filed with the Securities Commissions of various
states, including, without limitation, any state securities commission
requiring its availability.
(b) A typed legend will be placed on the reverse side of each
stock certificate representing the Common Stock covered by the Lock-up
Agreement which states that the sale or transfer of the shares evidenced by the
certificate is subject to certain restrictions pursuant to an agreement between
the shareholder (whether beneficial or of record) and Argent, which agreement
is on file with the Company and the Company's stock transfer agent from whom a
copy is available, upon request and without charge.
(c) The terms and conditions of this Lock-up Agreement can
only be modified (including premature termination thereof), upon the written
consent of Argent and the prior approval of any state securities commission
which requires such consent.
(d) Stop transfer instructions will be placed with the
transfer agent against all shares of the Company's Common Stock subject to the
restrictions contained in paragraph A(1) of this Lock-up Agreement.
Notwithstanding the foregoing, shares subject to this Lock-Up Agreement may be
transferred by the transfer agent when shares are accompanied by an opinion of
company counsel certifying that such transfer is a permitted transfer.
(e) This Lock-Up Letter Agreement shall terminate and be of
no force and effect if it, or any of Argent's rights and obligations hereunder,
are assigned to any third party by Argent.
- 3 -
<PAGE> 4
If this agreement is acceptable to Argent, please sign the form of
acceptance below and deliver one of the counterparts hereof to me. This will
become a binding agreement between us upon execution by each of the parties
hereto.
Very truly yours,
----------------------------------------
----------------------------------------
(Number of Shares Beneficially Owned)
AGREED to and ACCEPTED
this ____ day of May, 1997.
ARGENT SECURITIES, INC.
By
-----------------------------
Authorized Signature
- 4 -
<PAGE> 1
EXHIBIT 1.7
_______ Shares of Common Stock
and
______ Redeemable Common Stock Purchase Warrants
KARTS INTERNATIONAL INCORPORATED
SELECTED DEALER AGREEMENT
May ___, 1997
Gentlemen:
We have agreed as the underwriter (the "UNDERWRITER") named in the
enclosed prospectus (the "PROSPECTUS"), subject to the terms and conditions of
an Underwriting Agreement dated May __, 1997 (the "UNDERWRITING AGREEMENT"), to
purchase from Karts International Incorporated., a Nevada corporation (the
"Company") ____ shares of Common Stock, par value $.001 per share (the "PUBLIC
SHARES") and ____ Redeemable Common Stock Purchase Warrants (the "PUBLIC
WARRANTS"). We may also purchase as many as ________ additional shares of
Common Stock and ____ Redeemable Common Stock Purchase Warrants (the "OPTION
SECURITIES") from the Company pursuant to Section 2 (1)) of the Underwriting
Agreement. The Securities are more particularly described in the Prospectus,
additional copies of which will be supplied in reasonable quantities upon
request.
We are offering a portion of the Public Shares and Warrants for sale to
selected dealers (the "SELECTED DEALERS"), among whom we are pleased to include
you, at the public offering price, less a concession in the amount set forth in
the Prospectus under "UNDERWRITING." This offering is made subject to delivery
of the Public Shares and Warrants and their acceptance by the Underwriter, to
the approval of all legal matters by our counsel, and to the terms and
conditions herein set forth, and may be made on the basis of the reservation of
the Public Shares and Warrants or an allotment against subscription.
We will advise you by telegram of the method and terms of the offering.
Acceptances should be sent to Argent Securities, Inc., 3340 Peachtree Road,
N.E., Suite 450, Atlanta, Georgia 30326, Attention: L. Phillips Reames.
Subscription books may be closed by us at any time without notice, and we
reserve the right to reject any subscription in whole or in part, but
notification of allotments against and rejections of subscriptions will be made
as promptly as practicable.
<PAGE> 2
Any of the Public Shares and Warrants purchased by you hereunder are to
be promptly offered by you to the public at the public offering price, as set
forth in the Prospectus, except as herein otherwise provided and except that a
reallowance from any such public offering price not in excess of the amount set
forth in the Prospectus under "UNDERWRITING" may be allowed to dealers who are
members in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"), or foreign dealers or institutions not eligible for
membership in said association who agree to abide by the conditions with
respect to foreign dealers and institutions set forth in your confirmation
below. We may buy Public Shares and Warrants from, or sell Public Shares and
Warrants to, any Selected Dealer, and any Selected Dealer may buy Public Shares
and Warrants from, or sell Public Shares and Warrants to, any other Selected
Dealer at the public offering price less all or any part of the concession set
forth in the Prospectus; after the Public Shares and Warrants are released for
sale to the public, we are authorized to vary the offering price of the Public
Shares and Warrants and other selling terms.
If, prior to the termination of this Agreement, we purchase or contract
to purchase any Public Shares and Warrants which were purchased by you from us
or any Selected Dealer at a concession from the public offering price (or any
Public Shares and Warrants which we believe have been substituted therefor) you
hereby agree that we may: (i) require you to pay us on demand an amount equal
to the concession on such Public Shares and Warrants; (ii) sell for your
account the Public Shares and Warrants so purchased and debit or credit your
account with the loss or profit resulting from such sale; or (iii) require you
to purchase such Public Shares and Warrants at a price equal to the total cost
of such purchase including commissions and transfer taxes (if any) on
redelivery.
Public Shares and Warrants accepted or allotted hereunder shall be paid
for in full at the public offering price, at the office of Argent Securities,
Inc., 3340 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326 (or such
other place as you may be instructed) prior to 8:30 a.m., New York City time,
on such day after the public offering date as we may advise three (3) days
after the effective date, by certified or official bank check payable in New
York Clearing House funds to the order of Argent Securities, Inc. against
delivery of certificates. If Public Shares and Warrants are purchased and paid
for by you hereunder at the public offering price, the concession will be paid
to you after the termination of this Agreement.
We have been advised by the Company that a registration statement
(Registration No. 333-24145) (the "REGISTRATION STATEMENT") for the Public
Shares and Warrants, filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the benefit of the Company) you will
comply with the applicable requirements of the Act and of the Securities
Exchange Act of 1934, as amended, and the terms and conditions set forth in the
Prospectus. No person is authorized by the Company or the Underwriter to give
or rely on any information or to make any representations not contained in the
Prospectus in connection with the sale of Public Shares and Warrants. You are
not authorized to act as agent for the Company or the Underwriter in offering
the Public Shares and Warrants to the public or otherwise. Nothing contained
herein shall constitute or be construed to make the Selected Dealers partners
with the Underwriter or with one another.
-2-
<PAGE> 3
We shall not be under any liability (except for our own want of good
faith) for or in respect of the validity or value of, or title to, any Public
Shares and Warrants; the form or completeness of, or the statements contained
in, or the validity of, the Registration Statement, any preliminary prospectus,
the Prospectus, or any amendment or supplement thereto or any other letters or
instruments executed by or on behalf of the Company or others; the form or
validity of the agreement for the purchase of the Public Shares and Warrants or
this Agreement; the delivery of the Public Shares and Warrants; the performance
by the Company or others of any agreement on its or their part; or any matter
in connection with any of the foregoing; provided, however, that nothing in
this paragraph shall be deemed to relieve the Underwriter from any liability
under the Act.
You, by your confirmation below, represent that: (i) you are a member in
good standing of the NASD or are a foreign bank or dealer not eligible for
membership in the NASD which agrees to make no offers or sales of Public Shares
and Warrants within the United States, its territories or its possessions, or
to persons who are citizens thereof or residents therein, (ii) neither you nor
any of your directors, officers, partners or "PERSONS ASSOCIATED WITH" you (as
defined in the By-Laws of the NASD) nor, to your knowledge, any "RELATED
PERSON" (as defined by the NASD in its Interpretation of Article III, Section I
of its Rules of Fair Practice, as amended) or any other broker-dealer, have
participated or intend to participate in any transaction or dealing as to which
documents or information are required to be filed with the NASD pursuant to
such Interpretation, and as to which such documents or information have not
been so filed as required.
You agree not to, at any time prior to the termination of this
Agreement, bid for, purchase, sell or attempt to induce others to purchase or
sell, directly or indirectly, any Public Shares and Warrants other than (a) as
provided for in this Agreement or the Underwriting Agreement relating to the
Public Shares and Warrants, or (1) purchases or sales as broker on unsolicited
orders for the account of others. In making the sales of Public Shares and
Warrants, if you are a member of the NASD, you will comply with all applicable
rules of the NASD, including, without limitation, the NASD's Interpretation of
Article II, Section I of its Rules of Fair Practice with respect to Free-Riding
and Withholding and Section 24 of Article III of the NASD's Rules of Fair
Practice, or if you are a foreign bank or dealer, you agree to comply with such
Interpretation of Sections 8, 24 and 36 of such Article as though you were such
a member and Section 25 of such Article as it applies to a nonmember broker or
dealer in a foreign country. Further, pursuant to Securities Act Release No.
4968, you will distribute a Preliminary Prospectus to all persons reasonably
expected to be purchasers of shares from you at least 48 hours prior to the
time you expect to mail confirmation.
Upon written application to us, we will inform you as to the advice we
have received from counsel concerning the jurisdictions in which the Public
Shares and Warrants have been qualified for sale or are exempt under the
respective securities or blue sky laws of such jurisdictions, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell the Public Shares and Warrants in any jurisdiction.
-3-
<PAGE> 4
As Underwriter, we shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. We shall not be under any obligation to you except for
obligations expressly assumed by us in this Agreement.
You agree, upon our request, at any time or times prior to the
termination of this Agreement, to report to us the number of Public Shares and
Warrants purchased by you pursuant to the provisions hereof which then remain
unsold.
Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate at the close
of business on the 30th business day after the public offering of the Public
Shares and Warrants, but, in our discretion, may be extended by us for a
further period or periods not exceeding 30 business days in the aggregate and
in our discretion, whether or not extended, may be terminated at any earlier
time. Notwithstanding the termination of this Agreement, you shall remain
liable for your proportionate amount of any claim, demand or liability which
may be asserted against you alone, or against you together with other dealers
purchasing Public Shares and Warrants upon the terms hereof, or against us,
based upon the claim that the Selected Dealers, or any of them, constitute an
association, an unincorporated business or other entity.
This Agreement shall be construed in accordance with the laws of the
State of Georgia without giving effect to conflict of laws principles.
In the event that you agree to purchase Public Shares and Warrants in
accordance with the terms hereof, and of the aforementioned telegram, kindly
confirm such agreement by competing and signing the form provided for that
purpose on the enclosed duplicate hereof and returning it to us promptly.
All communications from you should be addressed to Argent Securities,
Inc., 3340 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326, Attention:
L. Phillips Reames. Any notice from us to you shall be deemed to have been
duly given if mailed or telegraphed to you at this address to which this letter
is mailed.
Very truly yours,
ARGENT SECURITIES, INC.
By:
--------------------------------------
Name:
----------------------------
Title:
----------------------------
-4-
<PAGE> 5
May ___, 1997
Argent Securities, Inc.
3340 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Attention: L. Phillips Reames
Gentlemen:
We hereby confirm our agreement to purchase ____ shares of Public Shares
and _____ Warrants (as such term is defined in the Selected Dealer Agreement),
of Karts International Incorporated, subject to the terms and conditions of the
foregoing Agreement and your telegram to us referred to herein. We hereby
acknowledge receipt of the definitive Prospectus relating to the Public Shares
and Warrants, and we confirm that in purchasing Public Shares and Warrants we
have relied upon no statements whatsoever, written or oral, other than the
statements in such Prospectus. We have made a record of our distribution of
preliminary prospectuses and, when furnished with copies of any revised
preliminary prospectus, we have, upon your request, promptly forwarded copies
thereof to each person to whom we had theretofore distributed preliminary
prospectuses. We confirm that we have complied and will comply with all of the
requirements of Rule 15c2-8 of the Securities Exchange Act of 1934.
We hereby represent that we are a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or, if we are not
such a member, we are a foreign dealer or institution not eligible for
membership in said Association which agrees to make no sales within the United
States, its territories or its possessions or to persons who are citizens
thereof or residents therein. If we are a member of the NASD, we agree to
comply with all applicable rules of the NASD, including, without limitation,
the provisions of Section 24 of Article III of the Rules of Fair Practice of
the NASD, or, if we are such a foreign dealer or institution, we agree to
comply with all applicable rules of the NASD, including, without limitation,
the NASD's Interpretation with Respect to Free-Riding and Withholding and
Sections 8, 24 and 36 of such article as if we were such a member, and Section
25 of such Article as it applies to a non-member broker or dealer in a foreign
country.
<PAGE> 6
Pursuant to your telegram, we hereby subscribe for an allotment of ____
shares of Common Stock and ____ Redeemable Common Stock Purchase Warrants, and
acknowledge a concession of $._____ from the $______ public offering price of
the Public Shares and Warrants.
- ----------------------------------- -----------------------------------
Corporate or Firm Name of (Signature of Authorized.
Selected Dealer Official or Partner)
- ----------------------------------- -----------------------------------
Address Date Accepted
- ----------------------------------- -----------------------------------
Telephone Tax I.D.#
-2-
<PAGE> 1
EXHIBIT 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ____________, 1997 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 $.001 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 140,000 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;
<PAGE> 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
-2-
<PAGE> 3
dividends or in distribution of assets upon the voluntary or involuntary
liquidation, dissolution, or winding up the Company.
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.
-3-
<PAGE> 4
(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 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, NE, 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 $.001 per Warrant upon not less
-4-
<PAGE> 5
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 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
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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 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
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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 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.
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<PAGE> 8
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 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 corporation 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,
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<PAGE> 9
merger, sale, transfer, or lease, be exercisable, 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 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.
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<PAGE> 10
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.
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. 333-24145) 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
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<PAGE> 11
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 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.
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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 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
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<PAGE> 13
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.
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
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<PAGE> 14
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 contained in this Agreement or in the
Warrant Certificates, except its countersignature thereof, or be 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.
(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.
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<PAGE> 15
(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 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:
-15-
<PAGE> 16
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 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.
-16-
<PAGE> 17
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:
-----------------------
-17-
<PAGE> 1
EXHIBIT 4.3
REDEEMABLE COMMON STOCK PURCHASE WARRANT
KARTS INTERNATIONAL INCORPORATED
VOID (UNLESS EXTENDED) AFTER 5:00 P.M., NEW YORK CITY TIME, ON __________, 2002
WARRANT WARRANT
NUMBER SHARES
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP ____________________
THIS CERTIFIES THAT, for value received, ______________________________________
or registered assigns (the "Warrant Holder"), is entitled to purchase from
KARTS INTERNATIONAL INCORPORATED, a Nevada corporation (the "Company"), subject
to the terms and conditions hereof and of the Warrant Agreement mentioned
below, at any time from ____________________, 1998 until on or before 5:00
p.m., New York City Time, on ____________________, 2002 or on such later date
as the Company may determine (the "Expiration Date"), the number of fully paid
and nonassessable shares of the Company's Common Stock, $.001 par value (the
"Shares") stated above by surrendering this Warrant Certificate with the
Subscription Form on the back thereof duly executed at the office or at such
other office or agency as the Company may from time to time designate (the
"Warrant Agent"), and by paying in full, to the Company in lawful money of the
United States, $__________ for each Share as to which this Warrant Certificate
is exercisable (the "Warrant Exercise Price").
This Warrant may be redeemed at the option of the Company at any time
after 5:00 p.m. New York City time, on ____________________, 1998, at such time
as the market price of the Company's Common Stock, $.001 par value, if the
average closing bid price for the Common Stock equals or exceeds $__________
per share for a period of twenty (20) consecutive trading days ending on the
third day prior to the date of redemption at a redemption price of $.01 per
Warrant. The Company shall send to the Warrant Holders being redeemed written
notice of redemption by first class mail not less than thirty (30) days prior
to the date fixed for redemption.
In case the Warrant Holders shall exercise this Warrant with respect
to less than all of the Shares that may be purchased hereunder, a new Warrant
Certificate for the balance shall be countersigned and delivered to or upon the
order of the Warrant Holder.
This Warrant Certificate will not be valid and may not be transferred
or exercised unless countersigned by the Warrant Agent.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement dated as of ____________________, 1997 between the Company
and the Warrant Agent (the "Warrant Agreement") and is subject to the terms and
provisions contained therein, to all of which terms and provisions the holder
of this Warrant Certificate consents by acceptance hereof. In certain
contingencies provided for in the Warrant Agreement, the number of Shares
subject to purchase hereunder and the purchase price per Share thereof are
subject to adjustment. Copies of the Warrant Agreement are on file at the
principal corporate office of the Warrant Agent.
THIS WARRANT SHALL BE VOID AND OF NO EFFECT (UNLESS EXTENDED) AFTER
5:00 P.M. NEW YORK CITY TIME, ____________________, 2002.
WITNESS, the facsimile seal of the Company and the facsimile
signatures of its duly authorized officers.
Dated:
Timothy P. Halter
Secretary
-1-
<PAGE> 2
V. Lynn Graybill
President
Karts International Incorporated
Corporate Seal
1997
Nevada
[SEAL]
Countersigned and Registered:
Securities Transfer Corporation
(Dallas, Texas)
By Transfer Agent and Registrar
Authorized Signature
-2-
<PAGE> 3
STATEMENT OF OTHER TERMS OF WARRANT
1. The Warrant represented by this Warrant Certificate (the
"Warrant") shall expire at and shall not be exercisable after, 5:00 P.M., New
York City time, on ____________________, 2002 or on such later date determined
by the Company.
2. Notwithstanding that the number of Shares purchasable upon the
exercise of a Warrant may have been adjusted pursuant to the terms of the
Warrant Agreement, the Company shall nonetheless not be required to issue
fractions of Shares upon exercise of a Warrant or to distribute Share
Certificates that evidence fractional shares. In lieu of fractional shares,
there shall be returned to the exercising registered holder of a Warrant upon
such exercise an amount in cash, in United States dollars, equal to the amount
in excess of that required to purchase the largest number of full Shares.
3. If any Shares issuable upon the exercise of this Warrant
require registration or approval of any governmental authority, including,
without limitation, the filing of necessary registration statements or
amendments or supplements thereto under the Securities Act of 1933, as amended,
or the taking of any action under the laws of the United States of America or
any political subdivision thereof before such Shares may be validly issued,
then the Company covenants that it will in good faith and as expeditiously as
possible endeavor to secure such registration or approval or to take such other
action, as the case may be: PROVIDED, HOWEVER, there is no assurance such
registration or approval can be obtained, and in no event shall such Shares be
issued and the Company is hereby authorized to suspend the exercise of all
Warrants, for the period during which it is endeavoring to obtain such
registration or approval or to take such other action.
4. This Warrant Certificate may be exchanged and is transferable
at the principal office of the Warrant Agent by the registered holder hereof or
by his duly authorized representative or attorney, upon surrender of this
Warrant Certificate duly endorsed or accompanied (if so required by the Company
or the Warrant Agent) by a written instrument, or instruments, of transfer
satisfactory to the Company or the Warrant Agent. If the right to purchase
less than all of the Shares covered hereby shall be so transferred, the
registered holder hereof shall be entitled to receive a new Warrant Certificate
or Warrant Certificates covering in the aggregate the remaining whole number of
Shares.
5. No Warrant Holder, as such, shall be entitled to vote or
receive dividends or be deemed the holder of Shares for any purpose, nor shall
anything contained in this 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 notice of meetings or
other action affecting shareholders (except as provided in the Warrant
Agreement), receive dividends or subscription rights, or otherwise, until this
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have been delivered as provided in the Warrant Agreement.
6. The Company and the Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company or the Warrant Agent) for all purposes and shall not be
affected by any notice to the contrary.
7. This Warrant shall be binding upon any successors or assigns
of the Company.
SUBSCRIPTION FORM
(To Be Executed By The Warrant Holder If He Desire To
Exercise The Warrant In Whole Or In Part)
To: Karts International Incorporated
The undersigned ______________________________________________________
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant Certificate for, and to purchase thereunder, __________ Shares
provided for therein and tenders payment herewith to the order of Karts
-3-
<PAGE> 4
International Incorporated, in the amount of $____________________.
The undersigned requests that certificates for such Shares be issued as
follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Soc. Sec. No. or Other I.D. No., if any:________________________________________
Deliver:________________________________________________________________________
Address:________________________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable
hereunder, that a new Warrant Certificate(s) for the balance remaining of the
Shares purchasable under the Warrant Certificate be registered in the name of,
and delivered to, the undersigned at the address stated above.
Date: 19 Signature:
-----------------------------------
Note: The signature of this Subscription must
correspond with the name as written upon the
face of this Warrant Certificate in every
particular, without alteration or enlargement
or any change whatsoever.
ASSIGNMENT
(To Be Signed Only Upon Assignment)
For Value Received, the undersigned hereby sells, assigns and transfers
onto ___________________________________________________________________________
_______________________________________________________________________ Warrants
evidenced by the within Warrant Certificate and appoints _______________________
________________________________________________________________________________
to transfer said Warrant Certificate and warrants on the books of Karts
International Incorporated, with the full power of substitution in the
premises.
Date: 19 Signature:
-----------------------------------
In the presence of: (Signature must conform in all respect to
the name of the Warrant Holder specified on
the face of the Warrant Certificate, without
alteration or enlargement or any change
whatsoever, and the signature must be
guaranteed in the usual manner.)
-4-
<PAGE> 1
EXHIBIT 5.1
[LOOPER, REED, MARK & MCGRAW LETTERHEAD]
May 28, 1997
Karts International Incorporated
109 Northpark Boulevard, Suite 220
Covington, Louisiana 70433
Re: Registration Statement on Form SB-2 (SEC File No. 333-24145)
Initially Filed with the Securities and Exchange Commission
(the "Commission") on March 28, 1997; Amendment No. 1 to
Registration Statement Filed with the Commission on May 28,
1997
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
SB-2 and Amendment No. 1 thereto, SEC File No. 333-24145, (the Registration
Statement and Amendment No. 1 thereto being referred to hereinafter as the
"Registration Statement"), in connection with the registration of 3,360,000
shares of common stock, $.001 par value (the "Common Stock"), and 1,610,000
Redeemable Common Stock Purchase Warrants (the "Warrants") (with the number of
shares of Common Stock registered in the Registration Statement including
1,400,000 shares of Common Stock offered thereby, 1,4000,000 shares of Common
Stock issuable upon exercise of the Warrants, 210,000 shares of Common Stock
subject to the Underwriter's over-allotment option, 210,000 shares of Common
Stock issuable upon exercise of 210,000 Warrants subject to the Underwriter's
over-allotment option, and 140,000 shares of Common Stock issuable upon
exercise of 140,000 warrants subject to the Underwriter's Warrants). The
Common Stock and the Warrants will be issued and sold in the manner described
in the Registration Statement and in the exhibits thereto.
We have examined the proceedings heretofore taken and are familiar
with the procedures proposed to be taken by the Company in connection with the
authorization, issuance and sale of the Common Stock and the Warrants. It is
our opinion that the Common Stock and the Warrants to be sold by the Company
pursuant to the Registration Statement will be, when sold and paid for pursuant
to the terms of the Registration Statement, and the exhibits thereto, legally
issued, fully paid and non-assessable securities of the Company. Further, it
is our opinion that when the Warrants are exercised pursuant to the Warrant
Agreement, the shares of Common Stock issuable
<PAGE> 2
Karts International Incorporated
May 28, 1997
Page 2
upon exercise of the Warrants will be, when issued and paid for pursuant to the
respective terms of the Warrant Agreement, and the Registration Statement and
the exhibits thereto, legally issued, fully paid and non-assessable shares of
the Company.
We consent to the use of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and in the Prospectus
which forms a part thereof.
Very truly yours,
Looper, Reed, Mark & McGraw Incorporated
By: /s/ Richard B. Goodner
------------------------------------
Richard B. Goodner
RBG:mdp
<PAGE> 1
EXHIBIT 10.19
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Brister's Thunder Kart's Inc DEPOSIT GUARANTY NATIONAL BANK Loan Number 1006824
PO Box 324 HWY. 16 WEST Date AUGUST 13, 1996
Roseland LA 70456-0324 AMITE, LA. 70422 Maturity Date AUG. 11, 1997
Loan Amount $300,000.00
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Renewal Of ___________________
"I" includes each borrower above, "You" means the lender, its successors and assigns.
join, severally and solidarily.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For value received, I promise to pay to the order of bearer, at your address
listed above the PRINCIPAL sum of THREE HUNDRED THOUSAND AND 00/100 Dollars
$ 300,000.00
[ ] SINGLE ADVANCE: I will receive all of this principal sum on _______. No
additional advances are contemplated under this note.
[XX] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On 08/13/1996 I will receive
the amount of $______________ and future principal advances are
contemplated.
CONDITIONS: The conditions for future advances are AS AGREED UPON BY
BANK AND BORROWER
[XX] OPEN END CREDIT: You and I agree that I may borrow up to the
maximum amount of principal more than one time. This feature is
subject to all other conditions and expires on AUGUST 11, 1997.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up to the
maximum only one time ( and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
08/13/1996 at the rate of 8.250% per year until AUGUST 11, 1997.
[ ] VARIABLE RATE: This rate may then change as stated below.
[ ] INDEX RATE" The future rate will be N/A the following index rate:
N/A
[ ] FREQUENCY AND TIMING: The rate on this note may change as often as
N/A
A change in the interest rate will take effect N/A.
[ ] LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than N/A % or less than N/A %.
EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[ ] The amount of each scheduled payment will change.
[ ] The amount of the final payment will change
[ ] _________________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a 365/ACTUAL basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[XX] on the same fixed or variable rate basis in effect before maturity
(as indicated above).
[ ] at a rate equal to ______________________________________________.
[XX] LATE CHARGE: If a payment is made more than 10 days after it is due, I
agree to pay a late charge of LESSER OF $500.00 or 5% OF PAYMENT
[ ] ADDITIONAL CHARGES: In addition to interest; I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount
above:
_________________________________________________________________________.
PAYMENTS: I agree to pay this note as follows:
[XX] INTEREST: I agree to pay accrued interest QUARTERLY BEGINNING 11/11/1996
[XX] PRINCIPAL: I agree to pay the principal ON 08/11/1997 THEN ON 08/11/1997
[ ] INSTALLMENTS: I agree to pay this note in ______payments. The first
payment will be in the amount of $_____________ and will be due
_______________. A payment of $________________ will be due ______________
thereafter. The final payment of the entire unpaid balance of principal and
interest will be due ____________________________________.
ADDITIONAL TERMS:
CPA# 52367 DTD 08-13-96
SECURITY:
BLANKET ACCOUNTS RECEIVABLES IN THE NAME OF SAM'S CLUB
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
This note is secured by: PURPOSE: The purpose of this loan is LINE OF
CREDIT.
[ ] the pledge of a Collateral Mortgage Note executed by _____________ as
Mortgagor(s) before ___________________ Notary Public dated _____________. SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE
(INCLUDING THOSE ON PAGE 2). I have received a
[ ] a security agreement executed by _______________ dated _________________. copy on today's date.
- --------------------------------------------------------------------------------
Signature for Lender Brister's Thunder Kart's Inc.
---------------------------------------
/s/ ILLEGIBLE /s/ V. LYNN GRAYBILL
- -------------------------------------------------------------------------------- ---------------------------------------
- -------------------------------------------------------------------------------- ---------------------------------------
---------------------------------------
</TABLE>
(page 1 of 2)
<PAGE> 2
APPLICABLE LAW: The law of the state of Louisiana will govern this note. Any
term of this note which is contrary to applicable law will not be effective,
unless the law permits you and me to agree to such a variation. If any
provision of this agreement cannot be enforced according to its terms, this
fact will not affect the enforceability of the remainder of this agreement. No
modification of this agreement may be made without your express written
consent. Time is of the essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce accrued unpaid
interest, and then unpaid principal. If you and I agree to a different
application of payments, we will describe our agreement on this note. I may
prepay a part of, or the entire balance of this loan without penalty, unless we
specify to the contrary on this note. Any partial prepayment will not excuse or
reduce any later scheduled payment until this note is paid in full (unless,
when I make the prepayment, you and I agree in writing to the contrary). The
final payment may be more or less than the amount scheduled depending on my
payment record.
INTEREST: If I receive the principal in more than one advance, each advance
will start to earn interest only when I receive the advance. The interest rate
in effect on this note at any given time will apply to the entire principal
advanced at that time. Notwithstanding anything to the contrary, I do not agree
to pay and you do not intend to charge any rate of interest that is higher than
the maximum rate of interest you could charge under applicable law for the
extension of credit that is agreed to here (either before or after maturity).
If any notice of interest accrual is sent and is in error, we mutually agree to
correct it, and if you actually collect more interest than allowed by law and
this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the
rate on this note will be the same rate you charge on any other loans or class
of loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat
those payments made by you as advances and add them to the unpaid principal
under this note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed-to me on an item presented to you or in your
possession for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off, This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has
not agreed to pay this note, your right of set-off will apply to my interest in
the obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to
hold you harmless from any such claims arising as a result of your exercise of
your right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent
not prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
COLLATERAL: If this note is secured by real estate, I pledge the collateral
described on page 1 to you to secure repayment of this loan including
principal, interest, late charges, attorneys' fees and costs.
The pledged collateral will also secure repayment of any and all other
debts I owe you, now or in the future, up to a maximum of $50,000,000.00. The
pledged collateral will not secure any other debt entered into for primarily
personal, family, or household purposes unless so indicated on the note or
agreement representing such debt.
I have delivered the pledged collateral to you, which is to remain
pledged and held in your possession until such time as this loan and all other
debts secured by the pledged collateral have been paid in full, including
principal, interest, late charges, attorneys' fees and costs.
If this note is secured by a security agreement, the terms are set forth
in that document.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without
first notifying you before making such a change; (10) I fail to plant,
cultivate and harvest crops in due season; (11) any loan proceeds are used for
a purpose that will contribute to excessive erosion of highly erodible land or
to the conversion of wetlands to produce an agricultural commodity, as further
explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this
note (principal, accrued unpaid interest and other accrued
charges).
(2) You may set off this debt against any right I have to the
payment of money from you, subject to the terms of the
"Set-Off" paragraph herein.
(3) You may demand security, additional security, or additional
parties to be obligated to pay this note as a condition for
not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on
credit by me.
(5) You may use any remedy you have under state or federal law.
(6) If secured by real estate, you may demand immediate payment of
the pledged note(s) and foreclose under any Collateral
Mortgage securing the pledged note(s) in accordance with
applicable law, and have the mortgaged property immediately
seized and sold under ordinary or executory proceedings, and
to apply the proceeds derived from the judicial sale of the
mortgaged property to repayment of the above described loan
and any other debts secured by the pledged collateral,
including principal, interest, late charges, attorneys' fees
and costs.
By selecting any one or more of these remedies you do not give up your
right to later use any other remedy. By waiving your right to declare an event
to be a default, you do not waive your right to later consider the event as a
default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay reasonable
attorney's fees of 25% of the unpaid debt plus court costs (except where
prohibited by law). To the extent permitted by the United States Bankruptcy
Code, I also agree to pay the reasonable attorney's fees and costs you incur to
collect this debt as awarded by any court exercising jurisdiction under the
Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of
dishonor).
I waive all pleas of division and discussion, and agree that my
liability under this note shall be "joint, several and solidarity." I also
agree to waive all rights that may be waived under Section 3562 of the
Louisiana Consumer Credit Law, if applicable, to the fullest extent allowed
therein.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a
separate guarantee or endorsement). You may sue me alone, or anyone else who is
obligated on this note, or any number of us together, to collect this note. You
may do so without any notice that it has not been paid (notice of dishonor).
You may without notice release any party to this agreement without releasing
any other party. If you give up any of your rights, with or without notice, it
will not affect my duty to pay this note. Any extension of new credit to any of
us, or renewal of this note by all or less than all of us will not release me
from my duty to pay it. (Of course, you are entitled to only one payment in
full.) I agree that you may at your option extend this note or the debt
represented by this note, or any portion of the note or debt, from time to time
without limit or notice and for any term without affecting my liability for
payment of the note. I will not assign my obligation under this agreement
without your prior written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and to
report to others your credit experience with me (such as a credit reporting
agency). I agree to provide you, upon request, any financial statement or
information you may deem necessary. I warrant that the financial statements and
information I provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in
writing of any change in my address. I will give any notice to you by mailing
it first class to your address stated on page 1 of this agreement, or to any
other address that you have designated.
INSURANCE: You may collect the proceeds (or rebates of unearned premiums) on
any insurance policy insuring me (where you are named as loss payee) and on any
policy insuring the property securing this note. You will apply any insurance
proceeds or rebates toward what I owe you.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(not required) THROUGH
<S> <C> <C> <C> <C> <C> <C> <C>
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</TABLE>
(page 2 of 2)
<PAGE> 1
EXHIBIT 10.20
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Brister's Thunder Kart's Inc
- ---------------------------------------------------------------------
PO Box 324 DEPOSIT GUARANTY NATIONAL BANK
- --------------------------------------------------------------------- HWY. 16 WEST
Roseland LA 70456-0324 AMITE, LA. 70422
- ---------------------------------------------------------------------
72-0797992
- ---------------------------------------------------------------------
DEBTOR'S NAME, ADDRESS AND SSN OR TIN SECURED PARTY'S NAME AND ADDRESS
("I" means each Debtor who signs.) ("You" means the Secured Party, its successors and assigns.)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
I am entering into this security agreement with you on AUGUST 13, 1996 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below
that (Check one) [ ] | [X] (name) KARTS INTERNATIONAL, INC. owe(s) to
you now or in the future: (Check one below):
[X] SPECIFIC DEBT(S). The debt(s), liability or
obligations evidenced by (describe): BRISTER'S
THUNDER KARTS, INC. and all extensions, renewals,
refinancings, modifications and replacements of the
debt, liability or obligation.
[ ] ALL DEBT(S). Except in those cases listed in the
"LIMITATIONS" paragraph on page 2, each and every
debt, liability and obligation of every type and
description (whether such debt, liability or
obligation now exists or is incurred or created in
the future and whether it is or may be direct or
indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and
several).
SECURITY INTEREST. To secure the payment and performance of the above described
Secured Debts, liabilities and obligations, I give you a security
interest in all of the property described below that I now own and that
I may own in the future (including, but not limited to, all parts,
accessories, repairs, improvements, and accessions to the property),
wherever the property is or may be located, and all proceeds and
products from the property.
[ ] DEPOSIT ACCOUNTS: All deposit accounts in which I have an
interest and which are held in your institution. This security
interest does not apply if the deposit account: (a) is an IRA
or a tax-deferred retirement account; (b) the debt is created
by a consumer credit transaction under a credit card plan; or
(c) my right of withdrawal arises only in a representative
capacity.
[ ] INVENTORY: All inventory which I hold for ultimate sale or
lease, or which has been or will be supplied under contracts
of service, or which are raw materials, work in process, or
materials used or consumed in my business.
[ ] EQUIPMENT: All equipment including, but not limited to, all
machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment,
office and recordkeeping equipment, and parts and tools. Any
equipment described in a list or schedule which I give to you
will also be included in the secured property, but such a list
is not necessary for a valid security interest in my
equipment.
[ ] Farm Products: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with
their products and produce;
(b) all harvested crops, annual or perennial, and all
products of the crops; and
(c) all feed, seed, fertilizer, medicines, and other
supplies used or produced in my farming operations.
[ ] ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER
RIGHTS TO PAYMENT: All rights I have now and that I may have
in the future to the payment of money including, but not
limited to:
(a) payment for goods sold or leased or for services
rendered, whether or not I have earned such payment
by performance; and
(b) rights to payment arising out of all present and
future debt instruments, chattel paper and loans and
obligations receivable.
The above include any rights and interests (including all
liens and security interests) which I may have by law or
agreement against any account debtor or obligor of mine.
[ ] GENERAL INTANGIBLES: All general intangibles including, but
not limited to, tax refunds, applications for patents,
patents, copyrights, trademarks, trade secrets, good will,
trade names, customer lists, permits and franchises, and the
right to use my name.
[ ] GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts,
general intangibles, or other benefits (including, but not
limited to, payments in kind, deficiency payments, letters of
entitlement, warehouse receipts, storage payments, emergency
assistance payments, diversion payments, and conservation
reserve payments) in which I now have and in the future may
have any rights or interest and which arise under or as a
result of any preexisting, current or future Federal or state
governmental program (including, but not limited to, all
programs administered by the Commodity Credit Corporation and
the ASCS).
[X] THE SECURED PROPERTY INCLUDES, BUT IS NOT LIMITED BY, THE
FOLLOWING:
BLANKET ACCOUNTS RECEIVABLES IN THE NAME
OF SAM'S CLUB
If this agreement covers collateral requiring a legal description, that
description is:
<TABLE>
<S> <C>
I am a(n) [ ] individual [ ] partnership [X] corporation I AGREE TO THE TERMS SET OUT ON PAGES 1 AND 2 OF THIS
AGREEMENT. I have received a copy of this document on
[ ] today's date.
------------------------------------------------
[ ] If checked, file this agreement in the real estate records.
Record Owner (if not me): Brister's Thunder Kart's Inc
------------------------------------------- ------------------------------------------------------------
(Debtor's name)
- ---------------------------------------------------------------------
.
- -------------------------------------------------------------------- /s/ V. LYNN GRAYBILL
------------------------------------------------------------
(Debtor's name)
The property will be used for [ ] personal [ ] business
[ ] agricultural [ ] reasons.
DEPOSIT GUARANTY NATIONAL BANK By:
- --------------------------------------------------------------------- ---------------------------------------------------------
(Secured Party's Name) Title:
------------------------------------------------------
By:
------------------------------------------------------------------ By:
---------------------------------------------------------
Title: Title:
--------------------------------------------------------------- ------------------------------------------------------
</TABLE>
(page 1 of 2)
<PAGE> 2
GENERALLY - "You" means the Secured Party identified on page 1 of this
agreement. "I," "me" and "my" means each person who signs this security
agreement as Debtor and who agrees to give the property described in this
agreement as security for the Secured Debts. All terms and duties under this
agreement are joint and individual. No modification of this security agreement
is effective unless made in writing and signed by you and me. This security
agreement remains in effect, even if the note is paid and I owe no other debt
to you, until discharged in writing. Time is of the essence in this agreement.
APPLICABLE LAW - I agree that this security agreement will be governed by the
law of the state of Louisiana. If property described in this agreement is
located in another state, this agreement may also, in some circumstances, be
governed by the law of the state in which the property is located.
To the extent permitted by law, the terms of this agreement may vary applicable
law. If any provision of applicable law may not be varied by agreement, any
provision of this agreement that does not comply with that law will not be
effective. If any provision of this agreement cannot be enforced according to
its terms, this fact will not affect the enforceability of the remainder of
this agreement.
OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent that I own all of the
property, or to the extent this is a purchase money security interest I will
acquire ownership of the property with the proceeds of the loan. I will defend
it against any other claim. Your claim to the property is ahead of the claims
of any other creditor. I agree to do whatever you require to protect your
security interest and to keep your claim in the property ahead of the claims of
other creditors. I will not do anything to harm your position.
I will keep books, records and accounts about the property and my business in
general. I will let you examine these records at any reasonable time. I will
prepare any report or accounting you request, which deals with the property.
I will keep the property in my possession and will keep it in good repair and
use it only for the purpose(s) described on page 1 of this agreement. I will
not change this specified use without your express written permission. I
represent that I am the original owner of the property and, if I am not, that I
have provided you with a list of prior owners of the property.
I will keep the property at my address listed on page 1 of this agreement,
unless we agree I may keep it at another location. If the property is to be
used in another state, I will give you a list of those states. I will not try
to sell the property unless it is inventory or I receive your written
permission to do so. If I sell the property I will have the payment made
payable to the order of you and me.
You may demand immediate payment of the debt(s) if the debtor is not a natural
person and without your prior written consent (1) a beneficial interest in the
debtor is sold or transferred or (2) there is a change in either the identity
or number of members of a partnership or (3) there is a change in ownership of
more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the property as they become due. You have
the right of reasonable access in order to inspect the property. I will
immediately inform you of any loss or damage to the property.
LIMITATIONS - This agreement will not secure a debt described in the section
entitled "Secured Debts" on page 1:
1) if you fail to make any disclosure of the existence of this
security interest required by law for such other debt;
2) if this security interest is in my principal dwelling and you
fail to provide (to all persons entitled) any notice of right
of rescission required by law for such other debt;
3) to the extent that this security interest is in "household
goods" and the other debt to be secured is a "consumer" loan
(as those terms are defined in applicable federal regulations
governing unfair and deceptive credit practices);
4) if this security interest is in margin stock subject to the
requirements of 12 C.F.R. Section 207 or 221 and you do not
obtain a statement of purpose if required under these
regulations with respect to that debt; or
5) if this security interest is unenforceable by law with respect
to that debt.
PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the
extent of a purchase money security interest arising under this security
agreement: (a) payments on any non-purchase money loan also secured by this
agreement will not be deemed to apply to the purchase money loan, and (b)
payments on the purchase money loan will be deemed to apply first to the
non-purchase money portion of the loan, if any, and then to the purchase money
obligations in the order in which the items of collateral were acquired or if
acquired at the same time, in the order selected by you. No security interest
will be terminated by application of this formula. "Purchase money loan" means
any loan the proceeds of which, in whole or in part, are used to acquire any
collateral securing the loan and all extensions, renewals, consolidations, and
refinancings of such loan.
AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR - I agree to
pay you on demand any sums you advanced on my behalf including, but not limited
to, expenses incurred in collecting, insuring, conserving, or protecting the
property or in any inventories, audits, inspections or other examinations by
you in respect to the property. If I fail to pay such sums, you may do so for
me, adding the amount paid to the other amounts secured by this agreement. All
such sums will be due on demand and will bear interest at the highest rate
provided in any agreement, note or other instrument evidencing the Secured
Debt(s) and permitted by law at the time of the advance.
If I fail to perform any of my duties under this security agreement, or any
mortgage, deed of trust, lien or other security interest, you may without
notice to me perform the duties or cause them to be performed. I understand
that this authorization includes but is not limited to, permission to: (1)
prepare, file, and sign my name to any necessary reports or accountings; (2)
notify any account debtor of your interest in this property and tell the
account debtor to make the payments to you or someone else you name, rather
than me; (3) place on any chattel paper a note indicating your interest in the
property; (4) in my name, demand, collect, receive and give a receipt for,
compromise, settle, and handle any suits or other proceedings involving the
collateral; (5) take any action you feel is necessary in order to realize on
the collateral, including performing any part of a contract or endorsing it in
my name; and (6) make an entry on my books and records showing the existence of
the security agreement. Your right to perform for me shall not create an
obligation to perform and your failure to perform will not preclude you from
exercising any of your other rights under the law or this security agreement.
INSURANCE - I agree to buy insurance on the property against the risks and for
the amounts you require and to furnish you continuing proof of coverage. I will
have the insurance company name you as loss payee on any such policy. You may
require added security if you agree that insurance proceeds may be used to
repair or replace the property. I will buy insurance from a firm licensed to do
business in the state where you are located. The firm will be reasonably
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name you
as loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will
not settle any account for less than its full value without your written
permission. I will collect all accounts until you tell me otherwise. I will
keep the proceeds from all the accounts and any goods which are returned to me
or which I take back in trust for you. I will not mix them with any other
property of mine. I will deliver them to you at your request. If you ask me to
pay you the full price on any returned items or items retaken by myself, I will
do so.
If this agreement covers inventory, I will not dispose of it except in my
ordinary course of business at the fair market value for the property, or at a
minimum price established between you and me.
If this agreement covers farm products I will provide you, at your request, a
written list of the buyers, commission merchants or selling agents to or
through whom I may sell my farm products. In addition to those parties named on
this written list, I authorize you to notify at your sole discretion any
additional parties regarding your security interest in my farm products. I
remain subject to all applicable penalties for selling my farm products in
violation of my agreement with you and the Food Security Act. In this paragraph
the terms farm products, buyers, commission merchants and selling agents have
the meanings given to them in the Federal Food Security Act of 1985.
DEFAULT - I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) I change my name or assume an
additional name without first notifying you before making such a change; (9)
failure to plant, cultivate and harvest crops in due season; (10) if any loan
proceeds are used for a purpose that will contribute to excessive erosion of
highly erodible land or to the conversion of wetlands to produce an
agricultural commodity, as further explained in 7 C.F.R. Part 1940, Subpart G,
Exhibit M.
REMEDIES - If I am in default on this agreement, you have the following
remedies:
1) You may demand immediate payment of all I owe you under any
obligation secured by this agreement.
2) You may set off any obligation I have to you against any right
I have to the payment of money from you.
3) You may demand more security or new parties obligated to pay
any debt I owe you as a condition of giving up any other
remedy.
4) You may make use of any remedy you have under state or federal
law.
5) If I default by failing to pay taxes or other charges, you may
pay them (but you are not required to do so). If you do, I
will repay to you the amount you paid plus interest at the
highest contract rate.
6) You may repossess the property and sell it as provided by law.
You may apply what you receive from the sale of the property
to: your expenses; your reasonable attorneys' fees and legal
expenses (where not prohibited by law); any debt I owe you. If
what you receive from the sale of the property does not
satisfy the debts, you may take me to court to recover the
difference (where permitted by law).
I agree that 10 days written notice sent to my address listed
on page 1 by first class mail will be reasonable notice to me
under the Uniform Commercial Code.
If any items not otherwise subject to this agreement are
contained in the property when you take possession, you may
hold these items for me at my risk and you will not be liable
for taking possession of them.
7) In some cases, you may keep the property to satisfy the debt.
By choosing any one or more of these remedies, you do not waive your right to
later use any other remedy. You do not waive a default if you choose not to use
any remedy, and, by electing not to use any remedy, you do not waive your right
to later consider the event a default and to immediately use any remedies if it
continues or occurs again.
FILING - A carbon, photographic or other reproduction of this security
agreement or the financing statement covering the property described in this
agreement may be used as a financing statement where allowed by law. Where
permitted by law, you may file a financing statement which does not contain my
signature, covering the property secured by this agreement.
CO-MAKERS - If more than one of us has signed this agreement, we are all
obligated equally under the agreement. You may sue any one of us or any of us
together if this agreement is violated. You do not have to tell me if any term
of the agreement has not been carried out. You may release any co-signer and I
will still be obligated under this agreement. You may release any of the
security and I will still be obligated under this agreement. Waiver by you of
any of your rights will not affect my duties under this agreement. Extending
this agreement or new obligations under this agreement, will not affect my duty
under the agreement,
WAIVER/CONFESSION - I hereby waive the benefit of appraisal as provided in the
Louisiana Code of Civil Procedure, and all other laws with regard to appraisal
upon sales. For purposes of foreclosure under Louisiana executory process
procedures, I confess judgment in your favor up to the full amount of the Note,
in principal, interest, late charges, costs and attorney's fees, and in the
amount of all other funds which you may advance on my behalf for the
preservation of the secured property.
(page 2 of 2)
<PAGE> 1
EXHIBIT 10.21
COLLATERAL PLEDGE CITIZENS NATIONAL BANK
AGREEMENT NO. 52367
NAME Bristers' Thunder Kart, Inc. DATE 8-13-96
ADDRESS PO Box 324; Roseland, LA 70456
<TABLE>
<CAPTION>
DESCRIPTION OF PROPERTY HEREBY PLEDGED
QUANTITY (where applicable, give certificate or bond number, par
value or maturity date, number of shares or amount)
<S> <C>
Blanket assignment of accounts receivable in the name of Sam's
Club.
</TABLE>
The above described property pledged in this agreement shall be used to secure
the indebtedness of the undersigned Pledgor (PLEDGOR) and/or the indebtedness
of Brister's Thunder Karts, Inc. (DEBTOR)
Whereas, the above named PLEDGOR and/or the above named DEBTOR are
presently indebted unto the Citizens National Bank (BANK) for loans and
advances made and credit extended; and desire to carry on a general banking
business with BANK, in the course of which PLEDGOR and/or DEBTOR may from time
to time apply for additional loans and advances, renewals thereof and the
further extension of credit.
In order to secure the performance of all such obligations to BANK and
the payment of all such indebtedness within the limitation of amount
hereinafter fixed, whether presently existing or hereafter incurred, whether
directly or indirectly, and whether primarily or secondarily, and whether
represented by notes, drafts, bills, overdrafts, endorsements, guarantees, or
otherwise, and any and all renewals or extensions thereof, together with
interest thereon and all costs of collection, including attorney's fees.
PLEDGOR does by these presents pledge, hypothecate, and deliver unto BANK the
property hereinabove described (the receipt and delivery of which Bank does
hereby acknowledge), together with all proceeds, monies, income and benefits
attributable or accruing to said property which, PLEDGOR is or may hereafter
become entitled to receive on account of said property, whether by stock split,
stock dividend, or otherwise, including but not by way of limitation all
interest and principal payments, and all dividends and other distribution on or
with respect to such property whether payable in cash, stock or other property,
and all warrants, subscription and other rights. In addition, in the event
PLEDGOR shall receive any stock dividend or stock split on the pledged stock,
PLEDGOR will immediately deliver same to BANK and immediately provide BANK with
properly executed stock powers for each certificate of stock received. All
property herein pledged to BANK is hereinafter sometimes called "COLLATERAL."
PLEDGOR hereby authorizes and empowers BANK, at its option, to cause any of the
COLLATERAL to be transferred to the name of BANK.
PLEDGOR further agrees that should any indebtedness secured by this
Agreement become due or be declared due in accordance with the provisions
hereof, any and all funds deposited to the credit of PLEDGOR in BANK or
belonging to PLEDGOR and otherwise in the possession of or under the control of
BANK may be immediately applied thereto.
If at any time the COLLATERAL should be deemed by BANK to be
insufficient to secure the payment of the indebtedness then outstanding,
PLEDGOR agrees to furnish within twenty-four (24) hours from demand such
additional security or make such payment in reduction of the outstanding
indebtedness as may be satisfactory to BANK's reasonable requirements. Upon the
failure of PLEDGOR to make such satisfactory arrangements, or upon PLEDGOR's or
DEBTOR's failure to pay any portion of the indebtedness contracted by PLEDGOR
or DEBTOR promptly at the maturity thereof, then at the sole option of BANK the
entire indebtedness secured by this Agreement may be declared due and
collectible.
In the case of non-payment of the indebtedness secured by this
Agreement or any portion thereof at maturity or when otherwise due, BANK is
hereby given full and irrevocable authority to sell, assign, transfer and
effectively deliver the whole of the COLLATERAL, or any part thereof, or any
substitutes therefor, or additions thereto at public or private sale at such
time or times as it may elect with or without recourse to judicial proceedings
and with or without demand, appraisement, notice or advertisement of any kind,
all of which are hereby expressly waived. At any such sale BANK may itself
become the purchaser of any and all of the COLLATERAL or other property so
sold, free from any right of redemption on the part of any party hereto, which
rights is expressly waived, and BANK may thereafter hold and own the same in
its own right absolutely.
Upon the transfer of the note or notes representing any of the
indebtedness secured by this Agreement, BANK may transfer any and all
COLLATERAL and thereafter shall be fully discharged from all liability and
responsibility with respect to the property so transferred, and the transferee
shall be vested with all the powers and rights of BANK with respect to the
property transferred.
The property described herein shall be held by BANK as general
collateral to secure any and all indebtedness due or to become due by PLEDGOR
and/or DEBTOR and it shall be conclusively presumed that any and all loans and
advances hereafter made to PLEDGOR and/or DEBTOR by BANK shall have been made
in accordance with and upon the COLLATERAL pledged in this Agreement, which
shall remain in force and effect so long as PLEDGOR or DEBTOR is indebted unto
BANK; and it is expressly understood that the possession by BANK of any property
of PLEDGOR of any character whatsoever shall conclusively evidence the fact
that such property has been delivered in accordance with this Agreement,
whether or not the same may be specifically described as contemplated herein.
PLEDGOR represents and warrants to BANK that
1. The performance of the obligations under this Agreement and
compliance with the provisions and conditions thereof will not
violate any of the terms, conditions or provisions of or constitute
default under any indenture, mortgage or deed of trust, lease or
other contract or agreement to which PLEDGOR is now a party, or by
which PLEDGOR may be bound, or violate any of the terms or provisions
of PLEDGOR's respective charter or by-laws, or any applicable law,
rule, regulation, order, judgment or decree, and furthermore, that
PLEDGOR will comply with all applicable laws and all applicable
rules, regulations and orders of any public or governmental agency,
except those which are being contested in good faith by appropriate
proceedings.
2. There are no actions, suits or proceedings pending, or, to PLEDGOR's
knowledge, threatened against or affecting PLEDGOR or DEBTOR in any
court, or before or by any governmental department, agency or
instrumentality, and adverse decision in which might materially
affect PLEDGOR's ability to perform the obligations accruing by
virtue of this Agreement, or any other agreement with BANK by which
PLEDGOR and/or DEBTOR is bound.
3. As to PLEDGOR's own financial statements delivered to BANK, such
statements are correct and complete and fairly present the financial
condition as of the dates specified therein, and there has been no
materially adverse change in PLEDGOR's financial conditions since the
date of the last financial statement furnished to BANK.
4. All of PLEDGOR's own warranties and representations to BANK, and the
execution of any disclosure or other regulatory forms, are correct
and complete.
5. PLEDGOR has been given a reasonable opportunity to obtain knowledge
of the essential terms of this Agreement before executing same.
PLEDGOR expressly relieves and releases BANK, as pledgee, or any and
all liability or responsibility whatever which might arise because of BANK's
failure to enforce by judicial process or otherwise any security in pledge in
accordance with this Agreement or because of BANK's failure to give any notice
or make any demand with regard thereto except when such notice, demand or
enforcement is specifically requested or demanded of BANK in writing by PLEDGOR.
No delay or omission on the part of BANK in exercising any right or
privilege hereunder shall operate as a waiver thereof or as a waiver of any
other right or privilege. A waiver on any one or more occasions shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
The execution and delivery of this Agreement shall in no manner impair
or affect any other security given to BANK by PLEDGOR or DEBTOR, and any
security taken hereafter by BANK as security for payment of any indebtedness
of, or performance of any obligations by, PLEDGOR and/or DEBTOR shall in no
manner impair or affect this Agreement, all such present and future additional
security to be considered as cumulative security. Any of the COLLATERAL may be
released from this Agreement without altering, varying or diminishing in any
way the force, effect, lien, or privilege of this Agreement as to the
COLLATERAL not expressly released, and this Agreement shall continue as a
pledge, first lien, privilege and encumbrance on all the COLLATERAL not
expressly released until all indebtedness and obligations secured hereby have
been paid and performed in full and the said COLLATERAL is released by BANK.
PLEDGOR shall not assign, transfer, or pledge any COLLATERAL not released from
this Agreement; and any attempted assignment, transfer, or pledge of any
interest in and to the COLLATERAL shall be null and void and of no effect and
shall not deprive BANK of the right to sell or otherwise dispose of or
utilize any or all of the COLLATERAL as above provided or necessitate the sale
or disposition thereon in parcels.
PLEDGOR waives presentment for payment, demand, protest, notice of
protest, notice of non-payment, and all please of division and discussion; and
PLEDGOR consents to any and all extensions to DEBTOR, and all amendments and
additions to any of the indebtedness secured by this Agreement, all without
notice.
Any notice or demand to PLEDGOR hereunder or in connection herewith may
be given and shall conclusively be deemed and considered to have been given and
received upon the deposit thereof in the U.S. Mail, duly stamped and addressed
to the PLEDGOR at the address shown herein, but actual notice, however given or
received, shall always be effective.
The terms PLEDGOR and DEBTOR used herein apply to the singular or
plural as applicable. Further, if more than one person has signed this
Agreement, this shall be construed to be the solidary obligation of each.
The limit of the total indebtedness of PLEDGOR and/or DEBTOR secured by
this Agreement shall be the total indebtedness of PLEDGOR and/or DEBTOR to
BANK, provided, however, in no event shall the limit of the amount of
indebtedness secured by this Agreement exceed the sum of Ten Million Dollars
($10,000,000.00).
If any clause, sentence or paragraph of this Agreement shall for any
reason be adjudged by any court of competent jurisdiction to be invalid, such
judgment shall not affect or invalidate the remainder but shall be confined in
its operation to the clause, sentence or paragraph found invalid.
This Agreement may be referred to by its number set forth above, and,
as so designated, may be amended from time to time, one or more times, by an
addendum signed by any one of the parties hereto, and this Agreement, and all
such addendums, shall be construed and interpreted in accordance with the laws
of the State of Louisiana, and all representations, warranties and agreements
therein contained shall inure to the benefit and be binding upon the parties
hereto and their respective heirs, successors and assigns.
DONE AND SIGNED this 13th day of August, 1996.
I/We acknowledge receipt of all collateral described herein.
PLEDGOR(S):
Date:
--------------------
/s/ V. LYNN GRAYBILL
- ------------------------- -------------------------------------------
SIGNATURE Brister's Thunder Karts, Inc.
ACCEPTED:
CITIZENS NATIONAL BANK
<PAGE> 1
EXHIBIT 10.22
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------
KART'S INTERNATIONAL, INC. DEPOSIT GUARANTY NATIONAL BRISTER'S THUNDER KART'S INC.
- ---------------------------- BANK -----------------------------
HWY. 16 WEST P. O. BOX 324
- ---------------------------- AMITE, LA 70422 -----------------------------
109 NORTH PARK BLVD ROSELAND, LA 70456-0324
- ---------------------------- -----------------------------
COVINGTON, LA 70433
- ---------------------------- -----------------------------
GUARANTOR'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS BORROWER'S NAME AND ADDRESS
"I" INCLUDES EACH GUARANTOR "YOU" MEANS THE LENDER, ITS "BORROWER" MEANS EACH
ABOVE JOINTLY, SEVERALLY AND SUCCESSORS AND ASSIGNS. PERSON ABOVE.
SOLIDARILY.
- ------------------------------------------------------------------------------------------
</TABLE>
GUARANTY
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce you, at your option, to make loans or engage
in any other transactions with borrower from time to time, I absolutely and
unconditionally guarantee the full payment of the following debts (as defined
herein) when due (whether at maturity or upon acceleration):
PRESENT DEBT GUARANTY
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of the following described debt (including all renewals,
extensions, refinancings and modifications) of the borrower:
----------------------------------------------------------------------
PRESENT AND FUTURE DEBT GUARANTY
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description,
that the borrower may now or at any time in the future owe you
including, but not limited to, the following described debt(s):
----------------------------------------------------------------------
[X] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description,
that the borrower may now or at any time in the future owe you, up to
the principal amount of $300,000.00 plus accrued interest, attorneys'
fees and collection costs referable thereto (when permitted by law),
and all other amounts agreed to be paid under all agreements
evidencing the debt and securing the payment of the debt. You may,
without notice, apply this guaranty to such debts of the borrower as
you may select from time to time.
DEFINITIONS - As used in this agreement, the terms "I," "we," and "my" mean all
persons signing this guaranty agreement, individually and jointly, and their
heirs, executors, administrators and assigns.
The term "debt" means all debts, liabilities, and obligations of the
borrower (including, but not limited to, all amounts agreed to be paid under
the terms of any notes or agreements securing the payment of any debt,
liability or obligation, overdrafts, letters of credit, guaranties, advances
for taxes, insurance, repairs and storage, and all extensions, renewals,
refinancings and modifications of these debts) whether now existing or created
or incurred in the future, due or to become due, or absolute or contingent,
except for any obligations incurred by borrower after the date of this guaranty
for which the borrower meets your standard of creditworthiness based on the
borrower's own assets and income without the addition of a guaranty, or to
which, although you require the addition of a guaranty, the borrower chooses
someone other than me to guaranty the obligation.
APPLICABLE LAW - This agreement shall be interpreted under the laws of the
state of Louisiana, without giving any effect to the principles of conflict of
laws. Any term of this agreement that does not comply with applicable law will
not be effective if that law does not expressly or impliedly permit variations
by agreement. If any part of this agreement cannot be enforced according to its
terms, this fact will not affect the balance of this agreement.
REVOCATION - I agree that this is an absolute and continuing guaranty. If this
guaranty is limited to the payment of a specific debt of the borrower described
above, this agreement cannot be revoked and will remain in effect until the
debt is paid in full. If this guaranty covers both the borrower's present and
future debts, I agree that this guaranty will remain binding on me, whether or
not there are any debts outstanding, until three (3) full business days after
you have actually received written notice of my revocation or written notice of
my death or incompetence.
Notice of revocation or notice of my death or incompetence will not
affect my obligations under this guaranty with respect to any debts incurred by
or for which you have made a commitment to borrower within three (3) full
business days after you actually receive such notice, and all renewals,
extensions, refinancings, and modifications of such debts. I agree that if any
other person signing this agreement provides a notice of revocation to you, I
will still be obligated under this agreement for three (3) full business days
after I provide a notice of revocation to you. If any other person signing this
agreement dies or is declared incompetent, such fact will not affect my
obligations under this agreement.
OBLIGATIONS INDEPENDENT - I agree that this guaranty is in addition to and does
not supercede any previous guaranty. I agree that I am obligated to pay
according to the terms of this guaranty even if any other person has agreed to
pay the borrower's debt. My obligation to pay according to the terms of this
guaranty shall not be affected by the illegality, invalidity or
unenforceability of any notes or agreements evidencing the debt, the violation
of any applicable usury laws, forgery, or any other circumstances which make
the indebtedness unenforceable against the borrower.
I will remain obligated to pay on this guaranty even if any other
person who is obligated to pay the borrower's debt, including the borrower, has
such obligation discharged in bankruptcy, foreclosure, or otherwise discharged
by law. In such situations, my obligation shall include post-bankruptcy
petition interest and attorneys' fees and any other amounts which borrower is
discharged from paying or which do not otherwise accrue to borrower's
indebtedness due to borrower's discharge. I will also be obligated to pay you,
to the fullest extent permitted by law, any deficiency remaining after
foreclosure of any mortgage or security interest securing borrower's debt,
whether or not the liability of borrower or any other obligor for such
deficiency is discharged by statute or judicial decision. If any payments by
borrower to you are thereafter set aside, recovered, rescinded, in whole or in
part, are settled by you at your discretion, or are in any way recouped or
recovered from you for any reason (including, without limitation, the
bankruptcy, insolvency, or reorganization of borrower or any other obligor),
then I am obligated to reimburse or indemnify you for the full amount you so
pay together with costs, interest, attorneys' fees and all other expenses which
you incur in connection therewith. I also agree that if my liability is limited
to a stated principal amount (plus other agreed charges), you may allow the
borrower to incur debt in excess of the specified amount and apply to the
payment of such excess any amounts you receive for payment of the debt from the
borrower or any other person, any amounts resulting from any collateral, or
amounts received from any other source, without affecting my obligations under
this agreement.
No modification of this agreement is effective unless in writing and
signed by you and me, except that you may, without notice to me and without the
addition of a signed writing or my approval; (1) release any borrower or other
person who may be liable for borrower's debt, (2) release or substitute any
collateral, (3) fail to perfect any security interest or otherwise impair any
collateral, (4) waive or impair any right you may have against any borrower or
other person who may be liable for borrower's debt, (5) settle or compromise
any claim against the borrower or any person who may be liable for the
borrower's debt, (6) procure any additional security or persons who agree to be
liable for borrower's debt, (7) delay or fail to pursue enforcement of the
debt, (8) apply amounts you receive from the borrower or other persons to
payment of the debt in any order you select, (9) make any election with respect
to the debt provided by law or any agreement with any person liable for the
debt, (10) exercise or fail to exercise any rights you have with respect to the
debt, (ll) extend new credit to the borrower, or (12) renew, extend, refinance
or modify the borrower's debt on any terms agreed to by you and the borrower
(including, but not limited to, changes in the interest rate or in the method,
time, place or amount of payment) without affecting my obligation to pay under
this guaranty.
WAIVER - I waive presentment, demand, protest, notice of dishonor, and notice
of acceptance of this guaranty. I also waive, to the extent permitted by law,
all notices, all defenses and claims that the borrower could assert, any right
to require you to pursue any remedy or seek payment from any other person
before seeking payment under this agreement, and all other defenses to the
debt, except payment in full. You may without notice to me and without my
consent, enter into agreements with the borrower from time to time for purposes
of creating or continuing the borrower's debt as allowed by this guaranty. I
agree that I will be liable, to the fullest extent permitted by applicable law,
for any deficiency remaining after foreclosure (or repossession) and sale of
any collateral without regard to whether borrower's obligation to pay such
deficiency is discharged by law. If any payments on the debt are set aside,
recovered or required to be returned in the event of the insolvency, bankruptcy
or reorganization of the borrower, my obligations under this agreement will
continue as if such payments had never been made.
I also waive and relinquish all present and future claims, rights, and
remedies against borrower or any other obligated party arising out of the
creation or my performance of this guaranty. My waiver includes, but is not
limited to, the right of contribution, reimbursement, indemnification,
subrogation, exoneration, and any right to participate in any claim or remedy
you may have against the borrower, collateral, or other party obligated for
borrower's debts, whether or not not such claim, remedy, or right arises in
equity, or under contract, statute or common law.
REMEDIES - If I fail to keep any promise contained in this agreement or any
agreement securing this agreement, you may, make this agreement and the
borrower's debt immediately due and payable, you may set off this obligation
against any right I have to receive money from you (however, you may not
set-off against any accounts in which my rights are only as a fiduciary or my
IRA or other tax-deferred retirement account), you may use any remedy you have
under state or federal law, and you may use any remedy given to you by any
agreement securing this agreement. If I die, am declared incompetent, or become
insolvent (either because my liabilities exceed my assets or because I am
unable to pay my debts as they become due), you may make the debt immediately
due and payable.
COLLECTION COSTS - Except when prohibited by law, I agree to pay the reasonable
costs and expenses you incur to enforce and collect this agreement, including
attorneys' fees and court costs.
SECURITY - This guaranty is [ ] unsecured [X] secured by ACCOUNTS RECEIVABLE
- --------------------------------------
NOTICE TO COSIGNER
YOU ARE BEING ASKED TO GUAR- In witness whereof, I have signed my
Antee The Debts Described Above. If name and affixed my seal on this 13
You Are Making A "Present And Future day of August, 1996, and by doing so,
Debt Guaranty" As Identified Above, agree to the terms of this guaranty
You Are Being Asked To Guarantee and acknowledge having read the Notice
Present As Well As Future Debts Of to Signor.
THE BORROWER ENTERED INTO WITH THIS
LENDER. THINK CAREFULLY BEFORE YOU
DO. IF THE BORROWER DOESN'T PAY /s/ V. LYNN GRAYBILL (SEAL)
THESE DEBTS, YOU WILL HAVE TO. BE --------------------------------------
SURE YOU CAN AFFORD TO PAY IF YOU (SEAL)
HAVE TO, AND THAT YOU WANT TO ACCEPT --------------------------------------
THIS RESPONSIBILITY. (SEAL)
--------------------------------------
YOU MAY HAVE TO PAY UP TO (SEAL)
THE FULL AMOUNT OF THESE DEBTS IF THE --------------------------------------
BORROWER DOES NOT PAY. YOU MAY ALSO
HAVE TO PAY LATE FEES OR COLLECTION
COSTS, WHICH INCREASE THIS AMOUNT.
THE LENDER CAN COLLECT THESE
DEBTS FROM YOU WITHOUT FIRST TRYING TO
COLLECT FROM THE BORROWER. THE LENDER
CAN USE THE SAME COLLECTION METHODS
AGAINST YOU THAT CAN BE USED AGAINST
THE BORROWER, SUCH AS SUING YOU,
GARNISHING YOUR WAGES, ETC. IF THESE
DEBTS ARE EVER IN DEFAULT, THAT FACT
MAY BECOME PART OF YOUR CREDIT RECORD.
- --------------------------------------
(page 1 of 1)
<PAGE> 1
EXHIBIT 10.23
[CASHE, LEWIS, MOODY & COUDRAIN LETTERHEAD]
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of October 1, 1996 is made between
USA INDUSTRIES, INC., an Alabama corporation, represented herein by its duly
authorized Agent, Kart's International, Incorporated ("Borrower"), and DEPOSIT
GUARANTY NATIONAL BANK OF LOUISIANA ("Lender"), who agree as follows:
ARTICLE I
GENERAL TERMS
Section 1.1 Terms Defined Above. As used in this Agreement, the terms
"Agreement," "Borrower" and "Lender" shall have the meanings indicated above.
Section 1.2 Certain Definitions. As used in this Agreement, the following
terms shall have the meanings indicated, unless the context otherwise requires:
"Guarantor" shall mean Karts International, Incorporated.
"Borrowing Base" shall mean the sum of 40% of each Purchase Order when
received by Borrower and converted to an additional 45% (not to exceed 85% )of
each Eligible Receivable as shown on the most recent timely submitted borrowing
base certificate, not to exceed the maximum aggregate amount of $500,000.00.
The amount of the Borrowing Base shall be established at least monthly based on
the Borrowing Base Certificate provided by Borrower and as verified by Bank.
Any accounts receivable that are Eligible Receivables at any time, but which
subsequently fail to meet any of the foregoing requirements, shall forthwith
cease to be Eligible Receivables, as the case may be, until such time as they
once again meet all of the foregoing requirements.
"Purchase Order" shall mean the order received from Wal-Mart Stores, Inc.
pursuant to a Vendor's Agreement between Borrower (or its subsidiary) and
Wal-Mart.
"Eligible Receivable" shall mean the value of accounts receivables
outstanding issued to Wal-Mart generated pursuant to a Purchase Order less than
sixty (60) days from invoice date.
"Borrowing Base Certificate" shall mean the borrowing base certificate
described above.
"Collateral" shall mean the properties described in the Collateral
Documents as security for the Indebtedness.
"Collateral Documents" shall mean collectively the documents required by
the Lender to obtain the security interest in the Collateral or otherwise
guarantee or secure the Indebtedness, as described in Article 3 hereof and as
amended from time to time.
"Debt" shall mean any and all amounts and/or liabilities owing from time
to time by the Borrower to Lender, direct or indirect, liquidated or contingent,
now existing or hereafter arising..
"Default" shall mean the occurrence of any of the events specified in
Article 7 hereof, whether or not any requirement for notice or lapse of time
or other condition precedent has been satisfied.
"Event of Default" shall mean the occurrence of any of the events
specified in Article 7 hereof, provided that any requirement for notice or
lapse of time or any other condition precedent has been satisfied.
"Indebtedness" shall mean any and all amounts, liabilities and/or
obligations owing from time to time by the Borrower to the Lender or any
transferee thereof pursuant to this Agreement, the Note and the Collateral
Documents, and whether such amounts, liabilities or obligations be liquidated
or unliquidated, now existing or hereafter arising.
1
<PAGE> 2
"Loan" shall mean the line of credit described in Article 2 hereof.
"Note" shall mean the note described in Article 2 hereof.
ARTICLE 2
THE CREDIT
Section 2.1 Commitment to Lend. (a) Subject to and upon the terms and
conditions contained in this Agreement, and relying on the representations and
warranties contained in this Agreement, the Lender agrees to make a revolving
line of credit available to the Borrower equal to the lesser of the Borrowing
Base (as shown on the most recent timely submitted Borrowing Base Certificate)
or $500,000.00 (maximum amount of the credit). The line of credit is
represented by a promissory note in the principal amount of $500,000.00,
payable to the order of the Lender. The principal shall be payable as set forth
in the note. Interest on the note shall accrue and be payable as set forth in
the note. The note shall mature one year from the date of the Note.
(b) If the date of the Borrowing Base calculation on the most
recently submitted Borrowing Base Certificate is more than thirty (30) days
prior to a request for advance, the Borrower shall not be entitled to an
advance until a timely Borrowing Base Certificate is provided to the Lender.
(c) If at any time the outstanding principal balance of the Loan
exceeds the Borrowing Base as shown on the most recently timely submitted
Borrowing Base Certificate, the Borrower shall prepay the Loan in an amount
sufficient to reduce the outstanding principal balance of the Loan to such
Borrowing Base.
Section 2.2 Loan Advances. (a) The Lender agrees to make advances to the
Borrower from time to time on any Business Day in such amounts as the Borrower
may request up to the maximum amount of the credit, and the Borrower may make
borrowings, repayments (as permitted) and reborrowings in respect thereof. The
credit advice resulting from the deposit of the proceeds of any disbursement in
the Borrower's account with the Lender or the Lender's copy of any cashier's
check representing all or any part of the proceeds or a disbursement shall be
deemed prima facie evidence of the Borrower's indebtedness to the Lender on the
Loan.
Section 2.3 Lockbox Account. The Borrower will establish a lockbox
arrangement with the Lender. The Borrower will cause all payments due Borrower
under the Vendor's Agreement with Wal-Mart, including but not limited to,
invoices, accounts and workorders, to be deposited into such lockbox.
Remittances received under the lockbox arrangement will be deposited by the
Lender to the Borrower's demand deposit account at the Lender (the "Lockbox
Account"). The Borrower hereby directs the Lender to apply, on a daily basis,
the proceeds of all accounts deposited in the Lockbox Account to reduce the
outstanding principal balance of the Loan, and any excess amounts will be
deposited to the Borrower's operating account at the Lender. The Borrower will
not disburse funds to its vendors or others from the Lockbox Account.
Section 2.4 Use of proceeds. The Borrower shall use the proceeds of the
Loan solely to provide working capital necessary for the construction of karts
pursuant to a Vendor's Agreement between Borrower and Wal-Mart.
ARTICLE 3
SECURITY FOR THE OBLIGATIONS
Section 3.1 Security. The Loan shall be secured by the following:
(a) Security Agreement executed by the Borrower granting a
pledge and security interest in all accounts and general intangibles relating
to accounts of the Borrower, and
2
<PAGE> 3
specifically the Vendor's Agreement, Purchase Orders and Accounts Receivables
with Wal-Mart Stores, Inc.
(b) Unconditional Guaranty Agreement executed by Kart's
International Incorporated ("Guarantor") in favor of Lender, guaranteeing the
repayment of the Debt of Borrower to Lender.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the Borrower
and Guarantor each represent and warrant to the Lender (which representations
and warranties will survive the extensions of credit under this Agreement) that:
Section 4.1 Power and Authorization. The Borrower and Guarantor are each
duly authorized and empowered to execute, deliver and perform all documents
executed by it. All corporate action on the part of the Borrower and Guarantor
requisite for the due creation and execution of all documents relating to this
Agreement have been duly and effectively taken.
Section 4.2 Financial Condition. All financial statements of the Borrower
and Guarantor delivered to Lender fairly and accurately present the financial
condition of the parties for whom such statements are submitted and there are
no contingent liabilities not disclosed thereby which would adversely affect
the financial condition of either. Since the close of the period covered by the
latest financial statement delivered to Lender with respect to Borrower and its
affiliates, there has been no material adverse change in the assets,
liabilities, or financial condition of Borrower or Guarantor.
Section 4.3 Title to Collateral. The Collateral is free of all liens and
encumbrances except those created in favor of the Lender and those permitted by
this Agreement. Furthermore, the Borrower has not heretofore conveyed or agreed
to convey or encumber any Collateral in any way, except in favor of the Lender.
Section 4.4 Continuing Accuracy. All of the representations and warranties
contained in this Article or elsewhere in this Agreement shall be true through
and until the date on which all obligations of Borrower and Guarantor under
this Agreement and any other documents executed in connection therewith are
fully satisfied.
Section 4.5 Minimum Net Worth. The Guarantor shall maintain a net worth of
not less than $2,500,000.00 as of the last day of each fiscal quarter. For the
purposes of this section, "net worth" shall mean the sum of common stock,
preferred stock, capital surplus and retained earnings.
Section 4.6 Minimum Current Ratio. The Guarantor shall maintain a ratio of
current assets to current liabilities of not less than 1.5 to 1.00 as of the
last day of each fiscal quarter.
ARTICLE 5
AFFIRMATIVE COVENANTS
Unless the Lender's prior written consent to the contrary is obtained,
the Borrower and Guarantor will at all times comply with the covenants
contained in this Agreement and all documents executed pursuant to this
Agreement, from the date hereof and for so long as any part of the Indebtedness
are outstanding.
Section 5.1 Performance of Obligations. The Borrower will repay the
Indebtedness according to the reading, tenor and effect of the Note and this
Agreement and the Guarantor will pay the Guaranty according to its terms.
Section 5.2 Financial Statements and Reports. The Borrower will furnish
to the Lender:
3
<PAGE> 4
(a) Annual Reports--as soon as available and in any event within
one hundred twenty (120) days after the close of each fiscal year, the
Borrower and Guarantor shall deliver to Lender the audited balance sheet of
each as at the end of such year, the audited statement of income of each for
such year, and the audited statement of reconciliation of capital accounts of
the Borrower for such year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, accompanied by the
unqualified opinions of an independent certified public accountant acceptable
to the Lender.
(b) Quarterly Reports--as soon as available and in any event
within forty five (45) days after the end of each fiscal quarter in each
fiscal year, the Borrower and Guarantor shall deliver to the Lender the
unaudited balance sheet of Borrower and Guarantor at the end of such period,
the unaudited statement of income of the Borrower and Guarantor for such
fiscal quarter and for the period from the beginning of the fiscal year to the
close of such fiscal quarter, and the unaudited statement of reconciliation of
capital accounts of the Borrower and Guarantor for such fiscal quarter and for
the period from the beginning of the fiscal year to the close of such fiscal
quarter, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, certified by
the chief financial officer of the Borrower and Guarantor.
(c) Borrowing Base Certificates--on the first day of each month
(or more frequently if determined necessary by the Lender) a borrowing base
certificate showing the computation of the Borrowing Base for the Borrower, the
amounts outstanding under the Loan, the amounts available under the Loan, all
as of the preceding month, and a statement that no Default has occurred,
certified correct by the principal financial officer of the Borrower.
(d) Other Information--promptly upon the request of the Lender,
all regular budgets and such other information regarding the business and
affairs and financial condition of the Borrower or Guarantor as the Lender may
reasonably request.
All balance sheets and other financial reports referred to above shall
be in such detail as the Lender may reasonably request and shall conform to
generally accepted accounting principles applied on a consistent basis, except
only for such changes in accounting principles or practice with which the
independent certified public accountants concur.
Section 5.3 Further Assurances. The Borrower and Guarantor will promptly
(and in no event later than thirty (30) days after written notice from the
Lender is received) cure any defects in the creation, execution and delivery
of this Agreement, the Note, the Collateral Documents or the Guaranty Agreement.
Section 5.4 Reimbursement of expenses. The Borrower will pay all
reasonable legal fees incurred by the Lender in connection with the preparation
of this Agreement, the Note and the Collateral Documents. The Borrower will,
upon request promptly reimburse the Lender for all amounts expended, advanced
or incurred by the Lender to satisfy any obligation of the Borrower under this
Agreement, or to protect the property or business of the Borrower or to collect
the Indebtedness, or to enforce the rights of the Lender under this Agreement,
which amounts will include all court costs, attorneys' fees, fees of auditors
and accountants, and investigation expenses reasonably incurred by the Lender
in connection with any such matters, together with interest at the interest
rate set forth in the Note on each such amount from the date that the same is
expended, advanced or incurred by the Lender until the date of reimbursement to
the Lender.
Section 5.5 Insurance. The Borrower will maintain with financially sound
and reputable insurers, insurance with respect to its properties and businesses
against such liabilities, casualties, risks and contingencies and in such types
and amounts as are satisfactory to the Lender. Upon request of the Lender, the
Borrower will furnish or cause to be furnished to the Lender from time to time
a summary of the insurance coverage of the Borrower in form and substance
satisfactory to the Lender and if requested will furnish the Lender original
certificates of insurance and/or copies of the applicable policies.
4
<PAGE> 5
Section 5.6 Accounts and Records. The Borrower will keep books of record
and accounts in which true and correct entries will be made as to all material
matters of all dealings or transactions in relation to its business and
activities, in accordance with generally accepted accounting principles,
consistently applied except for changes in accounting principles or practices
with which the independent public accountants for Borrower concur.
ARTICLE 6
CONDITIONS OF LENDING
Section 6.1 Conditions of Initial Advance. The obligation of the Lender
to make the initial advance on the Loan is subject to the accuracy of each and
every representation and warranty of the Borrower and Guarantor contained in
this Agreement, and to the receipt of the following on or before the Closing
Date:
(a) Agreement. A duly executed counterpart of this Agreement
signed by all the parties hereto.
(b) Note. The duly executed Note signed by the Borrower.
(c) Articles of Incorporation and Good Standing. Articles of
incorporation and certificate of good standing of the Borrower and
Guarantor issued by the Secretary of State of its state of incorporation.
(d) Corporate Certificate. A certificate of the secretary of the
Borrower and Guarantor setting forth as to each (i) resolutions of its board of
directors in form and substance satisfactory to the Lender with respect to the
authorization of this Agreement, the Note and the Collateral Documents, as the
case may be; (ii) copies of the articles of incorporation and bylaws of the
Borrower, (iii) its Federal tax identification number, and (iv) the officers
authorized to sign such instruments.
(e) A duly executed copy of the Vendor's Agreement, certified as
a true copy of the original by the Chief Executive Officer of Borrower.
(f) Collateral Documents. Duly executed counterparts or originals
of the Collateral Documents.
(g) Guaranty. The Guaranty Agreement duly executed by the
Guarantor.
(h) Borrowing Base Certificate. An initial Borrowing Base
Certificate.
Section 6.2 Each Additional Advance. The obligation of the Lender to make
additional advances on the Loan is subject to the satisfaction of each of the
following conditions:
(a) Each of the representations and warranties of the Borrower
and Guarantor contained in this Agreement shall be true and correct on and as
of the date of such subsequent advance, except as such representations and
warranties relate to matters that are permitted by this Agreement.
(b) At the time of each subsequent advance, no Default shall have
occurred and be continuing.
(c) There shall have occurred no material adverse changes, either
individually or in the aggregate, in the assets, liabilities, financial
conditions, business operations, affairs or circumstances of the Borrower or
Lender from those reflected in the most recent financial statements furnished
to the Lender prior to the Closing Date, except to the extent that such changes
are permitted by this Agreement.
5
<PAGE> 6
ARTICLE 7
DEFAULT
Section 7.1 Events of Default. Any of the following events shall be
considered an "Event of Default" as that term is used herein:
(a) Principal and Interest Payments. The Borrower fails to make
payment when due of any principal or interest installment on the Note, any
commitment fee or any other Indebtedness to the Lender.
(b) Representations and Warranties. Any representation or warranty
contained in this Agreement, the Note or any of the Collateral Documents proves
to have been incorrect in any material respect as of the date thereof or as of
any date subsequent thereto; or any representation, statement (including
financial statements), certificate or data furnished or made to the Lender by
the Borrower or Guarantor under this Agreement, the Note or any of the
Collateral Documents proves to have been untrue in any material adverse respect
as of the date as of which the facts therein set forth were stated or
certified.
(c) Covenants. The Borrower defaults in the observance or
performance of any of the covenants or agreements contained in this Agreement,
the Note or any of the Collateral Documents, to be kept or performed by the
Borrower.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Notices. Any notice or demand to be given or served to either
party shall be given as follows:
If to Lender: Deposit Guaranty National Bank of Louisiana
Attention: Jack Gautier
Post Office Box 2188
Hammond, Louisiana 70404
If to Borrower: USA Industries, Inc.
202 Challenge Avenue
Prattville, AL 36067
If to Guarantor: Kart's International, Incorporated
Attention: V. Lynn Graybill
109 North Park Blvd., Suite 201
Covington, LA 70433
Any notice or demand may be delivered by United States Mail, registered
or certified mail, personal delivery of Facsimile transmission.
Section 8.2 Renewal, Extension or Rearrangement. All provisions of this
Agreement relating to the Note shall apply with equal force and effect to each
and all promissory notes or security instruments hereinafter executed which in
whole or in part represent a renewal, extension for any period, increase or
rearrangement of any part of the Note.
Section 8.3 Amendment. Neither this Agreement nor any provisions hereof
may be changed, waived, discharged or terminated orally or in any manner other
than by an instrument in writing signed by the party against whom enforcement
of the change, waiver, discharge or termination is sought.
Section 8.4 Invalidity. In the event that any one or more of the
provisions contained in this Agreement, the Note or the Collateral Documents
shall, for any reason, be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
6
<PAGE> 7
affect any other provision of this Agreement, the Note or the Collateral
Documents.
Section 8.5 Survival of Agreements. All representations and warranties
of the Borrower herein, and all covenants and agreements herein not fully
performed before the effective date of this Agreement, shall survive such date.
Section 8.6 Waivers. No course of dealing on the part of the Lender, its
officers, employees, consultants or agents, nor any failure or delay by the
Lender with respect to exercising any of its rights, powers or privileges under
this Agreement, the Note or the Collateral Documents shall operate as a waiver
thereof.
Section 8.7 Cumulative Rights. The rights and remedies of the Lender under
this Agreement, the Note and the Collateral Documents shall be cumulative, and
the exercise or partial exercise of any such right or remedy shall not preclude
the exercise of any other right or remedy.
Section 8.8 Time of the Essence. Time shall be deemed of the essence with
respect to the performance of all of the terms, provisions and conditions on
the part of the Borrower and the Lender to be performed hereunder.
Section 8.9 Successors and Assigns; Participants. (a) All covenants and
agreements made by or on behalf of the Borrower in this Agreement, the Note and
the Collateral Documents shall bind its successors and assigns and shall inure
to the benefit of the Lender and its successors and assigns.
(b) This Agreement is for the benefit of the Lender and for such
other Person or Persons as may from time to time become or be the holders of
any of the Indebtedness, and this Agreement shall be transferable and
negotiable, with the same force and effect and to the same extent as the
Indebtedness may be transferable, it being understood that, upon the transfer
or assignment by the Lender of any of the Indebtedness, the legal holder of
such Indebtedness shall have all of the rights granted to the Lender under
this Agreement.
Section 8.10 Relationship Between the Parties. The relationship between
the Lender and the Borrower shall be solely that of lender and borrower, and
such relationship shall not, under any circumstances whatsoever, be construed
to be a joint venture, joint adventure, or partnership.
Section 8.11 Limitation of Liability. This Agreement, the Note and the
Collateral Documents, are executed by an officer of the Lender, and by
acceptance of the Loans, the Borrower agrees that for the payment of any claim
or the performance of any obligations hereunder resulting from any default by
the Lender, resort shall be had solely to the assets and property of the
Lender, and no shareholder, officer, employee or agent of the Lender shall be
personally liable therefor.
Section 8.12 Governing Law. This Agreement is, and the Note will be,
contracts made under and shall be construed in accordance with and governed by
the laws of the United States of America and the State of Louisiana.
Section 8.13 Counterparts. This Agreement may be executed in two or more
counterparts, and it shall not be necessary that the signatures of all parties
hereto be contained on any one counterpart hereof; each counterpart shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
Section 8.14 WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. (a) THE
BORROWER, GUARANTOR AND LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE PARTIES, ARISING OUT OF
OR IN ANY WAY PERTAINING TO (i) THE NOTE, (ii) THIS AGREEMENT, (iii) THE
COLLATERAL DOCUMENTS OR (iv) THE GUARANTY AGREEMENT. IT IS AGREED AND
UNDERSTOOD THAT THIS WAIVER CONSTITUTES
7
<PAGE> 8
A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE
BORROWER, GUARANTOR AND LENDER, AND THE BORROWER, GUARANTOR AND THE LENDER
HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY
ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY
OR NULLIFY ITS EFFECT. THE BORROWER, GUARANTOR AND LENDER FURTHER REPRESENT
THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING
OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND
THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(b) THE BORROWER AND GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE
JURISDICTION OF THE STATE COURTS OF LOUISIANA AND THE FEDERAL COURTS IN
LOUISIANA, AND AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR BROUGHT
TO ENFORCE THE PROVISIONS OF THE NOTE, THIS AGREEMENT AND/OR THE COLLATERAL
DOCUMENTS MAY BE BROUGHT IN ANY COURT HAVING SUBJECT MATTER JURISDICTION.
Section 8.15 Intervention. Kart's International, Incorporated
("Guarantor") intervenes in this Agreement, acknowledges the terms and
conditions hereof and unconditionally agrees to undertake and perform all of
the terms and conditions set forth herein
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed as of the 1st day of October, 1996.
WITNESSES: USA INDUSTRIES, INC.
[ILLEGIBLE] By Its Agent, Kart's International,
- --------------------------- Incorporated
By: /s/ V. LYNN GRAYBILL
---------------------------------
/s/ CAROLYN A. MISTOLEE V. Lynn Graybill, President BORROWER
- ---------------------------
KART'S INTERNATIONAL, INCORPORATED
By: /s/ V. LYNN GRAYBILL
---------------------------------
V. Lynn Graybill, President GUARANTOR
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed as of the 1st day of October, 1996.
WITNESSES: DEPOSIT GUARANTY NATIONAL BANK
[ILLEGIBLE] OF LOUISIANA
- ---------------------------
By: [ILLEGIBLE]
---------------------------------
LENDER
/s/ CAROLYN A. MISTOLEE
- ---------------------------
8
<PAGE> 1
EXHIBIT 10.24
<TABLE>
<S> <C> <C>
092-1006162
Officer #274 Borrower #7504376 COMMERCIAL LOAN
- ------------------------------------------------------------------------------------------------------------------------------
USA Industries, Inc. DEPOSIT GUARANTY NATIONAL BANK Loan Number 92-1006162
109 Northpark Blvd. Suite 210 201 N W RAILROAD AVENUE Date October 1, 1996
Covington, La. 70433 HAMMOND, LA. 70401 Maturity Date September 30, 1997
Loan Amount $500,000.00
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Renewal Of ___________________
"I" includes each borrower above, "You" means the lender, its successors and assigns.
join, severally and solidarily.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For value received, I promise to pay to the order of bearer, at your address
listed above the PRINCIPAL sum of Five Hundred Thousand And 00/100 Dollars
$ 500,000.00
[ ] SINGLE ADVANCE: I will receive all of this principal sum on _______. No
additional advances are contemplated under this note.
[XX] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On __________ I will receive
the amount of $______________ and future principal advances are
contemplated.
CONDITIONS: The conditions for future advances are As Agreed Upon By
Bank And Borrower
[XX] OPEN END CREDIT: You and I agree that I may borrow up to the
maximum amount of principal more than one time. This feature is
subject to all other conditions and expires on September 30, 1997.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up to the
maximum only one time ( and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
__________ at the rate of 8.250% per year until 00/00/0000.
[XX] VARIABLE RATE: This rate may then change as stated below.
[XX] INDEX RATE" The future rate will be Equal To the following index
rate:
Deposit Guaranty Base Rate
[XX] FREQUENCY AND TIMING: The rate on this note may change as often as
Daily.
A change in the interest rate will take effect On The Same Day.
[ ] LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than N/A % or less than N/A %.
EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[ ] The amount of each scheduled payment will change.
[XX] The amount of the final payment will change
[ ] _________________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a 365/Actual basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[XX] on the same fixed or variable rate basis in effect before maturity
(as indicated above).
[ ] at a rate equal to ______________________________________________.
[XX] LATE CHARGE: If a payment is made more than 10 days after it is due, I
agree to pay a late charge of Lesser Of $500.00 or 5% Of Payment.
[ ] ADDITIONAL CHARGES: In addition to interest; I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount
above:
_________________________________________________________________________.
PAYMENTS: I agree to pay this note as follows:
[XX] INTEREST: I agree to pay accrued interest Quarterly Beginning 12/30/1996
[XX] PRINCIPAL: I agree to pay the principal On 09/30/1997 Then On 09/30/1997
[ ] INSTALLMENTS: I agree to pay this note in ______payments. The first
payment will be in the amount of $_____________ and will be due
_______________. A payment of $________________ will be due ______________
thereafter. The final payment of the entire unpaid balance of principal and
interest will be due ____________________________________.
ADDITIONAL TERMS:
CPA# 17397 Dated October 1, 1996
SECURITY:
UCC-I On Blanket Accounts Receivable In The Name Of Wal Mart, Inc.
Guaranty of Karts International, Inc.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
This note is secured by: PURPOSE: The purpose of this loan is Line Of
Credit.
[ ] the pledge of a Collateral Mortgage Note executed by _____________ as
Mortgagor(s) before ___________________ Notary Public dated _____________. SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE
(INCLUDING THOSE ON PAGE 2). I have received a
[ ] a security agreement executed by _______________ dated _________________. copy on today's date.
- --------------------------------------------------------------------------------
Signature for Lender USA INDUSTRIES, INC.
-----------------------------------------------
By its Agent, Kart's International Incorporated
/s/ ILLEGIBLE BY: /s/ V. LYNN GRAYBILL
- -------------------------------------------------------------------------------- ------------------------------------------------
V. Lynn Graybill, President
- -------------------------------------------------------------------------------- -----------------------------------------------
-----------------------------------------------
</TABLE>
(page 1 of 2)
<PAGE> 2
APPLICABLE LAW: The law of the state of Louisiana will govern this note. Any
term of this note which is contrary to applicable law will not be effective,
unless the law permits you and me to agree to such a variation. If any
provision of this agreement cannot be enforced according to its terms, this
fact will not affect the enforceability of the remainder of this agreement. No
modification of this agreement may be made without your express written
consent. Time is of the essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce accrued unpaid
interest, and then unpaid principal. If you and I agree to a different
application of payments, we will describe our agreement on this note. I may
prepay a part of, or the entire balance of this loan without penalty, unless we
specify to the contrary on this note. Any partial prepayment will not excuse or
reduce any later scheduled payment until this note is paid in full (unless,
when I make the prepayment, you and I agree in writing to the contrary). The
final payment may be more or less than the amount scheduled depending on my
payment record.
INTEREST: If I receive the principal in more than one advance, each advance
will start to earn interest only when I receive the advance. The interest rate
in effect on this note at any given time will apply to the entire principal
advanced at that time. Notwithstanding anything to the contrary, I do not agree
to pay and you do not intend to charge any rate of interest that is higher than
the maximum rate of interest you could charge under applicable law for the
extension of credit that is agreed to here (either before or after maturity).
If any notice of interest accrual is sent and is in error, we mutually agree to
correct it, and if you actually collect more interest than allowed by law and
this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the
rate on this note will be the same rate you charge on any other loans or class
of loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat
those payments made by you as advances and add them to the unpaid principal
under this note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed-to me on an item presented to you or in your
possession for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off, This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has
not agreed to pay this note, your right of set-off will apply to my interest in
the obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to
hold you harmless from any such claims arising as a result of your exercise of
your right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent
not prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
COLLATERAL: If this note is secured by real estate, I pledge the collateral
described on page 1 to you to secure repayment of this loan including
principal, interest, late charges, attorneys' fees and costs.
The pledged collateral will also secure repayment of any and all other
debts I owe you, now or in the future, up to a maximum of $50,000,000.00. The
pledged collateral will not secure any other debt entered into for primarily
personal, family, or household purposes unless so indicated on the note or
agreement representing such debt.
I have delivered the pledged collateral to you, which is to remain
pledged and held in your possession until such time as this loan and all other
debts secured by the pledged collateral have been paid in full, including
principal, interest, late charges, attorneys' fees and costs.
If this note is secured by a security agreement, the terms are set forth
in that document.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without
first notifying you before making such a change; (10) I fail to plant,
cultivate and harvest crops in due season; (11) any loan proceeds are used for
a purpose that will contribute to excessive erosion of highly erodible land or
to the conversion of wetlands to produce an agricultural commodity, as further
explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this
note (principal, accrued unpaid interest and other accrued
charges).
(2) You may set off this debt against any right I have to the
payment of money from you, subject to the terms of the
"Set-Off" paragraph herein.
(3) You may demand security, additional security, or additional
parties to be obligated to pay this note as a condition for
not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on
credit by me.
(5) You may use any remedy you have under state or federal law.
(6) If secured by real estate, you may demand immediate payment of
the pledged note(s) and foreclose under any Collateral
Mortgage securing the pledged note(s) in accordance with
applicable law, and have the mortgaged property immediately
seized and sold under ordinary or executory proceedings, and
to apply the proceeds derived from the judicial sale of the
mortgaged property to repayment of the above described loan
and any other debts secured by the pledged collateral,
including principal, interest, late charges, attorneys' fees
and costs.
By selecting any one or more of these remedies you do not give up your
right to later use any other remedy. By waiving your right to declare an event
to be a default, you do not waive your right to later consider the event as a
default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay reasonable
attorney's fees of 25% of the unpaid debt plus court costs (except where
prohibited by law). To the extent permitted by the United States Bankruptcy
Code, I also agree to pay the reasonable attorney's fees and costs you incur to
collect this debt as awarded by any court exercising jurisdiction under the
Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of
dishonor).
I waive all pleas of division and discussion, and agree that my
liability under this note shall be "joint, several and solidarity." I also
agree to waive all rights that may be waived under Section 3562 of the
Louisiana Consumer Credit Law, if applicable, to the fullest extent allowed
therein.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a
separate guarantee or endorsement). You may sue me alone, or anyone else who is
obligated on this note, or any number of us together, to collect this note. You
may do so without any notice that it has not been paid (notice of dishonor).
You may without notice release any party to this agreement without releasing
any other party. If you give up any of your rights, with or without notice, it
will not affect my duty to pay this note. Any extension of new credit to any of
us, or renewal of this note by all or less than all of us will not release me
from my duty to pay it. (Of course, you are entitled to only one payment in
full.) I agree that you may at your option extend this note or the debt
represented by this note, or any portion of the note or debt, from time to time
without limit or notice and for any term without affecting my liability for
payment of the note. I will not assign my obligation under this agreement
without your prior written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and to
report to others your credit experience with me (such as a credit reporting
agency). I agree to provide you, upon request, any financial statement or
information you may deem necessary. I warrant that the financial statements and
information I provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in
writing of any change in my address. I will give any notice to you by mailing
it first class to your address stated on page 1 of this agreement, or to any
other address that you have designated.
INSURANCE: You may collect the proceeds (or rebates of unearned premiums) on
any insurance policy insuring me (where you are named as loss payee) and on any
policy insuring the property securing this note. You will apply any insurance
proceeds or rebates toward what I owe you.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(not required) THROUGH
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
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</TABLE>
(page 2 of 2)
<PAGE> 1
EXHIBIT 10.25
[CASHE, LEWIS, MOODY & COUDRAIN LETTERHEAD]
DEBTOR'S NAME, ADDRESS SECURED PARTY'S NAME AND ADDRESS
AND SSN OR TIN
DEPOSIT GUARANTY NATIONAL BANK
USA INDUSTRIES, INC. OF LOUISIANA
63-1059139 Post Office Box 2188
202 Challenge Avenue Hammond, LA 70404
Prattville, AL 36067
("You" means the Secured Party, its
("I" means each Debtor who signs.) successors and assigns)
I am entering into this security agreement with you on October 1,
1996.
SECURED DEBTS. I agree that this security agreement will secure the payment
and performance of debts, liabilities or obligations described below that USA
INDUSTRIES, INC. owes to you now or in the future:
SPECIFIC DEBT. The debt, liability or obligation evidenced by
Promissory Note in the principal amount of $500,000.00 dated October
1, 1996 and all extensions, renewals, refinancings, modifications and
replacements of the debt, liability or obligation.
SECURITY INTEREST. To secure the payment and performance of the above
described Secured Debts, liabilities and obligations, I give you a security
interest in all of the property described below that I now own and that I may
own in the future (including, but not limited to, all parts, accessories,
repairs, improvements, and accessions to the property), wherever the property
is or may be located, and all proceeds and products from the property:
ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO
PAYMENT: All rights I have now and that I may have in the future to
the payment of money including, but not limited to: (a) payment for
goods sold or leased or for services rendered, whether or not I have
earned such payment by performance; and (b) rights to payment arising
out of all present and future debt instruments, chattel paper and
loans and obligations receivable, which I have against any account
debtor or obligor of mine in connection with that certain Vendor's
Agreement with Wal-Mart Stores, Inc.
GENERALLY. "You" means the Secured Party identified hereinabove in this
agreement. "I," "me" and "my" means each person who signs this security
agreement as Debtor and who agrees to give the property described in this
agreement as security for the Secured Debts. All terms and duties under this
agreement are joint and individual. No modification of this security agreement
is effective unless made in writing and signed by you and me. Time is of the
essence in this agreement.
APPLICABLE LAW. I agree that this security agreement will be governed by the
law of the State of Louisiana. If property described in this agreement is
located in another state, this agreement may also, in some circumstances, be
governed by the law of the state in which the property is located.
To the extent permitted by law, the terms of this agreement may vary applicable
law. If any provision of applicable law may not be varied by agreement, any
provision of this agreement that does not comply with that law will not be
effective. If any provision of this agreement cannot be enforced according to
its terms, this fact will not affect the enforceability of the remainder of
this agreement.
OWNERSHIP AND DUTIES TOWARD PROPERTY. I represent that I own all of the
<PAGE> 2
property, or to the extent this is a purchase money security interest I will
acquire ownership of the property with the proceeds of the loan. I will defend
it against any other claim. Your claim to the property is ahead of the claims
of any other creditor. I agree to do whatever you require to protect your
security interest and to keep your claim in the property ahead of the claims of
other creditors. I will not do anything to harm your position.
I will keep books, records and accounts about the property and my business in
general. I will let you examine these records at any reasonable time. I will
prepare any report or accounting you request, which deals with the property.
I will keep the property in my possession and will keep it in good repair and
use it only for the purpose(s) described in this agreement. I will not change
this specified use without your express written permission. I represent that I
am the original owner of the property and, if I am not, that I have provided
you with a list of prior owners of the property.
I will keep the property at my address listed hereinabove, unless we agree I
may keep it at another location. If the property is to be used in another
state, I will give you a list of those states. I will not try to sell the
property unless it is inventory or I receive your written permission to do so.
If I sell the property I will have the payment made payable to the order of you
and me.
AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR. I agree to
pay you on demand any sums you advanced on my behalf including, but not limited
to, expenses incurred in collecting, insuring, conserving, or protecting the
property or in any inventories, audits, inspections or other examinations by
you in respect to the property. If I fail to pay such sums, you may do so for
me, adding the amount paid to the other amounts secured by this agreement. All
such sums will be due on demand and will bear interest at the highest rate
provided in any agreement, note or other instrument evidencing the Secured
Debt(s) and permitted by law at the time of the advance.
If I fail to perform any of my duties under this security agreement, or any
mortgage, deed of trust, lien or other security interest, you may without
notice to me perform the duties or cause them to be performed. I understand
that this authorization includes, but is not limited to, permission to: (1)
prepare, file, and sign my name to any necessary reports or accounting; (2)
notify any account debtor of your interest in the property and tell the account
debtor to make the payments to you or someone else you name, rather than me;
(3) place on any chattel paper a note indicating your interest in the property;
(4) in my name, demand, collect, receive and give a receipt for, compromise,
settle, and handle any suits or other proceedings involving the collateral; (5)
take any action you feel is necessary in order to realize on the collateral,
including performing any part of a contract or endorsing it in my name; and (6)
to make an entry on my books and records showing the existence of the security
agreement. Your right to perform for me shall not create an obligation to
perform and your failure to perform will not preclude you from exercising any
of your other rights under the law or this security agreement.
WARRANTIES AND REPRESENTATIONS. I will not settle any account for less than
its full value without your written permission. I will collect all accounts
until you tell me otherwise. I will keep the proceeds from all the accounts
and any goods which are returned to me or which I take back in trust for you.
I will not mix them with any other property of mine. I will deliver them to
you at your request. If you ask me to pay you the full price on any returned
items or items retaken by myself, I will do so.
DEFAULT. I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings, (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was
provided; (7) I do or fail to do something which causes you to believe that
you will have
<PAGE> 3
difficulty collecting the amount I owe you.
REMEDIES. If I am in default on this agreement, you have the following
remedies:
1) You may demand immediate payment of all I owe you
under any obligation secured by this agreement.
2) You may set off any obligation I have to you against
any right I have to the payment of money from you.
3) You may demand more security or new parties obligated
to pay any debt I owe you as a condition of giving up
any other remedy.
4) You may make use of any remedy you have under state
or federal law.
5) You may repossess the property and sell it as
provided by law. You may apply what you receive from
the sale of the property to: your expenses; your
reasonable attorneys' fees and legal expenses (where
not prohibited by law); any debt I owe you. If what
you receive from the sale of the property does not
satisfy the debts, you may take me to court to
recover the difference (where permitted by law).
I agree that 1O days written notice sent to my
address listed hereinabove by first class mail will
be reasonable notice to me under the Uniform
Commercial Code.
If any items not otherwise subject to this agreement
are contained in the property when you take
possession, you may hold these items for me at my
risk and you will not be liable for taking possession
of them.
6) In some cases, you may keep the property to satisfy
the debt.
By choosing any one or more of these remedies, you do not waive your right to
later use any other remedy. You do not waive a default if you choose not to
use any remedy, and, by electing not to use any remedy, you do not waive your
right to later consider the event a default and to immediately use any remedies
if it continues or occurs again.
FILING. A carbon, photographic or other reproduction of this security
agreement or the financing statement covering the property described in this
agreement may be used as a financing statement where allowed by law. Where
permitted by law, you may file a financing statement which does not contain my
signature, covering the property secured by this agreement.
I am a corporation, duly existing and organized under the laws of the State of
Alabama.
DEPOSIT GUARANTY NATIONAL I AGREE TO THE TERMS SET OUT IN
BANK OF LOUISIANA THIS AGREEMENT. I HAVE RECEIVED A COPY
OF THIS DOCUMENT ON TODAY'S DATE.
By:/s/ILLEGIBLE /s/ V. LYNN GRAYBILL, President
----------------------- -------------------------------------
Title: EVP USA INDUSTRIES, INC. Debtor
--------------------
By: its Agent, Kart's International
Incorporated
By: /s/ V. LYNN GRAYBILL
-------------------------------------
V. Lynn Graybill, President
<PAGE> 1
EXHIBIT 10.26
STATE OF ALABAMA - UNIFORM COMMERCIAL CODE - FINANCING STATEMENT
FORM UCC-1 ALA.
Important: Read Instructions on Back Before Filling out Form.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] The Debtor is a transmitting No. of Additional This FINANCIAL STATEMENT is presented
utility as defined in ALA Sheets Prescribed: to a Filing Officer for filing pursuant
CODE 7-9-105(n). to the Uniform Commercial Code.
- ------------------------------------------------------------------------------------------------------------------------------------
1. Return copy or recorded original to: THIS SPACE FOR USE OF FILING OFFICER
Andre G. Coudrain Date, Time, Number & Filing Office
Cashe, Lewis, Moody & Coudrain P. 0. Box 1509
Hammond, LA 70404
Pre-paid Acct. # ___________________
- ----------------------------------------------------------------------
2. Name and Address of Debtor (Last Name First if a Person)
USA INDUSTRIES, INC.
202 Challenge Avenue
Prattville, AL 36067
Social Security/Tax ID # 63-1058139
- ----------------------------------------------------------------------
2A. Name and Address of Debtor (IF ANY) (Last Name First if a Person)
Social Security/Tax ID # ____________________
- ----------------------------------------------------------------------
[ ] Additional debtors on attached UCC-E
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY (Last Name First if a Person) 4. ASSIGNEE OF SECURED PARTY (IF ANY)
(Last Name first if a Person)
DEPOSIT GUARANTY NATIONAL BANK OF LOUISIANA
P.O. BOX 2188
HAMMOND, LA 70404
Social Security/Tax ID# 72-0152936
- ----------------------------------------------------------------------
[ ] Additional secured parties on attached UCC-E
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
5. The Financing Statement Covers the Following Types
(or items) of Property:
Accounts, Instruments, Documents, Chattel Paper and 5A. Enter Code(s) From Back of Form That
Other Rights to Payment: All rights I have now and Best Describes The Collateral Covered
that I may have in the future to the payment By This Filing:
of money including, but not limited to,: (a) payment 001
for goods sold or leased or for services rendered, --- ---
whether or not I have earned such payment by 101
performance; and (b) rights to payment arising out of --- ---
all present and future debt instruments, chattel paper 200
and loans and obligations receivable. The above --- ---
includes any rights and interests (including all liens
and security interest) which I may have by law or --- ---
agreement against any account debtor or obligor of
mine, to that certain Vender's Agreement with Wal-Mart --- ---
Stores, Inc.
--- ---
--- ---
Check X if covered: [ ] Products of Collateral are also covered.
</TABLE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
6. This statement is filed without the debtor's 7. Complete only when filing with the Judge of Probate:
signature to perfect a "security interest The initial indebtedness secured by this
financing in collateral (check X if so) statement is $ ____________________
[ ] already subject to a security interest in Mortgage tax due (15 cents per $100.00 or fraction
another jurisdiction when it was brought thereof) $ ________________________
into this state. ---------------------------------------------------------------
8. [ ] This financing statement covers timber to be
[ ] already subject to a security interest in cut, crops, or fixtures and is to be cross indexed
another jurisdiction when debtor's location in the real estate mortgage records (Describe
changed to this state. real estate and if debtor does not have an interest
of record, give name of record owner In Box 5)
[ ] which is proceeds of the original collateral ---------------------------------------------------------------
described above in which a security interest is
perfected.
[ ] acquired after a change of name, identity or
corporate structure of debtor
Signature(s) of Secured Party(ies)
[ ] as to which the filing has lapsed (Required only if filed without debtor's Signature - see Box 6)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
/s/ V. LYNN GRAYBILL /s/ ILLEGIBLE
------------------------------------------------------ ---------------------------------------------------------------
Signatures of Debtor(s) Signature(s) of Secured Party(ies) or Assignee
USA Industries, Inc., by its Agent, DEPOSIT GUARANTY NATIONAL BANK OF LOUISIANA
------------------------------------------------------ ---------------------------------------------------------------
KART'S International, Incorporated, Signature(s) of Secured Party(ies) or Assignee
By: /s/.V. LYNN GRAYBILL, President.
------------------------------------------------------ ---------------------------------------------------------------
Type name of Individual or Business Type Name of Individual or Business
</TABLE>
<PAGE> 1
EXHIBIT 10.27
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------
KART'S INTERNATIONAL, INC. DEPOSIT GUARANTY NATIONAL USA Industries
- ---------------------------- Bank of Louisiana -----------------------------
109 North Park Blvd., Hammond, Louisiana 202 Challenger Ave
- ---------------------------- -----------------------------
Suite 210 Prattville, AL 36067
- ---------------------------- -----------------------------
Covington, LA 70433
- ---------------------------- -----------------------------
GUARANTOR'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS BORROWER'S NAME AND ADDRESS
"I" includes each guarantor "You" means the lender, its "Borrower" means each
above jointly, severally and successors and assigns. person above.
solidarily.
- -----------------------------------------------------------------------------------------
</TABLE>
GUARANTY
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce you, at your option, to make loans or engage
in any other transactions with borrower from time to time, I absolutely and
unconditionally guarantee the full payment of the following debts (as defined
herein) when due (whether at maturity or upon acceleration):
PRESENT DEBT GUARANTY
[X] I absolutely and unconditionally guarantee to you the payment and
performance of the following described debt (including all renewals,
extensions, refinancings and modifications) of the borrower:
Promissory Note in the amount of $500,000.00 dated October 1, 1996
PRESENT AND FUTURE DEBT GUARANTY
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description,
that the borrower may now or at any time in the future owe you
including, but not limited to, the following described debt(s):
N/A
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description,
that the borrower may now or at any time in the future owe you, up to
the principal amount of $ N/A plus accrued interest, attorneys'
fees and collection costs referable thereto (when permitted by law),
and all other amounts agreed to be paid under all agreements
evidencing the debt and securing the payment of the debt. You may,
without notice, apply this guaranty to such debts of the borrower as
you may select from time to time.
DEFINITIONS - As used in this agreement, the terms "I," "we," and "my" mean all
persons signing this guaranty agreement, individually and jointly, and their
heirs, executors, administrators and assigns.
The term "debt" means all debts, liabilities, and obligations of the
borrower (including, but not limited to, all amounts agreed to be paid under
the terms of any notes or agreements securing the payment of any debt,
liability or obligation, overdrafts, letters of credit, guaranties, advances
for taxes, insurance, repairs and storage, and all extensions, renewals,
refinancings and modifications of these debts) whether now existing or created
or incurred in the future, due or to become due, or absolute or contingent,
except for any obligations incurred by borrower after the date of this guaranty
for which the borrower meets your standard of creditworthiness based on the
borrower's own assets and income without the addition of a guaranty, or to
which, although you require the addition of a guaranty, the borrower chooses
someone other than me to guaranty the obligation.
APPLICABLE LAW - This agreement shall be interpreted under the laws of the
state of Louisiana, without giving any effect to the principles of conflict of
laws. Any term of this agreement that does not comply with applicable law will
not be effective if that law does not expressly or impliedly permit variations
by agreement. If any part of this agreement cannot be enforced according to its
terms, this fact will not affect the balance of this agreement.
REVOCATION - I agree that this is an absolute and continuing guaranty. If this
guaranty is limited to the payment of a specific debt of the borrower described
above, this agreement cannot be revoked and will remain in effect until the
debt is paid in full. If this guaranty covers both the borrower's present and
future debts, I agree that this guaranty will remain binding on me, whether or
not there are any debts outstanding, until three (3) full business days after
you have actually received written notice of my revocation or written notice of
my death or incompetence.
Notice of revocation or notice of my death or incompetence will not
affect my obligations under this guaranty with respect to any debts incurred by
or for which you have made a commitment to borrower within three (3) full
business days after you actually receive such notice, and all renewals,
extensions, refinancings, and modifications of such debts. I agree that if any
other person signing this agreement provides a notice of revocation to you, I
will still be obligated under this agreement for three (3) full business days
after I provide a notice of revocation to you. If any other person signing this
agreement dies or is declared incompetent, such fact will not affect my
obligations under this agreement.
OBLIGATIONS INDEPENDENT - I agree that this guaranty is in addition to and does
not supercede any previous guaranty. I agree that I am obligated to pay
according to the terms of this guaranty even if any other person has agreed to
pay the borrower's debt. My obligation to pay according to the terms of this
guaranty shall not be affected by the illegality, invalidity or
unenforceability of any notes or agreements evidencing the debt, the violation
of any applicable usury laws, forgery, or any other circumstances which make
the indebtedness unenforceable against the borrower.
I will remain obligated to pay on this guaranty even if any other
person who is obligated to pay the borrower's debt, including the borrower, has
such obligation discharged in bankruptcy, foreclosure, or otherwise discharged
by law. In such situations, my obligation shall include post-bankruptcy
petition interest and attorneys' fees and any other amounts which borrower is
discharged from paying or which do not otherwise accrue to borrower's
indebtedness due to borrower's discharge. I will also be obligated to pay you,
to the fullest extent permitted by law, any deficiency remaining after
foreclosure of any mortgage or security interest securing borrower's debt,
whether or not the liability of borrower or any other obligor for such
deficiency is discharged by statute or judicial decision. If any payments by
borrower to you are thereafter set aside, recovered, rescinded, in whole or in
part, are settled by you at your discretion, or are in any way recouped or
recovered from you for any reason (including, without limitation, the
bankruptcy, insolvency, or reorganization of borrower or any other obligor),
then I am obligated to reimburse or indemnify you for the full amount you so
pay together with costs, interest, attorneys' fees and all other expenses which
you incur in connection therewith. I also agree that if my liability is limited
to a stated principal amount (plus other agreed charges), you may allow the
borrower to incur debt in excess of the specified amount and apply to the
payment of such excess any amounts you receive for payment of the debt from the
borrower or any other person, any amounts resulting from any collateral, or
amounts received from any other source, without affecting my obligations under
this agreement.
No modification of this agreement is effective unless in writing and
signed by you and me, except that you may, without notice to me and without the
addition of a signed writing or my approval; (1) release any borrower or other
person who may be liable for borrower's debt, (2) release or substitute any
collateral, (3) fail to perfect any security interest or otherwise impair any
collateral, (4) waive or impair any right you may have against any borrower or
other person who may be liable for borrower's debt, (5) settle or compromise
any claim against the borrower or any person who may be liable for the
borrower's debt, (6) procure any additional security or persons who agree to be
liable for borrower's debt, (7) delay or fail to pursue enforcement of the
debt, (8) apply amounts you receive from the borrower or other persons to
payment of the debt in any order you select, (9) make any election with respect
to the debt provided by law or any agreement with any person liable for the
debt, (10) exercise or fail to exercise any rights you have with respect to the
debt, (ll) extend new credit to the borrower, or (12) renew, extend, refinance
or modify the borrower's debt on any terms agreed to by you and the borrower
(including, but not limited to, changes in the interest rate or in the method,
time, place or amount of payment) without affecting my obligation to pay under
this guaranty.
WAIVER - I waive presentment, demand, protest, notice of dishonor, and notice
of acceptance of this guaranty. I also waive, to the extent permitted by law,
all notices, all defenses and claims that the borrower could assert, any right
to require you to pursue any remedy or seek payment from any other person
before seeking payment under this agreement, and all other defenses to the
debt, except payment in full. You may without notice to me and without my
consent, enter into agreements with the borrower from time to time for purposes
of creating or continuing the borrower's debt as allowed by this guaranty. I
agree that I will be liable, to the fullest extent permitted by applicable law,
for any deficiency remaining after foreclosure (or repossession) and sale of
any collateral without regard to whether borrower's obligation to pay such
deficiency is discharged by law. If any payments on the debt are set aside,
recovered or required to be returned in the event of the insolvency, bankruptcy
or reorganization of the borrower, my obligations under this agreement will
continue as if such payments had never been made.
I also waive and relinquish all present and future claims, rights, and
remedies against borrower or any other obligated party arising out of the
creation or my performance of this guaranty. My waiver includes, but is not
limited to, the right of contribution, reimbursement, indemnification,
subrogation, exoneration, and any right to participate in any claim or remedy
you may have against the borrower, collateral, or other party obligated for
borrower's debts, whether or not not such claim, remedy, or right arises in
equity, or under contract, statute or common law.
REMEDIES - If I fail to keep any promise contained in this agreement or any
agreement securing this agreement, you may, make this agreement and the
borrower's debt immediately due and payable, you may set off this obligation
against any right I have to receive money from you (however, you may not
set-off against any accounts in which my rights are only as a fiduciary or my
IRA or other tax-deferred retirement account), you may use any remedy you have
under state or federal law, and you may use any remedy given to you by any
agreement securing this agreement. If I die, am declared incompetent, or become
insolvent (either because my liabilities exceed my assets or because I am
unable to pay my debts as they become due), you may make the debt immediately
due and payable.
COLLECTION COSTS - Except when prohibited by law, I agree to pay the reasonable
costs and expenses you incur to enforce and collect this agreement, including
attorneys' fees and court costs.
SECURITY - This guaranty is [ ] unsecured [ ] secured by .
---------------------
- --------------------------------------
NOTICE TO COSIGNER
YOU ARE BEING ASKED TO GUAR- In witness whereof, I have signed my
ANTEE THE DEBTS DESCRIBED ABOVE. IF name and affixed my seal on this ____
YOU ARE MAKING A "PRESENT AND FUTURE day of _____________ and by doing so,
DEBT GUARANTY" AS IDENTIFIED ABOVE, agree to the terms of this guaranty
YOU ARE BEING ASKED TO GUARANTEE and acknowledge having read the Notice
PRESENT AS WELL AS FUTURE DEBTS OF to Cosignor.
THE BORROWER ENTERED INTO WITH THIS
LENDER. THINK CAREFULLY BEFORE YOU
DO. IF THE BORROWER DOESN'T PAY KART'S INTERNATIONAL INCORPORATED (SEAL)
THESE DEBTS, YOU WILL HAVE TO. BE ----------------------------------------
SURE YOU CAN AFFORD TO PAY IF YOU By: /s/ V.LYNN GRAYBILL (SEAL)
HAVE TO, AND THAT YOU WANT TO ACCEPT ----------------------------------------
THIS RESPONSIBILITY. V. Lynn Graybill, President (SEAL)
----------------------------------------
YOU MAY HAVE TO PAY UP TO
THE FULL AMOUNT OF THESE DEBTS IF THE
BORROWER DOES NOT PAY. YOU MAY ALSO
HAVE TO PAY LATE FEES OR COLLECTION
COSTS, WHICH INCREASE THIS AMOUNT.
THE LENDER CAN COLLECT THESE
DEBTS FROM YOU WITHOUT FIRST TRYING TO
COLLECT FROM THE BORROWER. THE LENDER
CAN USE THE SAME COLLECTION METHODS
AGAINST YOU THAT CAN BE USED AGAINST
THE BORROWER, SUCH AS SUING YOU,
GARNISHING YOUR WAGES, ETC. IF THESE
DEBTS ARE EVER IN DEFAULT, THAT FACT
MAY BECOME PART OF YOUR CREDIT RECORD.
- --------------------------------------
(page 1 of 1)
<PAGE> 1
EXHIBIT 10.28
KARTS INTERNATIONAL INCORPORATED
November 8, 1996
Argent Securities, Inc.
3340 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Gentlemen:
Karts International Incorporated, a corporation organized and existing
under the laws of the state of Nevada (the "COMPANY"), hereby confirms its
agreement with you (the "PLACEMENT AGENT") as follows:
1. Description of Transaction. The Company will offer for sale (the
"OFFERING") to a limited number of persons meeting certain criteria for
"accredited investor" status (as more fully described in the Confidential
Private Placement Memorandum dated October 28, 1996, and any exhibits annexed
thereto (collectively, the "MEMORANDUM")), an aggregate of twenty-five (25)
units ("UNITS"), each Unit at a price of $25,000. Each Unit consists of one
share of the Company's convertible Preferred Stock ("Preferred Stock") and
10,000 redeemable common stock purchase warrants (the "WARRANTS"). The Company
anticipates filing a registration statement with the Securities and Exchange
Commission ("COMMISSION") pursuant to which it will conduct a public offering
of its stock (the "PUBLIC OFFERING"). The minimum investment is one Unit or
Twenty-Five Thousand Dollars ($25,000) subject to exception in the discretion
of the Placement Agent and the Company on a case-by-case basis. The Units are
more fully described in the Memorandum. Capitalized words not defined herein
shall have the meaning set forth in the Memorandum.
2. Appointment of the Placement Agent. The Company hereby appoints the
Placement Agent as its exclusive agent to offer and sell the Units on a "best
efforts -- all or none" basis, as set forth in Section 3(d) below. The
Placement Agent, on the basis of the representations, warranties, covenants and
agreements of the Company, and subject to the conditions contained herein,
accepts such appointment and agrees to use its best efforts to sell the Units.
It is understood that the Placement Agent has no commitment to sell the Units
other than to use its best efforts.
3. Purchase. Sale and Delivery of the Units. On the basis of the
representations and warranties contained herein, and subject to the terms and
conditions set forth herein, the parties agree that:
(a) Regulation D Offering. Neither the offer nor the sale of the
Units has been or will be registered with the Securities and Exchange
Commission. The Units will be offered and sold in reliance upon the
exemption from registration provided by Regulation D ("Reg
<PAGE> 2
D") adopted under the Securities Act of 1933, as amended (the "Act"), and
will only be sold to "accredited investors" as such term is defined under
Reg D; the Units will be offered for sale only in states in which the
Units have been qualified or registered for sale or are exempt from such
qualification or registration; and the Company will provide to the
Placement Agent for delivery to all offerees and purchasers and their
representatives, if any, any information, documents and instruments which
the Placement Agent and the Company deem necessary to comply with the
rules, regulations and judicial and administrative interpretations
respecting compliance with applicable state and federal statutes and
regulations.
(b) Subscription for the Units. Subscription for the Units shall
occur by execution and delivery by the subscriber (the "Subscriber") of a
Subscription Agreement Questionnaire and Investment Representation (the
"Subscription Agreement") in the form annexed to the Memorandum together
with such other documents and instruments as are set forth in the
Memorandum.
(c) Segregation of Funds. Each Subscriber for the Units shall
tender a check payable to "Karts International Incorporated, Escrow
Account" or wire transfer funds in respect of the amount of the Units
subscribed for, which funds shall be held in an interest bearing special
bank account (the "Escrow Account") in Fidelity National Bank or such
other commercial bank as the Placement Agent shall determine (the "Bank")
until the conclusion of the Offering as set forth in the Memorandum. All
fees charged by the Bank in connection with the Bank's performance of the
functions specified in this Section 3(c), if any, shall be paid by the
Company out of the proceeds of the Offering.
(d) Closing: Termination of Offering. The "Closing" shall occur
at such time as the Offering is completed, but not later than November 29,
1996 (unless otherwise extended for an additional 30 day period by the
Company and the Placement Agent ("Termination Date")). The Company shall
deliver to the Placement Agent on the Closing Date on behalf of the
Subscribers, the Units pursuant to Paragraph 1 of this Agreement against
payment therefor, after deducting the amounts set forth in Paragraph 4. If
on or before the Termination Date, the Offering is not subscribed for, the
Offering shall be terminated and all amounts contained in the Escrow
Account will be returned to the Subscribers with interest and without
deduction. In the event of such termination of the Offering of the Units,
all terms of this Agreement shall be automatically terminated and neither
party shall have any further obligation to the other party under this
-2-
<PAGE> 3
Agreement other than the Company's obligation to pay expenses as set forth
herein.
4. Compensation of Placement Agent. As compensation for its services
rendered as Placement Agent under this Agreement, and subject to the occurrence
of the sale of all of the Units as provided herein, the Placement Agent shall
receive the following:
(a) A sales commission equal to eight percent (8%) of the aggregate
gross proceeds of the Offering payable by deducting the sales commission
from the gross proceeds on the Closing Date. "Gross Proceeds" is defined
as the total price paid by Subscribers for the Units.
(b) A one-time investment banking fee equal to four percent (4%) of
the gross proceeds of the Offering.
(c) On the Closing Date, the Placement Agent will deduct from the
payment for the Units three (3%) percent of the gross proceeds of the
Units (less such monies as have been previously paid by the Company to the
Placement Agent), as payment for the Placement Agent's non-accountable
expense allowance relating to the transactions contemplated hereby.
5. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Placement Agent that:
(a) Memorandum. The Company has prepared a Memorandum and its related
exhibits, which may be supplemented from time to time, which contains
information, accurate as of the date specified therein, of the kind
specified by applicable statutes and regulations, including without
limitation:
(i) Terms of the Offering;
(ii) A description of the Units;
(iii) A description of the business conducted by the Company;
(iv) The financial condition of the Company;
(v) Past activities of the Company;
(vi) Commissions and compensation to be paid to the Placement
Agent in connection with this Offering;
-3-
<PAGE> 4
(vii) Disclosure in each instance of material contracts,
agreements or other business arrangements, which affect or are related to
the business conducted and to be conducted by the Company;
(viii) Information regarding the Company, its management,
material obligations, liabilities, any pending or threatened lawsuits or
proceedings, and recent material adverse changes in its financial
condition; and
(ix) Any appropriate legends and such other information or
material as the Placement Agent may deem necessary or desirable to be
included therein.
The Memorandum, including all exhibits thereto, as of its date and at all
times subsequent thereto up to and including the Termination Date does not and
will not include 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, in light of the circumstances in which they were made, not misleading.
(b) Additional Information. The Company has provided, and shall
provide to the Placement Agent, such information, documents and
instruments as may be required under Sections 4(2) and 4(6) of the Act and
Reg D for an offer made to accredited investors.
(c) Organization; Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
state of Nevada, with full power and authority, corporate and other, and
with all licenses, permits, certifications, registrations, approvals,
consents and franchises to own or lease and operate its properties and to
conduct its business as described in the Memorandum.
(d) Governmental Authority. Except for the filing of the Form D under
the Act and other than as may be required under applicable state
securities or Blue Sky laws, no authorization, approval, consent, order,
registration, license or permit of any court or governmental agency or
body, is required for the valid authorization, issuance sale and delivery
of the Units to Subscribers to the Placement Agent and the consummation by
the Company of the transactions contemplated by this Agreement.
(e) Corporate Authorization. The Company has full power and
authority, corporate and other, to (i) execute, deliver and perform this
Agreement, (ii) offer and sell the Units, and (iii) consummate the
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<PAGE> 5
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement, the offer and sale of the Units, the
consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this
Agreement, and the Units, have been duly authorized by all necessary
corporate action, and each of this Agreement and, the Units has been duly
executed and delivered by the Company. Each of this Agreement and the
offer and sale of the Units is the valid and binding obligation of the
Company, enforceable in accordance with their respective terms, subject,
as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of
creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions
and the contribution provisions set forth herein may be limited by the
federal securities laws of the United States or state securities laws or
public policy underlying such laws. The execution, delivery and
performance of this Agreement, and the offer and sale of the Units by the
Company, and the consummation by the Company of the transactions herein
and therein contemplated in the manner described by the Memorandum and the
compliance by the Company with the terms of this Agreement, and the Units,
do not, and will not, with or without the giving of notice or the lapse of
time, or both, (a) result in any violation of the Articles of
Incorporation or Bylaws of the Company, (b) result in a breach of or
conflict with any of the terms or provisions of, or constitute a default
under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company pursuant
to, any indenture, mortgage, note, contract, commitment or other agreement
or instrument to which the Company is a party or by which the Company or
any of its properties or assets are or may be bound or affected; (c)
violate any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or its business; or
(d) have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the
Company to own or lease and operate any of its properties and to conduct
its business or the ability of the Company to make use thereof.
(f) Capitalization. The Company had, at the date or dates indicated
in the Memorandum and in its financial statements attached as an exhibit
to the Memorandum, a duly authorized and outstanding capitalization as set
forth therein. The outstanding shares of the Company's common stock, par
value $0.001 per share ("COMMON
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<PAGE> 6
STOCK"), and preferred stock when issued shall have been duly authorized
and validly issued. All such outstanding shares of Common Stock and
Preferred Stock, when and if issued, are fully paid and nonassessable.
None of such outstanding shares of Common Stock and Preferred Stock, when
and if issued, have been issued in violation of the preemptive rights of
any security holder of the Company. The offers and sales of such
outstanding shares of Common Stock and Preferred Stock, when and if
issued, were at all relevant times either registered under the Act and the
applicable state securities or Blue Sky laws, or exempt from such
registration requirements. The authorized shares of outstanding Common
Stock and Preferred Stock conform to the description thereof contained in
the Memorandum. Except as described in the Memorandum, no holder of any of
the Company's securities has any rights, "demand," "piggyback" or
otherwise, to have such securities registered. Except as set forth in the
Memorandum, on the Termination Date there will be no outstanding options
or warrants for the purchase of, or other outstanding rights to purchase,
Common Stock, Preferred Stock or securities convertible into Common Stock
or Preferred Stock.
(g) Authorization of the Units, the Preferred Stock, and the
Warrants. The issuance and sale of the Units, the Preferred Stock, and the
Warrants have been duly authorized, and when the Units, the Preferred
Stock, and the Warrants have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Units, the
Preferred Stock, and the Warrants will be validly issued, fully paid and
nonassessable. The Units, the Preferred Stock, and the Warrants will not
be subject to preemptive rights of any security holder of the Company.
Except as set forth in the Memorandum, on the Termination Date, there will
be no outstanding warrants or options for the purchase of, or other
outstanding rights to purchase Common Stock or Preferred Stock or
securities convertible into Common Stock or Preferred Stock. The Units,
the Preferred Stock, and the Warrants conform to the description thereof
contained in the Memorandum, and such description conforms to the terms
set forth in the Memorandum and Articles of Incorporation of the Company.
(h) Noncontravention. The Company is not in violation of, or in
default under, (i) any term or provision of its Articles of Incorporation,
as amended; (ii) any material term or provision or any financial covenants
of any indenture, mortgage, contract, commitment or other agreement or
instrument to which it is a party or by which it or any of its properties
or business is or may be bound or affected; or (iii) any existing material
applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or
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<PAGE> 7
foreign, having jurisdiction over the Company or any of its properties or
businesses. The Company owns, possesses or has obtained all material
governmental and other licenses, permits, certifications, registrations,
approvals or consents and other authorizations necessary to own or lease,
as the case may be, and to operate its properties and to conduct its
business or operations as currently conducted and all such governmental
and other licenses, permits, certifications, registrations, approvals,
consents and other authorizations are outstanding and in good standing,
and there are no proceedings pending or, to the best of the Company's
knowledge, threatened, nor is there any basis therefor, seeking to cancel,
terminate or limit such licenses, permits, certifications, registrations,
approvals or consents or authorizations.
(i) Litigation. Except as set forth in the Memorandum, there are no
claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the
best of the Company's knowledge, threatened, against the Company or
involving the properties or business of the Company, which, if determined
adversely to the Company, would, individually or in the aggregate, result
in any material adverse change in the financial position, shareholders'
equity, results of operations, properties, business, management or affairs
of the Company, or which question the validity of the capital stock of the
Company, or this Agreement, or of any action taken or to be taken by the
Company pursuant to, or in connection with, this Agreement; nor, to the
best of the Company's knowledge, is there any basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry. There are
no outstanding orders, judgments or decrees of any court, governmental
agency or other tribunal specifically naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to
which the Company or its properties or business is bound or subject.
(j) Financial Statements. The financial statements and schedules and
notes thereto included in the Memorandum are complete, correct and present
fairly the financial position of the Company as of the dates thereof, and
the results of operations and changes in financial position of the Company
for the periods indicated therein, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout
the periods involved except as otherwise stated in the Memorandum.
(k) Liabilities. Except as and to the extent reflected or reserved
against in the financial statements of the Company included in the
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<PAGE> 8
Memorandum, the Company as of July 31, 1996, had no material liabilities,
debts, obligations or claims asserted against it, whether accrued,
absolute, contingent or otherwise, and whether due or to become due,
including, but not limited to, liabilities on account of taxes, other
governmental charges or lawsuits brought subsequent to such date but
before the date hereof. Subsequent to July 31, 1996, the Company has not
incurred liabilities or debts or obligations of any nature whatsoever
other than those incurred in the ordinary course of its business, loans
from shareholders as described in the Company's financial statements and
those pertaining to the Offering.
(l) Taxes. The Company has filed with the appropriate federal, state
and local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns which are required to be filed
(whether relating to income, sales, franchise, withholding, real or
personal property or other types of taxes) or has duly obtained extensions
of time for the filing thereof, and has paid in full all taxes which have
become due pursuant to such returns or claimed to be due by any taxing
authority or otherwise due and owing; and the provisions for taxes
payable, if any, shown on the consolidated financial statements contained
in the Memorandum are sufficient for all accrued and unpaid foreign and
domestic taxes, whether or not disputed, and for all periods to and
including the dates of such consolidated financial statements. Each of the
tax returns heretofore filed by the Company correctly and accurately
reflects the amount of its tax liability thereunder. The Company has
withheld, collected and paid all other levies, assessments, license fees
and taxes to the extent required and, with respect to payments, to the
extent that the same have become due and payable. Except as disclosed in
writing to the Placement Agent, the Company has not executed or filed with
any taxing authority, foreign or domestic, any agreement extending the
period for assessment or collection of any income taxes and is not a party
to any pending action or proceeding by any foreign or domestic
governmental agency for assessment or collection of taxes; and no claims
for assessment or collection of taxes have been asserted against the
Company.
(m) Conduct of Business. Since the respective dates as of which
information is given in the Memorandum, the Company has not (i) incurred
any obligation or liability (absolute or contingent) except obligations
and liabilities incurred in the ordinary course of the operation of
business of the Company as carried on at and prior to such date and those
pertaining to the Offering; (ii) canceled, without payment in full, any
notes, loans or other obligations receivable or other debts or claims held
by it other than in the ordinary course of
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<PAGE> 9
business; (iii) sold, assigned, transferred, abandoned, mortgaged, pledged
or subjected to lien any of its properties, tangible or intangible, or
rights under any contract, permit, license, franchise or other agreement
other than sales or other dispositions of goods or services in the
ordinary course of business at customary terms and prices; (iv) increased
compensation payable to any of its officers, directors or other employees
(including in the term "compensation," salaries, fringe benefits,
pensions, profit participations and payments or benefits of any kind
whatsoever) other than in the ordinary course of business; (v) entered
into any line of business other than that conducted by it on such date or
entered into any transaction not in the ordinary course of its business;
(vi) conducted any line of business in any manner except by transactions
customary in the operation of its business as conducted on such date; or
(vii) declared, made or paid or set aside for payment any cash or non-cash
distribution on any shares of its capital stock.
(n) Properties. The Company has good and marketable title in fee
simple to all real and personal property (tangible and intangible) owned
by it, free and clear of all security interests, charges, mortgages,
liens, encumbrances and defects, except such as are described in the
Memorandum or such as do not materially affect the value or
transferability of such property and do not interfere with the use of such
property made, or proposed to be made, by the Company. The leases,
licenses or other contracts or instruments under which the Company leases,
holds or is entitled to use any property, real or personal, are valid,
subsisting and enforceable only with such exceptions as are not material
and do not interfere with the use of such property made, or proposed to be
made, by the Company, and all rentals, royalties or other payments
accruing thereunder which became due prior to the date of this Agreement
have been duly paid, and neither the Company nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the
best of the Company's knowledge, no event has occurred which, with the
passage of time or the giving of notice, or both, would constitute a
default thereunder. The Company has not received notice of any violation
of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties. The Company has adequately
insured its properties against loss or damage by fire or other casualty
and maintains, in adequate amounts, such other insurance as is usually
maintained by companies engaged in the same or similar businesses located
in its geographical area.
(o) Contracts. Except as set forth in the Memorandum, each contract
or other instrument (however characterized or described) to which the
Company is a party or by which its properties or businesses is
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<PAGE> 10
or may be bound or affected and to which reference is made in the
Memorandum has been duly and validly executed, is in full force and effect
in all material respects and is enforceable against the parties thereto in
accordance with its terms, and none of such contracts or instruments has
been assigned by the Company and neither the Company nor, to the best of
the Company's knowledge, any other party is in default thereunder and, to
the best of the Company's knowledge, no event has occurred which, with the
lapse of time or the giving of notice, or both, would constitute a default
thereunder.
None of the material provisions of such contracts or instruments
violates any existing applicable law, rule, regulation, judgment/order or
decree of any governmental agency or court having jurisdiction over the
Company or any of its assets or businesses.
(p) Employment Agreements. The employment, confidentiality and
non-competition agreements between the Company and certain of its
officers, described in the Memorandum are binding and enforceable
obligations upon the respective parties thereto in accordance with their
respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to
principles of equity.
(q) Benefit Plans. Except as set forth in the Memorandum, the Company
has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements.
(r) Contributions. The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office,
or failed to disclose fully any such contribution in violation of law or
(ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or
quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(s) Reg D Qualification; Offering Documents. The offer and sale of
the Units by the Company has satisfied and on the Closing Date will have
satisfied, all of the requirements of Reg D and the Company is not
disqualified from the exemption under Rule 506 contained in Reg D by
virtue of the disqualification contained in Rule 507. The
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<PAGE> 11
Memorandum does 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.
(t) Finder's Fee. The Company has not incurred any liability for any
finder's fees or similar payments in connection with the transactions
herein contemplated.
(u) Intangibles. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
service marks, copyrights, rights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of its business as described in the Memorandum (collectively the
"Intangibles"); to the best of the Company's knowledge the Company has not
infringed and is not infringing upon the rights of others with respect to
the Intangibles, and the Company has not received any notice that it has
or may have infringed or is infringing upon the rights of others with
respect to the Intangibles; and the Company has not received any notice of
conflict with the asserted rights of others with respect to the
Intangibles which could, singly or in the aggregate, materially adversely
affect its business as presently conducted or prospects, financial
condition or results of operations and the Company knows of no basis
therefor; and, to the best of the Company's knowledge, no others have
infringed upon the Intangibles.
(v) Labor Relations. To the best of the Company's knowledge, no labor
problem exists with the Company's employees or is imminent which could
adversely affect the Company.
(w) No Adverse Change. Since the respective dates as of which
information is given in the Memorandum and the Company's latest financial
statements, the Company has not incurred any material liability or
obligation, direct or contingent, or entered into any material
transaction, whether or not in the ordinary course of business, and has
not sustained any material loss or interference with its business from
fire, storm, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree; and since the respective dates as of which information is
given in the Memorandum, there have not been, and prior to the Closing
Date there will not be, any changes in the capital stock or any material
increases in the long-term debt of the Company or any material adverse
change in or affecting the general affairs, management, financial
condition, shareholders' equity, results of
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<PAGE> 12
operations or prospects of the Company, otherwise than as set forth or
contemplated in the Memorandum.
(x) Regulatory Matters. Except as set forth in the Memorandum, the
Company (i) is in all material respects in compliance with the provisions
of all federal, state, local and foreign laws, rules and regulations; (ii)
has all authorizations, approvals, consents, orders, registrations,
licenses or permits of any domestic and foreign court or governmental
agency or body relating to matters which are necessary or required to
conduct its business; and (iii) has had no material liabilities, debts,
obligations or claims asserted against it, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, on account of
regulatory matters. All information contained in the Memorandum with
respect to regulatory authorities, federal, state and foreign laws, and
rules and regulations is accurate, complete and true in all material
respects and does not omit 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.
Any certificate signed by an officer of the Company and delivered to
the Placement Agent, or to counsel for the Placement Agent, shall be
deemed to be a representation and warranty by the Company to the Placement
Agent as to the matters covered thereby.
6. Covenants.
(a) Memorandum. The Company will furnish the Placement Agent, without
charge, as many copies of the Memorandum (and any amended or supplemental
Memorandum) as the Placement Agent may reasonably request. If any event
occurs as the result of which the Memorandum, as then amended or
supplemented, would include an untrue statement of a material fact, or
omit to state a material fact necessary in order to make the statements
made in light of the circumstances in which they were made not misleading,
or if it shall be necessary to amend or supplement the Memorandum to
comply with applicable law, the Company will forthwith notify the
Placement Agent thereof, and furnish to the Placement Agent in such
quantities as may be reasonably requested, an amendment or amended or
supplemented Memorandum which corrects such statements or omissions or
causes the Memorandum to comply with applicable law. Except as may be
necessary to comply with applicable federal and state securities laws, no
copies of the Memorandum., or any exhibit thereto, or any material
prepared by the Company in connection with the Offering will be given
without the prior written permission of the Placement Agent, by the
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<PAGE> 13
Company or its counsel or by any principal or agent of the Company to any
person not a party to this Agreement, unless such person is a director or
principal shareholder of, or directly employed by, the Company.
(b) State Securities Registration. The Company will provide Placement
Agent's counsel with all information which such counsel determines to be
necessary and otherwise cooperate with such counsel in order to qualify or
register the Units for sale under the securities laws of the states in
which offers or sales will be made or to take any necessary action and
shall have Company counsel file any necessary forms which are required to
obtain an exemption from such qualification or registration in such
jurisdictions. The Company will promptly advise the Placement Agent:
(i) If any securities regulator of any state shall make a
request or suggestion of or to the Company for any amendment to the
Memorandum or any registration materials or for any additional
information, including the nature and substance thereof; and
(ii) Of the issuance of a stop order suspending the
qualification of the Units for sale in any state, including the
initiation or threatening of any proceeding for such purpose, and the
Company will use reasonable commercial efforts to prevent the
issuance of such a stop order, or if such an order shall be issued,
to obtain the withdrawal thereof at the earliest practicable date.
The Company will provide the Placement Agent for delivery to all offerees
and purchasers and their representatives any additional information,
documents and instruments which the Placement Agent shall deem necessary
to comply with the rules, regulations and judicial and administrative
interpretations in those states and jurisdictions where the Units are to
be offered for sale or sold. The Company will file all post-offering
forms, documents or materials and take all other actions required by
states in which the Units have been offered or sold. The Placement Agent
will not make offers or sales of the Units in any jurisdiction in which
the Units have not been qualified or registered, or are not exempt from
such qualification or registration.
(c) Use of Proceeds. The Company will not use any portion of the
proceeds derived from the proposed Offering to repay any indebtedness,
other than as set forth in the Memorandum.
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<PAGE> 14
(d) Reg D Compliance. The Company will comply in all respects with
the terms and conditions of Reg D and applicable state securities laws
with respect to the Offering and the sale of the Units only to "accredited
investors" as set forth in the Memorandum.
(e) Restriction on Issuance of Securities. Except as set forth in the
Memorandum, during the period commencing on the date hereof and
terminating 90 days after the termination of the proposed Offering, the
Company will not, without the prior written consent of the Placement
Agent, issue additional shares of Common Stock or issue or grant warrants,
options or other securities of the Company for the purchase of,
exchangeable for or convertible into shares of Common Stock.
(f) No Anti-Dilution Adjustment. The issuance of the Units will not
give any holder of any of the Company's outstanding options, warrants, or
other convertible securities or rights to purchase shares of the Company's
Stock, the right to purchase any additional shares of Common Stock and/or
the right to purchase shares at a reduced price.
(g) Financial Statements. Until the earlier of (i) one (1) year from
the date hereof or (ii) the consummation of the Public Offering, the
Company will deliver to the Placement Agent no later than the 20th day of
each month financial statements with a comparison to the budget for the
current month and explanatory notes of any deviation from the budget of
more than 10% or a single item of more than $50,000.
(h) No Encumbrances. Until the earlier of (i) one (1) year from the
date hereof or (ii) the consummation of the Public Offering, the Company
will not further pledge any of its assets or further encumber its
properties, without the Placement Agent's prior written approval, which
approval will not be unreasonably withheld.
(i) Restricted Activities. Without the Placement Agent's prior
written approval, which approval will not be unreasonably withheld, the
Company shall not do any of the following, until the earlier of (i) one
(1) year from the date hereof or (ii) the consummation of the Public
Offering:
(i) Incur any additional indebtedness for borrowed money,
exclusive of borrowing under this agreement, or incur any additional
indebtedness which by its terms matures more than 12 months from the date
of creation thereof.
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<PAGE> 15
(ii) Enter into any merger or consolidation where the Company
is not the survivor, or sell or lease all or substantially all of its
assets.
(iii) Guarantee, endorse, or otherwise become surety for
any obligation of others, except by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.
(iv) Sell receivables with or without recourse.
7. Conditions to Placement Agent's Obligations. The obligations of the
Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each Closing Date, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) Due Qualification or Exemption. (i) The Offering contemplated by
this Agreement will become qualified or be exempt from qualification under
the securities laws of the several states pursuant to Section 6(b) above
not later than the Termination Date, and (ii) at the Termination Date no
stop order suspending the sale of the Units shall have been issued, and no
proceeding for that purpose shall have been initiated or threatened;
(b) No Material Misstatements. The Placement Agent will not have
notified the Company that the Blue Sky qualification materials or the
Memorandum, or any supplement thereto, contains an untrue statement of a
fact which in its opinion is material, or omits to state a fact, which in
its opinion is material and is required to be stated therein, or is
necessary to make the statements therein not misleading;
(c) Compliance with Agreements. The Company will have complied with
all agreements and-satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date;
(d) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation, obtaining the approval of
the Company's board of directors, for the execution and delivery of this
Agreement, the performance by the Company of its obligations hereunder and
the commencement of the Offering contemplated hereby;
(e) Certificate of President. At the Termination Date, the Company
will have delivered a certificate of its President to the effect
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<PAGE> 16
set forth in the preamble and subparagraphs (b), (c) and (d) of this
Section 7;
(f) Opinion of Counsel. On the Termination Date, the Placement Agent
will have received from George Diamond, Esquire ("Company Counsel") a
signed opinion, dated as of such Closing Date, reasonably satisfactory to
Placement Agent's counsel, to the effect that:
(i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada,
with full power and authority, corporate and other, and, to the best
of Company Counsel's knowledge, after due investigation, to own or
lease and operate its properties and to conduct its business as
described in the Memorandum.
(ii) The Company has full power and authority, corporate and
other, to execute, deliver and perform this Agreement and the Units
and to consummate the transactions contemplated hereby and thereby.
(iii) The execution, delivery and performance of this Agreement
and the Units, by the Company, the consummation by the Company of the
transactions herein and therein contemplated and the compliance by
the Company with the terms of this Agreement and the Units do not,
and will not, with or without the giving of notice or the lapse of
time, or both, result in a violation of the Articles of Incorporation
of the Company.
(iv) All corporate action required to be taken for the
authorization, issuance and sale of the Units has been duly, validly
and sufficiently taken. The Units are not subject to preemptive
rights of any security holder of the Company. The certificates
representing the Units, the Notes, and the Common Stock are in proper
legal form.
(v) Upon delivery of the Units to the Subscribers against full
payment therefor as provided in this Agreement, the Subscribers will
acquire good title to the Units and clear of all liens, encumbrances,
equities, security interests and claims, other than such liens,
encumbrances, equities, security interests or claims placed on the
securities by the Subscriber therefor.
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<PAGE> 17
(vi) Company Counsel has inspected the questionnaires delivered
to and completed by Subscribers in connection with their proposed
investment in the Units.
(vii) Company Counsel has participated in reviews and
discussions in connection with the preparation of the Memorandum, and
in the course of such reviews and discussions, no facts came to its
attention which lead it to believe that the Memorandum (except as to
the financial statements as to which Company Counsel need not express
an opinion), on the Termination Date, contained any untrue statement
of a material fact, or omitted 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.
(viii) To the best of Company Counsel's knowledge, after due
investigation, the issuance of the Units in the Offering will not
give any holder of the Company's outstanding options, warrants or
other convertible securities or rights to purchase shares of the
Company's Common Stock the right to purchase shares at a reduced
price.
In rendering its opinion, Company Counsel may rely upon (1)
opinions of counsel acceptable to Placement Agent's counsel with
respect to matters relating to the laws of any and all foreign
jurisdictions, and (2) the certificates of government officials and
officers of the Company as to matters of fact; provided that Company
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 of the Company
as to matters of fact, as the case may be.
8. Conditions of the Company's Obligations. The obligations of the Company
hereunder will be subject to the accuracy of the representations and warranties
of the Placement Agent contained herein as of the date hereof and as of the
Closing Date, to the performance by the Placement Agent of its obligations
hereunder and to the following additional conditions:
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<PAGE> 18
(a) Approval of Subscribers. The Company shall have approved, which
approval shall not be unreasonably withheld, each purchaser of the Units;
(b) Absence of Certain Events. No stop order suspending the sale of
Units has been issued, and no proceeding for that purpose will have been
initiated or threatened;
(c) No Material Misstatements. The Company will not have notified the
Placement Agent that the Blue Sky qualification materials, or the
Memorandum, or any amendment or supplement thereto, contains an untrue
statement of a fact, which in its opinion is material, or omits to state a
fact, which in its opinion is material and is required to be stated
therein or is necessary to make the statements therein not misleading, in
each case only with respect to information contained therein concerning
the Placement Agent; and
(d) Blue Sky List. The Placement Agent will have delivered to the
Company a list of states in which the financing may be made.
9. Expenses of Sale. The Company will pay or cause to be paid all costs
and expenses incident to the Units, whether or not the Offering contemplated
hereby is consummated, including, without limitation, the fees, disbursements
and expenses of (a) its counsel and accountants, (b) preparing, printing, or
otherwise reproducing, and mailing, the Memorandum, and other appropriate
documents, and any amendments or supplements thereto (all in such quantities as
the Placement Agent may require), (c) registering or qualifying the Units for
offer and sale in the applicable states, as specified by the Placement Agent,
or obtaining exemptions therefrom, and the fees, expenses and disbursements of
Company Counsel in connection therewith, (d) all taxes, if any, on the issuance
of the Units, and (e) all other expenses relating to the Offering of the Units,
except the Placement Agent will pay all of its expenses including its counsel.
10. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless the Placement Agent and each person, if any, who
controls the Placement Agent within the meaning of the Act or the Exchange
Act against any losses, claims, damages or liabilities, joint or several,
to which the Placement Agent or such controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Memorandum, or (B) in any blue sky
application or other document executed by the
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<PAGE> 19
Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order
to qualify any or all of the Units under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue
Sky Application"), (ii) the omission or alleged omission to state in the
Memorandum or in any Blue Sky Application a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or (iii) any untrue statement or alleged untrue statement of a material
fact contained in the Memorandum or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and will reimburse the
Placement Agent and each such controlling person for any legal or other
expenses reasonably incurred by the Placement Agent or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and
in conformity with written information furnished to the Company by the
Placement Agent specifically for use with reference to the Placement Agent
in the preparation of the Memorandum or any such Blue Sky Application.
(b) Indemnification by the Placement Agent. The Placement Agent
agrees to indemnify and hold harmless the Company and each person, if any,
who controls the Company within the meaning of the Act and the Exchange
Act against any losses, claims, damages or liabilities, joint or several,
to which the Company or such controlling person may become subject, under
the Act or otherwise insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in the Memorandum, or (B) in any Blue Sky Application, or
(ii) the omission or alleged omission to state in the Memorandum or in any
Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in the Memorandum, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; in each case to the extent but only to the
extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with
written
-19-
<PAGE> 20
information furnished to the Company by the Placement Agent specifically
for use with reference to the Placement Agent in the preparation of the
Memorandum or any such Blue Sky Application.
(c) Procedure. Promptly after receipt by an indemnified party under
this Section 10 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 10, notify in writing
the indemnifying party of the commencement thereof; and the omission so to
notify the indemnifying party will relieve it from any liability under
this Section 10 as to the particular item for which indemnification is
then being sought, but not from any other liability which it may have to
any indemnified party. In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with any
other indemnifying party, similarly notified, to assume the defense
thereof, with counsel who shall be to the reasonable satisfaction of such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 10 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the
reasonable judgment of the indemnified party, it is advisable for the
indemnified party to be represented by separate counsel, the indemnified
party shall have the right to employ a single counsel to represent the
indemnified parties who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the indemnified
parties thereof against the indemnifying party, in which event the fees
and expenses of such separate counsel shall be borne by the indemnifying
party. Any such indemnifying party shall not be liable to any such
indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party which consent
shall not be unreasonably withheld.
(d) Contribution. If the indemnification provided for in this Section
10 is unavailable to any indemnified party in respect to any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, will
contribute to the amount paid or payable by such indemnified party, as a
result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand, and the
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<PAGE> 21
Placement Agent on the other hand, from the Offering of the Units, or (ii)
if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand, and of the Placement Agent
on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses as well
as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand, and the Placement Agent on the
other hand, shall be deemed to be in the same proportion as the total
proceeds from the Offering (net of sales commissions, but before deducting
expenses) received by the Company, bear to the commissions received by the
Placement Agent. The relative fault of the Company on the one hand, and
the Placement Agent on the other hand, will be determined with reference
to, among other things, whether the untrue or alleged untrue statement of
a material fact or the omission to state a material fact relates to
information supplied by the Company, and its relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The amount payable by a party as a result of the losses,
claims, damages, liabilities or expenses referred to above will be deemed
to include any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
(e) Equitable Considerations. The Company and the Placement Agent
agree that it would not be just and equitable if contribution pursuant to
this Section 10 were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
11. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements of the Company and of the Placement
Agent herein will survive the delivery and execution hereof and the closing
hereunder, and shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Placement Agent or any person
who controls the Placement Agent within the meaning of the Act or by the
Company or any person who controls the Company within the meaning of the Act,
and will survive delivery of the securities constituting the Units hereunder
and any termination of this Agreement.
12. Termination by Placement Agent. The Placement Agent will have the
right to terminate this Agreement by giving written notice as herein specified,
at any time, at or prior to the Closing Date:
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<PAGE> 22
under the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
17. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
18. Waiver of Breach. The failure of any party hereto to insist upon
strict performance of any of the covenants and agreements herein contained, or
to exercise any option or right herein conferred in any one or more instances,
will not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, and the same will be and remain
in full force and effect.
19. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein. Any and all prior discussions, negotiations,
commitments and understanding relating thereto, are superseded hereby. There
are no conditions precedent to the effectiveness of this Agreement other than
as stated herein, and there are no related collateral agreements existing
between the parties that are not referred to herein.
20. Counterparts. This Agreement may be executed in counterparts and each
of such counterparts will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
21. Law. This Agreement will be deemed to have been made and delivered in
Atlanta, Georgia and will be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the
State of Georgia. The Company (a) agrees that any legal suit, action or
proceeding arising out of or relating to this letter will be instituted
exclusively in the Superior Court for Fulton County, Georgia, or in the United
States District Court for the Northern District of Georgia, (b) waives any
objection which the Company may have now or hereafter to the venue of any such
suit, action or proceeding, and (c) irrevocably consents to the jurisdiction of
the Superior Court for Fulton County, Georgia and the United States District
Court for the Northern District of Georgia in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the Superior Court for Fulton County, Georgia or in the United States District
Court for the Northern District of Georgia and agrees that service of process
upon the Company mailed by certified mail to the Company's address will be
deemed in every respect effective service of process upon the Company, in any
suit, action or proceeding.
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<PAGE> 23
If the foregoing correctly sets forth our understanding, please so indicate in
the space provided below for that purpose, whereupon this letter will
constitute a binding agreement between us.
KARTS INTERNATIONAL INCORPORATED
By: /s/ V. LYNN GRAYBILL
------------------------------
Name: V. Lynn Graybill
Title: President
CONFIRMED AND ACCEPTED:
ARGENT SECURITIES, INC.
By: /s/ L. PHILLIPS REAMES
----------------------------
Name: L. Phillips Reames
Title: Chairman
-24-
<PAGE> 1
EXHIBIT 10.29
OPTION AGREEMENT
THIS OPTION AGREEMENT is made by and between CHARLES BRISTER, an
individual ("Seller") and BRISTER'S THUNDER KARTS, INC., a Louisiana
corporation ("Purchaser").
ARTICLE I
GRANT OF OPTION
For and in consideration of the sum of One Hundred Dollars ($100.00)
and other good and valuable consideration (the "Option Consideration"), the
receipt and sufficiency of which are hereby acknowledged by Seller, Seller does
hereby grant to Purchaser the exclusive, irrevocable right and option (the
"Option") to purchase all of that certain tract of land located in the Town of
Roseland, Tangipahoa Parish, Louisiana, being described more fully on Exhibit
"A" which is attached hereto and incorporated herein by reference, including
all interest, if any, of Seller in (i) strips or gores, if any, between the
property described on Exhibit "A" and abutting properties and (ii) any land
lying in or under the bed or any street, alley, road or right-of-way, opened or
proposed, abutting or adjacent to the specifically described property together
with all easements, rights and appurtenances pertaining thereto, and being 3.41
acres, more or less (the "Land").
The Option Consideration shall not be refundable to Purchaser for any
reason, nor shall the amount thereof be applied as a credit to the Purchase
Price (as defined in Section 2.4).
ARTICLE II
OPTION RIGHTS
2.1 Option Period. The Option shall be exercisable for a period
commencing on January 1, 1998 and ending at 12:00 midnight, Central Time,
December 31, 2000 (the "Option Period").
2.2 Termination of Option. In the event that Purchaser fails to
exercise this Option in the manner provided in Section 3.1 within the Option
Period, all of the rights of Purchaser and all liabilities of Seller hereunder
shall cease and terminate without the necessity of any action on the part of
Seller.
2.3 Manner of Exercise of Option. If Purchaser elects to exercise
the Option, it shall deliver notice of exercise to Seller on or before the
expiration of the Option Period. The date on which the notice of exercise is
delivered is referred to as the "Exercise Date."
2.4 Purchase Price. The total purchase price ("Purchase Price")
for the Property shall be Five Hundred Fifty Thousand and No/100 Dollars
($550,000.00), payable in cash at Closing.
ARTICLE III
TITLE AND SURVEY
3.1 Title Commitment. Seller shall, as soon as possible, and not
later than ten (10) days following Purchaser's written request, cause to be
furnished to Purchaser a current ALTA form of Commitment for Owner's Policy of
Title Insurance, extended coverage (the "Title Commitment"), issued through a
title company acceptable to Purchaser ("Title Company"), describing the Land
OPTION AGREEMENT - PAGE 1
<PAGE> 2
(which legal description, unless and to the extent modified by the survey
prescribed in Section 3.2 below, shall be deemed incorporated into this
Agreement), listing Purchaser as the prospective named insured and showing as
the policy amount the total Purchase Price for the Property. At such time as
Seller causes the Title Commitment to be furnished to Purchaser, Seller shall
further cause to be furnished to Purchaser legible true copies of all
instruments referred to in the Title Commitment as conditions or exceptions to
title to the Land. Purchaser reserves the right to approve or disapprove any
and all exceptions to the title to the Land included in the Title Commitment.
3.2 Survey. Seller shall, as soon as possible and not later than
twenty (20) days following Purchaser's written request, cause to be prepared
and furnished to Purchaser and the Title Company a current survey (the
"Survey") of the Land and Improvements, prepared by a properly licensed
surveyor acceptable to Purchaser and in a form acceptable to Purchaser.
3.3 No Encumbrances. During the term of this Agreement, Seller
shall not permit the Property from being encumbered in any way without the
consent of Purchaser.
ARTICLE IV
CLOSING
4.1 Time and Place of Closing. Provided that all of the
conditions of this Agreement shall have been satisfied prior to or on the
Closing Date (herein so called), the Closing (herein so called) of this
transaction shall take place at the office of the Title Company thirty (30)
"business days" after the Exercise Date, unless another date, place and/or
time, shall be mutually agreed on in writing by the parties.
4.2 Events of Closing. At the Closing:
(a) Seller shall deliver or cause to be delivered to
Purchaser the following:
(1) a General Warranty Deed, (in form and
substance acceptable to Purchaser attached hereto and
incorporated herein), duly executed and acknowledged by
Seller, conveying to Purchaser indefeasible fee simple title
to the Land and Improvements, free and clear of any lien,
encumbrance or exception other than the Permitted Exceptions;
(2) an ALTA Owner's Policy of Title Insurance
(extended coverage) issued by the Title Company conforming to
the requirements of Article IV above insuring Purchaser's
marketable title in the amount of the Purchase Price (the
"Title Policy"). The Title Policy shall be subject to the
Permitted Exceptions and the standard printed exceptions,
except that the Seller shall cause the Title Company to (a)
delete the survey exception, (b) show "none of record" as to
restrictive covenants, except for the Permitted Exceptions,
(c) limit taxes to the year of Closing and subsequent years,
endorsed "not yet due and payable" and subsequent assessments
for prior years due to change in land usage or ownership, (d)
delete any exception for the rights of parties in possession,
(e) delete any exception for visible and apparent easements
and underground easements the existence of which may arise by
virtue of unrecorded grant or use, and (f) delete any
exception for portions of the Property lying within the
boundaries of any roads or roadways.
OPTION AGREEMENT - PAGE 2
<PAGE> 3
(3) a duly executed Affidavit of Non-Foreign
Status;
(4) ad valorem tax statements for the Property
for the calendar year of the Closing (if available and if not
previously presented);
(5) such evidence of the authority and capacity
of Seller and its representatives as Purchaser or the Title
Company may reasonably require.
(b) Purchaser shall deliver or shall cause to be
delivered to Seller the following:
(1) the consideration required pursuant to
Section 2.4 above;
(2) such evidence of the authority and capacity
of Purchaser and its representatives as Seller or the Title
Company may reasonably require.
4.3 Expenses. Purchaser shall pay the cost of any documentary
stamp or other transfer taxes, filing fees, inspection costs, its share of the
prorations as set forth in Section 4.4 hereof, and its own attorneys' fees.
Seller shall pay its proportionate share of the prorations as set forth in
Section 4.4 hereof, its own attorneys' fees, the Survey, and the premium for
the Owner's Policy of Title Insurance (including the cost of the survey
exception deletion). Except as otherwise provided in this Section, all other
expenses hereunder shall be paid by the party incurring such expenses.
4.4 Prorations. Rental income, real and personal property ad
valorem taxes, insurance premiums (if and to the extent that Seller's policies
are assumed by Purchaser), utility charges and other operating expenses shall
be prorated to the Closing, based upon actual days involved. Seller shall be
responsible for all ad valorem taxes for any period prior to the Closing. To
the extent that the amounts of such charges, expenses, and income referred to
in this Section are unavailable at the Closing Date, a readjustment of these
items shall be made within thirty (30) days after the Closing. Both expense
items and income items shall be prorated as of the Closing Date, with Seller
receiving all income for the Closing Date and bearing all expenses for the
Closing Date. In connection with the proration of both real and personal
property ad valorem taxes, if actual tax figures for the year of Closing are
not available at the Closing Date, an estimated, tentative proration of taxes
shall be made using tax figures from the preceding year; however, when actual
taxes for the year of Closing are available, a corrected proration of taxes
shall be made. If such taxes for the year of Closing increase over those for
the preceding year Seller shall pay to Purchaser a pro rata portion of such
increase, computed to the Closing Date, and conversely, if such taxes for the
year of Closing decrease from those of the preceding year Purchaser shall pay
to Seller a pro rata portion of such decrease, computed to the Closing Date,
any such payment to be made within ten (10) days after notification by either
party that such adjustment is necessary. Seller shall, on or before the
Closing Date, furnish to Purchaser and the Title Company all information
necessary to compute the prorations provided for in this Section.
ARTICLE V
MISCELLANEOUS
5.1 Notices. All notices, demands, requests, consents and other
communications required or permitted hereunder shall be in writing, and shall
be deemed to be delivered when actually received, or, if earlier and regardless
of whether actually received (except where receipt is specified in this
Agreement), within three (3) days following deposit in a regularly maintained,
United States
OPTION AGREEMENT - PAGE 3
<PAGE> 4
postage receptacle, fully prepaid, certified mail, return receipt requested,
addressed to the party at its address set forth below or at such other address
as such party may have specified theretofore by notice delivered in accordance
with this Section and actually received by the addressee:
If to Seller: Charles Brister
505 Ellis Road
Amite, Louisiana 70422
If to Purchaser: Brister's Thunder Karts, Inc.
Highway 51 South
Roseland, Louisiana 70456
With a copy to: Looper, Reed, Mark & McGraw
4100 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attention: Richard B. Goodner
5.2 Survival. All warranties, representations and agreements
contained herein or arising out of the sale of the Property by Seller to
Purchaser shall survive the Closing hereof.
5.3 Governing Law; Venue. The laws of the State of Louisiana
shall govern the validity, enforcement, and interpretation of this Agreement.
The obligations of the parties are performable and venue for any legal action
arising out of this Agreement shall lie in Tangipahoa Parish, Louisiana.
5.4 Integration; Modification; Waiver. This Agreement constitutes
the complete and final expression of the agreement of the parties relating to
the Property, and supersedes all previous contracts, agreements, and
understandings of the parties, either oral or written, relating to the
Property. This Agreement cannot be modified, or any of the terms hereof
waived, except by an instrument in writing (referring specifically to this
Agreement) executed by the party against whom enforcement of the modification
or waiver is sought.
5.5 Counterpart Execution. This Agreement may be executed in
several counterparts, each of which shall be fully effective as an original and
all of which together shall constitute one and the same instrument.
5.6 Headings; Construction. The headings which have been used
throughout this Agreement have been inserted for convenience of reference only
and do not constitute matter to be construed in interpreting this Agreement.
Words of any gender used in this Agreement shall be held and construed to
include any other gender and words in the singular number shall be held to
include the plural, and vice versa, unless the context requires otherwise. The
words "herein," "hereof," "hereunder" and other similar compounds of the word
"here" when used in this Agreement shall refer to the entire Agreement and not
to any particular provision or section. If the last day of any time period
stated herein shall fall on a Saturday, Sunday or legal holiday, then the
duration of such time period shall be extended so that is shall end on the next
succeeding day which is not a Saturday, Sunday or legal holiday. The term
"business days" shall mean any day of the week other than Saturday, Sunday or a
holiday.
OPTION AGREEMENT - PAGE 4
<PAGE> 5
5.7 Invalid Provisions. If any one or more of the provisions of
this Agreement, or the applicability of any such provision to a specific
situation, shall be held invalid or unenforceable, such provision shall be
modified to the minimum extent necessary to make it or its application valid
and enforceable, and the validity and enforceability of all other provisions of
this Agreement and all other applications of any such provision shall not be
affected thereby.
5.8 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of Seller and Purchaser, and their respective heirs,
personal representatives, successors and assigns. Purchaser may assign its
rights hereunder without the prior consent of Seller. Upon acceptance of any
such assignment by the assignee and the assumption of Purchaser's obligations
hereunder, Purchaser shall be relieved of all duties and obligations hereunder.
Except as expressly provided herein, nothing in this Agreement is intended to
confer on any person, other than the parties hereto and their respective heirs,
personal representatives, successors and assigns, any rights or remedies under
or by reason of this Agreement.
5.9 Further Acts. In addition to the acts recited in this
Agreement to be performed by Seller and Purchaser, Seller and Purchaser agree
to perform or cause to be performed at the Closing or after the Closing any and
all such further acts as may be reasonably necessary to consummate the
transactions contemplated hereby.
5.10 Date of Agreement. The date of this Agreement shall for all
purposes be the date of the signature of the last to sign of the parties
hereto.
5.11 Time of the Essence. Time is of the essence herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on this 15th day of March, 1996.
SELLER:
/s/ CHARLES BRISTER
---------------------------------
Charles Brister
PURCHASER:
BRISTER'S THUNDER KARTS, INC.
By: /s/ V. LYNN GRAYBILL
---------------------------
Name:
---------------------------
Title:
---------------------------
OPTION AGREEMENT - PAGE 5
<PAGE> 1
EXHIBIT 10.30
LEASE OF COMMERCIAL PROPERTY
PARISH OF TANGIPAHOA
STATE OF LOUISIANA
Personally came and appeared before me
CHARLES BRISTER hereinafter referred to sometimes as "LESSOR" hereby
leases to
BRISTER'S THUNDER KARTS, INC., represented by the duly authorized
undersigned, hereinafter referred to sometimes as "LESSEE".
By this instrument, its terms and conditions, lessor(s) does lease to
lessee(s) the following described property:
3.41 acres of land in the Town of Roseland, Tangipahoa Parish,
Louisiana, and being all of Ten (10) acres Lot 5 lying E. of U.S.
Highway 51 and the Southern portion of Lot 4 lying East of U.S. Highway
51, described as follows:
From the NE corner of said Lot 4, Roseland Colony measure South 0 deg.
50 min. E., along Western right of way of I.C.R.R. 651.2 feet to NE
corner of said 4.41 acres and point of beginning of this survey, thence
South 89 deg. 10 min. W. 427.8 feet to eastern right of way line of U.S.
Highway 51, thence with said right of way South 33 deg. 48 min. E. at
90.3 feet, a concrete right of way marker at 396.0 feet, another
concrete marker and beginning of curve, thence South 30 deg. E. 100
feet, South 27 deg. 45 min. E. 100 feet, South 24 deg. 15 min. E. 100
feet, and South 20 deg. E. 70.6 feet to South line of Lot 5; thence
North 0 deg. 50 min. W. along said Western right of way of I.C.R.R.
668.9 feet to point of beginning all as per survey of O.C. Hollister,
Surveyor, dated June 25, 1959, with all improvements and equipment.
SECTION ONE - TERM
This lease is for the period of time from 1 October, 1995 until 31
December, 1996, with option for an additional year, beginning 1 January, 1997.
The consideration of the primary term will be for $6,025.00 per month, payable
beginning 1 October, 1995, and on the same day of each month thereafter for the
term of this lease. The consideration and other terms of the option period
are to be negotiated.
This lease is not assignable, transferable, or subleaseable in whole
and/or in part.
<PAGE> 2
The net rental hereinabove fixed for the respective periods above
mentioned means that in addition to the said amounts of actual rental, the
Lessee will pay all taxes levied by the State and all political sub-division on
the leased property for the period covered by this lease, and will pay all
insurance and premiums of such policies of fire, tornado, and rental insurance
as the Lessor may desire carried against the leased property during the period
covered by this lease.
The taxes and insurance premiums herein provided to be paid by Lessee
are a part of the rent for the leased premises, and, should the Lessee fail to
pay promptly and punctually any of said taxes or insurance premiums, the Lessor
may, but need not, pay same and recover repayment thereof at once from the
Lessee with interest at the rate of eight per cent (8%) per annum from date of
payment.
Lessee shall obtain fire and hazard insurance upon the leased property
during the term of the lease, naming Lessor as loss payee. This shall be with
an insurance company with a rating of acceptable solvency licensed to do
business in Louisiana.
Lessee shall comply in every respect at Lessee's own expense, with the
rules and regulations of the Louisiana Fire Prevention Bureau, or those of any
similar bureau or association in existence at the time.
SECTION TWO - USE OF PREMISES LEASED
The premises leased shall be for the purpose of operation of a Go-Kart
Manufacturer, yard tools, pressure washers, and the like, and necessary and
usually activities pursuant thereto.
The Lessee shall not be able to grant right-of-ways, servitude, or
easements of any kind, type, or nature.
The constructions made by the Lessee shall be done so only with prior
written permission of the lessor and shall remain the property of the lessor
without prior consent.
Lessor shall have the right to inspect premises at any reasonable time.
SECTION THREE - UPKEEP OF PREMISES LEASED
The premises shall be maintained, mowed, and kept in orderly condition
and fashion by the Lessee at the cost of the Lessee.
At the cost and expense of the Lessee, the Lessee shall comply with all
sanitary laws, ordinances, rules, and orders from the board of health, and rules
and orders from other state, parish, and municipal authorities, complying with
the rules and regulations of local boards and other organizations of the ______
underwriters of similar authorities.
<PAGE> 3
Lessee assumes the maintenance of the plumbing, including fixtures,
outlets, and drains, and the protection and repair of same, even when injured
by freeze.
Lessee will make all necessary repairs, including, repairs to the roof
and flooring, to keep the leased property in as good order as it now is;
ordinary wear and tear accepted, and is also to keep all toils in repair to
conform with good sanitary conditions. The Lessee does not have the right to
sublet any part of the leased premises without the written consent of the
Lessor.
LESSOR will not be responsible for damage caused by leaks in the roof,
by bursting of pipes by freezing or otherwise, or by any vices or defects of
the leased property, or the consequences thereof, except in the case of
positive neglect or failure to take action toward the remedying of such defects
within reasonable time after having written notice from Lessee of such defects
and the damage caused thereby. Should Lessee fail to promptly notify Lessor,
in writing, or any such defects, Lessee will become responsible for any damage
resulting to Lessor or other parties.
The said premises and appurtenances, including locks, keys, and
lighting, heating, plumbing systems, and fixtures and attachments, are
delivered in good order and Lessee is obligated to keep all of the same in like
good order during the term of this lease; to keep in repair all plumbing, even
when injured by freezing; to keep the chimneys, drains, and plumbing cleaned
and to deliver them at the expiration of this lease in said condition; to pay
all bills for water, light, and similar charges; to comply with all laws and
ordinances of the State, City, Board of health, and other public bodies, now in
force or which may hereafter be enacted of whatever character, at Lessee's own
expense; and to notify Lessor or agent, in writing, any time the leased
premises will be unoccupied, so that necessary vacancy permits may be obtained
from Lessor's insurance companies, and upon Lessee's failure to do so, Lessor
may take such steps as Lessor thinks necessary for Lessor's protection,
including retaking possession of the premises without relieving or impairing
Lessee's liability.
No repair shall be due Lessee except such as may be rendered necessary
by fire or other casualty, nor occasioned by fault or negligence of Lessee.
Lessor will not be responsible for damages of any sort of any persons or
property, however occasioned; and Lessee shall hold Lessor harmless from any
claims by or liability to third persons however arising, including or sidewalks
adjoining premises. Lessor shall at all time shave the right to enter the
premises for the purpose of inspection and making such, if any, repairs as
Lessor may be bound for or elect to make.
<PAGE> 4
The description in whole or in part of the leased premises by fire or
other casualty will not violate this lease. If the premises cannot be repaired
or rebuilt within 30 days, the lease shall be terminated. If repair or
rebuilding within this time is possible, during the time of said repair or
rebuilding, lease rentals shall be suspended, and the lease shall be extended
an equal period of time, not to exceed 30 days.
The care, maintenance, and repairs of elevators, machinery, glass, or
plate glass are assumed by Lessee, together with all liability or claims for
damages.
Lessee is obligated not to display in, on, or about the leased premises
any sign or decoration, the nature of which, in the judgment of Lessor is
dangerous, unsightly, or detrimental to the property.
SECTION FOUR - SURRENDER OF PREMISES
In the event that the lessee fails to abide by and of the terms and/or
conditions herewith, and/or any/all amendments hereto, same failure shall be
grounds for termination of the lease, and shall render the lessee liable for
all court costs, attorney's fees, and other proper and necessary charges, fees,
and costs as a result of said failure.
If the lease is terminated, lapsed, or for whatever reason lessee fails
to abide by this lease and its terms, lessee shall immediately surrender
possession and if he fails to do so, he must pay liquidated damages of 5 times
the daily rent, and attorney's fees, court costs, and all other costs, fees,
and charges, necessary and proper thereto. He waives notice to vacate, does
herein confess his judgment, allowing lessor to be placed in possession at
once. If, for whatever reason, lessor allows lessee to remain in leased
premises after the expiration lapse, or termination of the lease, this shall
not be considered a reconduction of the lease.
Lessee is bound not to transfer this lease in whole or in part, without
the written consent of Lessor; at the end of this lease to return, by actual
delivery of the keys, without further notice, possession of the said premises
and appurtenances, broom-cleaned and free from any trash whatsoever, delivered
in like good order as received, with the usual decay, wear, and tear being
accepted only. Lessee is to replace any and all broken glass, and to remove any
and all signs painted or placed in or upon the leased premises before leaving.
<PAGE> 5
Lessee is obligated not to make any additions or alterations
whatsoever, to the premises without written permission. All additions,
alterations, improvements made by lessee with or without consent of lessor, no
matter how attached (except moveable trade fixtures), must remain the property
of the Lessor, unless otherwise stipulated herein. Lessee however, expressly
waiving all right to compensation therefore. The lessor, at his option, may
require the building to be replaced in its original condition.
SECTION FIVE - VACATING PREMISES
If the leased premises become vacated or abandoned by the lessee for
whatever type of reason because of his ejectment, or if the lessee removes
personal property or goods from the lease premises to the prejudices of the
lessor's lien, than the rent for the unexpired term shall become due along with
the attorney's fees, court costs, and other fees, costs, and charges pertinent
thereto, and the lessee shall have option to cancel the lease or to reenter
and relet the premises to other parties for such price and terms as he may
obtain and apply the net amount realized to the prepayment of the rent due and
owing by the lessee herein.
SECTION SIX - MISCELLANEOUS
Failure of LESSEE to property pay rent, bills, when promptly due at
maturity, as stipulated, or any other violation of any of the terms and
conditions of this lease, failure to comply with any of the obligations as
listed herein, or should voluntary or involuntary bankruptcy proceedings be
instituted by, or against LESSEE, or should LESSEE fail in business or become
insolvent or make assignment for benefit of creditors, when any of said events
shall ipso facto, and without need of formally putting in default, cause all
remaining installments to become immediately due and payable, and, at the
option of the LESSOR, authorize the cancellation of this lease for the
remainder of the unexpired term, and allow LESSOR to recover all actual damages
suffered by LESSOR by reason of the cancellation. In this event, LESSOR shall
be entitled to take immediate possession of said premises. Lessee hereby
assenting thereto and expressly waiving the legal notice to vacate the premises.
The attempted seizure of the leasehold by creditors of Lessee, by Writ
of ____, attachment, or other, shall void the Lease immediately, at the option
of the Lessor.
<PAGE> 6
In the event of default by Lessee in any obligation or condition
hereof, Lessor is hereby irrevocably authorized to sell at public or private
sale, without recourse to judicial proceedings and with or without demand,
notice, advertisement, or putting Lessee in default, any or all of the contents
of the leased premises, upon which Lessor has a lien, and Lessor may purchase
same at the fair value thereof; in the event of any such sale, the proceeds
thereof, after the payment of all costs, fees, charges, and expenses of every
kind, shall be applied to the satisfaction of all amounts due Lessor and the
balance shall along be paid to Lessee.
Failure to strictly and promptly enforce these conditions shall not
operate as a waiver of Lessors' right, Lessor expressly reserving the right to
always enforce prompt payment of rent, or to cancel this lease, regardless of
any indulgences or extensions previously granted. Failure to comply with any
condition or obligation of this lease will make Lessee liable for any loss or
damage sustained by Lessor.
Should Lessee at any time use the leased premises or any portion thereof
for any illegal or unlawful purpose, or commit, or permit or tolerate the
commission therein of any act made punishable by fine or imprisonment under the
laws of the United States or the State of Louisiana, or any ordinance of this
City or Parish, the remedies set forth in the preceding paragraph shall be
available to Lessor immediately without necessity of giving any notice to
Lessee.
At the expiration of this lease, or its termination for other causes,
Lessee is obligated to immediately surrender possession, and should Lessee fail
to do so, he consents to pay as liquidated damages five times the rent per day,
with attorney's fees, costs, etc. Lessee also expressly waives any notice to
vacate at the expiration of this lease and all legal delays, and hereby
confesses judgment with costs, placing Lessor in possession to be executed at
once. Should Lessor allow or permit Lessee to remain in the leased premises
after the expiration of this lease, this shall not be construed as a
re-conduction of this lease.
No auction sales, etc., shall be conducted on the premises without the
written consent of Lessor.
<PAGE> 7
Should any claim in favor of Lessor upon this lease be placed in the
hands of an agent or attorney to give special attention to the enforcement of
such claim, Lessee shall in order to protect Lessor fully against all expenses,
pay as fees and compensation to such agent or attorney additional sum of ten
percent (10%) of the amount due on such claim, provided that amount be over
$1,000.00, and twenty percent (20%) if that amount be $1,000.00 or under,
together with all costs, charges, and expenses.
Lessor hereby reserves the right to post and to keep posted on the
property, card, "For Sale" or "Auction Sale", during the term of this lease,
and cords, "For Rent", during the ninety days preceding the expiration of this
lease, and Lessee hereby consents to allow the premises to be inspected on an
order from Lessor or agent. In the event that Lessee is absent from the City, at
any time during the last mentioned period, keys to the premises will be left
with some representative of Lessee in order that the property may be shown, and
Lessor or agent will be advised in writing where the keys may be obtained.
Failure to comply with these conditions and/or obligations of this
lease, will allow Lessor to obtain access to the premises so that the property
may be shown in any manner and fashion at Lessor's discretion.
This instrument shall constitute all of the agreements and obligations
of the parties hereto; any amendments hereto shall be reduced to writing to be
valid an binding between the parties.
WITNESSES:
/s/ [ILLEGIBLE] /s/ CHARLES BRISTER
- -------------------------------- --------------------------------
CHARLES BRISTER, LESSOR
/s/ BRENDA RUSSELL /s/ BRISTER THUNDER KARTS BY
- -------------------------------- CHARLES BRISTER
--------------------------------
BRISTER'S THUNDER KARTS, INC.
by CHARLES BRISTER, PRESIDENT,
LESSEE
SWORN TO AND SUBSCRIBED BEFORE ME THIS 27th day of SEPTEMBER, 1995.
/s/ JODY D. THOMPSON
-------------------------------
NOTARY PUBLIC
<PAGE> 8
AMENDED LEASE OF COMMERCIAL PROPERTY
PARISH OF TANGIPAHOA
STATE OF LOUISIANA
Personally came and appeared before me
CHARLES BRISTER hereinafter referred to sometimes as "LESSOR", and
BRISTER'S THUNDER KARTS, INC., represented by the duly authorized
undersigned, hereinafter referred to sometimes as "LESSEE".
The parties refer to certain instruments entitled "LEASE OF COMMERCIAL
PROPERTY", and "MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF BRISTER'S
THUNDER KARTS, INC.", and "NOTICE OF LEASE", executed by the parties on 27
SEPTEMBER, 1995, the latter having been filed OCTOBER 10, 1995, AT COB 803 PAGE
258, INSTRUMENT #477439, TANGIPAHOA PARISH, CLERK OF COURT.
The parties wish to amend the documents, but only insofar as the
following regarding the property description. The property described in the
Lease of Commercial Property being leased to the lessee was described as
follows:
3.41 acres of land in the Town of Roseland, Tangipahoa Parish,
Louisiana, and being all of Ten (10) acres Lot 5 lying E. of U.S.
Highway 51 and the Southern portion of Lot 4 lying East of U.S. Highway
51, described as follows:
From the NE corder of said Lot 4, Roseland Colony measure South 0 deg.
50 min. E., along Western right of way of I.C.R.R. 651.2 feet to NE
corner of said 4.41 acres and point of beginning of this survey,
thence South 89 deg. 10 min. W. 427.8 feet to eastern right of way
line of U.S. Highway 51,
thence with said right of way south 33 deg. 48 min, E. at 90.3 feet,
and concrete right of way marker at 396.0 feet, another concrete marker
and beginning of curve,
thence South 30 deg. E. 100 feet, south 27 deg. 34 min. E. 100 feet,
South 24 deg. 15 min. E. 100 feet, and South 20 deg. E. 70.6 feet to
South line of Lot 5;
thence North 0 deg. 50 min. E. along said Western right of way of
I.C.R.R. 668.9 feet to point of beginning all as part survey of O.C.
Hollister, Surveyor, dated June 25, 1959, with all improvements and
equipment.
<PAGE> 9
The parties wish to amend the property description being leased to said
Lessee from said Lessor, so that it now reads as follows:
1. 3.41 acres of land in the Town of Roseland, Tangipahoa Parish,
Louisiana, and being all of Ten (10) acres Lot 5 lying E. of U.S.
Highway 51 and the Southern portion of Lot 4 lying East of U.S. Highway
51, described as follows:
From the NE corner of said Lot 4, Roseland Colony measure South 0 deg.
50 min. E., along Western right of way of I.C.R.R. 651.2 feet to NE
corner of said 4.41 acres and point of beginning of this survey,
thence South 89 deg. 10 min. W. 427.8 feet to eastern right of way line
of U.S. Highway 51, thence with said right of way South 33 deg. 48 min.
E. at 90.3 feet, a concrete right of way marker at 396.0 feet, another
concrete marker and beginning of curve,
thence South 30 deg. E. 100 feet, South 27 deg. 45 min. E. 100 feet,
South 24 deg. 15 min. E. 100 feet, and South 20 deg. E. 70.6 feet to
South line of Lot 5;
thence North 0 deg. 50 min. W. along said Western right of way of
I.C.R.R. 668.9 feet to point of beginning all as per survey of O.C.
Hollister, Surveyor, dated June 26, 1959, with all improvements and
equipment.
2. A certain piece or parcel of land in the Town of Roseland,
Louisiana, containing 2.50 acres, more or less, and being more
particularly described as follow, to-wit:
12 acres of land, more or less, being all of Lots 4 and 5 of the Town
of Roseland, lying East of Highway 51;
LESS and EXCEPT A tract containing 6 acres, more or less, sold by
vendor to Wade Garnier by Deed recorded in COB 220 page 541, and
LESS AND EXCEPT a 3.41 acre tract sold by vendor to Hood Enterprises,
Inc., by deed recorded in COB 239 page 528; being a tract of land
bounded now or formerly to the East by I.C.R.R., West by the East line
of U.S. Highway 51, and South by Hood Enterprises, Inc., together with
all the buildings and improvements thereon.
Subject to lifetime usufruct of all of the highway frontage by a depth
of 140 feet parallel lines, except the South 25 feet fronting on
Highway 51, reserved by Joseph H. Brister. An Act of Revocation of
Usufruct was signed by said parties, revoking said usufruct on the 15th
day of May, 1986, same filed in the records of the Clerk of Court,
Tangipahoa Parish, at COB 0628 page 788, Instrument #0358904, 16 May,
1986.
<PAGE> 10
The parties wish to amend the property description being leased to said
Lessee from said Lessor, so that it now reads as follows:
1. 3.41 acres of land in the Town of Roseland, Tangipahoa Parish,
Louisiana, and being all of Ten (10) acres Lot 5 lying E. of U.S.
Highway 51 and the Southern portion of Lot 4 lying East of U.S. Highway
51, described as follows:
From the NE corner of said Lot 4, Roseland Colony measure South 0 deg.
50 min. E., along Western right of way of I.C.R.R. 651.2 feet to NE
corner of said 4.41 acres and point of beginning of this survey,
thence South 89 deg. 10 min. W. 427.8 feet to eastern right of way line
of U.S. Highway 51, thence with said right of way South 33 deg. 48 min.
E. at 90.3 feet, a concrete right of way marker at 396.0 feet, another
concrete marker and beginning of curve,
thence South 30 deg. E. 100 feet, South 27 deg. 45 min. E. 100 feet,
south 24 deg. 15 min. E. 100 feet, and south 20 deg. E. 70.6 feet South
line of Lot 5;
thence North 0 deg. 50 min. W. along said Western right of way of
I.C.R.R. 668.9 feet to point of beginning all as per survey of O.C.
Hollister, Surveyor, dated June 25, 1959, with all improvements and
equipment.
2. A certain piece or parcel of land in the Town of Roseland,
Louisiana, containing 2.50 acres, more or less, and being more
particularly described as follows: to -wit:
12 acres of land, more or less, being all of Lots 4 and 5 of the Town
of Roseland, lying East of Highway 51;
LESS AND EXCEPT A tract containing 6 acres, more or less, sold by
vendor to Wade Garnier by Deed recorded in COB 220 page 541, and
LESS AND EXCEPT a 3.41 acre tract sold by vendor to Hood Enterprises,
Inc., by deed recorded in COB 239 page 528; being a tract of land
bounded now or formerly to the East by I.C.R.R., West by the East line
of U.S. Highway 51, and South by Hood Enterprises, Inc., together with
all the buildings and improvements thereon.
Subject to lifetime usufruct of all of the highway frontage by a depth
of 140 feet parallel lines, except the South 25 feet fronting on
Highway 51, reserved by Joseph M. Brister. An Act of Revocation of
Usufruct was signed by said parties, revoking said usufruct on the 15th
day of May, 1986, same filed in the records of the Clerk of Court,
Tangipahoa Parish, at COB 0628 page 788, Instrument #0358904, 16 May,
1986.
<PAGE> 11
In all other respects in the Lease, notice of Lease Minutes of the
Meeting of the Board of Directors of Brister's Thunder Karts, Inc., and other,
are confirmed herewith, though not recited herein.
IN WITNESS WHEREOF, I have affixed my name in the presence of the two
undersigned witnesses, and notary public.
SWORN TO AND SUBSCRIBED BEFORE ME this 30th day of NOVEMBER, 1995.
WITNESSES:
/s/ [ILLEGIBLE] /s/ CHARLES BRISTER
- -------------------------------- --------------------------------
CHARLES BRISTER, LESSOR
/s/ BRAD ROBERTS /s/ BRISTER'S THUNDER KARTS BY
- -------------------------------- CHARLES BRISTER
--------------------------------
BRISTER'S THUNDER KARTS, INC.
by CHARLES BRISTER, PRESIDENT,
LESSEE
[ILLEGIBLE]
--------------------------------
NOTARY PUBLIC
<PAGE> 12
FIRST AMENDMENT TO
LEASE OF COMMERCIAL PROPERTY
PARISH OF TANGIPAHOA )
) ss.
STATE OF LOUISIANA )
Personally came and appeared before me CHARLES BRISTER, hereinafter
referred to as "Lessor" and BRISTER'S THUNDER KARTS, INC., represented by the
duly authorized undersigned, hereinafter referred to sometimes as "Lessee."
RECITALS
1. Lessor and Lessee executed a Lease of Commercial property
dated September 27, 1995 and an Amended Lease of Commercial Property dated
November 28, 1995 amending the property description in the September 27, 1995
lease (the September 27, 1995 lease and the November 28, 1995 amended lease are
jointly referred to as the "Lease Agreement").
2. Lessor and Lessee desire to modify the Lease Agreement as
hereinafter provided.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The first and second paragraphs of Section One of the Lease
Agreement are hereby deleted in their entirety and the following is substituted
in lieu thereof:
"SECTION ONE - TERM.
This Lease is for the period of time from 1 October, 1995
through 15 March, 1998 ("Primary Term"). Lessee shall have the right
and option to extend the term of the Lease for an additional two (2)
year period ("Extended Term"), commencing 15 March, 1998, by so
notifying Lessor on or before the expiration of the Primary Term. The
rent payable during the Primary Term of the Lease Agreement shall be
Six Thousand Twenty-Five Dollars ($6,025.00) per month, payable
beginning 1 October, 1995, and on the same day of each succeeding
month thereafter for the term of the Lease. During the Extended Term,
if any, the rent shall be adjusted annually at the commencement of the
Extended Term and on the anniversary date thereof, in accordance with
the Consumer Price Index in the appropriate jurisdiction. Other
conditions of the Extended Term are to be negotiated by Lessor and
Lessee.
Lessee has the unrestricted right to assign the whole or any
part of the Lease Agreement or to sublease the whole or any part of
the leased premises to any associated or affiliated corporation or
entity a majority of whose stock or interest is owned by Lessee or
Lessee's parent company or to any corporation or entity acquiring a
majority of the stock or assets of Lessee or Lessee's parent company.
Lessee has the unrestricted right to assign the whole or any part of
the Lease Agreement or to sublease the whole or any part of the leased
premises so long as
FIRST AMENDMENT TO LEASE OF COMMERCIAL PROPERTY - PAGE 1
<PAGE> 13
the assignee assumes all of Lessee's obligations under the Lease
Agreement and the assignee is a good financial risk to the Landlord."
2. All references to the provision of insurance in paragraphs
three, four and five of Section One are hereby deleted in their entirety, and
the following shall be substituted as the last sentence of paragraph 3 in lieu
thereof:
"Lessor and Lessee shall mutually agree as to the insurance to be
carried against the leased property, and Lessee shall be responsible
for the payment of the premiums assessed thereunder, if any."
3. The first paragraph of Section Two of the Lease Agreement is
hereby deleted in its entirety and the following is substituted in lieu
thereof:
"SECTION TWO - USE OF PREMISES LEASED.
This premises leased shall be for the purpose of any
commercially reasonable business which is operating in compliance with
applicable law."
4. Section Four of the Lease Agreement is hereby amended by
deleting the last sentence thereof.
5. The following shall be inserted in the Lease Agreement as
Section Six, and existing Section Six shall become Section Seven:
"During the term of the Lease Agreement, including any extensions,
Lessee shall have a right of first refusal ("Right of First Refusal")
to purchase the premises on the same terms and conditions that Lessor
is prepared to accept from any third party. When Lessor receives a
third party offer to purchase the premises, which Lessor desires to
accept, Lessor shall promptly deliver the same, in writing, to Lessee,
and Lessee shall thereafter have ten (10) days in which to accept or
reject such offer in writing. If Lessee rejects such offer or fails
to accept the same in writing within such time, then Lessor shall be
free to sell the premises to such third party on the same terms and
conditions offered to Lessee in the foregoing manner. If Lessor does
not consummate a sale of the premises to such third party, the Right
of First Refusal shall apply to any future sale, and Lessor shall be
required to submit any future offer to Lessee in the foregoing
manner."
6. Renumbered Section Seven of the Lease Agreement is hereby
amended by deleting the phrase "when promptly due at maturity," appearing in
the first and second lines, and substituting in lieu thereof the following:
"within ten (10) days following the due date."
7. Except as amended hereby, the Lease Agreement shall remain in
full force and effect as currently written.
FIRST AMENDMENT TO LEASE OF COMMERCIAL PROPERTY - PAGE 2
<PAGE> 14
WITNESSES:
/s/ CHARLES BRISTER
- ------------------------------- --------------------------------------
Charles Brister, Lessor
BRISTER'S THUNDER KARTS, INC.
- -------------------------------
By: /s/ V. LYNN GRAYBILL
-----------------------------------
Title: , Lessee
--------------------------
STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO before me, the undersigned Notary Public, on
this day on this ________ day of March, 1996.
--------------------------------------
NOTARY PUBLIC, State of Texas
FIRST AMENDMENT TO LEASE OF COMMERCIAL PROPERTY - PAGE 3
<PAGE> 1
EXHIBIT 10.31
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
<PAGE> 2
any entity in which Brister has an interest.
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.
4. CAPTIONS. This Agreement contains the entire agreement between
the parties.
2
<PAGE> 3
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: /s/ V. LYNN GRAYBILL
-----------------------------------
Name: V. Lynn Graybill
----------------------------
Title: President
---------------------------
/s/ CHARLES BRISTER
----------------------------------------
Charles Brister, individually
3
<PAGE> 1
EXHIBIT 10.32
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.
<PAGE> 2
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 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.
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.
6. LAW GOVERNING. This Agreement shall be governed by and
construed in
2
<PAGE> 3
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: /s/ V. LYNN GRAYBILL
------------------------------------
Name: V. Lynn Graybill
-----------------------------
Title: President
----------------------------
/s/ CHARLES BRISTER
----------------------------------------
Charles Brister, individually
3
<PAGE> 4
ANNEX A
Acadia Madison
Allen Morehouse
Ascension Natchitoches
Assumption Orleans
Avoyelles Ouachita
Beauregard Plaquemines
Bienville Pointe Coupee
Bossier Rapides
Caddo Red River
Calcasieu Richland
Caldwell Sabine
Cameron St. Bernard
Catahoula St. Charles
Clairborne St. Helena
Concordia St. James
De Soto St. John the Baptist
East Baton Rouge St. Landry
East Carroll St. Martin
East Feliciana St. Mary
Evangeline St. Tammany
Franklin Tangipahoa
Grant Tensas
Iberia Terrebonne
Iberville Union
Jackson Vermillion
Jefferson Vernon
Jefferson Davis Washington
Lafayette Webster
Lafourche West Baton Rouge
LaSalle West Carroll
Lincoln West Feliciana
Livingston Winn
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in Amendment No. 1 to 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 I 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 Amendment No. 1 to 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
May 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF KARTS INTERNATIONAL INCORPORATED FOR THE
QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS CONTAINED IN AMENDMENT NO. 1 TO FORM SB-2 OF KARTS
INTERNATIONAL INCORPORATED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 677,737
<SECURITIES> 0
<RECEIVABLES> 567,614
<ALLOWANCES> 5,000
<INVENTORY> 913,602
<CURRENT-ASSETS> 2,317,233
<PP&E> 640,483
<DEPRECIATION> 61,444
<TOTAL-ASSETS> 9,104,677
<CURRENT-LIABILITIES> 780,987
<BONDS> 0
625,000
0
<COMMON> 2,718
<OTHER-SE> 4,261,980
<TOTAL-LIABILITY-AND-EQUITY> 9,104,677
<SALES> 1,300,784
<TOTAL-REVENUES> 1,300,784
<CGS> 1,154,430
<TOTAL-COSTS> 1,710,359
<OTHER-EXPENSES> 79,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,138
<INCOME-PRETAX> (489,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (489,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (489,427)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
</TABLE>
