<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________________
KARTS INTERNATIONAL INCORPORATED
(Name of Small Business Issuer in its Charter)
_________________________
<TABLE>
<S> <C> <C>
NEVADA 3944 75-2639196
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Identification No.)
Classification Code
Number)
_________________________
KARTS INTERNATIONAL INCORPORATED V. LYNN GRAYBILL, CHIEF EXECUTIVE OFFICER
109 NORTHPARK BOULEVARD, SUITE 210 109 NORTHPARK BOULEVARD, SUITE 210
COVINGTON, LOUISIANA 70433 COVINGTON, LOUISIANA 70433
(504) 875-7350 (504) 875-7350
(Address and Telephone Number of Principal Executive (Name, Address and Telephone Number
Offices and Principal Place of Business) of Agent for Service)
_________________________
Copies to:
RICHARD B. GOODNER, ESQ.
LOOPER, REED, MARK & MCGRAW ROBERT E. ALTENBACH, ESQ.
INCORPORATED JOHNSON & MONTGOMERY
4100 THANKSGIVING TOWER ONE BUCKHEAD PLAZA
1601 ELM STREET 3060 PEACHTREE ROAD, N.W., SUITE 400
DALLAS, TEXAS 75201 ATLANTA, GEORGIA 30305
PHONE NO. (214) 954-4135 PHONE NO. (404) 262-1000
FAX NO. (214) 953-1332 FAX NO. (404) 262-1222
</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
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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 $6.22 $870,800 $263.85
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Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,476.31
- -----------------------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(c) under the
Securities Act of 1933. The price per share of Common Stock
has been calculated on the basis of the average of the
closing bid and ask prices per share as quoted on the NASD
Electronic Bulletin Board on March 26, 1997, which were
$4.50 and $5.625 per share, respectively.
(2) Includes (i) 1,400,000 shares of Common Stock offered hereby,
(ii) 1,400,000 shares of Common Stock issuable upon exercise
of the Redeemable Common Stock Purchase Warrants (the
"Warrants") offered hereby, (iii) 210,000 shares of Common
Stock subject to the Underwriters' overallotment option,
(iv) 210,000 shares of Common stock issuable upon exercise
of 210,000 Warrants subject to the Underwriters'
overallotment option, and (v) 140,000 shares of Common Stock
issuable upon exercise of 140,000 warrants subject to
Underwriters' Warrants.
(3) Includes 1,400,000 Warrants offered hereby and 210,000
Warrants subject to the Underwriters' over-allotment option.
(4) Underwriters' Warrants to purchase up to 140,000 units
consisting of an aggregate of 140,000 shares of Common
Stock and 140,000 Warrants exercisable at 120% of the
estimated offering prices of the Common Stock and Warrants.
(5) Pursuant to Rule 416, this Registration Statement also covers
such indeterminate number of shares of Common Stock as may be
issuable upon exercise of the referenced warrants pursuant to
antidilution provisions.
_________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<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. The securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 28, 1997
PROSPECTUS
KARTS INTERNATIONAL INCORPORATED
1,400,000 SHARES OF COMMON STOCK AND
1,400,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Karts International Incorporated, a Nevada corporation (the "Company"),
hereby offers 1,400,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"), and 1,400,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") (the "Offering"). The shares of Common Stock and the Warrants
offered hereby (sometimes hereinafter collectively referred to as the
"Securities") may be purchased separately. Each Warrant is transferable
immediately upon issuance and entitles the holder thereof to purchase one share
of Common Stock at a price of $4.50 per share (assuming an initial offering
price of $4.50 per share) during the four-year period commencing on the first
anniversary of the effective date of this Offering (the "First Exercise Date").
The Warrants are redeemable by the Company at a redemption price of $0.01 per
Warrant, at any time after the First Exercise Date, upon 30 days' written
notice to the holders thereof, if the average closing price of the Common Stock
equals or exceeds $9.00 per share for the 20 consecutive trading days ending
three days prior to the date of the notice of redemption. See "Description of
Securities."
The Company's Common Stock is listed for trading on the Electronic Bulletin
Board of the National Association of Securities Dealers, Inc. (the "NASD")
under the symbol "KINT". On March 26, 1997, the closing bid and ask prices of
the Common Stock were $4.50 and $5.625 per share, respectively. The Company
has applied to include the shares of Common Stock and Warrants offered hereby
on the Nasdaq SmallCap Market under the symbols "KINT" and "KINTW,"
respectively. The Company's Securities have not yet been approved for
quotation on the Nasdaq SmallCap Market and there can be no assurance that an
active trading market will develop or if such market is developed it will be
sustained. See "Common Stock Price Ranges and Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT
IN THE COMMON STOCK AND WARRANTS OFFERED HEREBY, INCLUDING, WITHOUT LIMITATION,
A RISK THAT THIS PROSPECTUS MAY NOT BE CURRENT DURING THE EXERCISE PERIOD OF
THE WARRANTS.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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PRICE UNDERWRITING DISCOUNTS PROCEEDS TO
TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
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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 $5.40 per share of Common
Stock and $0.15 per warrant (the "Underwriters' Warrants") and
(iii) a financial advisory agreement for the Representative to
act as an investment banker for the Company for a period of
two years for an aggregate fee of $48,000 payable at the
closing of the Offering. In addition, the Company has agreed
to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the
Company, estimated at $387,250, including the non-accountable
expense allowance payable to the Underwriters.
(3) The Company has granted the Underwriters a 45-day
over-allotment option to purchase up to 210,000 additional
shares of Common Stock and 210,000 additional Warrants on the
same terms and conditions as set forth above. If all such
additional shares are purchased by the Underwriters, the total
Price to Public will be $_______________, the total
Underwriting Discounts and Commissions will be
$_______________ and the total Proceeds to the Company will be
$_______________. See "Underwriting."
______________________________
The Securities offered by this Prospectus are being offered by the
Underwriters named herein on a "firm commitment" basis subject to prior sale,
when, as and if accepted by the Underwriters, approval of certain legal matters
by counsel for the Underwriters and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer without notice and
reject any order in whole or in part. It is expected that delivery of the
certificates representing the Securities will be made at the offices of Argent
Securities, Inc., Atlanta, Georgia on or about ____________________, 1997.
Argent Securities, Inc.
The Date of this Prospectus is , 1997
<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. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document
referred to herein are not necessarily complete and, where such agreement or
other document is an exhibit to the Registration Statement, each such statement
is qualified in all respects by the provisions of such exhibit, to which
reference is hereby made for a full statement of the provisions thereof. For
further information with respect to the Company and the Securities offered
hereby, reference is hereby made to the Registration Statement and to the
schedules and exhibits thereto.
The Registration Statement may be inspected, without charge, and
copies may be obtained, at prescribed rates, at the public reference facilities
of the Commission maintained at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. Copies of the Registration Statement may also be
inspected, without charge, at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. In addition, copies of the Registration
Statement may be obtained by mail, at prescribed rates, from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
ADDITIONAL INFORMATION
As a result of this Offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the public reference facilities and
regional offices referred to above. The Commission also maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding issuers of securities which file electronically
with the Commission. The Company intends to furnish its stockholders with
annual reports containing consolidated financial statements certified by its
independent auditors and with quarterly reports for each of the first three
quarters of each fiscal year containing unaudited consolidated financial
information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL ON THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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<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 warrants, including Warrants
offered hereby, the 1996 Warrants, the Class A Warrants and the Underwriters'
Warrants, and (vi) assume no exercise of the Underwriters' over-allotment
option.
THE COMPANY
Karts International Incorporated, a Nevada corporation (the
"Company"), through its wholly-owned subsidiaries, Brister's Thunder Karts,
Inc., a Louisiana corporation ("Brister's") and USA Industries, Inc., an
Alabama corporation ("USA"), designs, manufactures and distributes recreational
fun karts ("Fun Karts"), also referred to as "go karts." Fun Karts are
four-wheeled, gas-powered vehicles typically equipped with engines of 5 to 8
horsepower and purchased by consumers principally for off-road recreational
use. The Company shipped approximately 17,750 Fun Karts to dealers and mass
merchandisers in 1996, which the Company believes represents approximately 14%
of the total domestic karts market, an approximate 27% increase over 1995, and
a 42% increase over 1994. Proforma consolidated revenues of the Company for
the fiscal year ended December 31, 1996 were approximately $10.7 million as
compared with revenues of approximately $8.5 million for the fiscal year ended
December 31, 1995. The Company operates manufacturing facilities in Roseland,
Louisiana and Prattville, Alabama, and maintains its executive offices in
Covington, Louisiana. See "The Company" and "Business."
The karts industry is comprised of three principal segments, Fun
Karts, racing and concession karts. Fun Karts, the largest segment, are karts
sold to consumers for general recreational use. Racing karts are specially
designed for use on established tracks in a controlled racing environment.
Concession karts are designed for use by amusement and entertainment centers
which provide karts and facilities for customers' use on a rental basis.
Management estimates that in 1996 approximately 145,000 karts were sold in the
United States of which approximately 125,000 were Fun Karts, 12,500 racing
karts and 7,500 concession karts. Historically, the Company has concentrated
its efforts in the Fun Karts market.
The Company offers a complete product line of Fun Karts,
differentiated by drive train, seating capacity, tire size and tread, and frame
size. Thirty-two Fun Kart models are available in three different colors,
black, blue and red, which are sold under the Thunder Karts and USA Fun Karts
brand names. The Company's models offer a wide range of standard and optional
features which enhance the safety, operation, riding comfort and performance of
its Fun Karts. Such features include the exclusive, patented automatic
throttle override; full safety cage; safety flag; three kinds of drive trains,
including live axle, single wheel pull and torque converter; clutch lubrication
system; high speed bearings; adjustable throttle and seats; steel rims; band
and disc brakes; and Briggs & Stratton 5 horsepower engines. The end-users of
the Company's Fun Karts are primarily 7- to 17-year-old males, living with
their parents in suburban and rural markets. Typical Fun Kart purchasers are
parents who purchase Fun Karts for their children.
The Company relies on a broad and diversified national independent
dealer network and mass merchandisers to sell its Fun Karts. Prior to 1996,
the Company sold its products through its over 700 dealers, primarily lawn and
garden stores, motorcycle outlets, hardware stores and specialty karts dealers,
located in 40 states. The major
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<PAGE> 5
markets for the Company's Fun Karts are in the Southeast and Southwest regions
of the United States. In 1996, the Company sold approximately 61% of its Fun
Karts to approximately 250 dealers located in Louisiana, Texas, Mississippi and
Florida. Although there are no formal dealer agreements, the Company, for the
benefit of certain of its higher volume dealers, will agree not to sell to
other retailers in a limited geographic area surrounding the high volume
dealer. To become a Fun Kart dealer, the Company generally requires a retailer
to annually purchase six or more Fun Karts. Dealers usually maintain an
inventory of three to five Fun Karts which increases during the Christmas
holiday season. For eligible dealers, the Company offers a dealer floor plan
financing program through an unaffiliated financial services company.
To broaden its distribution channels, the Company in 1996 began
selling its Fun Karts to two mass merchandisers, Wal-Mart Stores, Inc.
("Wal-Mart") and Sam's Wholesale Club ("Sam's Club"), a division of Wal-Mart
Stores, Inc. In 1996, the Company sold approximately 4,000 of its Fun Karts to
Wal-Mart and Sam's Club, representing approximately 21% of the Company's
proforma revenues for the fiscal year ended December 31, 1996. Management
believes that mass merchandisers represent a significant untapped market for
Fun Karts.
The Company's operating strategy is to increase its sales and market
share by producing safe, high-quality and reliable Fun Karts at competitive
prices; continue to improve manufacturing efficiency; and continue
diversification of domestic distribution channels. The Company's growth
strategy is to increase its brand and product recognition by innovative
marketing to its target users; broaden its product lines through improved
product design and development; and expand its geographic presence and market
share by continued emphasis on expansion of its domestic dealer and mass
merchandiser networks, through further penetration of international markets,
and through acquisitions of manufacturers of karts and related products that
provide synergistic growth opportunities for the Company.
Although the Company is actively seeking acquisitions that will expand
its existing product lines, market share and distribution channels, the Company
currently has no agreements or understandings with respect to any such
acquisitions and there can be no assurance that the Company will be able to
identify and acquire such businesses or obtain necessary financing on favorable
terms.
THE OFFERING
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<CAPTION>
SECURITIES OFFERED
<S> <C>
Common Stock . . . . . . . . . . 1,400,000 shares of Common Stock. See "Description of Securities -- Common
Stock."
Warrants . . . . . . . . . . . . 1,400,000 Warrants. Each Warrant entitles the holder thereof to purchase one
share of Common Stock at a price of $4.50 per share (assuming an initial
offering price of $4.50 per share of Common Stock) during the four-year period
commencing on the first anniversary of the effective date of this Offering (the
"First Exercise Date"). The Warrants are each redeemable by the Company at a
redemption price of $0.01 per Warrant, at any time after the First Exercise
Date, upon thirty days prior written notice to the holders thereof, if the
average closing price of the Common Stock equals or exceeds $9.00 per share,
for the 20 consecutive trading days ending three days prior to the date of the
notice of redemption. See "Description of Securities -- Redeemable Common
Stock Purchase Warrants."
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
OUTSTANDING SECURITIES . . . . . . . Securities
Securities Outstanding Upon
Presently Completion of the
Outstanding Offering
----------- ------------------
<S> <C> <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
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
</TABLE>
______________________________
(1) Unless otherwise indicated herein, the information contained in this
Prospectus regarding the Company's outstanding securities does not include
(i) 210,000 shares of Common Stock and 210,000 Warrants issuable upon
exercise of the Underwriters' over-allotment option, (ii) the 140,000
shares of Common Stock and 140,000 Warrants issuable upon exercise of the
Underwriters' Warrants, (iii) the 1,963,359 shares of Common Stock
issuable upon the exercise of the outstanding warrants, including the
Warrants offered hereby, and (iv) 59,355 shares of Common Stock issuable
upon the exercise of stock options granted to certain employees and
officers of the Company. See "Management -- Stock Options," "Principal
Stockholders," "Description of Securities" and "Underwriting."
(2) See "The Company -- Recent Financings" and "Description of Securities --
Convertible Preferred Stock, -- 1996 Warrants, and -- Bridge Financing."
(3) See "The Company -- Recent Financings" and "Description of Securities --
Class A Warrants."
(4) See "Underwriting."
(5) The Company has made application with the NASD for inclusion of the
Securities in the NASD's Automated Quotation System ("Nasdaq") SmallCap
Market. The inclusion of the proposed Nasdaq symbols in this Prospectus
Summary is not meant to imply that a trading market may someday exist for
the Securities offered hereby or that the symbols will be assigned to the
Securities of the Company. The Company's Common Stock currently is quoted
on the NASD Electronic Bulletin Board under the symbol "KINT". See
"Common Stock Price Ranges and Dividends."
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<PAGE> 7
SUMMARY HISTORICAL AND PROFORMA CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary historical data of the Company on
a consolidated proforma basis as of December 31, 1995 and 1996 and for the
three years ended December 31, 1994, 1995 and 1996, respectively, which present
the consolidated proforma results of continuing operations of the Company and
its two subsidiaries as if the acquisitions of Brister's and USA occurred as of
January 1, 1994, as adjusted for the proforma effect of the amortization of
goodwill, which have been derived from the Company's audited financial
statements included elsewhere in this Prospectus. The summary financial
information should be read in conjunction with "Selected Historical and
Proforma Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and the notes thereto appearing elsewhere in this
Prospectus.
In the opinion of management, these proforma statements include all
material adjustments necessary to present proforma historical results of the
above-described transactions. The proforma information does not purport to be
indicative of the financial position or the results of operations which would
have actually been obtained if the acquisition transactions had actually been
consummated on the dates indicated. In addition, the proforma financial
information does not purport to be indicative of the financial position or
results of operations that may be obtained in the future.
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------------------------------------
(Proforma) (Proforma) (Proforma)
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net . . . . . . . . . . . . . . . . . . . . . . . $ 10,698,824 $ 8,514,460 $ 7,069,500
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 7,613,372 6,184,340 5,186,245
Operating expenses . . . . . . . . . . . . . . . . . . . . 2,495,676 1,873,960 1,658,310
Income from operations . . . . . . . . . . . . . . . . . . 589,776 456,160 224,945
Net income . . . . . . . . . . . . . . . . . . . . . . . . 322,168 121,324 106,659
Net income per proforma weighted-average
share of common stock outstanding . . . . . . . . . . . . 0.10 0.04 0.03
Number of proforma weighted-average shares
of common stock outstanding . . . . . . . . . . . . . . . 3,119,592 3,119,592 3,119,592
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------- ------------------------------
As
Historical Adjusted(1) Historical Proforma
-------------- -------------- -------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets . . . . . . . . . . . . . . . . . . . . . $ 3,391,290 $ 4,906,540 $ - $ 2,054,177
Total assets . . . . . . . . . . . . . . . . . . . . . . 10,094,717 11,609,967 - 8,268,481
Current liabilities . . . . . . . . . . . . . . . . . . . 1,382,932 1,282,932 4,010 1,335,057
Total liabilities . . . . . . . . . . . . . . . . . . . . 4,715,592 1,515,592 4,010 4,610,490
Convertible preferred stock . . . . . . . . . . . . . . . 625,000 - - -
Stockholders' equity . . . . . . . . . . . . . . . . . . 4,754,125 10,194,375 (4,010) 3,657,991
Working capital . . . . . . . . . . . . . . . . . . . . . 2,008,358 3,623,608 - 719,120
</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."
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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 PAYMENT TO DIRECTOR AND CERTAIN STOCKHOLDERS OF THE
COMPANY. As a result of the acquisition of Brister's (the "Brister's
Acquisition"), the Company incurred long-term indebtedness of approximately
$3.2 million of which approximately $1.2 million will be repaid to Charles
Brister, a director and principal stockholder of the Company, with a portion of
the proceeds of the Offering. The remaining $2 million of long-term debt will
be repaid to the Schlinger Foundation, a principal stockholder of the Company,
upon closing of the Offering. In addition to the $3.2 million debt repayment,
the Company will pay to holders of the Company's Convertible Preferred Stock
$625,000 of the proceeds of this Offering upon the conversion of the
outstanding Convertible Preferred Stock. After the completion of this
Offering, Mr. Brister will have received approximately $3.2 million from the
Company and will own 516,667 shares of Common Stock as a result of the
Brister's Acquisition. Upon conversion of the preferred stock, the holders
will receive the return of their total cash investment while retaining an
aggregate of 104,175 shares of Common Stock and 500,025 1996 Warrants at no
cost basis. The purchasers of the Securities in this Offering will have paid
$4.50 per share of Common Stock, representing a significantly higher price for
such stock than the holders of the Convertible Preferred Stock or most of the
principal stockholders paid for their shares of Common Stock, and will have
assumed the principal financial risk for the future success of the Company's
business operations. Certain officers, directors and stockholders of the
Company, including Mr. Brister and the Convertible Preferred Stockholders will
enter into lock-up agreements with the Company and the Representative upon the
closing of the Offering for periods ranging from 18 to 60 months. See "The
Company," "Use of Proceeds," "Dilution," "Certain Relationships and Related
Transactions," "Principal Stockholders," "Description of Securities --
Convertible Preferred Stock and -- Bridge Financing."
INTEGRATION OF OPERATIONS AS A RESULT OF RECENT ACQUISITIONS. If the
Company is to realize the anticipated benefits of its recent acquisitions,
USA's and Brister's must be integrated and combined efficiently and effectively
with those of the Company. The process of augmenting the manufacturing, supply
and distribution channels, computer and accounting systems and other aspects of
operations, while managing a larger and geographically expanded entity with
additional Fun Kart products, will present a significant challenge to the
Company's management. There can be no assurance that the integration process
will be successful or that the anticipated benefits of these acquisitions will
be fully realized. The dedication of management resources to such integration
may detract attention from the day-to-day business of the Company. The
difficulties of integration may be increased by the necessity of coordinating
geographically separated manufacturing operations, integrating personnel with
disparate business backgrounds and combining different corporate cultures.
There can be no assurance that the Company will be able to achieve any expense
reduction through the removal of duplicative expenses or through economies of
scale, that there will not be substantial costs associated with any such
reductions or that such reductions will not result in a decrease in revenues or
that there will not be other material adverse effects on the Company of these
integrated efforts. Such effects could also materially reduce the short-term
earnings of the Company. See "The Company -- Recent Acquisitions."
RISKS RELATING TO GROWTH AND EXPANSION. Although the Company believes
that the net proceeds from this Offering and projected cash flow from
operations will allow the Company to achieve initial implementation of its
business strategies, there can be no assurance that the Company will have
sufficient funds to completely achieve successful implementation of its plans
to a level that will have a positive effect on its results of operations or
financial condition. The ability of the Company to execute its growth strategy
will also depend on other factors, including ability of sales and marketing
personnel to retain and expand the Company's dealers and mass merchandiser
networks, market acceptance of Company's modified and new products, ability to
further penetrate the Company's target market and increase consumer awareness
of its products by advertising, ability to consummate acquisitions of kart
manufacturers and related businesses, general economic and industry conditions,
and other factors, many of which are beyond the control of the Company. Even
if the Company's revenues and earnings grow rapidly, such growth may
significantly strain the Company's management and its operational and technical
resources. If the Company is successful in obtaining greater market
penetration with its products, the Company will be required to deliver
increasing volumes of its products to its customers on a
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timely basis at a reasonable cost to the Company. No assurance can be given
that the Company can expand its manufacturing capacity to meet increased
product demand or that the Company will be able to satisfy increased production
demands on a timely and cost-effective basis. There can be no assurance that
the Company's growth strategy will be successful. Further, if one or more of
the component parts of the Company's growth strategy is unsuccessful, there can
be no assurance that such lack of success will not have a material adverse
effect on the Company's results of operations or financial condition. See "Use
of Proceeds" and "Business -- Operating Strategy, -- Growth Strategy and --
Acquisition Strategy."
SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The
Company has historically experienced stronger demand for its products in the
third and fourth quarters of each calendar year. Operating results may
fluctuate due to factors such as the timing of the introduction of new
products, price reductions by the Company and its competitors, demand for the
Company's products, new product mix, delay, cancellation or rescheduling of
orders, performance of third party manufacturers, available inventory levels,
seasonal cost increases and general economic conditions. A significant portion
of the Company's operating expenses are relatively fixed. Since the Company
typically does not obtain long-term purchase orders or commitments from its
customers, it must anticipate the future volume of orders based upon the
historic purchasing patterns of its dealers and mass merchandisers and upon its
discussions with its dealers and representatives of mass merchandisers as to
their future requirements. Cancellations, reductions or delays in orders by a
large customer or group of customers could have a material adverse impact on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Seasonality."
BROAD DISCRETION OVER USE OF PROCEEDS. After debt repayment,
conversion of the outstanding Convertible Preferred Stock and payment of the
expenses of this Offering, the Company will have approximately $1,615,250 net
proceeds to broaden its distribution channels, purchase equipment, pay
advertising and marketing expenses, for product development and design and
working capital. Management will have broad discretion in allocating and
applying such proceeds and the Company's stockholders will not have an
opportunity to review or vote upon the terms of these unspecified expenditures.
See "Use of Proceeds."
GROWTH STRATEGY AND RISKS RELATING TO FUTURE ACQUISITIONS. One
element of the Company's growth strategy involves growth through the
acquisition of other companies, assets or product lines that would complement
or expand the Company's business. The Company's ability to grow by acquisition
is dependent upon, and may be limited by, the availability of suitable
acquisition candidates and capital. Future acquisitions by the Company could
result in potentially dilutive issuances of securities, the incurrence of debt
and contingent liabilities and amortization expenses related to goodwill and
other intangible assets, which could materially affect the Company's
profitability. In addition, acquisitions involve risks that could adversely
affect the Company's operating results, including the assimilation of the
operations and personnel of acquired companies, and the potential loss of key
employees of acquired companies. There can be no assurance that the Company
will be able to consummate any acquisitions on suitable terms. No commitments
or binding agreements have been entered into to date and there can be no
assurance that acquisitions, if any, can be completed. Although the Company
does not presently plan to use any of the proceeds from this Offering for
acquisitions, the Company does reserve the right to reallocate such proceeds
for use in an acquisition if management believes such acquisition would be in
the best interest to the Company. Other than as required by the Company's
Articles of Incorporation, Bylaws and applicable laws, stockholders of the
Company generally will not be entitled to vote upon such acquisitions. See
"Use of Proceeds" and "Business -- Growth Strategy and -- Acquisition
Strategy."
ADDITIONAL FINANCING WILL BE NEEDED. Upon completion of this
Offering, the Company will have limited financial resources for acquisitions.
The Company will be dependent upon the proceeds from additional financings,
including receiving proceeds from the future exercise of the Warrants of which
there can be no assurance, to facilitate an acquisition. The Company may also
need additional financing to achieve full implementation of its long-term
growth strategy and for working capital. There can be no assurance that
additional financing will be available, or if available, that such financing
will be on favorable terms. See "Use of Proceeds" and "Business -- Growth
Strategy and -- Acquisition Strategy."
POTENTIAL PRODUCT LIABILITY AND INSURANCE LIMITS. The nature of the
products manufactured by the Company is such that the products may fail due to
material inadequacies or equipment failures. Such a failure
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may subject the Company to the risk of product liability claims and litigation
arising from injuries allegedly caused by the improper functioning or design of
its products. As the Company expands its Fun Karts product lines and
distributes more products into the marketplace, the Company's exposure to such
potential liability will also increase. The Company currently maintains $5
million occurrence basis product liability insurance with a $50,000
self-insured retention and $5 million maximum per occurrence coverage. The
Company currently has four pending product liability claims, none of which are
expected to exceed the existing policy limits. The Company has never had a
claim that resulted in an award or settlement in excess of insurance coverage.
The Company believes that as its sales of Fun Karts increase, product liability
claims will be inevitable, particularly given the current litigious nature of
American consumers. There is no assurance that the Company's insurance
coverage will be sufficient to fully protect the business and assets of the
Company from all claims, nor can any assurances be given that the Company will
be able to maintain the existing insurance coverage or obtain additional
coverage at commercially reasonable rates. To the extent product liability
losses are beyond the limits or scope of the Company's insurance coverage, the
Company could experience a material adverse effect upon its business,
operations, profitability and assets. See "Business -- Product Liability and
Insurance Limits and -- Legal Proceedings."
PENDING LITIGATION. In addition to product liability claims, the
Company, from time to time, is involved in lawsuits in the ordinary course of
business. On February 4, 1997 a lawsuit was filed in a Mississippi state court
against the Company, Brister's and an unaffiliated insurance broker by the
Company's insurance underwriter to have insurance coverage declared as null and
void for an alleged material misrepresentation on the insurance application.
This action arose as a result of the payment in 1997 by the insurance
underwriter of $700,000 in settlement of a product liability lawsuit against
the Company and other defendants. The Company intends to file a counterclaim
against the Company's insurance broker relating to possible misrepresentations
made by the insurance broker to the insurance underwriter regarding Brister's
prior product liability claims history. The Company intends to vigorously
defend this lawsuit. The Company is currently engaged in discovery and is
unable to predict the outcome of this litigation. If the Plaintiff is
successful in this litigation and is awarded a judgement for damages, such
judgment could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Legal
Proceedings."
DEPENDENCE ON KEY PERSONNEL. The Company's success will depend to a
large degree on its ability to retain the services of its existing management
and to attract and retain qualified personnel as necessary in the future. To
provide for continuity of management, the Company has entered into an
employment agreement with V. Lynn Graybill, Chairman of the Board, President
and Chief Executive Officer of the Company. The loss of the services of any
key management personnel or the inability to recruit and retain qualified
personnel in the future could have a material adverse effect on the Company's
business and results of operations. The Company may obtain key man life
insurance policies on the lives of key management personnel, with the proceeds
of the policies to be payable to the Company. While management of the Company
believes that any such policy proceeds would help the Company recruit and
compensate replacements for such individuals, there can be no assurance that
any such proceeds would offset any resulting financial impact of the death of
any key management personnel. See "Management" and "Certain Relationships and
Related Transactions."
CONFLICTS OF INTEREST. Prior to the Offering, certain officers,
directors and related parties have engaged in business transactions with the
Company. Management believes that the terms of these transactions were as
favorable to the Company as those which could have been obtained from
unaffiliated third parties under similar circumstances. All future
transactions between the Company and its affiliates will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of the disinterested members of the Board of Directors
of the Company. See "The Company" and "Certain Relationships and Related
Transactions."
DEPENDENCE ON LICENSE AGREEMENT WITH DIRECTOR. The Company does not
own any patents, trademarks or service marks. However, Mr. Charles Brister, a
director and principal stockholder of the Company, owns certain patents,
technology and trademarks which are licensed to the Company, which allows the
Company to use brand names and utilize the automatic throttle override system
on its Fun Karts. The Company's success is dependent upon, among other things,
its continued ability to use these certain patented items and other proprietary
materials. The termination of the license agreement with Mr. Brister would
have an adverse effect upon the Company's ability to produce its current line
of Fun Karts. Furthermore, there can be no assurance
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that if the license agreement is terminated prior to its initial term that the
Company could find suitable substitutions for the licensed items and technology
or that its Fun Karts, produced without the licensed items and technology,
would receive the same market acceptance. Also, there is no assurance that the
technology licensed to the Company, or that the Company might license in the
future, will quickly become obsolete due to the development of other, more
advanced technology by competitors of the Company. See "Business -- Product
Lines and -- Patents and Proprietary Technology" and "Certain Relationships and
Related Transactions."
RETENTION OF CONTROL. The Company's officers, directors and principal
stockholders beneficially will own approximately 47% of the outstanding shares
of the Company's Common Stock at the completion of the Offering. As a result,
the officers, directors and principal stockholders of the Company will have the
ability to control the day-to- day affairs and the fundamental policies of the
Company. Voting together such stockholders, including the officers and
directors of the Company, could possibly block any major corporate
transactions, such as a merger or sale of substantially all of the Company's
assets, that under Nevada law requires the affirmative vote of holders of a
majority of the outstanding shares of Common Stock of the Company. See
"Management" and "Principal Stockholders."
CONCENTRATION OF MANUFACTURING FACILITIES. The Company's
manufacturing operations are conducted at, and substantially all of the
Company's inventory is maintained in, two facilities, one in Roseland,
Louisiana and the other in Prattville, Alabama. Any significant casualty loss
to, or extended interruptions of operations at, either facility would have a
material adverse effect on the Company. Replacement of the Company's
manufacturing equipment could take several months and would have a material
adverse effect on the Company. See "Business -- Facilities."
INFORMAL SUPPLY ARRANGEMENTS. Most of the component parts, including
engines, wheels, tires, seats, steering wheels, steering tire rods and other
miscellaneous parts, used in the manufacture of the Company's Fun Karts are
purchased from various domestic vendors under informal arrangements. The
Company currently purchases its engines exclusively from Briggs & Stratton.
Although the Company believes its relationship with its vendors to be
excellent, the loss of any vendor, and in particular Briggs & Stratton, may
cause the Company to experience a temporary delay in the production of the
Company's Fun Karts. The Company believes other engine vendors and suppliers
of other component parts necessary for the production of Fun Karts are readily
available. See "Business -- Manufacturing Operations."
DEPENDENCE ON INDEPENDENT DEALERS. The Company has not entered into
written agreements with its Fun Karts dealers and in turn the dealers are under
no obligation to purchase the Company's Fun Karts. In 1996, approximately 79%
of the Company's proforma revenues were the result of sales to its independent
dealers and the Company projects that in 1997 approximately 75% of the
Company's revenues will be attributed to sales to independent dealers. No one
dealer or group of affiliated dealers accounted for 10% or more of the
Company's 1996 proforma revenues. While the Company believes that its
relations with its independent dealers are generally good, there can be no
assurance that the Company will be able to maintain these relationships, that a
majority of its dealers will continue to sell the Company's Fun Karts or that
the Company will be able to attract and retain quality independent dealers. If
a significant number of the Company's dealers ceased to order Fun Karts from
the Company or if the Company is unable to expand its dealer network, the
Company's financial condition and results of operations would be adversely
affected. See "Business -- Sales and Marketing."
DEPENDENCE ON MAJOR CUSTOMERS. The Company is a provider of Fun Karts
to Wal-Mart and Sam's Club. In 1996, 12% and 9% of the Company's proforma
revenues were the result of sales made to Sam's Club and Wal-Mart,
respectively. The Company believes that sales of Fun Karts to Sam's Club and
Wal-Mart will account for approximately 12% and 13%, respectively, of the
Company's 1997 revenues. A delay of over 90 days in the payment of invoices
submitted by the Company to either Wal-Mart or Sam's Club may adversely affect
the Company's working capital. The loss of either the Wal-Mart or Sam's Club
accounts would have a material adverse effect on the financial condition and
results of operations of the Company. See "Business -- Sales and Marketing."
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS; MARKET ACCEPTANCE. The
Company believes that the introduction of new, innovative models of Fun Karts
will be important to its future growth, and that it must continue to respond to
changing consumer preferences in the areas of style, function, safety and
technological
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innovation. Failure by the Company to identify and respond to such trends
could adversely affect consumer acceptance of its product lines which in turn
would adversely affect the Company's results of operations. No assurances can
be given that the Company will be able to successfully develop new Fun Kart
models or that any new or modified Fun Karts will meet with consumer acceptance
in the marketplace or that the Company's current products will receive
continued or increased consumer acceptance. No assurance can be given that the
Company's existing Fun Kart models will continue to be sold at acceptable
margin levels or that the Company will be able to design, manufacture and
distribute new products at acceptable margin levels. See "Business -- Product
Lines."
COMPETITION. The Fun Karts industry is highly competitive, and there
is no assurance that the Company will be able to continue to compete profitably
in this industry in the future. The Company expects that it will continue to
face intense competition as its growth strategy is implemented. Such
competition may result in reduced sales, reduced margins, or both. The Company
is and will be competing with larger, better capitalized companies which may be
better positioned to respond to shifts in consumer demand and other market
based changes. If other companies introduce new and modified products before
the Company achieves significant market expansion, the Company could experience
growth less than its expectations which could have a material adverse effect on
the Company's financial condition and results of operations. The Company's
ability to continue to compete successfully will depend, to a significant
extent, on its ability to continue to enhance its existing products and to
develop and introduce new products which maintain the Company's technological
position, satisfy a wide range of customer safety requirements and maintain or
expand market acceptance of the Company's products. See "Business --
Competition."
COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Management believes certain
states, including California, have proposed legislation involving emission or
other safety standards for the type of gas powered engines installed on the
Company's Fun Karts. The Company is currently unable to predict whether such
legislation will be enacted in the future and, if so, the ultimate impact on
the Company and its operations. Additionally, consumer protection laws exist
in many states in which the Company currently markets its products. Any
violation of such laws or regulations could have a material adverse effect on
the Company. The Company's manufacturing facilities are inspected by the
Occupational Safety and Health Administration. The Company believes that it is
generally in compliance in all material respects with all currently applicable
federal and state laws and regulations. Federal, state and local environmental
regulations are not expected to have a material effect on the Company's
operations. However, if the Company acquires existing manufacturing operations
which are in violation of such consumer or environmental laws and regulations,
such violations may have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Government Regulations."
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchase price of the Common
Stock substantially exceeds the net tangible book value of the Common Stock.
Purchasers of the Common Stock will experience an immediate substantial
dilution in the net tangible book value per share of the Common Stock after
this Offering in the amount of $3.49 per share. See "Dilution."
ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation and
Bylaws contain provisions that may have the effect of discouraging certain
transactions involving an actual or threatened change of control of the
Company. In addition, the Board of Directors of the Company has the authority
to issue up to 10,000,000 shares of preferred stock in one or more series and
to fix the preferences, rights and limitations of any such series without
stockholder approval. The ability to issue preferred stock could have the
effect of discouraging unsolicited acquisition proposals or making it more
difficult for a third party to gain control of the Company, or otherwise could
adversely affect the market price of the Common Stock. See "Description of
Securities."
DIVIDEND POLICY. The Company has not paid or declared any cash
dividends with respect to its Common Stock or Convertible Preferred Stock, nor
does it anticipate any such payments or declarations in the foreseeable future.
Any future dividends will be declared at the discretion of the Board of
Directors of the Company and will depend, among other things, on the Company's
earnings, if any, its financial requirements for future operations and growth,
and such other factors as the Company may then deem appropriate. Investors
should not rely on the receipt of dividends in the near future or at any time
in the future when evaluating the merits of an investment in the Securities.
See "Dividend Policy."
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SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of
Common Stock in the public market following the completion of the Offering
could have an adverse effect on the market price of the Common Stock. There
will be approximately 4,221,828 shares of Common Stock outstanding immediately
after the Offering, including the 1,400,000 shares offered hereby and the
104,175 shares to be issued upon the conversion of the Convertible Preferred
Stock. Upon completion of the Offering, all of the shares of Common Stock
offered hereby and approximately 154,809 shares of Common Stock held by current
stockholders of the Company will be eligible for public sale without
restrictions, except for shares purchased by affiliates (those controlling or
controlled by or under common control with the Company and generally deemed to
include officers and directors) of the Company. The remaining approximately
2,667,019 shares of the Company's Common Stock are "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"). Subject to the volume and holding
period limitations of Rule 144 and the "lock-up" agreements described below,
2,305,879 currently outstanding shares of Common Stock will be eligible for
sale under Rule 144 ninety days after the completion of the Offering. None of
the Company's currently outstanding restricted securities are eligible for sale
under Rule 144(k). Holders of approximately 1,376,221 shares of Common Stock,
including the holders of the Convertible Preferred Stock, officers and
directors of the Company, will agree to "lock-up" their shares of Common Stock
for periods ranging from 18 to 60 months after the completion of the Offering.
No prediction can be made as to the effect, if any, that future sales of
additional shares of Common Stock or the availability of such shares for sale
under Rule 144, other applicable exemptions or otherwise will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect prevailing market prices of
the Common Stock. See "Principal Stockholders" and "Shares Eligible for Future
Sale."
POSSIBLE SALE OF SHARES OF COMMON STOCK DURING LOCK-UP PERIODS. The
holders of the Convertible Preferred Stock have agreed not to sell or otherwise
dispose of any of the 104,175 shares of Common Stock to be issued upon
conversion of the Convertible Preferred Stock or underlying the 1996 Warrants
for a period of 18 months after the closing of the Offering; provided the
shares of Common Stock issuable upon exercise of the 1996 Warrants may be
subject to demand registration rights and subsequently sold by the holders
thereof if the Company calls for the redemption of the Warrants or 1996
Warrants within 18 months after the completion of this Offering. All officers
and directors of the Company who are current stockholders of the Company have
agreed not to sell or dispose any shares of Common Stock held by them without
the prior written consent of the Representative until two years after the
effective date of this Offering. Furthermore, officers or directors whose
total compensation is more than $100,000 per year, or who own 5% or more of the
Company's outstanding securities, have agreed not to sell or dispose of any
shares of Common Stock held by them without the prior written consent of the
Representative for a period of five years after completion of this Offering.
Officers and directors of the Company who are subject to a five-year lock-up
provision shall have the right to have such restriction released at a rate of
20% per annum during the five year lock-up period based upon the Company's
achievement of certain goals with respect to the following: (i) annual revenue
growth of 20% or more, (ii) annual earnings per share growth of 20% or more,
and (iii) annual price of stock growth of 20% or more. With regard to V. Lynn
Graybill, the Chairman of the Board and Chief Executive Officer of the Company,
the lock-up provisions, to which Mr. Graybill would be subject, will be
terminated after the termination of Mr. Graybill's Employment Agreement, unless
such agreement is otherwise extended. The possibility that substantial amounts
of Common Stock may be sold in the public market prior to the expiration of the
lock-up periods may adversely affect the prevailing market price for the Common
Stock and could impair the Company's ability to raise additional capital
through the sale of its equity securities. See "Shares Eligible for Future
Sale."
EXERCISE OF UNDERWRITERS' WARRANTS. In connection with this Offering,
the Company will sell to the Underwriters, for nominal consideration, warrants
(the "Underwriters' Warrants") to purchase an aggregate of 140,000 shares of
Common Stock and 140,000 Warrants. The Underwriters' Warrants will be
exercisable commencing one year after the date of this Prospectus (the
"Effective Date") and ending five years after such date at an exercise price of
$5.40 per share of Common Stock and $0.15 per Warrant. The terms of the
Warrants underlying the Underwriters' Warrants shall be the same as those
Warrants offered to the public, except such Warrants are not subject to
redemption. The holders of the Underwriters' Warrants will have the
opportunity to profit from a rise in the market price of the Common Stock, if
any, without assuming the risk of ownership. At any time when the holders of
the Underwriters' Warrants might be expected to exercise them, the Company
probably would be able to obtain additional equity capital on terms more
favorable than those
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provided by the Underwriters' Warrants. The Company may find it more difficult
to raise additional equity capital if it should be needed for the business of
the Company while the Underwriters' Warrants are outstanding. To the extent
that any of the Underwriters' Warrants are exercised, the ownership interest of
the Company's stockholders may be diluted. The Company also has granted
registration rights to the Underwriters with respect to the 140,000 shares of
the Common Stock, the 140,000 Warrants and the 140,000 shares of Common Stock
issuable upon exercise of the 140,000 Warrants. See "Underwriting."
IMPACT ON MARKET OF WARRANT EXERCISE. In the event of the exercise of
a substantial number of the outstanding warrants of the Company, including the
Warrants offered hereby, within a reasonably short period of time after the
right to exercise commences, the resulting increase in the amount of Common
Stock of the Company in the trading market could substantially affect the
market price of the Common Stock. See "Description of Securities -- Redeemable
Common Stock Purchase Warrants, -- 1996 Warrants and -- Class A Warrants" and
"Underwriting."
ADJUSTMENTS TO OUTSTANDING WARRANTS EXERCISE PRICE AND EXERCISE DATE.
The Company, in its sole discretion, may reduce the exercise price of the
outstanding warrants of the Company, including the Warrants offered hereby,
and/or extend the time within which such warrants may first be exercised.
Further, in the event the Company issues certain securities or makes certain
distributions to holders of its Common Stock, the exercise price of such
warrants may be reduced. Any such price reduction in the exercise price of
outstanding warrants will provide less money for the Company and possibly
adversely affect the market price of the Securities. See "Description of
Securities -- Redeemable Common Stock Purchase Warrants, -- 1996 Warrants and
- -- Class A Warrants."
REDEMPTION OF WARRANTS. The Warrants are subject to redemption by the
Company, at any time after the First Exercise Date at a price of $0.01 per
Warrant, upon 30 days prior written notice to the holders thereof, if the
average closing bid price for the Common Stock equals or exceeds $9.00 per
share (assuming an initial offering price of $4.50 per share) for the 20
consecutive trading days ending on the third day prior to the date of notice of
redemption. In the event that the Warrants are called for redemption by the
Company, Warrantholders will have 30 days during which they may exercise their
rights to purchase shares of Common Stock. In the event a current prospectus
is not available, the Warrants may not be exercised and the Company will be
precluded from redeeming the Warrants. If holders of the Warrants elect not to
exercise them upon notice of redemption thereof, and the Warrants are
subsequently redeemed prior to exercise, the holders thereof will lose the
benefit of the difference between the market price of the underlying Common
Stock as of such date and the exercise price of such Warrants, as well as any
possible future price appreciation in the Common Stock. As the result of an
exercise of the Warrants, existing stockholders would be diluted and the market
price of the Common Stock may be adversely affected. If a Warrantholder fails
to exercise his rights under the Warrants prior to the date set for redemption,
then the Warrantholder will be entitled to receive only the redemption price,
$0.01 per Warrant. The 1996 Warrants are subject to redemption by the Company
upon the same terms as the Warrants at any time after November 15, 1997 until
May 15, 2000 when the 1996 Warrants expire. See "Description of Securities --
Redeemable Common Stock Purchase Warrants and -- 1996 Warrants" and "Shares
Eligible for Future Sale -- Lock-up Agreements."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION WITH
THE EXERCISE OF THE WARRANTS. The Company will be able to issue shares of its
Common Stock upon the exercise of the Warrants only if (i) there is a current
prospectus relating to the Common Stock issuable upon exercise of the Warrants
under an effective registration statement filed with the Commission and (ii)
such Common Stock is then qualified for sale or exempt therefrom under
applicable state securities laws of the jurisdiction in which the various
holders of Warrants reside. Although the Company has undertaken to use its
best efforts to maintain the effectiveness of a current prospectus covering the
Common Stock subject to the Warrants offered hereby, there can be no assurance
that the Company will be successful in doing so. After a registration
statement becomes effective, it may require continuous updating by the filing
of post-effective amendments. A post-effective amendment is required (i) when,
for a prospectus that is used more than nine months after the effective date of
the registration statement the information contained therein (including the
certified financial statements) is as of a date more than 16 months prior to
the use of the prospectus, (ii) when facts or events have occurred which
represent a fundamental change in the information contained in the registration
statement, or (iii) when any material change occurs in the information relating
to the plan of distribution of the securities registered by such registration
-13-
<PAGE> 15
statement. The Company anticipates that this Registration Statement will
remain effective for a least nine months following the date of this Prospectus,
assuming a post-effective amendment is not filed by the Company. The Company
intends to qualify the sale of the Securities in a limited number of states,
although certain exemptions under certain state securities laws may permit the
Warrants to be transferred to purchasers in states other than those in which
the Warrants were initially qualified. The Company will be prevented, however,
from issuing Common Stock upon exercise of the Warrants in those states where
exemptions are unavailable and the Company has failed to qualify the Common
Stock issuable upon exercise of the Warrants. The Company may decide not to
seek, or may not be able to obtain qualification of the issuance of such Common
Stock in all of the states in which the ultimate purchasers of the Warrants
reside. In such case, the Warrants of those purchasers will expire and have no
value if such Warrants cannot be exercised or sold. Accordingly, the market
for the Warrants may be limited because of the foregoing requirements. See
"Description of Securities -- Redeemable Common Stock Purchase Warrants."
NO ASSURANCE OF ACTIVE PUBLIC MARKET; POSSIBLE VOLATILITY OF COMMON
STOCK. Although the Common Stock is quoted on the NASD Electronic Bulletin
Board and the Company has made application to have the Common Stock and
Warrants listed on the Nasdaq SmallCap Market, there can be no assurance that
an active public market for the Common Stock or the Warrants will develop or be
sustained after the Offering. The offering price of the Securities offered
hereby has been determined by negotiations among the Company and the
Representative based upon the trading market of the Company's Common Stock on
the NASD Electronic Bulletin Board. The trading price of the Common Stock and
Warrants could be subject to wide fluctuations in response to quarter to
quarter variations in operating results, announcements of innovations or new
products by the Company or its competitors, and other events or factors. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations which affects the market price of securities of publicly
traded companies and which have often been unrelated to the operating
performance of these companies. Broad market fluctuations may adversely affect
the market price of the Common Stock and Warrants. See "Common Stock Price
Ranges and Dividends," "Description of Securities," "Shares Eligible for Future
Sale" and "Underwriting".
POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE SECURITIES.
Although they have no legal obligation to do so, the Underwriters from time to
time may act as market makers and otherwise effect transactions in the
Securities. Unless granted an exemption by the Commission from Rule 10b-6
under the Exchange Act, the Underwriters will be prohibited from engaging in
any market making activities or solicited brokerage activities with respect to
the Securities for the period from nine business days prior to any solicitation
of the exercise of any Warrant or nine business days prior to the exercise of
any Warrant based on a prior solicitation until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right the Underwriters may have to receive such a fee for the exercise of the
Warrants following such solicitation. As a result, the Underwriters may be
unable to continue to provide a market for the Securities during certain
periods while the Warrants are exercisable. The prices and liquidity of the
Securities may be materially and adversely affected by the cessation of the
Underwriters' market making activities. In addition, there is no assurance
that the Underwriters will continue to be market makers in the Securities. The
price and liquidity of the Securities may be affected significantly by the
degree, if any, of the Underwriters' participation in the market. The
Underwriters may voluntarily discontinue such participation at any time.
Further, the market for, and liquidity of, the Securities may be adversely
affected by the fact that a significant amount of the Securities may be sold to
customers of the Underwriters. See "Underwriting."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SMALLCAP MARKET AND RISKS
OF COMMON STOCK TRADING BELOW $5.00 PER SHARE. Nasdaq recently approved
changes to the standards for companies to remain listed on the SmallCap Market,
including, without limitation, new corporate governance standards, a new
requirement that the company have net tangible assets of $2,000,000, market
capitalization of $35,000,000 or net income of $500,000 and other qualitative
requirements. If the Company is unable to satisfy the requirements for
continued quotation on Nasdaq SmallCap Market, trading in the Common Stock and
Warrants offered hereby would be conducted in the over-the-counter market in
what are commonly referred to as the "pink sheets" or on the NASD Electronic
Bulletin Board. As a result, an investor may find it more difficult to dispose
of or obtain accurate quotations as to the price of the Common Stock and
Warrants offered hereby. In addition, if the Common Stock and Warrants are
suspended or terminated from Nasdaq SmallCap Market and at such time the Common
Stock has a market price of less than $5.00 per share, then the sale of such
securities would become subject to certain regulations adopted by the
Commission which imposes sales practice requirements on
-14-
<PAGE> 16
broker-dealers. For example, broker-dealers selling such securities must,
prior to effecting the transaction, provide their customers with a document
which discloses the risks of investing in the Common Stock and Warrants.
Furthermore, if the person purchasing the securities is someone other than an
accredited investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment
experience and investment objectives. The broker-dealer must also make a
determination whether the transaction is suitable for the customer and whether
the customer has sufficient knowledge and experience in financial matters to be
reasonably expected to be capable of evaluating the risk of transactions in the
security. Accordingly, if the Common Stock and Warrants are suspended or
terminated from Nasdaq SmallCap Market and are trading for less than $5.00 per
share, the Commission's rules may limit the number of potential purchasers of
the securities.
CONTINUING RELATIONSHIP WITH UNDERWRITERS; POTENTIAL INFLUENCE. In
connection with this Offering, the Company will have certain continuing
relationships with the Representative, some of which may adversely affect the
Company's results of operations. The Company has agreed with the
Representative that (i) it will sell to the Underwriters the Underwriters'
Warrant (including the grant of "piggyback" and demand registration rights),
(ii) it will pay, under certain conditions, to the Underwriters a warrant
solicitation fee equal to 5% of the exercise price of the Warrants exercised,
(iii) it will use its best efforts to cause the election to its Board of
Directors one designee of the Representative, and (iv) it will enter into a
consulting agreement with the Representative for consulting services for a two
year period for aggregate fees payable to the Representative of $48,000. Any
of the foregoing relationships may adversely impact the Company's business,
operating results or financial condition, or its ability to raise additional
capital for its business should the need arise during the term of the above
agreements. See "Underwriting."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. Management believes
that this Prospectus contains forward- looking statements, including statements
regarding, among other items, the Company's future plans and growth strategies
and anticipated trends in the industry in which the Company operates. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, many of which are beyond
the Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described herein,
including, among others, regulatory or economic influences. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Prospectus will in fact transpire or prove to be
accurate.
-15-
<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 and proforma
consolidated financial statements included elsewhere in this Prospectus reflect
the effect of the March 24, 1997 reverse stock split as if this reverse stock
split had occurred as of the beginning of the first period presented.
RECENT FINANCINGS
HFG and a former director of the Company acquired control of the
Company in 1995 in order to utilize it as a suitable entity for a possible
merger or acquisition of a company that offered growth potential in a
manufacturing industry. In early 1996, HFG identified Brister's Thunder Karts,
Inc., a Louisiana corporation ("Brister's"), a manufacturer of Fun Karts, as a
possible acquisition candidate. On March 15, 1996, the Company concluded the
private sale of 233,334 shares of Common Stock to 13 accredited investors for
aggregate gross proceeds of $525,000. Additionally, the Company obtained a $2
million loan (the "Schlinger Note") from The Schlinger Foundation (the
"Foundation") which provides for interest at 14% per annum with interest only
payable until March 14, 1999. Principal payments of $399,996 are due on March
14, 1999 and March 14, 2000 with a final principal payment of $1,200,008 due on
March 14, 2001. The Schlinger Note is secured by accounts receivable,
inventory, property and equipment owned or acquired by the Company. The
Company paid the Foundation $21,000, consisting of $10,500 cash and the
issuance of 70,000 shares of Common Stock, as additional consideration for the
loan. The proceeds from the private offer and sale of securities and the loan
proceeds from the Schlinger Note were utilized by the Company to fund the
acquisition of Brister's (the "Brister's Acquisition"). The Schlinger Note
will be paid with a portion of the proceeds from this Offering. See "--
Brister's Acquisition," "Use of Proceeds," "Management" and "Certain
Relationships and Related Transactions."
On July 2, 1996, the Company sold to an unaffiliated investor 3,334
shares of Common Stock and 66,667 Class A Warrants for a total consideration of
$17,500. Each Class A Warrant entitles the holder to
-16-
<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. For purposes of this Offering, the Company has assumed that the
holders of the Convertible Preferred Stock will accept the latter option. See
"Description of Securities -- Convertible Preferred Stock, -- 1996 Warrants and
- -- Bridge Financing."
ACQUISITIONS
BRISTER'S ACQUISITION. On March 15, 1996, the Company acquired all of
the issued and outstanding shares of common stock of Brister's from Charles
Brister, a director and principal stockholder of the Company, in exchange for
$2 million cash; a subordinated $1 million promissory note with variable
interest rates, maturing in 2003 and a $200,000 promissory note bearing 10%
interest, with interest and principal payable quarterly beginning April 1, 1997
with a maturity date of April 1, 1998 or upon successful completion of an
underwritten public offering of the Company's securities (collectively, the
"Brister Notes"); and 516,667 shares of Common Stock of the Company with an
aggregate market value of $3.1 million as determined in the related purchase
agreement. Additionally, the Company entered into (i) a Consulting Agreement
with Mr. Brister which expired on December 31, 1996, (ii) a five-year License
Agreement under which the Company received the right to use certain
intellectual property owned and developed by Mr. Brister and (iii) a five-year
Non-Competition Agreement with Mr. Brister. Brister's has been manufacturing
Fun Karts in Roseland, Louisiana since 1959. The Company will pay the Brister
Notes with a portion of the proceeds of this Offering. See "Use of Proceeds,"
"Management," "Certain Relationships and Related Transactions" and "Principal
Stockholders."
USA ACQUISITION. On November 20, 1996, the Company acquired all of
the issued and outstanding shares of common stock of USA Industries, Inc.
("USA"), a Fun Karts manufacturer located in Prattville, Alabama, for $250,000
cash and the issuance of 166,668 restricted shares of Common Stock valued by
the USA stockholders and the Company at an aggregate of $750,000 or $4.50 per
share (the "USA Acquisition"). Each of the four USA stockholders received
$62,500 cash and 41,667 restricted shares of the Company's Common Stock. See
"Note B -- Acquisition of Subsidiaries of Notes to Consolidated Financial
Statements" and "Note I -- Capital Stock Transactions of Notes to Consolidated
Financial Statements."
Unless otherwise indicated herein, the financial, business activities,
management and other pertinent information herein relates on a consolidated
basis to the Company and its wholly-owned subsidiaries, Brister's and USA. The
Brister's and USA Acquisitions were accounted for using the purchase method of
accounting for business combinations. The Company has allocated the total
purchase price to assets acquired based on their relative fair value. Any
excess of the purchase price over the fair value of the assets acquired has
been recorded as goodwill. The financial and other information regarding the
Company set forth herein reflects, for the periods presented, the proforma
unaudited results of operations as though the Brister's and USA Acquisitions
had occurred as of the beginning of the periods presented herein.
The address of the Company's principal executive office is 109
Northpark Boulevard, Suite 210, Covington, Louisiana 70433, and its telephone
number is (504) 875-7350. The Company maintains manufacturing facilities at
202 Challenge Avenue, Prattville, Alabama 36067 and Highway 51 South, Roseland,
Louisiana 70456.
-17-
<PAGE> 19
COMMON STOCK PRICE RANGES AND DIVIDENDS
The Company's Common Stock is traded on the NASD Electronic Bulletin
Board under the symbol "KINT". The following table sets forth the range of
high and low closing bid prices for the Common Stock for the periods indicated
as reported by the National Quotation Bureau, Incorporated. These prices
represent inter-dealer prices, without adjustment for retail mark-ups,
mark-downs or commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
Bid Price(1)
-----------------------------------------------
<S> <C> <C>
Calendar Year 1997 Low High
------------------ ---------------------- -----------------------
First Quarter (through March 21, 1997) 4.13 4.88
---------------------- -----------------------
</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 March 26, 1997, the closing bid and ask prices for the Common Stock
were $ 4.50 and $ 5.625, respectively, per share. As of March 26, 1997,
2,717,653 shares of Common Stock were issued and outstanding. The Company
believes that its Common Stock is held of record and beneficially by
approximately 500 persons. See "Shares Eligible for Future Sale."
DIVIDEND POLICY
The Company has not paid or declared any dividends with respect to its
Common Stock or Convertible Preferred Stock, nor does it anticipate paying any
cash dividends or other distributions on its Common Stock in the foreseeable
future. Any future dividends will be declared at the discretion of the Board
of Directors of the Company and will depend, among other things, on the
Company's earnings, if any, its financial requirements for future operations
and growth and such other facts as the Company may then deem appropriate.
-18-
<PAGE> 20
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,400,000 shares of the Common Stock and 1,400,000 Warrants offered hereby are
estimated to be approximately $5,440,250 (based on an assumed public offering
price of $4.50 per share of Common Stock and $0.125 per Warrant or
approximately $6,285,237 if the Underwriters' over- allotment option is
exercised in full) after deducting Underwriters' discounts and commission and
estimated offering expenses. The Company intends to use the net proceeds from
the sale of the Securities offered hereby (assuming no exercise of the
Underwriters' over-allotment option) for the purposes and in the approximate
percentages as set forth in the following table:
<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.
-19-
<PAGE> 21
DILUTION
At December 31, 1996, the Company had a net tangible book value of
approximately ($1.16) million or approximately $(0.43) per share of Common
Stock. Net tangible book value per share of Common Stock equals the tangible
assets of the Company, less all liabilities, divided by the total number of
shares of Common Stock outstanding, without giving effect to the possible
exercise of outstanding stock options and warrants. After giving effect to the
sale of the 1,400,000 shares of Common Stock offered hereby (at an assumed
offering price of $4.50 per share) and the 1,400,000 Warrants offered hereby
(at an assumed offering price of $0.125 per Warrant) and the receipt of the
estimated net proceeds therefrom, the proforma net tangible book value of the
Company as of December 31, 1996 would have been approximately $4.28 million or
approximately $1.01 per share, representing an immediate increase in net
tangible book value of $1.44 per share to existing stockholders, and an
immediate dilution in net tangible book value of $3.49 per share to purchasers
of the Securities offered hereby. The following table illustrates the
resulting dilution with respect to the Common Stock offered hereby:
<TABLE>
<S> <C> <C>
Public offering price (per share of Common Stock)(1) . . . . . . . . . . . . . . . . . . . . $4.50
Net tangible book value per share as of December 31, 1996 . . . . . . . . . . . . . $(0.43)
Increase per share attributable to new investors . . . . . . . . . . . . . . . . . . 1.44
-------
Proforma net tangible book value per share after the Offering(2) . . . . . . . . . . . . . . 1.01
-------
Dilution of net tangible book value per share to new investors
attributable to purchase of Common Stock by new investors . . . . . . . . . . . . . . . $ 3.49
======
</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 . . 2,634,212 65.3% $4,289,789 41.9% $1.63
New investors . . . . . . 1,400,000 34.7 5,950,000 58.1 $4.50
--------- ------ ----------- ------
Total . . . . . 4,034,212 100.0% $10,239,789 100.0%
========= ===== ========== ======
</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 or the exercise
of the Underwriters' over-allotment option. See "The Company," "Management --
Stock Options," "Certain Relationships and Related Transactions," "Principal
Stockholders" and "Description of Securities."
-20-
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted giving effect to the sale by the Company of
1,400,000 shares of Common Stock at $4.50 per share and 1,400,000 Warrants at
$0.125 per Warrant and by giving effect to the anticipated use of proceeds
derived therefrom. This table has not been adjusted to give effect to the
exercise of the Underwriters' over-allotment option, the exercise of any
outstanding warrants or options, including the Warrants offered hereby and the
Underwriters' Warrants. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------
As
Actual Adjusted(1) Proforma
------------- ------------ -------------
<S> <C> <C> <C>
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $ 140,020 $ -- $ 140,020
Current maturities of long-term debt . . . . . . . . . . . . . . 116,390 (100,000) 16,390
Long-term debt(2) . . . . . . . . . . . . . . . . . . . . . . . . 3,332,660 (3,200,000) 132,660
Convertible Preferred Stock, $0.001 par value; 25 shares
issued and outstanding; none as adjusted(3) . . . . . . . . . . 625,000 (625,000) --
------------ ----------- ------------
Total debt and debt equivalents . . . . . . . . . . . . . . . . 4,214,070 (3,925,000) 289,070
------------ ----------- ------------
Common Stock, $0.001 par value; 2,717,653 shares
issued and outstanding; 4,221,828 as adjusted(3) . . . . . . . 2,718 1,504 4,222
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 4,774,905 5,263,746 10,038,651
Common stock warrants; 463,336 warrants issued
and outstanding; 1,863,336 as adjusted . . . . . . . . . . . . -- 175,000 175,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . (23,498) -- (23,498)
------------ ----------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 4,754,125 5,440,250 10,194,375
------------ ----------- ------------
Total capitalization . . . . . . . . . . . . . . . . . . . . . $ 8,968,195 $ 1,515,250 $ 10,483,445
=========== ========== ===========
</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
"Description of Securities -- Bridge Financing."
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<PAGE> 23
SELECTED HISTORICAL AND PROFORMA FINANCIAL INFORMATION
The following selected financial information has been presented in a
proforma format for the periods ended December 31, 1996, 1995 and 1994 and has
been derived from the audited historical financial statements of the Company
and Brister's. The information pertaining to the historical financial
statements of USA is unaudited.
The Company was dormant from 1989 until the first quarter of 1996.
The Company's purchase of 100% of the issued and outstanding stock of Brister's
was effective April 1, 1996. The Company's purchase of 100% of the issued and
outstanding stock of USA was effective November 22, 1996. The information
presented herein reflects the proforma results of the combined operations of
all entities as if the respective acquisitions had occurred on January 1, 1994
(the first day of the first period presented), as adjusted for the proforma
effect of the amortization of goodwill.
In the opinion of management, these proforma statements include all
material adjustments necessary to present proforma historical results of the
above-described transactions. The proforma information does not purport to be
indicative of the financial position or the results of operations which would
have been obtained if the acquisition transactions had actually been
consummated on the dates indicated. In addition, the proforma financial
information does not purport to be indicative of the financial position or
results of operations that may be obtained in the future.
The proforma financial information should be read in conjunction with
the historical consolidated financial statements and notes thereto of the
Company and its wholly-owned subsidiaries, Brister's and USA and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
(Proforma) (Proforma) (Proforma)
STATEMENT OF OPERATIONS DATA: 1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues, net . . . . . . . . . . . . . . . . . . . . . . . $ 10,698,824 $ 8,514,460 $ 7,069,500
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 7,613,372 6,184,340 5,186,245
Operating expenses . . . . . . . . . . . . . . . . . . . . 2,495,676 1,873,960 1,658,310
Income from operations . . . . . . . . . . . . . . . . . . 589,776 456,160 224,945
Net income . . . . . . . . . . . . . . . . . . . . . . . . 322,168 121,324 106,659
Net income per proforma weighted-average
share of common stock outstanding . . . . . . . . . . . . 0.10 0.04 0.03
Number of proforma weighted-average shares
of common stock outstanding . . . . . . . . . . . . . . . 3,119,592 3,119,592 3,119,592
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------- ------------------------------
As
BALANCE SHEET DATA: Historical Adjusted(1) Historical Proforma
-------------- -------------- -------------- --------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . $ 3,391,290 $ 4,096,540 $ - $ 2,054,177
Total assets . . . . . . . . . . . . . . . . . . . . . . 10,094,717 11,609,967 - 8,268,481
Current liabilities . . . . . . . . . . . . . . . . . . . 1,382,932 1,282,932 4,010 1,335,057
Total liabilities . . . . . . . . . . . . . . . . . . . . 4,715,592 1,515,592 4,010 4,610,490
Convertible preferred stock . . . . . . . . . . . . . . . 625,000 - - -
Stockholders' equity . . . . . . . . . . . . . . . . . . 4,754,125 10,194,375 (4,010) 3,657,991
Working capital . . . . . . . . . . . . . . . . . . . . . 2,008,358 3,623,608 - 719,120
</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."
-22-
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company had no significant business operations from 1989 through
March 1996. Prior to that time, the Company was engaged in the mining
industry, principally through joint ventures with related parties involving
mining properties located in Colorado. The Company is in the business of
manufacturing and marketing Fun Karts for the consumer market. See "Business."
On March 17, 1996, the Company purchased 100% of the issued and
outstanding stock of Brister's, a Louisiana corporation organized on August 2,
1976, from Charles Brister, a director and principal stockholder of the
Company, for a total purchase price of $6.3 million (the "Brister's
Acquisition"). The Brister's Acquisition was effective on March 31, 1996. The
purchase price was paid with $2.0 million cash, $1.2 million Brister Notes and
the issuance to Mr. Brister of 516,667 shares of restricted Common Stock
valued at $3.1 million. The Brister's Acquisition was accounted for using the
purchase method of accounting for business combinations. The Company allocated
the total purchase price to assets acquired based on their relative fair
values. Any excess of the purchase price over the fair value of the assets
acquired is recorded as goodwill. Results of operations of Brister's are
included in the Company's consolidated financial statements beginning on the
effective date of the Brister's Acquisition. See "The Company -- Acquisitions;
Brister Acquisition," "Management," "Certain Relationships and Related
Transactions" and "Principal Stockholders."
On November 20, 1996, the Company purchased 100% of the issued and
outstanding stock of USA, an Alabama corporation organized on January 2, 1992,
from four USA shareholders for a total purchase price of $1,000,000 (the "USA
Acquisition"). The USA Acquisition was effective on November 21, 1996. The
purchase price was paid with $250,000 in cash and the issuance to the USA
shareholders of an aggregate of 166,668 restricted shares of the Company's
Common Stock valued at $750,000. The USA Acquisition was accounted for using
the purchase method of accounting for business combinations. The Company
allocated the total purchase price to assets acquired based on their relative
fair value. Any excess of the purchase price over the fair value of the assets
acquired is recorded as goodwill. Results of operations of USA are included in
the Company's consolidated financial statements beginning on the effective date
of the USA Acquisition.
The accompanying discussion relates principally to the operations of
Brister's, USA and the Company for the years ended December 31, 1996, 1995 and
1994. The discussion is based upon the proforma consolidated financial
statements for the years ended December 31, 1996, 1995 and 1994. The proforma
financial information has been derived from the audited historical consolidated
financial statements of the Company. The information pertaining to the
historical financial statements of USA is unaudited. The proforma consolidated
financial information reflects adjustments to record the acquisition of
Brister's and USA as if the acquisitions occurred on January 1, 1994.
RESULTS OF OPERATIONS
PROFORMA CALENDAR YEAR 1996 VERSUS PROFORMA CALENDAR YEAR 1995. The
Company, on a proforma basis, realized net sales for the year ended December
31, 1996 of approximately $10.7 million as compared to approximately $8.5
million for the year ended December 31, 1995 or an increase of approximately
25%. Management attributes the increase in sales primarily to the continued
development of the Company's dealer base and the addition of two mass
merchandisers as a distribution channel. Management estimates that unit sales
growth in the Fun Kart industry has been in the 12% to 15% range from 1991
through 1995. In 1996, industry-wide unit sales were relatively stagnant.
Management believes the stagnant unit sales in 1996 were the result of high
consumer debt, less than anticipated retail Christmas sales, unusual national
weather patterns and weak sales performance in the lawn and garden industry, a
principal network of dealers for Fun Karts.
The Company, on a proforma basis, incurred cost of sales of
approximately $7.6 million for 1996 as compared to approximately $6.2 million
in 1995. These costs allowed the Company to achieve a gross margin of
approximately $3.1 million in 1996 and approximately $2.3 million in 1995 or
approximately 28% and 27%, respectively. Management continues to focus on
expanding its distribution channels to include the optimum
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<PAGE> 25
balance among dealers (lawn/garden, hardware, cycle stores, etc.), mass
merchandisers, home centers, farm stores and other distribution channels. In
addition, management has restructured its cost accounting system to more
effectively manage costs at each of its subsidiary manufacturing locations.
Operating expenses, on a proforma basis, for 1996 and 1995,
respectively, were approximately $2.5 million and $1.8 million. Key expense
increases from 1995 to 1996 were related to (i) interest expense which
increased approximately $302,000 due to costs related to the Brister's and USA
Acquisitions, (ii) product liability insurance expenses which increased
approximately $265,000 due to increased sales volume and increased coverage
required by the Company's major customers, and amortization expenses related to
the Brister's and USA Acquisitions increased approximately $172,000. All other
operating expenses were maintained at the same relative levels as the previous
year by improved cost controls.
Operating expenses reflect historical levels even though significant
interest, insurance and amortization expenses were added in 1996. Additional
sales volume and effective management control of variable operating expenses
contributed to maintaining the relatively constant operating expense
relationship to sales on a percentage basis.
PROFORMA CALENDAR YEAR 1995 VERSUS PROFORMA CALENDAR YEAR 1994. The
Company, on a proforma basis, realized net sales for year ended December 31,
1995 of approximately $8.5 million as compared to approximately $7.0 million
for the year ended 1994 or an increase of approximately 13%. Management
attributes the increase in sales to the addition of approximately 80 dealers
during 1995 and the implementation of a qualified dealer floor plan financing
program. Management estimates that the 1995 industry-wide unit sales increase
was approximately 12%.
The Company, on a proforma basis, incurred cost of sales of
approximately $6.2 million for 1995 compared to approximately $5.1 million in
1994. The Company achieved a gross margin of approximately $2.3 million in
1995 and approximately $1.9 million in 1994 or approximately 27% and 26%,
respectively. Costs of sales increased in 1995 as compared to 1994 as a result
of increased unit sales in 1995.
Operating expenses, on a proforma basis, for 1995 and 1994,
respectively, were approximately $1.8 million and $1.6 million. Operating
expenses in 1995 were maintained at approximately the same relative percent of
sales as in previous years due to management monitoring of expenses during the
period.
ADDITIONAL OPERATIONS INFORMATION. In 1996 the Company settled
several product liability lawsuits with a cumulative charge to operations of
approximately $44,000. The Company currently has four product liability
lawsuits outstanding, none of which are expected to exceed existing product
liability insurance policy limits. The Company has never had a claim that
resulted in an award or settlement in excess of insurance coverage. There is
no assurance that the Company's insurance coverage of $5,000,000 per occurrence
and $5,000,000 aggregate will be sufficient to fully protect the business and
assets of the Company from all claims, nor can any assurances be given that the
Company will be able to maintain the existing coverage or obtain additional
coverage at commercially reasonable rates. Management believes that it has
process controls on its product operations, product labeling, operator's
manuals, and design features which will assist in a successful defense of any
present or future product liability claim. To the extent product liability
losses are beyond the limits or scope of the Company's insurance coverage, the
Company could experience a material adverse effect upon its business,
operations, profitability and assets. See "Business -- Product Liability and
Insurance Limits and -- Legal Proceedings."
SEASONALITY
The Company experiences significant seasonality in its sales pattern
with only approximately 26% of its sales recognized in the first half of the
year. Historically, approximately 28% and 46% of total sales are realized in
the third and fourth quarters, respectively. Sales of Fun Karts are generally
the lowest during the first quarter of each year. Since the Company typically
does not obtain long-term purchase orders or commitments from its customers, it
must anticipate the future volume of orders based upon the historic purchasing
patterns of its dealers and mass merchandisers and upon its discussions with
its dealers and representatives of mass merchandisers as to their future
requirements. Cancellations, reductions or delays by
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<PAGE> 26
a large volume dealer or mass merchandiser could have a material adverse impact
on the Company's business, financial condition and results of operations.
Traditionally, many dealers have sold Fun Karts only during the
Christmas holiday season. Recent market growth can be attributed to many of
these dealers beginning to sell Fun Karts year round. The Company believes
that if its business strategies are successfully implemented in 1997 and future
years, there will be some additional mitigation of the seasonality aspect of
the Company's Fun Karts sales. The Company also intends to offset the seasonal
aspects of its current business operations through acquisitions of
manufacturers of product lines that are compatible with the Company's business
objectives and offer product diversity which have year round demand.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company acquired Brister's and USA with approximately
$2,250,000 cash, issuance of approximately $3.2 million in promissory notes and
issuance of approximately 683,334 shares of Common Stock. The Company intends
to retire the Brister Notes and the Schlinger Note with a portion of the
proceeds of this Offering.
As of December 31, 1996 and December 31, 1995, respectively, the
Company has positive proforma working capital of approximately $4.7 million and
$0.7 million, respectively. The Company experienced negative cash flow from
operations of approximately $(223,000) for calendar 1996. This deficiency was
principally caused by increases in trade accounts receivable attributable to
sales to mass merchandisers. An aggregate of approximately $535,000 in cash
resided in Brister's and USA as of their respective acquisition effective
dates which in turn offset this deficiency. Additionally, the Company received
approximately $123,000 in trade accounts receivable receipts from mass
merchandiser customers on January 2, 1997.
Additionally, the Company spent approximately $533,642 in indirect
costs associated with the acquisition of Brister's and USA. These amounts were
funded through the private placement of Company securities in March 1996 and
November 1996.
As a result of cash received from all sources versus cash expended for
all purposes, the Company experienced net cash increases of approximately
$630,000 and $580,000 in calendar 1996 and 1995, respectively.
During the years ended December 31, 1996 and 1995, respectively, the
Company expended approximately $72,000 and $113,000 for capital assets and/or
improvements. The Company has budgeted capital resource requirements of
approximately $400,000 during 1997. See "Use of Proceeds."
The Company has currently available to it a $300,000 revolving line of
credit, which expires in August 1997, based upon a percentage of the value of
certain purchase orders and accounts receivable to specific, large mass
merchandisers. The interest rate on the revolving line is at the lending
institution's prime rate (8.25% at December 31, 1996). The outstanding loan
balance on the credit facility is $100,000 at December 31, 1996. Certain
restrictions and covenants apply such as the maintenance of financial ratios.
It is management's opinion that the currently revolving credit facility and
terms are renewable and adequate for any anticipated short-term credit
requirements.
It is anticipated that the net proceeds from this offering will be
used to repay $3.2 million in long-term indebtedness, $400,000 in capital
expenditures and $150,000 in special marketing promotions. The repayment of
the Company's long-term debt will yield interest expense reductions of
approximately $400,000 during the 12 month period after retirement of the debt.
These interest savings will generate additional working capital resources for
the Company. See "Use of Proceeds."
The Company expects that its cash flow from operations, along with its
currently available line of credit, will be sufficient to meet its financing
requirements over the next 12 to 18 months. This is a projection, however, and
no assurance can be given that the Company's cash flow from operations and from
its available line of credit will be available to meet the Company's cash
requirements over the next 12 to 18 months. See
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<PAGE> 27
"Risk Factors" and "Use of Proceeds" for a discussion of certain important
factors that could materially impact this projection.
The Company's management does not believe that inflation has had a
significant effect on the Company's operations during the last several years.
The Company's management believes the Company has historically been able to
pass on increased costs of production to the price charged for its products;
however, no assurance can be given that the Company will continue to be able to
pass on such increased costs in the future.
Liquidity requirements mandated by future business acquisitions or
expansions, if any are specifically identified or undertaken, are not readily
determinable at this time as no substantive plans have been formulated by
management. Upon completion of this Offering, the Company will have limited
financial resources for acquisitions. The Company will be dependent upon the
proceeds from additional financings, including receiving proceeds from the
future exercise of the Warrants of which there can be no assurance, to
facilitate an acquisition. The Company may also need additional financing to
achieve full implementation of its long-term growth strategy and for working
capital. There can be no assurance that additional financing will be
available, or if available, that such financing will be on favorable terms.
See "Use of Proceeds" and "Business -- Growth Strategy and -- Acquisition
Strategy."
-26-
<PAGE> 28
BUSINESS
GENERAL
The Company, through its wholly-owned subsidiaries, Brister's and USA,
designs, manufactures and distributes Fun Karts, also referred to as "go
karts." Fun Karts are four-wheeled, gas-powered vehicles typically equipped
with engines of 5 to 8 horsepower and purchased by consumers principally for
off-road recreational use. The Company shipped approximately 17,750 Fun Karts
to dealers and mass merchandisers in 1996, which the Company believes
represents approximately 14% of the total domestic karts market, an approximate
27% increase over 1995, and a 42% increase over 1994. Proforma consolidated
revenues of the Company for the fiscal year ended December 31, 1996 were
approximately $10.7 million as compared with revenues of approximately $8.5
million for the fiscal year ended December 31, 1995. The Company operates
manufacturing facilities in Roseland, Louisiana and Prattville, Alabama, and
maintains its executive offices in Covington, Louisiana.
The karts industry is comprised of three principal segments, Fun
Karts, racing and concession karts. Fun Karts, the largest segment, are karts
sold to consumers for general recreational use. Racing karts are specially
designed for use on established tracks in a controlled racing environment.
Concession karts are designed for use by amusement and entertainment centers
which provide karts and facilities for customers' use on a rental basis.
Management estimates that in 1996 approximately 145,000 karts were sold in the
United States of which approximately 125,000 were Fun Karts, 12,500 racing
karts and 7,500 concession karts. Historically, the Company concentrated its
efforts in the Fun Karts market.
The Company offers a complete product line of Fun Karts,
differentiated by drive train, seating capacity, tire size and tread design.
Thirty-two Fun Kart models are available in three different colors, black, blue
and red, which are sold under the Thunder Karts and USA Fun Karts brand names.
The Company's models offer a wide range of standard and optional features which
enhance the safety, operation, riding comfort and performance of its Fun Karts.
Such features include the exclusive, patented automatic throttle override; full
safety cage; safety flag; three kinds of drive trains, including live axle,
single wheel pull and torque converter; clutch lubrication system; high speed
bearings; adjustable throttle and seats; steel rims; band and disc brakes; and
Briggs & Stratton 5 horsepower engines. The end-users of the Company's Fun
Karts are primarily 7- to 17-year-old males, living with their parents in
suburban and rural markets. Typical Fun Kart purchasers are parents who
purchase Fun Karts for their children.
The Company relies on a broad and diversified national independent
dealer network and mass merchandisers to sell its Fun Karts. Prior to 1996,
the Company sold its products through its over 700 dealers, primarily lawn and
garden stores, motorcycle outlets, hardware stores and specialty karts dealers,
located in 40 states. The major markets for the Company's Fun Karts are in the
Southeast and Southwest regions of the United States. In 1996, the Company
sold approximately 61% of its Fun Karts to approximately 250 dealers located in
Louisiana, Texas, Mississippi and Florida. Although there are no formal dealer
agreements, the Company, for the benefit of certain of its higher volume
dealers, will agree not to sell to other retailers in a limited geographic area
surrounding the high volume dealer. To become a Fun Kart dealer, the Company
generally requires a retailer to annually purchase six or more Fun Karts.
Dealers usually maintain an inventory of three to five Fun Karts which
increases during the Christmas holiday season. For eligible dealers, the
Company offers a dealer floor plan financing program through an unaffiliated
financial services company.
To broaden its distribution channels, the Company in 1996 began
selling its Fun Karts to two mass merchandisers, Wal-Mart Stores, Inc.
("Wal-Mart") and Sam's Wholesale Club ("Sam's Club"), a division of Wal-Mart
Stores, Inc. In 1996, the Company sold approximately 4,000 of its Fun Karts to
Wal-Mart and Sam's Club, representing approximately 21% of the Company's
proforma revenues for the fiscal year ended December 31, 1996. Management
believes that mass merchandisers represent a significant untapped market for
Fun Karts.
The Company's operating strategy is to increase its sales and market
share by producing safe, high-quality and reliable Fun Karts at competitive
prices; continue to improve manufacturing efficiency; and continue
diversification of domestic distribution channels. The Company's growth
strategy is to increase its brand and
-27-
<PAGE> 29
product recognition by innovative marketing to its target users; broaden its
product lines through improved product design and development; and expand its
geographic presence and market share by continued emphasis on expansion of its
domestic dealer and mass merchandiser networks, through further penetration of
international markets, and through acquisitions of manufacturers of karts and
related products that provide synergistic growth opportunities for the Company.
Although the Company is actively seeking acquisitions that will expand
its existing product lines, market share and distribution channels, the Company
currently has no agreements or understandings with respect to any such
acquisitions and there can be no assurance that the Company will be able to
identify and acquire such businesses or obtain necessary financing on favorable
terms.
INDUSTRY OVERVIEW
Since specific information with respect to kart sales is not, in the
estimation of management, consistently and reliably available, management has
instead relied on data provided by engine manufacturers.
The karts industry consists of three major segments: Fun Karts, used
for private recreational activities; racing karts, raced by competitors on an
estimated 550 kart racing tracks in the United States; and concession karts,
sold to family amusement and entertainment centers for use as rental units.
Management believes the history of karts dates to 1956, when a
hobbyist built the first kart, which consisted of a 2-cycle, 2- 1/2 horsepower
engine, a tubular chassis and semi-pneumatic tires. Karts were initially sold
for approximately $150 each. During 1957, Rod and Custom Magazine coined the
name "go-kart." In December 1957, the Go-Kart Club of America was formed,
which set chassis requirements and created racing classes. By 1960, there were
an estimated 100 kart manufacturers in the United States, which were mostly
small family-owned businesses. The Company believes there are currently four
principal Fun Kart manufacturers in the United States, which includes the
Company, Carter Brothers Manufacturing, Manco Products and Ken-Bar
Manufacturing. Management estimates that the Company and its three primary
competitors accounted for over 60% of the Fun Karts sold in the United States
in 1996.
In 1996, there were an estimated 100,000 kart racers and significantly
more Fun Kart enthusiasts in the United States and Canada, according to
industry sources. Annually, it is estimated that nearly 20 million Americans
ride concession karts at tracks and family entertainment centers. Kart racing
was a contributor to the development of various NASCAR and IndyCar drivers,
including Al Unser Jr., Michael Andretti, Jeff Gordon, Emerson Fittipaldi, and
Bobby Labonte, who began their driving careers as kart racers. During 1997,
Bobby Labonte has committed to endorse and promote the Company's products and
will appear at various Company-sponsored and other events to promote the
Company's Fun Karts. See "-- Sales and Marketing."
In 1996, approximately 125,000 Fun Karts were sold in the United
States as compared with 1995 sales of approximately 124,000 Fun Karts, while
1995 sales represented an approximate 13% increase over 1994 sales of
approximately 110,000 Fun Karts. Sales in 1994 represented an 11% increase
over 1993 sales of approximately 98,000 Fun Karts. In 1996, the Company sold
approximately 17,750 Fun Karts, which represents approximately 14% of the Fun
Karts market as compared with 1995 sales of approximately 13,000 Fun Karts or
approximately 11% of the Fun Kart market.
The other two industry segments, racing and concession karts, are
significantly smaller than the Fun Karts market. Sales of racing karts, karts
used by racers on established tracks, were estimated at approximately 12,500 in
1996. Concession karts, used by commercial providers of tracks for
entertainment, were estimated at approximately 7,500 units in 1996. Each of
these segments is addressed by different manufacturers than those manufacturing
Fun Karts.
The typical end-user customer of the Company's Fun Karts is a 7-17
year old male, living with his parents primarily in the suburban and rural
markets. The Company estimates that at least 90% of its end users are young
males. This is a significant sector of the population, as the 7-17 year old
male population in 1995, according to the Bureau of the Census, was estimated
at 22 million. Typical Fun Karts purchasers are the parents, who buy Fun Karts
as gifts for their children.
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<PAGE> 30
Although annual industry-wide sales of Fun Karts increased
significantly during 1994 and 1995, there was a nominal increase in unit sales
industry wide during 1996. Management believes the nominal increase in unit
sales industry wide during 1996 was the result of high consumer debt, less than
anticipated retail Christmas sales, unusual national weather patterns and weak
sales performance in the lawn and garden industry, a principal network of
dealers for Fun Karts. Management believes there are several key factors which
may increase industry wide Fun Kart demand and accordingly sales in future
periods:
o UNDERPENETRATED MARKET. According to census estimates, the
target market of 7- to 17-year-old males is projected to grow
from 22 million in 1995 to 25 million in the year 2000.
Annual Fun Karts sales are only to approximately 0.6% of the
total 7- to 17-year-old male population.
o GROWTH IN DISTRIBUTION CHANNELS. Management believes that
mass merchandisers and international dealers represent
significant untapped markets for Fun Karts. Additionally,
management believes independent dealer distribution channels,
consisting primarily of lawn and garden stores, hardware
stores, motorcycle dealers and automotive parts stores, remain
underpenetrated; for example, the Company believes that less
than 5% of the motorcycle dealers and less than 10% of the
lawn and garden stores located in the United States sell Fun
Karts.
o ASSOCIATION WITH MOTORSPORTS. The Company believes that the
association of Fun Karts with the dynamic motorsports industry
will increase consumer interest in these products.
Motorsports is the fastest growing spectator sport segment in
the United States. Attendance at the Winston Cup series of
races has more than tripled since 1980. More than 80 million
households watched live television motor races during 1995.
Sales of NASCAR licensed goods, which have grown nine-fold
since 1990 to over $500 million, are expected to reach $1
billion in two years.
SEASONALITY
Most Fun Karts are sold during the last quarter of the year and are
typically purchased as Christmas gifts by parents for their children. Sales of
Fun Karts are generally the lowest during the first quarter of each year.
Since the Company typically does not obtain long-term purchase orders or
commitments from its customers, it must anticipate the future volume of orders
based upon the historic purchasing patterns of its dealers and mass
merchandisers and upon its discussions with its dealers and representatives of
mass merchandisers as to their future requirements. Cancellations, reductions
or delays by a large volume dealer or mass merchandiser could have a material
adverse impact on the Company's business, financial condition and results of
operations.
Traditionally, many dealers have sold Fun Karts only during the
Christmas holiday season. Recent market growth can be attributed to many of
these dealers beginning to sell Fun Karts year round. The Company believes
that if its business strategies are successfully implemented in 1997 and future
years, there will be some mitigation of the seasonality aspect of the Company's
Fun Karts sales. The Company also intends to offset the seasonal aspects of
its current business operations through acquisitions of manufacturers of
product lines that are compatible with the Company's business objectives and
offer product diversity which have year round demand.
OPERATING STRATEGY
PRODUCE SAFE, HIGH QUALITY AND RELIABLE FUN KARTS AT COMPETITIVE
PRICES. The Company believes that it is one of the leaders in the development
of safety-related features for Fun Karts, which, along with price, is a key
consideration for the Fun Kart purchaser, the parent of the 7- to 17-year-old
male. The Company believes it was the first manufacturer in the Fun Karts
industry to provide full safety cages and adjustable seats, which are now
standard features on most Fun Karts. The Company is the exclusive Fun Kart
manufacturer installing its patented automatic throttle override system on Fun
Karts. Producing high quality, reliable products increases customer
satisfaction, and the Company believes this is one of the key elements of its
success in the highly competitive karts industry. The Company believes its
strategy of selling its Fun Karts through independent
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dealers and selected mass merchandisers helps to ensure that the Company's
products are competitive with those of other manufacturers in terms of safety,
consumer acceptability, product design, quality and price. See "-- Product
Lines."
CONTINUE TO IMPROVE MANUFACTURING EFFICIENCY. Management believes
that greater productivity will reduce operating costs. By installing a
standard single Briggs & Stratton 5 horsepower engine on all of its Fun Karts,
the Company expects to reduce volume purchase prices and decrease assembly
costs. The Company believes that modernization of its manufacturing facilities
is essential to improving the quality of the Company's products and promoting
the price competitiveness of its Fun Karts. The Company intends to expand and
renovate, as necessary, its manufacturing facilities, purchase new equipment
and maintain strict cost controls as a means to enhance the production of high
quality Fun Karts. In particular, the Company plans capital expenditures of
approximately $400,000 during the next six months including the installation of
a powder paint system and tube bending machine at its manufacturing plant in
Prattville, Alabama. Management continuously reviews the floor plan of its
manufacturing facilities to determine revisions that will enhance manufacturing
efficiency. Management believes that the maximum capacity of the Company's
manufacturing facilities for one shift is approximately 28,000 Fun Karts, which
allows for an approximate 50% increase in capacity before the addition of
another shift or expansion of current facilities. See "-- Manufacturing
Operations."
DIVERSIFICATION OF DOMESTIC DISTRIBUTION CHANNELS. The Company's
historical marketing strategy has been to build a broad and diverse independent
dealer base, primarily in Louisiana, Texas, Mississippi and Florida by offering
safe, high quality and reliable Fun Karts that are competitively priced and
timely delivered. To broaden its distribution channels, the Company, in 1996,
began selling its Fun Karts to two mass merchandisers, Wal-Mart and Sam's Club.
The Company's future marketing efforts are designed to maintain and expand its
independent dealer network in the South and West regions of the United States
through direct communications with dealers, engaging independent sales
representatives and attendance at industry trade shows. The Company also plans
to assist dealers with their selling and marketing efforts with
Company-sponsored seminars, discount or rebate programs and advertising,
including product videos and brochures, leaflets, posters, signs and other
miscellaneous promotional items for use by dealers. The Company will also seek
to increase sales to mass merchandisers with direct communication and the
engagement of independent sales representatives. Although the Company believes
that sales to mass merchandisers offers a significant growth opportunity, the
Company will seek to obtain a reasonable balance between its dealer and mass
merchandiser distribution networks and will attempt to avoid a high
concentration of sales to any one or group of dealers or mass merchandisers.
See "Risk Factors -- Dependence on Independent Dealers; Dependence on Major
Customers" and "-- Sales and Marketing."
GROWTH STRATEGY
INCREASING BRAND AND PRODUCT RECOGNITION BY INNOVATIVE MARKETING TO
TARGET USERS. In 1995, the Fun Kart industry's sales were made to only
approximately 0.6% of the estimated 22 million 7- to 17-year-old males in the
United States, the Company's target users. The Company believes that if it is
to further penetrate its target market, the Company must advertise in media
easily accessible by this group and attractively and prominently display its
Fun Karts in locations and at events frequented by young males and their
parents. The Company intends to increase its penetration of this market by
enhancing potential customers' awareness of its products by advertising in
youth-oriented publications, as well as motor racing and motorcycle
publications, establishment of a Company home page on the World Wide Web
portion of the Internet, displaying and promoting the Company's products at
NASCAR races, which may include appearances by NASCAR driver Bobby Labonte
pursuant to his promotional agreement with the Company, and traditional print,
billboard and to a lesser extent, television and radio media.
IMPROVE PRODUCT DESIGN AND DEVELOPMENT. Historically, the Company has
been a leader within the Fun Karts industry in the development of safety and
performance enhancing items for Fun Karts. One of the benefits of the
acquisition of USA was the addition of a line of torque converter Fun Karts,
which are being sold under the USA brand name. In 1997, the Company will
introduce its new Big Thunder Kart line which will utilize a torque converter,
new tire design and existing standard features of the Company's Fun Karts,
including large custom seats and 3400 rpm 5 horsepower Briggs & Stratton
engines. The Company also intends to develop and distribute additional
optional Fun Kart parts and accessories which can be sold by dealers to
customers at
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the point of sale of the Company's Fun Karts. Such accessories may include
face shields, repair and lube kits, caps and tee-shirts. The Company may also
develop a line of helmets, jackets, boots and other related items for its
dealers and mass merchandisers to complement sales of Fun Karts.
EXPANSION OF GEOGRAPHIC PRESENCE. The Company intends to expand its
geographic presence and increase its market share within and outside of its
core and contiguous markets by continued emphasis on the development and
expansion of its dealer and mass merchandiser networks, establishing
relationships with independent sales representatives to serve regions of the
United States which are currently underpenetrated by the Company and possible
acquisition of kart manufacturers and related businesses that offer synergistic
growth opportunities for the Company. Also during calendar 1996, the Company
had its first shipment of Fun Karts of approximately 70 Karts into the
international market, and believes international sales offer a significant
market for the Company's products. Although the Company is actively seeking
acquisitions that would meet its strategic objectives, it currently has no
agreements or understandings with respect to any such acquisition and there can
be no assurance that the Company will be successful in its acquisition efforts.
Further, the ability of the Company to effect its strategic plans will be
dependent upon its obtaining financing for such acquisitions, which there can
be no assurance will be available.
ACQUISITION STRATEGY
The Company continually evaluates acquisition opportunities of
operating entities or product lines compatible with its current operations.
Target companies will be in the Fun Karts or related business or will provide
the Company with complementary capabilities such as manufacturing, distribution
or shipping. Acceptable acquisition candidates are expected to be (i)
companies having three or more years operating history and annual revenues from
$5 to $15 million, (ii) businesses with different or expanded distribution
channels through which the Company may market its current and/or future
products, and (iii) companies with existing manufacturing capabilities which
may allow the Company greater operating efficiencies through vertical
integration of its manufacturing and assembly functions. There are no present
agreements, commitments, letters of intent or understandings with any
acquisition candidates. The Company intends to aggressively pursue growth
through acquisitions, subject to financial and managerial resources.
Management believes that it will be necessary to obtain additional
financing prior to a major acquisition. The Company anticipates that the
financing of any acquisition will be paid in cash, issuance of capital stock or
debt instruments, or a combination thereof. To the extent that the Company
issues capital stock in any acquisition, purchasers of the Securities in this
Offering may incur dilution in their investment in the Company. The issuance
of debt to finance acquisitions may result in the encumbrance of Company
assets, impede the Company's ability to obtain bank financing, decrease the
Company's liquidity and adversely affect the Company's ability to declare
dividends to its stockholders.
PRODUCT LINES
The Company produces a full line of Fun Karts, currently consisting of
32 models which are variations on 15 different frames available in three
different colors, black, blue and red. The models are differentiated by drive
train (single wheel pull, live axle or torque converter), seating (single or
double), tires (standard or custom) and frame size. The Company markets its
Fun Karts under the brand names of Thunder Karts and USA Fun Karts, which
includes the Blackhawk, Coyote, Eagle, Cobra and Land Runner models. The
Company's Fun Karts are sold at suggested retail prices ranging from $599 to
$1,399. The Company markets its USA Cobra Fun Kart model exclusively to
Wal-Mart and its Thunder Kart Blackhawk model to Sam's Club. The Company's
Thunder Kart SLXL, Thunder Kart XL700, Thunder Kart Blackhawk and USA Cobra
models accounted for 24%, 17%, 14% and 9%, respectively, of the Company's 1996
unit sales.
The Company believes its Fun Karts enjoy a premier image in its core
markets and that its Fun Karts have a reputation for quality, performance,
style, comfort, ride and handling. The Company's models offer a wide range of
standard and optional features which enhance the operation, safety, riding
comfort and performance of its Fun Karts. Such features include band brakes, 5
horsepower Briggs & Stratton engine, automatic throttle override system, full
safety cage, automatic clutch lubrication system, powder paint, high
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speed bearings and safety flag. The Company's USA Coyote Fun Kart has oversize
wheels and has the added features of a torque converter and disc brakes.
The Company believes that it is a leader in the development of safety
features for its Fun Karts, due primarily to its emphasis on continuous
research and development of safety related items. The Company, principally
through the efforts of Charles Brister, a director and principal stockholder of
the Company, has developed a number of technological advances, including the
automatic throttle override and automatic clutch lubrication systems, which
have significantly improved its products. Mr. Brister will continue to devote
a portion of his time on a project basis for the development of innovative
safety and technological features for the Company's Fun Karts. See "The
Company -- Acquisitions; Brister's Acquisition," "Management," "Certain
Relationships and Related Transactions" and "Principal Stockholders."
The Company's patented, exclusive automatic throttle override system
was named the 1995 Product of the Year for the recreational kart industry by
Kart Marketing International, a trade magazine for the kart industry. This
safety feature prohibits throttling and braking at the same time, regardless of
the position of the gas pedal. If the brake pedal is depressed slightly, the
engine will revert to the idle position immediately, and will not let
throttling engage until the pedal is released. Significant benefits of this
system include virtual elimination of throttle runaways; enhancement of safety
for inexperienced drivers; stopping of simultaneous braking and throttling;
easier braking; and extended brake life. The Company has an exclusive license
from Mr. Brister to use the automatic throttle override system on its Fun
Karts. See "Certain Relationships and Related Transactions."
The Company believes it was the first manufacturer in the Fun Karts
industry to provide safety cages and adjustable seats, which are now standard
features on most Fun Karts. Further, the Company is the only manufacturer in
the industry that has an automatic chain adjuster, a spring activated device
that constantly puts tension on the chain. Because a chain typically lengthens
as it heats up, this product reduces the chance of the chain disconnecting from
the sprocket and causing injury to the operator. The Company was also one of
the first Fun Karts manufacturers to introduce the powder paint process, which
significantly reduces harmful emissions during the painting process. The
Company believes it is currently the only major Fun Karts manufacturer using
the automatic throttle override system. Additionally, the Company has its own
custom designed tire treads manufactured to its specifications. Introduced in
1994, the Company's automatic clutch lubrication system releases grease as
needed to the clutch bushing on Fun Karts, which reduces wear and extends the
life of the clutch. This system was licensed by Mr. Charles Brister, a
director of the Company, to Briggs & Stratton, prior to the Brister
Acquisition, and is being installed on the Company's Fun Karts as well as
certain of its competitors.
MANUFACTURING OPERATIONS
The Company, through its two wholly-owned subsidiaries, operates
manufacturing facilities in Roseland, Louisiana and Prattville, Alabama. The
Company's manufacturing facilities include a 48,000 square foot building in
Roseland and a 20,000 square foot facility located in Prattville. The
management of the Company's manufacturing facilities typically consists of a
plant manager, a production manager, a material manager and a quality control
manager. These mid-level managers control operations of the respective
manufacturing facilities, with assistance and guidance from the Company's
executive officers. The Roseland facility is leased from Mr. Charles Brister,
a director of the Company, and the Company owns the Prattville facility which
includes a two-acre tract of land. See "Facilities" and "Certain Relationships
and Related Transactions."
Management believes the Prattville facility could be expanded to a
40,000 square foot facility on the existing land. The Company has an option to
acquire two acres adjacent to its Prattville facility for future expansion.
The Prattville plant is located in a planned industrial park with adequate
support utilities and freight services. Future expansion of the Roseland
facility would be limited due to the unavailability of adjacent real estate.
See "Facilities."
Fun Kart production levels at the Company's manufacturing plants
varies depending on the season. During the off-season between January and May,
the Company generally runs a single ten-hour shift four days a week at its
plants. In June, the work week expands to five days and peaks in November at
six days. From
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June through December, daily output is approximately 125 to 150 Fun Karts. The
Company believes that the maximum annual capacity of its manufacturing
facilities for one shift is approximately 28,000 Fun Karts, which allows for
approximately 50% growth in capacity before the addition of another shift.
Management believes that another shift can be cost effectively added, with
limited expansion of its current facilities, to meet projected increased
customer demand for the Company's products.
The Fun Karts manufacturing process is primarily one of welding and
assembly at various work stations. The Company buys directly from mills both
pre-cut and uncut tubular steel used in the manufacturing of the frames. Since
the price differential between pre-cut and uncut tubular steel is relatively
small, it is more cost-effective, particularly for pieces that are certain not
to change, to purchase pre-cut tubular steel. The steel is cut and bent during
the manufacturing process to the frame specifications for the Company's various
Fun Kart models. Most of the other Fun Karts component parts, including
engines, wheels, tires, seats, steering wheels, steering tie rods and
miscellaneous parts, are purchased from various domestic vendors. The Company
depends on Briggs & Stratton for its engines, and the loss of this vendor may
cause the Company to experience a temporary delay in the production of the
Company's Fun Karts. The Company believes other engine vendors and suppliers
of other component parts necessary for the production of Fun Karts are readily
available.
QUALITY CONTROL, WARRANTIES AND SERVICE
The Company adheres to strict quality standards and continuously
refines its production procedures to increase productivity and reduce warranty
costs. Each Fun Kart is inspected and numbered during assembly for compliance
with certain quality control standards. The Company provides the purchaser of
its Fun Karts with a 90-day limited warranty against certain manufacturing
defects in the Fun Kart's construction. There are also direct warranties that
are provided by the manufacturer of the engine and certain component parts.
The Company's Fun Karts are usually serviced by the dealers. The Company has
not historically incurred any significant warranty claims and has never had a
recall of any of its products.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company does not own any patents, trademarks or service marks.
However, Charles Brister, a director of the Company, owns certain patents and
trademarks which are licensed to the Company and which allows the Company to
use certain brand names and utilize the automatic throttle override system on
its Fun Karts. The Company's success is dependent upon, among other things,
its continued ability to use these certain patented items and trademarks.
There can be no assurance that any patents or trademarks which may be issued to
the Company, or which the Company may license from third parties or Mr.
Brister, will not be challenged, invalidated or circumvented, or that any
rights granted thereunder would provide proprietary protection to the Company.
The Company will continue to implement protective measures and intends to
aggressively defend its proprietary rights. See "Certain Relationships and
Related Transactions."
SALES AND MARKETING
SALES. The Company primarily relies on a broad and diversified
national independent dealer network to sell its Fun Karts. The Company sells
directly to approximately 700 dealers located in 40 states, with most dealers
concentrated in the Southeast and Southwest regions of the United States. In
1996, the Company sold approximately 61% of its Fun Karts to approximately 250
dealers in Louisiana, Texas, Mississippi and Florida. The Company continues to
expand its dealer network, with 82 dealers added in 1995 and 15 dealers added
in 1996.
The Company believes that its independent dealer network enables the
Company to achieve broader distribution of its products than if the Company
operated its own retail outlets. Selling through independent dealers also
allows the Company to avoid the substantial investment in management and
overhead associated with the operation of company-owned retail stores. In
addition, the Company's strategy of selling its products through independent
dealers helps to ensure that the Company's Fun Karts are competitive with those
of other manufacturers in terms of consumer acceptability, product design,
quality and price. Accordingly, a component of the Company's business strategy
is to continually strengthen its dealer relations. The Company believes its
relations with its independent dealers are good.
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While there are no formal dealer agreements, the Company, for the
benefit of certain of its higher volume dealers, will agree not to sell to
other dealers in a limited geographic area surrounding the location of a high
volume dealer. To become a dealer, the Company generally requires a retailer
to annually purchase six or more Fun Karts. Most dealers keep an inventory of
three to five Fun Karts, which increases during the Christmas holiday season.
Credit terms are 30 days with no discount. For eligible dealers, the Company
offers a dealer floor plan financing program through an unaffiliated financial
services company. The Company provides up to 90 days floor planning for
dealers and pays 100% of the interest charged by the financial services
company.
In 1996, the Company emphasized both the retention of existing dealers
through Company-sponsored seminars and the expansion of its dealer network.
For the first time in the Company's history, in 1996, 70 Fun Karts were
exported to a foreign market, the United Kingdom. Other foreign dealer
prospects are being investigated by the Company in Canada, Brazil, Austria,
Germany, Australia and Argentina. Typical domestic dealers include lawn and
garden shops, hardware stores, motorcycle shops, automobile parts stores and
specialty karts dealers. The Company believes the dealer distribution channel
is underpenetrated. The Company estimates that less than 10% of the lawn and
garden stores and less than 5% of the motorcycle dealers in the United States
sell Fun Karts. Dealer sales are made through Company personnel under the
supervision of Mr. Larry E. Schwall, the Company's Sales and Marketing Vice
President. The Company does not currently engage independent manufacturers
representatives; however, it is investigating the possibility of contracting
with such representatives for the purpose of servicing underpenetrated regions
of the United States as well as foreign markets. In 1995, substantially all of
the Company's product sales were to independent dealers. See "Management."
To broaden its distribution channels, the Company in 1996 began
selling its Fun Karts to mass merchandisers, Wal-Mart and Sam's Club. Wal-Mart
purchased approximately 1,500 Fun Karts, while Sam's Club purchased
approximately 2,500 Fun Karts, collectively representing approximately 21% of
the Company's 1996 unit sales. Sales to lawn and garden stores, motorcycle
shops, karts specialty stores, automobile parts dealers, hardware stores and
other dealers accounted for 36.3%, 13.9%, 7.4%, 6.5%, 6.3 and 7%, respectively,
of the Company's 1996 unit sales. The Company estimates that sales of its
products to independent dealers and mass merchandisers will be approximately
75% and 25%, respectively, in 1997. Although the Company believes that sales
to mass merchandisers offers a significant growth opportunity, the Company will
seek to obtain a reasonable balance between its dealer and mass merchandisers
distribution networks and will attempt to avoid a high concentration of sales
to any one or group of dealers or mass merchandisers. See "Risk Factors --
Dependence on Independent Dealers; Dependence on Major Customers."
The Company has two main modes of delivery to its dealers. The
Company delivers directly to Louisiana and Alabama dealers, using four pickup
trucks with trailers that can carry 27 Fun Karts per truck. All Louisiana and
Alabama delivery routes are designed to be completed during a single day. All
other dealers and mass merchandisers receive their Fun Karts by common carrier,
collected F.O.B. dealer. The typical turnaround from order date to shipment is
one to two days in the off season, and three to seven days in peak season. Fun
Karts are delivered completely assembled, except for the installation of the
accompanying safety cages.
MARKETING. The Company's historical marketing strategy has been to
build a broad and diverse independent dealer base, primarily in the Southeast
and Southwest regions of the United States, by offering safe, high-quality and
reliable Fun Karts that are competitively priced and timely delivered. To
improve its market share position, in 1996, the Company added 15 new dealers
and the Wal-Mart and Sam's Club networks to its existing distribution channels.
The Company's future marketing efforts are designed to maintain and expand its
independent dealer network in the South and West regions of the United States
and in foreign markets through direct communications with dealers and assisting
them with their selling and marketing efforts with Company-sponsored seminars,
discounts or rebate products and advertising, including product videos and
brochures, leaflets, posters, signs and other miscellaneous promotion and items
for use by dealers. The Company will also seek to increase sales to mass
merchandisers with direct communication, engaging independent sales
representatives and attendance by Company representatives at Fun Kart and
industry related trade shows. The Company believes that attendance at trade
shows will allow it to promote its products to a diversified group of dealers
and mass merchandisers currently targeted by the Company. The Company also
intends to implement
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a complete part and accessories sales program including such items as helmets,
jackets, boots and shirts, which will be sold to its dealers and mass
merchandisers. Parts and accessories may be ordered by toll-free telephone
contact with the Company's representatives and overnight service is available
if required.
The Company's advertising and promotional materials emphasize the
safety-related features built into the Company's Fun Karts. The Company has
adopted this advertising strategy in order to promote the concept that it is
fun and safe for children to own and operate Fun Karts. Additionally, the
Company intends to increase its penetration of its target market by enhancing
potential customers' awareness of its products by advertising in youth-oriented
magazines, motorcycle, lawn and garden, hardware and outdoor power equipment
trade magazines, establishment of a Company home page on the Internet,
displaying and promoting the Company's products at NASCAR races and related
events and traditional print, billboard and, to a lesser extent, television and
radio media. The Company believes that if it is to further penetrate its
target market, the Company must advertise in media easily accessible by this
group and attractively and prominently display its Fun Karts in locations and
at events frequented by young males and their parents.
To enhance its marketing program, the Company, on January 21, 1997,
entered into a one-year promotional agreement with NASCAR driver, Bobby
Labonte. Under the terms of the agreement, Mr. Labonte will be the national
spokesperson for the Company's products and will appear at various
Company-sponsored and industry trade shows to promote the Company's Fun Karts.
The Company will also have the right to display a Company decal on Mr.
Labonte's #44 Busch Grand National racing car. Mr. Labonte will receive
approximately $104,000 for his services during 1997 plus reimbursement of
travel, food and lodging expenses. The Company has the option to renew the
agreement for 1998 on similar terms.
CUSTOMERS
In 1996, approximately 79% of the Company's proforma sales were to its
independent dealers and the Company projects that it will sell approximately
75% of its Fun Karts to independent dealers in 1997. No one dealer or group of
affiliated dealers accounted for 10% or more of the Company's 1996 sales. In
1996, 12% and 9% of the Company's proforma sales were made to Sam's Club and
Wal-Mart, respectively. The Company believes that Sam's Club and Wal-Mart will
account for approximately 12% and 13%, respectively, of the Company's 1997
revenues. The loss of either the Wal-Mart or Sam's Club accounts would have a
material adverse effect on the financial condition and results of operations of
the Company.
BACKLOG
The Company typically fills and ships customer orders within 3 to 7
days of receipt of the order and, therefore, maintains no significant backlog.
FACILITIES
The following table sets forth information concerning the Company's
facilities:
<TABLE>
<CAPTION>
Date Leased Expiration of Approximate
Location or Acquired Description Lease Term Square Footage
--------------------------- ------------- --------------------------- -------------- ----------------
<S> <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
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used for manufacturing and 3,000 square feet is used for office space at
the Roseland facility. See "Certain Relationships and Related
Transactions."
(3) The Prattville facility is situated on a two-acre tract of land owned by
the Company. This property is subject to a mortgage held by a financial
institution with a principal balance of approximately $235,000 at December
31, 1996 with interest at the financial institution's commercial base rate
(9.75% at December 31, 1996). The Company is obligated to make monthly
payments of principal and interest of $2,626 until 2010. The Prattville
facility could be expanded to 40,000 square feet on the existing land. The
Company has an option to acquire two acres adjacent to its existing
facilities for future expansion. The Prattville facility is located in a
planned industrial park with adequate support utilities and freight
services.
GOVERNMENTAL REGULATIONS
Consumer protection laws exist in many states in which the Company markets
its products. Any violation of such laws or regulations could have a material
adverse effect on the Company. The Company's manufacturing facilities are
inspected by the Occupational Safety and Health Administration. The Company
believes that it is generally in compliance in all material respects with all
currently applicable federal and state laws and regulations. Federal, state
and local environmental regulations are not expected to have a material effect
on the Company's operations. However, if the Company in the future acquires an
entity which is in violation of consumer or environmental laws and regulations,
such violations may have a material adverse effect on the Company's operations.
Management believes certain states, including California, have proposed
legislation involving emission or other safety standards for the type of
gas-powered type engines installed on the Company's Fun Karts. The Company is
currently unable to predict whether such legislation will be enacted in the
future and, if so, the ultimate impact on the Company and its operations.
EMPLOYEES
The Company employs approximately 96 employees of which 56 are employed on
a full-time basis. Eight employees are administration and sales personnel,
four are plant management and supervisory personnel and 84 hourly employees are
involved in manufacturing and shipping. In spite of the seasonal nature of
sales, the Company attempts to keep all personnel employed year-round and
increases the hours per work week to meet seasonal demand.
Cost of manufacturing labor for the Company is between $5.00 and $9.00 per
hour, which is comparable to labor costs in its respective markets. The
Company's employees are not represented by a union or subject to a collectively
bargaining agreement. The Company has never experienced a strike or work
stoppage and considers its relations with its employees to be excellent.
COMPETITION
The Fun Karts industry is highly competitive, and there is no assurance
that the Company will be able to continue to compete profitably in this
industry in the future. The Company expects that it will continue to face
intense competition as its business and acquisition strategies are implemented.
Such competition may result in reduced sales, reduced margins, or both. The
Company is and will be competing with larger, better capitalized companies
which may be better positioned to respond to shifts in consumer demand and
other market related changes. If other companies introduce new and modified
products before the Company achieves significant market expansion, the Company
may experience growth below projected levels which could have a material
adverse effect on the Company's operating results. However, the Company
believes that it will be able to compete effectively with its competitors by
diversifying its product line and expanding its market share through
implementation of its business and acquisition strategies.
The Company has identified three major competitors in the Fun Karts
industry, Manco Productions, a Fort Wayne, Indiana-based company, Carter
Brothers Manufacturing, a Brundidge, Alabama-based company, and Ken-Bar
Manufacturing, a Cornelia, Georgia-based company. Management estimates that
the Company and its three primary competitors accounted for over 60% of the Fun
Karts sold in the United States in 1996.
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PRODUCT LIABILITY AND INSURANCE LIMITS
The nature of the products manufactured and marketed by the Company is such
that the products may fail due to material inadequacies or equipment failures.
Such a failure may subject the Company to the risk of product liability claims
and litigation arising from injuries allegedly caused by the improper
functioning or design of its products. As the Company expands its product
lines and distributes more products into the marketplace, the Company's
exposure to such potential liability will also increase. The Company currently
maintains $5 million occurrence basis product liability insurance (with
coverage being provided in respect of accidents which occurred during the
policy year, regardless of when the related claim is made) with a $50,000
self-insured retention and $5 million maximum per occurrence coverage. The
Company has four pending product liability claims. None of the current claims
are expected to exceed the existing policy limits. The Company has never had a
claim that resulted in an award or settlement in excess of insurance coverage.
At December 31, 1996, the Company had accrued $100,000 for the defense and
possible payment of pending claims. The Company believes that if it is
successful in the sale and distribution of a large number and variety of Fun
Karts and related products, product liability claims will be inevitable,
particularly given the current litigious nature of American consumers. There
is no assurance that such insurance coverage will be sufficient to fully
protect the business and assets of the Company from all claims, nor can any
assurances be given that the Company will be able to maintain the existing
coverage or obtain additional coverage at commercially reasonable rates. To
the extent product liability losses are beyond the limits or scope of the
Company's insurance coverage, the Company could experience a material adverse
effect upon its business, operations, profitability and assets.
LEGAL PROCEEDINGS
In addition to product liability claims, the Company, from time to time, is
involved in lawsuits in the ordinary course of business. Such lawsuits have
not resulted in any material losses to date, and, except as discussed below,
the Company does not believe that the outcome of any existing lawsuits would
have a material adverse effect on its business.
On February 4, 1997 a lawsuit was filed in a Mississippi state court
against the Company, Brister's and an unaffiliated insurance broker by the
Company's insurance underwriter to have insurance coverage declared as null and
void for an alleged material misrepresentation on the insurance application.
This action arose as a result of the payment in 1997 by the insurance
underwriter of $700,000 in settlement of a product liability lawsuit against
the Company and other defendants. The Company intends to file a counterclaim
against the Company's insurance broker relating to possible misrepresentations
made by the insurance broker to the insurance underwriter regarding Brister's
prior product liability claims history. The Company intends to vigorously
defend this lawsuit. The Company is currently engaged in discovery and is
unable to predict the outcome of this litigation. If the Plaintiff is
successful in this litigation and is awarded a judgement for damages against
the Company and Brister's, such judgment could have a material adverse effect
on the Company's business, financial condition and results of operations.
Under the terms of the Brister's Acquisition, the Company may offset certain
product liability claims against certain shares of the Common Stock of the
Company issued to Mr. Charles Brister, a director and principal stockholder of
the Company, as partial consideration for the Brister's Acquisition. See "The
Company -- Acquisitions; Brister's Acquisition," "Management," "Certain
Relationships and Related Transactions" and "Principal Stockholders."
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<PAGE> 39
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
Larry E. Schwall 36 Vice President, Sales and Marketing
Timothy P. Halter(1) 30 Vice President, Secretary and Director
Charles Brister(1) 45 Director
Joseph R. Mannes(2) 38 Director
Ronald C. Morgan 48 Director
Robert W. Bell(2) 57 Director
Gary C. Evans 38 Director
</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
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<PAGE> 40
accounting matters, Exchange Act reporting, cash management, risk management,
audit and taxes, human resources and information systems for the Company.
Prior to joining the Company, Mr. Callegari served as Chief Financial Officer
of Con Pac, Inc. from May 1994 to May 1996. Con Pac, Inc. is a manufacturer of
folding cartons, and while with Con Pac, Inc., Mr. Callegari had
responsibilities similar to those which he has with the Company. From January
1992 to May 1994, Mr. Callegari served as Executive Vice President and Chief
Financial Officer of Sunport Medical Corporation, a medical diagnostic imaging
and rehabilitation company with 12 clinics in the State of Texas, and was
responsible for accounting matters, Exchange Act reporting, investor relations
and risk management. From March 1982 to December 1991, Mr. Callegari served
as Director of Finance of Stewart Enterprises, a multi-divisional holding
company with worldwide interests in real estate, construction and insurance
companies, and was responsible for all accounting matters, including corporate
acquisition accounting. Mr. Callegari is a Certified Public Accountant and
received his B.S. degree in Accounting from Louisiana State University.
Larry E. Schwall is the Vice President, Sales and Marketing of the
Company and has served in this capacity since January 1997. Mr. Schwall's
responsibilities include overseeing the development of the Company's sales and
marketing strategies, market forecasting, and the development and presentation
of product knowledge seminars for the Company's dealers and mass merchandisers.
From December 1995 to January 1997, Mr. Schwall served as Territory Manager --
Commercial Lawn and Garden Dealers for Homelite, Inc., a subsidiary of Deere &
Co. Homelite, Inc. is a manufacturer of hand-held products. While with
Homelite, Inc., Mr. Schwall was responsible for producing training seminars for
the company's customers. From August 1987 to December 1995, Mr. Schwall was
OEM Engine Sales Manager for Delta Power, Inc. and was responsible for the
sale and marketing of engines to existing customers and prospective accounts
throughout the southern region of the United States. Mr. Schwall also served
with the industrial division of Briggs & Stratton as communications liaison for
Delta Power, Inc.
Timothy P. Halter has been Vice President, Secretary and a director of
the Company since February 1996. Since May 1995, Mr. Halter has served as
President of Halter Financial Group, Inc., a Dallas, Texas based financial
consulting firm. From 1991 to 1995, Mr. Halter was President of Halter Capital
Corporation, a diversified holding company. Mr. Halter also serves on the
Board of Directors of Duncanville National Bank, located in Duncanville, Texas.
Charles Brister is a director of the Company and has served in this
capacity since March 1996. He served as President and Chief Executive Officer
of Brister's from 1986 to April 1996.
Joseph R. Mannes has been a director of the Company since July 1996,
and since February 1996 has been the Chief Financial Officer, Secretary and
Treasurer of Interactive Creations Incorporated ("ICI"), a corporation offering
real- time internet gaming services. From 1987 until joining ICI, Mr. Mannes
was First Vice President in the Corporate Finance Department of Rauscher Pierce
Refsnes, Inc., a Dallas, Texas stock brokerage company. From 1982 to 1987, Mr.
Mannes was in the commercial lending division of the First National Bank of
Boston, where he attained the position of Assistant Vice President. Mr. Mannes
worked in both the Special Industry Group and the High Technology Group at
First National Bank of Boston. Mr. Mannes graduated with an MBA in Accounting
and Finance from the Wharton School, Graduate Division, of the University of
Pennsylvania in 1982 and an A.B. from Dartmouth College in 1980. Mr. Mannes is
a Chartered Financial Analyst.
Ronald C. Morgan has been a director of the Company since July 1996.
Since June 1980, Mr. Morgan has served as Chief Operating Officer, Executive
Vice President and Director of The Leather Factory, Inc., an AMEX listed
company ("TLF"). Mr. Morgan was a co-founder of TLF. Mr. Morgan was employed
by the Tandy Leather Company for ten years prior to 1980, eventually attaining
the position of Vice-President -- Eastern Division. Mr. Morgan received a B.S.
degree from West Texas State University.
Robert W. Bell has been a director of the Company since July 1996. He
served as Chairman, President and Chief Executive Officer of NewCare Health
Corporation from 1987 to January 1997, when he retired. NewCare Health
Corporation is a Nasdaq SmallCap Market-listed nursing home company. From 1981
to 1987, Mr. Bell was President of R.W.B. Realty, a Louisiana corporation that
sponsored public and private limited partnerships that owned, built and
operated nursing homes and medical office buildings. From 1964 to 1981,
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<PAGE> 41
Mr. Bell was President and Chairman of Bell Realty and Land Company, a
residential land development and home construction business in Mississippi.
Gary C. Evans has been a director of the Company since July 1996. Mr.
Evans has served as President, Chief Executive Officer and a director of Magnum
Petroleum Inc. ("Magnum"), an American Stock Exchange oil and gas exploration
and development company, since December 1995. Mr. Evans previously served as
Chairman, President and Chief Executive Officer of Hunter Resources, Inc.
("Hunter") from September 1992 until its merger with Magnum. From December
1990 to September 1992, he served as President and Chief Operating Officer of
Hunter. From 1985 to 1990, he was the founder and President of Sunbelt Energy,
Inc. From 1981 to 1985, Mr. Evans was associated with the Mercantile Bank of
Canada where he held various positions including Vice President and Manager of
the Energy Division of the southwestern United States. From 1978 to 1981, he
served in various capacities with National Bank of Commerce (now Banc Texas)
including Credit Manager and Credit Officer. Mr. Evans serves on the Board of
Directors of Digital Communications Technology Corporation, an American Stock
Exchange listed company.
There are no family relationships among any of the Company's officers and
directors.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth, for the years
indicated, all cash compensation paid, distributed or accrued for services,
including salary and bonus amounts, rendered in all capacities for the Company
to its Chief Executive Officer. No other executive officer of the Company
received remuneration in excess of $100,000 during the referenced periods. All
other compensation related tables required to be reported have been omitted as
there has been no applicable compensation awarded to, earned by or paid to any
of the Company's executive officers in any fiscal year to be covered by such
tables.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 an Employment Agreement
(the "Employment Agreement") with V. Lynn Graybill, whereby Mr. Graybill agreed
to serve as Chairman of the Board, President and Chief Executive Officer of the
Company. The Employment Agreement is for a term of three years and provides
Mr. Graybill with an annual base salary of $150,000. Upon execution of the
Employment Agreement, Mr. Graybill received a signing bonus of $15,000 (the
"Bonus"). The Bonus was paid with the issuance by the Company to Mr. Graybill
of 140,000 shares of Common Stock (the "Graybill Shares"), subject to a
buy-back option of the Company. The Company may buy back all of the Graybill
Shares for an aggregate purchase price of $16,800, or $0.12 per share, if Mr.
Graybill is either terminated for cause or Mr. Graybill terminates his
employment voluntarily prior to March 15, 1997. In year two of the Employment
Agreement, the Company may buy back up to 70,000 Graybill Shares for $8,400 or
$0.12 per share and in year three up to 35,000 Graybill Shares for $4,200 or
$0.12 per share. If the Employment Agreement is terminated for any reason
other than for cause or voluntarily by Mr. Graybill, the buy back option
available to the Company is terminated. Mr. Graybill may also receive
performance based incentive stock options to purchase shares of Common Stock at
a price equal to the market value of the Common Stock on the date of issuance,
as determined by the Board of Directors. Mr. Graybill receives benefits
commensurate with his title including medical insurance and other
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<PAGE> 42
benefits offered to executive management of the Company. Mr. Graybill is
responsible for the day-to-day operations of the Company and for the
preparation of the Company's annual budget, monthly operating financial
statements, quarterly presentations addressing qualitative and quantitative
issues of the operations of the Company, and any and all other matters
requested by the Board of Directors.
To provide for continuity of management, the Company may enter into
employment agreements with other members of its executive management staff.
STOCK OPTIONS
The Company has yet to adopt a formal stock compensation plan for its
management and key employees. The Company intends to adopt a stock
compensation plan as it believes that such a plan is necessary to retain
current management and employ additional qualified personnel. A stock option
plan which is adopted by the Company will have terms that are normally accepted
in the industry and for public entities. The Board of Directors of the Company
has, however, reserved for issuance up to 133,333 shares of Common Stock for
options to be granted to employees of the Company at the discretion of the
Compensation Committee of the Board of Directors. The Company has issued to
its employees options to purchase an aggregate of 59,355 shares of Common Stock
at an exercise price of $5.63 per share which are exercisable one year after
the date of grant and expire at various times during 2001.
COMPENSATION OF DIRECTORS
Each Director of the Company is entitled to receive annual
compensation of $6,000 for attendance of meetings of the Board of Directors of
the Company and for serving on any committees of the Board of Directors of the
Company. The Company will reimburse directors for out-of-pocket expenses of
attending meetings.
COMMITTEES
The Board of Directors of the Company has established a Compensation
Committee and Audit Committee. The Compensation Committee makes
recommendations to the Board of Directors regarding the compensation of
executive officers and administers the Company's employee benefit plans, if
any. The Audit Committee is comprised of a majority of independent directors
and its functions are to recommend to the Board of Directors the engagement of
the Company's independent public accountants, review with such accountants the
plans for and the results and scope of their auditing engagement and certain
other matters relating to their services as provided to the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From December 1989 until early 1996, the Company had no significant
assets, liabilities or business operations. On December 15, 1995, a former
director of the Company and HFG, a financial consulting firm owned by Timothy
P. Halter, an officer and director of the Company, together acquired 46,834
shares of the Company's Common Stock from the then majority stockholder of the
Company. Subsequently, on February 20, 1996, the Company sold 50,000
restricted shares of its Common Stock to a former director of the Company for
$938 cash. On March 7, 1996, the Company sold 967,545 restricted shares of
Common Stock to HFG for $1,451 cash. See "Management," and "Principal
Stockholders."
In January 1996, concurrent with the execution of the Brister's stock
purchase agreement, the Company entered into a consulting agreement with HFG
whereby HFG would pay all necessary legal and other related professional
services fees, exclusive of accounting and auditing services, related to the
reorganization, recapitalization and consummation of the Brister's Acquisition
for a fee of $15,000. The fee was payable in shares of Common Stock or $10,000
cash and shares of Common Stock as determined in accordance with the terms of
the consulting agreement and the Brister's stock purchase agreement. The
payment of the consulting fee was contingent upon the successful consummation
of the Brister's Acquisition. The consulting fee was paid by the Company upon
the closing of the Brister's Acquisition through the issuance of 484,333
restricted shares of the Company's Common Stock to HFG.
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<PAGE> 43
The Company in March 1996 entered into a second consulting agreement
with HFG which provided for an annual payment of $10,000 to HFG for assisting
the Company with its financial public relations and stockholder communications.
The HFG consulting agreement expired in March 1997 and has been renewed for an
additional one-year period on similar terms. Timothy P. Halter, the President
and sole owner of HFG, is a principal stockholder of the Company and the Vice
President, Secretary and a director of the Company. See "Management" and
"Principal Stockholders."
In connection with the Brister's Acquisition, the Company issued to
Charles Brister, a director and principal stockholder of the Company, 516,667
shares of Common Stock with a value of $3.1 million or approximately $6.00 per
share as determined by the terms of the related purchase agreement. The
Company also issued Mr. Brister a subordinated note in the principal amount of
$1,000,000 payable over a seven-year period (the "Subordinated Note"), a
$200,000 note with 10% interest, with interest and principal payable quarterly
beginning April 1, 1997 and with a maturity date of April 1, 1998 or upon
successful completion of an underwritten public offering of the Company's
securities (collectively, the "Brister Notes"). Interest on the Subordinated
Note accrues at the rate of 8% per annum in year one and increases 1% per year
thereafter to a maximum of 14% per annum in year seven. Payments due under the
Subordinated Note are to be made in quarterly installments with interest only
being due and payable for the first three years of the Subordinated Note. The
principal amount of the Subordinated Note is payable in installments of
$250,000 per year commencing in year four and ending in year seven. The
Subordinated Note is subordinated to the prior payment of the principal of and
interest on all other indebtedness of the Company then outstanding, whether
secured or unsecured. The Subordinated Note is secured with securities having
a market value of approximately $1.0 million owned by Robert W. Bell and Gary
C. Evans, directors of the Company. The Brister Notes, approximately $1.2
million, will be paid to Mr. Brister with a portion of the proceeds of this
Offering. See "The Company -- Acquisitions; Brister's Acquisition," "Use of
Proceeds," "Management" "Principal Stockholders."
Mr. Brister has deposited 83,334 shares of the Company's Common Stock
owned by him (the "Offset Shares") into an escrow account to offset any amounts
that may be owing at any time by Mr. Brister or Brister's to the Company as a
result of (i) a claim of products liability for Fun Karts manufactured prior to
the close of the Brister's Acquisition which results in either a settlement or
award of damages in excess of stated insurance policy limits or (ii) any
failure or breach of any representation, warranty, agreement or covenant of
Brister's or Mr. Brister under the terms of the stock purchase agreement
between the Company and Mr. Brister. If HFG or the Company determines that an
offset is appropriate, notice will be given to Mr. Brister at least 10 days
prior to the disposition of the Offset Shares. If conditions upon which the
offset are based are cured by Mr. Brister during that period, no offset will be
undertaken. However, upon an event of offset, both HFG and the Company have
sole discretion to sell or otherwise dispose of the number of Offset Shares
necessary to satisfy any outstanding liability or obligation imposed upon
either HFG or the Company. All remaining Offset Shares, upon the expiration of
the two-year offset period, will be returned to Mr. Brister. See "Business --
Legal Proceedings."
Concurrent with the Brister's Acquisition, the Company and Mr. Brister
entered into a Real Estate Option Right of First Refusal Agreement. Under the
terms of this agreement, the Company may, at its sole option, purchase the real
property and improvements upon which the Facilities are located for an
aggregate purchase price of $550,000. The option can be exercised commencing
on December 31, 1997 and expires on December 31, 2000. The Company and Mr.
Brister have also entered into a lease agreement for the Facilities which
provides for a two-year primary term with a two-year renewal option. The
monthly lease payment for the Facilities is $6,025 which adjustments for
increases in the Consumer Price Index. The Company believes these terms are
comparable to existing market rates in the region. See "Business --
Facilities."
The Company, in March 1996, entered into a license agreement with
Charles Brister under which Mr. Brister has licensed to the Company for a
period of five years (at no cost to the Company during the first year) all of
the Intellectual Property (as hereinafter defined), which was owned by Mr.
Brister on the Brister acquisition date, and all Intellectual Property
developed and/or owned by Mr. Brister at any time subsequent to March 15, 1996.
After the first year of the license agreement, the Company and Mr. Brister will
enter into subsequent agreements defining the license fee and royalty payments
based on terms at least as favorable as Mr. Brister has received, or could have
received, in arms'-length transactions with third parties. "Intellectual
Property" is defined as all domestic and foreign letters, patents, patent
applications, patent licenses, software
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<PAGE> 44
licenses and know-how licenses, trade names, trademarks, copyrights, unpatented
inventions, service marks, trademark registrations and applications, service
mark registration and applications and copyright registration and applications
owned or used by Brister's in the operation of its business.
On March 15, 1997, the Company and Mr. Brister entered in an addendum
to the License Agreement and a related Royalty Agreement which provides for the
payment of a one-time license fee and future royalties, respectively, by the
Company to Mr. Brister for the use by the Company for a three-year period of
the automatic throttle override system ("ATOS") developed and patented by Mr.
Brister. The Company paid Mr. Brister an initial $10,000 license fee and
agreed during the first year of the three year extension to pay him a royalty
of $1.00 for each Company Fun Kart on which the ATOS was installed. During the
second and third year of the agreement, the Company agreed to pay during each
year a royalty of $1.00 for each Company Fun Kart on which the ATOS was
installed or $20,000 whichever is greater.
Pursuant to the terms of the Brister's Acquisition, the Company
entered into a consulting agreement with Charles Brister which expired on
December 31, 1996. Under the consulting agreement, Mr. Brister provided
certain consulting services to the Company and its subsidiaries. In
consideration for these services, Mr. Brister received $400 per day for
consulting services provided at the Company's principal place of business and
$800 per day for consulting services provided while traveling in connection
with Company business. During 1996, Mr. Brister received $10,070 from the
Company for consulting fees. The Company intends to employ Mr. Brister on a
project by project basis during 1997 under similar terms as the 1996 consulting
agreement to develop innovative safety and technological features for the
Company's Fun Karts and to assist management with the development and design of
new products.
Concurrent with the Brister's Acquisition, Mr. Brister and the Company
entered into a Non-Competition Agreement whereby, for a period of five years
after the Brister's Acquisition, Mr. Brister agreed not to compete with the
Company and its subsidiaries.
To finance the Brister's Acquisition, the Company issued a promissory
note in the principal amount of $2,000,000 (the "Schlinger "Note") payable to
The Schlinger Foundation, a California non-profit public benefit corporation
(the "Foundation"). The Schlinger Note bears interest at the rate of 14% per
annum and is due and payable on or before March 15, 2001. Interest on the Note
is payable monthly with the principal to be paid in annual installments of
$399,996 in 1998, $399,996 in 1999 and $1,200,008 and 2000. The Schlinger Note
is secured by a first lien and security interest in all of the Company's
equipment, accounts receivable and inventory. As further consideration for the
$2,000,000 loan, the Company paid the Foundation $21,000, consisting of $10,500
cash and issued the Foundation 70,000 restricted shares of Common Stock. In
July 1996, the Foundation purchased an additional 200,000 shares of Common
Stock from HFG for $600,000 or $3.00 per share. Evert I. Schlinger, the
trustee of the Foundation, also owns 219,048 shares of the Company's Common
Stock which he purchased in April 1996 from HFG for $115,000 or $0.52 per
share. On March 15, 1996, two trusts of which Mr. Schlinger is the trustee
purchased 49,445 shares of Common Stock from the Company for $111,250 or $2.25
per share. Timothy P. Halter, an officer, director and principal stockholder
of the Company, is the President and sole owner of HFG. The Company intends to
pay the Schlinger Note with a portion of the proceeds of this Offering. See
"The Company -- Recent Financings," "Use of Proceeds," "Management" and
"Principal Stockholders."
Mr. Jerry M. Allen, a Vice President and former shareholder of USA, a
subsidiary of the Company, received $62,500 cash and 41,667 shares of the
Company's Common Stock as a result of the USA Acquisition. See "The Company --
Acquisitions; USA Acquisition."
On November 15, 1996, Mr. Gary C. Evans, a director of the Company,
purchased a Unit from the Company for $25,000 in connection with the Company's
Bridge Financing. See "The Company -- Recent Financings." "Management,"
"Principal Stockholders," "Description of Securities -- Bridge Financing" and
"Shares Eligible for Future Sale -- Lock- up Agreements."
The Company believes that all the foregoing related-party transactions
were on terms no less favorable to the Company than could reasonably be
obtained from unaffiliated third parties. All future transactions with
affiliates will be approved by a majority of disinterested directors of the
Company and on terms no less favorable to the Company than those that are
generally available from unaffiliated third parties.
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<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
ownership of the Company's shares of Common Stock as of March 26, 1997 by each
of its directors, executive officers and persons known by the Company to
beneficially own 5% or more of the outstanding shares of the Common Stock and
all executive officers and directors as a group.
<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 * *
Larry E. Schwall(5) . . . . . . . . . . . . . . . -0- -0- -0-
Charles Brister(6) . . . . . . . . . . . . . . . 516,667 19.0 12.2
Joseph R. Mannes(7) . . . . . . . . . . . . . . . 63,734 2.3 1.5
Ronald C. Morgan(7) . . . . . . . . . . . . . . . 3,334 * *
Robert W. Bell(7) . . . . . . . . . . . . . . . . 14,445 * *
Gary C. Evans(8) . . . . . . . . . . . . . . . . 38,613 1.4 *
Timothy P. Halter(9) . . . . . . . . . . . . . . 495,253 18.2 11.7
Halter Financial Group, Inc.(9) . . . . . . . . . 495,253 18.2 11.7
Schlinger Foundation(10) . . . . . . . . . . . . 489,048 18.0 11.6
Evert I. Schlinger(11) . . . . . . . . . . . . . 538,493 19.8 12.7
Blair L. Smith(12) . . . . . . . . . . . . . . . 179,134 6.6 4.2
Officers and directors as a group (9 persons) . . 1,272,713 46.4 30.0
--------- ------ ------
Total . . . . . . . . . . . . . . . . . 1,990,340 72.6% 46.9%
===== ====
</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. Schlinger is the sole trustee of the Brian Schlinger
and Evert I. Schlinger Trusts and has sole voting and dispositive
power over the shares held by these trusts. However, Mr. Schlinger
does not claim any ownership interest in any of the shares of Common
Stock owned by either the Brian Schlinger Trust or the Evert I.
Schlinger, Jr. Trust.
(12) Mr. Smith's address is 4900 Ridgeview, Parker, Texas 75002.
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<PAGE> 46
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 10,000,000
shares of preferred stock, $0.001 par value, and 14,000,000 shares of Common
Stock, $0.001 par value per share. Upon completion of this Offering, there
will be approximately 4,221,828 million shares of Common Stock issued, which
includes the 104,175 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock. Except for the 25 shares of Convertible Preferred
Stock previously issued, there are no other outstanding shares of preferred
stock.
The following description of certain matters relating to the Common
Stock, Preferred Stock, Convertible Preferred Stock, Redeemable Common Stock
Purchase Warrants, 1996 Warrants and Class A Warrants is a summary and is
qualified in its entirety by the provisions of the Company's Articles of
Incorporation and Bylaws.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. In addition, such
holders are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the payment of preferential dividends with
respect to any preferred stock that from time to time may be outstanding. In
the event of the dissolution, liquidation or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of all liabilities of the Company and subject to the prior
distribution rights of the holders of any preferred stock that may be
outstanding at that time. The holders of Common Stock do not have cumulative
voting rights or preemptive or other rights to acquire or subscribe for
additional, unissued or treasury shares. Accordingly, the holders of more than
50% of the issued and outstanding Common Stock voting for the election of
directors can elect all of the directors if they choose to do so, and in such
event, the holders of the remaining shares of Common Stock voting for the
election of the directors will be unable to elect any person or persons to the
Board of Directors. All outstanding shares of Common Stock are, and when
issued, the shares of Common Stock offered hereby, will be fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue 10,000,000 shares of
preferred stock, $0.001 par value per share, in one or more series, and to fix
the rights, preferences, qualifications, privileges, limitations or
restrictions of each such series without any further vote or action by the
stockholders, including the dividend rights, dividend rate, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences, and the number of shares
constituting any series or the designations of such series. Except for the
Convertible Preferred Stock, no shares of preferred stock have been issued.
CONVERTIBLE PREFERRED STOCK
The Convertible Preferred Stock constitutes a single series of
preferred stock. The Company may in the future issue additional series of
preferred stock but may not reissue any initially issued shares of Convertible
Preferred Stock that have been redeemed or converted into Common Stock unless
such shares are included in a different series of preferred stock.
The following is a summary of the terms and provisions of the
Convertible Preferred Stock:
DIVIDENDS. Holders of shares of the Convertible Preferred Stock are
not entitled to receive cash dividends or cash equivalent value stock dividends
of Common Stock.
CONVERSION RIGHTS. Upon the occurrence of certain events, including,
the closing of this Offering, the Company has the option to require the holders
of the Convertible Preferred Stock to convert the Convertible Preferred Stock
into either (a) $25,000 and 4,167 shares of Common Stock ("Option One"), or (b)
8,334 shares
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<PAGE> 47
of Common Stock ("Option Two"). If for any reason the Company does not
complete a public offering of the securities by November 15, 1997, each share
of Convertible Preferred Stock will be automatically converted into 8,334
shares of Common Stock. See "The Company -- Recent Financings," "Use of
Proceeds," "-- Bridge Financing" and "Shares Eligible for Future Sale --
Lock-up Agreements."
Holders of Convertible Preferred Stock converted into Common Stock
will be entitled to the same rights applicable at the time of conversion to
other holders of Common Stock. The holders of the shares of the Convertible
Preferred Stock have no preemptive rights with respect to any securities of the
Company.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, the holders of shares of the Convertible Preferred
Stock are entitled to receive out of assets of the Company available for
distribution to stockholders, before any distribution of assets is made to
holders of Common Stock or any other junior stock, liquidating distributions in
the amount of $25,000 per share. If upon any liquidation, dissolution or
winding up of the Company, the assets distributable to the holders of the
Convertible Preferred Stock to any such distribution on a parity with the
Convertible Preferred Stock are insufficient to fully pay the preferential
amount, the holders of the Convertible Preferred Stock and of such other
preferred stock will share ratably in such distribution of assets in proportion
to the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of shares of the Convertible Preferred Stock will not be
entitled to any further participation in any distribution of assets by the
Company. Neither a consolidation or merger of the Company with another
corporation nor a sale or transfer of all or part of the Company's assets for
cash or securities will be considered a liquidation, dissolution or winding up
of the Company.
The right of the Company, and the rights of its creditors and
stockholders (including holders of the Convertible Preferred Stock), to
participate in the distribution of the assets of any subsidiary of the Company
upon any liquidation or reorganization of such subsidiary, or otherwise, will
be subject to the prior claims of creditors of such subsidiary (except to the
extent the Company may itself be a creditor with recognized claims against such
subsidiary).
VOTING RIGHTS. The holders of shares of Convertible Preferred Stock
have no voting rights.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Each Warrant entitles the holder thereof to purchase one share of
Common Stock at a price of $4.50 per share (assuming an initial offering price
of $4.50 per share) for a period of four years commencing on the first
anniversary of the Effective Date of this Offering (the "First Exercise Date").
Each Warrant is redeemable by the Company at a redemption price of $0.01 per
Warrant at any time after the First Exercise Date, upon 30 days' prior written
notice to the holders thereof, if the average closing bid price of the Common
Stock, as reported on the principal exchange upon which the Common Stock is
traded, equals or exceeds $9.00 per share for 20 consecutive trading days
ending three days prior to the date of the notice of redemption. Pursuant to
applicable federal and state securities laws, and in the event a current
prospectus is not available, the Warrants may not be exercised by the holders
thereof and the Company will be precluded from redeeming the Warrants. There
can be no assurance that the Company will not be prevented by financial or
other considerations from maintaining a current prospectus. Any Warrantholder
who does not exercise prior to the redemption date, as set forth in the
Company's notice of redemption, will forfeit the right to purchase the Common
Stock underlying the Warrants, and after the redemption date or upon conclusion
of the exercise period, any outstanding Warrants will become void and be of no
further force or effect, unless extended by the Board of Directors of the
Company. See "Underwriting" for the terms of the warrants issuable pursuant to
the Underwriters' Warrants.
The number of shares of Common Stock that may be purchased is subject
to adjustment upon the occurrence of certain events including a dividend
distribution to the Company's stockholders, or a subdivision, combination or
reclassification of the outstanding shares of Common Stock. Further, the
Warrant exercise price is subject to adjustment in the event the Company issues
additional stock or rights to acquire stock at a price per share that is less
than the current market price per share of Common Stock on the record date
established for the issuance of additional stock or rights to acquire stock.
The term "current market price" is defined as the average of the daily closing
prices for the 20 consecutive trading days ending three days prior to the
record date.
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<PAGE> 48
However, the Warrant exercise price will not be adjusted in the case of the
issuance or exercise of options pursuant to the Company's stock option plans,
the issuance or exercise of the Underwriters' Warrants (or the Warrants
included therein), or any other options or warrants outstanding as of the date
of this Offering. The Warrant exercise price is also subject to adjustment in
the event of a consolidation or merger where a distribution by the Company is
made to a stockholder of the Company's assets or evidences of indebtedness
(other than cash or stock dividends) or pursuant to certain subscription rights
or other rights to acquire Common Stock.
In order for a holder to exercise his Warrants, there must be a
current registration statement on file with the Commission and various state
securities commissions to cover registration of the shares of Common Stock
underlying the Warrants. The Company intends to maintain a current
registration statement while the Warrants are exercisable. The maintenance of
a currently effective registration statement could result in substantial
expense to the Company, and there is no assurance that the Company will be able
to maintain a current registration statement covering the shares issuable upon
exercise of the Warrants. The Company believes it will be to qualify the
shares of Common Stock underlying the Warrants for sale in those states where
the Securities are to be offered. The Warrantholders may be deprived of any
value for the Warrants if a current prospectus covering the shares issuable
upon the exercise thereof is not kept effective or if such underlying shares
are not qualified in the states in which the holders of the Warrants reside.
In addition, if the Company merges with a business which does not have and
cannot obtain audited financial statements, holders of the Warrants will be
unable to exercise their Warrants because the Company will be unable to provide
a current prospectus.
The Warrants may be exercisable on surrender of the applicable Warrant
certificate on or prior to expiration of the applicable Warrant exercise
period, with the form on the reverse side of the certificate executed as
indicated, and accompanied by payment of the full exercise price for the number
of Warrants being exercised. Subject to certain limitations, a commission is
payable to the Underwriters upon exercise of the Warrants. See "Underwriting."
1996 WARRANTS
Each of the 500,025 outstanding 1996 Warrants entitles the holder
thereof to purchase, up until May 15, 2000, one share of Common Stock at an
exercise price of $4.50 per share, subject to adjustment in certain
circumstances. The Company may redeem the 1996 Warrants for $.01 per warrant
at any time after November 15, 1997 and until such warrants expire on May 15,
2000, when the average of the daily closing bid price of the Common Stock
equals $9.00 or more per share on any 20 consecutive trading days ending within
15 days of the date on which notice of redemption is given. The Company will
provide holders of the 1996 Warrants with at least 30 days written notice of
the Company's intention to redeem the 1996 Warrants. See "The Company --
Recent Financings," "-- Bridge Financing" and "Shares Eligible for Future Sale
- -- Lock-up Agreements."
CLASS A WARRANTS
The Company has outstanding 63,334 Class A Warrants, with each Class A
Warrant entitling the holder thereof to purchase one share of Common Stock at
an exercise price of $5.25 on or before December 31, 1997. The Class A
Warrants were sold as part of an offering comprised of an aggregate of 3,333
shares of Common Stock and 66,667 Class A Warrants for an aggregate of $17,500
proceeds. On August 15, 1996, the holder of the Class A Warrants exercised
3,333 Class A Warrants and received 3,333 shares of Common Stock for $18,000.
See "The Company -- Recent Financings."
BRIDGE FINANCING
On November 15, 1996, the Company concluded the private sale of 25
Units (the "Units") for total proceeds of $625,000.00 (the "Bridge Financing").
Each Unit consisted of one share of Convertible Preferred Stock and 6,667 1996
Warrants. A total of 25 shares of Convertible Preferred Stock and 166,675 1996
Warrants were sold. Each 1996 Warrant entitles the holder thereof to purchase,
for a period of 42 months after November 15, 1996, one share of the Common
Stock at an exercise price of $4.50 per 1996 Warrant, subject to adjustment in
certain circumstances. Under the terms of the Bridge Financing, the Company
has the right to require the holders of the Convertible Preferred Stock to
convert their shares into either (a) $25,000 and 4,167
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<PAGE> 49
shares of the Common Stock ("Option 1") or (b) 8,334 shares of Common Stock
("Option 2") if the Company is able to complete a public offering of its
securities prior to November 15, 1997. Under either option, the investor will
continue to hold the 1996 Warrants. If for any reason the Company does not
complete a public offering of its securities by November 15, 1997, each share
of Convertible Preferred Stock will be automatically converted into 8,334
shares of Common Stock. On March 6 1997, the Company offered to each holder of
the Convertible Preferred Stock the option of either (i) receiving a refund of
their cash investment with interest at 12% per annum as consideration for
assigning their Convertible Preferred Stock and 1996 Warrants to the Company or
(ii) agreeing to the conversion of their Convertible Preferred Stock at the
completion of this Offering upon previously agreed terms along with the
issuance of an additional 13,334 1996 Warrants for each share of Convertible
Preferred Stock converted as further consideration for the agreement by the
holders of Convertible Stock to waive certain registration rights and agreeing
to certain lock-up provisions with respect to the Common Stock received on
conversion of the Convertible Preferred Stock and the 1996 Warrants. The
Company has assumed that all holders of the Convertible Preferred Stock will
accept the latter option. See "Shares Eligible for Future Sale -- Lock-up
Agreements."
The Representative acted as placement agent with regard to this
private offering. As placement agent, the Representative received a commission
of eight percent of the offering proceeds (or $50,000), four percent of the
offering proceeds (or $25,000.00) as additional compensation for investment
banking services and three percent of the offering proceeds (or $18,750.00) for
non-accountable expenses. See "Underwriting."
CERTAIN PROVISION OF THE ARTICLES OF INCORPORATION AND BYLAWS
GENERAL. A number of provisions of the Articles of Incorporation
("Articles") and Bylaws ("Bylaws") of the Company concern matters of corporate
governance and the rights of stockholders. Certain of these provisions, as
well as the ability of the Board of Directors to issue shares of preferred
stock and to set the voting rights, preferences and other terms thereof, may be
deemed to have an anti-takeover effect and may discourage takeover attempts not
first approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the ability of the Board to issue
preferred stock without further stockholder action, also could delay or
frustrate the removal of incumbent directors or the assumption of control by
stockholders, even if such removal or assumption would be beneficial to
stockholders of the Company. These provisions also could discourage or make
more difficult a merger, tender offer or proxy contest, even if they could be
favorable to the interests of stockholders, and could potentially depress the
market price of the Common Stock. The Board of Directors believes that these
provisions are appropriate to protect the interests of the Company and all of
its stockholders.
MEETINGS OF STOCKHOLDERS. The Bylaws provide that a special meeting
of stockholders may be called by the President of the Company, the Board of
Directors or the holders of not less than 10% of the outstanding Common Stock
entitled to vote at such a meeting unless otherwise required by law. The
Company's Bylaws provide that only those matters set forth in the notice of the
special meeting may be considered or acted upon at the special meeting, unless
all stockholders entitled to vote are present and consent.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Company's Articles
provide that a director of the Company will not be personally liable to the
Company or its stockholders for monetary damages for any act or omission in
good faith. By its terms, and in accordance with applicable state law,
however, this provision does not eliminate or limit the liability of a director
of the Company for any breach of duty based upon an act or omission (i)
involving appropriation in violation of duty of any business opportunity of the
Company, (ii) involving acts or omissions that are not in good faith or which
involve intentional misconduct or a knowing violation of the law, or (iii)
involving unlawful distributions or transactions from which the director
derived an improper personal benefit. The Articles provide further that the
Company shall indemnify its directors, except in such matters as to which the
director shall be adjudged liable for his own negligence or intentional
misconduct in the performance of his duty. A similar indemnification and
limitation of liability provision in the Company's Bylaws also extends such
protection to officers of the Company. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, or persons controlling the Company pursuant
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<PAGE> 50
to the foregoing provisions, or otherwise, the Company is aware that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
AMENDMENT OF BYLAWS. The Bylaws provide that the Bylaws may be
altered, amended or repealed by the Board of Directors. Such action by the
Board of Directors requires the affirmative vote of a majority of the directors
present at such meeting.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon the completion of this Offering and assuming conversion of the
Convertible Preferred Stock, the Company's authorized but unissued capital
stock will consist of approximately 9,778,172 million shares of Common Stock
and 10,000,000 shares of preferred stock. One of the effects of the
authorized, but unissued capital stock may be to enable the Board of Directors
to render more difficult or to discourage an attempt to obtain control of the
Company by means of a tender offer, proxy contest or otherwise, and thereby to
protect the continuity of the Company's management. If in the due exercise of
its fiduciary obligations, for example, the Board of Directors were to
determine that a takeover proposal was not in the Company's best interests,
such shares could be issued by the Board of Directors without stockholder
approval in one or more private or public offerings or other transactions that
might prevent or render more difficult or costly the completion of the proposed
takeover transaction by diluting the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group, by creating a
substantial voting block of institutional or other investors that might
undertake to support the position of the incumbent Board of Directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise. In this regard, the Company's Articles grants the Board of
Directors broad power to establish the rights and preferences of the
authorized, but unissued preferred stock, one or more series of which would be
issued entitling holders to vote separately as a class on any proposed merger
or consolidation, to convert preferred stock into a larger number of shares of
Common Stock or other securities, to demand redemption at a specified price
under prescribed circumstances related to a change in control, or to exercise
other rights designed to impede a takeover. The issuance of shares of
preferred stock pursuant to the Board's authority described above could
decrease the amount of earnings and assets available for distribution to
holders of Common Stock, and adversely affect the rights and powers, including
voting rights, of such holders and may have the effect of delaying, deferring
or preventing a change in control of the Company. The Board of Directors does
not currently intend to seek stockholder approval prior to any issuance of
authorized, but unissued stock, unless otherwise required by law.
TRANSFER AGENT
The transfer agent for the Company's Securities is Securities Transfer
Corporation, 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248.
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<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market
following the completion of the Offering could have an adverse effect on the
market price of the Common Stock. Upon completion of the Offering, there will
be approximately 4,221,828 (4,431,828 if the Underwriters' over-allotment
option is exercised in full) shares of Common Stock outstanding, which includes
the 104,175 shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock. The Securities offered hereby will be eligible for public
sale without restriction, except for shares purchased by affiliates of the
Company (those controlling or controlled by or under common control with the
Company and generally deemed to include officers and directors). Of the
4,221,828 shares of Common Stock to be outstanding after the Offering,
2,667,019 shares will be deemed "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act. Additionally,
there will be outstanding as of the closing of the Offering, options and
warrants to purchase an aggregate 2,162,714 shares of Common Stock (2,372,714
if the Underwriters' over- allotment option is exercised in full), including
(i) 1,400,000 shares of Common Stock issuable upon exercise of the Warrants
offered hereby, (ii) 140,000 shares issuable upon exercise of the Underwriters'
Warrants, (iii) 500,025 shares issuable upon exercise of the 1996 Warrants,
(iv) 63,334 shares issuable upon exercise of the Class A Warrants, and (v)
59,355 shares of Common Stock issuable upon exercise of options granted to
employees of the Company, which, when issued in connection with the terms of
such options and warrants, will be restricted shares under the Securities Act.
See "Management" and "Description of Securities."
In February 1997, the Commission adopted amendments to Rule 144 to
shorten the holding period for restricted securities, generally being those
securities purchased in unregistered private placements. The amendments to
Rule 144 are to become effective on April 29, 1997. As a result of these
amendments, and subject to satisfaction of certain other conditions, a person,
including an affiliate of the Company (or persons whose shares are aggregated
into such affiliate), who has owned restricted shares of Common Stock
beneficially for at least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of one percent of
the total number of outstanding shares of the same class or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
sale. Subject to the volume and holding period limitations of Rule 144 and
the lock-up agreements described below, 2,305,879 shares of Common Stock would
be eligible for sale under Rule 144 ninety days after the completion of the
Offering. Holders of approximately 1,376,221 shares of Common Stock, including
the holders of the Convertible Preferred Stock, officers and directors of the
Company, will agree to "lock-up" their shares of Common Stock for periods
ranging from 18 to 60 months after the completion of the Offering. A person
who has not been an affiliate of the Company for at least the three months
immediately preceding the sale and who has beneficially owned shares of Common
Stock for at least two years is entitled to sell such shares under Rule 144(k)
without regard to any of the limitations described above. As of the
commencement of the Offering, no restricted shares of Common Stock would be
eligible for sale under the provisions of Rule 144(k).
The possibility that substantial amounts of Common Stock may be sold
in the public market may adversely affect the prevailing market price for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
REGISTRATION RIGHTS
The holders of the Underwriters' Warrants have been granted
registration rights to require the Company, at the Company's expense, to
register under the Securities Act the 140,000 Underwriters' Warrants and the
140,000 shares of Common Stock underlying the Underwriters' Warrants. See
"Underwriting." The holders of the Convertible Preferred Stock have certain
registration rights with respect to the 500,025 shares of Common Stock issuable
upon exercise of the 1996 Warrants. Any exercise of such registration rights
by the holders of these securities may hinder the Company's efforts to obtain
future financing and may have an adverse effect on the market price of the
Common Stock.
LOCK-UP AGREEMENTS
The holders of the Convertible Preferred Stock have agreed not to sell
or otherwise dispose, for a period of 18 months after the completion of this
Offering, any of the 104,175 shares of Common Stock to be issued
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<PAGE> 52
upon conversion of the Convertible Preferred Stock, the 1996 Warrants or
500,025 shares of Common Stock issuable upon exercise of the 1996 Warrants;
provided the shares of Common Stock issuable upon exercise of the 1996 Warrants
are subject to demand registration rights and may be subsequently sold by the
holders thereof if the Company calls for the redemption of the Warrants or 1996
Warrants within 18 months after the completion of this Offering. See
"Description of Securities -- Bridge Financing."
All officers and directors of the Company who are existing
stockholders of the Company have agreed not to sell or dispose of any shares of
Common Stock held by them without the prior written consent of the
Representative until two years after the effective date of this Offering.
Furthermore, officers and directors whose total compensation is more than
$100,000 per year, or who own 5% or more of the Company's outstanding
securities, have agreed to enter into a compensation and lock-up agreement for
a period of five years to commence upon completion of this Offering. Officers
and directors of the Company who are subject to a five-year lock-up provision
shall have the right to have such restriction released at a rate of 20% per
annum for a period of five years based upon the Company's achievement of
certain goals with respect to the following: (i) annual revenue growth of 20%
or more, (ii) annual earnings per share growth of 20% or more, and (iii) annual
price of stock growth of 20% or more. With regard to V. Lynn Graybill, the
Chairman of the Board and Chief Executive Officer of the Company, the
afore-referenced lock-up provisions, to which Mr. Graybill would be subject,
will be terminated after the termination of Mr. Graybill's Employment
Agreement, unless such Agreement is otherwise extended.
UNDERWRITING
The underwriters named below (the "Underwriters") for whom Argent
Securities, Inc. is acting as Representative (the "Representative"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement between the Company and the Representative (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell
to the Underwriter, the aggregate number of shares of Common Stock and Warrants
set forth opposite their names below:
<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 at $.___ per Warrant and such dealers may reallow a concession of not in
excess $.___ per share of Common Stock and $.___ per Warrant to certain other
dealers who are members of the NASD.
The Company has granted to the Representative an option, exercisable
for 45 days from the date of this Prospectus, to purchase up to 210,000
additional shares of Common Stock and 210,000 additional Warrants at the public
offering price set forth on the cover page of this Prospectus, less
underwriting discounts and commissions. The Representative may exercise this
option on one occasion, in whole or in part, solely for the purpose of covering
over- allotments, if any, made in connection with the sale of the shares of
Common Stock offered hereby.
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<PAGE> 53
The Company has agreed with the Underwriters that the Company will pay
to the Underwriters a warrant solicitation fee (the "Warrant Solicitation Fee")
equal to 5% of the exercise price of the Warrants exercised beginning one year
after the Effective Date and to the extent not inconsistent with the guidelines
of the NASD And the rules and regulations to the Commission (including NASD
Notice to Members 81-38). Such Warrant Solicitation Fee will be paid to the
Underwriters if (a) the market price of the Common Stock on the date that any
Warrant is exercised is greater than the exercise price of the Warrant; (b) the
exercise of such Warrant was solicited by the Underwriters; (c) prior specific
written approval for exercise is received from the customer if the Warrant is
held in a discretionary account; (d) disclosure of this compensation agreement
is made prior to or upon the exercise of such Warrant; (e) solicitation of the
exercise is not a violation of Rule 10b-6 of the Exchange Act; (f) the
Underwriter provided bona fide services in exchange for the Warrant
Solicitation Fee; and (g) the Underwriter has been specifically designated in
writing by the holders of the Warrants as the broker. In addition, unless
granted an exemption by the Commission from Rule 10b-6 under the Exchange Act,
the Underwriters will be prohibited from engaging in any market making
activities or solicited brokerage activities with respect to the Securities for
the period from nine business days prior to any solicitation of the exercise of
any Warrant or nine business days prior to the exercise of any Warrant based on
a prior solicitation until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Underwriters may have to receive such a fee for the exercise of the Warrants
following such solicitation. As a result, the Underwriters may be unable to
continue to provide a market for the securities during certain periods while
the Warrants are exercisable.
The Representative has informed the Company that the Underwriters do
not intend to confirm sales of shares of Common Stock offered hereby to any
accounts over which they exercise discretionary authority.
Prior to this Offering, the Company's Common Stock has been traded on
the NASD Electronic Bulletin Board. As a result, the public offering price of
the Common Stock offered hereby has been determined by negotiations among the
Company and the Representatives based on the prior trading history of the
Company's Common Stock.
The Company has agreed to pay to the Representatives a non-accountable
expense allowance of three percent of the gross proceeds of this Offering, of
which $_______________ has been paid to date. The Company also has agreed to
pay all expenses in connection with registering or qualifying the shares of
Common Stock and Warrants offered hereby for sale under the laws of the states
in which the Securities are sold by the Underwriters (including expenses of
counsel retained for such purpose by the Underwriters, expenses associated with
informational meetings) and the expense of all pre- and post-closing
advertisements relating to this Offering.
The Company has agreed to sell to the Representative for an aggregate
purchase price of $140 ($.001 per warrant), non-callable warrants entitling the
Representative to purchase from the Company 140,000 shares of Common Stock and
140,000 Warrants (10 percent of the securities sold in the Offering) at an
exercise price of $5.40 per share of Common Stock and $0.15 per Warrant. The
Underwriters' Warrants may not be transferred or exercised for one year from
the date of this Prospectus, except to officers and partners of the
Underwriters or members of the underwriting or selling group, if any, and are
exercisable during the year-year period commencing one year from the date of
this Prospectus (the "Warrant Exercise Term").
During the Warrant Exercise Term, the holders of the Underwriters'
Warrants are given, at nominal cost, the opportunity to profit from a rise in
the market price of the Company's Common Stock. To the extent that the
Underwriters' Warrants are exercised, dilution to the percentage ownership of
the Company's stockholders will occur. Further, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected since the holders of the Underwriters' Warrants may be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain additional equity capital on terms more favorable to the company than
those provided in the Underwriters' Warrants. Any profit realized by the
Representative on sale of the Underwriters' Warrants or the underlying
securities may be deemed additional underwriting compensation. The Company has
further agreed to place an indeterminable number of shares of Common Stock,
underlying the exercise of the Underwriters' Warrants, including additional
shares of Common Stock issuable in the event any of the anti-dilution
provisions set forth in the instruments evidencing such Underwriters' Warrants
are triggered. Subject to certain limitations and exclusions, the Company has
agreed, at the request of the holders of a majority of the Underwriters'
Warrants, to register the Underwriters' Warrants,
-52-
<PAGE> 54
and the underlying shares of Common Stock, under the Securities Act on two
occasions during the Warrant Exercise Term; one such occasion shall be at the
Company's expense. The Company has also agreed to include such Underwriters'
Warrants and underlying shares of Common Stock in any appropriate registration
statement filed by the Company for five years from the date of this Prospectus.
See "Shares Eligible for Future Sale."
All officers and directors, as of the Effective Date, have agreed with
the Representative in writing not to sell, assign or transfer any of their
shares of the Company's securities without the Representative's prior written
consent for periods ranging from 18 to 60 months from the Effective Date,
subject to certain conditions. Also, the holders of the Company's Convertible
Preferred Stock have agreed to certain lock-up provisions for the securities
received upon redemption of the Convertible Preferred Stock for 18 months,
subject to certain conditions. See "Shares Eligible for Future Sale -- Lock-up
Agreement."
The Company has agreed to enter into a financial advisory agreement
with the Representative for them to offer financial consulting services to the
Company for a period of two years commencing on the closing date of the
Offering for an aggregate of $48,000, which amount shall be prepaid in full at
the closing of the Offering. Such consulting services are to include
evaluating the Company's capital requirements for future growth and expansion,
advising the Company as to alternative methods and sources of financing and
advising management of the Company regarding potential business opportunities.
If the Representative originates a financing or a merger, acquisition, joint
venture or other transaction to which the Company is a party, the
Representative will be entitled to receive a finder's fee in consideration for
origination of such transaction. Such finder's fee shall be calculated as a
percentage of the value of the applicable transaction in accordance with the
following schedule: 5% on the first $1,000,000; 4% on the amount from
$1,000,001 to $2,000,000; 3% on the amount from $2,000,001 to $3,000,000; 2% on
the amount from $3,000,001 to $4,000,000; 1% on the amount from $4,000,001 to
$5,000,000; and 1% on the amount above $5,000,000.
The Representative will have the right, for a period of five years
following the completion of this Offering or until the Underwriters' Warrants
have been exercised in full, whichever comes first, to each designate a nominee
for election to the Board or, in lieu thereof, to have a representative attend
all Board meetings of the Company. Any such nominee may be a director,
officer, partner, employee or affiliate of the Representative. The Company
(and its current directors and officers) have agreed to support any such
nominee designated by the Representative. The Representative has advised the
Company that they have not presently identified any designees to nominate for
election to the Board.
The Company has agreed that, for a period of two years from the
closing of the Offering, without the consent of the Representative, it shall
not redeem or issue any of its securities or pay any dividends, or make any
other cash distributions in respect of its securities, in excess of the amount
of the Company's current or retained earnings recognized from and after the
closing date. See "Dividend Policy."
For a period of four years following the completion of this Offering,
the officers and directors of the Company have agreed to effect any permitted
sales of their shares of Common Stock through the Representative provided that
the price and terms of executed offered by the Representative are at least as
favorable as those that may be obtained from other brokerage firms.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made
to the copy of the form of Underwriting Agreement filed as an exhibit to the
Company's Registration Statement of which this Prospectus forms a part.
-53-
<PAGE> 55
LEGAL MATTERS
Certain legal matters in connection with the validity of the
Securities offered hereby are being passed upon for the Company by Looper,
Reed, Mark & McGraw Incorporated, Dallas, Texas. Certain legal matters in
connection with this Offering will be passed upon for the Underwriters by
Johnson & Montgomery, Atlanta, Georgia. Richard B. Goodner, a member of
Looper, Reed, Mark & McGraw Incorporated, owns 12,000 shares of Common Stock of
the Company.
EXPERTS
The consolidated financial statements for fiscal years ended December
31, 1996, 1995 and 1994 for the Company, to the extent of and for the periods
indicated in the reports, have been audited by S. W. Hatfield + Associates,
independent public accountants, and are included in this Prospectus in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
-54-
<PAGE> 56
[S. W. HATFIELD + ASSOCIATES LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Karts International Incorporated
(formerly Sarah Acquisition Corporation)
We have audited the accompanying consolidated balance sheets of Karts
International Incorporated (a Nevada corporation) (formerly Sarah Acquisition
Corporation, a Florida corporation) and Subsidiaries as of December 31, 1996
and 1995 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Karts International
Incorporated (formerly Sarah Acquisition Corporation) and Subsidiaries as of
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the years then ended in conformity with generally
accepted accounting principles.
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
February 28, 1997 (except for
Note I as to which the date
is March 6, 1997)
F-1
<PAGE> 57
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ --------------
CURRENT ASSETS
<S> <C> <C>
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-2
<PAGE> 58
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 and other accrued liabilities 857,305 4,010
Federal and State income taxes payable 269,217 --
------------ ------------
TOTAL CURRENT LIABILITIES 1,382,932 4,010
------------ ------------
LONG-TERM LIABILITIES
Notes payable, net of current maturities 3,332,660 --
------------ ------------
TOTAL LIABILITIES 4,715,592 4,010
------------ ------------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE PREFERRED STOCK
$0.001 par value. 25 shares allocated,
issued and outstanding 625,000 --
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock - $0.001 par value 10,000,000
shares authorized, 25 shares allocated; -0- and
-0- shares issued and outstanding, respectively. -- --
Common stock - $0.001 par value, 14,000,000
shares authorized; 2,717,653 and 83,441 shares
issued and outstanding, respectively. 2,718 83
Additional paid-in capital 4,774,905 487,751
Accumulated deficit (23,498) (491,844)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 4,754,125 (4,010)
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 10,094,717 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 59
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 --
Interest expense 396,589 --
Other operating expenses 472,481 630
Depreciation and amortization 205,397 --
---------- ----------
TOTAL OPERATING EXPENSES 1,855,436 630
---------- ----------
INCOME (LOSS) FROM OPERATIONS 629,348 (630)
OTHER INCOME (EXPENSE)
Interest and other 32,573 --
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 661,921 (630)
INCOME TAXES 193,575 --
---------- ----------
NET INCOME (LOSS) $ 468,346 $ (630)
========== ==========
Net income (loss) per weighted-average
share of common stock outstanding $ 0.15 nil
========== ==========
Weighted-average number of shares
of common stock outstanding 3,119,592 124,616
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 60
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 Additional
Preferred Stock Common Stock paid-in Accumulated
Shares Amount Shares Amount capital deficit
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995,
AS REPORTED -- $ -- 31,254,621 $ 1,563 $ 492,940 $ (491,214)
Retirement of treasury stock -- -- (102,600) -- (6,669) --
Effect of 1 for 250 reverse
stock split, post treasury
stock retirement, including
rounding, as of February 23,
1996 -- -- (31,027,405) (1,438) 1,438 --
Effect of 2 for 3 reverse stock
split, including rounding, as
of March 24, 1997 -- -- (41,175) (42) 42 --
----- -------- ---------- ----------- ----------- -----------
BALANCES AT JANUARY 1, 1995,
AS RESTATED -- -- 83,441 83 487,751 (491,214)
Net loss for the year -- -- -- -- -- (630)
----- -------- ---------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1995 -- -- 83,441 83 487,751 (491,844)
Sale of common stock
to current and former directors -- -- 1,017,545 1,018 1,371 --
under private placement
memorandum -- -- 233,333 233 524,767 --
less cost of raising capital -- -- -- -- (163,100) --
under private sale document -- -- 6,667 7 34,993 --
<CAPTION>
Treasury
Stock Total
-------- -----
<S> <C> <C>
BALANCES AT JANUARY 1, 1995,
AS REPORTED $ (6,669) $ (3,380)
Retirement of treasury stock 6,669 --
Effect of 1 for 250 reverse
stock split, post treasury
stock retirement, including
rounding, as of February 23,
1996 -- --
Effect of 2 for 3 reverse stock
split, including rounding, as
of March 24, 1997 -- --
----------- ----------- -
BALANCES AT JANUARY 1, 1995,
AS RESTATED -- (3,380)
Net loss for the year -- (630)
----------- ----------- -
BALANCES AT DECEMBER 31, 1995 -- (4,010)
Sale of common stock
to current and former directors -- 2,389
under private placement
memorandum -- 525,000
less cost of raising capital -- (163,100)
under private sale document -- 35,000
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 61
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 Additional
Preferred Stock Common Stock paid-in Accumulated
Shares Amount Shares Amount capital deficit
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sale of convertible preferred
stock under private
placement memorandum 25 $ 625,000 -- $ -- $ -- $ --
Issuance of common stock for
acquisition of Brister's Thunder
Karts, Inc. -- -- 516,667 517 3,099,483 --
acquisition of USA Industries, Inc. -- -- 166,667 167 749,833 --
payment of professional services
for corporate reorganization and
acquisition of Brister's Thunder
Karts, Inc. -- -- 483,333 483 14,517 --
payment of loan origination fees -- -- 70,000 70 10,430 --
payment of employment contract
signing bonus -- -- 140,000 140 14,860 --
Net income for the year -- -- -- -- -- 468,346
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1996 25 $ 625,000 2,717,653 $ 2,718 $4,774,905 $ (23,498)
========== ========== ========== ========== ========== ==========
<CAPTION>
Treasury
Stock Total
--------- ----------
<S> <C> <C>
Sale of convertible preferred
stock under private
placement memorandum $ -- $ --
Issuance of common stock for
acquisition of Brister's Thunder
Karts, Inc. -- 3,100,000
acquisition of USA Industries, Inc. -- 750,000
payment of professional services
for corporate reorganization and
acquisition of Brister's Thunder
Karts, Inc. -- 15,000
payment of loan origination fees -- 10,500
payment of employment contract
signing bonus -- 15,000
Net income for the year -- 468,346
--------- ----------
BALANCES AT DECEMBER 31, 1996 $ -- $4,754,125
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 62
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 --
Organization costs (109,255) --
Increase (Decrease) in:
Accounts payable (458,548) 630
Other accrued liabilities 3,944 --
Income taxes payable 165,675 --
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (223,144) --
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment (71,734) --
Cash acquired in acquisition of
Brister's Thunder Karts, Inc.
and USA Industries, Inc. 535,425 --
Cash paid for acquisition of
Brister's Thunder Karts, Inc.
and USA Industries, Inc. (2,533,642) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,069,951) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from bank line of credit 100,000 --
Cash proceeds from long-term note payable 2,000,000 --
Cash paid for long-term note origination fees (16,783) --
Principal payments on long-term debt (89,633) --
Cash received from sale of convertible preferred stock 625,000 --
Cash paid for brokerage and placement fees
related to sale of convertible preferred stock (94,750) --
Cash received from sale of common stock 657,139 --
Cash paid for brokerage and placement fees
related to sale of common stock (257,850) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,923,123 --
----------- -----------
INCREASE IN CASH 630,028 --
Cash at beginning of year -- --
----------- -----------
CASH AT END OF YEAR $ 630,028 $ --
=========== ===========
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 63
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-8
<PAGE> 64
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Karts International Incorporated (formerly Sarah Acquisition Corporation)
(Company) was originally incorporated on February 28, 1984 as Rapholz Silver
Hunt, Inc. under the laws of the State of Florida. In June 1984, April 1986,
and November 1987, respectively, the Company changed its corporate name to
Great Colorado Silver, Inc., Great Colorado Silver Valley Development Company
and J. R. Gold Mines, Inc. In January 1996, the Company changed its corporate
name to Sarah Acquisition Corporation.
The Company has had no significant business operations since 1989. Prior to
that time, the Company was involved in the mining industry, principally through
joint ventures with related parties involving mining properties located in
Colorado.
In October 1995, the Company experienced a change in control due to the
transfer of a majority of the issued and outstanding shares of common stock of
the Company between unrelated third parties. It was the intent of the new
majority shareholder and management to seek a suitable situation for merger or
acquisition.
On February 23, 1996, the Company was reincorporated in the State of Nevada by
means of a merger with and into Karts International Incorporated, a Nevada
corporation incorporated on February 21, 1996. The Company was the surviving
entity and changed its corporate name to Karts International Incorporated. The
reincorporation merger had the effect of a one for 250 reverse split of the
Company's issued and outstanding common stock.
The reincorporation merger also modified the Company's capital structure to
authorize the issuance of up to 20,000,000 shares of $0.001 par value common
stock and authorized the issuance of up to 10,000,000 shares of $0.001 par
value Preferred Stock. The effect of this transaction has been reflected in the
accompanying financial statements as of the beginning of the first period
presented.
On February 28, 1997, to be effective on March 24, 1997, the Company's Board of
Directors approved a two (2) for three (3) reverse stock split and a
corresponding reduction of the authorized shares of common stock in
anticipation of a proposed underwritten public offering of the Company's common
stock during 1997. The issued and outstanding shares of common stock shown in
the accompanying financial statements reflect the ultimate effect of the March
24, 1997 reverse stock split as if this second reverse split had occurred as of
the beginning of the first period presented in the accompanying consolidated
financial statements.
On March 15, 1996, effective at the close of business on March 31, 1996, the
Company acquired 100.0% of the issued and outstanding stock of Brister's
Thunder Karts, Inc. (a Louisiana corporation), a "fun kart" manufacturer
located in Roseland, Louisiana for total consideration of approximately
$6,100,000. This acquisition was accounted for as a purchase.
On November 20, 1996, effective at the close of business on November 21, 1996,
the Company acquired 100.0% of the issued and outstanding stock of USA
Industries, Inc. (an Alabama corporation), a "fun kart" manufacturer located in
Prattville, Alabama for total consideration of approximately $1,000,000. This
acquisition was accounted for as a purchase.
F-9
<PAGE> 65
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS - CONTINUED
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company has a concentration of key raw material suppliers for kart engines.
In the event of any disruption in engine availability, if any, the Company may
experience a negative economic impact. The Company does not anticipate any
foreseeable interruption in engine availability and believes that alternate
suppliers are available.
The accompanying consolidated financial statements contain the accounts of
Karts International Incorporated and its wholly-owned subsidiaries, Brister's
Thunder Karts, Inc. and USA Industries, Inc. All significant intercompany
transactions have been eliminated. The consolidated entities are collectively
referred to as Company.
NOTE B - ACQUISITION OF SUBSIDIARIES
On March 15, 1996, the Company purchased 100.0% of the issued and outstanding
stock of Brister's Thunder Karts, Inc. (a Louisiana corporation) for a total
purchase price of approximately $6,100,000. The acquisition was effective at
the close of business on March 31, 1996. The purchase price was paid with
$2,000,000 cash, a note payable for $1,000,000 and 775,000 shares of
restricted, unregistered common stock of the Company. Brister's Thunder Karts,
Inc. (Brister's) was formed on August 2, 1976 under the laws of the State of
Louisiana. Brister's is in the business of manufacturing and marketing
motorized "fun karts" for the consumer market. Results of operations of
Brister's are included in the consolidated financial statements beginning on
the effective date of the acquisition.
This acquisition was accounted for using the purchase method of accounting for
business combinations. The Company allocates the total purchase price to assets
acquired based on their relative fair value. Any excess of the purchase price
over the fair value of the assets acquired is recorded as goodwill.
<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 of restricted, unregistered common stock of
the Company. USA Industries, Inc. (USA) was formed on January 2, 1992 under the
laws of the State of Alabama. USA is in the business of manufacturing and
marketing motorized "fun karts" for the consumer market. Results of operations
of USA are included in the consolidated financial statements beginning on the
effective date of the acquisition.
F-10
<PAGE> 66
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ACQUISITION OF SUBSIDIARIES - CONTINUED
This acquisition was accounted for using the purchase method of accounting for
business combinations. The Company allocates the total purchase price to assets
acquired based on their relative fair value. Any excess of the purchase price
over the fair value of the assets acquired is recorded as goodwill.
<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, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the
Company's cash management policies.
2. Accounts and advances receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers which are located throughout the United
States. Because of the credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts
which will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded
amount of trade accounts receivable shown on the balance sheet at the date
of non-performance.
During 1996, the Company had an international sale of approximately
$35,000 and experienced no credit risk exposure as a result of this
transaction. The Company anticipates continuing international sales in
future periods and is developing credit policies related to this revenue
segment.
F-11
<PAGE> 67
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
3. Inventory
Inventory consists of steel, engines and other related raw materials used
in the manufacture of "fun karts". These items are carried at the lower of
cost or market using the first-in, first-out method. As of December 31,
1996, inventory consisted of the following components:
<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.
8. Income taxes
The Company utilizes the asset and liability method of accounting for
income taxes. At December 31, 1996 and 1995, the deferred tax asset and
deferred tax liability accounts, as recorded when material, are entirely
the result of temporary differences. Temporary differences represent
differences in the recognition of assets and liabilities for tax and
financial reporting purposes, primarily accumulated depreciation and
amortization. No valuation allowance was provided against deferred tax
assets, where applicable.
F-12
<PAGE> 68
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
9. Income (Loss) per share
Income (loss) per common share is computed by dividing the net income
(loss) by the weighted-average number of shares outstanding during the
period.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following components:
<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.
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 $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>
The Company's $300,000 line of credit contains certain restrictive covenants.
The Company was in compliance with all covenants as of December 31, 1996.
F-13
<PAGE> 69
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
$2,000,000 note payable to a Foundation.
Interest at 14.0%. Interest payable on the
15th day of each month beginning on
March 15, 1996. All accrued but unpaid
interest due on March 14, 2001. Principal
payable as follows: $399,996 on March 14,
1999; $399,996 on March 14, 2000; $1,200,008
on March 14, 2001. Secured by accounts
receivable, inventory, property and equipment
owned or acquired by the Company. $2,000,000 $ --
$1,000,000 payable to the former shareholder
of Brister's Thunder Karts, Inc. Interest
payable at 8.0% in the first loan year and
escalating 1.0% per year to a maximum of
14.0% in the seventh loan year. Interest
only payable quarterly, starting June 30,
1996. All unpaid but accrued interest is
due at maturity. Principal payable in
annual installments of $250,000 starting
on March 31, 2000. Collateralized by
certain assets valued at $1 million owned
by certain members of the Company's Board
of Directors. 1,000,000 --
$200,000 note payable to the former
shareholder of Brister's Thunder Karts,
Inc. Interest payable at 10.0%. Payable in
quarterly installments, including
interest, of $20,000, $55,000, $53.750,
$52,500 and $51,250, respectively,
commencing on April 1, 1997. Final
maturity in April 1998 or immediately upon
successful completion of an underwritten
public offering of the Company's
securities. Collateralized by certain
assets valued at $1 million owned by
certain members of the Company's Board of
Directors. 200,000 --
$240,020 mortgage note payable to a bank. Interest
at the Bank's Commercial Base Rate (9.75% at
December 31, 1996). Payable in monthly installments
of approximately $2,626, including accrued interest.
Final maturity in August 2010. Collateralized by
land and a building owned by USA Industries, Inc. 235,089 --
</TABLE>
F-14
<PAGE> 70
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>
$9,348 installment note payable to a bank. Interest
at 10.0%. Payable in monthly installments of
approximately $303, including accrued interest
Final maturity in April 1999. Collateralized by
transportation equipment owned by USA
Industries, Inc. 7,553 --
$27,677 note payable to an individual. Interest
at 7.0%. Payable in semi-monthly installments
of approximately $200, including interest.
Secured by equipment owned by Brister's 6,408 --
----------- ------
Total long-term debt 3,449,050 --
Less current maturities (116,390) --
----------- ------
Long-term portion $ 3,332,660 $ --
=========== ======
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ----------
<S> <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 deferred current tax asset and non-current deferred tax liability on the
December 31, 1996 and 1995 balance sheets consist of the following:
<TABLE>
<CAPTION>
1996 1995
------ ------
<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 -- --
Valuation allowance for non-current deferred tax asset -- --
------ ------
Net non-current deferred tax asset $ -- $ --
====== ======
</TABLE>
F-15
<PAGE> 71
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES - CONTINUED
The components of income tax expense for the years ended December 31, 1996 and
1995, respectively, are as follows:
<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>
NOTE H - RELATED PARTY TRANSACTIONS
The Company leases its manufacturing facilities under an operating lease with
the former owner of Brister's, who is also a Company shareholder and director.
Concurrent with the closing of the acquisition of Brister's, the Company and
the former owner executed a new lease agreement for a primary two-year term
expiring in 1998 and an additional two-year renewal option. The monthly lease
payment will remain at $6,025 per month with annual adjustments for increases
based upon the Consumer Price Index.
Concurrent with the acquisition of Brister's, the Company and the former owner
of Brister's entered into a Real Estate Option Right of First Refusal
Agreement. This agreement provides that the Company may, at its sole option,
purchase the real property and improvements in Roseland, Louisiana currently
utilized by the Company or its subsidiary for an aggregate purchase price of
$550,000. The option may be exercised commencing on December 31, 1997 and
expires on December 31, 2000.
In January 1996, concurrent with the execution of a letter of intent related to
a Stock Purchase Agreement whereby the Company acquired 100.0% of the issued
and outstanding stock of Brister's, the Company entered into a consulting
contract with a company owned by an officer and director of the Company whereby
the consulting company would provide all necessary legal, capital and other
related professional services, exclusive of accounting and auditing services,
related to the reorganization, recapitalization and consummation of the
acquisition of Brister's for a fee of $15,000. The payment of the fee was
contingent upon the successful consummation of the Brister's acquisition. The
fee was settled with the differential between 1,500,000 pre-reverse stock split
unregistered, restricted common stock (1,000,000 post-reverse split shares)
escrowed to close the acquisition of Brister's and the actual number of shares
to be issued to the then owners of Brister's, pursuant to the applicable
settlement terms of the Stock Purchase Agreement. Upon final settlement, the
$15,000 fee was settled with the allocation of approximately 725,000
pre-reverse stock split shares (483,333 post-reverse stock split shares) to the
consulting company.
F-16
<PAGE> 72
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - CONVERTIBLE PREFERRED STOCK
The Company has 10,000,000 shares of Preferred Stock (Preferred Shares)
authorized for issuance.
In October 1996, the Company's Board of Directors allocated 25 shares of the
authorized number to facilitate the private placement of said shares as a
component of an Equity Unit (Unit) to be sold through a Private Placement
Memorandum (PPM). The PPM was fully subscribed and closed in November 1996.
Each $25,000 Unit consisted of one (1) share of convertible preferred stock and
10,000 redeemable common stock purchase warrants. The PPM raised total gross
proceeds of approximately $625,000 and net proceeds of approximately $530,250
to the Company.
The Preferred Shares require mandatory conversion upon either the effectiveness
of a public offering of the Company's common stock pursuant to a Registration
Statement or upon the first anniversary date of the PPM closing date. In the
event that the conversion is triggered by a public offering, each Preferred
Share will be converted, at the holder's option, into either $25,000 cash and
this issuance of 6.250 shares of restricted, unregistered common stock or
12,500 shares of restricted, unregistered common stock. In either situation,
the holder retains piggyback registration rights for the shares of common stock
issued in the conversion. In the event that the conversion is triggered by the
first anniversary date of the PPM closing, each Preferred Share will be
converted to 12,500 shares of restricted, unregistered common stock, subject to
identical piggyback registration rights discussed previously.
In January 1997, the Company began undertaking a secondary public offering of
common stock pursuant to a Form SB-2 Registration Statement (secondary
offering). In accordance with guidance and instructions from the National
Association of Securities Dealers (NASD) related to the Company's application
for listing on the "NASDAQ Small- Cap Market", the NASD required certain
modifications to the terms and conditions underlying the sale and issuance of
the Preferred Shares and their conversion terms.
In March 1997, the holders of the Preferred Shares individually approved a
modification to the mandatory conversion terms of the Preferred Shares. Upon
approval by the individual holders, each holder may now receive either $25,000
(the initial Unit sales price) and simple interest of 12.0% (or the legal rate
prescribed by governing state law, if any) or the holder may retain the
original participation terms of the PPM. If the holder chooses the option to
retain the original participation terms, the holder must unconditionally agree
to a lock-up of all of the holder's securities (the Preferred Shares and any
securities that the Preferred Shares are convertible into and all originally
issued redeemable common stock purchase warrants) whereby these designated
securities may not be sold by the holder for a period of approximately 18
months from the closing date of the secondary offering. Upon release of the
lock-up terms, the holder will be permitted to sell the aforementioned
securities under the terms and conditions of Rule 144 of the U. S. Securities
and Exchange Commission. Further, if the holder elects the second option, the
holder will be deemed to be an affiliate of the underwriter in the secondary
offering and, as such, will not be eligible to purchase any securities offered
in the secondary offering. In the event any holder selects the second option,
the Company will issue an additional 20,000 pre-reverse stock split redeemable
common stock purchase warrants (13,333 post-reverse stock split warrants) to
the holder of the Preferred Shares.
F-17
<PAGE> 73
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - COMMON STOCK TRANSACTIONS
On February 23, 1996, the Company was reincorporated in the State of Nevada by
means of a merger with and into Karts International Incorporated, a Nevada
corporation incorporated on February 21, 1996. The Company was the surviving
entity and changed its corporate name to Karts International Incorporated. The
reincorporation merger had the effect of a one for 250 reverse split of the
Company's issued and outstanding common stock.
The reincorporation merger also modified the Company's capital structure to
authorize the issuance of up to 20,000,000 shares of $0.001 par value common
stock and authorized the issuance of up to 10,000,000 shares of $0.001 par
value Preferred Stock. The effect of this transaction has been reflected in the
accompanying financial statements as of the beginning of the first period
presented.
On February 28, 1997, to be effective on March 24, 1997, the Company's Board of
Directors approved a two (2) for three (3) reverse stock split and a
corresponding reduction of the authorized shares of common stock in
anticipation of a proposed underwritten public offering of the Company's common
stock during 1997. This reverse stock split reduced the authorized shares of
common stock from 20,000,000 to 14,000,000. The issued and outstanding shares
of common stock shown in the accompanying financial statements reflect the
ultimate effect of the March 24, 1997 reverse stock split as if this second
reverse split had occurred as of the beginning of the first period presented in
the accompanying consolidated financial statements.
On February 20, 1996, the Company sold 18,750,000 restricted, unregistered
pre-reorganization shares of common stock (75,000 equivalent
post-reorganization shares) (50,000 post-March 24, 1997 reverse split shares)
to a former Company director for cash of approximately $938.
On March 7, 1996, the Company sold 1,451,317 restricted, unregistered
post-reorganization shares (967,545 post- March 24, 1997 reverse split shares)
of common stock to an entity owned by an officer and director of the Company
for cash of approximately $1,451.
Between March 14, 1996 and March 31, 1996, the Company sold 350,000 restricted,
unregistered post-reorganization shares (233,333 post-March 24, 1997 reverse
split shares) of common stock under a Private Placement Memorandum at a price
of $1.50 per share. The total gross proceeds of the offering were $525,000.
Certain placement costs and commissions related to the sale of the Private
Placement stock, totaling approximately $163,100, were deducted from the gross
proceeds and charged against additional paid-in capital.
On March 15, 1996, the Company issued 105,000 restricted, unregistered
post-reorganization shares (70,000 post- March 24, 1997 reverse split shares)
of common stock to a Foundation as a component of the loan origination costs to
secure the $2,000,000 note payable. The proceeds of this note payable were used
to satisfy the cash component of the Brister's acquisition cost.
On March 15, 1996, the Company acquired 100% of the issued and outstanding
stock of Brister's Thunder Karts, Inc., a Louisiana corporation, in exchange
for $2,000,000 in cash; a subordinated $1,000,000 promissory note payable
bearing variable interest rates, as defined therein, maturing in 2003; and
restricted, unregistered common stock of the Company having an aggregate market
value of $3,100,000, as defined in the related purchase agreement. The
$2,000,000 cash payment was funded by a promissory note from an unrelated third
party bearing interest at 14.0% per annum and maturing in 2000. Final
settlement was satisfied with the issuance of 775,000 restricted, unregistered
post-reorganization shares (516,667 post-March 24, 1997 reverse stock split
shares) having a market value of $3,100,000, as defined in the related Stock
Purchase Agreement.
F-18
<PAGE> 74
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - COMMON STOCK TRANSACTIONS - CONTINUED
On March 15, 1996, the Company issued 725,000 restricted, unregistered
post-reorganization shares (483,333 post- March 24, 1997 reverse stock split
shares) of common stock in settlement of a $15,000 consulting contract with a
company owned by an officer and director of the Company.
On March 15, 1996, in accordance with a January 1996 letter of intent, the
Company issued 210,000 restricted, unregistered post-reorganization shares
(140,000 post-March 24, 1997 reverse split shares) of common stock to the
Company's chief executive officer, valued at $15,000, as additional
consideration for the execution of an employment agreement.
In July 1996, the Company sold 5,000 Units, consisting of 5,000 restricted,
unregistered post-reorganization shares of common stock (3,334 post-March 24,
1997 reverse split shares) and 100,000 Class A common stock warrants (66,667
post-March 24, 1996 reverse stock split warrants) for approximately $17,500.
The Class A common stock warrants may be used to purchase one (1) restricted,
unregistered post-reorganization share of the Company's common stock at a price
of $3.50 per share ($5.25 per share, post-March 24, 1997 reverse stock split).
In August 1996, 5,000 warrants (3,334 post-March 24, 1997 reverse split
warrants) were exercised for total proceeds of $17,500. The total effect of
this transaction was the sale of 10,000 restricted, unregistered
post-reorganization shares (6,667 post-March 24, 1997 reverse split shares) for
a total price of $35,000.
On November 20, 1996, Company acquired 100% of the issued and outstanding stock
of USA Industries, Inc. an Alabama corporation, in exchange for $250,000 in
cash and 250,000 restricted, unregistered post-reorganization shares (166,667
post-March 24, 1997 reverse split shares) of restricted, unregistered common
stock of the Company having an aggregate market value of $750,000.
NOTE K - COMMON STOCK WARRANTS
In July 1996, the Company privately sold 5,000 Units which included 100,000
Class A common stock warrants (Class A Warrants) (66,667 post-March 24, 1997
reverse stock split warrants), as discussed in previous footnotes. Each warrant
entitles the holder to purchase one (1) share of common stock at an adjusted
price of $5.25 per share through December 31, 1997.
In November 1996, the Company privately sold 25 units which included 250,000
Redeemable Common Stock Purchase Warrants (1996 Warrants) (166,668 post-March
24, 1997 reverse stock split warrants), as discussed in previous footnotes).
Each warrant entitles the holder to purchase one (1) share of common stock at
$3.00 per share ($4.50 post-March 24, 1997 reverse split), subject to
adjustment in certain circumstances, for a period of 42 months from the closing
date of the offering. The 1996 Warrants are redeemable by the Company at a
price of $0.01 per Warrant at any time after one (1) year from the offering
closing date when the average of the daily closing bid price of the Company's
common stock equals $6.00 or more per share on any 20 consecutive trading days
ending within 15 days of the date on which notice of redemption is given to the
holders. The Company will provide holders of the 1996 Warrants with at least 30
days written notice of the Company's intent to redeem the Warrants.
<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-19
<PAGE> 75
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - STOCK OPTIONS
The Company's Compensation Committee of the Board of Directors has allocated an
aggregate 188,066 shares of the Company's common stock (125,377 post-March 24,
1997 reverse stock split shares) for unqualified stock option plans for the
benefit of employees of the Company and its subsidiaries.
During 1996, the Company granted options to purchase 89,032 shares (59,355
post-March 24, 1997 reverse stock split shares) of the Company's common stock
to employees of the Company and its operating subsidiaries at an exercise price
of $3.75 per share ($5.63 post-March 24, 1997 reverse split). These options
expire at various times during 2001.
<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 Brister's in an action to
have Brister's product liability insurance coverage (discussed in the preceding
paragraph) declared null and void as a result of a payment by Brister's
insurance underwriter in settlement of a product liability lawsuit. Legal
counsel is of the opinion that this action has questionable merit and the
determination of an outcome, if any, is unpredictable at this time. The Company
is vigorously defending the action. Additionally, the Company is pursuing a
counteraction against the underwriter's agent for potential misrepresentations
made by the agent to the underwriter regarding Brister's during the acquisition
of the aforementioned commercial liability insurance coverage.
F-20
<PAGE> 76
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - COMMITMENTS AND CONTINGENCIES - CONTINUED
Consulting and Patent Licensing
Pursuant to the acquisition of Brister's, the Company entered into a Consulting
Agreement with the former owner of Brister's. The former owner will provide
certain consulting services to the Company or any subsidiary thereof, which
services will not exceed 8 eight-hour work days per month. As consideration for
such services, the former owner will receive $400 per day for consulting
services provided at the Company's principal place of business and $800 per day
for consulting services provided while traveling in connection with Company
business. The former owner is required to maintain the confidentiality of all
Company information.
Pursuant to the acquisition of Brister's, the Company and the former owner of
Brister's entered into a Non- Competition Agreement. The former owner has
agreed not to compete with the Company or any of its subsidiaries for a period
of five years in any jurisdiction in which the Company or any subsidiary is
duly qualified to conduct business or within any marketing area in which the
Company is doing a substantial amount of business or is engaged in a business
similar to that currently operated by the Company. Additionally, the former
owner agreed that during the same five-year period not to interfere with the
employment relationship between the Company and any of its other employees by
soliciting any of such individuals to participate in individual business
ventures.
At the closing of the Brister's acquisition, the Company entered into a
Licensing Agreement with the former owner of Brister's. This agreement provides
that the former owner will (1) license to the Company all of the Intellectual
Property (as defined) currently owned by the former owner and being used by the
Company or any subsidiary at terms at least as favorable as the former owner
has received or could have received in arms-length transactions with third
parties and (2) for a period of five years from the execution of the Licensing
Agreement will license to the Company, at the Company's sole option, all
Intellectual Property developed or owned by the former owner at any time
subsequent to the Closing Date. The license referenced in section (2) above
shall be exclusive to the Company and free of charge for the first year from
the date of invention and thereafter at terms at least as favorable as the
former owner has received or could have received in arms-length transactions
with third parties. Intellectual Property is defined in the Stock Purchase
Agreement as all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks, trademark
registrations and applications, service mark registrations and applications and
copyright registrations and applications owned or used by the Company or any
subsidiary in the operation of its business.
Employment agreement
In March 1996, the Company entered into a long-term employment contract
(Agreement) with an individual to serve as the Company's Chairman of the Board,
President and Chief Executive Officer. The Agreement is for a term of three (3)
years and provides for an annual base salary of $150,000. Upon execution of the
Agreement, the individual received a signing bonus of 10%, or $15,000, paid
with the issuance of 210,000 restricted, unregistered post-reorganization
shares (140,000 post-March 24, 1997 reverse split shares) of common stock.
Under the terms of the Agreement, the Company may buy-back 140,000 shares in
Year 1 of the Agreement at an aggregate price of $16,800 if the individual is
terminated for cause or the individual voluntarily terminates his employment
prior to March 15, 1997; 70,000 shares in Year 2 of the Agreement at an
aggregate price of $8,400 if the individual is terminated for cause or the
individual voluntarily terminates his employment between March 15, 1997 and
March 15, 1998; and 35,000 shares in Year 3 of the Agreement at an aggregate
price of $4,200 if the individual is terminated for cause or the individual
voluntarily terminates his employment between March 15, 1998 and March 15,
1999. If the Agreement is terminated for any reason than for cause or voluntary
termination by the individual, the buy-back option is terminated.
F-21
<PAGE> 77
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Sarah Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE N - SIGNIFICANT CUSTOMERS
During the year ended December 31, 1996, the Company had two related customers
responsible for net sales in excess of 10.0% of total net sales.
<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>
F-22
<PAGE> 78
KARTS INTERNATIONAL INCORPORATED
INTRODUCTION TO PROFORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
Karts International Incorporated (Karts) acquired 100.0% of the issued and
outstanding stock of Brister's Thunder Karts, Inc. (a Louisiana corporation)
(Brister's) at the close of business on March 31, 1996 and 100.0% of the issued
and outstanding stock of USA Industries, Inc. (an Alabama corporation) (USA) as
of the close of business on November 21, 1996.
The purchase price of Brister's was approximately $6,300,000 with approximately
$2,000,000 paid in cash, a notes payable to the seller aggregating $1,200,000
and 775,000 shares (516,667 post-March 24, 1997 reverse stock split shares) of
Karts unregistered, restricted common stock having an agreed-upon value of
approximately $3,100,000.
The purchase price of USA was $1,000,000 with approximately $250,000 paid in
cash at closing and the balance paid in 250,000 shares (166,667 post-March 24,
1997 reverse stock split shares) of Karts unregistered, restricted common stock
equaling $750,000 based upon the closing price of the Company's common stock on
the settlement date.
Both acquisition transactions were accounted for using the purchase method of
accounting for business combinations. Karts allocated the total purchase price
to the assets acquired based upon their respective relative fair value. Any
excess purchase price over the fair value of the assets acquired was recorded
as goodwill.
<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-23
<PAGE> 79
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-24
<PAGE> 80
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-25
<PAGE> 81
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-26
<PAGE> 82
KARTS INTERNATIONAL INCORPORATED
NOTES TO PROFORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
The Proforma Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994 are derived from the historical Statements of Income of
Karts International Incorporated, Brister's Thunder Karts, Inc.
and USA Industries, Inc.
The proforma information reflects the adjustments to record the acquisition of
Brister's Thunder Karts, Inc. by Karts International Incorporated on April 1,
1996 as if the acquisition occurred on January 1, 1994. This transaction was
recorded pursuant to the requirements of Accounting Principles Board Opinion
#16, "Business Combinations", and is accounted for as a purchase.
Additionally, the proforma information reflects the adjustments to record the
acquisition of USA Industries, Inc. by Karts International Incorporated on
November 21, 1996 as if the acquisition occurred on January 1, 1994. This
transaction was recorded pursuant to the requirements of Accounting Principles
Board Opinion #16, "Business Combinations", and is accounted for as a purchase.
The proforma financial information should be read in conjunction with the
historical Financial Statements and Notes thereto of Karts International
Incorporated and its wholly-owned subsidiaries, Brister's Thunder Karts, Inc.
and USA Industries, Inc.
The proforma information does not purport to be indicative of the financial
position or the results of operations which would have actually been obtained
if the acquisition transactions had actually been consummated on the dates
indicated. In addition, the proforma financial information does not purport to
be indicative of the financial position or results of operations that may be
obtained in the future.
The respective pro forma adjustments to the historical financial statements
depicted on the Proforma Consolidated Statements of Income are described below:
(1) Adjustment to amortize approximately $5.86 million in cumulative goodwill
acquired in the respective acquisitions as if both acquisitions had
occurred on January 1, 1994. Goodwill is amortized using a 25 year life
and the straight-line method.
F-27
<PAGE> 83
[S. W. HATFIELD + ASSOCIATES LETTERHEAD]
ACCOUNTANT'S REVIEW REPORT
Shareholders and Board of Directors
Brister's Thunder Karts, Inc.
We have reviewed the accompanying balance sheet of Brister's Thunder Karts,
Inc.(a Louisiana corporation and a wholly-owned subsidiary of Karts
International Incorporated ) as of March 31, 1996 and the related statements of
income, changes in retained earnings and cash flows for the three months then
ended, in accordance with statements on standards for accounting and review
services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Brister's Thunder Karts, Inc.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
S. W. HATFIELD + ASSOCIATES
DALLAS, TEXAS
MAY 10, 1996
F-28
<PAGE> 84
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
BALANCE SHEET
March 31, 1996
<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-29
<PAGE> 85
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS
Three months ended March 31, 1996
<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-30
<PAGE> 86
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996
<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-31
<PAGE> 87
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Brister's Thunder Karts, Inc. (Company) was formed on August 2, 1976 under the
laws of the State of Louisiana. The Company is in the business of manufacturing
and marketing motorized "fun" karts for the consumer market. Effective at the
close of business on March 31, 1996, the Company's sole shareholder sold 100.0%
of the issued and outstanding stock to Karts International Incorporated (KII).
The Company became a wholly-owned subsidiary of KII at that date.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the
Company's cash management policies.
2. Accounts and advances receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers which are located throughout the United
States. Because of the credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts
which will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded
amount of trade accounts receivable shown on the balance sheet at the date
of non-performance.
3. Inventory
Inventory consists of steel, engines and other related raw materials used
in the manufacture of "fun" karts. These items are carried at the lower of
cost or market using the first-in, first-out method. As of March 31, 1996,
inventory consisted of the following components:
<TABLE>
<S> <C>
Raw materials $506,022
Work in process 211,825
Finished goods 134,784
--------
$852,631
========
</TABLE>
F-32
<PAGE> 88
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
4. Property, plant and equipment
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets using
the straight-line method.
Gains and losses from disposition of property and equipment are recognized
as incurred and are included in operations.
5. Income taxes
The Company utilizes the asset and liability method of accounting for
income taxes. At March 31, 1996 , the deferred tax asset and deferred tax
liability accounts, as recorded when material, are entirely the result of
temporary differences. Temporary differences represent differences in the
recognition of assets and liabilities for tax and financial reporting
purposes, primarily accumulated depreciation and amortization. No
valuation allowance was provided against deferred tax assets, where
applicable.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following components:
<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-33
<PAGE> 89
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following:
<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>
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-34
<PAGE> 90
BRISTER'S THUNDER KARTS, INC.
(a wholly-owned subsidiary of Karts International Incorporated)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - INCOME TAXES - CONTINUED
The components of income tax expense for the three months ended March 31, 1996
is as follows:
<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.
F-35
<PAGE> 91
[S. W. HATFIELD + ASSOCIATES LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholder
Brister's Thunder Karts, Inc.
We have audited the accompanying balance sheets of Brister's Thunder Karts,
Inc. (A Louisiana corporation) as of December 31, 1995 and 1994 and the related
statements of income, changes in shareholder's equity and cash flows for each
of the two years ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brister's Thunder Karts, Inc.
As of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the two years ended December 31, 1995 in conformity with
generally accepted accounting principles.
S. W. HATFIELD + ASSOCIATES
DALLAS, TEXAS
MARCH 9, 1996
F-36
<PAGE> 92
BRISTER'S THUNDER KARTS, INC.
BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS
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-37
<PAGE> 93
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-38
<PAGE> 94
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-39
<PAGE> 95
BRISTER'S THUNDER KARTS, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
1995 1994
----------- -----------
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year $ 341,289 $ 346,488
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 68,815 81,179
Gain on sale of fixed assets (4,220) (76,651)
(Increase) Decrease in:
Accounts receivable 25,879 (55,961)
Inventory (190,256) (289,293)
Prepaid expenses (151,575) --
Increase (Decrease) in:
Accounts payable and
other accrued liabilities 525,222 (28,260)
Income taxes payable 148,962 (192,178)
Deferred tax liability (14,364) 21,277
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 749,752 (193,399)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash collected from miscellaneous advances 24,000 35,000
Cash advanced on miscellaneous advances -- (24,000)
Purchase of property and equipment (112,816) (84,822)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (88,816) (73,822)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from shareholder - net (40,381) 40,381
Principal payments on note payable (36,500) --
Principal payments on long-term debt (3,908) (3,645)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (80,789) 36,736
----------- -----------
INCREASE (DECREASE) IN CASH 580,147 (230,485)
Cash at beginning of period 521,432 751,917
----------- -----------
CASH AT END OF PERIOD $ 1,101,579 $ 521,432
=========== ===========
- CONTINUED -
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 96
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-41
<PAGE> 97
BRISTER'S THUNDER KARTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Brister's Thunder Karts, Inc. (Company) was formed on August 2, 1976 under the
laws of the State of Louisiana. The Company is in the business of manufacturing
and marketing motorized "fun" karts for the consumer market.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the
Company's cash management policies.
2. Accounts and advances receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers which are located throughout the United
States. Because of the credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts
which will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded
amount of trade accounts receivable shown on the balance sheet at the date
of non-performance.
3. Inventory
Inventory consists of steel, engines and other related raw materials used
in the manufacture of "fun" karts. These items are carried at the lower of
cost or market using the first-in, first-out method. As of December 31,
1995 and 1994, inventory consisted of the following components:
<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-42
<PAGE> 98
BRISTER'S THUNDER KARTS, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
4. Property, plant and equipment
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets using
the straight-line method.
Gains and losses from disposition of property and equipment are recognized
as incurred and are included in operations.
5. Income taxes
The Company utilizes the asset and liability method of accounting for
income taxes. At December 31, 1995 and 1994, the deferred tax asset and
deferred tax liability accounts, as recorded when material, are entirely
the result of temporary differences. Temporary differences represent
differences in the recognition of assets and liabilities for tax and
financial reporting purposes, primarily accumulated depreciation and
amortization. No valuation allowance was provided against deferred tax
assets, where applicable.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following components as of December 31,
1995 and 1994, respectively:
<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-43
<PAGE> 99
BRISTER'S THUNDER KARTS, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1994,
respectively,
<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>
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>
December 31, December 31,
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-44
<PAGE> 100
BRISTER'S THUNDER KARTS, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - INCOME TAXES - CONTINUED
The components of income tax expense (benefit) for the years ended December 31,
1995 and 1994, respectively, are as follows:
<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.
F-45
<PAGE> 101
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . 7
The Company . . . . . . . . . . . . . . . . . . . 16
Common Stock Price Ranges and Dividends . . . . . 18
Dividend Policy . . . . . . . . . . . . . . . . . 18
Use of Proceeds . . . . . . . . . . . . . . . . . 19
Dilution . . . . . . . . . . . . . . . . . . . . 20
Capitalization . . . . . . . . . . . . . . . . . 21
Selected Historical Financial Information . . . . 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations . 23
Business . . . . . . . . . . . . . . . . . . . . 27
Management . . . . . . . . . . . . . . . . . . . 38
Certain Relationships and Related Transactions . 41
Principal Stockholders . . . . . . . . . . . . . 44
Description of Securities . . . . . . . . . . . . 45
Shares Available for Future Sale . . . . . . . . 50
Underwriting . . . . . . . . . . . . . . . . . . 51
Legal Matters . . . . . . . . . . . . . . . . . . 54
Experts . . . . . . . . . . . . . . . . . . . . . 54
Index to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . F-1
</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> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation relieve its directors from
liability for monetary damages to the full extent permitted by Nevada law.
Sections 78.751 and 78.752 of the General Corporation Law of the State of
Nevada authorize a corporation to indemnify, among others, any officer or
director against certain liabilities under specified circumstances, and to
purchase and maintain insurance on behalf of its officers and directors. The
Underwriting Agreement between the Company and the Underwriters in connection
with the Offering provides for reciprocal indemnification by each party of the
other and its officers, directors and controlling persons under specified
circumstances.
Article Seventh and Article Eighth of the Company's Articles of
Incorporation, included in Exhibit 3.1 hereto, which provide for certain
limitations on the liability of directors and indemnification of directors and
officers, respectively, are hereby incorporated by reference. The Company's
Articles of Incorporation provide, in general, that no director of the Company
shall be personally liable for monetary damages for breach of the director's
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) an act or
omission not in good faith that constitutes a breach of duty of the director to
the Company or an act or omission that involves intentional misconduct or a
knowing violation of other laws; (iii) a transaction from which the director
received an improper personal benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office; or (iv) any act or
omission for which the liability of a director is expressly provided by an
applicable statute.
Article VII, Section 7 of the Company's Bylaws, included in Exhibit
3.2 hereto, provides, in general, that the Company shall indemnify its
directors and officers under the circumstances defined in Section 78.751 of the
General Corporation Law of the State of Nevada and gives authority to the
Company to purchase insurance with respect to such indemnification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company will bear the following estimated expenses incurred in
connection with this Offering:
<TABLE>
<CAPTION>
Item Amount
- ---- ------
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,476.31
NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244.63
Nasdaq application and listing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000.00
Underwriters' non-accountable expense allowance . . . . . . . . . . . . . . . . . . . . . . . . . 194,250.00
Blue sky filing fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000.00
Transfer agent and registrar fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000.00
Printing and engraving expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000.00
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000.00
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,279.06
------------------
TOTAL $ 387,250.00
=================
</TABLE>
<PAGE> 103
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
a. PRIVATE OFFERING COMPLETED ON NOVEMBER 15, 1996.
On November 15, 1996, the Company concluded the private sale of 25
Units (the "Units") for total proceeds of $625,000.00. Each Unit consisted of
one share of convertible preferred stock, $0.001 par value per share (the
"Convertible Preferred Stock") and 6,667 Redeemable Common Stock Purchase
Warrants (the "1996 Warrants"). A total of 25 shares of Convertible Preferred
Stock and 166,675 1996 Warrants were sold. Each 1996 Warrant entitles the
holder thereof to purchase, for a period of 42 months after November 15, 1996,
one share of the Company's Common Stock at an exercise price of $4.50 per 1996
Warrant, subject to adjustment in certain circumstances. Upon completion of
this Offering, the Company has the option to require the holders of the
Convertible Preferred Stock to convert each share of the Convertible Preferred
Stock into either (a) $25,000.00 and 4,167 shares of Common Stock or (b) 8,334
shares of Common Stock. Under either option, the investor will continue to
hold the 1996 Warrants. If for any reason the Company does not complete a
public offering of its securities by November 15, 1997, each share of
Convertible Preferred Stock will be automatically converted into 8,334 shares
of Common Stock.
Information concerning the sale of the Units is as follows:
<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 the either receiving a refund of their investment, with
interest applied thereon at a rate of 12% per annum, or retaining the
investment and receiving an additional 13,334 1996 Warrants for each Unit
subscribed for. The Company believes that none of the subscribers will seek a
refund of their initial investment in the Company. Gary C. Evans is a director
of the Company.
Argent Securities, Inc. ("Argent"), Representative of the Underwriters
in the Offering, acted as placement agent with regard to this private offering.
As placement agent, Argent received a commission of eight percent of the
aggregate amount of the offering, four percent of the offering proceeds (or
$25,000.00) as additional compensation for investment banking services and
three percent of the offering proceeds (or $18,750.00) for non-accountable
expenses.
With regard to all sales in this offering, the Company relied upon
Section 4(2) of the Securities Act of 1933, as amended (the "Act") and/or
Regulation D promulgated thereunder ("Regulation D") for an exemption from
II-2
<PAGE> 104
the registration requirements of the Act. The purchasers had access to
information concerning the Company, its financial condition, assets,
management, and proposed activities. For this offering, the Company offered
and sold its securities only to persons who are accredited investors as that
term is defined in Rule 501(a) of Regulation D and up to a maximum of 35
non-accredited investors. Each purchaser represented that he had the ability
to bear economically a total loss of his investment. Each purchaser signed a
subscription agreement, which included certain representations made by each
purchaser.
b. PRIVATE OFFERING COMPLETED ON MARCH 15, 1996.
On March 15, 1996, the Company concluded the private sale of 233,334
shares of Common Stock at a purchase price of $2.25 per share for total gross
proceeds of $525,000.
Information concerning the sale of such securities is as follows:
<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
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 or fees with respect to these issuances.
With regard to all such sales, the Company relied upon Section 4(2) of the Act
and/or Regulation D promulgated thereunder for an exemption from the
registration requirements of the Act. The purchasers had access to information
concerning the Company, its financial condition, assets, management, and
proposed activities. For this offering, the Company offered and sold its
shares only to investors who are accredited investors as that term is defined
in Rule 501(a) of Regulation D and up to a maximum of 35 non-accredited
investors. Each purchaser represented that he had the ability to bear
economically a total loss of his investment. Each purchaser signed a
subscription agreement, which included certain representations made by each
purchaser. No purchaser was affiliated with the Company. Mr. Evert I.
Schlinger owns 219,048 shares of the Company's Common Stock and is the sole
trustee of the Brian Schlinger and Evert I. Schlinger, Jr. Trusts and has
voting and dispositive powers over the shares of Common Stock owned by the
Trusts but disclaims any beneficial ownership of such shares.
c. PRIVATE OFFERING COMPLETED ON JULY 2, 1996.
On July 2, 1996, the Company concluded the private sale of 3,333
shares of Common Stock and 66,667 Class A Warrants Units for a total of $17,500
cash. Each Class A Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $5.25 per share, as adjusted, until December 31,
1997.
II-3
<PAGE> 105
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..
On March 15, 1996, the Company, as partial consideration for the
acquisition of all of the issued and outstanding capital stock of Brister's
Thunder Karts, Inc. ("Brister's"), issued to Charles Brister, Brister's sole
shareholder and a current director and principal stockholder of the Company,
516,667 shares of the Company's Common Stock valued at $3.1 million in
accordance with the provisions of the related stock purchase agreement.
The Company relied upon the exemption from registration provided in
Section 4(2) of the Act in connection with the issuance of 516,667 shares of
its Common Stock to Mr. Brister. No underwriter participated in the
transaction, nor did the Company pay any commission or fees with respect to
this transaction. Mr. Brister had access to information concerning the
Company, its financial condition, assets, management and proposed activities.
The shares of Common Stock were issued to Mr. Brister based on certain
investment representations by Mr. Brister and the Company has impressed the
stock certificate representing the shares with a restrictive legend.
e. ACQUISITION OF USA INDUSTRIES, INC..
On November 20, 1996, the Company, as consideration for the
acquisition of all of the issued and outstanding capital stock of USA
Industries, Inc. ("USA"), paid an aggregate of $1.0 million payable $250,000 in
cash and issued an aggregate of 166,667 shares of Common Stock to the four
shareholders of USA. Pursuant to the stock purchase agreement between the
Company, USA and its shareholders, the Common Stock was valued at $4.50 per
share or an aggregate consideration of $750,000 for 166,667 shares.
The Company relied upon the exemption from registration provided in
Section 4(2) of the Act in connection with the issuance of 166,667 shares of
its Common Stock to the USA shareholders. No underwriter participated in the
transaction, nor did the Company pay any commission or fees with respect to
this transaction. The USA shareholders had access to information concerning
the Company, its financial condition, assets, management and proposed
activities. The shares of Common Stock were issued to the USA shareholders
based on certain investment representations by the USA shareholders and the
Company has impressed the stock certificates representing the shares with a
restrictive legend. Mr. Jerry M. Allen, a former USA shareholder, is currently
the Vice President of USA.
f. ISSUANCES TO THE SCHLINGER FOUNDATION.
On March 15, 1996, as partial consideration for the $2,000,000.00 loan
(the "Schlinger Note") from The Schlinger Foundation (the "Foundation") to the
Company, the Company paid to the Foundation $21,000, consisting of $10,500 cash
and the issuance of 70,000 restricted shares of Common Stock to the Foundation.
Mr. Evert I. Schlinger who owns 219,048 shares of Common Stock of the Company
is the Trustee of the Foundation and has voting and dispositive powers over the
shares of Common Stock owned by the Foundation, although Mr. Schlinger
disclaims any beneficial ownership of such shares.
The Company relied upon the exemption from registration provided in
Section 4(2) of the Act in connection with the afore-referenced issuances of
the Schlinger Note and shares of its Common Stock to the Foundation. No
underwriter participated in the issuances, nor did the Company pay any
commission or other fees with respect to these transactions. The Foundation
had access to information concerning the Company, its financial condition,
assets, management and proposed activities. The shares of Common Stock were
issued to the Foundation based
II-4
<PAGE> 106
on certain investment representations by the Foundation and the Company has
impressed the stock certificates representing the shares of Common Stock with a
restrictive legend.
ITEM 27. EXHIBITS.
<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.
2.1 Agreement and Plan of Merger, dated April 16, 1996, by and between Sarah Acquisition
Corporation and the Company.
2.2 Stock Purchase Agreement, dated January 16, 1996, by and among Halter Financial Group, Inc.
on behalf of the Company, Brister's Thunder Karts, Inc., and Charles Brister (Schedules have
been omitted, but will be furnished to the Commission upon request).
2.3 Amendment to Stock Purchase Agreement, dated March 15, 1996, by and among Halter Financial
Group, Inc. on behalf of the Company, Brister's Thunder Karts, Inc., and Charles Brister
(Schedules have been omitted, but will be furnished to the Commission upon request).
2.4 Stock Purchase Agreement, dated October 4, 1996, by and among the Company, USA Industries,
Inc., Jerry Michael Allen, Angela T. Allen, Johnny C. Tucker, and Carol Y. Tucker (Schedules
have been omitted, but will be furnished to the Commission upon request).
2.5 Consulting Agreement, dated January 16, 1996, by and between Halter Financial Group, Inc. and
Sarah Acquisition Corporation.
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Certificate to Decrease Authorized Shares of Common Stock, dated March 12, 1997.
4.1 Specimen of Common Stock Certificate.
4.2 Form of Warrant Agreement covering the Warrants.
4.3* Form of Redeemable Common Stock Purchase Warrants issued on in connection with the sale of
the Warrants.
4.4 Form of Redeemable Common Stock Purchase Warrant issued in the Company's private offering of
Units, completed November 15, 1996 (the "1996 Warrants").
4.5 Form of Common Stock Purchase Warrant issued in the Company's offering of Units pursuant to
Rule 504, completed July 2, 1996 (the "Class A Warrants").
4.6 Certificate of Designation Establishing Series of Preferred Stock, filed with the Secretary
of State of Nevada on November 15, 1996.
4.7 Specimen of Convertible Preferred Stock Certificate.
</TABLE>
II-5
<PAGE> 107
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------------------------------------------------------------------------------
<S> <C>
5.1* Opinion of Looper, Reed, Mark & McGraw Incorporated regarding legality of the securities
being registered.
10.1 Lease Agreement, dated March 18, 1996, by and between Northpark Properties, L.L.C. and the
Company.
10.2 License Agreement, dated March 15, 1996, by and between the Company and Charles Brister.
10.3 Addendum "A" to License Agreement, dated March 15, 1997, by and between the Company and
Charles Brister.
10.4 Royalty Agreement, dated March 15, 1997, by and between the Company and Charles Brister.
10.5 $1,000,000.00 Subordinated Promissory Note, dated March 15, 1996, payable to Charles Brister,
executed by Brister's Thunder Karts, Inc., as maker.
10.6 $200,000 Promissory Note, dated April 1, 1996, payable to Charles Brister, executed by the
Company, as maker.
10.7 Commercial Security Agreement, by and among Charles Brister, as secured party, Brister's
Thunder Karts, Inc., as borrower, and Robert W. Bell and Gary C. Evans, as pledgors.
10.8 $2,000,000.00 Promissory Note, dated March 15, 1996, payable to The Schlinger Foundation,
executed by the Company, as maker, and by Brister's Thunder Karts, Inc., as pledgor.
10.9 Commercial Security Agreement, by and among The Schlinger Foundation, as secured party, the
Company, as borrower, and Brister's Thunder Karts, Inc., as pledgor.
10.10 Vendor Agreement, dated June 5, 1996, by and between Wal-Mart Stores, Inc. and Brister's
Thunder Karts, Inc.
10.11 Vendor Agreement, dated September 30, 1996, by and between Wal-Mart Stores, Inc. and USA
Industries, Inc.
10.12 Floor Plan Agreement, dated September 9, 1996, by and among Deutsche Financial Services
Corporation, the Company, and Brister's Thunder Karts, Inc.
10.13 Guaranty of Vendor, dated September 9, 1996, executed by the Company and Brister's Thunder
Karts, Inc. in favor of Deutsche Financial Services Corporation.
10.14 Employment Agreement, as amended, dated March 15, 1996, by and between the Company and V.
Lynn Graybill.
10.15 Consulting Engagement Letter, dated February 19, 1997, by and between Charles Brister, as
consultant, and the Company.
10.16 Letter Agreement, dated January 21, 1997, by and between Bobby Labonte, as national spokesman
for the Company, and the Company.
10.17 Consulting Agreement, dated March 16, 1997, by and between the Company and Halter Financial
Group, Inc.
10.18 Form of Private Placement Subscription Participation Option Notice, dated March 6, 1997.
21.1 Subsidiaries of the Company.
23.1 Consent of S. W. Hatfield & Associates.
23.2* Consent of Looper, Reed, Mark & McGraw Incorporated (included in its opinion filed as
Exhibit 5.1).
24.1 Power of attorney. Reference is made to page II-8 of this Registration Statement.
27.1 Financial Data Schedule.
</TABLE>
______________________________
*To be filed by amendment.
II-6
<PAGE> 108
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(a) To include any prospectus required in Section
10(a)(3) of the Act;
(b) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(c) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the provisions
described under Item 24 above, or otherwise, the Company has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes that for purposes of
determining any liability under the Securities Act, (i) the information omitted
from the Prospectus filed as part of this Registration Statement, as permitted
by Rule 430A of the Securities Act and to be contained in the form of
Prospectus to be filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act, shall be deemed to be incorporated by
reference into this Registration Statement at the time it is declared
effective, and (ii) each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on the Registration Statement on Form SB-2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Covington, State of Louisiana, on the 27th day of March, 1997.
KARTS INTERNATIONAL INCORPORATED
(Company)
By: /s/ V. Lynn Graybill
-----------------------------------------
V. Lynn Graybill, Chief Executive Officer
POWER OF ATTORNEY
We, the below signed directors and officers of Karts International
Incorporated, do hereby constitute and appoint V. Lynn Graybill, with full
power of substitution our true and lawful attorney and agent, to do any and all
acts and things in our names in the capacities indicated which V. Lynn Graybill
may deem necessary or advisable to enable the Company to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in connection with this Registration
Statement, including specifically, but not limited to, the power and authority
to sign for us, or any of us in our names in the capacities indicated and any
and all amendments (including post-effective amendments) to this Registration
Statement; and we do hereby ratify and confirm all that V. Lynn Graybill shall
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement on Form SB-2 has been signed by the following
persons on behalf of the Company and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ V. Lynn Graybill Chief Executive Officer, Chairman of March 27, 1997
------------------------------------------------------ the Board of Directors --------------
V. Lynn Graybill
/s/ Timothy P. Halter Vice President, Secretary and March 27, 1997
------------------------------------------------------ Director --------------
Timothy P. Halter
/s/ John V. Callegari, Jr. Vice President Administration and March 27, 1997
------------------------------------------------------ Chief Financial Officer --------------
John V. Callegari, Jr.
/s/ Charles Brister Director March 27, 1997
------------------------------------------------------ --------------
Charles Brister
/s/ Joseph R. Mannes Director March 27, 1997
------------------------------------------------------ --------------
Joseph R. Mannes
/s/ Ronald C. Morgan Director March 27, 1997
------------------------------------------------------ --------------
Ronald C. Morgan
/s/ Robert W. Bell Director March 27, 1997
------------------------------------------------------ --------------
Robert W. Bell
/s/ Gary C. Evans Director March 27, 1997
------------------------------------------------------ --------------
Gary C. Evans
</TABLE>
II-8
<PAGE> 110
INDEX TO EXHIBITS
EXHIBIT INDEX
<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.
2.1 Agreement and Plan of Merger, dated April 16, 1996, by and between Sarah
Acquisition Corporation and the Company.
2.2 Stock Purchase Agreement, dated January 16, 1996, by and among Halter
Financial Group, Inc. on behalf of the Company, Brister's Thunder Karts,
Inc., and Charles Brister (Schedules have been omitted, but will be
furnished to the Commission upon request).
2.3 Amendment to Stock Purchase Agreement, dated March 15, 1996, by and among
Halter Financial Group, Inc. on behalf of the Company, Brister's Thunder
Karts, Inc., and Charles Brister (Schedules have been omitted, but will be
furnished to the Commission upon request).
2.4 Stock Purchase Agreement, dated October 4, 1996, by and among the Company,
USA Industries, Inc., Jerry Michael Allen, Angela T. Allen, Johnny C.
Tucker, and Carol Y. Tucker (Schedules have been omitted, but will be
furnished to the Commission upon request).
2.5 Consulting Agreement, dated January 16, 1996, by and between Halter
Financial Group, Inc. and Sarah Acquisition Corporation.
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Certificate to Decrease Authorized Shares of Common Stock, dated March 12,
1997.
4.1 Specimen of Common Stock Certificate.
4.2 Form of Warrant Agreement covering the Warrants.
4.3* Form of Redeemable Common Stock Purchase Warrants issued on in connection
with the sale of the Warrants.
4.4 Form of Redeemable Common Stock Purchase Warrant issued in the Company's
private offering of Units, completed November 15, 1996 (the "1996
Warrants").
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ -----------------------------------------------------------------------------
<S> <C>
4.5 Form of Common Stock Purchase Warrant issued in the Company's offering of
Units pursuant to Rule 504, completed July 2, 1996 (the "Class A Warrants").
4.6 Certificate of Designation Establishing Series of Preferred Stock, filed
with the Secretary of State of Nevada on November 15, 1996.
4.7 Specimen of Convertible Preferred Stock Certificate.
5.1* Opinion of Looper, Reed, Mark & McGraw Incorporated regarding legality of
the securities being registered.
10.1 Lease Agreement, dated March 18, 1996, by and between Northpark Properties,
L.L.C. and the Company.
10.2 License Agreement, dated March 15, 1996, by and between the Company and
Charles Brister.
10.3 Addendum "A" to License Agreement, dated March 15, 1997, by and between the
Company and Charles Brister.
10.4 Royalty Agreement, dated March 15, 1997, by and between the Company and
Charles Brister.
10.5 $1,000,000.00 Subordinated Promissory Note, dated March 15, 1996, payable to
Charles Brister, executed by Brister's Thunder Karts, Inc., as maker.
10.6 $200,000 Promissory Note, dated April 1, 1996, payable to Charles Brister,
executed by the Company, as maker.
10.7 Commercial Security Agreement, by and among Charles Brister, as secured
party, Brister's Thunder Karts, Inc., as borrower, and Robert W. Bell and
Gary C. Evans, as pledgors.
10.8 $2,000,000.00 Promissory Note, dated March 15, 1996, payable to The
Schlinger Foundation, executed by the Company, as maker, and by Brister's
Thunder Karts, Inc., as pledgor.
10.9 Commercial Security Agreement, by and among The Schlinger Foundation, as
secured party, the Company, as borrower, and Brister's Thunder Karts, Inc.,
as pledgor.
10.10 Vendor Agreement, dated June 5, 1996, by and between Wal-Mart Stores, Inc.
and Brister's Thunder Karts, Inc.
10.11 Vendor Agreement, dated September 30, 1996, by and between Wal-Mart Stores,
Inc. and USA Industries, Inc.
10.12 Floor Plan Agreement, dated September 9, 1996, by and among Deutsche
Financial Services Corporation, the Company, and Brister's Thunder Karts,
Inc.
10.13 Guaranty of Vendor, dated September 9, 1996, executed by the Company and
Brister's Thunder Karts, Inc. in favor of Deutsche Financial Services
Corporation.
10.14 Employment Agreement, as amended, dated March 15, 1996, by and between the
Company and V. Lynn Graybill.
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ -----------------------------------------------------------------------------
<S> <C>
10.15 Consulting Engagement Letter, dated February 19, 1997, by and between
Charles Brister, as consultant, and the Company.
10.16 Letter Agreement, dated January 21, 1997, by and between Bobby Labonte, as
national spokesman for the Company, and the Company.
10.17 Consulting Agreement, dated March 16, 1997, by and between the Company and
Halter Financial Group, Inc.
10.18 Form of Private Placement Subscription Participation Option Notice, dated
March 6, 1997.
21.1 Subsidiaries of the Company.
23.1 Consent of S. W. Hatfield & Associates.
23.2* Consent of Looper, Reed, Mark & McGraw Incorporated (included in its opinion
filed as Exhibit 5.1).
24.1 Power of attorney. Reference is made to page II-8 of this Registration
Statement.
27.1 Financial Data Schedule.
</TABLE>
______________________________
*To be filed by amendment.
<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
April ___, 1997
ARGENT SECURITIES, INC.
3340 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Gentlemen:
Karts International Incorporated, a Nevada corporation (the
"Company"), confirms its agreement with Argent Securities, Inc. ("Argent"), and
each of the other underwriters named in Schedule I hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom Argent is acting as
representative (in such capacity, Argent shall hereinafter be referred to as
the "Representative"), with respect to the sale by the Company, and the
purchase by the Underwriters, acting severally and not jointly, of One Million
Four Hundred Thousand (1,400,000) shares (the "Shares") of the Company's
common stock, par value $.001 per share (the "Common Stock"), and One Million
Four Hundred Thousand (1,400,000) Redeemable Common Stock Purchase Warrants
(the "Redeemable Warrants") ("Firm Securities"), each of the Redeemable
Warrants entitles the holder thereof to purchase one share of Common Stock at
an exercise price of $______ per share pursuant to a warrant agreement (the
"Warrant Agreement") between the Company and the warrant agent, set forth in
Schedule II, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b)
hereof to purchase all or any part of 210,000 additional Shares and 210,000
Redeemable Warrants (the "Additional Securities") for the purpose of covering
over-allotments, if any. The aforesaid Firm Securities together with all or
any part of the Additional Securities are hereinafter collectively referred to
as the "Securities." The Company also proposes to issue and sell to the
Underwriters
Page 1
<PAGE> 2
for an approximate price of $140 ($0.001 per warrant), non-callable warrants
entitling the Underwriters' to purchase from the Company [, AN OPTION (THE
"UNDERWRITERS PURCHASE OPTION") PURSUANT TO THE UNDERWRITERS' COMMON STOCK AND
WARRANT PURCHASE OPTION (THE "UNDERWRITERS' PURCHASE OPTION") FOR THE PURCHASE
OF] an aggregate of 140,000 Shares (the "Underwriters' Shares") and 140,000
Redeemable Common Stock Purchase Warrants (the "Underwriters' Warrants"). The
shares of Common Stock issuable upon exercise of the Redeemable Warrants and
the Underwriters' Warrants are hereinafter sometimes referred to as the
"Warrant Shares." The Shares, the Redeemable Warrants, the Common Stock and
Underwriters' Shares, Underwriters' Warrants, and the Warrant Shares are more
fully described in the Registration Statement (as defined in Subsection 1(a)
hereof) and the Prospectus (as defined in Subsection 1(a) hereof) referred to
below. Unless the context otherwise requires, all references to the "Company"
shall include all subsidiaries (as defined in Subsection 2(c) hereof) referred
to below and identified in the Prospectus, as if separately stated herein. All
representations, warranties and opinions of counsel shall cover such
subsidiaries.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters as of the
date hereof, and as of the Closing Date and any Option Closing Date, (as
defined in Subsection 2 (c) hereof), if any, as follows:
(a) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") in accordance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Act"), a
registration statement, and an amendment or amendments thereto, on Form SB-2
(File No. 333- _______) under the Act (the "Registration Statement"), including
a prospectus subject to completion relating to the Shares and Redeemable
Warrants which registration statement and any amendment or amendments have been
prepared by the Company in material compliance with the requirements of the Act
and the rules and regulations of the Commission under the Act. The term
"Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective, or, if the registration statement became effective
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post- effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. If an abbreviated registration statement is prepared and filed with
the Commission in accordance with Rule 462(b) under the Act (an "Abbreviated
Registration Statement"), the term "Registration Statement" as used in this
Agreement includes the Abbreviated Registration Statement. The term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information
contained in the prospectus filed with the Commission pursuant to Rule 424(b).
The term "Preliminary Prospectus" as used in this Agreement means the
prospectus subject to completion in the form included in the registration
statement at the time
Page 2
<PAGE> 3
of the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or Prospectus or any part
thereof and no proceedings for a stop order have been instituted or are pending
or, to the best knowledge of the Company, threatened. Each of the Preliminary
Prospectus, the Registration Statement and Prospectus at the time of filing
thereof conformed in all material respects with the requirements of the Act and
the Rules and Regulations, and neither the Preliminary Prospectus, the
Registration Statement or Prospectus at the time of filing thereof contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein and necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of
the Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective and
at all times subsequent thereto up to the Closing Date and each Option Closing
Date and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all material statements
which are required to be stated therein in material compliance with the Act and
the Rules and Regulations, and will in all material respects conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement, nor any amendment thereto, at the time the Registration Statement or
such amendment is declared effective under the Act, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Prospectus at the time the Registration Statement becomes effective, at the
Closing Date and at any Option Closing Date, will not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with information supplied to the
Company in writing by or on behalf of the Underwriters expressly for use in the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(d) The Company has been duly organized and is now, and
at the Closing Date and any Option Closing Date will be, validly existing as a
corporation in good standing under the laws of the State of Nevada. Other than
the Company's Subsidiaries (as defined in Section (e)), the Company does not
own, directly or indirectly, an interest in any corporation, partnership,
trust, joint venture or other business entity; provided, that the foregoing
shall not be applicable to the investment of the net proceeds from the sale of
the Securities in short-term, low-risk investments as set forth under "Use of
Proceeds" in the Prospectus. The Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of its properties or the character of its operations
require such
Page 3
<PAGE> 4
qualification or licensing, except where the failure to so register or qualify
does not have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company and the
subsidiaries taken as a whole (a "Material Adverse Effect"). The Company has
all requisite power and authority (corporate and other), and has obtained any
and all necessary material applications, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has
been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all material
federal, state, local and foreign laws, rules and regulations; and the Company
has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, would have a Material
Adverse Effect. The disclosures in the Registration Statement concerning the
effects of federal, state, local, and foreign laws, rules and regulations on
the Company's business as currently conducted and as contemplated are correct
in all material respects and do not omit to state a material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which they were made.
(e) The Company's subsidiaries (collectively, the
"Subsidiaries") include Brister's Thunder Karts, Inc. and USA Industries, Inc.
Each Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not,
singly or in the aggregate, have a Material Adverse Effect; all of the
outstanding shares of capital stock of each of the Subsidiaries, have been duly
authorized and validly issued, are fully paid and nonassessable, and are owned
by the Company directly, or indirectly through one of the other Subsidiaries,
free and clear of any lien, adverse claim, security interest, equity or other
encumbrance.
(f) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus under
"Capitalization" and will have the adjusted capitalization set forth therein on
the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for the Company to
issue any capital stock, rights, warrants, options or other securities, except
for this Agreement and as otherwise described in the Prospectus. The
Securities, the Additional Securities, Underwriters Shares, the Underwriter's
Warrants, and the Warrant Shares and all other securities issued or issuable by
the Company conform or, when issued and paid for, will conform in all material
respects to all statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding securities of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any
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security of the Company, or similar contractual rights granted by the Company.
The Securities, the Additional Securities, the Underwriters' Shares, and the
Underwriter's Warrants to be issued and sold by the Company hereunder, and the
Warrant Shares issuable upon exercise of the Redeemable Warrants and the
Underwriter's Warrants and payment therefor, are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof and thereof, will be validly issued, fully paid and non-assessable
and will conform in all material respects to the descriptions thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Additional Securities, the
Underwriters' Shares, and the Underwriter's Warrants, and the Warrant Shares
has been duly and validly taken; and the certificates representing the
Securities, the Underwriter's Warrants, and the Warrant Shares will be in due
and proper form. Upon the issuance and delivery pursuant to the terms hereof
of the Securities to be sold by the Company hereunder, the Underwriters will
acquire good and marketable title to such Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
(g) The financial statements of the Company, together
with the related notes and schedules thereto, included in the Registration
Statement, the Preliminary Prospectus and the Prospectus fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply; and such
financial statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a
prospective change in the condition, financial or otherwise, or in the
earnings, business affairs, position, prospects, value, operation, properties,
business, or results of operation of the Company, whether or not arising in the
ordinary course of business, since the dates of the financial statements
included in the Registration Statement and the Prospectus and the outstanding
debt, the property, both tangible and intangible, and the business of the
Company, conforms in all material respects to the descriptions thereof
contained in the Registration Statement and in the Prospectus.
(h) S. W. Hatfield + Associates, whose report is filed
with the Commission as a part of the Registration Statement, is an independent
certified public accountant as required by the Act.
(i) The Company (i) has paid all federal, state, local,
and foreign taxes for which it is liable, including, but not limited to,
withholding taxes and taxes payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986 (the "Code"), (ii) has furnished all tax and
information returns it is required to furnish pursuant to the Code, and has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have knowledge of any tax deficiency or claims outstanding,
proposed or assessed against it (other than certain state or local tax returns,
as to which the failure to file, singly or in the aggregate, would not have a
Material Adverse Effect.)
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(j) The Company maintains insurance, which is in full
force and effect, of the types and in the amounts which it reasonably believes
to be necessary for its business, including, but not limited to, personal and
product liability insurance covering all personal and real property owned or
leased by the Company against fire, theft, damage and all risks customarily
insured against.
(k) There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending (to the knowledge of the Company) or threatened
against (or circumstances known to the Company that may give rise to the same),
or involving the properties or business of the Company which: (i) is required
to be disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects); or (ii) singly or in the aggregate
would have a Material Adverse Effect.
(l) The Company has full legal right, power and authority
to enter into this Agreement, [THE UNDERWRITERS' PURCHASE OPTION] and the
Warrant Agreement and to consummate the transactions provided for in such
agreements; and this Agreement, [THE UNDERWRITERS' PURCHASE OPTION] and the
Warrant Agreement have each been duly and properly authorized, executed and
delivered by the Company. Each of this Agreement, the Underwriters' Purchase
Option and the Warrant Agreement, constitutes a legal, valid and binding
agreement of the Company, subject to due authorization, execution and delivery
by the Representative and/or the Underwriters, enforceable against the Company
in accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law). Neither the Company's execution or delivery of this Agreement, [THE
UNDERWRITERS' PURCHASE OPTION], and the Warrant Agreement, its performance
hereunder and thereunder, its consummation of the transactions contemplated
herein and therein, nor the conduct of its business as described in the
Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest defect or other
restriction or equity of any kind whatsoever upon any property or assets
(tangible or intangible) of the Company pursuant to the terms of: (i) the
Articles of Incorporation or By-Laws of the Company; (ii) any material license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement
or instrument to which the Company is a party or by which the Company is bound
or to which any of its properties or assets (tangible or intangible) is or may
be subject, other than conflicts that, singly or in the aggregate, will not
have a Material Adverse Effect; or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
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<PAGE> 7
(m) No consent, approval, authorization or order of, and
no filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement and the transactions contemplated hereby, except such as have been or
may be obtained under the Act or may be required under state securities or Blue
Sky laws in connection with (i) the Underwriters' purchase and distribution of
the Securities to be sold by the Company hereunder; or (ii) the issuance and
delivery of [THE UNDERWRITERS' PURCHASE OPTION, THE UNDERWRITERS' SHARES,] the
Underwriter's Warrants, the Redeemable Warrants or the Warrant Shares.
(n) All executed agreements or copies of executed
agreements filed as exhibits to the Registration Statement to which the Company
is a party or by which the Company may be bound or to which any of its assets,
properties or businesses may be subject have been duly and validly authorized,
executed and delivered by the Company, and constitute the legal, valid and
binding agreements of the Company, enforceable against it in accordance with
its respective terms. The descriptions contained in the Registration Statement
of contracts and other documents are accurate in all material respects and
fairly present the information required to be shown with respect thereto by the
Act and the Rules and Regulations and there are no material contracts or other
documents which are required by the Act or the Rules and Regulations to be
described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(o) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, the
Company has not: (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money in any material amount;
(ii) entered into any transaction other than in the ordinary course of
business; (iii) declared or paid any dividend or made any other distribution on
or in respect of its capital stock; or (iv) made any changes in capital stock,
material changes in debt (long or short term) or liabilities other than in the
ordinary course of business, material changes in or affecting the general
affairs, management, financial operations, stockholders equity or results of
operations of the Company.
(p) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, no
default exists in the due performance and observance of any material term,
covenant or condition of any license, contract, indenture, mortgage,
installment sales agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement, or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets (tangible or intangible)
of the Company is subject or affected.
(q) To the best knowledge of the Company, the Company has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance in all material respects with all federal,
state, local, and foreign laws and regulations respecting
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employment and employment practices, terms and conditions of employment and
wages and hours.
(r) To the best knowledge of the Company, since its
inception, the Company has not incurred any liability arising under or as a
result of the application of the provisions of the Act.
(s) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, the
Company does not presently maintain, sponsor or contribute to, and never has
maintained, sponsored or contributed to, any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan" or a
"multi-employer plan" as such terms are defined in Sections 3(2), 3(l) and
3(37) respectively of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or
contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA.
(t) The Company is not in violation in any material
respect of any domestic or foreign laws, ordinances or governmental rules or
regulations to which it is subject, except to the extent that any such
violation would not, singly or in the aggregate, have a Material Adverse
Effect.
(u) No holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the
Company exercisable for or convertible or exchangeable for securities of the
Company have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within twelve (12) months of the date hereof or to require the Company to file
a registration statement under the Act during such twelve (12) month period,
except such registration rights as have been waived or disclosed in the
Prospectus.
(v) Neither the Company, nor, to the Company's best
knowledge, any of its employees, directors, principal stockholders or
affiliates (within the meaning of the Rules and Regulations) has taken,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in, under the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities or otherwise.
(w) Except as described in the Prospectus, to the best of
the Company's knowledge, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, or licenses and rights to the
foregoing presently owned or held by the Company is in dispute or are in any
conflict with the right of any other person or entity within the Company's
current area of operations nor has the Company received notice of any of the
foregoing. To the best of the Company's knowledge, the Company: (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
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<PAGE> 9
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing; and (ii) except as set forth in the
Prospectus, is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(x) Except as described in the Prospectus, to the best of
the Company's knowledge, the Company owns and has the unrestricted right to use
all material trade secrets, trademarks, trade names, know-how (including all
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), inventions, designs, processes, works of authorship,
computer programs and technical data and information (collectively herein
"Intellectual Property") required for or incident to the development,
manufacture, operation and sale of all products and services sold or proposed
to be sold by the Company, free and clear of and without violating any right,
lien, or claim of others, including without limitation, former employers of its
employees; provided, however, that the possibility exists that other persons or
entities, completely independently of the Company, or employees or agents,
could have developed trade secrets or items of technical information similar or
identical to those of the Company.
(y) The Company has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and personal
property owned or leased by it free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects, or other restrictions or
equities of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes or assessments not yet due and payable.
(z) The Company has obtained such duly executed legally
binding and enforceable agreements as required by the Representative pursuant
to which the Company's President and certain Directors and affiliates described
in the Prospectus, have agreed not to, directly or indirectly, offer to sell,
sell, grant any option for the sale of, assign, transfer, pledge, hypothecate
or otherwise encumber any of their shares of Common Stock or other securities
of the Company (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein for certain periods of
up to __ months subject to earlier release upon the Company's achievement of
certain performance thresholds, following the effective date of the
Registration Statement without the prior written consent of the Representative.
The Company will cause the Transfer Agent, as defined below, to mark an
appropriate legend on the face of stock certificates representing all of such
shares of Common Stock and other securities of the Company.
(aa) Except as disclosed in the Prospectus, the Company
has not incurred any liability and there are no arrangements or understandings
for services in the nature of a finder's or origination fee with respect to the
sale of the Securities or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company or any of its
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officers, directors, employees or affiliates that may adversely affect the
Underwriters' compensation, as determined by the NASD.
(bb) The Securities have been approved for quotation on
the Nasdaq SmallCap Market of the Nasdaq Stock Market, Inc., subject to
official notice of issuance.
(cc) Neither the Company nor to the Company's best
knowledge any of its respective officers, employees, agents or any other person
acting on behalf of the Company, has, directly or indirectly, given or agreed
to give any money, gift or similar benefit (other than legal price concessions
to customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company (or assist the Company in connection with
any actual or proposed transaction) which: (a) might subject the Company, or
any other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign); (b) if not given
in the past, might have had a materially adverse effect on the assets, business
or operations of the Company; or (c) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company.
The Company's internal accounting controls are sufficient to cause the Company
to comply with the Foreign Corrupt Practices Act 1977, as amended.
(dd) Except as set forth in the Prospectus, and to the
best knowledge of the Company, no officer, director or principal stockholder of
the Company, or any "affiliate" or "associate" (as these terms are defined in
Rule 405 promulgated under the Rules and Regulations) of any such person or
entity or the Company, has or has had, either directly or indirectly, (i) an
interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, except with respect to the beneficial ownership of not more
than 1% of the outstanding shares of capital stock of any publicly-held entity;
or (ii) a beneficial interest in any contract or agreement to which the Company
is a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Relationships and Related Transactions," there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, or principal stockholder of the Company, or
any affiliate or associate of any such person or entity, which is required to
be disclosed pursuant to Rule 404 of Regulation S-B.
(ee) Any certificate signed by any officer of the Company
and delivered to the Underwriters or to the Underwriters' Counsel shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(ff) The Company has entered into an employment agreement
with V. Lynn Graybill as described in the Prospectus. Unless waived by the
Representative, the Company shall use its reasonable efforts at reasonable cost
to obtain a key-man life insurance policy in the
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amount of not less than $1,000,000 on the life of Mr. Graybill, which policy
shall be owned by the Company and shall name the Company as the sole
beneficiary thereunder.
(gg) No securities of the Company have been sold by the
Company within three years prior to the date hereof, except as disclosed in
Part II of the Registration Statement.
(hh) The minute books of the Company have been made
available to Underwriter's Counsel and contain a complete summary of all
meetings and actions of the Board of Directors and Shareholders of the Company
since the date of its incorporation.
2. Purchase, Sale and Delivery of the Securities, Additional
Securities and Agreement to Issue Underwriters' Common Stock and Warrant
Purchase Option.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter,
and each Underwriter, severally and not jointly, agree to purchase from the
Company at the price per share and the price per warrant set forth below, that
proportion of the number of Common Stock and Redeemable Warrants set forth in
Schedule I opposite the name of such Underwriter that such number of Common
Stock and Redeemable Warrants bears to the total number of shares of Common
Stock and Redeemable Warrants, respectively, subject to such adjustment as the
Underwriters in their discretion shall make to eliminate any sales or purchases
of fractional Securities, plus any additional numbers of Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
the Underwriters, severally and not jointly, to purchase up to an additional
210,000 Shares from the Company and 210,000 Redeemable Warrants at the prices
set forth below. The option granted hereby will expire 45 days after the date
of this Agreement, and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Additional Securities upon
notice by the Representative to the Company setting forth the number of
Additional Securities as to which the Underwriters are then exercising the
option and the time and date of payment and delivery for such Additional
Securities. Any such time and date of delivery shall be determined by the
Underwriters, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as defined
in paragraph (c) below, unless otherwise agreed to between the Representative
and the Company. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase such number of
Option Securities then being purchased which shall have been allocated to such
Underwriter by the Representative, and which such Underwriter shall have agreed
to purchase, subject in each case to such adjustments as the Underwriters in
their discretion shall make to eliminate any sales or purchases of fractional
Securities. Nothing herein contained shall obligate the Underwriters to make
any over-allotments. No Additional Securities shall be delivered unless the
Firm Securities shall be simultaneously delivered or shall theretofore have
been delivered as herein provided.
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(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of counsel
to the Representative in Atlanta, Georgia, or at such other place as shall be
agreed upon by the Underwriters and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on ___________, 1997 or at
such other time and date as shall be designated by the Representative but not
less than three (3) nor more than five (5) business days after the effective
date of the Registration Statement (such time and date of payment and delivery
being hereafter called "Closing Date"). In addition, in the event that any or
all of the Additional Securities are purchased by the Underwriters, payment of
the purchase price for, and delivery of certificates for such Additional
Securities shall be made at the above-mentioned office or at such other place
and at such time (such time and date of payment and delivery being hereinafter
called "Option Closing Date") as shall be agreed upon by the Representative and
the Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Additional
Securities and the Additional Securities, if any, shall be made to the
Underwriters against payment by the Underwriters of the purchase price for the
Securities and the Option Securities, if any, to the order of the Company as
the case may be by certified check in New York Clearing House funds or, at the
election of the Representative, all or a portion of the funds may be paid by
Bank wire transfer of funds or by Representative's commercial check.
Certificates for the Firm Securities and the Additional Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two (2) business days prior to
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates or the Depository Trust Corporation electronic notifications, as
the case may be, for the Securities and the Additional Securities, if any,
shall be made available to the Underwriters at the above-mentioned office or
such other place as the Underwriters may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing
Date or the relevant Option Closing Date, as the case may be.
The purchase price of the Common Stock and Redeemable
Warrants to be paid by each of the Underwriters, severally and not jointly, to
the Company for the Securities purchased under Clauses (a) and (b) above will
be $______ per Share and $______ per Redeemable Warrant (which price is net of
the Underwriters' discount and commissions). The Company shall not be
obligated to sell any Securities hereunder unless all Securities to be sold by
the Company are purchased hereunder. The Company agrees to issue and sell
1,400,000 shares of the Common Stock and the Company agrees to issue and sell
1,400,000 Redeemable Warrants to the Underwriters in accordance herewith.
(d) On the Closing Date, the Company shall issue and sell
to the Underwriters the Underwriters' Purchase Option at a purchase price of
$140.00, which purchase option shall entitle the holders thereof to purchase an
aggregate of 140,000 Shares and 140,000 Warrants. The Underwriters' Purchase
Option shall be exercisable for a period of four (4) years commencing one (1)
year from the closing date of the Registration Statement at an initial exercise
price equal to one hundred twenty percent (120%) of the initial public offering
price of the Shares and Redeemable Warrants. The Underwriter's Purchase Option
Agreement and form of Purchase Option Certificate shall be substantially in the
form filed as an Exhibit to the Registration Statement. Payment for the
Underwriters' Purchase Option shall be made on
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Closing Date. The Company has reserved and shall continue to reserve a
sufficient number of Shares for issuance upon exercise of the Underwriters'
Purchase Option.
3. Public Offering of the Securities. As soon after the
Registration Statement becomes effective and as the Representative deems
advisable, but in no event more than three (3) business days after such
effective date, the Underwriters shall make a public offering of the securities
(other than to residents of or in any jurisdiction in which qualification of
the Securities is required and has not become effective) at the price and upon
the other terms set forth in the Prospectus. The Underwriters may allow such
concessions and discounts upon sales to other dealers as set forth in the
Prospectus.
4. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Exchange Act (i) before termination of the offering of the Securities
by the Underwriters, which the Underwriters shall not previously have been
advised and furnished with a copy, or (ii) to which the Underwriters shall have
objected or (iii) which is not in compliance with the Act, the Exchange Act or
the Rules and Regulations.
(b) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise the Underwriters and confirm by
notice in writing: (i) when the Registration Statement, as amended, becomes
effective, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A and when any post-effective amendment to the Registration Statement
becomes effective; (ii) of the issuance by the commission of any stop order or
of the initiation, or the threatening of any proceeding, suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution or proceeding for that
purpose; (iii) of the issuance by any state securities commission of any
proceedings for the suspension of the qualification of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose; (iv) of the receipt of any comments from
the Commission; and (v) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the Prospectus or
for additional information. If the Commission or any state securities
commission or regulatory authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriters) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Underwriters
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
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on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the effective
date of the Registration Statement.
(d) The Company will give the Underwriters notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), will furnish the Underwriters with copies of any such amendment
or supplement a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file any such prospectus to which the
Underwriters or Johnson & Montgomery ("Underwriters' Counsel") shall reasonably
object.
(e) The Company shall cooperate in good faith with the
Underwriters, and Underwriters' Counsel, at or prior to the time the
Registration Statement becomes effective, in endeavoring to qualify the
Securities for offering and sale under the securities laws of such
jurisdictions as the Underwriters may reasonably designate, and shall cooperate
with the Underwriters and Underwriters' Counsel in the making of such
applications, and filing such documents and shall furnish such information as
may be required for such purpose; provided, however, the Company shall not be
required to: (i) qualify as a foreign corporation or file a general consent to
service of process in any such jurisdiction; or (ii) qualify or "blue sky" in
any state which requires a lock-up of inside securities for a period greater
than five (5) years (or such earlier date if the Representative has exercised
the Underwriters' Purchase Option). In each jurisdiction where such
qualification shall be effected, the Company will, unless the Underwriters
agree that such action is not at the time necessary or advisable, use all
reasonable efforts to file and make such statements or reports at such times as
are or may reasonably be required by the laws of such jurisdiction to continue
such qualification.
(f) During the time when the Prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriters' Counsel, and the Company will furnish
to the Underwriters a reasonable number of copies of such amendment or
supplement.
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(g) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period commencing on the day after
the end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (90 days in the event that the end of such
fiscal quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriters, an earnings
statement which will be in such form and detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least 12 consecutive months after the
effective date of the Registration Statement.
(h) During a period of five (5) years after the date
hereof and provided that the Company is required to file reports with the
Commission under Section 12 of the Exchange Act, the Company will provide the
Representative's director Designee or Attendee, as defined herein, copies of
the below described documents prior to release where applicable and will
furnish to its stockholders and to the Underwriter as soon as practicable,
annual reports (including financial statements audited by independent public
accountants):
(i) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(ii) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(iii) every press release and every material news
item or article of interest to the financial community in respect of the
Company and any future subsidiaries or their affairs which was released or
prepared by the Company;
(iv) any additional information of a public nature
concerning the Company and any future subsidiaries or their respective
businesses which the Underwriters may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3
or 13E-4 received or filed by the Company from time to time;
(vi) such other information as may be requested
with reference to the property, business, stockholders and affairs of the
Company and its subsidiaries.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) For as long as the Company is required to file
reports with the Commission under Section 12 of the Exchange Act, the Company
will maintain a Transfer Agent and a Warrant Agent, which may be the same
entity, and, if necessary under the jurisdiction of
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incorporation of the Company, a Registrar (which may be the same entity as the
Transfer and Warrant Agent) for its Common Stock and Redeemable Warrants.
(j) The Company will furnish to the Underwriters or
pursuant to the Underwriters' direction, without charge, at such place as the
Underwriters may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such
quantities as the Underwriters may reasonably request.
(k) Neither the Company, nor its officers or directors,
nor affiliates of any of them (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(1) The Company shall apply the net proceeds from the
sale of the Securities in substantially the manner, and subject to the
provisions, set forth under "Use of Proceeds" in the Prospectus. Except for
the redemption of the Company's outstanding Convertible Preferred Stock as
disclosed in the Prospectus, no portion of the net proceeds will be used
directly or indirectly to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms
or other documents as may be required (including but not limited to a Form SR
as may be required pursuant to Rule 463 under the Act) from time to time, under
the Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(n) The Company shall furnish to the Underwriters as
early as practicable prior to each of the date hereof, the Closing Date and
each Option Closing Date, if any, but no later than two (2) full business days
prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be as of a date more than
forty-five (45) days prior to the date of the Registration Statement) which
have been read by the Company's independent public accountants, as stated in
their letters to be furnished pursuant to Section 6(k) hereof.
(o) For a period of five (5) years from the Closing Date
(or such earlier date if the Representative has exercised the Underwriters'
[PURCHASE OPTION AGREEMENT]), the Company shall furnish to the Underwriters at
the Company's sole expense, (i) daily consolidated transfer sheets relating to
the Securities upon the Representative's reasonable request; (ii) a list of
holders of Securities upon the Representative's reasonable request; (iii) a
list of, if any, the securities positions of participants in the Depository
Trust Company upon the Representative's reasonable request.
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(p) For a period of five (5) years after the effective
date of the Registration Statement (or such earlier date if the Representative
has exercised the [UNDERWRITING PURCHASE OPTION AGREEMENT]), the Company shall
use its best efforts to cause two (2) individuals (the "Designees") selected by
the Representative to be elected to the Board of Directors of the Company (the
"Board"), if requested by the Representative. Alternatively, the
Representative shall be entitled to appoint an individual who shall be
permitted to attend all meetings of the Board (the "Attendee") and to receive
all notices and other correspondence and communications sent by the Company to
members of the Board. Upon election to the Board, the Designees shall be
entitled to call special meetings of the Board and to serve on the Audit and
Compensation Committees. The Designees may be removed by the Board only for
"justifiable cause" as that term is defined in the Employment Contract between
the Company and V. Lynn Graybill. The Company shall reimburse the
Representative's Designees or Attendee for his or her out-of-pocket expenses
reasonably incurred and authorized in advance by the Company in connection with
his or her attendance of the Board meetings and a fee of $1,000 month. The
Designee or Attendee shall also be entitled to participate in any Stock Option
Plans of the Company for non-employees. To the extent permitted by law, the
Company agrees to indemnify and hold the Designee (as a director or Attendee)
and the Representative harmless against any and all claims, actions, awards and
judgements arising out of his or her service as a director or Attendee and in
the event the Company maintains a liability insurance policy affording coverage
for the action of its officer and directors, to include such Designee and the
Representative as an insured under such policy.
(q) For a period equal to the lesser of (i) five (5)
years from the date hereof, or (ii) the sale to the public of the Warrant
Shares, the Company will use its best efforts not to take any action or actions
which may prevent or disqualify the Company's use of Forms S-1 or, if
applicable, S-2 and S-3 (or other appropriate form) for the registration under
the Act of the Warrant Shares.
(r) For a period of five (5) years from the date hereof,
the Company shall use its best efforts at its cost and expense to maintain the
listing of the Securities on the Nasdaq SmallCap Market or NASDAQ National
Market System if the Company meets all of the requirements and qualifications
promulgated by the NASD.
(s) On or before the effective date of the Registration
Statement, the Company shall retain or make arrangements to retain a financial
public relations firm and a publicist reasonably satisfactory to the
Representative which shall be continuously engaged from such engagement date to
a date 24 months from the effective date of the Registration Statement. Upon
the expiration of such two (2) year period, such engagement shall continue
until the expiration of any lock-up period provided for in the Lock-Up
Agreement(s) with certain officers and directors of the Company subject to the
Company's right to terminate any such firm with the consent of the
Underwriter's director Designees. Further, the Company shall engage for a
period of two years at least three firms (one of which shall be the
Representative and one of which shall be Standard & Poor's Stock Reports
Professional Edition) which are reasonably acceptable to the Representative to
provide industry research and advice to the Company. Upon the expiration of
such two-year period, such engagement shall continue until the expiration of
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any lock-up period provided hereunder, subject to the Company's right to
terminate any such firm with the consent of the Underwriters' director
designee.
(t) The Company shall (i) file a Form 8-A with the
Commission providing for the registration under the Exchange Act of the
Securities and (ii) promptly take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions and/or Moody's OTC
Manual and to continue such inclusion for a period of not less than five (5)
years, as soon as practicable, but in no event more than five (5) business
days' after the effective date of the Registration Statement.
(u) Following the Effective Date of the Registration
Statement and for a period of five (5) years thereafter (or such earlier date
if the Representative has exercised the Underwriters' Purchase Option), the
Company shall, at its sole cost and expense, prepare and file such blue sky
trading applications with such jurisdictions as the Representative may
reasonably request after consultation with the Company, and on the
Representative's request, furnish the Underwriters with a secondary trading
survey prepared by securities counsel to the Company.
(v) The Company shall not amend or alter any term of any
written employment agreement nor Lock-Up Agreement between the Company and any
executive officer, director or affiliate, during the term thereof, in a manner
more favorable to such employee or entity, without the express written consent
of the Representative until such time as the Underwriter's Purchase Option has
been exercised in full.
(w) Until the completion of the distribution of the
Securities, the Company shall not, without the prior written consent of the
Representative and Underwriters' Counsel, which consent shall not be
unreasonably withheld, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(x) Commencing one (1) year from the date hereof, upon
the exercise of any Warrant, the exercise of which was solicited by the
Underwriters in accordance with the applicable rules and regulations of the
NASD prevailing at the time of such solicitation, the Company shall pay to the
soliciting Underwriter a fee of 5% of the aggregate exercise price of such
Warrant (the "Warrant Solicitation Fee") within five (5) business days of such
exercise, so long as the Underwriters provided bona fide services in exchange
for the Warrant Solicitation Fee and the Underwriters have been specifically
designated in writing by the holders of the Warrants as the broker. The
Company further agrees that it will not solicit the exercise of any Warrant
other than through the Underwriters, unless either: (i) the Underwriters cannot
legally solicit the exercise of the Warrants at the time of such solicitation;
(ii) the Representative declines, in writing, to solicit the exercise of the
Warrants within five (5) business days of such a written request by the
Company; or (iii) the Representative consents to the solicitation of the
exercise of the Warrants by the Company or another entity.
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(y) The Company will use its best efforts to maintain its
registration under the Exchange Act in effect for a period of five (5) years
from the Closing Date.
(z) For a period of twenty-four (24) months commencing on
the Effective Date (or such earlier date if the Representative has exercised
the UNDERWRITERS' PURCHASE OPTION), except with the written consent of the
Underwriters, which consent shall not be unreasonably withheld, the Company
will not issue or sell, directly or indirectly, any shares of its capital
stock, or sell or grant options, or warrants or rights to purchase any shares
of its capital stock, except pursuant to (i) this Agreement, (ii) THE PURCHASE
OPTION AND the Underwriters' Warrants, (iii) warrants and options of the
Company heretofore issued and described in the Prospectus, and (iv) the grant
of options and the issuance of shares issued upon exercise of options issued or
to be issued under a stock option plan to be adopted in the future by the
Company with terms that are reasonable for a public entity the size of the
Company which is described in the Prospectus; except that, during such period,
the Company may issue up to ______ shares pursuant to certain employee stock
options as is described in the Prospectus, and issue securities in connection
with an acquisition, merger or similar transaction, provided that such
securities are not publicly registered or issued pursuant to Regulation S of
the Act, and the acquirer of the securities is not granted registration rights
with respect thereto which are effective prior to 24 months after the Effective
Date and until the Underwriter's Purchase Option is exercised, the Underwriter
grants its consent. Notwithstanding anything to the contrary set forth in the
prior sentence, the Company may not issue any class or series of Preferred
Stock for a period of 24 months from the Effective Date without the unanimous
vote or consent of all members of the Board of Directors of the Company. Prior
to the Effective Date, the Company will not issue any options or warrants
without the prior written consent of the Underwriters.
(aa) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the 12 months following the Closing
Date without the Underwriters' prior written consent.
(bb) Subsequent to the dates as of which information is
given in the Registration Statement and Prospectus and prior to the Closing
Dates, except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock, funded debt (other than regular repayments of
principal and interest on existing indebtedness) or other securities of the
Company, any adverse change in the condition (financial or other), business,
operations, income, net worth or properties, including any loss or damage to
the properties of the Company (whether or not such loss is insured against),
which could adversely affect the condition (financial or other), business,
operations, income, net worth or properties of the Company; and (iii) the
Company shall not pay or declare any dividend or other distribution on its
Common Stock or its other securities or redeem or repurchase any of its Common
Stock or other securities.
(cc) The Company, for a period of twenty-four (24) months
following the Effective Date (or such earlier date if the Representative has
exercised the Underwriters'
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Purchase Option), shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived
after the Effective Date without obtaining the Underwriters' prior written
consent, which consent shall not be unreasonably withheld. The Underwriters
shall either approve or disapprove such contemplated redemption of securities
or dividend payment or distribution within five (5) business days from the date
the Underwriters receive written notice of the Company's proposal with respect
thereto; a failure of the Underwriters to respond within the five (5) business
day period shall be deemed approval of the transaction.
(dd) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences, and
(v) all quarterly reports filed on Form 10-Q shall be reviewed by the Company's
accountant in accordance with SAS 71.
(ee) The Company, for a period of twenty-four (24) months
following the Effective Date (or such earlier date if the Representative has
exercised the Underwriters' Purchase Option), shall implement the following
procedures:
(i) Sixty days prior to fiscal year end, the
President will present to the Board of Directors a business plan to be adopted
by the Board of Directors at fiscal year end. The business plan will include
the following:
a) monthly projections - including
balance sheet, profit/loss statement and cash flow
statements with underlying assumptions
b) upon board approval, this document
becomes the annual budget
(ii) No later than the 20th day of each month, the
Company will provide the Board with comparative financial statements for the
previous month showing actual balance sheet, profit/loss and cash flow vs.
budget with written explanations for deviation in excess of $50,000 or 10% of
line item presented.
(iii) Monthly Board meetings (which may be by
telephone) by the 25th of each month to include discussion of the Monthly
Report and approval of any changes to the business plan based on change of
circumstances.
(iv) Implementation of a compensation committee,
which will be headed by an outside director and include one of the
Underwriters' Designee Directors, to make recommendations to the Board for
compensation for all outside consultants, officers and outside directors.
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(v) Implementation of an audit committee which
will have as its members one of the Underwriters Designee Directors and one
outside Director.
If the Company fails to comply with or breaches any provisions
of this Section 4 of this Agreement, the Underwriters may cause the Company to
retain one or more consultants, accountants or other professionals to assist
the Company in curing the breach or failure and the Company will reimburse such
third party directly for costs and expenses incurred.
(ff) Financial Advisory Agreement. On the Closing Date,
the Company shall execute a Financial Advisory Agreement with you for services,
which shall include without limitation (i) advising the Company in connection
with possible acquisitions (ii) facilitating shareholder communications and
relations, including the preparation of the Company's annual report and (iii)
advising and assisting the Company with long-term financial planning, corporate
reorganization, expansion and capital structure and other financial matters.
Such agreement shall have a term of two years and provide for compensation of
$2,000 per month which amount shall be prepaid in full on the Closing Date.
The Financial Advisory Agreement shall further provide that during the term of
such agreement, in the event that you (i) introduce, negotiate or arrange on
the Company's behalf a non-public equity financing or (ii) arrange on the
Company's behalf a non-public debt financing or (iii) arrange for the purchase
or sale of assets, or for a merger acquisition or joint venture for the
Company, then the Company will compensate you (based on the Transaction Value,
as defined below) for such services in an amount equal to:
5% on the first $1,000,000 of the Transaction Value;
4% on the amount from $1,000,001 to $2,000,000;
3% on the amount from $2,000,001 to $3,000,000;
2% on the amount from $3,000,001 to $4,000,000;
1% on the amount from $4,000,001 to $5,000,000;
1% on the amount in excess of $5,000,000.
"Transaction Value" shall mean the aggregate value of
all cash, securities and other property (i) paid to the Company, its affiliates
or their shareholders in connection with any transaction referred to above
involving any investment in or acquisition of the Company or any affiliates (or
the assets of either), (ii) paid by the Company or any affiliate in any such
transaction involving an investment in or acquisition of another party or its
equity holdings by the Company or any affiliate, or (iii) paid or contributed
by the Company or any affiliate and by the other party or parties in the event
of any such transaction involving a merger, consolidation, joint venture or
similar joint enterprise or undertaking. The value of any such securities
(whether debt or equity) or other property shall be the fair market value
thereof as determined by mutual agreement of the Company and the Underwriters
or by an independent appraiser jointly selected by the Company and the
Underwriters.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the
Closing Date and the Option Closing Date (to the extent not paid at the Closing
Date) all expenses and fees (other than
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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) advertising costs and expenses,
including but not limited to costs and expenses in connection with the "road
show," information meetings and presentations, and prospectus memorabilia all
of which costs and expenses shall be approved in advance by the Company; (vi)
fees and expenses of the transfer agent; (vii) the fees payable to the NASD;
(viii) the fees and expenses incurred in connection with the listing of the
Securities on the Nasdaq SmallCap Market and any other fees for application and
admission to a registered Stock Exchange for which the Underwriter requires the
Company to register its Securities; (ix) fees and expenses for any tombstone
advertisements reasonably requested by the Representative; (x) Closing
Binders; and (xi) Lucite cubes containing a miniature definite Prospectus. All
fees and expenses payable to the Underwriters shall be payable at the Closing
Date or Option Closing Date, as applicable.
(b) If this Agreement is terminated by the Underwriters
in accordance with the provisions of Section 6, Section 10(a) or Section 12,
the Company shall reimburse and indemnify the Underwriters for all of their
out-of-pocket expenses reasonably incurred in connection with the transactions
contemplated hereby.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Underwriters a non-accountable expense allowance equal to three percent
(3%) of the gross proceeds received by the Company from the sale of the
Securities, $__________ of which has been paid to date to the Underwriters.
The Company will pay the remainder of the non-accountable expense allowance on
the Closing Date by direct payment to third parties for fees and expenses
including, but not limited to, fees and expenses of Underwriter's Counsel and
the balance by deduction from the proceeds of the offering contemplated herein.
In the event the Underwriters elect to exercise the over-allotment option
described in Section 2(b) hereof, the Company further agrees to pay to the
Underwriters on the Option Closing Date (by deduction from the proceeds of the
offering) a non-accountable
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expense allowance equal to three percent (3%) of the gross proceeds received by
the Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations
of the Underwriters hereunder shall be subject to the continuing accuracy of
the representations and warranties of the Company herein as of the Closing Date
and each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or Option Closing Date, if any, of the statements of
officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Option
Closing Date, if any, of each of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 P.M., New York City time, on the date of this
Agreement or such later date and time as shall be consented to in writing by
the Underwriters, and, at Closing Date and each Option Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been instituted
or shall be pending or contemplated by the Commission and any request on the
part of the Commission for additional information shall have been complied with
to the reasonable satisfaction of Underwriter and Underwriters' Counsel. If
the Company has elected to rely upon Rule 430A of the Rules and Regulations,
the price of the Securities and any price-related information previously
omitted from the effective Registration Statement pursuant to such Rule 430A
shall have been transmitted to the Commission for filing pursuant to Rule
424(b) of the Rules and Regulations within the prescribed time period, and
prior to the Closing Date the Company shall have provided evidence satisfactory
to the Underwriters of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules and
Regulations.
(b) The Underwriters shall not have advised the Company
that the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriters' opinion, is material or omits to
state a fact which, in the Underwriters' opinion, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Underwriters' reasonable opinion, is
material, or omits to state a fact which, in the Underwriters' reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) On or prior to the Closing Date and each Option
Closing Date, as the case may be, the Underwriters shall have received from
Underwriters' Counsel, such opinion or opinions with respect to the
organization of the Company the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as the Underwriters
reasonably may request and such counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
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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, 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,
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are not subject to personal liability by reason of being such holders, and none
of such securities were issued in violation of the preemptive rights of any
holder of any security of the Company.
(iv) The issuance of the Shares, Redeemable
Warrants and the Warrant Shares have been duly authorized and when issued and
paid for in accordance with this Agreement and the Warrant Agreement,
respectively, will be validly issued, fully paid and non-assessable securities
of the Company. The holders of the Securities when issued and paid for, will
not be subject to personal liability by reason of being such holders. To the
best of such counsel's knowledge, the Securities are not and will not be
subject to the preemptive or similar contractual rights of any shareholder of
the Company. All corporate action required to be taken for the authorization,
issuance and sale of the Securities has been duly and validly taken. The
certificates representing the Shares and Redeemable Warrants are in due and
proper form.
(v) Based solely on telephonic, verbal
confirmation provided to such counsel by the staff of the Commission, the
Registration Statement and all post-effective amendments, if any, have become
effective under the Act, and, if applicable, filing of all pricing information
has been timely made in the appropriate form under Rule 430A, and, to the best
of such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and to the best of such counsel's
knowledge, no proceedings for that purpose have been instituted or are pending
or threatened or contemplated under the Act; and any required filing of the
Prospectus pursuant to Rule 424(b) has been made.
(vi) To the best of such counsel's knowledge, (A)
there are no material contracts or other documents required to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form SB-2
and the Rules and Regulations.
(vii) This Agreement, the Underwriters Purchase
Option Agreement, the Warrant Agreement, and the Financial Consulting Agreement
have each been duly and validly authorized, executed and delivered by the
Company, and assuming that it is a valid and binding agreement of the
Underwriters, so as the case may be, constitutes a legal, valid and binding
agreement of the Company enforceable as against the Company in accordance with
its respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law or pursuant to public policy).
(viii) Neither the execution or delivery by the
Company of this Agreement, the Underwriter's Purchase Option Agreement, and the
Warrant Agreement, nor its performance hereunder or thereunder, nor its
consummation of the transactions contemplated herein or therein, nor the
conduct of its business as described in the Registration Statement, the
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Prospectus, and any amendments or supplements thereto, nor the issuance of the
securities conflicts with or will conflict with or results or will result in
any breach or violation of any of the terms or provisions of, or constitutes or
will constitute a material default under, or result in the creation or
imposition of any material lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever upon any
property or assets (tangible or intangible) of the Company pursuant to the
terms of (A) the Articles of Incorporation of the Company, or (B) to the best
knowledge of such counsel, and except to the extent it would not have a
Material Adverse Effect on the Company, any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body,
having jurisdiction over the Company or any of its respective activities or
properties.
(ix) No consent, approval, authorization or order,
and no filing with, any court, regulatory body, government agency or other
body, (other than such as may be required under state securities laws, as to
which no opinion need be rendered) is required in connection with the issuance
by the Company of the Securities pursuant to the Prospectus and the
Registration Statement, the performance of this Agreement, the Underwriters'
Purchase Option, the Financial Consulting Agreement and the Warrant Agreement
by the Company, and the taking of any action by the Company contemplated hereby
or thereby, which has not been obtained.
(x) To the best of such counsel's knowledge,
except as described in the Prospectus, no person, corporation, trust,
partnership, association or other entity holding securities of the Company has
the contractual right to include and/or register any securities of the Company
in the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement
for twelve months from the date hereof.
(xi) After the public offering, the Securities
will be eligible for listing on the Nasdaq SmallCap Market.
In rendering such opinion such counsel may rely, (A) as to
matters involving the application of laws other than the laws of the United
States, the corporate laws of Nevada and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified
in such opinion, if at all, upon an opinion or opinions (in form and in
substance reasonably satisfactory to Underwriters' Counsel) of other counsel
reasonably acceptable to Underwriters' Counsel, familiar with the applicable
laws, and (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company; provided, that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and, in their
opinion, the Underwriters and they are justified in relying thereon.
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(e) At each Option Closing Date, if any, the Underwriters
shall have received the an opinion of counsel to the Company, each dated the
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of Option Closing Date the
statements made by such firm, in their opinion, delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the
Option Closing Date, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
(g) Prior to the Closing Date and each Option Closing
Date, if any: (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by the Company, from the latest date as of which the financial condition
of the Company is set forth in the Registration Statement and Prospectus which
is materially adverse to the Company; (iii) the Company shall not be in
material default under any provision of any instrument relating to any
outstanding indebtedness; (iv) no material amount of the assets of the Company
shall have been pledged or mortgaged, except as set forth in the Registration
Statement and Prospectus; (v) no action, suit or proceeding, at law or in
equity, shall have been pending or to its knowledge threatened against the
Company, or affecting any of its properties or businesses before or by any
court or federal, state or foreign commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding may materially
adversely affect the business, operations, prospects or financial condition or
income of the Company, except as set forth in the Registration Statement and
Prospectus; and (vi) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(h) At the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
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(iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto, contain all statements
and information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and
neither the Preliminary Prospectus nor any supplement thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus and
except as otherwise contemplated therein: (A) the Company has not incurred up
to and including the Closing Date or the Option Closing Date as the case may
be, other than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (B) the Company has not paid or declared
any dividends or other distributions on its capital stock; (C) the Company has
not entered into any transactions not in the ordinary course of business; (D)
there has not been any change in the capital stock or any increase in long-term
debt or any increase in the short-term borrowings (other than any increase in
the short term borrowings in the ordinary course of business) of the Company;
(E) the Company has not sustained any material loss or damage to its property
or assets, whether or not insured; (F) there is no litigation which is pending
or threatened against the Company which is required to be set forth in an
amended or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers
or affiliates shall have taken, and the Company, its officers and affiliates
will not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the Company's securities to facilitate the sale or resale of
the Shares.
References to the Registration Statement and the Prospectus in
this subsection (i) are to such documents as amended and supplemented at the
date of such certificate.
(i) By the Closing Date, the Underwriters shall have
received clearance from NASD as to the amount of compensation allowable or
payable to the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the
Representative shall have received a letter, dated such date, addressed to the
Representative in form and substance satisfactory in all respects (including
the non-material nature of the changes or decreases, if any, referred to in
clause (iii) below) to the Underwriters, from S. W. Hatfield + Associates:
(i) confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
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(ii) stating that it is their opinion that the
condensed financial statements and supporting schedules of the Company included
in the Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Underwriters may rely upon the opinion of S.W. Hatfield
+ Associates with respect to the financial statements and supporting schedules
included in the Registration Statement;
(iii) stating that, on the basis of a
limited review which included a reading of the latest available unaudited
interim condensed financial statements of the Company (with an indication of
the date of the latest available unaudited interim condensed financial
statements), a reading of the latest available minutes of the stockholders and
board of directors and the various committees of the boards of directors of the
Company, consultations with officers and other employees of the Company
responsible for financial and accounting matters and other specified procedures
and inquiries, nothing has come to their attention which would lead them to
believe that (A) the unaudited condensed financial statements of the Company
included in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited condensed financial statements of the Company included in
the Registration Statement, or (B) at a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there has been
any change in the capital stock, or any increase in total borrowings of the
Company, or any decrease in the stockholders' equity or working capital of the
Company as compared with amounts shown in the financial statements included in
the Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from
____________ to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease in
revenue, net earnings or increase in net income or earnings per common share of
the Company, in each case as compared with the corresponding period of the
prior year other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount of such
decrease;
(iv) stating that they have compared specific
dollar amounts, numbers of Securities, percentages of revenue and earnings,
statements and other financial information pertaining to the Company set forth
in the Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding any
questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries and other
appropriate procedures (which procedures did not constitute an examination in
accordance with generally accepted auditing standards) set forth in the letter
and found them to be in agreement; and
(v) statements as to such other matters incident
to the transaction contemplated hereby as the Underwriters may reasonably
request.
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(k) At the Closing Date and each Option Closing Date, the
Underwriters shall have received from S. W. Hatfield + Associates, a letter,
dated as of the Closing Date, or Option Closing Date, as the case may be, to
the effect that they reaffirm that statements made in the letter furnished
pursuant to Subsection (j) of this Section, except that the specified date
referred to shall be a date not more than five days prior to the Closing Date
and, if the Company has elected to rely on Rule 430A of the Rules and
Regulations, to the further effect that they have carried out procedures as
specified in clause (iii) of subsection (j) of this Section with respect to
certain amounts, percentages and financial information as specified by the
Underwriters and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (iii).
(l) On each of the Closing Date and the Option Closing
Date, if any, there shall have been duly tendered to the Underwriters for the
several Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or to its knowledge or that of the Company shall be
contemplated.
If any condition to the Underwriters' obligations hereunder to
be fulfilled prior to or at the Closing Date or the relevant Option Closing
Date, as the case may be, is not so fulfilled, the Underwriters may terminate
this Agreement or, if the Underwriters so elect, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each of the Underwriters, including specifically each person who may be
substituted for an Underwriter as provided in Section 11 hereof and each
person, if any, who controls any Underwriter ("controlling person") within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, claims, damages, expenses or liabilities, joint or several
(and actions in respect thereof), whatsoever (including but not limited to any
and all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever), as such are incurred, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or any
other federal or state statutory laws or regulations at common law or otherwise
or under the laws of foreign countries arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus (except that the indemnification contained in this
paragraph with respect to any preliminary prospectus shall not inure to the
benefit of the Underwriter or to the benefit of any person controlling the
Underwriter on account of any loss, claim, damage, liability or expense arising
from the sale of the Securities by the Underwriter to any person if a copy of
the Prospectus, as amended or supplemented, shall not have been delivered or
sent to such person within the time required by
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the Act, and the untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in such Preliminary Prospectus
was corrected in the Prospectus, as amended and supplemented, and such
correction would have eliminated the loss, claim, damage, liability or
expense), the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments
or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Underwriters'
Purchase Option; or (iii) in any application or other document or written
communication (in this Section 8 collectively called "application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or
agency, Nasdaq Stock Market, Inc. or any other securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading (in the case
of the Prospectus, in the light of the circumstances under which they were
made), unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect to
any Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, in any post-effective amendment, new
registration statement or prospectus or in any application, as the case may be,
or (iv) any failure of the Company to comply with any provision of this
Underwriting Agreement resulting in a claim or loss to the Underwriters.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or
otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of Section 20 of
the Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to the Underwriters but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto in any post-effective amendment, new registration statement or
prospectus, or in any blue sky application or any other such application made
in reliance upon, and in strict conformity with, written information furnished
to the Company with respect to any Underwriter by such Underwriter expressly
for use in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any
post-effective amendment, new registration statement or prospectus, or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
such application, provided, further, that the liability of each Underwriter to
the Company shall be limited to the amount of the net proceeds of the Offering
received by the Company. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend and the last paragraph of the cover
page in the Prospectus have been furnished by the Underwriters expressly for
use therein and any information furnished by or on behalf of the
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Underwriter filed in any jurisdiction in order to qualify the Securities under
State Securities laws or filed with the Commission, the NASD or any securities
exchange constitute the only information furnished in writing by or on behalf
of the Underwriters for inclusion in the Prospectus and the Underwriters hereby
confirm that such statements and information are true and correct.
(c) Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any action, suit or proceeding,
such indemnified party shall, if a claim in respect thereof is to be made
against one or more indemnifying parties under this Section 7, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve it from any liability which it may have under this Section 7 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise avoided). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing the indemnified party or parties shall have the
right to employ its or their own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action at the expense of the indemnifying party, (ii) the indemnifying parties
shall not have employed counsel reasonably satisfactory to such indemnified
party to have charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnifying party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses of
one additional counsel shall be borne by the indemnifying parties. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided however, that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that the express provisions of this Section 7 provide for indemnification
in such case, or (ii) contribution under the Act may be required on the part of
any indemnified party, then each indemnifying party in lieu of indemnifying
such indemnified party shall contribute to the amount paid or payable by
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such indemnified party as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (A) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party the relative benefits
received by the Company on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bear to the total
underwriting discounts and commissions received by the Underwriters hereunder,
in each case as set forth in the table on the Cover Page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to above in this subdivision (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d), the Underwriters shall
not be required to contribute any amount in excess of the amount of the net
proceeds of the Offering received by the Company. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of
the Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from
whom contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subparagraph (d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of
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any investigation made by or on behalf of any Underwriter, the Company, or any
controlling person, and shall survive termination of this Agreement or the
issuance and delivery of the Securities to the Underwriters.
9. Effective Date.
This Agreement shall become effective: (i) upon the execution and
delivery hereof by the parties hereto; or (ii) if, at any time this Agreement
is executed and delivered, it is necessary for the Registration Statement or a
post- effective amendment thereto to be declared effective before the offering
of the Shares may commence, when notification of the effectiveness of the
Registration Statement or such post-effective amendment has been released by
the Commission. Until such time as this Agreement shall have become effective,
it may be terminated by the Company, by notifying you, or by you, as
Representatives of the several Underwriters, by notifying the Company.
10. Termination.
(a) The Underwriters shall have the right to terminate
this Agreement (i) if any calamitous domestic or international event or act or
occurrence has materially disrupted, or in the Underwriters' opinion will in
the immediate future materially disrupt general securities markets in the
United States; or (ii) if trading on the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market, or in the over-the-counter market
shall have been suspended or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been
required on the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; or (iii) if
the United States shall have become involved in a war or major hostilities; or
(iv) if a banking moratorium has been declared by a New York State or federal
authority; or (v) if a moratorium in foreign exchange trading has been
declared; or (vi) if the Company shall have sustained a material adverse loss,
whether or not insured, by reason of fire, flood, accident or other calamity
that materially impairs the investment quality of the Securities; or (vii) if
there shall have been such material adverse change in the conditions or
prospects of the Company, involving a change not contemplated by the
Registration Statement.
(b) Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities), the
Underwriters shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the
Page 34
<PAGE> 35
terms herein set forth; if, however, the Underwriters shall not have completed
such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed
10% of the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all nondefaulting
Underwriters; or
(b) if the number of Defaulted Securities exceeds 10% of
the total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Underwriters shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Underwriters option, by notice from the Underwriters to
the Company, terminate the Underwriters' several obligations to purchase
Securities from the Company on such date) without any liability on the part of
any non-defaulting party other than pursuant to Section 5 and Section 7 hereof.
No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Argent Securities, Inc., 3340 Peachtree Road, Suite 450,
Atlanta, GA 30326, with a copy to Johnson & Montgomery, One Buckhead Plaza,
3060 Peachtree Road, N.W., Suite 400, Atlanta, Georgia 30305, Attention:
Robert E. Altenbach, Esq. Notices to the Company shall be directed to the
Company.
14. Parties. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and their respective
heirs and legal representatives and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or
by virtue of this Agreement or any provisions herein contained. No purchaser
of Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
Page 35
<PAGE> 36
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Georgia
without giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
KARTS INTERNATIONAL INCORPORATED
By:
---------------------------------
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE
WRITTEN ON BEHALF OF THEMSELVES AND THE OTHER SEVERAL
UNDERWRITERS NAMED IN SCHEDULE I HERETO:
Argent Securities, Inc., as
Representative of the Several Underwriters
By:
------------------------------------------
Name: L. Phillips Reames
Title: Chairman
Page 36
<PAGE> 37
SCHEDULE I
Underwriter Number of Securities
- ----------- --------------------
Argent Securities, Inc. 1,400,000 Shares of Common Stock
1,400,000 Redeemable Common Stock
Purchase Warrants
Page 37
<PAGE> 38
SCHEDULE II
Warrant Agent - Securities Transfer Corporation
Page 38
<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 or the officers
of the Company regarding general financial matters, including, but not limited
to, long-term financial planning, expansions, changes in capital structure,
shareholder relations, the raising of capital from public and private sources,
and investment banking transactions and services, as shall be requested in
writing by the President of the Company from time to time. Consultant agrees,
upon request, to make itself available to render such services as Consultant
deems necessary.
2. Term. Except as otherwise provided in Section 3(b) of this
Agreement, the term of this Agreement shall be for a period of two (2) years
commencing ___________, 1997.
3. Compensation of Consultants.
a. Advisory Fee. In exchange for the services provided
hereunder, the Company hereby agrees to pay Consultant an advisory fee equal to
$24,000 per year during the term of this Agreement. The Company shall pay
$48,000 (representing prepayment in full of the fees for the two-year term of
this Agreement) to Consultant on the closing date of the Company's public
offering of 1,400,000 shares of the Company's common stock, par value $.001 per
share ("Common Stock") and 1,400,000 redeemable warrants to purchase Common
Stock, underwritten by Consultant.
<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 relate, and
the Company agrees that no person or entity other than the Company shall
-2-
<PAGE> 3
be entitled to make use of or rely upon the advice of Consultants to be given
hereunder, and no such opinion or advice shall be used by the Company for any
other purpose or reproduced, disseminated, quoted or referred to by the Company
in communications with third parties at any time, in any manner or for any
purpose, nor may the Company make any public reference to Consultant or use
Consultant's name in any annual report or any other report or release of the
Company without Consultant's prior written consent, except that the Company
may, without Consultant's further consent, disclose this Agreement (but not the
information provided to the Company by Consultant) in the Company's filings
with the Securities and Exchange Commission, if such disclosure is required by
law.
7. Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly given when
personally served in writing or when deposited in the United States mail,
postage prepaid, addressed to the other party at the address appearing at the
end of this Agreement. Either party may change its address by written notice
make in accordance with this Section.
8. Benefit of Agreement. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives, administrators, executors, successors, subsidiaries and
affiliates.
9. Governing Law. This Agreement is made and shall be governed
and construed in accordance with the laws of the State of Georgia.
10. Assignment. Any attempt by either party to assign any rights,
duties or obligations which arise under this Agreement without the prior
written consent of the other party shall be void, and shall constitute a breach
of the terms of this Agreement.
11. Entire Agreement, Modifications. This Agreement constitutes
the entire agreement between the Company and the Consultant. No promises,
guarantees, inducements or agreements, oral or written, expressed or implied,
have been made other than as contained in this Agreement. This Agreement can
only be modified or changed in writing signed by the party or parties to be
charged.
12. Termination. This Agreement shall automatically terminate
after the initial two (2) year term. If terminated by the Company, such action
shall not alter Company's obligation to pay Consultant the agreed upon full
compensation described in this Agreement.
13. Litigation Expenses. If any action is brought by either party
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
-3-
<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 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, made this _____ day of February,
1996, by and between Sarah Acquisition Corporation, a Florida corporation
("SAC"), and Karts International Incorporated, a Nevada corporation ("KII")
(the two corporate parties hereto being sometimes collectively referred to as
the "Constituent Corporations"),
W I T N E S S E T H :
WHEREAS, the Boards of Directors of SAC and KII have adopted
resolutions declaring the advisability of the proposed merger (the "Merger") of
SAC with KII upon the terms hereinafter set forth and the Boards of Directors
of SAC and KII have by resolution adopted and approved this Agreement and Plan
of Merger (the "Agreement") and both such Boards of Directors have directed
that this Agreement be submitted to the shareholders of SAC and KII for their
approval; and
WHEREAS, the Merger is intended to constitute a reorganization within
the meaning of Section 368(a)(1)(F) or Section 368(a)(1)(A) of the Internal
Revenue Code of 1986; and
WHEREAS, as and when required by the provisions of this Agreement, all
such action as may be necessary or appropriate shall be taken by SAC and KII,
as appropriate, in order to consummate the Merger;
NOW, THEREFORE, the Constituent Corporations do hereby agree to merge
on the terms and conditions herein provided, as follows:
ARTICLE I
General
1.1 Agreement to Merge. The parties to this Agreement agree to
effect the Merger herein provided for, subject to the terms and conditions set
forth herein.
1.2 Effective Time of the Merger. The Merger shall be effective
at 5:01 p.m. on the date the Articles of Merger are filed with the Secretary of
State of Nevada. The date and time the Merger becomes effective is referred to
as the "Effective Time of the Merger."
1.3 Surviving Corporation. Upon the Effective Time of the Merger,
SAC shall be merged into KII, and KII shall be the surviving corporation,
governed by the laws of the State of Nevada (hereinafter sometimes called the
"Surviving Corporation").
1.4 Articles of Incorporation and Bylaws. Upon the Effective Time
of the Merger, the Articles of Incorporation and Bylaws of KII in effect
immediately prior to the Effective Time of the Merger shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation, subject always to the
right of the Surviving Corporation to amend its Articles of Incorporation
<PAGE> 2
and Bylaws in accordance with the laws of the State of Nevada and the
provisions of the Articles of Incorporation and Bylaws.
1.6 Directors and Officers. The directors and officers of KII in
office at the Effective Time of the Merger shall be and constitute the
directors and officers of the Surviving Corporation, each holding the same
office and/or directorship in the Surviving Corporation as he or she held in
KII for the terms elected and/or until their respective successors shall be
elected or appointed and qualified.
1.7 Effect of the Merger. On and after the Effective Time of the
Merger, subject to the terms and conditions of this Agreement, the separate
existence of SAC shall cease, the separate existence of KII, as the Surviving
Corporation, shall continue unaffected by the Merger, except as expressly set
forth herein, and the Surviving Corporation shall succeed, without further
action, to all the properties and assets of SAC of every kind, nature and
description and to SAC's business as a going concern. The Surviving
Corporation shall also succeed to all rights, title and interests to all real
estate and other property owned by SAC without reversion or impairment, without
further act or deed, and without any transfer or assignment having occurred,
but subject to any existing liens thereon. All liabilities and obligations of
SAC shall become the liabilities and obligations of the Surviving Corporation
and any proceedings pending against SAC will be continued as if the Merger had
not occurred.
1.8 Further Assurances. SAC hereby agrees that at any time, or
from time to time, as and when requested by the Surviving Corporation, or by
its successors and assigns, it will execute and deliver, or cause to be
executed and delivered in its name by its last acting officers, or by the
corresponding officers of the Surviving Corporation, all such conveyances,
assignments, transfers, deeds or other instruments, and will take or cause to
be taken such further or other action and give such assurances as the Surviving
Corporation, its successors or assigns may deem necessary or desirable in order
to evidence the transfer, vesting of any property, right, privilege or
franchise or to vest or perfect in or confirm to the Surviving Corporation, its
successors and assigns, title to and possession of all the property, rights,
privileges, powers, immunities, franchises and interests referred to in this
Article I and otherwise to carry out the intent and purposes thereof.
KII, as the Surviving Corporation, agrees that it will promptly pay to
any dissenting shareholder of any Constituent Corporation, in accordance with
the applicable provisions of Florida and Nevada law, such amount as such
dissenting shareholder shall be entitled to receive under Florida and Nevada
law as a dissenting shareholder.
ARTICLE II
Capital Stock of the Constituent Corporations
2.1 KII Capital Stock. Upon the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of SAC, KII or the
holders of any of the common stock ("KII Common Stock") of KII, each issued and
outstanding share of KII Common Stock shall be cancelled and shall no longer be
outstanding.
2.2 SAC Capital Stock. Upon the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of SAC, KII or the
holders of any of the common
2
<PAGE> 3
stock ("SAC Common Stock") of SAC, each share of issued and outstanding SAC
Common Stock shall be converted into the right to receive 1/250 share of KII
Common Stock. Upon the Effective Time of the Merger, any shares of capital
stock held in the treasury of SAC shall be cancelled and no shares of KII
Common Stock shall be issued in respect thereof.
2.3 Exchange Procedure. At or following the Effective Time of the
Merger, upon surrender of any certificate representing SAC Common Stock, if
applicable, the Surviving Corporation shall, in exchange therefor, cause to be
issued to the holder of such certificate a new certificate representing KII
Common Stock pursuant to Section 2.2, less any amount required to be withheld
under applicable federal, state or local tax requirements, and such certificate
forthwith shall be cancelled. Until so surrendered and exchanged, each such
certificate shall represent solely the right to receive the merger
consideration, without interest and less any tax withholding.
2.4 Dissenting Shares. Each share of SAC or KII Common Stock
issued and outstanding immediately prior to the Effective Time of Merger not
voted in favor of the Merger and the holder of which has given written notice
of the exercise of dissenter's rights as required by applicable law is herein
called a "Dissenting Share." Dissenting Shares shall not be converted into or
represent the right to receive the merger consideration pursuant to Sections
2.1, 2.2, or 2.3 hereof and shall be entitled only to such rights as are
available to such holder pursuant to applicable law unless the holder thereof
shall have withdrawn or forfeited his dissenter's rights. Each holder of
Dissenting Shares shall be entitled to receive the value of such Dissenting
Shares held by him in accordance with the provisions of applicable law. If any
holder of Dissenting Shares shall effectively withdraw or forfeit his
dissenter's rights under applicable law, such Dissenting Shares shall be
converted into the right to receive the merger consideration in accordance with
the provisions of Sections 2.1, 2.2 and 2.3.
ARTICLE III
Termination and Amendment
3.1 Termination. This Agreement may be terminated and abandoned
at any time prior to the Effective Time of the Merger, whether before or after
action thereon by the shareholders of the Constituent Corporations, by the
mutual written consent of the Boards of Directors of SAC and KII.
3.2 Consequences of Termination. In the event of the termination
and abandonment of this Agreement pursuant to the provisions of Section 3.1
hereof, this Agreement shall be of no further force or effect.
3.3 Modification, Amendment, etc. Any of the terms or conditions
of this Agreement may be waived at any time, whether before or after action
thereon by the shareholders of the Constituent Corporations, by the party
entitled to the benefits thereof, and this Agreement may be modified or amended
at any time, whether before or after action thereon by the shareholders of the
Constituent Corporations, to the full extent permitted by the corporate laws of
the States of Florida and Nevada. Any waiver, modification or amendment shall
be effective only if reduced to writing and executed by the duly authorized
representatives of the Constituent Corporations.
3
<PAGE> 4
ARTICLE IV
Miscellaneous
4.1 Expenses. The Surviving Corporation shall pay all expenses of
carrying this Agreement into effect and accomplishing the Merger herein
provided for.
4.2 Headings. Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any provisions of
this Agreement.
4.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to
be an original instrument, and all such counterparts together shall constitute
only one original.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf by an officer duly authorized thereunto
as of the date first above written.
SARAH ACQUISITION CORPORATION
By: /s/ TIMOTHY P. HALTER
------------------------------------
Timothy P. Halter, Vice President
KARTS INTERNATIONAL INCORPORATED
By: /s/ TIMOTHY P. HALTER
------------------------------------
Timothy P. Halter, Vice President
4
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
HALTER FINANCIAL GROUP, INC.
("HALTER"),
BRISTER'S THUNDER KARTS, INC.
(THE "COMPANY")
AND
CHARLES BRISTER
(THE "SHAREHOLDER")
JANUARY 16, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE/
SECTION SUBJECT PAGE
- ------- ------- ----
<S> <C> <C>
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I REPRESENTATIONS OF THE SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Ownership of Brister Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Validity of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Financial Statements and No Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.12 Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.15 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.17 Intellectual Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.20 Employment Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.22 Interests in Clients, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.23 Bank Accounts, Powers of Attorney and Compensation of Employees . . . . . . . . . . . . . . . . 7
1.24 No Changes Prior to Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.26 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.27 Agreements, Judgments and Decrees Affecting Shareholder . . . . . . . . . . . . . . . . . . . . 8
1.28 Copies of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.29 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.30 Investor Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.31 Product Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.32 Products Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.33 Environmental Site Asses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II REPRESENTATIONS OF HALTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Existence and Good Standing of Halter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 Issuance of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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ARTICLE III SALE OF THE BRISTER SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Sale of the Brister Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Cash Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Acquiring Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Consulting and Non-competition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 Directors' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV CONDUCT OF BUSINESS; REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Review of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V CONDITIONS TO HALTER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Opinion of the Company's and the Shareholder's Counsel . . . . . . . . . . . . . . . . . . . 14
5.2 Good Standing and Tax Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Performance of Agreements/Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 No Litigation Threatened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.7 Company's Accountants Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.8 Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.9 Consulting and Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.10 Licensing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 Real Estate Option and Right of First Refusal Agreement . . . . . . . . . . . . . . . . . . . 17
5.12 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.13 Release of Shareholder Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.14 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.15 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 Site Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.17 Amendments to Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Opinion of Halter's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII SURVIVAL OF REPRESENTATIONS: INDEMNITY; OFFSET . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Survival of Representations and Obligations to Indemnify . . . . . . . . . . . . . . . . . . 19
7.2 Indemnification by the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Indemnification by the Acquiring Company . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.5 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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ARTICLE VIII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Knowledge of the Company and the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.4 "Person" Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.5 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.8 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.13 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.14 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.15 Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.16 Separate Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.17 Joinder of Spouse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of January
16, 1996, is made and entered into by and among Halter Financial Group, Inc., a
Texas corporation ("Halter"), Brister's Thunder Karts, Inc., a Louisiana
corporation (the "Company") and Charles Brister (the "Shareholder"), the sole
shareholder of the Company.
W I T N E S S E T H:
WHEREAS, the Shareholder is the owner and holder of all of the issued
and outstanding shares of common stock, no par value per share, of the Company
as set forth on Exhibit 1 hereto (the "Brister Shares"); and
WHEREAS, the Shareholder desires to sell, and Halter, through a
to-be-named public acquisition corporation (the "Acquiring Company"), desires
to purchase, the Brister Shares pursuant to this Agreement.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
REPRESENTATIONS OF THE SHAREHOLDER
As a material inducement to Halter to enter into this Agreement and
perform its obligations hereunder, the Company and the Shareholder jointly and
severally represent, warrant and agree as follows:
1.1 Ownership of Brister Shares. The Shareholder is the lawful
owner of the Brister Shares, free and clear of all liens, encumbrances,
restrictions and claims of every kind; the Shareholder has full legal right,
power and authority to enter into this Agreement and to sell, assign, transfer
and convey the Brister Shares so owned by the Shareholder pursuant to this
Agreement; and the delivery to the Acquiring Company of the Brister Shares
pursuant to the provisions of this Agreement will transfer to the Acquiring
Company valid title thereto, free and clear of all liens, encumbrances,
restrictions and claims of every kind.
1.2 Validity of Transaction. This Agreement and each other
agreement contemplated hereby are valid and legally binding obligations of the
Company and the Shareholder, enforceable in accordance with their respective
terms against the Company and the Shareholder, except as limited by bankruptcy,
insolvency and similar laws affecting creditors generally, and by general
principles of equity. When sold, assigned, transferred and conveyed to the
Acquiring Company pursuant to this Agreement, the Brister Shares will be duly
authorized, validly issued, fully paid, nonassessable, and free of any
preemptive rights of any present shareholder or any future shareholder of the
Company. The execution, delivery and performance of this Agreement and each
other agreement contemplated hereby have been duly authorized by the Company
and the Shareholder and will not violate any applicable federal or state law,
any order of any court or government agency or the articles or certificate of
incorporation of the Company. The execution, delivery and performance of this
Agreement and each other agreement contemplated hereby will not result in any
breach of or default under, or result in the creation of any encumbrance upon
any of the assets of the Company pursuant to the terms of any agreement by
which the Company or any of its respective assets may be bound. No consent,
approval or authorization of, or
STOCK PURCHASE AGREEMENT - Page 1
<PAGE> 6
registration or filing with any governmental authority or other regulatory
agency, is required for the validity of the execution and delivery by the
Company and the Shareholder of this Agreement or any documents related thereto.
1.3 Existence and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Louisiana. The Company has the power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and is in good standing in each of the states listed in Schedule
1.3 hereto, which are the only jurisdictions in which the character or location
of the properties owned or leased by the Company or the nature of the business
conducted by the Company makes such qualification necessary. The Company has
all necessary power and authority to conduct the business it proposes to
conduct and enter into and perform its obligations under this Agreement. The
Company will deliver to Halter and the Acquiring Company a Certificate of
Officer dated as of the Closing Date (as hereinafter defined) certifying to the
Company's existence and good standing, the accuracy and completeness of its
articles or certificate of incorporation and its bylaws and the names and
signatures of its officers and agents authorized to execute documents on behalf
of Company.
1.4 Capital Stock. The Company has an authorized capitalization
as set forth in Schedule 1.4 hereto. All such outstanding shares have been
duly authorized and validly issued and are fully paid and nonassessable.
Neither the Shareholder nor the Company are parties to or bound by, nor do they
have any knowledge of, any outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements
of any character providing for the purchase, issuance or sale of any shares of
the capital stock of the Company, other than as contemplated by this Agreement.
As of the Closing Date, the Company will not be subject to any obligation,
contingent or otherwise, to repurchase or otherwise acquire or redeem any
shares of its capital stock.
1.5 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any of the capital stock of any other corporation or
any equity, profit sharing, participation or other interest in any corporation,
partnership, joint venture or other entity.
1.6 Financial Statements and No Material Changes. The Shareholder
has heretofore furnished Halter with the unaudited balance sheet of the Company
as of December 31, 1993, December 31, 1994, respectively, as well as the
unaudited balance sheet as of November 30, 1995 and the related statements of
income, all compiled by Durnin & James, certified public accountants (the
consolidated balance sheet of the Company at November 30, 1995 is hereinafter
referred to as the "Balance Sheet"). Such financial statements, except as
indicated therein, have been prepared in accordance with Statements on
Standards for Accounting and Review issued by the American Institute of
Certified Public Accountants consistently followed throughout the periods
indicated. The Balance Sheet fairly presents the financial condition of the
Company at the date thereof and, except as indicated therein, reflects all
claims against and all debts and liabilities of the Company, fixed or
contingent, as at the date thereof and the related statement of income fairly
presents the results of operations of the Company and the changes in its
financial position for the periods indicated. Such other balance sheets fairly
present the financial condition of the Company at the respective dates thereof
and, except as indicated therein, reflect all claims against and all debts and
liabilities of the Company, fixed or contingent, as at the respective dates
thereof, and the related statements of income fairly present the results of the
operations of the Company and the changes in its financial position for the
periods indicated. Since November 30, 1995 (the "Balance Sheet Date"), there
has been (i) no material adverse change in the assets or liabilities, or in the
business
STOCK PURCHASE AGREEMENT - Page 2
<PAGE> 7
or condition, financial or otherwise, or in the results of operations, of the
Company, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or act of
God or other public force or otherwise and (ii) no change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations, or prospects, of the Company except in the ordinary
course of business; and to the best knowledge, information and belief of the
Shareholder and the Company, no fact or condition exists or is contemplated or
threatened which might cause such a change in the future.
1.7 Books and Records. The minute books of the Company, as
heretofore delivered to Halter and its representatives, contain accurate
records of all meetings of and corporate actions or written consents by the
Shareholder and Board of Directors of the Company, respectively. The Company
does not have any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly dependent
upon or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) that (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct control
of the Company. The Company will make and keep books, records and accounts
that in reasonable detail accurately and fairly reflect the transactions and
dispositions of its assets. The Company will maintain its present system of
internal accounting controls. The Company's present system of internal
accounting controls is sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements and
to maintain accountability for such assets, (iii) access to assets is permitted
only in accordance with management's general or specific authorization and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals, and appropriate action is taken with respect to any
differences.
1.8 Title to Properties; Encumbrances. The Company has good and
marketable title to its properties. Except as set forth in Schedule 1.8
hereto, all properties of the Company are free and clear of any and all other
encumbrances.
1.9 Real Property. The Company does not own any real property.
1.10 Leases. Schedule 1.10 contains an accurate and complete list
and description of the terms of all leases to which the Company is a party as
lessee or lessor. Each lease set forth in Schedule 1.10 (or required to be set
forth in Schedule 1.10) is in full force and effect; all rents and additional
rents due to date on each such lease have been paid; in each case, the lessee
has been in peaceable possession since the commencement of the original term of
such lease and is not in default thereunder and no waiver, indulgence or
postponement of the lessee's obligations thereunder has been granted by the
lessor; and there exists no event of default or event, occurrence, condition or
act (including the purchase of the Brister Shares hereunder) that, with the
giving of notice, the lapse of time or the happening of any further event or
condition, would become a default under such lease. The Company has not
violated any of the terms or conditions under any such lease in any material
respect, and, to the best knowledge, information and belief of the Shareholder
and the Company, all of the covenants to be performed by any other party under
any such lease have been fully performed. The property leased by the Company
is in a state of good maintenance and repair and is adequate and suitable for
the purposes for which it is presently being used.
STOCK PURCHASE AGREEMENT - Page 3
<PAGE> 8
1.11 Material Contracts. Except as set forth in Schedule 1.11
hereto, the Company has not been or is not bound by (i) any agreement, contract
or commitment relating to the employment of any person by the Company, or any
bonus, deferred compensation, pension, profit sharing, stock option, employee
stock purchase, retirement or other employee benefit plan, (ii) any agreement,
indenture or other instrument that contains restrictions with respect to
payment of dividends or any other distribution in respect of its capital stock,
(iii) any agreement, contract or commitment relating to capital expenditures,
(iv) any loan or advance to, or investment in, any other Person (as hereinafter
defined) or any agreement, contract or commitment relating to the making of any
such loan, advance or investment, (v) any guarantee or other contingent
liability in respect of any indebtedness or obligation of any other Person
(other than the endorsement of negotiable instruments for collection in the
ordinary course of business), (vi) any management service, consulting or any
other similar type contract, (vii) any agreement, contract or commitment
limiting the freedom of the Company to engage in any line of business or to
compete with any other Person, (viii) any agreement, contract or commitment not
entered into in the ordinary course of business that involves $25,000 or more
and is not cancelable without penalty within 30 days or (ix) any agreement,
contract or commitment that might reasonably be expected to have a potential
adverse impact on the business or operations of the Company. Each contract or
agreement set forth in Schedule 1.11 (or required to be set forth in Schedule
1.11) is in full force and effect, and there exists no default or event of
default or event, occurrence, condition or act (including the purchase of the
Brister Shares hereunder) that, with the giving of notice, the lapse of time or
the happening of any other event or condition, would become a default or event
of default thereunder. The Company has not violated any of the terms or
conditions of any contract or agreement set forth in Schedule 1.11 (or required
to be set forth in Schedule 1.11) in any material respect, and, to the best
knowledge, information and belief of the Shareholder and the Company, all of
the covenants to be performed by any other party thereto have been fully
performed. Contracts made in the ordinary course of business involving less
than $25,000 shall be deemed not to be material for purposes of this Section
1.11.
1.12 Restrictive Documents. Neither the Company nor the
Shareholder is subject to, or a party to, any charter, bylaw, mortgage, lien,
lease, license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind or
character, that materially adversely affects the business practices, operations
or condition of the Company or any of its assets or property, or that would
prevent consummation of the transactions contemplated by this Agreement,
compliance by the Shareholder or the Company with the terms, conditions and
provisions hereof or the continued operation of the Company's business after
the date hereof or the Closing Date on substantially the same basis as
heretofore operated or that would restrict the ability of the Company to
acquire any property or conduct business in any area.
1.13 Litigation. Except as set forth in Schedule 1.13 hereto,
there are no claims, actions, inquiries, investigations, suits, proceedings or
arbitrations pending or threatened against the Shareholder or the Company, nor
is the Shareholder or the Company aware of any claims, actions, inquiries,
investigations, suits or arbitrations before any governmental agency, court or
tribunal, domestic or foreign, or before any private arbitration tribunal,
threatened or pending against the Shareholder or the Company involving the
Company's properties or business that, if determined adversely to the
Shareholder or the Company, would, individually or in the aggregate, result in
any materially adverse change in the properties, business, management or
business prospects of the Company nor is there any basis for any such action,
suit, proceeding, arbitration, claim, investigation or inquiry. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Shareholder or the Company and enjoining
STOCK PURCHASE AGREEMENT - Page 4
<PAGE> 9
either the Shareholder or the Company from taking, or requiring the Shareholder
or the Company to take, any action, or to which the Shareholder, the Company,
the Company's business or properties are bound or subject. Except as disclosed
in Schedule 1.13, there are no unsatisfied adverse judgments or court or
administrative orders (whether or not on appeal) affecting the business of the
Company and there are no judgment creditors asserting any claims, whether or
not meritorious or material, against the Shareholder or the Company. Upon a
breach of the representations and warranties made in this Section 1.13, Halter
and the Acquiring Company may avail themselves to all rights and remedies
provided for herein, including, but not limited to, all rights to
indemnification and offset as set forth in Article VII hereof.
1.14 Taxes. The Company has filed or caused to be filed, within
the times and within the manner prescribed by law, all federal, state,
provincial and foreign tax returns and tax reports that are required to be
filed by, or with respect to, the Company. Such returns and reports reflect
accurately all liability for taxes of the Company for the periods covered
thereby. All federal, state, local and foreign income, franchise, sales, use,
occupancy, excise and other taxes and assessments (including interest and
penalties) payable by, or due from, the Company have been fully paid or
adequately disclosed and fully provided for in the books and financial
statements of the Company. The federal income tax liability of the Company has
been finally determined for all fiscal years to and including the fiscal year
ended December 31, 1992. Except as set forth and described in Schedule 1.14
hereto, no examination of any tax return of the Company is currently in
progress. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of the Company.
The Company will pay and discharge, when due, (i) all material taxes,
assessments and governmental priority claims and charges imposed upon its
properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon), and (ii) all
claims for labor, materials or supplies that, if unpaid, might by law become
liens upon any of its properties, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings, and adequate
reserves have been set aside on its books with respect thereto, in accordance
with generally accepted accounting principles. The parties agree that the
liability of the Shareholder under this Agreement for the statements contained
in this Section 1.14 shall be limited in accordance with Section 7.2 hereof.
1.15 Liabilities. The Company has no outstanding claims,
liabilities or indebtedness, contingent or otherwise, except as set forth in
the Balance Sheet, other than liabilities incurred subsequent to the Balance
Sheet Date in the ordinary course of business not involving borrowings by the
Company. The Company is not in default in respect of the terms or conditions
of any indebtedness.
1.16 Insurance. Set forth in Schedule 1.16 hereto is a complete
list of insurance policies that the Company maintains with respect to its
businesses, properties or employees. Such policies are in full force and
effect free from any right of termination on the part of the insurance
carriers. Such policies, with respect to their amounts and types of coverage,
are adequate to insure fully against risks to which the Company, and its
property and assets are normally exposed, in the operation of its businesses,
except that the Company is self-insured with respect to its building
improvements and contents thereof and the Shareholder is self-insured with
respect to the building used by the Company. True, complete and correct copies
of all such policies have been provided to Halter on or prior to the date
hereof.
1.17 Intellectual Properties. Schedule 1.17 hereto contains an
accurate and complete list of all domestic and foreign letters patent, patents,
patent applications, patent licenses, software
STOCK PURCHASE AGREEMENT - Page 5
<PAGE> 10
licenses and know-how licenses, trade names, trademarks, copyrights, unpatented
inventions, service marks, trademark registrations and applications, service
mark registrations and applications and copyright registrations and
applications owned or used by the Company in the operation of its business
(collectively, the "Intellectual Property"). Unless otherwise indicated in
such Schedule 1.17, the Company owns the entire right, title and interest in
and to the Intellectual Property, trade secrets and technology used in the
operation of its business (including, without limitation, the exclusive right
to use and license the same) and each item constituting part of the
Intellectual Property and trade secrets and technology that is owned by the
Company has been, to the extent indicated in Schedule 1.17, duly registered
with, filed in or issued by, as the case may be, the United States Patent and
Trademark Office or such other government entities, domestic or foreign, as are
indicated in Schedule 1.17; and such registrations, filings and issuances
remain in full force and effect. To the best knowledge, information and belief
of the Shareholder and the Company, except as stated in such Schedule 1.17,
there are no pending or threatened proceedings or litigation or other adverse
claims affecting or with respect to the Intellectual Property. Schedule 1.17
lists all notices or claims currently pending or received by either the Company
or the Shareholder during the past two years that claim infringement by the
Company or the Shareholder of any domestic or foreign letters patent, patent
applications, patent licenses and know-how licenses, trade names, trademark
registrations and applications, service marks, copyrights, copyright
registrations or applications, trade secrets or other confidential proprietary
information. Except as set forth in any Schedule hereto, there is, to the best
knowledge, information and belief of the Shareholder and the Company, no
reasonable basis upon which a claim may be asserted against either the Company
or the Shareholder for infringement of any domestic or foreign letters patent,
patents, patent applications, patent licenses and know-how licenses, trade
names, trademark registrations and applications, common law trademarks, service
marks, copyrights, copyright registrations or applications, trade secrets or
other confidential proprietary information. To the best knowledge, information
and belief of the Shareholder and the Company, except as indicated on Schedule
1.17, no Person is infringing the Intellectual Property.
1.18 Compliance with Laws. The Company is in compliance in all
material respects with all applicable laws, regulations, orders, judgments and
decrees.
1.19 Accounts Receivable. The amount of all accounts receivable,
unbilled invoices and other debts due or recorded in the records and books of
account of the Company as being due to the Company at the Closing Date (less
the amount of any provision or reserve therefor made in the records and books
of account of the Company) will be good and collectible in full in the ordinary
course of business and, in any event, not later than 60 days after the Closing
Date; and none of such accounts receivable or other debts is or will at the
Closing Date be subject to any counterclaim or set-off except to the extent of
any such provision or reserve. There has been no material adverse change since
the Balance Sheet Date in the amount of accounts receivable or other debts due
the Company or the allowances with respect thereto, or accounts payable of the
Company, from that reflected in the Balance Sheet.
1.20 Employment Relations. (i) The Company is in substantial
compliance with all federal, state, provincial or other applicable laws,
domestic or foreign, respecting employment and employment practices, terms and
conditions of employment and wages and hours, and has not and is not engaged in
any unfair labor practice, (ii) no unfair labor practice complaint against the
Company is pending before a labor commissioner or other competent authority,
(iii) there is no labor strike, dispute, slowdown or stoppage actually pending
or threatened against or involving the Company, (iv) no representation question
exists respecting the employees of the Company, (v) no grievance that might
have an adverse effect upon the Company or the conduct of its businesses
STOCK PURCHASE AGREEMENT - Page 6
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exists, no arbitration proceeding arising out of or under any collective
bargaining agreement is pending, and no claim therefor has been asserted, (vi)
no collective bargaining agreement is currently being negotiated by the
Company, and (vii) the Company has not experienced any material labor
difficulty during the last three years. There has not been, and to the best
knowledge, information and belief of the Company and the Shareholder, there
will not be, any material adverse change in relations with employees of the
Company as a result of any announcement of the transactions contemplated by
this Agreement. Except as contemplated hereby, no key employee, or group of
employees has any plans to terminate employment with the Company.
1.21 Employee Benefit Plans. The Company has (i) no employee
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not any such
Employee Benefit Plans are otherwise exempt from the provisions of ERISA, or
(ii) no other employee benefit plans or any other foreign pension, welfare or
retirement benefit plans. The Shareholder and the Company have delivered or
caused to be delivered to Halter and its counsel true and complete copies of
(i) all employee benefit plans as in effect, together with all amendments
thereto that will become effective at a later date, as well as the latest
Internal Revenue Service determination letter obtained with respect to any such
employee benefit plan qualified under Section 401 or 501 of the Internal
Revenue Code of 1986, as amended and (ii) Form 5500 for the most recent
completed fiscal year for each employee benefit plan required to file such
form.
1.22 Interests in Clients, Suppliers, Etc. Neither the Shareholder
nor any officer or director of the Company possesses, directly or indirectly,
any financial interest in, or is a director, officer or employee of, any
corporation, firm, association or business organization that is a client,
supplier, customer, or competitor or potential competitor of the Company.
Ownership of securities of a company whose securities are registered under the
Securities Exchange Act of 1934, as amended, not in excess of one percent (1%)
of any class of such securities shall not be deemed to be a financial interest
for purposes of this Section 1.22.
1.23 Bank Accounts, Powers of Attorney and Compensation of
Employees. Set forth in Schedule 1.23 hereto is an accurate and complete list
showing (i) the name and address of each bank in which the Company has an
account or safe deposit box, the number of any such account or any such box and
the names of all persons authorized to draw thereon or to have access thereto,
(ii) the names of all persons, if any, holding powers of attorney from the
Company and a summary statement of the terms thereof and (iii) the names of all
persons whose compensation from the Company on the Balance Sheet Date exceeded
an annualized rate of $25,000, together with a statement of the full amount
paid or payable to each such person for services rendered during such fiscal
year.
1.24 No Changes Prior to Closing Date. During the period from the
Balance Sheet Date to and including the Closing Date, except as expressly
contemplated hereby, the Company will not have (i) incurred any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise),
except in the ordinary course of business, (ii) permitted any of its assets to
be subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, (iii) sold, transferred or otherwise
disposed of any assets except in the ordinary course of business, (iv) made any
capital expenditure or commitment therefor, except in the ordinary course of
business, (v) declared or paid any dividend or made any distribution on any
shares of its capital stock, or redeemed, purchased or otherwise acquired any
shares of its capital stock or any option, warrant or other right to purchase
or acquire any such shares, (vi) made any bonus or
STOCK PURCHASE AGREEMENT - Page 7
<PAGE> 12
profit sharing distribution or payment of any kind, (vii) increased its
indebtedness for borrowed money, except current borrowings from banks in the
ordinary course of business, or made any loan to any Person, (viii) written off
as uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material to the Company, (ix) granted any
increase in the rate of wages, salaries, bonuses or other remuneration of any
executive employee or other employees, except in the ordinary course of
business, (x) canceled or waived any claims or rights of substantial value,
(xi) made any change in any method of accounting or auditing practice, (xii)
otherwise conducted its business or entered into any transaction, except in the
usual and ordinary manner and in the ordinary course of its business, or (xiii)
agreed, whether or not in writing, to do any of the foregoing. There shall
have been no material adverse change in the financial position, results of
operations, business or prospects of Company since the Balance Sheet Date. The
Company has not consolidated or merged with, nor sold, leased or otherwise
disposed to its properties as an entirety or substantially as an entirety, to
any Person. Notwithstanding the foregoing, the Company may make certain
distributions and/or dividend payments to the Shareholder prior to the Closing
Date; provided, however, such distributions and/or dividends shall not be made
if they should cause the Company to fail to meet the financial performance
criteria set forth in Section 5.8 hereof.
1.25 Disclosure. None of this Agreement, the financial statements
referred to in Section 1.6 above, or any agreement, schedule, exhibit or
certificate delivered in accordance with the terms hereof or any document or
statement in writing that has been supplied by or on behalf of the Shareholder,
or by any of the Company's directors or officers, in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact, or omits any statement of a material fact necessary in order to make the
statements contained herein or therein not misleading. There is no fact known
to the Company or the Shareholder that materially and adversely affects the
business, prospects or financial condition of the Company or their respective
properties or assets, that has not been set forth in this Agreement or in the
schedules, exhibits or certificates or statements in writing furnished in
connection with the transactions contemplated by this Agreement. There has not
come to the attention of the Company or the Shareholder any facts that
reasonably cause Company or the Shareholder to believe that any document
connected with the transactions contemplated hereby contain any untrue
statement or a material fact, or omit to state a material fact required to be
stated herein or necessary in order to make the statements herein, the light of
the circumstances existing on the Closing Date, not misleading.
1.26 Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of the Shareholder is, or will be, entitled to any commission
or broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated herein.
1.27 Agreements, Judgments and Decrees Affecting Shareholder. The
Shareholder represents and warrants that he is not subject to any agreement,
judgment or decree adversely affecting his ability to act as an employee of the
Company, as the case may be.
1.28 Copies of Documents. The Shareholder and the Company have
caused to be made available for inspection and copying by Halter and its
advisers, true, complete and correct copies of all documents referred to in
this Article I or in any schedule furnished by the Shareholder or the Company
to Halter pursuant to this Agreement. All documents and instruments delivered
to Halter on the Closing Date in connection with this transaction shall be
satisfactory to Halter in its sole discretion.
STOCK PURCHASE AGREEMENT - Page 8
<PAGE> 13
1.29 Purchase for Investment. The Shareholder will acquire the
Acquiring Company Shares (as hereinafter defined) for investment and not with a
view to resale or for distributing all or any part thereof in any transaction
which would constitute a "distribution" within the meaning of the Securities
Act of 1933, as amended (the" Securities Act"). The offering of the Acquiring
Company Shares to the Shareholder was made only through direct, personal
communication between the Shareholder and a duly authorized representative of
the Acquiring Company and not through public solicitation or advertising. The
Shareholder acknowledges that the Acquiring Company Shares have not been
registered under the Securities Act and that neither Halter nor the Acquiring
Company is under any obligation to file a registration statement with the
Securities and Exchange Commission with respect to the Acquiring Company
Shares.
1.30 Investor Qualifications. The Shareholder (i) has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of its investment in the Acquiring Company
Shares and has the financial ability to assume the monetary risk associated
therewith, (ii) is able to bear the complete loss of its investment in the
Acquiring Company Shares, (iii) has received such other documents and
information as it has requested and has had the opportunity to ask questions
of, and receive answers from, Halter and the Acquiring Company and their
management concerning the Acquiring Company and the terms and conditions of the
offering of the Acquiring Company Shares and to obtain additional information,
(iv) is an "accredited investor" as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act, (v) is not an entity formed solely to
make this investment, and (vi) is not relying upon any statements or
instruments made or issued by any person other than Halter and the Acquiring
Company and their officers in making its decision to invest in the Acquiring
Company Shares.
1.31 Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company does not
have any liability (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) (and there is no basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any such liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Balance Sheet as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company. Except as set
forth in Schedule 1.31 hereto, no product manufactured, sold, leased, or
delivered by the Company is subject to any guaranty, warranty, or other
indemnity.
1.32 Products Liability. Except as set forth in Schedule 1.13
hereto, there is no claim, action, suit, inquiry, proceeding or investigation
by or before any court or governmental or other regulatory or administrative
agency or commission pending or threatened against or involving either the
Shareholder or the Company relating to any product alleged to have been
manufactured or sold by the Company and alleged to have been defective, or
improperly designed or manufactured.
1.33 Environmental Site Assessments. For the purpose of this
Agreement, the Company, the Shareholder and Halter agree that, unless the
context otherwise specifies or requires, the following terms shall have the
meaning herein specified:
(a) "Environmental Laws" shall mean (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund
STOCK PURCHASE AGREEMENT - Page 9
<PAGE> 14
Amendments and Reauthorization Act of 1986, 42 U.S.C.A. 9601 et seq.
("CERCLA"), (ii) the Resource Conservation and Recovery Act, as
amended by the Hazardous and Solid Waste Amendment of 1984, 42
U.S.C.A. 6901 et seq. ("RCRA"), (iii) the Clean Air Act, 42 U.S.C.A.
7401 et seq., (iv) the Federal Water Pollution Control Act, as
amended, 33 U.S.C.A. 1251 et seq., (v) the Toxic Substances Control
Act, 15 U.S.C.A. 2601 et seq., (vi) all applicable laws of the State
of Louisiana, and (viii) all other laws and ordinances relating to
municipal waste, solid waste, air pollution, water pollution and/or
the handling, discharge, disposal or recovery of on-site or off-site
hazardous substances or materials, as each of the foregoing has been
or may hereafter be amended from time to time.
(b) "Hazardous Materials" shall mean, among others, (i)
any "hazardous waste" as defined by the RCRA, and regulations
promulgated thereunder; (ii) any "hazardous substance" as defined by
CERCLA, and regulations promulgated thereunder; (iii) any "toxic
pollutant" as defined in the Federal Water Pollution Prevention and
Control Act, as amended, 33 U.S.C. 1251 et seq., (commonly known as
"CWA" for "Clear Water Act"), and any regulations thereunder; (iv) any
"hazardous air pollutant" as defined in the Air Pollution Prevention
and Control Act, as amended, 42 U.S.C. 7401 et seq. (commonly known as
"CAA" for "Clear Air Act") and any regulations thereunder; (v)
asbestos; (vi) polychlorinated biphenyls; (vii) underground storage
tanks, whether empty, filled or partially filled with any substance;
(viii) any substance the presence of which on the Business Location
(as hereinafter defined) is prohibited by any Environmental Laws; and
(ix) any other substance which is regulated by any Environmental Laws.
(c) "Hazardous Materials Contamination" shall mean the
contamination (whether presently existing or hereafter occurring) of
the improvements, facilities, soil, groundwater, air or other elements
on or at the location of the Company at Highway 51 South, Roseland,
Louisiana 70456 or at any other location where the Company conducts
business (collectively, the "Business Location") by Hazardous
Materials, or the contamination of the buildings, facilities, soil,
groundwater, air or other elements on or any other specific property
or general area, as a result of Hazardous Materials emanating from the
operations of the Company's business.
Halter may, at its sole and absolute discretion, contract for the
services of persons (the "Site Reviewers") to perform an environmental site
assessment or assessments at the Business Location for the purpose of
determining whether there exists at the Business Location any Hazardous
Materials or Hazardous Materials Contamination which may reasonably be expected
to result in any liability, cost or expense to Halter, the Acquiring Company or
any affiliated party of Halter or the Acquiring Company under any Environmental
Laws relating to Hazardous Materials or Hazardous Materials Contamination (the
"Site Assessments"). The Site Assessments may be performed at any time or
times prior to the Closing Date, upon reasonable notice to and under reasonable
conditions imposed by the Shareholder and the Company which do not materially
impede the performance of the Site Assessments. The Site Reviewers are hereby
authorized to enter upon the Business Location for such purposes. The Site
Reviewers are further authorized to perform both above and below ground testing
for environmental damage or the presence of Hazardous Materials or Hazardous
Materials Contamination at the Business Location and such other tests at the
Business Location as may be reasonably necessary to conduct the Site
Assessments. The Shareholder and the Company will supply to the Site Reviewers
such historical and operational information which has been generated from the
day to day operations of the Company's business regarding the Business Location
and will make available for meetings with the Site Reviewers the appropriate
personnel with knowledge of relevant matters as is necessary
STOCK PURCHASE AGREEMENT - Page 10
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to facilitate the Site Assessments. The cost of performing such Site
Assessment shall be paid by Halter and/or the Acquiring Company. If Hazardous
Materials Contamination is discovered at the Business Location prior to the
Closing Date, Halter shall have the right, at its sole option, to terminate
this Agreement without liability to the Shareholder or the Company in
accordance with Article VIII of this Agreement. In the event that any party
terminates this Agreement in accordance with Article VIII hereof, Halter agrees
that it will keep confidential, and will cause the Acquiring Company to keep
confidential, the results of the Site Assessments, provided, however, Halter or
the Acquiring Company may disclose such results to their respective counsel,
advisors and investors in connection with the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS OF HALTER
Halter represents, warrants and agrees as follows:
2.1 Existence and Good Standing of Halter. Halter is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas. Halter has corporate power and authority to make,
execute, deliver and perform this Agreement, and this Agreement has been duly
authorized and approved by all required corporate action of Halter.
2.2 Restrictive Documents. Halter is not subject to any charter,
by-law, mortgage, lien, lease, agreement, instrument, order, law, rule,
regulation, judgment or decree, or any other restriction of any kind or
character, that would prevent consummation of the transactions contemplated by
this Agreement.
2.3 Purchase for Investment. The Acquiring Company will acquire
the Brister Shares for its own account for investment and not with a view
toward any resale or distribution thereof.
2.4 Broker's or Finder's Fees. Except for the fee payable by the
Company to William E. York & Associates at the Closing as previously disclosed
to the Shareholder and the Company, no agent, broker, person or firm acting on
behalf of Halter is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated herein.
2.5 Issuance of the Shares. The delivery to the Shareholder of
the Acquiring Company Shares pursuant to the provisions of this Agreement will
transfer to the Shareholder valid title thereto, free and clear of all liens,
encumbrances, restrictions and claims of every kind, except as acknowledged by
the Shareholder in Section 1.29 hereof.
ARTICLE III
SALE OF THE BRISTER SHARES
3.1 Sale of the Brister Shares. Subject to the terms and
conditions herein stated, the Shareholder agrees to sell, assign, transfer and
deliver to the Acquiring Company on the Closing Date, and Halter agrees to
cause the Acquiring Company to purchase from the Shareholder on the Closing
Date, the Brister Shares. The certificates representing the Brister Shares
shall be duly endorsed in blank by the Shareholder transferring the same, with
signatures guaranteed by a domestic commercial bank or trust company, with all
necessary transfer tax and other revenue stamps acquired at the Shareholder's
expense affixed and canceled. The Shareholder agrees to cure
STOCK PURCHASE AGREEMENT - Page 11
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any deficiencies with respect to the endorsement of the certificates
representing the Brister Shares or with respect to the stock power accompanying
any such certificates.
3.2 Cash Payment. In partial consideration for the purchase by
the Acquiring Company of the Brister Shares, Halter shall cause the Acquiring
Company to pay to the Shareholder on the Closing Date an aggregate of
$2,000,000 (the "Cash Payment") payable by wire transfer or official bank check
payable to the order of the Shareholder.
Within 30 days following the execution of this Agreement (the "Deposit
Date"), Halter shall cause to be deposited with Durnin & James, as escrow
agent, $20,000 of the Cash Payment (the "Escrow Deposit") pursuant to an escrow
agreement to be entered into on the Deposit Date by the Shareholder, Halter and
Durnin & James in form and substance mutually satisfactory to the parties and
substantially in accordance with the following terms and conditions:
(a) The Escrow Deposit shall be held by the escrow agent
and disbursed only in accordance with the provisions of the escrow
agreement.
(b) The Escrow Deposit shall be delivered to the
Shareholder at Closing as a portion of the Cash Payment. In the event
that this Agreement is terminated prior to the Closing by Halter in
accordance with Section 8.1(b) or by the Shareholder or the Company in
accordance with Section 8.1(c), the Escrow Deposit shall be returned
to Halter.
(c) Such provisions as are required by the escrow agent
for its protection shall also be included therein.
3.3 Promissory Note. As additional consideration for the purchase
by the Acquiring Company of the Brister Shares, Halter shall cause the
Acquiring Company to execute and deliver on the Closing Date a subordinated
promissory note of the Acquiring Company payable to the order of the
Shareholder in the original principal amount of $1,000,000 (the "Note"), in
substantially the same form as Exhibit 2 hereto.
3.4 Acquiring Company Common Stock. As further consideration for
the purchase by Acquiring Company of the Brister Shares, Halter shall cause the
Acquiring Company to issue and deliver to the Shareholder shares of its common
stock (the "Acquiring Company Shares") as follows:
(a) On the Closing Date, Halter shall cause the Acquiring
Company to deposit with Securities Transfer Corporation, as escrow
agent, 1,500,000 Acquiring Company Shares (the "Escrow Shares")
pursuant to an escrow agreement to be entered into on the Closing Date
by the Shareholder, Halter, the Acquiring Company and Securities
Transfer Corporation in form and substance mutually satisfactory to
the parties thereto. The Escrow Shares shall be held by the escrow
agent and disbursed only in accordance with the provisions of the
escrow agreement. Such provisions as are required by the escrow agent
for its protection shall also be included therein.
(b) Within 15 days of the Valuation Date (as hereinafter
defined), Halter shall cause the Acquiring Company to deliver to the
Shareholder a number of Acquiring Company Shares having an aggregate
"market value" of $3,100,000. The "Valuation Date" shall be the 30th
day (or the next business day following the 30th day, as the case may
be) following the listing of the common stock of the Acquiring Company
on the OTC
STOCK PURCHASE AGREEMENT - Page 12
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Bulletin Board, the Nasdaq Stock Market or any national or regional
exchange. In the event that the Escrow Shares have an aggregate
market value of less than $3,100,000, Halter shall cause the Acquiring
Company to issue the number of additional shares of its common stock
necessary to equal an aggregate market value of $3,100,000. In the
event that the Escrow Shares have an aggregate market value in excess
of $3,100,000, all excess Acquiring Company Shares shall be delivered
to Halter.
For the purpose of this Agreement, "market value" shall be computed as
follows: (i) if the common stock of the Acquiring Company is listed on the OTC
Bulletin Board or the Nasdaq Stock Market, the market value shall be the
average of the closing bid and ask prices for the last seven business days
subsequent to the Valuation Date, or (ii) if the common stock of the Acquiring
Company is listed on any national or regional exchange, the market value shall
be the average of the last reported sale prices for the last seven business
days subsequent to the Valuation Date.
3.5 Consulting and Non-competition Agreement. In consideration
for the purchase by Halter of the Brister Shares, at the Closing, Halter and
the Shareholder will enter into a Consulting Agreement in substantially the
same form as Exhibit 3 hereto and a Non-Competition Agreement in substantially
the same form as Exhibit 4 hereto.
3.6 Directors' Fees. In consideration for the Shareholder's
agreement to serve as a member of the Acquiring Company's Board of Directors,
Halter agrees to cause the Acquiring Company to pay to the Shareholder $6,000
per annum (plus reimbursement of out-of- pocket expenses) in directors' fees.
3.7 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10 a.m. at the offices of legal
counsel to Halter in Dallas, Texas within 60 days after the delivery of audited
financial statements of the Company for its fiscal year ended December 31,
1995, or at such other time and date as the parties hereto shall designate.
Such time and date are herein referred to as the "Closing Date."
ARTICLE IV
CONDUCT OF BUSINESS; REVIEW
4.1 Conduct of Business of the Company. During the period from
the date of this Agreement to the Closing Date, the Company shall conduct its
operations only according to its ordinary and usual course of business, and the
Shareholder and the Company shall use their best efforts to preserve the
Company's business organizations, keep available the services of the Company's
officers and employees and maintain satisfactory relationships with licensors,
suppliers, distributors, clients and others having business relationships with
them. Notwithstanding the immediately preceding sentence, pending the Closing
Date and except as may be first approved by Halter or as is otherwise permitted
or required by this Agreement, the Shareholder and the Company shall cause (i)
the Company's articles or certificate of incorporation and Bylaws to be
maintained in their form on the date of this Agreement, (ii) the compensation
payable or to become payable by the Company to any officer, employee or agent
being paid $40,000 per year or more on the Balance Sheet Date to be maintained
at their levels on the date of this Agreement, (iii) the Company to refrain
from making any bonus, pension, retirement or insurance payment or arrangement
to or with any such persons except those that may have already been accrued,
(iv) the Company to refrain from entering into any contract or commitment
except contracts in the ordinary course of business and (v) the Company to
refrain from making any change affecting any bank, safe deposit or power of
attorney arrangements of the Company. During the period from the date
STOCK PURCHASE AGREEMENT - Page 13
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of this Agreement to the Closing Date, the Shareholder shall cause the Company
to confer on a regular and frequent basis with one or more designated
representatives of Halter to report material operational matters and to report
the general status of ongoing operations. The Shareholder and the Company
shall promptly notify Halter of any unexpected emergency or other change in the
normal course of its business or in the operation of its properties and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings, budget
meetings or submissions involving any material property of the Company, and to
keep Halter fully informed of such events and permit its representatives prompt
access to all materials prepared in connection therewith. Notwithstanding the
foregoing, it is expressly acknowledged and agreed that the Company will pay
the Shareholder an aggregate of $1,000 per week for the period beginning
January 1, 1996 until April 30, 1996 for services to be rendered to the
Company, provided the Shareholder devotes at least 25 hours of service to the
Company per week during said period. In addition, it is expressly acknowledged
that the Shareholder shall have no obligation to train any new employee during
the period between the date hereof and the Closing Date.
4.2 Exclusive Dealing. During the period from the date of this
Agreement to the Closing Date, the Shareholder and the Company shall refrain
from taking any action to, directly or indirectly, encourage, initiate or
engage in discussions or negotiations with, or provide any information to, any
corporation, partnership, person, or other entity or group, other than Halter,
concerning any purchase of the Brister Shares or any merger, sale of
substantial assets or similar transaction involving the Company.
4.3 Review of the Company. Halter may, prior to the Closing Date,
through its representatives, review the properties, books and records of the
Company and its financial and legal condition as they deem necessary or
advisable to familiarize themselves with such properties and other matters;
such review shall not, however, affect the representations and warranties made
by the Company and the Shareholder hereunder. The Shareholder and the Company
shall permit Halter and its representatives to have, after the date of
execution hereof, full access to the premises and to all the books and records
of the Company and to cause the officers of the Company to furnish Halter with
such financial and operating data and other information with respect to the
business and properties of the Company as Halter shall from time to time
reasonably request. In the event of termination of this Agreement, Halter
shall keep confidential any material information obtained from the Shareholder
or the Company concerning the Company's properties or operations and business
(unless readily ascertainable from public or published information or trade
sources) until the same ceases to be material (or becomes so ascertainable) and
shall return to the Company all copies of any schedules, statements, documents
or other written information obtained in connection therewith. The Shareholder
and the Company shall deliver or cause to be delivered on the Closing Date, and
at such other times and places as shall be reasonably agreed upon, such
additional instruments as Halter may reasonably request for the purpose of
carrying out this Agreement.
ARTICLE V
CONDITIONS TO HALTER'S OBLIGATIONS
The purchase of the Brister Shares by Halter on the Closing Date is
conditioned upon receipt by Halter of the legal opinion and other documents
listed in this Article V.
5.1 Opinion of the Company's and the Shareholder's Counsel. The
Company and the Shareholder shall have furnished Halter with an opinion of
Simpson & Schwartz, as counsel for
STOCK PURCHASE AGREEMENT - Page 14
<PAGE> 19
the Shareholder and the Company, dated the Closing Date, in form and substance
satisfactory to Halter, to the effect that:
(a) the Company (i) is a corporation validly existing and in good
standing under the laws of its state of incorporation, (ii) is duly
qualified and licensed under all applicable laws or regulations to own
its assets and properties as now owned and to carry on its business as
now conducted and (iii) is, to the best knowledge of such counsel,
duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the failure to so qualify
would have a material adverse effect upon its business;
(b) the Company has full corporate power and authority to execute,
deliver and perform this Agreement and the other agreements
contemplated hereby;
(c) the execution, delivery and performance of this Agreement and
the other agreements contemplated hereby by the Company and the
Shareholder have been duly authorized by all necessary corporate
action on the part of the Company and this Agreement and the other
agreements contemplated hereby constitute valid and binding
obligations of the Company and the Shareholder enforceable against the
Company and the Shareholder in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability
of equitable remedies;
(d) the Company's authorized capital stock consists of (i) 1,000
shares of common stock, no par value, of which 1,000 shares are issued
and outstanding and no such shares of capital stock are held in the
treasury of the Company; and all of the Brister Shares are duly
authorized, validly issued, fully paid and nonassessable;
(e) to the best knowledge of such counsel, the Shareholder owns
the Brister Shares, free and clear of any adverse claims, and has full
power and authority to sell, transfer and deliver the Brister Shares
in accordance with the terms of this Agreement;
(f) to the best knowledge of such counsel, there are no existing
options, warrants, subscriptions or other rights to purchase, or
securities convertible into or exchangeable for, the capital stock of
the Company and, to the best knowledge of such counsel, neither the
Company nor the Shareholder are parties to or bound by any agreement,
instrument, arrangement, contract, obligation, commitment or
understanding of any character, whether written or oral, express or
implied, relating to the sale, assignment, conveyance, encumbrance,
transfer or delivery of any capital stock of the Company;
(g) to the best knowledge of such counsel, except as disclosed in
the schedules hereto, there is no action, suit or proceeding at law or
in equity or by or before any governmental instrumentality or other
agency now pending or threatened against the Company or affecting the
Brister Shares or the assets or business of the Company, and, to the
best knowledge of such counsel, except as disclosed in the schedules
hereto, the Company is not in default with respect to any judgment,
writ, injunction or decree of any court or governmental
instrumentality or agency or in the performance, observance or
fulfillment of any obligation, covenant or agreement by which it is
bound or to which the Brister Shares or any of the assets of the
Company are subject;
(h) to the best knowledge of such counsel, neither the execution,
delivery and performance of this Agreement nor the consummation of the
transactions contemplated
STOCK PURCHASE AGREEMENT - Page 15
<PAGE> 20
hereby will conflict with, or result in a breach of the terms,
conditions and provisions of, or constitute a default under, the
certificate or articles of incorporation or bylaws of the Company or,
to the best knowledge of such counsel, any agreement, indenture or
other instrument under which the Company or the Shareholder are bound
or to which the Brister Shares or any of the assets of the Company are
subject, or result in the creation or imposition of any security
interest, lien, charge or encumbrance upon the Brister Shares or any
of the assets of the Company; and
(i) to the best knowledge of such counsel, no consent of any
person, corporation, association, company, partnership or other
entity, and no consent, license, approval or authorization of, or
registration or declaration with, any governmental body, authority,
bureau or agency or federal, state or local court is required in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, or to the extent
that any such consent or other action may be required, it has been
validly procured or taken.
5.2 Good Standing and Tax Certificates. The Shareholder shall
have delivered to Halter (i) copies of the Company's certificate or articles of
incorporation, including all amendments thereto, certified by the secretary of
state or other appropriate official of its jurisdiction of incorporation, (ii)
certificates from the secretary of state or other appropriate official of the
jurisdiction of incorporation to the effect that the Company is in good
standing or subsisting in such jurisdiction and listing all charter documents
of the Company on file, (iii) a certificate from the appropriate official in
each jurisdiction in which the Company is qualified to do business to the
effect that the Company is in good standing in such jurisdiction and (iv)
certificates as to the tax status of the Company in the jurisdiction of
incorporation and each other jurisdiction in which the Company is qualified to
do business.
5.3 No Material Adverse Change. Prior to the Closing Date, there
shall be no material adverse change in the assets or liabilities, the business
or condition, financial or otherwise, the results of operations, or prospects
of the Company, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or act of
God or other public force or otherwise, and the Company and the Shareholder
shall have delivered to Halter a certificate, dated the Closing Date, to such
effect.
5.4 Truth of Representations and Warranties. The representations
and warranties of the Company and the Shareholder contained in this Agreement
or in any schedule delivered pursuant hereto shall be true and correct on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, and the Company and the
Shareholder shall have delivered to Halter on the Closing Date a certificate,
dated the Closing Date, to such effect.
5.5 Performance of Agreements/Authorization. Each and all of the
agreements of the Company and the Shareholder to be performed on or before the
Closing Date pursuant to the terms hereof shall have been duly performed, and
the Company and the Shareholder shall have delivered to Halter a certificate,
dated the Closing Date, to such effect. Halter shall have also received (i) a
copy of resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement and all related documents
and agreements, each certified by the Secretary of the Company as being true
and correct copies of the originals thereof subject to no modifications or
amendments, and (ii) a certificate of the President of the Company and of the
STOCK PURCHASE AGREEMENT - Page 16
<PAGE> 21
Shareholder, dated the Closing Date, as to the performance of and compliance by
the Company and the Shareholder with all covenants contained herein on and as
of the Closing Date and certifying that all conditions precedent of the Company
and the Shareholder to the Closing Date have been satisfied.
5.6 No Litigation Threatened. No action or proceedings shall have
been instituted or, to the best knowledge, information and belief of the
Shareholder and the Company, shall have been threatened before a court or other
government body or by any public authority to restrain or prohibit any of the
transactions contemplated hereby, and the Shareholder and the Company shall
have delivered to Halter a certificate, dated the Closing Date, to such effect.
5.7 Company's Accountants Letter. Halter shall have received a
letter, dated the Closing Date, of Scott Hatfield + Associates, independent
certified public accountants of the Company, in form and substance satisfactory
to Halter in its sole discretion.
5.8 Financial Performance. The balance sheets of the Company for
fiscal 1995, and the related statements of income, shareholders' equity and
changes in financial position for the year then ended, all certified by Scott
Hatfield + Associates and prepared in accordance with Generally Accepted
Accounting Principles consistently followed throughout the periods indicated,
must reflect results of the operations of the Company and the financial
condition of the Company at December 31, 1995 and at the Closing Date as
follows:
(a) Net sales must be in excess of $7,000,000.
(b) The sum of (i) salaries paid to the Shareholder, and
(ii) earnings before depreciation and taxes, must be in excess of
$1,200,000.
(c) The shareholders' equity must be in excess of
$1,500,000.
5.9 Consulting and Non-Competition Agreements. The Company shall
have entered into a Consulting Agreement with the Shareholder substantially in
the form of Exhibit 3 hereto and a Non-Competition Agreement with the
Shareholder substantially in the form of Exhibit 4 hereto.
5.10 Licensing Agreement. The Company shall have entered into a
licensing agreement with the Shareholder in form satisfactory to the parties
hereto. Such licensing agreement shall provide that the Shareholder will (i)
license to the Company all of the existing Intellectual Property owned by the
Shareholder identified in Schedule 1.17 on terms at least as favorable as the
Shareholder has received, or could have received, in arms-length transactions
with third parties and (ii) for a period of five years following the date of
execution of such licensing agreement, agree to license to the Company, at the
Company's sole option, all Intellectual Property developed and/or owned by the
Shareholder at any time subsequent to the Closing Date. The license referred
to in Section 5.10 (ii) shall be exclusive and free of charge for a period of
one year from the date of invention. Such license shall thereafter be at such
prices and on such other terms that are at least as favorable as the
Shareholder would receive in an arms-length transaction with any third party.
5.11 Real Estate Option and Right of First Refusal Agreement. The
Company shall have entered into a real estate option and right of first refusal
agreement with the Shareholder in form satisfactory to the parties hereto.
Such real estate option agreement shall provide that the Company may, at its
sole option, purchase the real property and improvements identified on Exhibit
5 hereto
STOCK PURCHASE AGREEMENT - Page 17
<PAGE> 22
for an aggregate purchase price of $550,000. Such option can first be
exercised after December 31, 1997 and shall terminate on December 31, 2000.
5.12 Governmental Approvals. All governmental and other consents
and approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received.
5.13 Release of Shareholder Claims. Halter shall have received
duly executed documents in form satisfactory to Halter pursuant to which the
Shareholder releases, relinquishes and waives any and all claims, demands,
causes of action, suits, judgments or controversies of any kind whatsoever,
whether known or unknown, that the Shareholder may have against the Company as
of the Closing Date, for any reason whatsoever, including without limitation
claims by such Shareholder against the Company with respect to dividends,
repayment of loans, violation of preemptive rights, or payment of salaries or
other compensation.
5.14 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto shall be satisfactory in form and substance to Halter in its sole
discretion, and Halter shall have received copies of all such documents and
other evidences as Halter or its counsel may reasonably request in order to
establish the consummation or such transactions and the taking of all
proceedings in connection therewith.
5.15 Due Diligence Review. Halter and its representatives and
advisors shall have completed a due diligence review of the business,
operations and financial statements of the Company, the results of which shall
be satisfactory to Halter in its sole discretion.
5.16 Site Assessments. In the event Halter contracts to perform
Site Assessments as set forth in Section 1.33, such Site Assessments shall be
completed, the results of which shall be satisfactory to Halter in its sole
discretion.
5.17 Amendments to Lease. The Company, if required by Halter,
shall have amended that Lease of Commercial Property by and between the Company
and the Shareholder dated September 27, 1995, as amended on November 28, 1995
in form satisfactory to the parties thereto, provided, however, that the
monthly rental payment shall be $6,025 (net of any payments for any insurance
policy for the Company paid by the Shareholder) for the term stated therein.
In addition, Halter shall have received a certificate of the Shareholder, dated
the Closing Date, acknowledging that the Company has not violated any terms and
conditions of such lease in any material respect as of the Closing Date.
ARTICLE VI
CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS
The sale of the Brister Shares by the Shareholder on the Closing Date
is conditioned upon receipt by the Shareholder of the legal opinion and other
documents listed in this Article VI.
6.1 Opinion of Halter's Counsel. Halter shall have furnished the
Shareholder with an opinion, dated the Closing Date, of legal counsel to Halter
regarding the validity of the Acquiring Company Shares.
6.2 Truth of Representations and Warranties. The representations
and warranties of Halter contained in this Agreement shall be true and correct
on and as of the Closing Date with
STOCK PURCHASE AGREEMENT - Page 18
<PAGE> 23
the same effect as though such representations and warranties had been made on
and as of such date; and Halter shall have delivered to the Shareholder on the
Closing Date a certificate, dated the Closing Date, to such effect.
6.3 Governmental Approvals. All governmental consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received.
6.4 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to the
Shareholder and its counsel.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS: INDEMNITY; OFFSET
7.1 Survival of Representations and Obligations to Indemnify. The
respective representations and warranties of the Shareholder and Halter
contained in this Agreement or in any schedule delivered pursuant hereto shall
survive the purchase and sale of the Brister Shares contemplated hereby. The
obligations to indemnify and hold harmless pursuant to this Article VII shall
survive the consummation of the transactions contemplated by this Agreement.
7.2 Indemnification by the Shareholder. The Shareholder hereby
agrees that notwithstanding any investigation which may have been made by or on
behalf of Halter prior to the Closing, the Shareholder shall indemnify, defend
and hold harmless Halter and the Acquiring Company (and any affiliated party of
Halter and the Acquiring Company) at any time after consummation of the
Closing, from and against all demands, claims, actions, or causes of action,
assessments, losses, damages, liabilities, costs and expenses including,
subject to Section 7.4 below, interest, penalties, court costs, and reasonable
attorneys' fees and expenses asserted against, resulting to, imposed upon or
incurred by Halter, the Acquiring Company or any affiliated party of Halter or
the Acquiring Company, directly or indirectly, caused by reason of or resulting
from or arising out of (i) a claim of products liability which results in
either a settlement or award of damages in excess of stated insurance policy
limits or (ii) any misrepresentation or any breach or nonfulfillment of any
representation, covenant, warranty or agreement of the Company and/or the
Shareholder contained in this Agreement, in any exhibit, schedule, certificate
or financial statement delivered under this Agreement, or in any agreement made
or executed in connection with the transactions contemplated by this Agreement.
Notwithstanding the foregoing, the Shareholder shall not be liable under this
Section 7.2 for any claims of products liability related to any suit or
proceeding filed against the Company during the period between the date hereof
and the Closing Date.
The liability of the Shareholder under this Section 7.2 shall be
limited to the Offset Period (as hereinafter defined) and to the value of the
Offset Shares (as hereinafter defined) at such time as Halter or the Acquiring
Company gives notice to the Shareholder of any claim or commencement of any
action or proceeding in accordance with Sections 7.4 and 7.5 below.
7.3 Indemnification by the Acquiring Company. Halter agrees to
cause the Acquiring Company to indemnify, defend and hold harmless the
Shareholder (and any affiliated party of the Shareholder), at any time after
consummation of the Closing, from and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and
expenses, including, subject to Section 7.4 below, interest, penalties, court
costs and reasonable attorneys'
STOCK PURCHASE AGREEMENT - Page 19
<PAGE> 24
fees and expenses asserted against, resulting to, imposed upon or incurred by
the Shareholder, directly or indirectly, caused by reason of or resulting from
or arising out of any misrepresentation or any breach or nonfulfillment of any
representation, warranty, covenant and/or agreement of Halter contained in this
Agreement, in any exhibit, schedule, certificate or financial statement
delivered under this Agreement, or in any agreement made or executed in
connection with the transactions contemplated by this Agreement. The liability
of the Acquiring Company under this Section 7.3 shall be limited to an
aggregate of $100,000.
7.4 Defense.
(a) Promptly after the receipt by any person entitled to
indemnification under Section 7.2 and 7.3 herein of notice of (i) any
claim or (ii) the commencement of any action or proceeding, such party
(the "Aggrieved Party") will, if claim with respect thereto is made
against any party obligated to provide indemnification pursuant to
Section 7.2 and 7.3 herein (the "Indemnifying Party"), give such
Indemnifying Party written notice of such claim or the commencement of
such action or proceeding and shall permit the Indemnifying Party to
assume the defense of any such claim or any proceeding or litigation
resulting from such claim, unless the action or proceeding seeks an
injunction or other similar relief against the Aggrieved Party or
there is a conflict of interest between it and the Indemnifying Party
in the conduct of the defense of such action. Failure by the
Indemnifying Party to notify the Aggrieved Party of its election to
defend any such proceeding or action within a reasonable time, but in
no event more than 15 days after written notice thereof shall have
been given to the Indemnifying Party, shall be deemed a waiver by the
Indemnifying Party of its right to defend such action.
(b) If the Indemnifying Party assumes the defense of any
such claim or litigation resulting therefrom with counsel reasonably
acceptable to the Aggrieved Party, the obligations of the Indemnifying
Party as to such claim shall be limited to taking all steps necessary
in the defense or settlement of such claim or litigation resulting
therefrom and to holding the Aggrieved Party harmless from and against
any losses, damages and liabilities caused by or arising out of any
settlement or any judgment in connection with such claim or litigation
resulting therefrom. The Aggrieved Party may participate, at its
expense, in the defense of such claim or litigation provided that the
Indemnifying Party shall direct and control the defense of such claim
or litigation. The Aggrieved Party shall cooperate and make available
all books and records reasonably necessary and useful in connection
with the defense. The Indemnifying Party shall not, in the defense of
such claim or any litigation resulting therefrom, consent to entry of
any judgment, except with the written consent of the Aggrieved Party,
or enter into any settlement, except with the written consent of the
Aggrieved Party.
(c) If the Indemnifying Party shall not assume the
defense of any such claim or litigation resulting therefrom, the
Aggrieved Party may defend against such claim or litigation in such
manner as it may deem appropriate and reasonably satisfactory to the
Aggrieved Party. The Indemnifying Party shall promptly reimburse the
Aggrieved Party for the amount of all expenses, legal or otherwise, as
incurred by the Aggrieved Party in connection with the defense against
or settlement of such claim or litigation. No settlement of claim or
litigation shall be made without the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld. If no
settlement of the claim or litigation is made, the Indemnifying Party
shall promptly reimburse the Aggrieved Party for the amount of any
judgment rendered with respect to such claim or in such litigation and
of all
STOCK PURCHASE AGREEMENT - Page 20
<PAGE> 25
expenses, legal or otherwise, as incurred by the Aggrieved Party in
the defense against such claim or litigation.
(d) Subject to Section 7.5 hereof, the rights to
indemnification hereunder (i) shall apply only to claims of any amount
made by the Aggrieved Party from and after the point at which a single
claim or an aggregate of several claims equals $5,000.00; and (ii)
apply to claims made by either party against the other whereby written
notice of the claim has been made and delivered within the period of
the applicable statute of limitations.
7.5 Offset. The Shareholder agrees that the number of Acquiring
Company Shares having an aggregate market value of $500,000 on the Valuation
Date (the "Offset Shares") shall be held in escrow for a period of two years
(the "Offset Period") from the Valuation Date, the terms of which to be set
forth in an escrow agreement to be entered into on the Valuation Date, or as
soon thereafter as reasonably practicable, by the Shareholder, Halter, the
Acquiring Company and Securities Transfer Corporation, to be used to offset any
amounts that may be owing at any time by the Shareholder to Halter or the
Acquiring Company (including any affiliated party of Halter and the Acquiring
Company) in respect of (i) a claim of products liability which results in
either a settlement or award of damages in excess of stated insurance policy
limits (provided, however, the Shareholder shall have no liability for the
stated deductible amount under the applicable insurance policy), or (ii) any
failure or breach of any representation, warranty, agreement or covenant of the
Company or the Shareholder under or in connection with this Agreement or any
other agreement with Halter or any transaction contemplated hereby or thereby.
If Halter determines that such offset is appropriate, notice shall be given to
the Shareholder of such determination at least 10 days prior to a disposition
of any of the Offset Shares for the purpose of satisfying any liability imposed
upon either Halter or the Acquiring Company (the "Notice Period"). If the
conditions upon which the offset is based are cured by the Shareholder during
the Notice Period, as determined by Halter, no offset shall be undertaken.
Upon an event of offset, Halter and the Acquiring Company shall have sole
discretion in selling or otherwise disposing of that number of the Offset
Shares necessary to satisfy any outstanding liability or obligation imposed
upon Halter or the Acquiring Company. All Offset Shares remaining at the
expiration of the Offset Period shall be returned to the Shareholder.
ARTICLE VIII
TERMINATION
8.1 Termination Events. This Agreement may be terminated on
written notice, on or before the Closing Date:
(a) By mutual written consent of Halter, the Company and
the Shareholder;
(b) By Halter, if the conditions set forth in Article V
are not satisfied (or are incapable of being satisfied) in the
discretion of Halter before the close of business on the Closing Date;
or
(c) By the Shareholder and the Company if the conditions
set forth in Article VI are not satisfied (or are incapable of being
satisfied) in their discretion before the close of business on the
Closing Date.
8.2 Effect of Termination. If this Agreement is validly
terminated pursuant to Section 8.1 hereof, this Agreement shall forthwith
become null and void, and there shall be no
STOCK PURCHASE AGREEMENT - Page 21
<PAGE> 26
liability on the part of the parties hereof (or any of their respective
officers, directors, employees, agents, consultants or other representatives).
ARTICLE IX
MISCELLANEOUS
9.1 Knowledge of the Company and the Shareholder. Where any
representation or warranty contained in this Agreement is expressly qualified
by reference to the knowledge, information and belief of the Shareholder and
the Company, the Shareholder and the Company confirm that they have made due
and diligent inquiry as to the matters that are the subject of such
representations and warranties.
9.2 Expenses. The parties hereto shall pay all of their own
expenses relating to the transactions contemplated by this Agreement,
including, without limitation, the fees and expenses of their respective
counsel and financial advisers; provided, however, notwithstanding anything to
the contrary herein, if the Shareholder or the Company terminates this
Agreement, other than in accordance with Section 8.1(c), the Shareholder agrees
to reimburse Halter of its out of pocket expenses not to exceed $100,000.
9.3 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of
the State of Texas.
9.4 "Person" Defined. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
9.5 Captions. The Article and Section captions used herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
9.6 Publicity. Except as otherwise required by law, none of the
parties hereto shall issue any press release or make any other public
statement, in each case relating to or connected with or arising out of this
Agreement or the matters contained herein, without obtaining the prior approval
of all parties hereto to the contents and the manner of presentation and
publication thereof.
9.7 Notices. Any notice or other communications required or
permitted hereunder shall be sufficiently given if delivered in person or sent
by telex or by registered or certified mail, postage prepaid, addressed as
follows: If to Halter, to Halter Financial Group, Inc., 4851 LBJ Freeway, Suite
201, Dallas, Texas 75244, Attention: Tim Halter, with a copy to its counsel,
True & Sewell, Eighty-Eighty Central Ninth Floor, Dallas, Texas 75206-1887,
Telephone: (214)360-1560, Fax: (214)987-0696; and if to the Shareholder or the
Company, to Charles Brister, Highway 51 South, Roseland, Louisiana 70456, with
a copy to his counsel, Simpson & Schwartz, 305 East Mulberry Street, Amite,
Louisiana 70422, Telephone: (504) 748-8362, Fax: (504) 748-7777 or such other
address as shall be furnished in writing by any such party, and such notice or
communication shall be deemed to have been given as of the date so delivered,
sent by fax or mailed.
9.8 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be
STOCK PURCHASE AGREEMENT - Page 22
<PAGE> 27
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and assigns.
9.9 Counterparts. This Agreement may be executed in two (2) or
more counterparts, all of which taken together shall constitute one instrument.
9.10 Entire Agreement. This Agreement, including the other
documents referred to herein that form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
9.11 Amendments. This Agreement can be waived, amended,
supplemented or modified by written agreement of the parties.
9.12 Severability. In case any provision in this Agreement shall
be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
9.13 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or
on behalf of any Person other than the parties hereto.
9.14 Time of Essence. The mere lapse of time shall have the effect
to constitute of the parties hereto in default to perform any of its
obligations under this Agreement.
9.15 Negotiation. Each party hereto declares that the provisions
of this Agreement and of all documents annexed thereto or referred to therein,
have been negotiated and declares having read this Agreement and those
documents and having understood their scope and nature.
9.16 Separate Counsel. The Shareholder and the Company hereby
expressly acknowledge that each of them have been advised that neither of them
have been represented by Halter Financial Group, Inc.'s or the Company's
attorneys in this matter and have been advised and urged to seek separate legal
counsel for advice in this matter. Halter hereby expressly acknowledges that
it has been advised that it has not been represented by the Shareholder's or
the Company's counsel on this matter and has been advised and urged to seek
separate legal counsel for advice in this matter.
9.17 Joinder of Spouse. The spouse of the Shareholder has joined
in the execution and delivery of this Agreement for the express purpose of
binding her community property interests, if any, in the Brister Shares.
STOCK PURCHASE AGREEMENT - Page 23
<PAGE> 28
IN WITNESS WHEREOF, Halter has caused its corporate name to be
hereunto subscribed by its officer thereunto duly authorized, and the
Shareholder has executed this Agreement, all as of the date first above
written.
HALTER FINANCIAL GROUP, INC.
By: /s/ TIMOTHY P. HALTER
-------------------------------------
Timothy P. Halter, President
BRISTER'S THUNDER KARTS, INC.
By: /s/ CHARLES BRISTER
-------------------------------------
Charles Brister, President
SHAREHOLDER
By: /s/ CHARLES BRISTER
-------------------------------------
Charles Brister
By: /s/ MRS. CHARLES BRISTER
-------------------------------------
Mrs. Charles Brister
STOCK PURCHASE AGREEMENT - Page 24
<PAGE> 29
EXHIBIT 1
Charles Brister 1,000 shares of common stock, no
par value, of Brister's Thunder
Karts, Inc., a Louisiana corporation
STOCK PURCHASE AGREEMENT - Page 25
<PAGE> 1
EXHIBIT 2.3
[HALTER FINANCIAL GROUP, INC. LETTERHEAD]
March 15, 1996
Mr. Charles Brister, President
Brister's Thunder Karts, Inc.
Highway 51 South
Roseland, Louisiana 70456
Re: STOCK PURCHASE AGREEMENT (THE "STOCK PURCHASE AGREEMENT")
DATED JANUARY 16, 1996 BY AND AMONG HALTER FINANCIAL GROUP,
INC., BRISTER'S THUNDER KARTS, INC., A LOUISIANA CORPORATION
AND MR. CHARLES BRISTER
Dear Chuck:
In accordance with Section 9.11 of the Stock Purchase Agreement, this
letter agreement amends the Stock Purchase Agreement as follows:
1. The Subordinated Promissory Note set forth on Exhibit 2 has
been amended to read in its entirety as set forth on Exhibit 2 hereto;
2. The Non-competition Agreement set forth on Exhibit 4 of the
Stock Purchase Agreement has been replaced by the Non-competition agreements
set forth on Exhibits 4A and 4B hereto; and
3. The second to the last sentence of Section 4.1 is hereby
amended to read in its entirety as follows:
"Notwithstanding the foregoing, it is expressly acknowledged and agreed that
the Company will pay the Shareholder an aggregate of $1,000 per week for the
period beginning January 1, 1996 until the Closing Date for services to be
rendered to the Company, provided the Shareholder devotes at least 25 hours of
service to the Company per week during said period."
If the foregoing correctly sets forth our understanding, please
execute this letter agreement in the space provided below.
Sincerely,
Timothy P. Halter
President
AGREED and ACCEPTED on March 15, 1996:
By: /s/ CHARLES BRISTER
-------------------------------------------------
Charles Brister (individually and as
President of Brister's Thunder Karts, Inc.)
<PAGE> 2
EXHIBIT 2
EXCEPT AS OTHERWISE PROVIDED HEREIN, THE RIGHTS OF PAYEE (AS HEREINAFTER
DEFINED) TO RECEIVE PAYMENT OF ANY PRINCIPAL OR INTEREST ON THIS SUBORDINATED
PROMISSORY NOTE IS SUBJECT AND SUBORDINATE TO THE PRIOR PAYMENT OF THE
PRINCIPAL OF, (AND PREMIUM, IF ANY) AND THE INTEREST ON, ALL OTHER INDEBTEDNESS
OF MAKER (AS HEREINAFTER DEFINED), NOW OUTSTANDING, WHETHER SECURED OR
UNSECURED, AND ANY DEFERRALS, RENEWALS, EXTENSIONS OF SUCH INDEBTEDNESS OR ANY
DEBENTURES, BONDS, OR NOTES EVIDENCING SUCH INDEBTEDNESS (THE "SENIOR
INDEBTEDNESS"). UPON ANY RECEIVERSHIP, INSOLVENCY, ASSIGNMENT FOR THE BENEFIT
OF CREDITORS, BANKRUPTCY, REORGANIZATION, SALE OF SUBSTANTIALLY ALL OF THE
ASSETS, DISSOLUTION, LIQUIDATION, OR ANY OTHER MARSHALLING OF THE ASSETS AND
LIABILITIES OF MAKER OR IF THIS SUBORDINATED PROMISSORY NOTE IS DECLARED DUE
AND PAYABLE IN ACCORDANCE WITH ITS TERMS, THEN NO AMOUNT SHALL BE PAID BY MAKER
WITH RESPECT TO THE PRINCIPAL AND INTEREST HEREON UNLESS AND UNTIL THE
PRINCIPAL OF, AND INTEREST ON, ALL SENIOR INDEBTEDNESS THEN OUTSTANDING IS PAID
IN FULL.
SUBORDINATED PROMISSORY NOTE
$1,000,000 Dallas, Texas March 15, 1996
FOR VALUE RECEIVED, the undersigned, Brister's Thunder Karts, Inc., a
Louisiana corporation ("Maker"), promises to pay to the order of Charles
Brister, an individual residing in the state of Louisiana (together with all
subsequent holders of this Note, collectively referred to as "Payee"), the
principal sum of One Million Dollars ($1,000,000), payable as provided herein,
plus accrued interest on the outstanding principal balance as herein specified.
The principal and accrued interest thereon shall be due and payable by
Maker to the Payee in accordance with the schedule set forth on Exhibit A
hereto. All past due interest shall bear interest at the highest rate permitted
by applicable law. Principal and accrued interest under this Note, or any
portion thereof, may be prepaid without penalty. All payments and prepayments
shall be applied first to accrued and unpaid interest, and the balance of any
such payments or prepayments shall be applied to outstanding principal in the
order of maturity.
Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the maximum rate permitted by applicable law. If any
interest in excess of such maximum rate is herein provided for, or shall be
adjudicated to be so provided, in this Note or otherwise in connection with this
transaction giving rise to the execution hereof, the provisions of this
paragraph shall govern and prevail, and
<PAGE> 3
neither Maker nor the sureties, guarantors, successors or assigns of Maker
shall be obligated to pay the excess amount of such interest or any other
excess sum paid for the use, forbearance or detention of sums loaned pursuant
hereto. If for any reason interest in excess of the maximum rate of interest
permitted by applicable law shall be deemed, charged, required or permitted by
a court of competent jurisdiction, any such excess shall be applied as a
payment and reduction of the principal of indebtedness evidenced by this Note;
and, if the principal amount hereof has been paid in full, any remaining excess
shall forthwith be paid to Maker.
This Note is secured by a Security Agreement dated the date hereof
executed by the Pledgors named therein ("Pledgors") in favor of Payee covering
the collateral more fully described on Exhibit B hereto.
Maker, and any endorser or guarantors of this Note and all other
persons who may become liable for all or any part of the obligations
represented by this Note, severally waive presentment for payment, protest,
notice of protest and of nonpayment, notice of intention to accelerate, and
notice of acceleration.
In the event of default by Maker in the payment of any part of the
principal or interest on this Note when due and the continuance thereof for
fifteen (15) days following Maker's and Pledgors' receipt of written notice of
such default, the entire unpaid balance of principal and accrued interest on
this Note shall, at the option of Payee, become immediately due and payable.
Failure by the holder to exercise any option upon one (1) default will not
constitute a waiver thereof or the waiver of the right to exercise such option
in the event of a subsequent default. If after default this Note is placed in
the hands of an attorney for collection or is collected through judicial
proceedings, Maker shall pay, in addition to the sums referred to above, a
reasonable sum as collection or attorneys' fees and all other costs incurred by
the holder in collection of the unpaid amounts due hereunder.
In addition, in the event that the parent company of Maker, Karts
International Incorporated, successfully completes an underwritten public
offering of its common stock, the entire unpaid balance of principal and
accrued interest on this Note shall, at the option of Payee, become immediately
due and payable.
This Note is made and is performable in Dallas, Dallas County, Texas.
This Note shall be governed by and construed in accordance with the laws of the
State of Texas and the applicable laws of the United States of America.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
15th day of March, 1996.
BRISTER'S THUNDER KARTS, INC.
By: /s/ V. LYNN GRAYBILL
--------------------------------
V. Lynn Graybill, President
2
<PAGE> 4
EXHIBIT A
PAYMENT SCHEDULE
The following annualized amounts shall be paid in equal quarterly
payments during the years set forth below beginning on June 15, 1996:
<TABLE>
<CAPTION>
Principal Total Amount
Year Interest Rate (%) Interest Payable Payable Payable
---- ----------------- ---------------- --------- ------------
<S> <C> <C> <C> <C>
1996-1997 8 $ 80,00 $ 0 $ 80,000
1997-1998 9 90,000 0 90,000
1998-1999 10 100,000 0 100,000
1999-2000 11 110,000 250,000 360,000
2000-2001 12 90,000 250,000 340,000
2001-2002 13 65,000 250,000 315,000
2002-2003 14 35,000 250,000 285,000
</TABLE>
<PAGE> 5
EXHIBIT B
COLLATERAL
<TABLE>
<CAPTION>
Number of Shares Market Price Aggregate
Company of Common Stock Per Share Market Value
------- ---------------- ------------ -------------
<S> <C> <C> <C>
Hunter Resources, Inc. 1,000,000 $ .50 $ 500,000.00
NewCare Health Corporation 196,464 2.545 500,000.88
TOTAL $1,000,000.88
</TABLE>
<PAGE> 6
EXHIBIT 4A
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered
into as of the 15th day of March, 1996, by and between Karts International
Incorporated. a Nevada corporation (the "Company") and Charles Brister
("Brister"), an individual residing in the state of Louisiana.
WHEREAS, Brister's Thunder Karts, Inc. ("BTK") is a Louisiana
corporation engaged in the business of designing, manufacturing, marketing and
distributing go karts;
WHEREAS, Brister, the sole shareholder of BTK, has entered into that
Stock Purchase Agreement dated the date hereof by and among Halter Financial
Group, Inc., BTK and Brister whereby Halter Financial Group, Inc. will cause
the Company to acquire all of the issued and outstanding capital stock of BTK
from Brister; and
WHEREAS, as a condition to closing the transactions contemplated by
such Stock Purchase Agreement, Brister is obligated to enter into this
Agreement.
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
1. COVENANT NOT TO COMPETE: CONFIDENTIALITY
(a) Covenant Not to Compete. Except as provided herein and in that
Licensing Agreement dated the date hereof by and between Brister and
the Company, during a period of five years from the date hereof (the
"Term"), Brister shall not, within any jurisdiction in which the
Company, BTK or any subsidiary or affiliate thereof (collectively
referred to herein as the "Company") is duly qualified to do business
or within any marketing area in which the Company is doing a
substantial amount of business, directly or indirectly own, manage,
operate, control, be employed by or participate in the ownership,
management, operation or control of, or be connected in any manner
with, any business of the type and character engaged in and
competitive with that conducted by the Company. For these purposes,
Brister's ownership of securities of a public company not in excess of
one percent of any class of such securities shall not be considered to
be in competition with the Company. This Section 1 shall not apply to
Mr. Brister's activities in the State of Louisiana, which shall be
governed by that Non-competition Agreement (Louisiana Only) dated the
date hereof by and between the parties hereto and by the laws of the
State of Louisiana.
In addition, during the same Term, Brister agrees to refrain
from interfering with the employment relationship between the Company
and its other employees by soliciting any of such individuals to
participate in other business ventures and agrees to refrain from
soliciting business from any client or prospective client of the
Company for Brister or for any entity in which Brister has an
interest.
<PAGE> 7
It is the desire and intent of the parties that the provisions
of this Section 1 shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, to the extent that the
covenants hereunder shall be adjudicated to be invalid or
unenforceable in any one such jurisdiction, this Section 1 shall be
deemed amended to delete therefrom or reform the portion thus
adjudicated to be invalid or unenforceable, such deletion or
reformation to apply only with respect to the operation of this
Section 1 in the particular jurisdiction in which such adjudication is
made. Moreover, each provision of this Agreement is intended to be
severable; and in the event that any one or more of the provisions
contained in this Agreement shall for any reason be adjudicated to be
invalid or unenforceable in any jurisdiction, the same shall not
affect the validity or enforceability of any other provisions of this
Agreement in that jurisdiction, but this Agreement shall be construed
in such jurisdiction as if such invalid or unenforceable provision had
never been contained therein.
(b) Confidentiality. Brister agrees that he will not divulge to
anyone (other than the Company or any persons employed or designated
by the Company) any knowledge or information of any type whatsoever of
a confidential nature relating to the business of the Company (unless
readily ascertainable from public or published information),
including, without limitation, discoveries, ideas, designs,
specifications, drawings, techniques, models, data, programs,
documentation, processes, know-how, customer lists, marketing plans,
and financial and technical information. Brister further agrees not to
disclose, publish or make use of any such knowledge or information of
a confidential nature without the prior written consent of the
Company. Notwithstanding the foregoing, Brister may disclose to third
parties certain types of intellectual property that he owns subject to
the terms and conditions of that Licensing Agreement dated the date
hereof by and between Brister and the Company.
2. BREACH BY BRISTER. In the event of the breach by Brister of
the terms and conditions of this Agreement to be performed by Brister, or in
the event Brister performs services for any person, firm or corporation engaged
in a competing line of business with the Company, the Company shall be
entitled, if it so elects, to institute and prosecute proceedings in any court
of competent jurisdiction, either in law or in equity, to obtain damages for
any breach of this Agreement, or to enforce the specific performance thereof by
Brister, or to enjoin Brister from performing services for any such other
person, firm or corporation.
3. ASSIGNMENT. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and assigns
of the Company. In the event of any attempted assignment or transfer of rights
hereunder contrary to the provisions hereof, the Company shall have no further
liability for payments hereunder.
2
<PAGE> 8
4. CAPTIONS. This Agreement contains the entire agreement between
the parties. It may not be changed orally, but only by agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought, and consented to in writing by the
Company. Paragraph headings are for convenience of reference only and shall not
be considered a part of this Agreement.
5. SEPARATE COUNSEL. Brister hereby expressly acknowledges that
he has been advised that he has not been represented by Halter Financial Group,
Inc.'s or the Company's attorneys in this matter and has been advised and urged
to seek separate legal counsel for advice in this matter.
6. LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, The Company has by its appropriate officer signed
this Agreement, and Brister has signed this Agreement, on and as of the date
first above written.
KARTS INTERNATIONAL INCORPORATED
By:
----------------------------------------
Name:
----------------------------------
Title:
----------------------------------
--------------------------------------------
Charles Brister, individually
3
<PAGE> 9
EXHIBIT 4B
NON-COMPETITION AGREEMENT
(LOUISIANA ONLY)
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered
into as of the 15th day of March, 1996, by and between Karts International
Incorporated, a Nevada corporation (the "Company") and Charles Brister
("Brister"), an individual residing in the state of Louisiana.
WHEREAS, Brister's Thunder Karts, Inc. ("BTK") is a Louisiana
corporation engaged in the business of designing, manufacturing, marketing and
distributing go karts;
WHEREAS, Brister, the sole shareholder of BTK, has entered into that
Stock Purchase Agreement dated the date hereof by and among Halter Financial
Group, Inc., BTK and Brister whereby Halter Financial Group, Inc. will cause
the Company to acquire all of the issued and outstanding capital stock of BTK
from Brister;
WHEREAS, the transactions contemplated by the Stock Purchase Agreement
include the acquisition of the goodwill of BTK; and
WHEREAS, as a condition to closing the transactions contemplated by
such Stock Purchase Agreement, Brister is obligated to enter into this
Agreement.
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
1. COVENANT NOT TO COMPETE. Except as provided in that Licensing
Agreement dated the date hereof by and between Brister and the Company, during
a period of two years from the date hereof (the "Term"), Brister shall not,
within the Parishes located in the State of Louisiana listed on Annex A hereto
(the "Area"), so long as the Company engages in or carries on any like business
in the Area, directly or indirectly own, manage, operate, control, be employed
by or participate in the ownership, management, operation or control of, or be
connected in any manner with, any business of the type and character engaged in
and competitive with that conducted by the Company. For these purposes,
Brister's ownership of securities of a public company not in excess of one
percent of any class of such securities shall not be considered to be in
competition with the Company. Brister hereby acknowledges and represents that
the Company engages in business in all of the Parishes listed on Annex A
hereto.
In addition, during the same Term, Brister agrees to refrain from
interfering with the employment relationship between the Company and its other
employees by soliciting any of such individuals to participate in other
business ventures and agrees to refrain from soliciting business from any
client or prospective client of the Company for Brister or for any entity in
which Brister has an interest.
<PAGE> 10
The parties acknowledge that Brister's business in other areas and the
benefits to the Company derived pursuant to the Agreement are such that the
restrictions appearing in this Section 1 will not impair Mr. Brister's ability
to earn a livelihood.
It is the desire and intent of the parties that the provisions of this
Section 1 shall be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, to the extent that the covenants hereunder shall be
adjudicated to be invalid or unenforceable in any one such jurisdiction, this
Section 1 shall be deemed amended to delete therefrom or reform the portion
thus adjudicated to be invalid or unenforceable, such deletion or reformation
to apply only with respect to the operation of this Section I in the particular
jurisdiction in which such adjudication is made. Moreover, each provision of
this Agreement is intended to be severable; and in the event that any one or
more of the provisions contained in this Agreement shall for any reason be
adjudicated to be invalid or unenforceable in any jurisdiction, the same shall
not affect the validity or enforceability of any other provisions of this
Agreement in that jurisdiction, but this Agreement shall be construed in such
jurisdiction as if such invalid or unenforceable provision had never been
contained therein.
2. BREACH BY BRISTER. In the event of the breach by Brister of
the terms and conditions of this Agreement to be performed by Brister, or in
the event Brister performs services for any person, firm or corporation engaged
in a competing line of business with the Company, the Company shall be
entitled, if it so elects, to institute and prosecute proceedings in any court
of competent jurisdiction, either in law or in equity, to obtain damages for
any breach of this Agreement, or to enforce the specific performance thereof by
Brister, or to enjoin Brister from performing services for any such other
person, firm or corporation.
3. ASSIGNMENT. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and assigns
of the Company. In the event of any attempted assignment or transfer of rights
hereunder contrary to the provisions hereof, the Company shall have no further
liability for payments hereunder.
4. CAPTIONS. This Agreement contains the entire agreement between
the parties. It may not be changed orally, but only by agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought, and consented to in writing by the
Company. Paragraph headings are for convenience of reference only and shall not
be considered a part of this Agreement.
5. SEPARATE COUNSEL. Brister hereby expressly acknowledges that
he has been advised that he has not been represented by Halter Financial Group,
Inc.'s or the Company's attorneys in this matter and has been advised and urged
to seek separate legal counsel for advice in this matter.
2
<PAGE> 11
6. LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Louisiana.
IN WITNESS WHEREOF. The Company, has by its appropriate officer signed this
Agreement, and Brister has signed this Agreement, on and as of the date first
above written.
KARTS INTERNATIONAL INCORPORATED
By:
----------------------------------------
Name:
----------------------------------
Title:
----------------------------------
--------------------------------------------
Charles Brister, individually
3
<PAGE> 1
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
KARTS INTERNATIONAL INCORPORATED
("KARTS INTERNATIONAL"),
USA INDUSTRIES, INC.
(THE "COMPANY")
AND
JERRY MICHAEL ALLEN, ANGELA T. ALLEN, JOHNNY C. TUCKER
AND CAROL Y. TUCKER
(THE "SHAREHOLDERS")
OCTOBER 4, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE/
SECTION SUBJECT PAGE
- ------- ------- ----
<S> <C> <C>
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I REPRESENTATIONS OF THE COMPANY AND THE
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Ownership of USA Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Validity of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Financial Statements and No Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.11 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.12 Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.15 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.17 Intellectual Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.20 Employment Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.22 Interests in Clients, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.23 Bank Accounts, Powers of Attorney and Compensation of Employees . . . . . . . . . . . . . . . . 7
1.24 No Changes Prior to Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.26 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.27 Copies of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.28 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.29 Investor Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.30 Product Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.31 Products Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.32 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.33 Customer Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.34 Insider Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.35 Representations as of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II REPRESENTATIONS OF KARTS INTERNATIONAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Existence and Good Standing of Karts International . . . . . . . . . . . . . . . . . . . . . 11
2.2 Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
2.3 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Issuance of the Karts International Shares . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 Representations as of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III SALE OF THE USA SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Sale of the USA Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Cash Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Determination of Amount of Karts International Shares . . . . . . . . . . . . . . . . . . . . 12
3.4 Non-competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV CONDUCT OF BUSINESS; REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Review of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Review of Karts International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Preserve Accuracy of Representation and Warranties . . . . . . . . . . . . . . . . . . . . . 14
5.2 Passage of Title and Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Company Employees and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 Covenants Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI CONDITIONS TO KARTS INTERNATIONAL'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Opinion of the Company's and the Shareholders' Counsel . . . . . . . . . . . . . . . . . . . 15
6.2 Good Standing and Tax Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Performance of Agreements/Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 No Litigation Threatened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.7 Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.9 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.10 Release of Shareholders' Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.11 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.12 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.13 Resignation of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Opinion of Karts International's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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ARTICLE VIII CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 Actions of the Company and the Shareholders at Closing . . . . . . . . . . . . . . . . . . . 19
8.3 Actions of Karts International at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IX SURVIVAL OF REPRESENTATIONS: INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Survival of Representations and Obligations to Indemnify . . . . . . . . . . . . . . . . . . 22
9.2 Indemnification by the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3 Indemnification by Karts International. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.4 Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE X TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.1 Knowledge of the Company and the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 24
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.4 "Person" Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.5 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.8 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.13 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.14 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.15 Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
EXHIBITS:
Exhibit "A" Balance Sheet dated July 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit "B" Form of Non-Competition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
SCHEDULES:
Schedule 1.3 States the Company is Qualified To Do Business In . . . . . . . . . . . . . . . . . . . . . . S-1
Schedule 1.4 Authorized Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Schedule 1.8 Liens, Mortgages and Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Schedule 1.9 Description of Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Schedule 1.10 Description of Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Schedule 1.11 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Schedule 1.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
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Schedule 1.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Schedule 1.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Schedule 1.17 Intellectual Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Schedule 1.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Schedule 1.30 Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Schedule 1.32 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Schedule 1.33 Customer Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Schedule 1.34 Insider Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
</TABLE>
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<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of October
4, 1996, is made and entered into by and among Karts International
Incorporated, a Nevada corporation ("Karts International"), USA Industries,
Inc., an Alabama corporation (the "Company"), and Jerry Michael Allen, Angela
T. Allen, Johnny C. Tucker and Carol Y. Tucker (the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders are the owners and holders of 100 shares of
common stock, no par value per share, of the Company (the "USA Shares");
WHEREAS, the Shareholders desire to sell, and Karts International
desires to purchase, the USA Shares pursuant and subject to the terms and
conditions of this Agreement;
WHEREAS, the Company and Karts International have entered into an
operating agreement (the "Operating Agreement") to facilitate the manufacture
and delivery of fun karts per USA's Vendor's Agreement with Wal-Mart Stores,
Inc.; and
WHEREAS, the Operating Agreement will terminate upon the Closing (as
defined herein) of the transactions contemplated by this Agreement.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
REPRESENTATIONS OF THE COMPANY AND THE SHAREHOLDERS
As a material inducement to Karts International to enter into this
Agreement and perform its obligations hereunder, the Company and the
Shareholders jointly and severally represent, warrant and agree as follows:
1.1 Ownership of USA Shares. The Shareholders are the record and
beneficial owners of the USA Shares, free and clear of all liens, encumbrances,
restrictions and claims of every kind; the Shareholders have full legal right,
power and authority to enter into this Agreement and to sell, assign, transfer
and convey the USA Shares to Karts International pursuant to the terms of this
Agreement; and the delivery to Karts International of duly endorsed
certificates representing the USA Shares pursuant to the provisions of this
Agreement will transfer to Karts International valid title to the USA Shares,
free and clear of all liens, encumbrances, restrictions and claims of every
kind.
1.2 Validity of Transaction. This Agreement and each other
agreement contemplated hereby are valid and legally binding obligations of the
Company and the Shareholders, enforceable in accordance with their respective
terms against the Company and the Shareholders, except as limited by
bankruptcy, insolvency and similar laws affecting creditors generally, and by
general principles of equity. When sold, assigned, transferred and conveyed to
Karts International pursuant to this Agreement, the USA Shares will be duly
authorized, validly issued, fully paid, nonassessable and free of any
preemptive rights of any present shareholder or any future shareholder of the
Company. The execution, delivery and performance of this Agreement and each
STOCK PURCHASE AGREEMENT - Page 1
<PAGE> 7
other agreement contemplated hereby have been duly authorized by the Company
and the Shareholders and will not violate any applicable federal or state law,
any order of any court or government agency or the articles or certificate of
incorporation of the Company. The execution, delivery and performance of this
Agreement and each other agreement contemplated hereby will not result in any
breach of or default under, or result in the creation of any encumbrance upon
any of the assets of the Company pursuant to the terms of any agreement by
which the Company or any of its respective assets may be bound. No consent,
approval or authorization of, or registration or filing with any governmental
authority or other regulatory agency, is required for the validity of the
execution and delivery by the Company and the Shareholders of this Agreement or
any documents related thereto.
1.3 Existence and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Alabama. The Company has the power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and is in good standing in each of the states listed in Schedule 1.3
hereto, which are the only jurisdictions in which the character or location of
the properties owned or leased by the Company or the nature of the business
conducted by the Company makes such qualification necessary. The Company has
all necessary power and authority to conduct the business it proposes to
conduct and enter into and perform its obligations under this Agreement. The
Company will deliver to Karts International a Certificate of Officer dated as
of the Closing Date (as hereinafter defined) certifying to the Company's
existence and good standing, the accuracy and completeness of its articles or
certificate of incorporation and its bylaws and the names and signatures of its
officers and agents authorized to execute documents on behalf of Company.
1.4 Capital Stock. The Company has an authorized capitalization
as set forth in Schedule 1.4 hereto, which includes the name and address of
each Shareholder of the Company and the number of USA Shares and any other
securities of the Company owned by such Shareholders. The outstanding USA
Shares have been duly authorized and validly issued and are fully paid and
nonassessable. Neither the Shareholders nor the Company are parties to or
bound by, nor do they have any knowledge of, any outstanding options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, plans or
other agreements of any character providing for the purchase, issuance or sale
of any shares of the capital stock of the Company, other than as contemplated
by this Agreement. As of the Closing Date, the Company will not be subject to
any obligation, contingent or otherwise, to repurchase or otherwise acquire or
redeem any shares of its capital stock.
1.5 Subsidiaries and Investments. The Company does not own,
directly or indirectly, any of the capital stock of any other corporation or
any equity, profit sharing, participation or other interest in any corporation,
partnership, joint venture or other entity.
1.6 Financial Statements and No Material Changes. The Company has
heretofore furnished Karts International with the unaudited balance sheet of
the Company as of July 31, 1996 and the related statements of income, all
compiled by management of the Company (the consolidated balance sheet of the
Company at July 31, 1996 is hereinafter referred to as the "Balance Sheet").
The entries on the Balance Sheet under Equity that are classified as "Due
to/from Johnny Tucker -- $56,981.57; Tucker Erection -- $17,075.00; and Michael
Allen -- $42,887.86" have been reclassified as contributions to equity by such
Shareholders. A true and correct copy of the Balance Sheet, as restated, is
attached hereto as Exhibit "A". The Balance Sheet fairly presents the
financial condition of the Company at the date thereof and, except as
STOCK PURCHASE AGREEMENT - Page 2
<PAGE> 8
indicated therein, reflects all claims against and all debts and liabilities of
the Company, fixed or contingent, as at the date thereof and the related
statement of income fairly presents the results of the operations of the
Company and the changes in its financial position for the periods indicated.
Since July 31, 1996 (the "Balance Sheet Date") there has been (i) no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations, of the Company,
whether as a result of any legislative or regulatory change, revocation of any
license or rights to do business, fire, explosion, accident, casualty, labor
trouble, flood, drought, riot, storm, condemnation or act of God or other
public force or otherwise and (ii) no change in the assets or liabilities, or
in the business or condition, financial or otherwise, or in the results of
operations, or prospects, of the Company except in the ordinary course of
business; and to the best knowledge of the Shareholders and the Company, no
fact or condition exists or is contemplated or threatened which might cause
such a change in the future.
1.7 Books and Records. The minute books of the Company, as
heretofore delivered to Karts International and its representatives, contain
accurate records of all meetings of and corporate actions or written consents
by the Shareholders and Board of Directors of the Company, respectively. The
Company does not have any of its records, systems, controls, data or
information recorded, stored, maintained, operated or otherwise wholly or
partly dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) that
(including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company. The Company will make
and keep books, records and accounts that in reasonable detail accurately and
fairly reflect the transactions and dispositions of its assets. The Company
will maintain its present system of internal accounting controls. The
Company's present system of internal accounting controls is sufficient to
provide reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles or any other criteria
applicable to such statements and to maintain accountability for such assets,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals, and
appropriate action is taken with respect to any differences.
1.8 Title to Properties; Encumbrances. The Company has good,
marketable and indefeasible title to all its properties, assets and leasehold
estates, real and personal, as described in the Balance Sheet, and, except as
set forth in Schedule 1.8 hereto, all such properties, both real and personal,
are not subject to any mortgage, lien, pledge, security interest, conditional
sales agreement or encumbrances of any kind.
1.9 Real Property. Schedule 1.9 contains an accurate and complete
legal description of all real property and improvements situated thereon which
is owned by the Company and a description of any mortgage, lien, pledge,
security interest or encumbrance of any kind against the real property and
improvements (the "Mortgage"). All payments due to date on each such Mortgage
have been paid; in each case, the Company is not in default thereunder and no
waiver, indulgence or postponement of the Company's obligations under any such
Mortgage has been granted by the mortgage holder; and there exist no event of
default or event, occurrence, condition or act (including the transactions
contemplated under this Agreement) that, with the giving of notice, the lapse
of time or the happening of any further event or condition, would become a
default under any such Mortgage in any material respect, and, to the best
knowledge of the Shareholders and the Company, all of the covenants to be
performed by the Company under any such Mortgage have been fully performed.
The real property and improvements owned by the
STOCK PURCHASE AGREEMENT - Page 3
<PAGE> 9
Company is in the state of good maintenance and repair and is adequate and
suitable for the purposes for which is presently being used by the Company.
1.10 Leases. Schedule 1.10 contains an accurate and complete list
and description of the terms of all leases to which the Company is a party as
lessee or lessor. Each lease set forth in Schedule 1.10 (or required to be set
forth in Schedule 1.10) is in full force and effect; all rents and additional
rents due to date on each such lease have been paid; in each case, the lessee
has been in peaceable possession since the commencement of the original term of
such lease and is not in default thereunder and no waiver, indulgence or
postponement of the lessee's obligations thereunder has been granted by the
lessor; and there exists no event of default or event, occurrence, condition or
act (including the purchase of the USA Shares hereunder) that, with the giving
of notice, the lapse of time or the happening of any further event or
condition, would become a default under such lease. The Company has not
violated any of the terms or conditions under any such lease in any material
respect, and, to the best knowledge of the Shareholders and the Company, all of
the covenants to be performed by any other party under any such lease have been
fully performed. The property leased by the Company is in a state of good
maintenance and repair and is adequate and suitable for the purposes for which
it is presently being used.
1.11 Material Contracts. Except as set forth in Schedule 1.11
hereto, the Company has not been or is not bound by (i) any agreement, contract
or commitment relating to the employment of any person by the Company, or any
bonus, deferred compensation, pension, profit sharing, stock option, employee
stock purchase, retirement or other employee benefit plan, (ii) any agreement,
indenture or other instrument that contains restrictions with respect to
payment of dividends or any other distribution in respect of its capital stock,
(iii) any agreement, contract or commitment relating to capital expenditures,
(iv) any loan or advance to, or investment in, any other Person (as defined in
Section 11.4 herein) or any agreement, contract or commitment relating to the
making of any such loan, advance or investment, (v) any guarantee or other
contingent liability in respect of any indebtedness or obligation of any other
Person (other than the endorsement of negotiable instruments for collection in
the ordinary course of business), (vi) any management service, consulting or
any other similar type contract, (vii) any agreement, contract or commitment
limiting the freedom of the Company to engage in any line of business or to
compete with any other Person, (viii) any agreement, contract or commitment not
entered into in the ordinary course of business that involves $10,000 or more
and is not cancelable without penalty within 30 days, or (ix) any agreement,
contract or commitment that might reasonably be expected to have a potential
adverse impact on the business or operations of the Company. Each contract or
agreement set forth in Schedule 1.11 (or required to be set forth in Schedule
1.11) is in full force and effect, and there exists no default or event of
default or event, occurrence, condition or act (including the purchase of the
USA Shares hereunder) that, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default thereunder. The Company has not violated any of the terms or
conditions of any contract or agreement set forth in Schedule 1.11 (or required
to be set forth in Schedule 1.11) in any material respect, and, to the best
knowledge of the Shareholders and the Company, all of the covenants to be
performed by any other party thereto have been fully performed. Contracts made
in the ordinary course of business involving less than $10,000 shall be deemed
not to be material for purposes of this Section 1.11.
1.12 Restrictive Documents. Neither the Company nor the
Shareholders are subject to, or a party to, any charter, bylaw, mortgage, lien,
lease, license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind or
character, that materially adversely affects the business practices, operations
or
STOCK PURCHASE AGREEMENT - Page 4
<PAGE> 10
condition of the Company or any of its assets or property, or that would
prevent consummation of the transactions contemplated by this Agreement,
compliance by the Shareholders or the Company with the terms, conditions and
provisions hereof or the continued operation of the Company's business after
the date hereof or the Closing Date on substantially the same basis as
heretofore operated or that would restrict the ability of the Company to
acquire any property or conduct business in any area.
1.13 Litigation. Except as set forth in Schedule 1.13 hereto,
there are no claims, actions, inquiries, investigations, suits, proceedings or
arbitrations pending or threatened against the Shareholders or the Company, nor
are the Shareholders or the Company aware of any claims, actions, inquiries,
investigations, suits or arbitrations before any governmental agency, court or
tribunal, domestic or foreign, or before any private arbitration tribunal,
threatened or pending against the Shareholders or the Company involving the
Company's properties or business that, if determined adversely to the
Shareholders or the Company, would, individually or in the aggregate, result in
any materially adverse change in the properties, business, management or
business prospects of the Company nor is there any basis for any such action,
suit, proceeding, arbitration, claim, investigation or inquiry. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Shareholders or the Company and enjoining either the
Shareholders or the Company from taking, or requiring the Shareholders or the
Company to take, any action, or to which the Shareholders, the Company, the
Company's business or properties are bound or subject. Except as disclosed in
Schedule 1.13, there are no unsatisfied adverse judgments or court or
administrative orders (whether or not on appeal) affecting the business of the
Company and there are no judgment creditors asserting any claims, whether or
not meritorious or material, against the Shareholders or the Company. Upon a
breach of the representations and warranties made in this Section 1.13, Karts
International may avail itself to all rights and remedies provided for herein,
including, but not limited to, all rights to indemnification as set forth in
Article IX hereof.
1.14 Taxes. The Company has filed or caused to be filed, within
the times and within the manner prescribed by law, all federal, state and
foreign tax returns and tax reports that are required to be filed by, or with
respect to, the Company. Such returns and reports reflect accurately all
liability for taxes of the Company for the periods covered thereby. All
federal, state, local and foreign income, franchise, sales, use, occupancy,
excise and other taxes and assessments (including interest and penalties)
payable by, or due from, the Company have been fully paid or adequately
disclosed and fully provided for in the books and financial statements of the
Company. The federal income tax liability of the Company has been finally
determined for all fiscal years to and including the fiscal year ended December
31, 1995. Except as set forth and described in Schedule 1.14 hereto, no
examination of any tax return of the Company is currently in progress by any
state or federal administrative or regulatory agency. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable
to any tax return of the Company. The Company will pay and discharge, when
due, (i) all material taxes, assessments and governmental priority claims and
charges imposed upon its properties or upon the income or profits therefrom (in
each case before the same becomes delinquent and before penalties accrue
thereon), and (ii) all claims for labor, materials or supplies that, if unpaid,
might by law become liens upon any of its properties, unless and to the extent
that the same are being contested in good faith and by appropriate proceedings,
and adequate reserves have been set aside on its books with respect thereto, in
accordance with generally accepted accounting principles.
1.15 Liabilities. The Company has no outstanding claims,
liabilities or indebtedness, contingent or otherwise, except as set forth in
the Balance Sheet, other than liabilities incurred
STOCK PURCHASE AGREEMENT - Page 5
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subsequent to the Balance Sheet Date in the ordinary course of business and a
credit line with Deposit Guaranty National Bank, Hammond, Louisiana Branch
("Deposit Guaranty"). The Company is not in default in respect of the terms or
conditions of any indebtedness.
1.16 Insurance. Set forth in Schedule 1.16 hereto is a complete
list of insurance policies that the Company maintains with respect to its
businesses, properties or employees. Such policies are in full force and
effect free from any right of termination on the part of the insurance
carriers. Such policies, with respect to their amounts and types of coverage,
are adequate to insure fully against risks to which the Company, and its
property and assets are normally exposed, in the operation of its businesses.
True, complete and correct copies of all such policies have been provided to
Karts International on or prior to the date hereof.
1.17 Intellectual Properties. Schedule 1.17 hereto contains an
accurate and complete list of all domestic and foreign letters patent, patents,
patent applications, patent licenses, product license agreements, software
licenses and know-how licenses, trade names, trademarks, copyrights, unpatented
inventions, service marks, trademark registrations and applications, service
mark registrations and applications and copyright registrations and
applications owned or used by the Company in the operation of its business
(collectively, the "Intellectual Property"). Unless otherwise indicated in
such Schedule 1.17, the Company owns the entire right, title and interest in
and to the Intellectual Property, trade secrets and technology used in the
operation of its business (including, without limitation, the exclusive right
to use and license the same) and each item constituting part of the
Intellectual Property and trade secrets and technology that is owned by the
Company has been, to the extent indicated in Schedule 1.17, duly registered
with, filed in or issued by, as the case may be, the United States Patent and
Trademark Office or such other government entities, domestic or foreign, as are
indicated in Schedule 1.17; and such registrations, filings and issuances
remain in full force and effect. To the best knowledge of the Shareholders and
the Company, except as stated in such Schedule 1.17, there are no pending or
threatened proceedings or litigation or other adverse claims affecting or with
respect to the Intellectual Property. Schedule 1.17 lists all notices or
claims currently pending or received by either the Company or the Shareholders
during the past two years that claim infringement by the Company or the
Shareholders of any domestic or foreign letters patent, patent applications,
patent licenses and know-how licenses, trade names, trademark registrations and
applications, service marks, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information.
Except as set forth in Schedule 1.17, there is, to the best knowledge of the
Shareholders and the Company, no reasonable basis upon which a claim may be
asserted against either the Company or the Shareholders for infringement of any
domestic or foreign letters patent, patents, patent applications, patent
licenses and know-how licenses, trade names, trademark registrations and
applications, common law trademarks, service marks, copyrights, copyright
registrations or applications, trade secrets or other confidential proprietary
information. To the best knowledge of the Shareholders and the Company, except
as indicated on Schedule 1.17, no Person is infringing upon the Intellectual
Property.
1.18 Compliance with Laws. The Company is in compliance in all
material respects with all applicable laws, regulations, orders, judgments and
decrees.
1.19 Accounts Receivable. The amount of all accounts receivable,
unbilled invoices and other debts due or recorded in the records and books of
account of the Company as being due to the Company at the Closing Date (less
the amount of any provision or reserve therefor made in the records and books
of account of the Company) will be good and collectible in full in the ordinary
course of business and, in any event, not later than 60 days after the Closing
Date; and
STOCK PURCHASE AGREEMENT - Page 6
<PAGE> 12
none of such accounts receivable or other debts is or will at the Closing Date
be subject to any counterclaim or set-off except to the extent of any such
provision or reserve. There has been no material adverse change since the
Balance Sheet Date in the amount of accounts receivable or other debts due the
Company or the allowances with respect thereto, or accounts payable of the
Company, from that reflected in the Balance Sheet.
1.20 Employment Relations. (i) The Company is in substantial
compliance with all federal, state, provincial or other applicable laws,
domestic or foreign, respecting employment and employment practices, terms and
conditions of employment and wages and hours, and has not and is not engaged in
any unfair labor practice, (ii) no unfair labor practice complaint against the
Company is pending before a labor commissioner or other competent authority,
(iii) there is no labor strike, dispute, slowdown or stoppage actually pending
or threatened against or involving the Company, (iv) no union representation
question exists respecting the employees of the Company, (v) no grievance that
might have an adverse effect upon the Company or the conduct of its businesses
exists, no arbitration proceeding arising out of or under any collective
bargaining agreement is pending, and no claim therefor has been asserted, (vi)
no collective bargaining agreement is currently being negotiated by the
Company, and (vii) the Company has not experienced any material labor
difficulty during the last three years. There has not been, and to the
knowledge of the Company and the Shareholders, there will not be, any material
adverse change in relations with employees of the Company as a result of any
announcement of the transactions contemplated by this Agreement. No key
employee, or group of employees has any plans to terminate employment with the
Company.
1.21 Employee Benefit Plans. The Company has (i) no employee
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not any such
Employee Benefit Plans are otherwise exempt from the provisions of ERISA, or
(ii) no other employee benefit plans or any other foreign pension, welfare or
retirement benefit plans. The Shareholders and the Company have delivered or
caused to be delivered to Karts International and its counsel true and complete
copies of (i) all employee benefit plans as in effect, together with all
amendments thereto that will become effective at a later date, as well as the
latest Internal Revenue Service determination letter obtained with respect to
any such employee benefit plan qualified under Section 401 or 501 of the
Internal Revenue Code of 1986, as amended and (ii) Form 5500 for the most
recent completed fiscal year for each employee benefit plan required to file
such form.
1.22 Interests in Clients, Suppliers, Etc. Neither the
Shareholders nor any officer or director of the Company possesses, directly or
indirectly, any financial interest in, or is a director, officer or employee
of, any corporation, firm, association or business organization that is a
client, supplier, customer, or competitor or potential competitor of the
Company. Ownership of securities of a company whose securities are registered
under the Securities Exchange Act of 1934, as amended, not in excess of one
percent (1%) of any class of such securities shall not be deemed to be a
financial interest for purposes of this Section 1.22.
1.23 Bank Accounts, Powers of Attorney and Compensation of
Employees. Set forth in Schedule 1.23 hereto is an accurate and complete list
showing (i) the name and address of each bank in which the Company has an
account or safe deposit box, the number of any such account or any such box and
the names of all persons authorized to draw thereon or to have access thereto,
(ii) the names of all persons, if any, holding powers of attorney from the
Company and a summary statement of the terms thereof, and (iii) the names of
all persons whose compensation from the Company on the Balance Sheet Date
exceeded an annualized rate of $25,000, together with a
STOCK PURCHASE AGREEMENT - Page 7
<PAGE> 13
statement of the full amount paid or payable to each such person for services
rendered during such fiscal year.
1.24 No Changes Prior to Closing Date. During the period from the
Balance Sheet Date to and including the Closing Date, except as expressly
contemplated hereby, the Company will not have (i) incurred any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise),
except in the ordinary course of business and under the credit line with
Deposit Guaranty, (ii) permitted any of its assets to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or charge
of any kind except as may be required under the Deposit Guaranty credit line,
(iii) sold, transferred or otherwise disposed of any assets except in the
ordinary course of business, (iv) made any capital expenditure or commitment
therefor, except in the ordinary course of business, (v) declared or paid any
dividend or made any distribution on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital stock or
any option, warrant or other right to purchase or acquire any such shares, (vi)
made any bonus or profit sharing distribution or payment of any kind, (vii)
increased its indebtedness for borrowed money, except current borrowings from
banks in the ordinary course of business and the Deposit Guaranty credit line,
or made any loan to any Person, (viii) written off as uncollectible any notes
or accounts receivable, except write-offs in the ordinary course of business
charged to applicable reserves, none of which individually or in the aggregate
is material to the Company, (ix) granted any increase in the rate of wages,
salaries, bonuses or other remuneration of any executive employee or other
employees, except in the ordinary course of business, (x) canceled or waived
any claims or rights of substantial value, (xi) made any change in any method
of accounting or auditing practice, (xii) otherwise conducted its business or
entered into any transaction, except in the usual and ordinary manner and in
the ordinary course of its business, or (xiii) agreed, whether or not in
writing, to do any of the foregoing. There shall have been no material adverse
change in the financial position, results of operations, business or prospects
of Company since the Balance Sheet Date. The Company shall not have not
consolidated or merged with, nor sold, leased or otherwise disposed of its
properties as an entirety or substantially as an entirety, to any Person.
1.25 Disclosure. None of this Agreement, the financial statements
referred to in Section 1.6 above, or any agreement, schedule, exhibit or
certificate delivered in accordance with the terms hereof or any document or
statement in writing that has been supplied by or on behalf of the Company, the
Shareholders, or by any of the Company's directors or officers, in connection
with the transactions contemplated hereby, contains any untrue statement of a
material fact, or omits any statement of a material fact necessary in order to
make the statements contained herein or therein not misleading. There is no
fact known to the Company or the Shareholders that materially and adversely
affects the business, prospects or financial condition of the Company or its
properties or assets, that has not been set forth in this Agreement or in the
schedules, exhibits or certificates or statements in writing furnished in
connection with the transactions contemplated by this Agreement. There has not
come to the attention of the Company or the Shareholders any facts that
reasonably cause the Company or the Shareholders to believe that any document
connected with the transactions contemplated hereby contain any untrue
statement or a material fact, or omit to state a material fact required to be
stated herein or necessary in order to make the statements herein, in light of
the circumstances existing on the Closing Date, not misleading.
1.26 Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of the Company or the Shareholders is, or will be, entitled to
any commission or broker's or finder's fees from any of the parties hereto, or
from any Person controlling, controlled by or under
STOCK PURCHASE AGREEMENT - Page 8
<PAGE> 14
common control with any of the parties hereto, in connection with any of the
transactions contemplated herein.
1.27 Copies of Documents. The Shareholders and the Company have
caused to be made available for inspection and copying by Karts International
and its representatives, attorneys and accountants, true, complete and correct
copies of all documents referred to in this Article I or in any schedule or
exhibit furnished by the Shareholders or the Company to Karts International
pursuant to this Agreement. All documents and instruments delivered to Karts
International on the Closing Date in connection with this transaction shall be
satisfactory to Karts International in its sole discretion.
1.28 Purchase for Investment. The Shareholders will acquire the
Karts International Shares (as hereinafter defined) for investment and not with
a view to resale or for distributing all or any part thereof in any transaction
which would constitute a "distribution" within the meaning of the Securities
Act of 1933, as amended (the" Securities Act"). The offering of the Karts
International Shares to the Shareholders was made only through direct, personal
communication between the Shareholders and a duly authorized officer of Karts
International and not through public solicitation or advertising. The
Shareholders acknowledge that Karts International Shares are "restricted
securities" and have not been registered under the Securities Act and that
Karts International is not under any obligation to file a registration
statement with the Securities and Exchange Commission or any state securities
agency with respect to the Karts International Shares.
1.29 Investor Qualifications. The Shareholders (i) have such
knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of their investment in the Karts
International Shares and have the financial ability to assume the monetary risk
associated therewith, (ii) are able to bear the complete loss of their
investment in the Karts International Shares, (iii) have received such other
documents and information as they have requested and have had the opportunity
to ask questions of, and receive answers from, Karts International and its
management concerning Karts International and the terms and conditions of the
offering of Karts International and to obtain additional information, (iv) are
not an entity formed solely to make this investment, and (v) are not relying
upon any statements or instruments made or issued by any person other than
Karts International and its officers in making their decision to invest in the
Karts International Shares.
1.30 Product Warranty. Each product manufactured, sold, leased or
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company does not
have any liability (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) (and there is no basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against any of them giving rise to any such liability) for
replacement or repair thereof or other damages in connection therewith. Except
as set forth in Schedule 1.30 hereto, no product manufactured, sold, leased or
delivered by the Company is subject to any guaranty, warranty, or other
indemnity.
1.31 Products Liability. Except as set forth in Schedule 1.13
hereto, there is no claim, action, suit, inquiry, proceeding or investigation
by or before any court or governmental or other regulatory or administrative
agency or commission pending or threatened against or involving either the
Shareholders or the Company relating to any product alleged to have been
manufactured or sold by the Company and alleged to have been defective, or
improperly designed or manufactured.
STOCK PURCHASE AGREEMENT - Page 9
<PAGE> 15
1.32 Environmental Compliance. Except as set forth in Schedule
1.32, to the best knowledge of the Shareholders and the Company (i) the conduct
of the business at the Company in connection with the ownership, use,
maintenance or operation of any real property which has ever been owned or
leased by the Company, and the conduct of business thereon, complies and
complied with, and the Company is not in violation of, any applicable federal,
state, county or local statutes, laws, regulations, rules, ordinances, codes,
licenses, permits (granted to the Company) or orders (naming the Company) of
any governmental authorities relating to environmental matters, including,
without limitation, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), and any other law, statute, ordinance or
regulation relating to the protection of the public health and/or the
environment, whether promulgated by the United States, any state, municipality
and/or other governmental body, each as amended (hereinafter collectively
referred to as "Environmental Laws"), (ii) the conduct of the business at the
Company is and has at all times been performed in conformance with all
Environmental Laws and regulations pertaining thereto, and all permits or other
documents required for the conduct of the business in accordance with the
Environmental Laws are and at all times have been in full force and effect;
(iii) there are no notices of violation of any Environmental Laws requiring any
work, repairs, construction, capital expenditures or otherwise with respect to
the business of the Company which have been received by the Company, and there
are no writs, notices, injunctions, decrees, orders, liens or judgments
outstanding, no lawsuits based upon either the Environmental Laws or the common
law, claims, proceedings or investigations pending relating to the operations
of the Company with respect to the disposal of hazardous wastes or hazardous
substances by the Company, and (iv) there has been no release (as defined in
CERCLA) of a hazardous substance (as defined in CERCLA) or hazardous waste or
any similar hazardous or toxic materials, substances, pollutants, contaminants
or wastes to the extent prohibited by the Environmental Laws, at or on any
premises which have ever been leased or owned by the Company, nor have such
premises been used at any time by any person as a landfill or a waste disposal
site for any hazardous substances or hazardous wastes.
1.33 Customer Commitments. Schedule 1.33 is a description of all
oral arrangements and written contracts, agreements, understandings,
commitments and the like under the terms of which the Company has agreed to pay
any bonus, rebate, financing, discount, waiver of payment, incentive or the
like, from January 1, 1994 to the Balance Sheet Date, to any of the Company's
customers or their employees.
1.34 Insider Interests. Except as set forth in Schedule 1.34, no
shareholder, employee, officer or director of the Company has any material
interest in any personal or real property, tangible or intangible, including,
without limitation, inventions or other Intellectual Property, used in or
pertaining to the assets or business of the Company.
1.35 Representations as of Closing. The representations and
warranties made by the Company and the Shareholders in this Article I and the
schedules hereto will be correct in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties and schedules had been made on the Closing Date. The liability of
the Company and the Shareholders for their warranties and representations under
this Article I shall terminate three years after the Closing Date.
STOCK PURCHASE AGREEMENT - Page 10
<PAGE> 16
ARTICLE II
REPRESENTATIONS OF KARTS INTERNATIONAL
As a material inducement to the Company and the Shareholders to enter
into this Agreement and perform their respective obligations hereunder, Karts
International represents, warrants and agrees as follows:
2.1 Existence and Good Standing of Karts International. Karts
International is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. Karts International has
corporate power and authority to make, execute, deliver and perform this
Agreement, and this Agreement has been duly authorized and approved by all
required corporate action of Karts International. Each person executing this
Agreement on behalf of Karts International is authorized to do so.
2.2 Restrictive Documents. Karts International is not subject to
any charter, by-law, mortgage, lien, lease, agreement, instrument, order, law,
rule, regulation, judgment or decree, or any other restriction of any kind or
character, that would prevent consummation of the transactions contemplated by
this Agreement.
2.3 Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of Karts International is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any person controlling, controlled by or under common control with any of the
parties hereto, in connection with any of the transactions contemplated herein.
2.4 Issuance of the Karts International Shares. The delivery to
the Shareholders of the Karts International Shares pursuant to the provisions
of this Agreement will transfer to the Shareholders valid title thereto, free
and clear of all liens, encumbrances, restrictions and claims of every kind,
except as acknowledged by the Shareholders in Section 1.28.
2.5 Representations as of Closing. The representations and
warranties made by Karts International in this Article II will be correct in
all material respects on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made on the Closing
Date. The liability of Karts International for its warranties and
representations under this Article II shall terminate three years after the
Closing Date.
ARTICLE III
SALE OF THE USA SHARES
3.1 Sale of the USA Shares. Subject to the terms and conditions
herein stated, the Shareholders agree to sell, assign, transfer and deliver to
Karts International on the Closing Date, and Karts International agrees to
purchase from the Shareholders on the Closing Date, the USA Shares. The
certificates representing the USA Shares shall be duly endorsed in blank by the
Shareholders transferring the same, with signatures guaranteed by a domestic
commercial bank or trust company, with all necessary transfer tax and other
revenue stamps acquired at the Shareholders' expense affixed and canceled. The
Shareholders agree to cure any deficiencies with respect to the endorsement of
the certificates representing the USA Shares or with respect to the stock power
accompanying any such certificates.
3.2 Cash Payment. In consideration for the purchase by Karts
International of the USA Shares, Karts International shall pay to the
Shareholders by wire transfer or official bank check
STOCK PURCHASE AGREEMENT - Page 11
<PAGE> 17
on the Closing Date an aggregate of $250,000 (the "Cash Payment") payable to
the order of each Shareholder as follows:
<TABLE>
<CAPTION>
Number and Percentage Cash Consideration
Name of Shareholder of USA Shares Owned To be Received
- ------------------- ------------------- --------------
<S> <C> <C>
Jerry M. Allen 25 Shares - 25% $62,500
Angela T. Allen 25 Shares - 25% $62,500
Johnny C. Tucker 25 Shares - 25% $62,500
Carol Y. Tucker 25 Shares - 25% $62,500
</TABLE>
3.3 Determination of Amount of Karts International Shares. As
additional consideration for the purchase of the USA Shares, Karts
International shall issue and deliver to Shareholders at Closing an amount
(rounded to the nearest whole share) of its shares of common stock, par value
$.001 per share, which shall have an aggregate market value equal to $750,000
(the "Stock Amount"). The aggregate number of Karts International Shares to be
issued to the Shareholders shall be determined by dividing the Stock Amount by
the price per share of common stock of Karts International which shall be the
closing bid price per share of Karts International's common stock as reported
on the OTC Bulletin Board System on the business day preceding the Closing
Date. The shares of Karts International's common stock to be issued to the
Shareholders pursuant to this Section 3.3 are referred to herein as the "Karts
International Shares." Each Shareholder shall receive the same percentage of
the Karts International Shares as he/she received of the cash consideration as
set forth in Section 3.2 herein.
3.4 Non-competition Agreements. As further consideration for the
purchase by Karts International of the USA Shares, at the Closing, Karts
International and the Shareholders will enter into a Non-Competition Agreement
in substantially the same form as Exhibit "B" hereto.
ARTICLE IV
CONDUCT OF BUSINESS; REVIEW
4.1 Conduct of Business of the Company. During the period from
the date of this Agreement to the Closing Date, the Company shall conduct its
operations only according to its ordinary and usual course of business, and the
Shareholders and the Company shall use their best efforts to preserve the
Company's business organizations, keep available the services of the Company's
officers and employees and maintain satisfactory relationships with licensors,
suppliers, distributors, clients and others having business relationships with
them. Notwithstanding the immediately preceding sentence, to the Closing Date
and except as may be first approved by Karts International or as is otherwise
permitted or required by this Agreement, the Shareholders and the Company shall
cause (i) the Company's articles or certificate of incorporation and Bylaws to
be maintained in their form on the date of this Agreement, (ii) the
compensation payable or to become payable by the Company to any officer,
employee or agent being paid $25,000 per year or more on the Balance Sheet Date
to be maintained at their levels on the date of this Agreement, (iii) the
Company to refrain from making any bonus, pension, retirement or insurance
payment or arrangement to or with any such persons except those that may have
already been accrued, (iv) the Company to refrain from entering into any
contract or commitment except contracts in the ordinary course of business, and
(v) the Company to refrain from making any change affecting any bank, safe
deposit or power of attorney arrangements of the Company. During the period
from the date of this Agreement to the Closing Date, the Shareholders shall
cause the Company to confer on a regular and frequent basis with one or more
designated representatives of Karts International to
STOCK PURCHASE AGREEMENT - Page 12
<PAGE> 18
report material operational matters and to report the general status of ongoing
operations. The Shareholders and the Company shall promptly notify Karts
International of any unexpected emergency or other change in the normal course
of its business or in the operation of its properties and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), adjudicatory proceedings, budget meetings or
submissions involving any material property of the Company, and to keep Karts
International fully informed of such events and permit its representatives
prompt access to all materials prepared in connection therewith.
4.2 Exclusive Dealing. During the period from the date of this
Agreement to the Closing Date, the Shareholders and the Company shall refrain
from taking any action to, directly or indirectly, encourage, initiate or
engage in discussions or negotiations with, or provide any information to, any
corporation, partnership, person, or other entity or group, other than Karts
International, concerning any purchase of the USA Shares or any merger, sale of
substantial assets or similar transaction involving the Company.
4.3 Review of the Company. Karts International may, prior to the
Closing Date, through its representatives, review the properties, books and
records of the Company and its financial and legal condition as they deem
necessary or advisable to familiarize themselves with such properties and other
matters. The Shareholders and the Company shall permit Karts International and
its representatives to have, after the date of execution hereof, full access to
the premises and to all the books and records of the Company and to cause the
officers of the Company to furnish Karts International with such financial and
operating data and other information with respect to the business and
properties of the Company as Karts International shall from time to time
reasonably request. In the event of termination of this Agreement, Karts
International shall keep confidential any material information obtained from
the Shareholders or the Company concerning the Company's properties or
operations and business (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be material (or becomes
so ascertainable) and shall return to the Company all copies of any schedules,
statements, documents or other written information obtained in connection
therewith. The Shareholders and the Company shall deliver or cause to be
delivered on the Closing Date, and at such other times and places as shall be
reasonably agreed upon, such additional instruments as Karts International may
reasonably request for the purpose of carrying out this Agreement.
4.4 Review of Karts International. The Company and the
Shareholders may, prior to the Closing Date, through their representatives,
review the properties, books and records of Karts International and its
financial and legal condition as they deem necessary or advisable to
familiarize themselves with such properties and other matters. Karts
International shall permit the Company and their representatives to have, after
the date of execution hereof, full access to the premises and to all the books
and records of the Company and to cause the officers of Karts International to
furnish the Company and Shareholders with such financial and operating data and
other information with respect to the business and properties of Karts
International as the Company and the Shareholders shall from time to time
reasonably request. In the event of termination of this Agreement, the Company
and the Shareholders shall keep confidential any material information obtained
from Karts International concerning Kart International's properties or
operations and business (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be material (or becomes
so ascertainable) and shall return to Karts International all copies of any
schedules, statements, documents or other written information obtained in
connection therewith.
STOCK PURCHASE AGREEMENT - Page 13
<PAGE> 19
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preserve Accuracy of Representation and Warranties. Each of
the parties hereto shall refrain from taking any action that would render any
representation or warranty contained herein inaccurate as of the Closing Date.
5.2 Passage of Title and Risk of Loss. Possession and legal and
equitable title and risk of loss with respect to the USA Shares to be
transferred hereunder shall not pass to Karts International until the USA
Shares are transferred to Karts International at the Closing on the Closing
Date.
5.3 Consents. The Company and the Shareholders agree to use their
best efforts to obtain such consents as may be required under any contract,
mortgage, lease, license or other instrument requiring the consent of another
party thereto as a result of the transactions contemplated by this Agreement.
5.4 Company Employees and Benefits. While it is the present
intention of Karts International and the Company to generally maintain the work
force of the Company after Closing, nothing herein shall obligate the Company
or Karts International to make any offer of employment to, or to employ in any
capacity or to continue the employment of, any employee presently employed by
the Company. After Closing, the Company and Karts International intend to
continue the employment of Jerry M. Allen as a Vice President of the Company
with an annual salary of $57,500 and the employment of Johnny Tucker as
production Manager of the Company with an annual salary of $42,000. Employees,
including officers of the Company, after Closing will continue to receive the
same or similar health and dental insurance programs that are currently
available from the Company. Current or similar vacation, holiday and other
employee benefits and policies will remain in effect after Closing provided
such benefits and policies are reasonable, usual and customary and based on
prior Company practices. After Closing, stock options for Karts International
common stock shall be granted to employees based on performance and at the sole
discretion of the Board of Directors of Karts International. Nothing herein
shall restrict or prohibit the Company or Karts International, after Closing,
to terminate the employment of any employee or require the Company or Karts
International to provide any employee of the Company or group or classification
of employees any particular level of compensation or benefits. It is
understood between the parties hereto that after Closing the employees of the
Company will be employed solely on an "at will" basis by the Company.
5.5 Continuing Obligations of the Company. The nature of this
Agreement and the obligations of Karts International is that of a purchase of
all the outstanding common stock of the Company and, except as otherwise
expressly provided for in this Agreement, Karts International specifically
assumes no liability or responsibility under any of the Company's benefit
plans, programs, arrangements, agreements, coverages or policies as a successor
employer or otherwise. Karts International shall not, under any circumstances,
be liable for any expense or liability that may arise from employment with or
termination of any employee of the Company. The Company shall recognize and
shall bear the full cost and expense of any entitlement to benefits applicable
to the employees of the Company and persons who have retired or will retire
from such employment prior to the Closing Date, under the Company's benefit
plans, programs, arrangements, agreements, coverages and policies or otherwise.
The Company shall also continue and bear the expense of any such plans,
programs, arrangements, coverages, agreements and
STOCK PURCHASE AGREEMENT - Page 14
<PAGE> 20
policies for any employee on paid leave of absence of any type for any reason
as of the Closing Date until the expiration of such leave under the provisions
of the Company's presently existing programs, arrangements, coverages, policies
and plans. The Company intends to continue after Closing the same or similar
health, dental and other benefit plans as currently in effect with the Company.
5.6 Covenants Not to Compete. At the Closing, Karts International
and the Shareholders will enter into a Non-Competition Agreement in
substantially the same form as Exhibit "B" hereto.
5.7 Notification. The Company and the Shareholders shall notify
Karts International immediately in writing if either determines that they
cannot timely fulfill any of their covenants, conditions and responsibilities
to be complied with and performed on or before the Closing Date.
5.8 Schedules and Exhibits. Exhibits and Schedules, as
applicable, shall be brought current to the Closing Date and delivered to Karts
International at Closing.
ARTICLE VI
CONDITIONS TO KARTS INTERNATIONAL'S OBLIGATIONS
The obligations of Karts International hereunder are, at its sole
option, subject to and conditioned upon the satisfaction and fulfillment by the
Company and Shareholders, on or prior to the Closing Date of each of the
following conditions unless waived in writing by Karts International.
6.1 Opinion of the Company's and the Shareholders' Counsel. The
Company and the Shareholders shall have furnished Karts International with an
opinion of McDowell, Faulk & McDowell, as counsel for the Shareholders and the
Company, dated the Closing Date, in form and substance satisfactory to Karts
International and its counsel, to the effect that:
(a) the Company (i) is a corporation validly existing and
in good standing under the laws of its state of incorporation, (ii) is
duly qualified and licensed under all applicable laws or regulations
to own its assets and properties as now owned and to carry on its
business as now conducted, and (iii) is, to the best knowledge of such
counsel, duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which the failure to so
qualify would have a material adverse effect upon its business;
(b) the Company has full corporate power and authority to
execute, deliver and perform this Agreement and the other agreements
contemplated hereby;
(c) the execution, delivery and performance of this
Agreement and the other agreements contemplated hereby by the Company
and the Shareholders have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement and the
other agreements contemplated hereby constitute valid and binding
obligations of the Company and the Shareholders enforceable against
the Company and the Shareholders in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the
availability of equitable remedies;
STOCK PURCHASE AGREEMENT - Page 15
<PAGE> 21
(d) the Company's authorized capital stock consists of
(i) 100 shares of common stock, no par value, of which 100 shares are
issued and outstanding and no such shares of capital stock are held in
the treasury of the Company; and all of the USA Shares are duly
authorized, validly issued, fully paid and non- assessable;
(e) the Shareholders own the USA Shares, free and clear
of any adverse claims, and have full power and authority to sell,
transfer and deliver the USA Shares in accordance with the terms of
this Agreement;
(f) there are no existing options, warrants,
subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, the capital stock of the Company and neither
the Company nor the Shareholders are parties to or bound by any
agreement, instrument, arrangement, contract, obligation, commitment
or understanding of any character, whether written or oral, express or
implied, relating to the sale, assignment, conveyance, encumbrance,
transfer or deliver of any capital stock of the Company;
(g) except as disclosed in the schedules hereto, there is
no action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency now pending or threatened
against the Company or affecting the USA Shares or the assets or
business of the Company, and, except as disclosed in the schedules
hereto, the Company is not in default with respect to any judgment,
writ, injunction or decree of any court or governmental
instrumentality or agency or in the performance, observance or
fulfillment of any obligation,, covenant or agreement by which it is
bound or to which the USA Shares or any of the assets of the Company
are subject;
(h) neither the execution, delivery and performance of
this Agreement nor the consummation of the transactions contemplated
hereby will conflict with, or result in a breach of the terms,
conditions and provisions of, or constitute a default under, the
certificate or articles of incorporation or bylaws of the Company, or
any agreement, indenture or other instrument under which the Company
or the Shareholders are bound or to which the USA Shares or any of the
assets of the Company are subject, or result in the creation or
imposition of any security interest, lien, charge or encumbrance upon
the USA Shares or any of the assets of the Company;
(i) no consent of any person, corporation, association,
company, partnership or other entity, and no consent, license,
approval or authorization of, or registration or declaration with, any
governmental body, authority, bureau or agency or federal, state or
local court is required in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated
hereby, or to the extent that any such consent or other action may be
required, it has been validly procured or taken;
(j) the Company has good and marketable title to, or
valid and enforceable leasehold estates in, the items of real and
personal property stated in this Agreement to be owned or leased by it
as lessee, in each case free and clear of all liens, encumbrances,
claims, security interests, defects or other equities of any material
nature whatsoever, other than those referred to in this Agreement, and
except as may occur in the ordinary course of the Company's business,
liens for taxes not yet due and payable, and liens, encumbrances,
claims, security interests and defects, the effect of which in the
aggregate is not material to the Company. To the Company's Counsel's
knowledge, the Company's
STOCK PURCHASE AGREEMENT - Page 16
<PAGE> 22
current and intended products, services and processes do not infringe
on patents, trademarks, service marks, service names and trade names
held by third parties nor do they infringe upon rights or claimed
rights of any person, corporation or other entity nor is such counsel
aware of any plans contemplated by the Company that would infringe on
trademarks, service marks, service names and trade names held by third
parties; and
(k) to such Company's counsel's knowledge after
investigation, except as and to the extent set forth in this
Agreement, the Company is not under any obligation to pay to any third
party royalties or fees of any kind whatsoever with respect to any
Intangibles developed, employed or used by the Company.
In rendering its opinion, the Company's Counsel may rely upon
(A) opinions of local counsel acceptable to Karts International's
Counsel with respect to matters relating to the laws of any
jurisdiction other than Alabama or the United States of America; and
(B) the certificates of government officials and officers and
directors of the Company as to matters of fact, provided that the
Company's Counsel shall state that they have no reason to believe, and
do not believe, that they are not justified in relying upon such
opinions or such certificates of government officials and officers and
directors of the Company as to matters of fact, as the case may be.
The opinion letter delivered pursuant to this Article 6.1 shall state
that any opinion given therein qualified by the phrase "to the best of
our knowledge" or "to our knowledge" is being given by the Company's
Counsel after due investigation of the matters therein discussed.
6.2 Good Standing and Tax Certificates. The Company and the
Shareholders shall have delivered to Karts International (i) copies of the
Company's certificate or articles of incorporation, including all amendments
thereto, certified by the secretary of state or other appropriate official of
its jurisdiction of incorporation, (ii) certificates from the secretary of
state or other appropriate official of the jurisdiction of incorporation to the
effect that the Company is in good standing or subsisting in such jurisdiction
and listing all charter documents of the Company on file, (iii) a certificate
from the appropriate official in each jurisdiction in which the Company is
qualified to do business to the effect that the Company is in good standing in
such jurisdiction, and (iv) certificates as to the tax status of the Company in
the jurisdiction of incorporation and each other jurisdiction in which the
Company is qualified to do business.
6.3 No Material Adverse Change. Prior to the Closing Date, there
shall be no material adverse change in the assets or liabilities, the business
or condition, financial or otherwise, the results of operations, or prospects
of the Company, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or act of
God or other public force or otherwise, and the Company and the Shareholders
shall have delivered to Karts International a certificate, dated the Closing
Date, to such effect.
6.4 Truth of Representations and Warranties. The representations
and warranties of the Company and the Shareholders contained in this Agreement
or in any schedule delivered pursuant hereto shall be true and correct on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, and the Company and the
Shareholders shall have delivered to Karts International on the Closing Date a
certificate, dated the Closing Date, to such effect.
STOCK PURCHASE AGREEMENT - Page 17
<PAGE> 23
6.5 Performance of Agreements/Authorization. Each and all of the
agreements of the Company and the Shareholders to be performed on or before the
Closing Date pursuant to the terms hereof shall have been duly performed, and
the Company and the Shareholders shall have delivered to Karts International a
certificate, dated the Closing Date, to such effect. Karts International shall
have also received (i) a copy of resolutions of the Board of Directors and
Shareholders of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements, each certified by
the Secretary of the Company as being true and correct copies of the originals
thereof subject to no modifications or amendments, and (ii) a certificate of
the President of the Company and of the Shareholders, dated the Closing Date,
as to the performance of and compliance by the Company and the Shareholders
with all covenants contained herein on and as of the Closing Date and
certifying that all conditions precedent of the Company and the Shareholders to
the Closing date have been satisfied.
6.6 No Litigation Threatened. No action or proceedings shall have
been instituted or, to the best knowledge, information and belief of the
Shareholders and the Company, shall have been threatened before a court or
other government body or by any public authority to restrain or prohibit any of
the transactions contemplated hereby, and the Shareholders and the Company
shall have delivered to Karts International a certificate, dated the Closing
Date, to such effect.
6.7 Non-Competition Agreements. Karts International shall have
entered into a Non-Competition Agreement with the Shareholders substantially in
the form of Exhibit "B" hereto.
6.8 Consents. Written consents as may be required under any
contract, mortgage, lease, license or other instrument requiring consent of
another party thereto as a result of the transactions contemplated by this
Agreement shall have been obtained by the Company and the Shareholders and
delivered to Karts International.
6.9 Governmental Approvals. All governmental and other consents
and approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received.
6.10 Release of Shareholders' Claims. Karts International shall
have received duly executed documents in form satisfactory to Karts
International pursuant to which the Shareholders release, relinquish and waive
any and all claims, demands, causes of action, suits, judgments or
controversies of any kind whatsoever, whether known or unknown, that the
Shareholders may have against the Company as of the Closing Date, for any
reason whatsoever, including without limitation claims by such Shareholders
against the Company with respect to dividends, repayment of loans, violation of
preemptive rights, or payment of salaries or other compensation.
6.11 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto shall be satisfactory in form and substance to Karts International in
its sole discretion, and Karts International shall have received copies of all
such documents and other evidences as Karts International or its counsel may
reasonably request in order to establish the consummation or such transactions
and the taking of all proceedings in connection therewith.
6.12 Due Diligence Review. Karts International and its
representatives and advisors shall have completed a due diligence review of the
business, operations and financial statements of the Company, the results of
which shall be satisfactory to Karts International and its counsel in their
sole discretion.
STOCK PURCHASE AGREEMENT - Page 18
<PAGE> 24
6.13 Resignation of Officers. On the Closing Date, each officer
and director of the Company shall deliver to Karts International his/her
executed resignation as an officer and director of the Company effective as of
the Closing Date.
ARTICLE VII
CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS
The obligations of the Shareholders hereunder are, at their sole
option, subject to and conditioned upon the satisfaction and fulfillment by
Karts International, on or prior to the Closing Date, of each of the following
conditions unless waived in writing by the Shareholders.
7.1 Opinion of Karts International's Counsel. Karts International
shall have furnished the Shareholders with an opinion, dated the Closing Date,
of Looper, Reed, Mark & McGraw Incorporated, legal counsel to Karts
International, regarding the authorization of Karts International to consummate
the transactions contemplated by this Agreement, pending litigation, if any,
required consents, if any, and the issuance, delivery and validity of the Karts
International Shares.
7.2 Truth of Representations and Warranties. The representations
and warranties of Karts International contained in this Agreement shall be true
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; and Karts
International shall have delivered to the Shareholders and the Company on the
Closing Date a certificate, dated the Closing Date, to such effect.
7.3 Governmental Approvals. All governmental consents and
approvals, if any, and any other consents necessary to permit Karts
International to consummate the transactions contemplated by this Agreement
shall have been received by Karts International and delivered to the Company
and the Shareholders.
7.4 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Company
and the Shareholders and their counsel.
ARTICLE VIII
CLOSING
8.1 Closing. The consummation of the sale and purchase of the USA
Shares and the other transactions contemplated by and described in this
Agreement shall take place at a closing (the "Closing") to be held on a date as
may be mutually agreed to in writing by the parties hereto, which in no event
shall be later than November 30, 1996 (the "Closing Date"). The Closing shall
be held at the offices of Looper, Reed, Mark & McGraw Incorporated, 1601 Elm
Street, Suite 4100, Dallas, Texas 75201, or at such other place as may be
mutually agreed to in writing by the parties hereto and at a time mutually
agreed to by the parties hereto. All transactions contemplated by this
Agreement shall be deemed effective as of the Closing Date.
8.2 Actions of the Company and the Shareholders at Closing. At
the Closing, the Company or the Shareholders, as the case shall be, shall
deliver to Karts International the following:
STOCK PURCHASE AGREEMENT - Page 19
<PAGE> 25
(a) The Shareholders shall deliver to Karts International
the certificate(s) representing the USA Shares duly endorsed in favor
of Karts International, or accompanied by appropriate stock powers
duly executed in blank.
(b) The Company and the Shareholders shall deliver to
Karts International an opinion letter from McDowell, Faulk & McDowell,
counsel for the Company and the Shareholders in accordance with the
provisions of Section 6.1 herein.
(c) The Company and the Shareholders shall deliver to
Karts International the written and executed resignations of all
officers and directors of the Company, dated as of the Closing Date.
(d) The Company and the Shareholders shall deliver to
Karts International the minute book, stock issue and transfer records
and the corporate seal of the Company.
(e) The Company and the Shareholder shall have delivered
to Karts International a certificate, which shall be dated as of the
Closing Date and which shall be signed by each Shareholder and the
President and Chief Executive Officer of the Company, certifying (i)
the authority of the Shareholders and the Company to enter into and
consummate the transactions contemplated by this Agreement, (ii) the
authority of the officers of the Company to execute and deliver any
document contemplated by this Agreement on behalf of the Company,
(iii) that the representations and warranties of the Company and the
Shareholders contained in Article I hereof were true and correct when
made and are true and correct as of the Closing Date (except to the
extent that any representation or warranty of the Company or the
Shareholders specifically relates to an earlier date), and (iv) that
each and every covenant and agreement of the Company and the
Shareholders contained in this Agreement to be performed by the
Company or the Shareholders on or prior to the Closing Date has been
performed by the Company or the Shareholders, as the case may be.
(f) The Non-Competition Agreements executed by each
Shareholder in the form attached hereto as Exhibit "B".
(g) Certificates of Incumbency for the officers of the
Company making certifications for Closing dated as of the Closing
Date.
(h) A copy of resolutions duly and unanimously adopted by
the Company's Shareholders and Board of Directors, as required by law,
authorizing and approving the Company's and Shareholders' performance
of the transactions contemplated hereby and the execution and delivery
of the documents described herein, certified as true and in full force
as of the Closing Date by an authorized officer of the Company.
(i) Exhibits and schedules, as applicable, which have
been brought current to the Closing Date.
(j) Good standing and tax certificates as required by
Section 6.2 of this Agreement.
(k) Certificate executed by the President of the Company
and each Shareholder in accordance with Section 6.6 of this Agreement.
STOCK PURCHASE AGREEMENT - Page 20
<PAGE> 26
(l) All written consents as may be required under any
contract, mortgage, lease, license or other instrument requiring
consent of another party thereto as a result of the transactions
contemplated by this Agreement.
(m) An executed release by each Shareholder in accordance
with the provisions of Section 6.10 of this Agreement.
(n) Such other instruments and documents as Karts
International reasonably deems necessary to effect the transactions
contemplated hereby.
8.3 Actions of Karts International at Closing. At the Closing,
Karts International shall deliver to the Company or the Shareholders, as the
case shall be, the following:
(a) Karts International shall issue and deliver to the
Shareholders certificates representing the Karts International Shares
in each Shareholder's name and in the amount of Shares as determined
pursuant to Section 3.3 of this Agreement.
(b) Karts International shall deliver to each Shareholder
the cash consideration to be received for the USA Shares in accordance
with Section 3.2 of this Agreement.
(c) Karts International shall deliver to the Shareholders
an opinion letter from Looper, Reed, Mark & McGraw Incorporated,
counsel for Karts International, in accordance with the provisions of
Section 7.1 of this Agreement.
(d) Certified copies of the resolutions of the Board of
Directors of Karts International authorizing the execution, delivery
and performance of this Agreement and the transactions contemplated
hereby and Certificates of Incumbency for the officers of Karts
International making certifications for Closing dated as of the
Closing Date.
(e) Karts International shall have delivered to the
Company and the Shareholders a certificate, which shall be dated as of
the Closing Date and which shall be signed by a duly authorized
officer of Karts International, certifying (i) the authority of the
Karts International to enter into and consummate the transactions
contemplated by this Agreement, (ii) the authority of the officers of
Karts International to execute and deliver any document contemplated
by this Agreement on behalf of Karts International, (iii) that the
representations and warranties of Karts International contained in
Article II hereof were true and correct when made and are true and
correct as of the Closing Date, and (iv) that each and every covenant
and agreement of Karts International contained in this Agreement to be
performed by Karts International on or prior to the Closing Date has
been performed by Karts International.
(f) All governmental consents and approvals and any other
consents, if any, necessary to permit Karts International to
consummate the transactions contemplated by this Agreement shall be
delivered to the Company and the Shareholders.
(g) Good standing and tax certificates for Karts
International.
(h) Such other instruments and documents as the Company
or the Shareholders reasonably deems necessary to effect the
transactions contemplated hereby.
STOCK PURCHASE AGREEMENT - Page 21
<PAGE> 27
ARTICLE IX
SURVIVAL OF REPRESENTATIONS: INDEMNITY
9.1 Survival of Representations and Obligations to Indemnify. The
respective representations and warranties of the Shareholders and Karts
International contained in this Agreement or in any Schedule delivered pursuant
hereto shall survive the purchase and sale of the USA Shares contemplated
hereby. The obligations to indemnify and hold harmless pursuant to this
Article IX shall survive the consummation of the transactions contemplated by
this Agreement.
9.2 Indemnification by the Shareholders. The Shareholders hereby
agrees that notwithstanding any investigation which may have been made by or on
behalf of Karts International prior to the Closing, the Shareholders shall
indemnify, defend and hold harmless Karts International (and any affiliated
party of Karts International) at any time after consummation of the Closing,
from and against all demands, claims, actions, or causes of action,
assessments, losses, damages, liabilities, costs and expenses including,
subject to Section 9.4 below, interest, penalties, court costs, and reasonable
attorneys' fees and expenses asserted against, resulting to, imposed upon or
incurred by Karts International or any affiliated party of Karts International,
directly or indirectly, caused by reason of or resulting from or arising out of
any misrepresentation or any breach or nonfulfillment of any representation,
covenant, warranty or agreement of the Company and/or the Shareholders
contained in this Agreement, in any exhibit, schedule, certificate or financial
statement delivered under this Agreement, or in any agreement made or executed
in connection with the transactions contemplated by this Agreement.
9.3 Indemnification by Karts International. Karts International
agrees to indemnify, defend and hold harmless the Shareholders (and any
affiliated party of the Shareholders), at any time after consummation of the
Closing, from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
subject to Section 9.4 below, interest, penalties, court costs and reasonable
attorneys' fees and expenses asserted against, resulting to, imposed upon or
incurred by the Shareholders, directly or indirectly, caused by reason of or
resulting from or arising out of (i) a claim of products liability against the
Company and/or the Shareholders for an incident which occurred prior to the
Closing Date (provided neither the Shareholders nor the Company knew of the
occurrence of such incident prior to or on the Closing Date) and which results
in a settlement or award of damages in excess of stated insurance policy
limits, or (ii) any misrepresentation or any breach or nonfulfillment of any
representation, warranty, covenant and/or agreement of Karts International
contained in this Agreement, in any exhibit, schedule, certificate or financial
statement delivered under this Agreement, or in any agreement made or executed
in connection with the transactions contemplated by this Agreement.
9.4 Defense.
(a) Promptly after the receipt by any person entitled to
indemnification under Section 9.2 and 9.3 herein of notice of (i) any
claim or (ii) the commencement of any action or proceeding, such party
(the "Aggrieved Party") will, if claim with respect thereto is made
against any party obligated to provide indemnification pursuant to
Section 9.2 and 9.3 herein (the "Indemnifying Party"), give such
Indemnifying Party written notice of such claim or the commencement of
such action or proceeding and shall permit the Indemnifying Party to
assume the defense of any such claim or any proceeding or litigation
resulting from such claim, unless the action or proceeding seeks an
injunction or other similar relief against the Aggrieved Party or
there is a conflict of interest between it and the
STOCK PURCHASE AGREEMENT - Page 22
<PAGE> 28
Indemnifying Party in the conduct of the defense of such action.
Failure by the Indemnifying Party to notify the Aggrieved Party of its
election to defend any such proceeding or action within a reasonable
time, but in no event more than 15 days after written notice thereof
shall have been given to the Indemnifying Party, shall be deemed a
waiver by the Indemnifying Party of its right to defend such action.
(b) If the Indemnifying Party assumes the defense of any
such claim or litigation resulting therefrom with counsel reasonably
acceptable to the Aggrieved Party, the obligations of the Indemnifying
Party as to such claim shall be limited to taking all steps necessary
in the defense or settlement of such claim or litigation resulting
therefrom and to holding the Aggrieved Party harmless from and against
any losses, damages and liabilities caused by or arising out of any
settlement or any judgment in connection with such claim or litigation
resulting therefrom. The Aggrieved Party may participate, at its
expense, in the defense of such claim or litigation provided that the
Indemnifying Party shall direct and control the defense of such claim
or litigation. The Aggrieved Party shall cooperate and make available
all books and records reasonably necessary and useful in connection
with the defense. The Indemnifying Party shall not, in the defense of
such claim or any litigation resulting therefrom, consent to entry of
any judgment, except with the written consent of the Aggrieved Party,
or enter into any settlement, except with the written consent of the
Aggrieved Party.
(c) If the Indemnifying Party shall not assume the
defense of any such claim or litigation resulting therefrom, the
Aggrieved Party may defend against such claim or litigation in such
manner as it may deem appropriate and reasonably satisfactory to the
Aggrieved Party. The Indemnifying Party shall promptly reimburse the
Aggrieved Party for the amount of all expenses, legal or otherwise, as
incurred by the Aggrieved Party in connection with the defense against
or settlement of such claim or litigation. No settlement of claim or
litigation shall be made without the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld. If no
settlement of the claim or litigation is made, the Indemnifying Party
shall promptly reimburse the Aggrieved Party for the amount of any
judgment rendered with respect to such claim or in such litigation and
of all expenses, legal or otherwise, as incurred by the Aggrieved
Party in the defense against such claim or litigation.
(d) The rights to indemnification hereunder shall apply
to claims made by either party against the other whereby written
notice of the claim has been made and delivered within the period of
the applicable statute of limitations.
ARTICLE X
TERMINATION
10.1 Termination Events. This Agreement may be terminated on
written notice, on or before the Closing Date:
(a) By mutual written consent of Karts International, the
Company and the Shareholders;
(b) By Karts International, if the conditions set forth
in Article VI are not satisfied (or are incapable of being satisfied)
in the discretion of Karts International before the close of business
on the Closing Date; or
STOCK PURCHASE AGREEMENT - Page 23
<PAGE> 29
(c) By the Shareholders and the Company if the conditions
set forth in Article VII are not satisfied (or are incapable of being
satisfied) in their discretion before the close of business on the
Closing Date.
10.2 Effect of Termination. If this Agreement is validly
terminated pursuant to Section 10.1 hereof, this Agreement shall forthwith
become null and void, and there shall be no liability on the part of the
parties hereof (or any of their respective officers, directors, employees,
agents, consultants or other representatives), except as provided in Article IX
and Section 11.2 of this Agreement.
ARTICLE XI
MISCELLANEOUS
11.1 Knowledge of the Company and the Shareholders. Where any
representation or warranty contained in this Agreement is expressly qualified
by reference to the knowledge, information and belief of the Shareholders and
the Company, the Shareholders and the Company confirm that they have made due
and diligent inquiry as to the matters that are the subject of such
representations and warranties.
11.2 Expenses. The parties hereto shall pay all of their own
expenses relating to the transactions contemplated by this Agreement,
including, without limitation, the fees and expenses of their respective
counsel, accountants, and financial advisers; provided, however,
notwithstanding anything to the contrary herein, if the Shareholders or the
Company terminate this Agreement, other than in accordance with Section
10.1(c), the Shareholders jointly and severally agree to reimburse Karts
International for its out-of-pocket expenses incurred in connection with this
transaction not to exceed $100,000.
11.3 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of
the State of Texas.
11.4 "Person" Defined. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
11.5 Captions. The Article and Section captions used herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.6 Publicity. Except as otherwise required by law, none of the
parties hereto shall issue any press release or make any other public
statement, in each case relating to or connected with or arising out of this
Agreement or the matters contained herein, without obtaining the prior approval
of all parties hereto to the contents and the manner of presentation and
publication thereof.
11.7 Notices. Any notice or other communications required or
permitted hereunder shall be sufficiently given if delivered in person or sent
by telex or by registered or certified mail, postage prepaid, addressed as
follows: If to Karts International, to Karts International Incorporated, 109
North Park Boulevard, Covington, Louisiana 70433, Attention: V. Lynn Graybill,
with a copy to its counsel, Looper, Reed, Mark & McGraw Incorporated, 1601 Elm
Street, Suite 4100, Dallas, Texas 75201, Telephone: (214) 954-4135, Fax: (214)
953-1332; and if to the Shareholders, to Jerry Michael Allen, 142 Village Creek
Road, Prattville, Alabama 36067,
STOCK PURCHASE AGREEMENT - Page 24
<PAGE> 30
with a copy to his counsel, McDowell, Faulk & McDowell, 145 W. Main Street,
Prattville, Alabama 36067, Telephone: (334) 365-5924, Fax: (334) 365-6016, or
such other address as shall be furnished in writing by any such party, and such
notice or communication shall be deemed to have been given as of the date so
delivered, sent by fax or mailed.
11.8 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
11.9 Counterparts. This Agreement may be executed in two (2) or
more counterparts, all of which taken together shall constitute one instrument.
11.10 Entire Agreement. This Agreement, including the other
documents referred to herein that form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
11.11 Amendments. This Agreement can be waived, amended,
supplemented or modified by written agreement of the parties.
11.12 Severability. In case any provision in this Agreement shall
be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
11.13 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or
on behalf of any Person other than the parties hereto.
11.14 Time of Essence. The mere lapse of time shall have the effect
to constitute of the parties hereto in default to perform any of its
obligations under this Agreement.
11.15 Negotiation. Each party hereto declares that the provisions
of this Agreement and of all documents annexed thereto or referred to therein,
have been negotiated and declares having read this Agreement and those
documents and having understood their scope and nature.
STOCK PURCHASE AGREEMENT - Page 25
<PAGE> 31
IN WITNESS WHEREOF, Karts International and the Company has caused
their respective corporate names to be hereunto subscribed by their respective
officers thereunto duly authorized, and the Shareholders have executed this
Agreement, all as of the date first above written.
KARTS INTERNATIONAL INCORPORATED
By: /s/ V. LYNN GRAYBILL
------------------------------------
V. Lynn Graybill, President
USA INDUSTRIES, INC.
By: /s/ JERRY M. ALLEN
------------------------------------
Jerry M. Allen, President
SHAREHOLDERS
/s/ JERRY MICHAEL ALLEN
--------------------------------------
JERRY MICHAEL ALLEN
/s/ ANGELA T. ALLEN
--------------------------------------
ANGELA T. ALLEN
/s/ JOHNNY C. TUCKER
--------------------------------------
JOHNNY C. TUCKER
/s/ CAROL Y. TUCKER
--------------------------------------
CAROL Y. TUCKER
STOCK PURCHASE AGREEMENT - Page 26
<PAGE> 1
EXHIBIT 2.5
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is entered into on this
the 16th day of January, 1996, by and between HALTER FINANCIAL GROUP, INC., a
Texas corporation ("HFG"), and SARAH ACQUISITION CORPORATION, a Florida
corporation ("Sarah").
W I T N E S S E T H:
WHEREAS, on even date herewith, HFG, Brister's Thunder Karts, Inc., a
Louisiana corporation ("Brister's") and Charles Brister (the "Shareholder")
entered into that certain Stock Purchase Agreement (the "Purchase Agreement")
for the purpose of setting forth the terms and conditions pursuant to which all
of the outstanding shares of Brister's (the "Brister's Shares") will be
acquired by a to-be-named public acquisition corporation (the "Brister's
Acquisition");
WHEREAS, it is the intention of Sarah to become the acquiror of the
Brister's Shares upon payment of the consideration to the Shareholder as
specifically set forth in the Purchase Agreement;
WHEREAS, Sarah has relied and will continue to rely upon the expertise
of HFG to effect the closing of the Brister's Acquisition, and HFG is committed
to assisting Sarah in this effort to the extent that it has aided Sarah with
(i) its previous and pending corporate reorganization, (ii) certain capital
raising activities, and (iii) its identification and retention of consultants,
industry specialists and legal counsel necessary to consummate the transactions
contemplated by Purchase Agreement;
WHEREAS, HFG, for the benefit of Sarah, has paid to Brister's a
non-refundable deposit of $20,000 to cover Brister's expenses in the event the
Brister's Acquisition is not consummated;
WHEREAS, HFG is solely responsible for the payment of all fees and
expenses incurred by HFG and Sarah in connection with the Brister's Acquisition
if the parties are unable to close the transaction in accordance with the terms
of the Purchase Agreement;
WHEREAS, in consideration for HFG's past and expected future services
in connection with the Brister's Acquisition and pending the closing thereof,
Sarah desires to pay to HFG a consulting fee of $15,000 (the "Consulting Fee")
to be paid in accordance with Section 1 of this Agreement; and
WHEREAS, all defined terms used herein shall have the meaning ascribed
to them in the Purchase Agreement unless otherwise defined herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and confessed, the parties hereto
hereby agrees as follows:
1. Payment of the Consulting Fee. If the number of Acquiring
Company Shares to be delivered to HFG by the Shareholder in accordance with
Section 3.4 of the Purchase Agreement is less than 500,000, then HFG, upon the
closing of the Brister's Acquisition and the settlement
<PAGE> 2
thereof, shall receive from Sarah a cash payment of $10,000 plus the number of
available Acquiring Company Shares in full and final satisfaction of the
Consulting Fee. HFG and Sarah further agree that if the number of Acquiring
Company Shares to be delivered to HFG by the Shareholder exceeds 500,000, then
HFG will accept that number of Acquiring Company Shares as full and final
satisfaction of the Consulting Fee.
2. Miscellaneous. This Agreement may not be modified, altered,
amended or terminated except by the written agreement of all the parties. If a
court of competent jurisdiction determines that any provision contained in this
Agreement is void, illegal or unenforceable, the other provisions shall remain
in full force and effect and the provision held to be void, illegal or
unenforceable shall be limited so that it shall remain in effect to the extent
permissible by law. The parties agree to perform and execute all instruments
necessary or appropriate to carry out the terms of this Agreement. This
Agreement is made and is performable in Dallas County, Texas and shall be
governed by the laws of the State of Texas. This Agreement sets forth the
entire understanding of the parties and supersedes all prior representations,
understandings and agreements, oral or written, made between the parties
hereto. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HALTER FINANCIAL GROUP, INC.
By: /s/ TIMOTHY P. HALTER
----------------------------------
Timothy P. Halter, President
SARAH ACQUISITION CORPORATION
By: /s/ TIMOTHY P. HALTER
----------------------------------
Timothy P. Halter, Vice President
CONSULTING AGREEMENT - Page 2
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
KARTS INTERNATIONAL INCORPORATED
FIRST. The name of the corporation is Karts International
Incorporated.
SECOND. Its registered office in the State of Nevada is located at
One East First Street, Reno, Nevada 89501. The name of its resident agent at
that address is The Corporation Trust Company of Nevada.
THIRD. The purpose for which the Corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the Nevada General Corporation Law.
FOURTH. The aggregate number of shares of capital stock that the
Corporation will have authority to issue is 30,000,000, 20,000,000 of which
will be shares of Common Stock, having a par value of $.001 per share, and
10,000,000 of which will be shares of Preferred Stock, having a par value of
$.001 per share.
Preferred Stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. All shares of any one
series of Preferred Stock will be identical except as to the date of issue and
the dates from which dividends on shares of the series issued on different
dates will cumulate, if cumulative. Authority is hereby expressly granted to
the Board of Directors to authorize the issuance of one or more series of
Preferred Stock, and to fix by resolution or resolutions providing for the
issue of each such series the voting powers, designations, preferences, and
relative, participating, optional, redemption, conversion, exchange or other
special rights, qualifications, limitations or restrictions of such series, and
the number of shares in each series, to the full extent now or hereafter
permitted by law.
FIFTH. No shareholder of the Corporation will, solely by reason of
his holding shares of any class, have any preemptive or preferential right to
purchase or subscribe for any shares of the Corporation, now or hereafter to be
authorized, or any notes, debentures, bonds or other securities convertible
into or carrying warrants, rights or options to purchase shares of any class,
now or hereafter to be authorized, whether or not the issuance of any such
shares or such notes, debentures, bonds or other securities would adversely
affect the dividend, voting or any other rights of such shareholder. The Board
of Directors may authorize the issuance of, and the Corporation may issue,
shares of any class of the Corporation, or any notes, debentures, bonds or
other securities convertible into or carrying warrants, rights or options to
purchase any such shares, without offering any shares of any class to the
existing holders of any class of stock of the Corporation.
SIXTH. The governing board of this Corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall
<PAGE> 2
be provided by the bylaws of this corporation. The names and addresses of the
first members of the Board of Directors are as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Timothy P. Halter 4851 LBJ Freeway, Suite 201
Dallas, Texas 75244
Glenn A. Little 211 West Wall Street
Midland, Texas 79701
</TABLE>
SEVENTH. The Corporation will, to the fullest extent permitted by the
Nevada General Corporation Law, as the same exists or may hereafter be amended,
indemnify any and all persons who it has power to indemnify under such statute
from and against any and all of the expenses, liabilities or other matters
referred to in or covered by such statute. Such indemnification may be
provided pursuant to any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his director or
officer capacity and as to action in another capacity while holding such
office, will continue as to a person who has ceased to be a director, officer,
employee or agent, and inure to the benefit of the heirs, executors and
administrators of such a person.
EIGHTH. To the fullest extent permitted by the laws of the State of
Nevada as the same exist or may hereafter be amended, a director or officer of
the Corporation will not be liable to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director or officer.
NINTH. The name and address of the incorporator signing the articles
of incorporation is as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Klara A. Albaral 4851 LBJ Freeway, Suite 201
Dallas, Texas 75244
</TABLE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Nevada General Corporation
Law, do make and file these articles of incorporation, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand this 21st day of February, 1996.
/s/ KLARA A. ALBARAL
----------------------------
Klara A. Albaral
<PAGE> 3
STATE OF TEXAS )
)
COUNTY OF DALLAS )
On this 21st day of February, 1996, before me, a Notary Public,
personally appeared Klara A. Albaral, who acknowledged that she executed the
above instrument.
/s/ MICHELLE TITUS
-------------------------
Notary Public
(Stamp)
3
<PAGE> 4
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
BY RESIDENT AGENT
The Corporation Trust Company of Nevada hereby accepts the appointment as
Resident Agent of the above named corporation.
The Corporation Trust Company of Nevada.
Resident Agent
By: /s/ NAME ILLEGIBLE Date DATE ILLEGIBLE
--------------------------------- -------------------------
(Assistant Secretary)
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
KARTS INTERNATIONAL INCORPORATED
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
OFFICES
<TABLE>
<S> <C> <C>
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. List of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 5. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 7. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. Method of Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 9. Record Date; Closing Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
BOARD OF DIRECTORS
Section 1. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2. Qualification; Election; Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 4. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 7. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 10. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 11. Interested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 12. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 13. Action by Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 14. Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
NOTICE
Section 1. Form of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V
OFFICERS AND AGENTS
Section 1. In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3. Other Officers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5. Term of Office and Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 6. Employment and Other Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 7. Chairman of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 8. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 9. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 10. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 11. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 12. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 13. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 14. Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4. Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3. Telephone and Similar Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 9. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 10. Amendment of Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 11. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 12. Relation to Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 4
BYLAWS
OF
KARTS INTERNATIONAL INCORPORATED
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office and
registered agent of Karts International Incorporated (the "Corporation") will
be as from time to time set forth in the Articles of Incorporation.
Section 2. Other Offices. The Corporation may also have offices
at such other places, both within and without the State of Nevada, as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders
for the election of Directors will be held at such place, within or without the
State of Nevada, as may be fixed from time to time by the Board of Directors.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Nevada, as may be stated in the notice of
the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the
stockholders will be held at such time as may be determined by the Board of
Directors, at which meeting the stockholders will elect a Board of Directors
and transact such other business as may properly be brought before the meeting.
Section 3. List of Stockholders. At least ten (10) days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order, with the address of and
the number of voting shares registered in the name of each, will be prepared by
the officer or agent having charge of the stock transfer books. Such list will
be kept on file at the registered office of the Corporation for a period of ten
(10) days prior to such meeting and will be subject to inspection by any
stockholder at any time during usual business hours. Such list will be
produced and kept open at the time and place of the meeting during the whole
time thereof, and will be subject to the inspection of any stockholder who may
be present.
Section 4. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by law,
the Articles of Incorporation or these Bylaws,
<PAGE> 5
may be called by the President or the Board of Directors, or will be called by
the President or Secretary at the request in writing of the holders of not less
than ten percent (10%) of all the shares issued, outstanding and entitled to
vote (unless a different percentage is specified in the Articles of
Incorporation). Such request will state the purpose or purposes of the
proposed meeting. Business transacted at all special meetings will be confined
to the purposes stated in the notice of the meeting unless all stockholders
entitled to vote are present and consent.
Section 5. Notice. Written or printed notice stating the place,
day and hour of any meeting of the stockholders and the purpose or purposes for
which the meeting is called, will be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer or
person calling the meeting, to each stockholder of record entitled to vote at
the meeting. If mailed, such notice will be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid.
Section 6. Quorum. At all meetings of the stockholders, the
presence in person or by proxy of the holders of a majority of the shares
issued and outstanding and entitled to vote on that matter will be necessary
and sufficient to constitute a quorum for the transaction of business except as
otherwise provided by law, the Articles of Incorporation or these Bylaws. If,
however, such quorum is not present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, will have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present or represented. If the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting will be given to each stockholder of
record entitled to vote at the meeting. At such adjourned meeting at which a
quorum is present or represented, any business may be transacted that might
have been transacted at the meeting as originally notified.
Section 7. Voting. When a quorum is present at any meeting of
the Corporation's stockholders, the vote of the holders of a majority of the
shares entitled to vote that are actually voted on any question brought before
the meeting will be sufficient to decide such question; provided that if the
question is one upon which, by express provision of law, the Articles of
Incorporation or these Bylaws, a different vote is required, such express
provision shall govern and control the decision of such question.
Section 8. Method of Voting. Each outstanding share of the
Corporation's capital stock, regardless of class, will be entitled to one (1)
vote on each matter submitted to a vote at a meeting of stockholders, except to
the extent that the voting rights of the shares of any class or series are
limited or denied by the Articles of Incorporation, as amended from time to
time or any other document defining the rights and preferences of such shares.
At any meeting of the stockholders, every stockholder having the right to vote
will be entitled to vote in person or by proxy executed in writing by such
stockholder and bearing a date not more than eleven (11) months prior to such
meeting, unless such instrument provides for a longer period. A telegram,
telex, cablegram or similar transmission by the stockholder, or a photographic,
photostatic, facsimile or similar reproduction of a writing executed by the
stockholder, shall be treated as an execution in writing for purposes of the
preceding sentence. Each proxy will be revocable
-2-
<PAGE> 6
unless expressly provided therein to be irrevocable and if, and only so long
as, it is coupled with an interest sufficient in law to support an irrevocable
power. Such proxy will be filed with the Secretary of the Corporation prior to
or at the time of the meeting. Voting for directors will be in accordance with
Article III of these Bylaws. Voting on any question or in any election may be
by voice vote or show of hands unless the presiding officer orders or any
stockholder demands that voting be by written ballot.
Section 9. Record Date; Closing Transfer Books. The Board of
Directors may fix in advance a record date for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders,
such record date to be not less than ten (10) nor more than sixty (60) days
prior to such meeting, or the Board of Directors may close the stock transfer
books for such purpose for a period of not less than ten (10) nor more than
sixty (60) days prior to such meeting. In the absence of any action by the
Board of Directors, the date upon which the notice of the meeting is mailed
will be the record date.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Management. The business and affairs of the
Corporation will be managed by or under the direction of the Board of
Directors, who may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law, the Articles of Incorporation or
these Bylaws directed or required to be exercised or done by the stockholders.
Section 2. Qualification; Election; Term. None of the Directors
need be a stockholder of the Corporation or a resident of the State of Nevada.
The Directors will be elected by plurality vote at the annual meeting of the
stockholders, except as hereinafter provided, and each Director elected will
hold office until whichever of the following occurs first: his successor is
elected and qualified, his resignation, his removal from office by the
stockholders or his death.
Section 3. Number. The number of Directors of the Corporation
will be at least one (1) and not more than twelve (12). The number of
Directors authorized will be fixed as the Board of Directors may from time to
time designate, or if no such designation has been made, the number of
Directors will be the same as the number of members of the initial Board of
Directors as set forth in the Articles of Incorporation. No decrease in the
number of Directors will have the effect of shortening the term of any
incumbent Director.
Section 4. Removal. Any Director may be removed either for or
without cause at any special meeting of stockholders by the affirmative vote of
at least a majority in number of shares of the stockholders present in person
or represented by proxy at such meeting and entitled to vote for the election
of such Director; provided, that notice of intention to act upon such matter
has been given in the notice calling such meeting.
Section 5. Vacancies. Any vacancy occurring in the Board of
Directors by death, resignation, removal or otherwise may be filled by an
affirmative vote of at least a majority of the remaining Directors though less
than a quorum of the Board of Directors. A Director
-3-
<PAGE> 7
elected to fill a vacancy will be elected for the unexpired term of his
predecessor in office. A directorship to be filled by reason of an increase in
the number of Directors may be filled by the Board of Directors for a term of
office only until the next election of one or more Directors by the
stockholders.
Section 6. Place of Meetings. Meetings of the Board of
Directors, regular or special, may be held at such place within or without the
State of Nevada as may be fixed from time to time by the Board of Directors.
Section 7. Annual Meeting. The first meeting of each newly
elected Board of Directors will be held without further notice immediately
following the annual meeting of stockholders and at the same place, unless the
Directors then elected and serving shall change such time or place by unanimous
consent.
Section 8. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as is from time to
time determined by resolution of the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board of
Directors may be called by the President on oral or written notice to each
Director, given either personally, by telephone, by telegram or by mail;
special meetings will be called by the President or the Secretary in like
manner and on like notice on the written request of at least two (2) Directors.
Except as may be otherwise expressly provided by law, the Articles of
Incorporation or these Bylaws, neither the business to be transacted at, nor
the purpose of, any special meeting need be specified in a notice or waiver of
notice.
Section 10. Quorum. At all meetings of the Board of Directors
the presence of a majority of the number of Directors then in office will be
necessary and sufficient to constitute a quorum for the transaction of
business, and the affirmative vote of at least a majority of the Directors
present at any meeting at which there is a quorum will be the act of the Board
of Directors, except as may be otherwise specifically provided by law, the
Articles of Incorporation or these Bylaws. If a quorum is not present at any
meeting of the Board of Directors, the Directors present thereat may adjourn
the meeting from time to time without notice other than announcement at the
meeting, until a quorum is present.
Section 11. Interested Directors. No contract or transaction
between the Corporation and one or more of its Directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of the Corporation's Directors or
officers are Directors or officers or have a financial interest, will be void
or voidable solely for this reason, solely because the Director or officer is
present at or participates in the meeting of the Board of Directors or
committee thereof that authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if: (i) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors be less than a quorum, (ii)
the material facts as to his relationship or interest and as to the contract or
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<PAGE> 8
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee that authorizes the
contract or transaction.
Section 12. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board, designate committees, each
committee to consist of two (2) or more Directors of the Corporation, which
committees will have such power and authority and will perform such functions
as may be provided in such resolution. Such committee or committees will have
such name or names as may be designated by the Board and will keep regular
minutes of their proceedings and report the same to the Board of Directors when
required.
Section 13. Action by Consent. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee of the
Board of Directors may be taken without such a meeting if a consent or consents
in writing, setting forth the action so taken, is signed by all the members of
the Board of Directors or such committee, as the case may be.
Section 14. Compensation of Directors. Directors will receive
such compensation for their services and reimbursement for their expenses as
the Board of Directors, by resolution, may establish; provided that nothing
herein contained will be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
NOTICE
Section 1. Form of Notice. Whenever by law, the Articles of
Incorporation or these Bylaws, notice is to be given to any Director or
stockholder, and no provision is made as to how such notice is to be given,
such notice may be given: (i) in writing, by mail, postage prepaid, addressed
to such director or stockholder at such address as appears on the books of the
Corporation or (ii) in any other method permitted by law. Any notice required
or permitted to be given by mail will be deemed to be given at the time the
same is deposited in the United States mail.
Section 2. Waiver. Whenever any notice is required to be given
to any stockholder or Director of the Corporation as required by law, the
Articles of Incorporation or these Bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated in such notice, will be equivalent to the giving of such notice.
Attendance of a stockholder or Director at a meeting will constitute a waiver
of notice of such meeting, except where such stockholder or Director attends
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been
lawfully called or convened.
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<PAGE> 9
ARTICLE V
OFFICERS AND AGENTS
Section 1. In General. The officers of the Corporation will be
elected by the Board of Directors and will be a President, a Secretary and a
Treasurer. The Board of Directors may also elect a Chairman of the Board, Vice
Chairman of the Board, Vice Presidents, Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers. Any two or more offices may be held by
the same person.
Section 2. Election. The Board of Directors, at its first
meeting after each annual meeting of stockholders, will elect the officers,
none of whom need be a member of the Board of Directors.
Section 3. Other Officers and Agents. The Board of Directors
may also elect and appoint such other officers and agents as it deems
necessary, who will be elected and appointed for such terms and will exercise
such powers and perform such duties as may be determined from time to time by
the Board.
Section 4. Compensation. The compensation of all officers and
agents of the Corporation will be fixed by the Board of Directors or any
committee of the Board, if so authorized by the Board.
Section 5. Term of Office and Removal. Each officer of the
Corporation will hold office until his death, his resignation or removal from
office, or the election and qualification of his successor, whichever occurs
first. Any officer or agent elected or appointed by the Board of Directors may
be removed at any time, for or without cause, by the affirmative vote of a
majority of the entire Board of Directors, but such removal will not prejudice
the contract rights, if any, of the person so removed. If the office of any
officer becomes vacant for any reason, the vacancy may be filled by the Board
of Directors.
Section 6. Employment and Other Contracts. The Board of
Directors may authorize any officer or officers or agent or agents to enter
into any contract or execute and deliver any instrument in the name or on
behalf of the Corporation, and such authority may be general or confined to
specific instances. The Board of Directors may, when it believes the interest
of the Corporation will best be served thereby, authorize executive employment
contracts that will have terms no longer than ten (10) years and contain such
other terms and conditions as the Board of Directors deems appropriate.
Nothing herein will limit the authority of the Board of Directors to authorize
employment contracts for shorter terms.
Section 7. Chairman of the Board of Directors. If the Board of
Directors has elected a Chairman of the Board, he will preside at all meetings
of the stockholders and the Board of Directors. Except where by law the
signature of the President is required, the Chairman will have the same power
as the President to sign all certificates, contracts and other instruments of
the Corporation. During the absence or disability of the President, the
Chairman will exercise the powers and perform the duties of the President.
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<PAGE> 10
Section 8. President. The President will be the chief executive
officer of the Corporation and, subject to the control of the Board of
Directors, will supervise and control all of the business and affairs of the
Corporation. He will, in the absence of the Chairman of the Board, preside at
all meetings of the stockholders and the Board of Directors. The President
will have all powers and perform all duties incident to the office of President
and will have such other powers and perform such other duties as the Board of
Directors may from time to time prescribe.
Section 9. Vice Presidents. Each Vice President will have the
usual and customary powers and perform the usual and customary duties incident
to the office of Vice President, and will have such other powers and perform
such other duties as the Board of Directors or any committee thereof may from
time to time prescribe or as the President may from time to time delegate to
him. In the absence or disability of the President and the Chairman of the
Board, a Vice President designated by the Board of Directors, or in the absence
of such designation the Vice Presidents in the order of their seniority in
office, will exercise the powers and perform the duties of the President.
Section 10. Secretary. The Secretary will attend all meetings of
the stockholders and record all votes and the minutes of all proceedings in a
book to be kept for that purpose. The Secretary will perform like duties for
the Board of Directors and committees thereof when required. The Secretary
will give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors. The Secretary will keep in safe
custody the seal of the Corporation. The Secretary will be under the
supervision of the President. The Secretary will have such other powers and
perform such other duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to him.
Section 11. Assistant Secretaries. The Assistant Secretaries in
the order of their seniority in office, unless otherwise determined by the
Board of Directors, will, in the absence or disability of the Secretary,
exercise the powers and perform the duties of the Secretary. They will have
such other powers and perform such other duties as the Board of Directors may
from time to time prescribe or as the President may from time to time delegate
to them.
Section 12. Treasurer. The Treasurer will have responsibility
for the receipt and disbursement of all corporate funds and securities, will
keep full and accurate accounts of such receipts and disbursements, and will
deposit or cause to be deposited all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer will render to the
Directors whenever they may require it an account of the operating results and
financial condition of the Corporation, and will have such other powers and
perform such other duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to him.
Section 13. Assistant Treasurers. The Assistant Treasurers in
the order of their seniority in office, unless otherwise determined by the
Board of Directors, will, in the absence or disability of the Treasurer,
exercise the powers and perform the duties of the Treasurer. They will have
such other powers and perform such other duties as the Board of Directors may
from time to time prescribe or as the President may from time to time delegate
to them.
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<PAGE> 11
Section 14. Bonding. The Corporation may secure a bond to
protect the Corporation from loss in the event of defalcation by any of the
officers, which bond may be in such form and amount and with such surety as the
Board of Directors may deem appropriate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. Certificates, in such form as
may be determined by the Board of Directors, representing shares to which
stockholders are entitled, will be delivered to each stockholder. Such
certificates will be consecutively numbered and entered in the stock book of
the Corporation as they are issued. Each certificate will state on the face
thereof the holder's name, the number, class of shares, and the par value of
such shares or a statement that such shares are without par value. They will
be signed by the President or a Vice President and the Secretary or an
Assistant Secretary, and may be sealed with the seal of the Corporation or a
facsimile thereof. If any certificate is countersigned by a transfer agent, or
an assistant transfer agent or registered by a registrar, either of which is
other than the Corporation or an employee of the Corporation, the signatures of
the Corporation's officers may be facsimiles. In case any officer or officers
who have signed, or whose facsimile signature or signatures have been used on
such certificate or certificates, ceases to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the Corporation or its
agents, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct
that a new certificate be issued in place of any certificate theretofore issued
by the Corporation alleged to have been lost or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it may require
and/or to give the Corporation a bond, in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed. When a certificate has been lost, apparently destroyed
or wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after such holder has notice of it, and the
Corporation registers a transfer of the shares represented by the certificate
before receiving such notification, the holder of record is precluded from
making any claim against the Corporation for the transfer of a new certificate.
Section 3. Transfer of Shares. Shares of stock will be
transferable only on the books of the Corporation by the holder thereof in
person or by such holder's duly authorized attorney. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it will be the duty of the
Corporation or the transfer agent of the
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<PAGE> 12
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 4. Registered Stockholders. The Corporation will be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and, accordingly, will not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it has express or other notice thereof, except
as otherwise provided by law.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the outstanding shares of
the Corporation, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be declared and paid in cash, in property, or in shares
of the Corporation, subject to the provisions of the Nevada General Corporation
Law and the Articles of Incorporation. The Board of Directors may fix in
advance a record date for the purpose of determining stockholders entitled to
receive payment of any dividend, such record date to be not more than sixty
(60) days prior to the payment date of such dividend, or the Board of Directors
may close the stock transfer books for such purpose for a period of not more
than sixty (60) days prior to the payment date of such dividend. In the
absence of any action by the Board of Directors, the date upon which the Board
of Directors adopts the resolution declaring such dividend will be the record
date.
Section 2. Reserves. There may be created by resolution of the
Board of Directors out of the surplus of the Corporation such reserve or
reserves as the directors from time to time, in their discretion, deem proper
to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other purpose as the
Directors may deem beneficial to the Corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created. Surplus of
the Corporation to the extent so reserved will not be available for the payment
of dividends or other distributions by the Corporation.
Section 3. Telephone and Similar Meetings. Stockholders,
directors and committee members may participate in and hold meetings by means
of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Participation in
such a meeting will constitute presence in person at the meeting, except where
a person participates in the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the ground
that the meeting had not been lawfully called or convened.
Section 4. Books and Records. The Corporation will keep correct
and complete books and records of account and minutes of the proceedings of its
stockholders and Board of Directors, and will keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
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<PAGE> 13
Section 5. Fiscal Year. The fiscal year of the Corporation will
be fixed by resolution of the Board of Directors.
Section 6. Seal. The Corporation may have a seal, and such seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. Any officer of the Corporation will have authority to
affix the seal to any document requiring it.
Section 7. Indemnification. The Corporation will indemnify its
directors to the fullest extent permitted by the Nevada General Corporation Law
and may, if and to the extent authorized by the Board of Directors, so
indemnify its officers and any other person whom it has the power to indemnify
against liability, reasonable expense or other matter whatsoever.
Section 8. Insurance. The Corporation may at the discretion of
the Board of Directors purchase and maintain insurance on behalf of the
Corporation and any person whom it has the power to indemnify pursuant to law,
the Articles of Incorporation, these Bylaws or otherwise.
Section 9. Resignation. Any director, officer or agent may
resign by giving written notice to the President or the Secretary. Such
resignation will take effect at the time specified therein or immediately if no
time is specified therein. Unless otherwise specified therein, the acceptance
of such resignation will not be necessary to make it effective.
Section 10. Amendment of Bylaws. These Bylaws may be altered,
amended or repealed at any meeting of the Board of Directors at which a quorum
is present, by the affirmative vote of a majority of the Directors present at
such meeting.
Section 11. Invalid Provisions. If any part of these Bylaws is
held invalid or inoperative for any reason, the remaining parts, so far as
possible and reasonable, will be valid and operative.
Section 12. Relation to Articles of Incorporation. These Bylaws
are subject to, and governed by, the Articles of Incorporation.
The undersigned, being the Secretary of the Corporation, confirms the
adoption and approval of the foregoing Bylaws, effective as of February 21,
1996.
/s/ GLENN A. LITTLE
--------------------------------
Glenn A. Little
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<PAGE> 1
EXHIBIT 3.3
CERTIFICATE TO DECREASE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK OF
KARTS INTERNATIONAL INCORPORATED
WE, the undersigned, President and Secretary of Karts International
Incorporated, a Nevada corporation (the "Corporation"), pursuant to the
provisions of Section 78.207 of the Nevada General Corporation Law, do hereby
certify:
A. The current number of authorized shares of common stock, par
value $.001 per share (the "Common Stock"), of the Corporation is 20,000,000
shares and the current number of authorized shares of the Corporation's
preferred stock, $.001 par value per share (the "Preferred Stock"), is
10,000,000 shares.
B. The number of authorized shares of Common Stock is to be
reduced from 20,000,000 shares to 14,000,000 shares, while the authorized
number of shares of Preferred Stock will remain unchanged.
C. The Corporation currently has issued and outstanding 4,075,933
shares of Common Stock. After the Effective Date (as defined below), of the
two-for-three reverse stock split (the "Reverse Stock Split") whereby two
shares of Common Stock will be issued in exchange for every three shares of
Common Stock currently outstanding, the Corporation will have issued and
outstanding approximately 2,717,650 shares of Common Stock.
D. For stockholders entitled to receive fractional shares as a
result of the Reverse Stock Split, the Corporation will issue one full share of
Common Stock to each stockholder entitled to receive fractional shares as a
result of the Reverse Stock Split.
E. Approval of the stockholders is not required and has therefore
not been obtained in order to effect the transactions contemplated by this
Certificate.
F. The reduction of the authorized number of shares of Common
Stock and the Reverse Stock Split shall be effective at the close of business
on March 24, 1997 (the "Effective Date").
KARTS INTERNATIONAL INCORPORATED
By: /s/ V. LYNN GRAYBILL
-----------------------------
V. Lynn Graybill, President
By: /s/ TIMOTHY P. HALTER
-----------------------------
Timothy P. Halter, Secretary
CERTIFICATE - Page 1
<PAGE> 2
STATE OF LOUISIANA )
)
PARISH OF ST. TAMMANY )
This instrument was acknowledged before me this ______ day of March,
1997, by V. Lynn Graybill, President of Karts International Incorporated, a
Nevada corporation, on behalf of said corporation.
/s/ NAME ILLEGIBLE
----------------------------------
NOTARY PUBLIC, STATE OF LOUISIANA
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me this ______ day of March,
1997, by Timothy P. Halter, Secretary of Karts International Incorporated, a
Nevada corporation, on behalf of said corporation.
/s/ MICHELLE TITUS
----------------------------------
NOTARY PUBLIC, STATE OF TEXAS
CERTIFICATE - Page 2
<PAGE> 1
EXHIBIT 4.1
See "Description of Securities -- Common Stock"
<PAGE> 1
EXHIBIT 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ____________, 1996 between Karts
International Incorporated, a Nevada corporation, having its principal place of
business at 109 Northpark Boulevard, Suite 210, Covington, Louisiana 70433,
(the "Company") and Securities Transfer Corporation, a Texas corporation,
having its principal place of business at 16910 Dallas Parkway, Suite 100,
Dallas, Texas 75248 (the "Warrant Agent").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell to the public in a
secondary public offering (the "Secondary Offering") 1,400,000 shares of the
Company's Common Stock, par value $.01 per share ("Shares"), and 1,400,000
Redeemable Common Stock Purchase Warrants (the "Public Warrants") (plus an
additional 210,000 shares and 210,000 Warrants to cover overallotments);
WHEREAS, the Company also proposes to issue and sell to Argent
Securities, Inc. (the "Underwriter") in the Secondary Offering an option to
purchase 140 Shares and 140,000 Warrants (the "Underwriter Warrants" and
together with the Public Warrants sometimes hereinafter referred to as the
"Warrants");
WHEREAS, the Warrants shall be evidenced by certificates substantially
in the form of Exhibit A annexed hereto (the "Warrant Certificate"), each
Warrant entitling the holder thereof to purchase one share of Common Stock;
WHEREAS, the Warrants will have an exercise price of $_______ per
share of Common Stock, subject to certain adjustments (the "Warrant Price"),
will be exercisable commencing on the first anniversary of the effective date
of the Secondary Offering ("First Exercise Date") until a date which is the
fifth anniversary of the effective date of the Secondary Offering ("Last
Exercise Date"), unless extended by the Company, and, except for the
Underwriter's Warrants, will be exercisable during any period of time fixed for
that Warrant's redemption in a Redemption Notice (hereinafter defined in
Section 2.03), which period of time will terminate on a stated Redemption Date
(hereinafter defined in Section 2.03);
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act in connection with the
issuance, registration, transfer, exchange and replacement of the Warrant
Certificates and exercise of the Warrants; and
WHEREAS, the Company and the Warrant Agent desire to set forth in this
Agreement the terms and conditions upon which the Warrant Certificates shall be
issued, transferred, exchanged and placed and the Warrants exercised, and to
provide for the rights of the holders of the Warrants;
<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 dividends or in distribution of assets upon the voluntary or involuntary
liquidation, dissolution, or winding up the Company.
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<PAGE> 3
SECTION 1.06. The Warrant Agent understands and agrees that the
Public Warrants and shares of Common Stock are being sold separately in the
Secondary Offering and that the Shares and the Public Warrants will be traded
separately immediately upon the closing of the Secondary Offering.
ARTICLE II
WARRANT PRICE, DURATION AND EXERCISE OF WARRANTS, CALL OF
WARRANTS AND TRADING OF WARRANTS
SECTION 2.01.
(a) Each Warrant shall entitle the person in whose name
at the time the Warrant shall be registered upon the books to be maintained by
the Warrant Agent for that purpose (the "Warrant Holder"), subject to the
provisions of the Warrant Certificates and of this Agreement, to purchase from
the Company any time on or after the First Exercise Date but at or before the
Last Exercise Date, up to the number of shares of Common Stock stated therein,
as adjusted, at the Warrant Price in effect at such date, payable in full at
the time of purchase in the manner provided in Section 2.02 of this Agreement.
(b) Each Warrant shall be exercisable in accordance with
the terms herein and in the Warrant Certificate which, among other things,
contains certain terms as to the Warrant Price.
SECTION 2.02.
(a) The Warrant Holder may exercise a Warrant, in whole
or in part, by surrender of the Warrant Certificate, with the form of
subscription thereon duly executed by the Warrant Agent at its corporate
office, together with the Warrant Price for each share of Common Stock to be
purchased in lawful money of the United States, or by certified check, bank
draft, or postal or express money order payable in United States Dollars to the
order of the Company.
(b) Upon receipt of a Warrant Certificate with the form
of election to purchase thereon duly executed and accompanied by payment of the
aggregate Warrant Price for the shares of Common Stock for which the Warrant is
then being exercised, the Warrant Agent shall requisition from the transfer
agent certificates for the total number of the shares of Common Stock for which
the Warrant is being exercised in such names and denominations as are required
for delivery to the Warrant Holder, and the Warrant Agent shall thereupon
deliver such certificates to or in accordance with the instructions of the
Warrant Holder. The Company covenants and agrees that it has duly authorized
and directed its transfer agent (and will authorize and direct all its future
transfer agents) to comply with all such requests of the Warrant Agent.
(c) In case any Warrant Holder shall exercise his Warrant
with respect to less than all of the shares of Common Stock that may be
purchased under the Warrant, a new
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<PAGE> 4
Warrant Certificate for the balance shall be countersigned and delivered to or
upon the order of the Warrant Holder.
(d) The Company covenants and agrees that it will pay
when due and payable any and all taxes which may be payable in respect to the
issuance of Warrants, or the issuance of any shares of Common Stock upon the
exercise of Warrants. However, neither the Company nor the Warrant Agent shall
be required to issue or deliver any Warrant Certificate or shares of Common
Stock in a name other than that of the Warrant Holder at the time of surrender
if any tax is payable in respect of such transfer until the person requesting
the same has paid to the Company the amount of such tax or has established to
the Company's satisfaction that such tax has been paid or shall not be due and
payable. In the event that any transfer tax is due and payable, the Warrant
Agent shall be under no obligation to issue or deliver any Warrant Certificate
or shares of Common Stock in a name other than that of the Warrant Holder until
the Company has notified the Warrant Agent that the transfer tax, if any, has
been paid, or in the alternative, that no transfer tax is due and payable by
reason of an exemption.
(e) The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently account to the
Company for all moneys received by the Warrant Agent for the purchase of shares
of Common Stock upon the exercise of Warrants.
(f) The Warrant Agent covenants and agrees that upon the
exercise of any of the Warrants, the Warrant Agent shall provide written notice
to the Company at 109 Northpark Boulevard, Suite 210,Covington, Louisiana 70433
and to the Underwriter at its office at 3340 Peachtree Street, N.E., Suite 450,
Atlanta, Georgia 30326, the expense of which notice shall be borne by the
Company. Each notice shall contain the name of the exercising Warrant Holder,
the number of shares of Common Stock that the Warrant Holder has elected to
purchase, the purchase price paid on a per share basis and the cumulative
number of Warrants exercised by all of the Warrant Holders as of the date of
the transaction which is the subject of the aforesaid notice. Such notice
shall be made on the date of the exercise of the Warrant. Nothing contained
herein shall be construed so as to prevent the Warrant Agent from providing the
information required in this Section 2.02 (f) in a consolidated or tabular
form, provided that all other provisions of this Section are complied with.
(g) The Warrant Agent covenants and agrees that it shall
provide a list of each and every holder of the Warrants to the Company and the
Underwriter at such time or from time to time as shall be required by the
Company or the Underwriter, but in no event shall such a list be provided less
frequently than once per annum at a date as shall be determined by the Company.
SECTION 2.03. (a) Commencing on the first anniversary of the effective
date of the Secondary Offering, the Company may, subject to the conditions set
forth herein, redeem all, but not less than all, the Warrants then outstanding
at a redemption price of $0.01 per Warrant upon not less than thirty (30) days
prior written notice (the "Redemption Notice") to the holders thereof provided
that the average closing price of the Common Stock for the 20 consecutive
trading days ending three (3) days prior to the date of the Redemption Notice
is at least $_____, subject to adjustment for stock dividends, stock splits and
other anti-dilution provisions as provided for under Article III herein. For
purposes of this Section 2.03, "closing price" at any
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date shall be deemed to be: (i) the last sale price regular way as reported on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or (ii) if the Common Stock is not listed or admitted
to trading on any national securities exchange, the average of the closing bid
and asked prices regular way for the Common Stock as reported by the Nasdaq
National Market or Nasdaq Small Cap Market of the Nasdaq Stock Market, Inc.
("NASDAQ") or (iii) if the Common Stock is not listed or admitted for trading
on any national securities exchange, and is not reported by NASDAQ, the average
of the closing bid and asked prices in the over-the-counter market as furnished
by the National Quotation Bureau, Inc. or if no such quotation is available,
the fair market value of the Common Stock as determined in good faith by the
Board of Directors of the Company. The Redemption Notice shall be deemed
effective upon mailing and the time of mailing is the "Effective Date of the
Notice". The Redemption Notice shall state a redemption date not less than
thirty (30) days from the Effective Date of the Notice (the "Redemption Date")
. No Redemption Notice shall be mailed unless all funds necessary to pay for
redemption of all Warrants then outstanding shall have first been set aside by
the Company in trust with the Warrant Agent for the benefit of all Warrant
Holders so as to be and continue to be available therefor. The redemption
price to be paid to the Warrant Holders will be $____ for each share of the
Common Stock of the Company to which the Warrant Holder would then be entitled
upon exercise of the Warrant being redeemed, as adjusted from time to time as
provided herein (the "Redemption Price"). In the event the number of shares of
Common Stock issuable upon exercise of the Warrant being redeemed are adjusted
pursuant to Article III hereof, then upon each such adjustment the Redemption
Price will be adjusted by multiplying the Redemption Price in effect
immediately prior to such adjustment by a fraction, the numerator of which is
the number of shares of Common Stock issuable upon exercise of the Warrant
being redeemed immediately prior to such adjustment and the denominator of
which is the number of shares of Common Stock issuable upon exercise of such
Warrant being redeemed immediately after such adjustment. The Warrants may
only be redeemed if the Company has in effect a current Registration Statement
or post-effective amendment covering the shares underlying the Warrants. The
Warrant Holders may exercise their Warrants between the Effective Date of the
Notice and the Redemption Date, such exercise being effective if done in
accordance with Section 2.02 (a), and if the Warrant Certificate, with form of
election to purchase duly executed and the Warrant Price, as applicable for
such Warrant subject to redemption for each share of Common Stock to be
purchased is actually received by the Warrant Agent at its office located at
16910 Dallas Parkway, Suite 100, Dallas, TX 75248, no later than 5:00 P.M. New
York time on the Redemption Date.
(b) If any Warrant Holder does not wish to exercise any
Warrant being redeemed, the Warrant Holder should mail such Warrant to the
Warrant Agent at its office located at 16910 Dallas Parkway, Suite 100, Dallas,
TX 75248, after receiving the Redemption Notice required by this Section. If
such Redemption Notice shall have been so mailed, and if on or before the
Effective Date of the Notice all funds necessary to pay for redemption of all
Warrants then outstanding shall have been set aside by the Company in trust
with the Warrant Agent for the benefit of all Warrant Holders so as to be and
continue to be available therefor, then, on and after said Redemption Date,
notwithstanding that any Warrant subject to redemption shall not have been
surrendered for redemption, the obligation evidenced by all Warrants not
surrendered for redemption or effectively exercised shall be deemed no longer
outstanding, and all rights with respect thereto shall forthwith cease and
terminate, except only the right of the holder of each Warrant subject to
redemption to receive the Redemption Price for each share of
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Common Stock to which he would be entitled if he exercised the Warrant upon
receiving the Redemption Notice of the Warrant subject to redemption held by
the Holder hereof.
(c) Notwithstanding anything contained in this Article
II, the Underwriter's Warrants shall not be eligible for redemption by the
Company.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF WARRANT PRICE
SECTION 3.01. In case the Company shall at any time after the date
of this Agreement (i) declare a dividend on the outstanding Common Stock in
shares of its capital stock, (ii) subdivide the outstanding Common Stock, (iii)
combine the outstanding Common Stock into a smaller number of shares, or (iv)
issue any shares of its capital stock by reclassification of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then, in each case,
the Warrant Price, and the number and kind of shares of Common Stock receivable
upon exercise, in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination, or reclassification shall
be proportionately adjusted so that the holder of any Warrant exercised after
such time shall be entitled to receive the aggregate number and kind of shares
which if such Warrant had been exercised immediately prior to such time, he
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
SECTION 3.02. In case the Company after the date hereof shall issue
rights, options, or warrants to all holders of Common Stock entitling them to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion
price per share, if a security convertible into or exchangeable for Common
Stock) less than the "current market price" (as defined in Section 3.04 hereof)
per share of Common Stock on the record date established for the issuance of
such rights, options or warrants, then, in such case, the Warrant Price shall
be adjusted by multiplying the Warrant Price in effect on the record date of
such issuance by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on the record date for such issuance plus
the number of shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so to be issued (or the aggregate
initial conversion price of the convertible securities to be issued or sold)
would purchase at such "current market price" and of which the denominator
shall be the number of shares of Common Stock outstanding on the record date
for such issuance plus the number of additional shares of Common Stock to be
issued (or into which the convertible or exchangeable securities to be issued
or sold are initially convertible or exchangeable). Such adjustment shall
become effective at the close of business on such record date; provided,
however, that, to the extent the shares of Common Stock (or securities
convertible to or exchangeable for shares of Common Stock) are not delivered,
the Warrant Price shall be readjusted after the expiration of such rights,
options, or warrants (but only with respect to Warrants exercised after such
expiration), to the Warrant Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been
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<PAGE> 7
made upon the basis of delivery of only the number of shares of Common Stock or
securities convertible into or exchangeable for shares of Common Stock actually
issued. In case any subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the board of directors of
the Company, whose determination shall be conclusive absent manifest error.
Shares of Common Stock owned by or held for the account of the Company or any
majority-owned subsidiary shall not be deemed outstanding for the purpose of
any such computation.
Notwithstanding the foregoing, no adjustment in the
Warrant Price or the number of shares of Common Stock issuable upon exercise of
the Warrants shall be made upon (i) the issuance of options (or upon exercise
thereof) by the Company pursuant to its Stock Option Plans, (ii) the issuance
of the Underwriter's Warrants, or (iii) any other options and warrants
outstanding as of the date hereof.
SECTION 3.03. In case the Company shall distribute to all holders
of Common Stock (including any such distribution made to the stockholders of
the Company in connection with a consolidation or merger in which the Company
is the continuing corporation) evidences of its indebtedness or assets (other
than cash dividends distributions and dividends payable in shares of Common
Stock), subscription rights, options, or warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock (excluding those referred to in Section 3.02 hereof),
then, in each case, the Warrant price shall be adjusted by multiplying the
Warrant Price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the "current market price" per share
of Common Stock on such record date, less the fair market value (as determined
in good faith by the board of directors of the Company, whose determination
shall be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such subscription rights,
options, or warrants, convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock, applicable to the
share, and of which the denominator shall be such "current market price" per
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of such
distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
SECTION 3.04. For the purpose of any computation under sections
3.02 and 3.03 hereof, the "current market price" per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices for the
20 consecutive trading days ending three (3) days prior to such date. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the closing bid
price regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the highest reported bid price as furnished by NASDAQ. If on any such date the
Common Stock is not quoted on NASDAQ or any such organization, the closing
price shall be deemed to be the average of the closing bid and asked prices in
the over-the-counter market as reported by the National Quotation Bureau or if
no such quotation is available, the fair value of the Common Stock on such
date, as determined in good faith by
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<PAGE> 8
the board of directors of the Company, whose determination shall be conclusive
absent manifest error.
SECTION 3.05. No adjustment in the Warrant Price shall be required
if such adjustment is less than $____; provided, however, that any adjustments
which by reason of this Section 3.05 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Article III shall be made to the nearest cent or to the
nearest one-thousandth of a share, as the case may be.
SECTION 3.06. In any case in which this Article III shall require
that an adjustment in the Warrant Price be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the holder of any Warrant exercised after such record
date, the shares, if any, issuable upon such exercise over and above the
shares, if any, issuable upon such exercise on the basis of the Warrant Price
in effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the occurrence of
the event requiring such adjustment.
SECTION 3.07. Upon each adjustment of the Warrant Price as a result
of the calculations made in Section 3.01, 3.02, or 3.03 hereof, each Warrant
outstanding prior to the making of the adjustment in the Warrant Price shall
thereafter evidence the right to purchase, at the adjusted Warrant Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing
(A) the product obtained by multiplying the number of shares purchasable upon
exercise of a Warrant prior to adjustment of the number of shares by the
Warrant Price in effect prior to adjustment of the Warrant Price by (B) the
Warrant Price in effect after such adjustment of the Warrant Price.
SECTION 3.08. In case of any capital reorganization of the Company,
or of any reclassification of the Common Stock (other than a reclassification
of the Common Stock referred to in Section 3.01 hereof), or in the case of the
consolidation of the Company with or the merger of the Company into any other
coporation or of the sale, transfer, or lease of the properties and assets of
the Company as, or substantially as, an entirety to any other corporation or
other entity, each Warrant shall after such capital reorganization,
reclassification of Common Stock, consolidation, merger, sale, transfer, or
lease, be exerciwsable, on the same terms and conditions specified in this
Agreement, for the number of shares of stock or other securities, assets, or
cash to which a holder of the number of shares purchasable (at the time of such
capital reorganization, reclassification of Common Stock, consolidation,
merger, sale, transfer, or lease) upon exercise of such Warrant would have been
entitled upon such capital reorganization, reclassification of Common Stock,
consolidation, merger, sale, transfer, or lease; and in any such case, if
necessary, the provisions set forth in this Article III with respect to the
rights and interests thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock, other securities, assets, or cash thereafter
deliverable on the exercise of the Warrants. The subdivision or combination of
shares of Common Stock at any time outstanding into a greater or lesser number
of shares shall not be deemed to be a reclassification of the Common Stock for
the purposes of this subsection. The Company shall not effect any such
consolidation, merger, transfer, or lease, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
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<PAGE> 9
Company) resulting from such consolidation or merger or the Corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall expressly assume, by written instrument in form satisfactory to
the Underwriter, the obligation to deliver to the holder of each Warrant such
shares of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase and to perform the other
obligations of the Company under this Agreement.
SECTION 3.09. The Company may make such reductions in the Warrant
Price, in addition to those required by this Article III, as it shall, in it
sole discretion, determine to be advisable.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF
WARRANT HOLDERS
SECTION 4.01. No Warrant Holder, as such, shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purposes, nor shall anything contained in any Warrant Certificate be construed
to confer upon any Warrant Holder, as such, any of the rights of a shareholder
of the Company or any right to vote, give or withhold consent to any action by
the Company, whether upon any recapitalization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise,
receive dividends or subscription rights, or otherwise, until in connection
with the exercise of any Warrant, such Warrant shall have been surrendered and
the purchase price or the shares of Common Stock for which such Warrant is
being exercised shall have been received by the Warrant Agent; provided,
however, that any such surrender and payment on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for those shares
of Common Stock are to be issued as the record holder or holders thereof for
all purposes at the opening of business on the next succeeding day on which
such stock transfer books are open and the Warrant surrendered shall not be
deemed to have been exercised, in whole or in part, as the case maybe, until
such next succeeding day on which stock transfer books are open.
SECTION 4.02. The Company covenants and agrees that it shall
contemporaneously provide to all Warrant Holders of record any publication,
mailing or notice of an event which it shall provide to all of its shareholders
of record and which event shall result in the adjustment to the Warrant Price
as provided in Article III hereof. For purposes of this Section 4.02, the
Warrant Holders of record shall be those Warrant Holders who are of record on a
date even with the date chosen by the Company for the purpose of determining
the shareholders of record who shall be entitled to receive such publication,
mailing or notice.
SECTION 4.03. If any Warrant Certificate is lost, stolen, mutilated
or destroyed, the Company and the Warrant Agent may, on such terms as to
indemnity or otherwise as they may in their discretion reasonably impose, which
shall, in the case of a mutilated Warrant Certificate, include the surrender
thereof, issue a new Warrant Certificate of like denomination and tenor as, and
in substitution for, the Warrant Certificate so lost, stolen mutilated or
destroyed.
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SECTION 4.04.
(a) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise of outstanding Warrants such
number of authorized shares of Common Stock and the aggregate number and kind
of any other securities which the Warrants are exercisable for, pursuant to the
provisions of Article III hereof, as are sufficient to permit the exercise in
full of such Warrants and that it will make available to the Warrant Agent from
time to time a number of duly executed certificates representing shares of
Common Stock and other securities, sufficient therefor.
(b) The Company shall use its best efforts to secure the
listing, upon official notice of issuance, of the shares of Common Stock
issuable upon exercise of Warrants upon any securities exchange upon which the
Common Stock becomes listed.
(c) The Company covenants that all shares of Common Stock
issued on exercise of Warrants shall be validly issued, fully paid,
non-assessable and free of preemptive rights.
(d) The Company has filed a Registration Statement on
Form SB-2 (Registration No. 333- ) for the registration of, among
other things, the sale of the Warrants and the shares of Common Stock issuable
upon exercise thereof under the Securities Act of 1933, as amended (the "Act").
The Company shall use its best efforts to secure the effectiveness of the
Registration Statement under the Act, and to register or qualify such Warrants
and shares of Common Stock under the laws of any states in which the sale of
the Warrants and shares of Common Stock was registered or qualified at the time
of the Secondary Offering and shall use its reasonable good faith efforts to
register and qualify such Warrants and shares of Common Stock in such
additional states and jurisdictions as may be appropriate. The Company further
agrees to use its best efforts to maintain the effectiveness of such
Registration Statement and such state qualifications, as aforesaid, by the
filing of any and all amendments to the Registration Statement and such state
qualifications as may be required from time to time under the Act or the laws
of the various states until the expiration or termination of all the Warrants
in accordance herewith.
(e) The Company will furnish to the Warrant Agent, upon
request, an opinion of counsel satisfactory to the Warrant Agent to the effect
that (i) a Registration Statement under the Act is then in effect with respect
to the Warrants and shares of Common Stock issuable upon the exercise of the
Warrants and that the prospectus included therein complies as to form in all
material respects, (except as to financial statements, including schedules, and
other accounting and financial data, as to which such counsel need express no
opinion), with the requirements of the Act and the rules and regulations of the
Commission thereunder; or a Registration Statement under the Act with respect
to said shares of Common Stock is not required. In the event that said opinion
states that such a Registration Statement is in effect, the Company will from
time to time furnish the Warrant Agent with current prospectuses meeting the
requirements of the Act and such rules and regulations in sufficient quantity
to permit the Warrant Agent to deliver a prospectus ("Prospectus") to each
Warrant Holder upon exercise thereof. The Company further agrees to pay all
fees, costs and expenses in connection with the preparation and delivery to the
Warrant Agent of the foregoing opinions and Prospectuses and the above
mentioned registrations
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and other actions, and to immediately notify the Warrant Agent in the event
that (i) the Commission shall have issued or threatened to issue any order
preventing or suspending the use of any Prospectus; (ii) at any time any
Prospectus shall contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; or (iii) for any reason it shall be
necessary to amend or supplement any Prospectus in order to comply with the
Act.
SECTION 4.05. If the number of shares purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 3.07 hereof, the
Company shall not be required to issue fractions of shares upon exercise of the
Warrants or to distribute share certificates which evidence fractional shares.
In lieu of fractional shares, the Company, in its sole discretion, may pay to
the registered holders of Warrant Certificates at the time such Warrants are
exercised as herein provided an amount in cash equal to the same fraction of
the current market value of a share. For purposes of this Section 4.05, the
current market value of a share issuable upon the exercise of a Warrant shall
be the closing price of a share of Common Stock, as determined pursuant to the
second and third sentences of Section 3.04, for the trading day immediately
prior to the date of such exercise.
ARTICLE V
TREATMENT OF WARRANT HOLDERS
SECTION 5.01. Prior to due presentment for registration of transfer
of any Warrant, the Company and the Warrant Agent may deem and treat the
Warrant Holder as the absolute owner of such warrant, notwithstanding any
notation of ownership or other writing thereon, for the purpose of any exercise
thereof and for all other purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice to the contrary.
ARTICLE VI
CONCERNING THE WARRANT AGENT
AND OTHER MATTERS
SECTION 6.01. The Company will from time to time promptly pay,
subject to the provisions of Section 2.02 (d) of this Agreement, all taxes and
charges that may be imposed upon the Company or the Warrant Agent in respect of
the issuance or delivery of shares of Common Stock upon the exercise of
Warrants.
SECTION 6.02.
(a) The Warrant Agent may resign and be discharged from
its duties under this Agreement upon sixty (60) days notice in writing, mailed
to the Company by registered or certified mail, and to each Warrant Holder.
The Company may remove the Warrant Agent or any successor warrant agent upon
sixty (60) days notice in writing, mailed to the Warrant Agent or successor
Warrant Agent, as the case may be, by registered or certified mail, and to each
Warrant Holder; provided, however, the Company shall appoint a new Warrant
Agent as hereinafter provided and such removal shall not become effective until
a successor Warrant
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Agent has been appointed and has accepted such appointment. If the Warrant
Agent shall resign or shall otherwise become capable of acting, the Company
shall appoint a successor to the Warrant Agent. If the Company shall fail to
make such appointment within a period of sixty (60) days after it has been
notified in writing of such resignation or incapability by the Warrant Agent by
a Warrant Holder, who shall, with such notice, submit his Warrant Certificate
for inspection by the Company, then any Warrant Holder may apply to any court
of competent jurisdiction or the appointment of a successor to the Warrant
Agent. Any successor Warrant Agent, whether appointed by the Company or by
such a court shall be a registered transfer agent, bank or trust company,
subject to the terms and conditions of this Section 6.02, in good standing and
incorporated under the laws of any State of the United States, having its
principal office in the United States of America. After appointment, the
successor Warrant Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Warrant Agent
without further act or deed. The former Warrant Agent shall deliver and
transfer to the successor Warrant Agent any property at the time held by it
hereunder and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Failure to give any notice provided for in
this Section, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or the appointment
of the successor Warrant Agent, as the case may be.
(b) Any corporation into which the Warrant Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties
hereto. In case at the time such successor to the Warrant Agent shall succeed
to the agency created by this Agreement, any of the Warrant Certificates shall
have been countersigned but not delivered, any such successor to the Warrant
Agent may adopt the countersignature of the original Warrant Agent and deliver
such Warrant Certificates so countersigned, and in case at that time any of the
Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificate in its own name or in
the name of the successor Warrant Agent; and in all such cases such Warrant
Certificates shall have the full force provided in the Warrant Certificates and
this Agreement.
In case at any time the name of the Warrant Agent
shall be changed and at such time any of the Warrant Certificates shall have
been countersigned but not delivered, the Warrant Agent may adopt the
countersignature under this prior name and deliver Warrant Certificates so
countersigned; and in case at that time any of the Warrant Certificates shall
not have been countersigned, the Warrant Agent may countersign such Warrant
Certificates either in its prior name or in its changed name; and in all such
cases such Warrant Certificates shall have the full force provided in the
Warrant Certificates and in this Agreement.
SECTION 6.03. The Company agrees to pay the Warrant Agent a
reasonable fee for all services rendered by it hereunder. The Company also
agrees to indemnify the Warrant Agent for, and to hold it harmless against, any
loss, liability or expense, incurred without gross negligence, willful
misconduct or bad faith on the part of the Warrant Agent, arising out of or in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises.
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SECTION 6.04. The Company covenants and agrees that it shall, at
the Company's expense, provide to the Warrant Agent copies of its current
prospectus, if any, in such quantity as to enable the Warrant Agent to deliver
one copy of such current prospectus to such Warrant Holder who shall exercise
his rights under a Warrant. Notwithstanding anything else contained in this
Section 6.04, the Company shall not be obligated to provide copies of its
current prospectus for the purpose of allowing the Warrant Agent to deliver
such copies to any Warrant Holder who delivers all of his redeemable warrants
for redemption pursuant to Section 2.03 or who shall notice the Company of his
intent to permit redemption of all of his Warrants pursuant to Section 2.03
herein or to any person who shall hold any Warrant subject to the terms of this
Agreement after the earlier of the Redemption Date or the Last Exercise Date of
the Warrants.
SECTION 6.05. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrant certificates, by their
acceptance thereof, shall be bound:
(a) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, that fact or matter, unless other evidence in respect
thereof be herein specifically prescribed, may be deemed to be conclusively
proved and established by a certificate signed by the President or the
Secretary of the Company and delivered to the Warrant Agent. That certificate
shall be full authorization to the Warrant Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in reliance
upon that certificate.
(b) The Warrant Agent shall be liable hereunder only for
its own gross negligence, willful misconduct or bad faith.
(c) The Warrant Agent shall not be liable for or by
reason of any of the statements of fact or recitals continaed in this Agreement
or in the Warrant Certificates, except its countersignature thereof, or b
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Company only.
(d) The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution
and delivery hereof, except the due execution hereof by the Warrant Agent, or
in respect of the validity or execution of any Warrant Certificate, except its
countersignature thereof; nor shall it be responsible for any Warrant
Certificate; nor shall it be responsible for the adjustment of the Warrant
Price or the making of any change in the number of shares of Common Stock
required under the provisions of Article III of this Agreement or responsible
for the manner, method or amount of any such change or the ascertaining of the
existence of facts that would require any such adjustment or change except with
respect to the exercise of Warrant Certificates after actual notice of any
adjustment of the Warrant Price; nor shall it by any act under this Agreement
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether any share of Common Stock
will when issued be validly issued, fully paid, non-assessable and free of
preemptive rights.
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<PAGE> 14
(e) The Warrant Agent and any shareholder, director,
officer or employee of the Warrant Agent may buy, sell or deal in any of the
Warrant Certificates or other securities of the Company to retain a pecuniary
interest in any transaction in which the Company may be interested or contract
with or lend money to or otherwise act as fully and freely as though it was not
the Warrant Agent or subject to this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
(f) The Warrant Agent is hereby authorized and directed
to accept instructions with respect to the performance of its duties hereunder
from any officer or assistant officer of the Company, and to apply to any such
officer or assistant officer for advice or instructions in connection with its
duties, and shall not be liable for any action taken or suffered to be taken by
it in good faith in accordance with instructions of any such officer or
assistant officer.
(g) The Warrant Agent may consult with its counsel or
other counsel satisfactory to it, including counsel for the Company, and the
opinion of such counsel shall be full and complete authorization and protection
in respect of any action taken, offered, or omitted by it hereunder in good
faith and in accordance with the opinion of such counsel.
(h) The Warrant Agent shall incur no liability to the
Company or to any holder of any Warrant for any action taken by it in reliance
upon any Warrant Certificate or certificate for Common Stock, instrument of
assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed, and where necessary,
certified or acknowledged, by the proper person or persons.
SECTION 6.06. The Warrant Agent may, without the consent or
concurrence of the Warrant Holders, by supplemental agreement or otherwise,
concur with the Company in making any changes or corrections in this Agreement
that (i) it shall have been advised by counsel, who may be counsel for the
Company, are required to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained, or (ii) as provided in Section 3.09, the Company deems necessary of
advisable and which shall not be inconsistent with the provisions of the
Warrant Certificates, provided such changes or corrections do not adversely
affect the privileges or immunities of the Warrant Holders.
SECTION 6.07. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
SECTION 6.08. Forthwith upon the appointment after the date thereof
of any transfer agent for the Common Stock, or of any subsequent transfer agent
for the Common Stock, the Company will file with the Warrant Agent a statement
setting forth the name and address of such transfer agent.
SECTION 6.09. Notice or demand pursuant to this Agreement to be
given or made by the Warrant Agent or by any Warrant Holder to or on the
Company shall be sufficiently given or made and effective on the third business
day after posting thereof, unless otherwise
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<PAGE> 15
provided in this Agreement, if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the Company with the
Warrant Agent) as follows:
Karts International Incorporated
109 Northpark Boulevard, suite 210
Covington, Louisiana 70433
Attn: V. Lynn Graybill, President
notice or demand pursuant to this Agreement to be given or made by the Company
or any Warrant Holder to or on the Warrant Agent shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:
Securities Transfer Corporation
16910 Dallas Parkway, Suite 100
Dallas TX 75248
Attn: Compliance Department
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on the Underwriter shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the
Underwriter with the Company) as follows:
Argent Securities, Inc.
3340 Peachtree Street, Suite 450
Atlanta, Georgia 30326
Attn: L. Phillips Reames
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on any Warrant Holder shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed to such Warrant Holder at his last known address as it shall
appear in the records of the Company, if such notice shall be given by the
Company, or, if such notice shall be given by the Warrant Agent, as it shall
appear on the register maintained by the Warrant Agent.
A copy of any Notice or demand given or made pursuant to this
Agreement on the Warrant Agent, Company or Underwriter shall be promptly
forwarded by the recipient thereof to each of the Company, Warrant Agent or
Underwriter who shall not have received or made such demand or Notice.
SECTION 6.10. The validity, interpretation and performance of this
Agreement and the Warrants shall be governed by the law of the State of Nevada.
SECTION 6.11. Nothing in this Agreement shall be construed to give
to any person or corporation other than the parties hereto and the Warrant
Holders any right, remedy or claim
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<PAGE> 16
under promise or agreement hereof. All covenants, conditions, stipulations,
promises and agreements contained in this Agreement shall be for the sole and
exclusive benefit of the Company and the Warrant Agent and their successors and
of the Warrant Holders, and their heirs, representatives, successors, assigns
and transferees.
SECTION 6.12. A copy of this Agreement shall be available for
inspection by any Warrant Holder during the regular business hours and at the
corporate office of the Warrant Agent in Dallas, Texas, at which time the
Warrant Agent may require any Warrant Holder to submit his Warrant Certificate
for inspection by it.
SECTION 6.13. This Agreement shall terminate on the Last Exercise
Date, or such earlier date upon which all Warrants have been exercised or
redeemed, except that the Warrant Agent shall account to the Company pursuant
to Section 2.02 (e) of this Agreement for all cash held by it. The provisions
of Section 6.03 and 6.04 of this Agreement shall survive such termination.
SECTION 6.14. The Article headings in this Agreement are for
convenience only and are not part of this Agreement and shall not affect the
interpretation thereof.
SECTION 6.15. This Agreement may be executed in any number
counterparts, each of which is so executed shall be deemed to be an original,
and all such counterparts shall together constitute but one and the same
agreement.
ATTEST: KARTS INTERNATIONAL INCORPORATED
By:
---------------------------------
V. Lynn Graybill, President
and Chief Executive Officer
ATTEST: SECURITIES TRANSFER CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-16-
DRAFT V.02 March 24, 1997
<PAGE> 1
EXHIBIT 4.4
WARRANT
TO PURCHASE SHARES
OF
COMMON STOCK
OF
KARTS INTERNATIONAL INCORPORATED
NOVEMBER 15, 1996
THE WARRANTS ARE BEING ISSUED PURSUANT TO THE COMPANY'S PRIVATE OFFERING (THE
"OFFERING") OF UNITS, THE TERMS OF WHICH ARE MORE PARTICULARLY SET FORTH IN
THAT CERTAIN CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM DATED OCTOBER 28, 1996.
THE OFFERING PROVIDES THAT THE COMPANY WILL ISSUE AN AGGREGATE OF 250,000
WARRANTS TO PURCHASE AN AGGREGATE OF 250,000 SHARES OF COMMON STOCK.
THIS WARRANT AND THE SHARES OF COMMON STOCK OF KARTS INTERNATIONAL INCORPORATED
TO BE ISSUED UPON ANY EXERCISE OF THE WARRANT HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED OR OFFERED FOR
SALE OR TRANSFER UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
OTHER APPLICABLE SECURITIES LAWS WITH RESPECT TO SUCH SECURITIES IS THEN IN
EFFECT, OR IN THE OPINION OF COUNSEL, SUCH REGISTRATION UNDER THE SECURITIES
ACT AND OTHER APPLICABLE SECURITIES LAWS IS NOT REQUIRED.
This certifies that, for value received, ____________________________
and any subsequent transferee pursuant to the terms of the Agreement (as
defined below) of even date and this Warrant (each, a "Holder") is entitled to
purchase, subject to the provisions of this Warrant, from Karts International
Incorporated, a Nevada corporation (the "Issuer"), at any time or from time to
time on or after the date hereof and on or before _________________, 2000 (the
"Expiration Date"), _______________________ (_______________) fully paid and
nonassessable shares of common stock (the "Common Stock"), of the Issuer at an
exercise price of ____________________ and No/100 Dollars ($__________) per
share, subject to adjustment pursuant to the terms hereunder (the "Exercise
Price") (such shares of Common Stock and other securities issued and issuable
upon exercise of this Warrant, the "Warrant Shares").
Section 1. Definitions. Except as otherwise specified herein,
terms defined herein shall have the meanings assigned to them in the Issuer's
Confidential Private Placement Memorandum, dated October 28, 1996 (the
"Memorandum"), and the Subscription Agreement, Questionnaire and Investment
Representation by and between the Issuer and Holder (with the "Memorandum"
being collectively referred to herein as the "Agreement").
Section 2. Exercise of Warrant.
(a) Subject to the provisions hereof, this Warrant may be
exercised, in whole or in part, but not as to a fractional share, at
any time or from time to time on or after the date hereof and on or
before the Expiration Date, by presentation and surrender hereof to
the Issuer at the address which, in accordance with the provisions of
Section 9 hereof, is then effective for notices to the Issuer, with
the Election to Purchase Form annexed hereto as SCHEDULE ONE, duly
executed and accompanied by payment to the Issuer as further set forth
below in this Section 2, for the
- 1 -
<PAGE> 2
account of the Issuer, of the Exercise Price for the number of Warrant
Shares specified in such form. If this Warrant should be exercised in
part only, the Issuer shall, upon surrender of this Warrant, execute
and deliver a new Warrant evidencing the rights of the Holder hereof
to purchase the balance of the Warrant Shares purchasable hereunder.
The Issuer shall maintain at its principal place of business a
register for the registration of this Warrant and registration of
transfer of this Warrant. The Exercise Price for the number of
Warrant Shares specified in the Election to Purchase Form shall be
payable in United States Dollars by certified or official bank check
payable to the order of the Issuer or by wire transfer of immediately
available funds to an account specified by the Issuer for that
purpose.
(b) Unless otherwise registered pursuant to an effective
registration statement filed with the United States Securities and
Exchange Commission (the "Commission"), certificates representing
Warrant Shares shall bear the following restrictive legend:
"The securities evidenced by this certificate may not
be offered or sold, transferred, pledged,
hypothecated or otherwise disposed of except (i)
pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Act"),
(ii) to the extent applicable, Rule 144 under the Act
(or any similar rule under the Act relating to the
disposition of securities) or (iii) if an exemption
from registration under such Act is available.
Notwithstanding the foregoing, the securities to be
issued upon exercise of this Warrant are subject to
the registration rights set forth in that certain
Registration Rights Agreement by and between the
Holder hereof and the Issuer, a copy of which is on
file at the Company's principal executive office."
Section 3. Reservation of Shares; Preservation of Rights of
Holder. The Issuer hereby agrees that there shall be reserved for issuance
and/or delivery upon exercise of this Warrant, such number of Warrant Shares as
shall be required for issuance or delivery upon exercise of this Warrant. The
Warrant surrendered upon exercise shall be canceled by the Issuer. After the
Expiration Date, no shares of Common Stock shall be subject to reservation is
respect of this Warrant. The Issuer further agrees (i) that it will not, by
amendment of its Articles of Incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observation or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
the Issuer, (ii) promptly to take such action as may be required of the Issuer
to permit the Holder to exercise this Warrant and the Issuer duly and
effectively to issue shares of its Common Stock or other securities as provided
herein upon the exercise hereof, and (iii) promptly to take all action required
or provided herein to protect the rights of the Holder granted hereunder
against dilution. Without limiting the generality of the foregoing, should the
Warrant Shares at any time consist in whole or in part of shares of capital
stock having a par value, the Issuer agrees that before taking any action which
would cause an adjustment of the Exercise Price so that the same would be less
than the then par value of such Warrant Shares, the Issuer shall take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Issuer may validly and legally issue fully paid and
nonassessable shares of such Common Stock at the Exercise Price as so adjusted.
The Issuer further agrees that it will not establish a par value for its Common
Stock while this Warrant is outstanding in an amount greater than the Exercise
Price.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant.
Any attempted transfer of this Warrant, the Warrant Shares or any new Warrant
not in accordance with this Section shall be null and void, and the Issuer
shall not in any way be required to give effect to such transfer. No transfer
of
-2-
<PAGE> 3
this Warrant shall be effective for any purpose hereunder until (i) written
notice of such transfer and of the name and address of the transferee has been
received by the Issuer, and (ii) the transferee shall first agree in a writing
deposited with the Secretary of the Issuer to be bound by all the provisions of
this Warrant and the Agreement. Upon surrender of this Warrant to the Issuer
by any transferee authorized under the provisions of this Section 4, the Issuer
shall, without charge, execute and deliver a new Warrant registered in the name
of such transferee at the address specified by such transferee, and this
Warrant shall promptly be canceled. The Issuer may deem and treat the
registered holder of any Warrant as the absolute owner thereof for all
purposes, and the Issuer shall not be affected by any notice to the contrary.
Any Warrant, if presented by an authorized transferee, may be exercised by such
transferee without prior deliver of a new Warrant issued in the name of the
transferee.
Upon receipt by the Issuer of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Issuer will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on
the part of the Issuer, whether or not the Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
Section 5. Rights of Holder. Neither a Holder nor his transferee
by devise of the laws of descent and distribution or otherwise shall be, or
have any rights or privileges of, a shareholder of the Issuer with respect to
any Warrant Shares, unless and until certificates representing such Warrant
Shares shall have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and Warrant Shares. The
Exercise Price and Warrant Shares shall be subject to adjustment from time to
time only as provided in this Section 6.
(a) If the Issuer is recapitalized through the subdivision
or combination of its outstanding shares of Common Stock into a larger
or smaller number of shares, the number of shares of Common Stock for
which this Warrant may be exercised shall be increased or reduced, as
of the record date for such recapitalization, in the same proportion
as the increase or decrease in the outstanding shares of Common Stock,
and the Exercise Price shall be adjusted so that the aggregate amount
payable for the purchase of all Warrant Shares issuable hereunder
immediately after the record date for such recapitalization shall
equal the aggregate amount so payable immediately before such record
date.
(b) If the Issuer declares a dividend on Common Stock, or
makes a distribution to holders of Common Stock, and such dividend or
distribution is payable or made in Common Stock or securities
convertible into or exchangeable for Common Stock, or rights to
purchase Common Stock or securities convertible into or exchangeable
for Common Stock, the number of shares of Common Stock for which this
Warrant may be exercised shall be increased, as of the record date for
determining which holders of Common Stock shall be entitled to receive
such dividend or distribution, in proportion to the increase in the
number of outstanding shares (and shares of Common Stock issuable upon
conversion of all such securities convertible into Common Stock) of
Common Stock as a result of such dividend or distribution, and the
Exercise Price shall be adjusted so that the aggregate amount payable
for the purchase of all the Warrant Shares issuable hereunder
immediately after the record date for such dividend or distribution
shall equal the aggregate amount so payable immediately before such
record date.
(c) If the Issuer declares a dividend on Common Stock
(other than a dividend covered by subsection (b) above) or distributed
to holders of its Common Stock, other than as part of its dissolution
or liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any cash or other of
its assets (other than Common Stock or
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<PAGE> 4
securities convertible into or exchangeable for Common Stock), the
Holder shall receive notice of such event as set forth in Section 8
below.
(d) In case of any consolidation of the Issuer with, or
merger of the Issuer into, any other corporation (other than a
consolidation or merger in which the Issuer is the continuing
corporation and in which no change occurs in its outstanding Common
Stock), or in case of any sale or transfer of all or substantially all
of the assets of the Issuer, the corporation formed by such
consolidation or the corporation resulting from such merger or the
corporation which shall have acquired such assets of the Issuer, as
the case may be, shall execute and deliver to the Holder
simultaneously therewith a new Warrant, satisfactory in form and
substance to the Holder, together with such other documents as the
Holder may reasonably request, entitling the Holder thereof to receive
upon exercise of such Warrant the kind and amount of shares of stock
and other securities and property receivable upon such consolidation,
merger, sale or transfer, or upon the dissolution following such sale
or other transfer, by a holder of the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such
consolidation, merger, sale or transfer. Such new Warrant shall
contain the same basic other terms and conditions as this Warrant and
shall provide for adjustments which, for events subsequent to the
effective date of such written instrument, shall be as nearly
equivalent as may be practicable to the adjustments provided for in
this Section 6. The above provisions of this paragraph (d) shall
similarly apply to successive consolidations, mergers, sales or other
transfers covered hereby.
(e) If the Issuer shall, at any time before the expiration
of this Warrant, dissolve, liquidate or wind up its affairs, the
Holder shall, upon exercise of this Warrant have the right to receive,
in lieu of the shares of Common Stock of the Issuer that the Holder
otherwise would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to the
Holder upon any such dissolution, liquidation or winding up with
respect to such shares of Common stock of the Issuer had the Holder
been the holder of record of such shares of Common Stock receivable
upon exercise of this Warrant on the date for determining those
entitled to receive any such distribution. If any such dissolution,
liquidation or winding up results in any cash distribution in excess
of the Exercise Price provided by this Warrant for the shares of
Common Stock receivable upon exercise of this Warrant, the Holder may,
at the Holder's option, exercise this Warrant without making payment
of the Exercise Price and, in such case, the Issuer shall, upon
distribution to the Holder, consider the Exercise Price to have been
paid in full and, in making settlement to the Holder, shall obtain
receipt of the Exercise Price by deducting an amount equal to the
Exercise Price for the shares of Common Stock receivable upon exercise
of this Warrant from the amount payable to the Holder. For purposes
of this paragraph, the sale of all or substantially all of the assets
of the Issuer and distribution of the proceeds thereof to the Issuer's
shareholders shall be deemed a liquidation.
(f) The term "Common Stock" shall mean the Common Stock of
the Issuer as the same exists at the Closing Date of the Offering or
as such stock may be constituted from time to time, except that for
the purpose of this Section 6, the term "Common Stock" shall include
any stock of any class of the Issuer which has no preference in
respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Issuer and which is not subject to redemption by the Issuer.
(g) Whenever the number of Warrant Shares or the Exercise
Price shall be adjusted as required by the provisions of this Section
6, the Issuer forthwith shall file in the custody of its secretary or
an assistant secretary, at its principal office, and furnish to each
Holder hereof, a certificate showing the adjusted number of Warrant
Shares and the Exercise Price and setting forth in reasonable detail
the circumstances requiring the adjustments.
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<PAGE> 5
(h) Notwithstanding any other provision, this Warrant
shall be binding upon and inure to the benefit of any successors and
assigns of the Issuer.
(i) No adjustment in the Exercise Price in accordance with
the provisions of this Section 6 need be made if such adjustment would
amount to a change in such Exercise Price of less than $0.25 (25
cents); provided, however, that the amount by which any adjustment is
not made by reason of the provisions of this paragraph (i) shall be
carried forward and taken into account at the time of any subsequent
adjustment in the Exercise Price.
(j) If an adjustment is made under this Section 6 and the
event to which the adjustment relates does not occur, then any
adjustments in accordance with this Section 6 shall be readjusted to
the Exercise Price and the number of Warrant Shares which would be in
effect had the earlier adjustment not been made.
Section 7. Taxes on Issue or Transfer of Common Stock and
Warrant. The Issuer shall pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock or other securities on the exercise of this Warrant. The Issuer
shall not be required to pay any tax which may be payable in respect of any
transfer of this Warrant or in respect of any transfers involved in the issue
or delivery of shares or the exercise of this Warrant in a name other than that
of the Holder and the person requesting such transfer, issue or delivery shall
be responsible for the payment of any such tax (and the Issuer shall not be
required to issue or deliver said shares until such tax has been paid or
provided for).
Section 8. Notice of Adjustment. So long as this Warrant shall
be outstanding, (a) if the Issuer shall propose to pay any dividends or make
any distribution upon the Common Stock, or (b) if the Issuer shall offer
generally to the holders of Common Stock the right to subscribe to or purchase
any shares of any class of Common Stock or securities convertible into Common
Stock or any other similar rights, or (c) if there shall be any proposed
capital reorganization of the Issuer in which the Issuer is not the surviving
entity, recapitalization of the capital stock of the Issuer, consolidation or
merger of the Issuer with or into another corporation, sale, lease or other
transfer of all or substantially all of the property and assets of the Issuer,
or voluntary or involuntary dissolution, liquidation or winding up of the
Issuer, or (d) if the Issuer shall give to its stockholders any notice, report
or other communication respecting any significant or special action or event,
then in such event, the Issuer shall give to the Holder, at least thirty (30)
days prior to the relevant date described below (or such shorter period as is
reasonably possible if thirty days is not reasonably possible), a notice
containing a description of the proposed action or event and stating the date
or expected date on which a record of the Issuer's shareholders is to be taken
for any of the foregoing purposes, and the date or expected date on which any
such dividend, distribution, subscription, reclassification, reorganization,
consolidation, combination, merger, conveyance, sale, lease or transfer,
dissolution, liquidation or winding up is to take place and the date or
expected date, if any is to be fixed, as of which the holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event.
Section 9. Notice. Any notice to be given or to be served upon
any party in connection with the Debentures must be in writing and will deemed
to have been given and received upon confirmed receipt, if sent by facsimile,
or two (2) days after it has been submitted for delivery by Federal Express or
an equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Issuer, to: Karts International Incorporated
109 Northpark Boulevard, Suite 210
Covington, Louisiana 70433
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<PAGE> 6
If to the Holder, to: The Holder at the address as set forth in the
Subscription Documents executed by Holder in
connection with the Offering
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
Section 10. Choice of Law; Conflict of Law; Jurisdiction and
Venue. Except as otherwise expressly provided herein, the terms, conditions
and enforceability of this Warrant shall be governed by and interpreted under
the laws of the State of Texas. Any claim, dispute or disagreement relating to
the terms and conditions of this Warrant, or arising from this Warrant, or the
subject matter of this Warrant, may be brought only in the Courts of Dallas
County in the State of Texas or in the United States District Court for the
Northern District of Texas, which shall have exclusive jurisdiction thereof.
The parties to this Warrant consent to such jurisdiction and venue and hereby
knowingly and voluntarily waive all objections thereto on the basis of lack of
personal jurisdiction, venue or convenience.
Date: , 1996
----------------
KARTS INTERNATIONAL INCORPORATED
By:
-----------------------------------
V. Lynn Graybill
Chairman of the Board, President
and Chief Executive Officer
ATTEST:
- --------------------------------
Timothy P. Halter, Secretary
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<PAGE> 7
SCHEDULE ONE
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant and
to purchase ____________________ shares of Karts International Incorporated
Common Stock issuable upon the exercise of this Warrant, and requests that
certificates for such shares be issued in the name of:
________________________________________________________________________________
(Name)
________________________________________________________________________________
(Address)
________________________________________________________________________________
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
________________________________________________________________________________
(Name)
________________________________________________________________________________
(Address)
and, if the number of Warrant Shares so purchased are not all of the Warrant
Shares issuable upon exercise of this Warrant, that a Warrant to purchase the
balance of such Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
Date:______________________________________
Name of Registered Owner:______________________________________________________
________________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Signature:______________________________________________________________________
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<PAGE> 1
EXHIBIT 4.5
SUBSCRIPTION AGREEMENT
Karts International Incorporated
109 North Park Boulevard, Suite 210
Covington, Louisiana 70433
Gentlemen:
The undersigned (the "Investor") hereby subscribes for _______________
investment unit(s) ("Units") in Karts International Incorporated (the
"Corporation"), a Nevada corporation, at an offering price of $3.50 each, with
each Unit consisting of (i) one (1) share of common stock and (ii) twenty (20)
Class A Warrants, each Class A Warrant to purchase one share of common stock at
a price of $3.50 per share for a period of 3 months after the close of the
Private Offering.
1. Subscription Payment. As full payment for this subscription,
simultaneously with the execution hereof the Investor is delivering his/her/its
check payable to the order of the Corporation in the amount set forth in
paragraph 13 below.
2. Representations of the Investor. The Investor hereby
represents and warrants to the Corporation as follows:
2.1 Investment Intent. The Units purchased by the Investor
are being acquired for investment for such Investor's own account, not as a
nominee or agent, and not for resale or with a view to the distribution of any
part thereof.
2.2 Suitability as an Investor. The Investor, together with
its or his investment advisor, if any, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risk of an investment in the Units; the Investor has the ability to bear the
risk of loss of the Investor's entire investment in the Corporation; the
Investor's investment in the Units does not represent a material investment
when compared to the Investor's total financial capacity; and the Investor has
the capacity to protect the Investor's own interests in connection with the
transactions contemplated by this Agreement.
2.3 Nature of Investment. The Investor hereby acknowledges
his understanding that the Units are not being registered or qualified under
the Securities Act of 1933, as amended (the "Act"), or any state securities
laws, on the grounds that the issuance and sale of the Units to the Investor is
exempt under Section 4(2) of the Act and/or Regulation D promulgated
<PAGE> 2
thereunder as not involving a public offering, and that there will be no public
market for the Units or the underlying securities comprising the Unit, other
than sale and issuance to New York residents, to which a qualified exemption
exists. The Investor is aware that the Units and the underlying securities
must be held indefinitely unless they are subsequently registered or an
exemption from such registration is available and that the Corporation is under
no obligation to register the Units or the underlying securities or take any
step to enable it to secure or an exemption from registration, nor does it
presently have any intention to do so. However, as of the date hereof, such an
exemption presently exists under Rule 504 of Regulation D.
2.4 Requisite Authority. All action on the part of the
Investor necessary for the acquisition of the Units and the consummation of the
transactions contemplated herein has been duly and validly taken, and this
Agreement is a valid and binding obligation of the Investor, enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights and by equitable principles of general
application which may limit the availability of certain equitable remedies,
such as specific performance.
2.5 Risk Factors. The Investor is aware of and understands
the high degree of risk associated with an investment in the Corporation.
2.6 Full Access to Information. The Investor (i) has had the
full opportunity to ask questions of, and receive answers from, the Corporation
(or its executive officers and other persons acting on its behalf) regarding
the terms and conditions of the offering and this Agreement, the Units and any
other documents and materials delivered to it, and the transactions
contemplated thereby, as well as the business, operations and affairs of the
Corporation and related matters, (ii) has not relied on any information in
connection with this investment other than that provided to it in writing by
the Corporation or contained in its books and records, and (iii) has had all
such questions answered and all such review concluded to the Investor's full
satisfaction.
2.7 Corporate Entity. If the Investor is an entity such as a
corporation, partnership or trust, (i) it is authorized and otherwise duly
qualified to purchase and hold Units in the Corporation, has its principal
place of business as set forth on the signature page hereof, (ii) has not been
formed for the specific purpose of acquiring Units in the Corporation unless
all of its equity owners qualify as accredited individual investors, and (iii)
the individual signing the Agreement on such entity's behalf is duly authorized
to sign this Agreement.
3. Representations of the Corporation. The Corporation hereby
represents and warrants to the Investor that:
3.1 Due Authorization. The execution, delivery and
performance by the Corporation of this Agreement has been duly authorized by
all required corporate action on the part of the Corporation. The Units have
been duly authorized and, upon the execution and delivery of this Agreement by
the Investor and the Corporation, the shares of Common Stock comprising the
Units shall be validly issued, fully paid and non-assessable and the shares of
Common Stock underlying the Warrants, when paid for in accordance with the
terms thereof, shall be validly issued, fully paid and non-assessable.
2
<PAGE> 3
3.2 Organization and Authority. The Corporation is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has all requisite corporate power and authority
to own its properties and to carry on its business as currently conducted.
3.3 No Violations. The Corporation is not in violation or
default under, nor will its execution, delivery and performance of this
Agreement result in a violation of or constitute a default under, its
Certificate of Incorporation or By-Laws or any material instrument of
indebtedness, mortgage or security agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its properties may
be bound, except such violations or defaults which would not have a material
adverse effect on its business or financial condition.
4. Indemnification. The Investor agrees to indemnify and hold
harmless the Corporation and its officers, directors, employees,
representatives, agents and affiliates against any and all loss, liability,
claim damage and expense whatsoever (including, but not limited to, any and all
expenses reasonably incurred in investigating, preparing or defending against
any litigation commenced or threatened or any claim whatsoever) arising out of
or based upon any false representation or warranty or breach of a
representation or warranty or failure by the Investor to comply with any
covenant or agreement made by the Investor herein or in any other document
furnished by the Investor to the Corporation in connection with this
transaction.
5. Survival of Representations, Warranties or Covenants. The
representations, warranties, and covenants contained herein shall survive the
delivery of, and payment for, the Units and the consummation of the
transactions contemplated hereby.
6. Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been given, if mailed by certified mail, return receipt requested, or delivered
against receipt of the party to whom it is to be given (a) if to the
Corporation, at the address set forth above, or (b) if to the Investor, at the
address set forth on the signature page hereof (or, in either case, to such
other address as the party shall have furnished in writing in accordance with
the provisions of this Section 6). Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof
except for a notice changing a party's address, which shall be deemed given at
the time of receipt thereof.
7. Unenforceability. If any provision of this Agreement, or
portion hereof, shall be held invalid or unenforceable by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision, or portion thereof, and shall not in any manner affect or render
invalid or unenforceable any other provision, or portion thereof.
8. Further Assurances. Each party hereto shall cooperate and
shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement.
9. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute but one and the same
agreement.
3
<PAGE> 4
10. Governing Law. Except to the extent that the Nevada General
Corporation Law shall be applicable with respect to matters relating to the
internal corporate affairs of the Corporation, this Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to contracts made and to be performed wholly within the State of New
York.
11. Jurisdiction. The Investor hereby consents and submits to the
exclusive jurisdiction of the courts of the State of New York in New York City
and of the Federal courts located in the Southern District of New York with
respect to any action, dispute or controversy relating to this Agreement or the
Units. The Investor also hereby waives personal service of any and all process
upon the Investor, and agrees that all such service of process may be made by
registered mail directed to the Investor at the address provided in Section 6
hereof and that service so made shall be deemed to be completed three (3)
business days after the same shall have been deposited in the United States
mails, postage prepaid. The Investor and the Corporation waive trail by jury
and waive any objection to venue of any action instituted hereunder and consent
to the granting of such legal or equitable relief as is deemed appropriate by
the court.
12. Headings. The section and other headings contained herein are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
(Intentionally Blank)
4
<PAGE> 5
13. Subscription and Method of Payment. The Investor hereby
subscribes for _______________ Units at $3.50 per Unit for an aggregate price
of $_________________, and encloses a certified check or money order payable to
"Karts International Incorporated" in the amount of $_______________.
__________________________________________
Signature of Investor
__________________________________________
Print or Type Name
__________________________________________
Title, if applicable
Address of Investor:
__________________________________________
__________________________________________
Taxpayer Identification or Social Security
Number of Investor:
__________________________________________
The foregoing subscription is hereby accepted by the Corporation this
______ day of ___________, 1996 for _____________ Unit(s).
KARTS INTERNATIONAL INCORPORATED
__________________________________________
V. Lynn Graybill, President
5
<PAGE> 1
EXHIBIT 4.6
KARTS INTERNATIONAL INCORPORATED
(A NEVADA CORPORATION)
--------------------------------
CERTIFICATE OF DESIGNATION
(PURSUANT TO THE PROVISIONS OF SECTION 78.1955
OF THE GENERAL CORPORATION LAW OF THE STATE OF NEVADA)
It is hereby certified that:
1. The name of the corporation is KARTS INTERNATIONAL
INCORPORATED (the "Corporation").
2. Set forth hereinafter is a copy of a resolution, dated October
22, 1996, containing a statement of the voting powers, preferences,
limitations, restrictions, and relative rights of the series of stock
hereinafter designated, adopted by the Board of Directors of the Corporation,
pursuant to a provision of the articles of incorporation relating to the
issuance of said series of stock by resolution of the Board of Directors:
BE IT RESOLVED that, pursuant to the authority
expressly granted and vested in the Board of Directors of the
Corporation in accordance with Article Fourth of the
Corporation's Articles of Incorporation, authorizing
10,000,000 shares of blank check preferred stock (the
"Preferred Stock"), $0.001 par value per share, the Board of
Directors of the Corporation does hereby approve and adopt the
following resolutions designating and authorizing for
issuance, in accordance with the applicable provisions of the
General Corporation Law of the State of Nevada (the "NGCL"),
the Convertible Preferred Stock (as hereinafter defined) of
the Corporation, said resolutions hereby effected being prior
to the issuance of any shares of Convertible Preferred Stock.
"Convertible Preferred Stock" shall mean Preferred Stock
consisting of 25 shares, each having a par value of $0.001 per
share, and each of which shares of Convertible Preferred Stock
shall have the dividend rights, voting powers, redemption
provisions, liquidation preferences and the relative, optional
or other special rights, and shall be subject to the
qualifications, limitations or restrictions set forth below
and the remaining 9,975,000 authorized shares of the Preferred
Stock shall remain undesignated and reserved for future
issuance subject to the future action of the Board of
Directors of the Corporation.
Rights and Preferences of Convertible Preferred Stock
1. Dividends. The holders of Convertible Preferred
Stock shall not be entitled to receive any dividends on their shares of
Convertible Preferred Stock.
2. Voting Rights and Notice of Meetings. The holders of
the Convertible Preferred Stock shall have no right or power whether authorized
by the NGCL or otherwise to vote on any matter or in any proceeding or to be
represented at or to receive notice of any meeting of the shareholders of the
Corporation.
3. Conversion.
(a) Right of Corporation. At the completion of
the Public Offering (as hereinafter defined), the Corporation
shall have the option to require the holders of the
Convertible Preferred Stock to convert the Convertible
Preferred Stock into either (a) $25,000 and 6,250 shares of
Common Stock ("Option One"), or (b) 12,500 shares of Common
Stock ("Option Two").
-1-
<PAGE> 2
The Corporation will use its best efforts to FILE with the
Securities and Exchange Commission (the "Commission") within 180 days after the
closing date (the "Closing Date") of its private offering of securities
pursuant to that certain Confidential Private Placement Memorandum, dated
October 28, 1996 (the "Memorandum") a registration statement (the "Initial
Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), related to its proposed public offering and sale of securities of the
Corporation (the "Public Offering"). If for any reason the Company does not
complete the Public Offering within one year after the Closing Date, each share
of Preferred Stock will be automatically converted into 12,500 shares of Common
Stock.
(b) Surrender of Shares. On or after the date fixed for
conversion, each holder of Convertible Preferred Stock converted shall
surrender such holder's certificates for such shares of Convertible Preferred
Stock to the Corporation at the place designated in the Conversion Notice and
shall thereupon be entitled to receive the consideration set forth in paragraph
(a) of this Section 3 (the "Conversion Consideration").
(c) Cancellation of Redeemed Shares. All shares of Convertible
Preferred Stock that are converted shall be canceled and such shares shall be
restored to the status of authorized but unissued shares of Preferred Stock.
(d) Payment of Taxes on Conversion of Convertible Preferred Stock.
The Corporation shall pay any and all issue and other taxes that may be payable
in respect of any issue or delivery of the Conversion Consideration on
conversion of shares of Convertible Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of Common Stock
in a name other than that in which the shares of Convertible Preferred Stock so
converted were registered and no such issue or delivery shall be made unless
and until the person requesting it has paid to the Corporation the amount of
any such tax, or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(e) Reservation of Sufficient Common Stock. So long as any shares
of Convertible Preferred Stock shall remain outstanding and the holders thereof
shall have the right to convert said shares in accordance with the provisions
of this Section 3, the Corporation will at all times reserve from the
authorized and unissued shares of its Common Stock a sufficient number of
shares to provide for such conversions, and will take such other corporate
action as may be necessary from time to time in order that it may validly and
legally issue fully-paid and non-assessable shares of such Common Stock upon
conversion of the Convertible Preferred Stock.
(f) Definition of Common Stock. In each case where reference is
made to the Common Stock of the Corporation in this Section, unless a different
intention is expressed, such reference is to the class of Common Stock of the
Corporation as such class of stock exists at the date of the adoption of these
provisions, or stock into which the same may be changed from time to time.
4. Liquidation Rights.
(a) Liguidation Preference Amount. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the business or
affairs of the Corporation, and after payment of, or adequate provision for
payment of, the debts, liabilities and other claims of the Corporation as
determined by its Board of Directors, each holder of the Convertible Preferred
Stock shall be entitled to receive, out of the remaining net assets of the
Corporation legally available for distribution to its shareholders, before any
payment or distribution shall be made on the Common Stock, or on any other
class of stock of the Corporation ranking junior to the shares of Convertible
Preferred Stock upon liquidation, the amount of Twenty-Five Thousand and No/100
Dollars ($25,000) per share of Convertible Preferred Stock.
-2-
<PAGE> 3
(b) Proportionate Distribution Where Assets Insufficient.
In the event the assets of the Corporation available for distribution to
the holders of shares of Convertible Preferred Stock upon dissolution,
liquidation or winding up of the Corporation whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which
such holders are entitled pursuant to paragraph (a) of this Section, no
such distribution shall be made on account of any shares of any class of
capital stock of the Corporation ranking on a parity with the shares of
Convertible Preferred Stock upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on
account of the shares of Convertible Preferred Stock, ratably, in
proportion to the full distributable amounts for which holders of all
such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
(c) Nonparticipation Right. After the payment to the
holders of the shares of Convertible Preferred Stock of the full
preferential amounts provided for in either paragraph (a) or (b) of this
Section, as applicable, the holders of Convertible Preferred Stock as
such shall have no right or claim to any of the remaining assets of the
Corporation.
(d) Excluded Transactions. Neither the consolidation nor
merger of the Corporation with or into any other corporation, nor the
sale, mortgage, exchange or conveyance of all or substantially all of
the properties, assets or business of the Corporation, nor any
liquidation, dissolution or winding up of the Corporation occurring
substantially concurrently with any such transaction shall be deemed to
be a liquidation, dissolution or winding up of the Corporation within
the meaning hereof, unless otherwise determined by the Board of
Directors of the Corporation.
5. No Preemptive Rights. No holder of shares of the Convertible
Preferred Stock shall, as such holder, have any preemptive right to subscribe
to or purchase any shares of any class of capital stock of the Corporation now
or hereafter authorized or issued, whether or not exchangeable for any capital
stock of the Corporation of any class or classes now or hereafter authorized or
issued; nor shall any holder of shares of the Convertible Preferred Stock, as
such holder, have any right to purchase, acquire or subscribe for any
securities which the Corporation may issue or sell whether or not convertible
into or exchangeable for shares of capital stock of the Corporation of any
class or classes, and whether or not any such securities have attached or
appurtenant thereto warrants, options or other instruments which entitle the
holders thereof to purchase, acquire or subscribe for shares of capital stock
of any class or classes of the Corporation.
6. Covenants of the Corporation. The Corporation will not, by
amendment to its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the preferences and
limitations of Convertible Preferred Stock to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions set forth herein relating to Convertible
Preferred Stock and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Convertible
Preferred Stock against dilution or other impairment.
EXECUTED ON 1996.
-----------
KARTS INTERNATIONAL INCORPORATED
By: /s/ V. LYNN GRAYBILL
------------------------------
V. Lynn Graybill, President
By: /s/ TIMOTHY P. HALTER
------------------------------
Timothy P. Halter, Secretary
-3-
<PAGE> 4
STATE OF )
)
COUNTY OF )
On , 1996, personally appeared before me, a Notary Public, for
the State and County aforesaid, V. Lynn Graybill, as President of Karts
International Incorporated, who acknowledged that he executed the above
instrument.
------------------------------------
NOTARY PUBLIC, State of Louisiana
STATE OF )
)
COUNTY OF )
On , 1996, personally appeared before me, a Notary Public, for
the State and County aforesaid, Timothy P. Halter, as Secretary of Karts
International Incorporated, who acknowledged that he executed the above
instrument.
/s/ MICHELLE TITUS
------------------------------------
NOTARY PUBLIC, State of Texas
-4-
<PAGE> 1
EXHIBIT 4.7
See "Description of Securities -- Convertible Preferred Stock"
<PAGE> 1
EXHIBIT 10.1
LEASE
THIS LEASE made and entered into this 18th day of March, 1996, between
NORTHPARK PROPERTIES, L.L.C., hereinafter referred to as "Landlord", and Karts
International, Incorporated, hereinafter referred to as "Tenant".
W I T N E S S E T H:
LEASED PREMISES
1. (a) Landlord hereby leases unto Tenant, for the term, at the
rental and upon the other terms and conditions hereinafter set forth, the
premises known as the Northpark Corporate Center, on the second (2nd) floor
comprising approximately 3,479 rentable square feet as shall be determined by
Article 1(b) below of a total of 103,222 rentable square feet of office
rentable area, hereinafter referred to as the "Leased Premises" as further
shown on the annexed plan marked Exhibit "A" in the building, (the "Building"),
located at 109 Northpark Boulevard, Suite 210, Covington, Louisiana, as well as
the parking lot, green space, and other common areas (the "Common Areas").
(b) The rentable area on each office floor is that area enclosed
within the perimeter of the exterior glass line of the Building excluding all
vertical penetrations (elevator shafts, stairwells, fresh air shafts, and
vertical risers enclosed in pipe chase) and the interior walls enclosing such
penetrations. If a tenant's rentable area is less than a full office floor,
the rentable area is that area (i) enclosed by the midpoint of the demising
partitions, the exterior glass line of the Building, and the corridor side of
the finished corridor wall plus (ii) a pro rata portion of the public area of
the floor. The public area on a floor is defined as the rentable area of an
office floor less the area available for tenants defined by (i) above. The
rentable area on each floor shall also include an allocation of the first floor
common areas utilized by all tenants in the Building.
(c) The Leased Premises shall be used and occupied by Tenant for
general office use. Tenant shall not use, or permit to be used, the Leased
Premises for any other purpose. Tenant will not occupy or use, nor permit to be
occupied or used any portion of the Leased Premises for any business or purpose
which is unlawful in part or in whole or deemed to be disreputable in any
manner, or in a manner constituting a nuisance of any kind or hazardous on
account of fire, nor permit anything to be done which will in any way increase
the rate of fire insurance on the Building or its contents. Tenant shall comply
with all laws, orders, rules and regulations relating to the use, condition and
occupancy of the Building.
TERM
2. The term of this shall be five (5) years or until sooner terminated as
herein provided, commencing thirty (30) days after Landlord obtains building
permit and turns space over to Tenant, (the "Commencement Date"). If Landlord
shall be unable to give possession of the Leased Premises on the Commencement
Date of the term hereof, and provided Tenant is not responsible for such
delays, the rent reserved and covenanted to be paid herein shall not commence
until the Leased Premises are available for occupancy, and the term of this
lease will be extended for a period of time equal to the period of such delay
in availability. No such failure to make the Leased Premises available on the
date of commencement of the term shall affect the validity of the lease or the
rights of the parties hereunder, or subject Landlord to liability of any
nature. In the event that there is a delay in the availability of the Leased
Premises and term of this lease is thereby extended, Landlord and Tenant shall
execute a supplement to this Lease setting forth the date for the commencement
of the payment of rent and extended term of this Lease. Nothing herein shall
prohibit Tenant from occupancy and use of the Leased Premises prior to the
Commencement Date.
RENTAL
3. (a) This lease is made for and in consideration of an annual base
rental ("Base Rent") of:
Year 1: $14.00 per sq. ft./$48,706.00 per year/$4,058.83 per month
Year 2: $14.33 per sq. ft./$49,854.07 per year/$4,154.41 per month
Year 3: $14.83 per sq. ft./$51,593.57 per year/$4,299.26 per month
Year 4: $15.33 per sq. ft./$53,333.07 per year/$4,444.42 per month
Year 5: $15.83 per sq. ft./$55,072.57 per year/$4,589.38 per month
payable in advance on the first day of each calendar month without prior notice
or demand, to Landlord or its agent at:
1
<PAGE> 2
Northpark Properties, L. L. C.
c/o Stirling Properties, Inc.
109 Northpark Boulevard, Suite 300
Covington, Louisiana 70433
or to such other party or at such other address as Landlord may designate in
writing. If the term of this lease shall commence on any day other than the
first day of the calendar month, the rent for such fractional month shall be
prorated in the proportion that the number of days this lease was in effect
bears to 30.
(b) All rent more than fifteen (15) days in arrears shall bear
interest at the rate of ten percent (10%) per annum from the date due until
paid. Any payment of interest shall also include the rent due.
(c) Simultaneously with the execution of the lease, Tenant has
deposited with Landlord the sum of $4,058.83, receipt of which is hereby
acknowledged by Landlord, as security (but not as a trust fund) for the
performance by Tenant of the terms, covenants and conditions of this lease to
be kept and performed by Tenant. Such security deposit shall be returned to
Tenant, without interest, upon the termination of this lease, provided Tenant
has complied with all terms, covenants, and conditions hereof.
ADJUSTMENTS TO RENT
4. (a) Operating Expense Adjustment
(i) The term "Base Year" shall refer to the Calendar Year
of 1996. Tenant's proportionate share of Operating Expense Differential (as
such term is hereinafter defined in paragraph (a) (ii) of the Article 4) shall
be 3.4%; such share is a fraction, the numerator of which is the rentable
square footage of the Leased Premises and the denominator is the total rentable
square footage of the Building. For purposes of this article, the term
"Operating Expenses" shall mean any and all costs and expenses paid or incurred
by Landlord, or its agents, for any calendar year in connection with the
operation, servicing, maintenance and repair of the Building, determined in
accordance with generally accepted accounting principles, property taxes,
insurance (including public liability, property damage, and fire and extended
coverage insurance for the full replacement cost of the Building), management
fees, if included in the Operating Expenses for the Base Year in an amount not
to exceed management fees charged in comparable office buildings in St. Tammany
Parish, Louisiana, and any tax imposed upon gross receipt of rents, but shall
exclude: (1) provisions for depreciation; (2) interest on indebtedness, except
as provided for hereinafter; (3) income taxes; (4) dividends; (5) capital
repairs and improvements; (6) management fees in excess of that customarily
charged for comparable office buildings, and (7) other expenses which do not
relate to the operations of the Building.
(ii) The Operating Expenses of the Building and Common
Areas for the Base Year shall be the actual operating expenses of the Building
for 1996 (the "Operating Base Expense"). If in any full calendar year during
the term hereof, the Operating Expenses of the office area of the Building
should exceed the Operating Base Expense (such excess being hereinafter
referred to as the "Operating Expense Differential"), then Tenant shall pay as
additional rent Tenant's proportionate share of the Operating Expense
Differential for that year shall be due. Such payment shall be due by Tenant
within thirty (30) days of being notified by Landlord of the amount due.
(iii) Once annually, during the term of this Lease, and
after the Operating Base Expense is established, but no later than twenty (20)
days prior to the date a rental payment is due, Landlord may deliver to Tenant
a written estimate of any additional rent which may be reasonably anticipated
hereunder, whereupon the monthly rental for such full or partial calendar year
shall be increased by the amount estimated divided by the number of months
remaining in the calendar year.
(iv) Statements showing the actual Operating Expenses of
the Building and Tenant's proportionate share of the Operating Expense
Differential, if any, (hereinafter referred to as "Statement of Actual
Adjustment") shall be delivered by Landlord to Tenant within ninety (90) days
after the end of each calendar year. Within fifteen (15) days after the
delivery by Landlord to Tenant of such Statement of Actual Adjustment, Tenant
shall pay to Landlord the amount of any additional rentals shown as being due
and unpaid thereon. Should such Statement of Actual Adjustment show the Tenant
had paid to Landlord an aggregate amount in excess of the additional rental due
for the preceding calendar year and Tenant is not then in default hereunder,
Landlord shall credit the amount thereof to the monthly rent or rents next
becoming due from Tenant and Tenant's monthly rent for the then current year
shall be reduced by the amount of the credit divided by the number of months
remaining in the calendar year.
(v) If the term of this Lease begins on a day other than
the first day of a calendar year, or should this Lease terminate on a day other
than the last day of a calendar year, the amount shown as due by Tenant on the
Statement of Actual Adjustment shall reflect a proration based on the
proportion that the number of days this Lease was in effect during such
calendar years bears to 365.
2
<PAGE> 3
(b) The obligations of Landlord and Tenant under this Article 4
shall survive the expiration or other termination of this Lease.
(c) Tenant shall be entitled from time to time to audit and verify
the operations of the Building and/or the related books and records of Landlord
to ensure that the Operating Expenses from time to time reported by Landlord
are in keeping with the provisions of this Lease. As to any calendar year, any
such undertaking by Tenant must be initialed before the end of the following
calendar year and, absent fraud or gross negligence on Landlord's part, the
Operating Expenses as timely reported by Landlord for such calendar year shall
be deemed controlling unless Tenant challenges any and/or all thereof in
writing delivered to Landlord on or before the expiration of Tenant's audit and
verification rights for such calendar year under this section. In the event,
and only in the event, that Tenant delivers any such writing within sixty (60)
days after receipt of Landlord's demand for payment of Operating Expenses,
extended by the number of days between the date of any request to audit under
this section and the date Landlord permits such audit to begin, Tenant may
withhold any disputed payment on its part until resolution of such dispute,
provided, however, that no payment on the part of Tenant shall prejudice any or
all of its rights under this Lease.
In the event of any errors, the appropriate party shall make a
correction payment in full to the other party within thirty (30) days after the
determination and communication to all parties of the amount of such error. In
the event of any errors on the part of Landlord in excess of $10,000.00,
Landlord shall also reimburse Tenant for all costs of such audit and
verification reasonably incurred by Tenant within such thirty (30) day period.
USE
5. Tenant shall use and occupy the Leased Premises as general offices for
the conduct of Tenant's business and for no other purpose without the written
consent of Landlord.
UTILITIES AND SERVICES
6. (a) As long as Tenant is not in default under any of the covenants
of this Lease, Landlord shall, except as hereinafter stipulated, provide for or
to the Premises, the following:
(i) Normal air conditioning and heating ("HVAC") as
required in the reasonable judgement of Landlord to maintain an average
temperature of 70 degrees throughout the Premises, from 7:00 A.M. to 6:00 P.M.,
Monday through Friday and from 7:00 A.M. to Noon on Saturday (such hours and
days being referred to throughout this Lease as "Normal Business Hours"). All
HVAC services at any other times and all special equipment which may be
required for such services and all above normal service and special equipment
which may be requested for such services during Normal Business Hours or
otherwise shall be furnished only upon the request and at the cost of the
Tenant. Extra hours will be charged at $35.00 per hour, per floor subject to
change.
(ii) Landlord shall provide cold water for drinking,
lavatory and toilet purposes and hot water for lavatory purposes from the
regular building supply (at the prevailing temperature) through fixtures
installed by Landlord.
(iii) Janitorial service which shall include restroom
supplies and cleaning, in and about the Building and premises, five (5) days
per week, holidays excepted, and periodic window washing and janitorial service
in a manner consistent with the operation and maintenance of other buildings of
a similar character in the St. Tammany Parish Metropolitan area; however,
Tenant shall pay the additional costs attributable to any janitorial service in
excess of janitorial services provided to other tenants of the Building.
(iv) Passenger elevator service in common with others
during Normal Business Hours as well as twenty-four (24) hour per day access.
The use of the passenger and freight elevator shall be subject to such
reasonable rules and regulations as may be established from time to time by
Landlord.
(v) A building directory appropriately framed in the
entrance lobby with name and address within the Building of Tenant properly
numbered and lettered.
(vi) Electricity for electrical outlets (120 volt single
phase) in an amount not exceeding one (1) watt per square foot of rentable area
within the Premises and for ceiling lighting in an amount not exceeding two (2)
watts per square foot of rentable area within the Premises. The cost of all
wiring and equipment required by Tenant for electrical service beyond that
provided as aforesaid shall be paid by Tenant.
(vii) In the event that the Building has a loading dock,
Tenant may use the same during Normal Business Hours and Tenant agrees not to
delay in its receipt of any item left at the loading dock for Tenant. The use
of the loading dock shall be subject to such reasonable Rules and Regulations
as may be established from time to time by Landlord.
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(viii) New Year's Day, July 4, Labor Day, Thanksgiving Day
and Christmas Day and Mardi Gras Day, shall be holidays and excluded from the
definitions of Normal Business Hours under this Lease.
(b) With reasonable notice to Tenant (except in the event of an
emergency), Landlord shall have the right to stop services of the heating,
elevators, plumbing, air conditioning, electrical power or other utilities or
services when necessary by reason of accident or for repairs, alterations,
replacements or improvements which are necessary or desirable for as long as
may be necessary by reason of such repairs alteration, replacements or
improvements or by reason of strikes, accidents, laws, orders, regulations,
unavailability or other factors beyond the control of Landlord, and no such
interruption or cessation of utilities or service shall render Landlord liable
in any respect for damages to any person or property, or place Landlord in
default of Tenant or result in an abatement of rent, or alter in any way the
obligations of Tenant hereunder. To the extent reasonably possible, Landlord
shall cause such work to be done after Normal Business Hours.
(c) Tenant obligates itself to use such means as are reasonably
available to it, and as may be directed by Landlord to conserve energy if it
does not interfere with the normal business operation of Tenant as determined
by Tenant. Tenant furthermore agrees to notify Landlord in advance should
Tenant anticipate that the use and consumption of any one or more utilities in
the Premises will substantially and regularly exceed that normally furnished as
aforesaid by Landlord, or that Tenant will regularly require such utilities,
heating and/or air conditioning at times other than Normal Business Hours, in
which event Landlord may at his option install special equipment at Tenant's
expense to accommodate such excess use, but in either event Tenant shall be
liable for the charges for such energy use computed on a monthly basis.
(d) Landlord shall have the right to require at Landlord's sole
expense that the utilities provided to any one or more floors of the Building
be separately metered on a floor-by-floor basis and to install meters for that
purpose.
(e) If both parties agree that Tenant's electrical usage is
excessive in relation to a normal business office use, taking into account
Tenant's right to access and use of the Premises on a 24-hour per day basis,
Tenant shall pay for the cost of such excess electrical usage.
(f) If Landlord is required to make any capital expenditures by
any city, state or federal agency for energy conservation or other purposes
during the term of this Lease, such expenditures by Landlord shall be
reimbursed as additional rent by Tenant. Such expenditures will be amortized
over a five year period including prevailing interest and Tenant shall bear its
pro-rata share payable monthly during the existence of this Lease.
(g) If Landlord makes any voluntary capital expenditures that
result in energy saving to Tenant then such capital expenditures, if made with
Tenant's prior written approval, shall be reimbursed as additional rent by
Tenant. Such expenditures shall be amortized in the amount of the energy
saving to the Tenant on a pro-rata basis payable monthly. However, in no event
shall the charge to Tenant exceed the energy cost saved by Tenant.
QUIET ENJOYMENT
7. Landlord covenants that so long as Tenant is not in default hereunder,
Tenant shall and may peaceably and quietly have, hold and enjoy the Premises
during the term of this lease and any renewal or extension hereof.
MAINTENANCE
8. (a) Tenant leases and accepts the Premises in its condition at the
beginning of the term of this Lease, acknowledges that the Premises are in a
good and satisfactory condition and, except as otherwise expressly provided in
this Article 8, assumes responsibility throughout the term of this Lease for
maintaining said premises in a good, orderly and safe condition and state of
repair, including, without limitation, replacement of any glass broken on the
Premises, and maintenance of lighting fixtures and replacement of lamps, bulbs
and ballasts. Tenant shall furthermore promptly repair all damage or injury to
other parts of the Building, if such damage or injury is caused by or
attributable to the activities or omissions of Tenant, its servants, agents,
employees, invitees or licensees,
(b) All such maintenance and repair shall be of a class or quality
which is in Landlord's reasonable opinion at least equal to the original work
or construction in the Building and shall otherwise be completed to the
satisfaction of Landlord and shall be done only by engineers, contractors,
carpenters, electricians, painters, mechanics or others approved by Landlord,
but at the expense of Tenant.
(c) Tenant shall give Landlord prompt notice of any needed repairs
to plumbing, (including that plumbing located in the restroom(s) utilized by
Tenant in Tenant's Premises), heating or air conditioning, or electrical lines
located in, servicing or passing through the Premised, and following such
notice Landlord shall promptly remedy the condition with due diligence and at
its expense, unless such
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repairs are necessitated by damage or injury attributable to Tenant, Tenant's
servants, agents, employees, invitees or licensees in which event Tenant shall
bear the expense of any such repairs.
(d) If Tenant fails after ten (10) days notice to proceed with due
diligence to make repairs required to the Leased Premises which are necessary
in the judgement of Landlord, then Landlord may (but shall not be obligated to)
make such repairs at the expense of Tenant, and the expense thereof incurred by
Landlord shall be collected as additional rent in the next installment of rent
falling due.
(e) Landlord and Tenant agree that as to repairs (emergency
excluded) required to be made by Landlord to the Premises, Tenant shall give
Landlord written notice of the need of such repairs and if within thirty (30)
from the date of the receipt of such written notice, Landlord has not commenced
to make and complete such repairs or, having commenced to make the same, does
not continue with due diligence until they are completed, Tenant shall have the
right (but not the obligation) to make such repairs and pay the costs thereof
Should Tenant make any such repairs after Landlord's failure to do so,
it shall give Landlord immediate notice thereof and Landlord agrees to
reimburse Tenant within twenty (20) days after demand for the actual cost
thereof. Should Landlord fail to reimburse Tenant, Tenant shall have the right
to deduct the cost of such repairs from rent due or to become due hereunder and
any such deductions by Tenant shall not be deemed to constitute a failure to
pay rent or any other default hereunder. If it be later determined that such
deductions, or any part thereof, were unauthorized, improper or illegal, Tenant
shall reimburse Landlord within ten (10) days after such determination (whether
judicially or otherwise made) the amount so deducted together with interest at
the legal interest rate then in effect in the State of Louisiana from the date
of such deduction until paid. Tenant agrees not to expend any sums under this
Section 8 without first (or simultaneously with the giving of notice to
Landlord) giving written notice to any mortgagee of the Leased Premises
(provided such mortgagee has in writing furnished Tenant its then proper
mailing address), and allowing such mortgagee the same period of time within
which to make such repairs, from receipt of such written notice, as is allowed
in this paragraph to Landlord.
ALTERATIONS
9. (a) Tenant shall make no installations, alterations, additions or
improvements in or to the Leased Premises without Landlord's prior written
consent, and then at the sole expense of Tenant and only by engineers,
contractors or mechanics approved by Landlord and subject to such conditions as
Landlord may impose. Tenant shall, before making any installations, alterations,
additions or improvements, obtain all permits, approvals and certificates
required by any governmental body or agency, and certificates of final approval
thereof, and shall deliver promptly duplicates of all such permits, approvals
and certificates to Landlord. Tenant agrees to carry, or cause Tenant's
contractor and subcontractors to carry, such workmen's compensation, general
liability, personal and property damage insurance as Landlord may reasonably
require. Any lien filed against the Leased Premises or Building for work claimed
to have been done for, or for materials claimed to have been furnished to
Tenant, shall be discharged by Tenant within ten (10) days thereafter, if
legally possible, at Tenant's expense, unless Tenant has a reasonable basis for
contesting such lien and has commenced legal proceedings to do so. If Tenant
fails to discharge or contest any such lien, then Landlord, at Landlord's
option, may discharge such lien and charge costs incurred in such discharge as
additional rent on the next installment of rent falling due.
(b) All ad valorem taxes upon any improvements made by Tenant, or
on behalf of Tenant by the Landlord within the Leased Premises or upon any
movable property of Tenant situated within the Leased Premises shall be the
sole responsibility of and shall be timely paid by Tenant.
(c) Tenant shall not in any manner deface or injure the Building
or any part thereof, or overload the floors of the Leased Premises, it being
mutually agreed that in no event shall any weight placed upon said floors
exceed fifty pounds per square foot.
LIABILITY
10. (a) Tenant shall indemnify and hold Landlord, its agents,
servants, and employees harmless against and from liability and claims of any
kind for loss or damage of property of Landlord or any other person, or for any
injury to or death of any person while in the Leased Premises provided that
such damage or injury is not caused by or due to the gross negligence of the
Landlord, its agents, servants, or employees.
(b) Landlord shall indemnify and hold harmless Tenant, its agents,
servants and employees against and from liability and claims of any kind for
loss or damage of property of Tenant or any other person, or for any injury to
or death of any person while in, on or about the parking areas associated with
the Building and any other common or public areas of the Building, or resulting
from Landlord's failure to maintain in
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good repair such areas of the Building or any other area for which Landlord is
obligated to maintain, provided that such damage or injury is not caused by or
due to the negligence of the Tenant, its agents, servants, or employees.
INSURANCE
11. Tenant shall, at its expense, at all times during the term of this
Lease maintain general public liability insurance against claims for bodily
injury and death occurring in, on or about the Leased Premises, with such
insurance to afford protection to a single limit of not less than $500,000.00
with respect to bodily injury or death arising our of any one occurrence or for
damage or injury to property occurring in, on or about the Leased Premises or
the Building. Tenant shall furnish Landlord proof thereof. Landlord shall
provide comparable liability insurance for the public or common areas of the
Building and parking lot.
FIRE OR OTHER CASUALTY
12. (a) In case of fire or other casualty, Tenant shall give immediate
notice thereof to Landlord.
(b) If the Leased Premises, without fault or neglect of Tenant, its
servants, agents, employees, invitees or licensees, shall be partially destroyed
by fire or other casualty so as to render the Leased Premises partially
untenable the rental herein recited shall be proportionately abated until such
time as the Premises so damaged are made tenantable by Landlord. In case of the
total destruction of the Leased Premises without fault or neglect of Tenant, its
servants, agents, employees, invitees or licensees, or if there shall be such
partial destruction that prevents the use of the Leased Premises, then unless
Landlord decides to rebuild, all rental and other sums due to Landlord up to the
time of such partial or total destruction shall be paid by Tenant, whereupon
this Lease shall cease and terminate. Provided, however, that if Landlord should
decide to rebuild following total destruction of the Leased Premises, Landlord
shall give Tenant written notification thereof (including the estimated time for
such rebuilding and confirmation that the cost thereof will be covered by
insurance or paid by Landlord) within forty-five (45) days of such total
destruction and shall commence operations for such reconstruction within a
reasonable period of time following settlement of the insurance claim on the
Building and shall continue such operations with reasonable diligence, whereupon
this lease will be extended for a period of time equal to the period from the
date of destruction through the date upon which the Leased Premises are
available for re-occupancy by Tenant unless rebuilding will take longer than
three (3) months, in which case, Tenant will have the option to cancel this
lease. In no event, however, shall Landlord be obligated to expend on such
repairs any amount in excess of that actually recovered by Landlord from its
insurance coverage.
In case of total destruction of the Building without fault or neglect
of Tenant, its servants, agents, employees, invitees or licensees, and Landlord
should elect not to rebuild within forty-five (45) days of such total
destruction, Tenant or Landlord shall have the right to terminate the Lease by
providing notice to either party within thirty (30) days of the date of such
destruction.
(c) Landlord shall keep the Building insured against such
contingencies as are normally covered by fire and extended coverage insurance
for the full replacement cost but shall not insure and will not be responsible
for any loss or damage to any property belonging to Tenant. Tenant agrees that
it will obtain such insurance covering its own property.
(d) Tenant and Landlord agree that insurance carried by each of
them against loss or damage by fire or other casualty shall contain a clause
whereby the insurer waives its right to subrogation against the other party and
the other tenants in the Building.
EMINENT DOMAIN
13. In the event all or any portion of the Leased Premises, or the real
property of which they form a part, is taken by any governmental authority
under the exercise of its right of eminent domain or similar right (or by act
in lieu thereof) all right, title and interest in and to any award granted (or
sums paid in lieu thereof) shall belong entirely to Landlord, and Tenant hereby
assigns to Landlord all of its interest, title or claim, if any, in and to such
award (or sums paid in lieu thereof), including, but not limited to, any part
of such award attributable to Tenant's leasehold interest, if any, except for
that portion of the award attributable to tenant-installed improvements and
Tenant's trade fixtures. In the event of a partial taking, rent shall be
reduced as of the date of such taking by a percentage equal to the percentage
obtained by relating the space taken to the total space leased hereunder, and,
if such taking is substantial, or Tenant shall have the option, to be exercised
by notice in writing to the Landlord, within sixty (60) days after such taking,
of terminating this Lease, or, if such taking is total, this Lease shall
terminate upon the taking. In the event of a temporary taking, that is, if all
or any portion of the Leased Premises or the real property of which they form
a part, is taken by any governmental authority under the exercise of its right
to eminent
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domain or similar right (or by act in lieu thereof) for a period of time which
is less than the remaining term of this Lease, rent during the period of such
taking, but not thereafter, shall be proportionately abated if the temporary
taking is partial, or totally abated if the temporary taking is total, but such
taking shall not terminate this Lease, unless the taking is for thirty (30)
days or more in which case Tenant shall have the right to terminate this Lease.
SUBSTITUTION OF PREMISES
14. Landlord reserves the right on ninety (90) days written notice to
Tenant to substitute for the Leased Premises, at the same rental as required of
Tenant herein, including adjustment, other premises within the Building, or in
the case of total destruction of the Leased Premises, within another building,
for all uses and purpose as though originally leased to Tenant at the time of
execution and delivery of this Lease and subject to all terms and provisions
hereof. In event Landlord elects to cause such substitution of premises,
Landlord agrees to pay all reasonable expenses of Tenant incidental thereof
including compensation for Tenant's leasehold improvements. If Landlord elects
to substitute Tenant's premises and Tenant determines that the new premises
cannot fill Tenant's needs, then Tenant may elect to cancel this lease with 30
days notice.
SUBORDINATION
15. (a) This lease is subject and subordinate to any mortgage which
now or hereafter encumbers or affects the Building of which the Leased Premises
form a part and/or the land on which the Building is situated, and to all
renewals, modifications, consolidation, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
need be required by any mortgagee or Landlord. In confirmation of such
subordination, however, Tenant shall, at Landlord's request, promptly execute
any appropriate certificate or instrument that Landlord may request. Tenant
hereby constitutes and appoints Landlord as Tenant's attorney in fact to
execute any such certificate or instrument for and on behalf of Tenant, if
Tenant fails to do so within twenty (20) days after written request therefor.
In the event of the enforcement by the holder of any such instrument of the
remedies provided for by law or by such mortgage or land lease, Tenant will,
upon request of any person or party succeeding to the interest of Landlord as a
result of such enforcement, automatically become the Tenant of such successor
in interest without change in the terms or other provisions of this lease. Upon
request by such successor in interest, Tenant shall execute and deliver an
instrument or instruments confirming the attornment herein provided for.
(b) At Landlord's request, Tenant will execute either an estoppel
certificate or a three-party agreement certifying as to such facts and agreeing
to such notice provisions and other matters as may reasonably be required.
SALE OR ASSIGNMENT BY LANDLORD
16. Any sale by Landlord of the Building shall be subject to this Lease
and Landlord may assign this Lease to buyer in the event of such a sale, and
all of the provisions of this Lease as to the rights and obligations of Tenant
shall thereupon apply to such purchaser or assignee, and assignor shall
thereupon be divested of all rights and released from all future obligations
hereunder. Nothing contained in this paragraph shall prevent Landlord from
assigning this lease or the revenue derived therefrom to any lender.
CHANGE OF BUILDING
17. Landlord shall have the right to name and from time to time to change
the name of the Building, with the prior written consent of Tenant, not to be
unreasonably withheld or denied.
BUILDING ACCESS TO PREMISES
18. Landlord and Landlord's agents shall have the right at all times to
enter the Leased Premises, by pass key or otherwise, for janitorial services,
or after reasonable notice to Tenant, to make such repairs, decorations,
additions or alterations as may be necessary or desirable for the safety,
betterment, improvement and/or preservation of the Leased Premises, or the
Building, or any portion of the Building, without in any manner affecting the
obligations of Tenant hereunder.
DEFAULT
19. (a) In case of failure by Tenant to pay any installment of rent
when due and said default continues for a period of fifteen (15) days or
failure to remedy promptly upon a demand a default by Tenant with respect to
any of the other covenants, conditions and agreements contained herein or in
any rider or other addendum hereto, and such failure continues for thirty (30)
days after receipt of written notice from Landlord, or if a petition in
bankruptcy is filed by Tenant or if proceedings under any bankruptcy or
debtor's relief law shall be filed against Tenant, or if Tenant becomes
insolvent, or if proceedings are taken by or against Tenant seeking the
appointment of a receiver or similar relief, or if Tenant, without the
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written consent of Landlord, closes the Leased Premises, or discontinues active
business therein or abandons, vacates, or misuses the Leased Premises, or makes
or attempts to make any sale or removal of the movable property in the Leased
Premises on which Landlord has a lien, Landlord may, in addition to any other
right or rights which Landlord may have under the provisions of this lease or by
law, and at Landlord's option: (1) proceed for past due installments of rent,
reserving its right to proceed later for the remaining installments, or (2)
declare all of the unpaid installments of rent at once due and payable,
whereupon the whole thereof shall become and be immediately due and payable,
anything herein to the contrary notwithstanding, and proceed to enforce its
legal remedies hereunder, or (3) declare this lease to be terminated and
immediately expel Tenant, without, however, waiving Landlord's right to collect
all installments of rent and other payments due or owing for the period up to
the time Landlord regains occupancy. All rights and remedies of Landlord under
this Lease shall be cumulative except that Landlord shall not be entitled to
accelerate Tenant's rent and terminate this Lease or Tenant's occupancy of the
Leased Premises, and none shall exclude any other right or remedy allowed by
this lease or by law.
(b) If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence or
cure within that thirty (30) day period, then Landlord shall be liable to
Tenant for any damages sustained by Tenant as a result of Landlord's breach,
provided, however, it is expressly understood and agreed that if Tenant obtains
a money judgment against Landlord resulting from any defaults or other claims
arising under this Lease, that judgment shall be satisfied only (1) out of the
rents, issues, profits, and other income annually received on account of
Landlord's right, title and interest in the Leased Premises, Building or other
property associated with the Building, and no other real, personal or mixed
property of Landlord (or of any of the partners which comprise Landlord (if
any) wherever situated, shall be subject to levy to satisfy such judgment,
and/or (2) as an offset against any rent due or to become due by Tenant to
Landlord under this Lease. If after notice to Landlord of default, Landlord (or
any first mortgagee or first deed of trust beneficiary of Landlord) fails to
cure the default as provided herein, then Tenant shall have the right (i) to
cure the default at Landlord's expense and to withhold, reduce or offset any
amount against any payments of rent or any other charges due and payable under
this Lease; or (ii) terminate this Lease if after one (1) additional thirty
(30) day written notice from Tenant to Landlord, the default remains uncured.
FAILURE TO INSIST ON STRICT PERFORMANCE
20. The failure of Landlord or Tenant to insist, in any one or more
instances, upon a strict performance of any covenant of this lease shall not be
construed as a waiver or relinquishment thereof, but the same shall continue
and remain in full force and effect. The receipts by Landlord of rent with
knowledge of the breach of any covenant of Tenant hereunder shall not be deemed
a waiver of the rights of Landlord with respect to such breach, and no waiver
by Landlord of any provision hereof shall be deemed to have been made unless
expressed in writing and signed by the Landlord.
RE-ENTRY LESSOR
21. (a) Tenant shall, upon the termination of this Lease, by lapse of
time or otherwise, return the Leased Premises to Landlord in as good condition
as when received, loss by fire or other unavoidable casualty and ordinary wear
excepted. It is understood and agreed that the exception made as to "loss by
fire or other unavoidable casualty" does not include damages, fires or
casualties caused or contributed to by the act or neglect of Tenant, its
servants, agents, employees, invitees or licenses, and not compensated for by
insurance.
(b) All installations, additions, fixtures and improvements in or
upon the Leased Premises, whether placed there by Landlord or Tenant, and
including, without limitation, paneling, decoration, fixed partitions, railing,
carpeting and flooring, shall become the property of Landlord and shall remain
upon the Leased Premises at the termination of the lease without compensation,
allowance or credit to the Tenant.
(c) Should Tenant fail to vacate the Premises at the termination
hereof, Tenant hereby agrees to pay, as liquidated damages for each day during
which Tenant's occupancy continues, an amount equal to one and one-half (1 1/2)
times the daily rental for which Tenant was obligated hereunder during the last
month of the term of this Lease, together with such sums as may be necessary to
restore the premises to the condition in which Tenant is obligated to return
them to Landlord as aforesaid.
(d) Any furniture, equipment, machinery or other movable property
brought onto the Leased Premises during Tenant's occupancy thereof and not
removed at the termination of the lease may be removed by Landlord, at the cost,
expense and risk of Tenant, with no liability upon Landlord for loss or injury
thereto and without prejudice to Landlord's lien and privilege securing all sums
due hereunder.
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(e) Tenant expressly waives any notice to vacate and all legal
delays to which it may be entitled at the end of the lease term or at the
termination of this Lease for any other cause and hereby consents that Landlord
may immediately take possession of the Leased Premises upon the expiration or
termination of this Lease. Should the Landlord allow Tenant to remain in the
Leased Premises beyond the term of this Lease, there shall result a lease from
month to month which may be terminated by either party upon thirty (30) days
written notice to the other, but otherwise upon the terms and conditions of this
Lease, and no such holding over or payment of rent resulting therefrom shall
constitute a reconduction of this Lease.
INSURANCE
22. Tenant will not do or suffer to be done on the Leased Premises any act
which shall result in an increase of the rate or premium for fire and extended
coverage insurance for the Building or any Tenant thereof. If, in spite of this
provision, Tenant's actions or occupancy should cause an increase in the
insurance rate or premium, Tenant shall immediately pay to Landlord, as
additional rent hereunder, the amount of such increase.
EXPENSES AND ATTORNEY'S FEES
23. If any action or proceeding is brought by either party against the
other party pertaining to or arising out of this Lease, the prevailing party
shall be entitled to recover all costs and expenses, including reasonable
attorneys fees, incurred on account of such action or proceeding.
OBLIGATIONS OF TENANT
24. If Landlord shall be put to any charge or expense or make any
expenditures for which Tenant is responsible or which Tenant should make, or if
Tenant should fail to make any payment other than rent which Tenant is
obligated to make under the terms and provisions of the lease and all riders
and other addenda hereto, then the amount thereof may at Landlord's option, and
upon ten (10) days notice to Tenant, be added to and be deemed a part of any
installment of rent then due or thereafter falling due.
COMPLIANCE WITH LAWS
25. Tenant, in its use of the Leased Premises, shall at all times
hereafter, at its sole cost and expense, promptly comply with all present and
future laws, ordinances and regulations and all requirements, of all Federal,
State, Municipal, and local governments, commissions and boards and all lawful
directions of public officials. Landlord warrants, to the best of its knowledge,
that as of the date of this Lease, the Building shall be in compliance with all
such laws, ordinances and regulations.
COMPLIANCE WITH RULES
26. Tenant and Tenant's servants, employees, agents, visitors and
licensees shall observe and comply with the Rules and Regulations which are
annexed hereto and made a part hereof as Exhibit "C" and such other reasonable
rules and regulations as Landlord may from time to time adopt, provided that
such Rules and Regulations are uniformly applied to and enforced against all
tenants of the Building. Should Tenant fail to comply with any of the Rules and
Regulations, Landlord shall give written notice to Tenant of such failure and
Tenant shall have thirty (30) days within which to cure said default. Notice of
any additional rules and regulations shall be given in writing by Landlord to
Tenant, whereupon they will become a part of the lease for all purposes, to the
same extent as if originally set forth herein.
ASSIGNMENT
27. (a) Tenant shall have the right, subject to Landlord's prior
written approval, which shall not be unreasonably withheld or delayed, at any
time after the Commencement Date, to assign this Lease, to sublease the Leased
Premises (or any portion thereof), and to grant concessions therein for general
office use. When requesting Landlord's consent to assign or sublease, Tenant
shall provide Landlord with the name and business experience of the proposed
assignee or sublessee and complete and current financial statements of the
proposed assignee or sublessee. Consent to one subletting or assignment shall
not be deemed to be consent by Landlord to any further subletting or
assignment. In the event Landlord disapproves of Tenant's assignee or
sublessee, Tenant shall have the right to terminate Lease with respect to the
portion of the Leased Premises for which such approval was sought, which
termination shall be effective upon thirty (30) days written notice. If this
lease be assigned, or if the Leased Premises or any part thereof be sublet or
occupied by any person other than Tenant, then Landlord may collect all rent
from the assignee, sublessee or occupant, and apply the amount collected to the
rent for which Tenant is obligated to Landlord under the terms hereof any may
retain for its own account any additional amount remaining, but no such
collection shall be deemed a waiver of this covenant or the acceptance of the
assignee, sublessee, or occupant as Tenant.
(b) The making of any such assignment or subletting or granting of
any such concession shall in all other respects be subject to the terms of this
Lease and shall not relieve Tenant of its obligations hereunder; and Landlord
agrees, in the event of default thereafter, to give Tenant the same notices and
rights to cure given to any assignee, as provided hereinafter.
9
<PAGE> 10
AIR RIGHTS
28. This Lease does not grant any rights to light, view and air over
property.
NOTICE
29. Any notice to be given under this Lease by Landlord to Tenant, or by
Tenant to Landlord, shall be considered as duly given if made in writing,
addressed to the other party by (i) certified mail, return receipt requested;
(ii) hand delivery by a reputable courier service requiring receipt on
delivery, or (iii) delivery by a national or regional overnight courier
service, to the following addresses, or to such address of Landlord as Landlord
may from time to time designate in writing or to such address of Tenant as
Tenant may from time to time designate in writing:
LANDLORD: WITH A COPY TO:
Northpark Properties, L.L.C. Northpark Properties, LLC
c/o Stirling Properties, Inc. c/o Stewart Commercial Real Estate
109 Northpark Blvd., Suite 300 111 Veterans Boulevard, Suite 1800
Covington, Louisiana 70433 Metairie, Louisiana 70005
TENANT: Karts International, Incorporated
Corporate Headquarters
4851 LBJ Freeway, Suite 201
Dallas, Texas 75244
Notice shall be effective upon the earlier of actual receipt or
forty-eight (48) hours after deposit in the U.S. Mail or permitted courier.
Notices of any default by Landlord shall be given by Tenant to any mortgagee of
whom Tenant has been notified in writing, and said mortgagee shall have the
right to cure said default within the same period of time that Landlord is
given under the Lease for such default.
LOUISIANA CONTRACT
30. This Lease is a Louisiana Contract, to be interpreted and enforced
under and in accordance with the laws of the State of Louisiana.
SUCCESSORS AND ASSIGNS; MULTIPLE TENANTS
31. The covenants, agreements, stipulations and conditions contained in
this lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representative, heirs, successors and assigns. In the event
that this lease is executed by more than one tenant, all of such tenants shall
there be bound in solido for the payment of the rent and the performance of all
covenants, agreements, stipulations and conditions hereof.
CONSTRUCTION OF LEASE
32. Notwithstanding the fact that this lease may have been prepared by
Landlord, the language in all parts of this Lease shall in all cases be
construed as a whole according to its fair meaning and not strictly for nor
against either Landlord or Tenant. Paragraph headings in this Lease are for
convenience only and are not to be construed as part of this lease or in any
way defining, limiting or amplifying the provisions thereof. Landlord and
Tenant agree that in the event any term, covenant or condition herein contained
is held to be invalid or void by any court of competent jurisdiction, the
invalidity of any such term, covenant or condition shall in no way affect any
other term, covenant or condition herein contained.
REASONABLE CONSENT
33. Landlord agrees not to unreasonably withhold its approval of or
consent to any act of Tenant, where such approval or consent is required by the
terms of this Lease.
MORTGAGEE PROTECTION CLAUSE
34. Tenant agrees to give any Mortgagee, by registered mail or overnight
courier service, a copy of any notice of default served upon the Landlord,
provided that prior to such notice Tenant has been notified in writing of the
address of such Mortgagee. Tenant further agrees that if Landlord shall have
failed to cure such default within the time provided for in this lease, then
Mortgagee shall have an additional 30 days within which to cure such default, or
if such default cannot be cured within that time, then such additional time as
may be necessary, if within such 30 days Mortgagee has commenced and is
diligently pursuing the remedies necessary to cure such default (including but
not limited to commencement of foreclosure proceeding if necessary to effect
such cure), in which event this lease shall not be terminated while such
remedies are being so diligently pursued.
10
<PAGE> 11
LANDLORD'S LIABILITY LIMITATION
35. It is understood and agreed by Tenant that any obligations undertaken
in this Lease by Landlord shall not exceed the Landlord's net equity value in
the Building and in no event shall result in any liability over and above said
net equity value of the Landlord and the general partners, if any.
BROKERAGE AND COMMISSION
36. In consideration of the services performed by Stirling Properties,
Inc. (hereinafter referred to as "Agent") in negotiating this Lease, Landlord
agrees to pay Agent commissions pursuant to a separate Agreement entered into
by Landlord and Agent.
ADDENDUM
37. The addenda annexed hereto and executed by the parties are made part
of this Agreement for all purposes as though set forth in full herein.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this agreement in
the presence of the undersigned competent witnesses on the date first above
written.
WITNESSES: LANDLORD: Northpark Properties, L.L.C.
By: Northshore Partners One
By: /s/ GERALD E. SONGY
- -------------------------------- -------------------------------------
Gerald E. Songy
Its: Managing Partner
- -------------------------------
Date:
-----------------------------------
WITNESSES: LANDLORD: Northpark Properties, L.L.C.
By: Northpark Acquisition Group, L.L.C.
By:
- -------------------------------- -------------------------------------
Its:
- -------------------------------- -------------------------------------
Date:
-----------------------------------
WITNESSES: TENANT: Karts International, Incorporated
By: /s/ V. LYNN GRAYBILL
- -------------------------------- -------------------------------------
V. Lynn Graybill
Its: President
- -------------------------------
Date: 3/19/96
-----------------------------------
12
<PAGE> 13
ADDENDUM
Attached hereto and made a part of that Lease Agreement dated 18th day of
March, 1996, by and between Northpark Properties, L.L.C., (Landlord), and
Karts International, Incorporated, (Tenant).
38. Landlord shall make all improvements to the Leased Premises at
Landlord's sole cost and expense, in accordance with the plans and
specifications attached hereto and made a part hereof as Exhibit "C".
Landlord's contribution (herein "Tenant Allowance") shall not exceed
$10.00 per rentable square feet of Leased Premises.
39. Tenant shall have the one-time right to terminate this Lease at the
end of month thirty-six (36) by giving Landlord six (6) months prior
written notice of its intent to terminate the Lease. Tenant, upon
exercising such right, shall pay to Landlord the unamortized Tenant
Allowance, unamortized leasing commissions and a Lease buyout penalty
of $6,462.00, which all shall be payable along with the written
notice.
40. Landlord, its successors or assigns agree to pay to Stirling
Properties, Inc., (herein "Lead Broker"), and Century 21/Pat Tucker
Realty (herein "Co-Broker"), their successors, or assigns, a commission
of two (2%) percent each of the net rents due during the primary lease
term. The commission shall be due one-half (1/2) upon execution by
Landlord and Tenant of the Lease and one-half (1/2) on the
Commencement Date.
Landlord
----------
Tenant VLG
----------
<PAGE> 14
RULES AND REGULATIONS
EXHIBIT "B"
1. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors, or halls shall not be obstructed or
encumbered by any Tenant or used for any purpose other than ingress and egress
to and from the Premises.
2. No awnings or other projects shall be attached to the outside
walls of the building without the prior written consent of the Landlord. No
curtains, blinds, shades, or screens shall be attached to, hung in, or used in
connection with any window or door of the Leased Premises without the prior
written consent of the Landlord. Such awnings, projections, curtains, blinds,
shades, screens or other fixtures must be quality, type, design and color, and
attached in the manner approved by the Landlord.
3. No sign advertisement, notice or other lettering shall be
exhibited, inscribed, painted, or affixed by any Tenant on any part of the
outside of the Premises or Building without the prior written consent of the
Landlord. In the event of the violation of the foregoing by any Tenant, the
Landlord after notice as provided in Article 26 of the Lease may remove the
same without any liability, and may charge the expense incurred by such removal
to the Tenant or Tenants violating this rule. Interior signs on doors shall be
inscribed, painted, or affixed for each Tenant by the Landlord at the expense
of such Tenant, and shall be of a size, color and style acceptable to the
Landlord.
4. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light and air into the halls, passageways, or other public
places in the building shall not be covered or obstructed by any Tenant, nor
shall any bottles, parcels, or other articles be placed on the window ledges.
5. No showcase or other articles shall be put in front of or
affixed on any part of the exterior of the building nor placed in the halls,
corridors, or vestibules, without prior written consent of the Landlord.
6. The water, wash closets, and other plumbing fixtures shall not
be used for any purpose other than those for which they were constructed, and
no sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the Tenant
who, or whose servants, employees, or agents, shall have caused the same.
7. No Tenant shall mark, paint, drill into, or in any way deface
any part of the Leased Premises or the building of which they form a part. No
boring, cutting, or stringing of wires shall be permitted except with the prior
written consent of Landlord and as it may direct. No Tenant shall lay linoleum,
or other similar floor covering, so that the same shall come in direct contact
with the floor of the Premises, and if linoleum or other similar floor covering
is desired to be used, an interlining of builder's deadening felt shall be
first affixed to the floor by a paste or other similar material soluble in
water, the use of cement or other similar adhesive material being expressly
prohibited.
8. No bicycles, baby carriages, vehicles, birds, or animals of
any kind shall be brought into or kept in or about the premises, and no cooking
(other than through microwave ovens) shall be done or permitted by any Tenant
on the said Leased Premises. However, this does not prevent Tenant from having
coffee, soft drinks, candy and other items for use of Tenant's employees,
servants, agents or visitors. Tenant shall not cause or permit any unusual or
objectionable odors to be produced upon or permeate from the Leased Premises.
9. No space in the Building shall be used for manufacturing, or
for the sale of property of any kind at auction.
10. No Tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this Building or
those having business with them. No Tenant shall throw anything out of the
doors, windows, or skylights, or down the passageways.
11. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by any Tenant, nor shall any changes be made in
existing locks or the mechanism thereof, without the prior written approval of
Landlord, which approval shall not be unreasonably withheld. Tenant will be
supplied, free of charge, with two keys for each door on the Leased Premises.
Each Tenant must, upon the termination of his tenancy, restore to the Landlord
all keys of stores, offices and toilet rooms, either furnished to or otherwise
procured by such Tenant.
12. All removals or the carrying in or out of any safes, freight,
furniture, or bulky matter of any description must take place during the hours
which the Landlord or its agent may reasonably determine from time to time.
The Landlord reserves the right to prescribe the weight and position of all
safes, which must be placed upon two-inch plank strips to distribute the
weight. The moving of safes or other fixtures or bulky matter of any kind must
be made upon previous notice to the superintendent of the Building and under
his supervision. Tenant agrees not to place a load upon any floor of the
Premises exceeding the floor load per square foot area which such floor was
(and is) designed to carry and which is allowed by law. Business machines and
mechanical equipment shall be placed and maintained by Tenant at Tenant's
expense in settings sufficient, in Landlord's reasonable judgement, to absorb
and prevent vibration, noise and annoyance.
13. No Tenant shall occupy or permit any portion of the Premises
to him to be occupied as an office for a public stenographer or a public
typist, for the manufacture or sale of liquor, narcotics, dope or tobacco in
any form, as a barber or manicure
Landlord
----------
Tenant VLG
----------
<PAGE> 15
shop, or as an employment bureau. No Tenant shall advertise for laborers giving
an address at the said premises, without prior written consent of Landlord,
which consent shall not be unreasonably withheld.
14. No Tenant shall open, or permit windows in the Premises to be
opened at any time.
15. The Leased Premises shall not be used for lodging or sleeping,
or for any immoral or illegal purpose.
16. The requirements of Tenants will be attended to only upon
application at the office of the Landlord in the Building. Employees shall not
perform any work or do anything outside of their regular duties unless under
special instructions from the office of the Landlord.
17. Canvassing, soliciting, and peddling in the building are
prohibited, and each Tenant shall cooperate to prevent the same.
18. The Landlord specifically reserves the right to refuse
admittance to the building after 6:00 P.M. and before 7:00 A.M. daily, or on
Sundays or on legal holidays, to any person or persons who cannot furnish
satisfactory identification that he or she is an employee, servant, agent or
authorized visitor of Tenant, or to any person or persons who, for any reason
in Landlord's reasonable judgement, should be denied access to the Leased
Premises.
ACCEPTED BY: Karts International, Incorporated
By: /s/ V. LYNN GRAYBILL
-----------------------------------------
V. Lynn Graybill
Its: President
Landlord
----------
Tenant VLG
----------
<PAGE> 1
EXHIBIT 10.2
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement"), entered into and effective as of the 15th
day of March, 1996, by and between Charles Brister, an individual, ("LICENSOR")
and Brister's Thunder Karts, Inc., a Louisiana corporation ("LICENSEE"):
WITNESSETH THAT:
Whereas Charles Brister is the Owner of TECHNOLOGY as defined below,
and
Whereas LICENSEE desires to obtain from the LICENSOR a license under
said TECHNOLOGY;
WHEREAS both parties agree that the TECHNOLOGY has been and will be
incorporated into various LICENSED PRODUCTS developed by the LICENSEE;
WHEREAS both parties represent that they are able to comply with and
otherwise satisfy the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the sum of ten dollars ($10 U.S.)
and other good and valuable consideration now paid by each of the parties
hereto to the other, the receipt of all of which hereby irrevocably
acknowledged by each party, it is agreed as follows:
SECTION 1
DEFINITIONS
1.1 PATENT RIGHTS shall mean (a) United States Patent Number 5,477,940,
issued December 26, 1995, for "ACCELERATOR PEDAL OVERRIDE APPARATUS FOR
SELF-PROPELLED MOTORIZED CART WITH ALIGNED BRAKE AND ACCELERATOR PUSHROD TYPE
OPERATOR PEDALS", and (b) applications for patents that have been filed or may
be filed in the future for improvements relating to LICENSED PRODUCTS, the
inventions described and claimed therein, and any
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 1
<PAGE> 2
divisions, continuations, continuations-in-part, patents issuing thereon or
reissues thereof; and any and all foreign patents and patent applications
corresponding thereto; which will be automatically incorporated in and added to
this Agreement and shall periodically be added to Appendix A attached to this
Agreement and made a part thereof.
1.2 LICENSED PRODUCTS shall mean products claimed in PATENT RIGHTS or
products made in accordance with or by means of LICENSED PROCESSES or products
made utilizing PROPRIETARY LICENSED PROCESSES or products made utilizing
PROPRIETARY MATERIALS or incorporating some portion of PROPRIETARY MATERIALS.
1.3 LICENSED PROCESSES shall mean the processes claimed in PATENT RIGHTS
or processes utilizing PROPRIETARY MATERIALS or some option thereof.
1.4 PROPRIETARY MATERIALS shall mean the materials supplied by LICENSOR
together with any of the know-how and all related rights, trade secrets, and
TECHNOLOGY, owned by LICENSOR and relating to a family of go-kart products and
go-kart components as they presently exist and as they may be acquired,
developed or modified in the future.
1.5 TECHNOLOGY shall mean any and all confidential information,
PROPRIETARY MATERIALS, or PATENT RIGHTS supplied by LICENSOR to LICENSEE. The
confidential information shall not include information which: (a) is known to
LICENSEE on a non-confidential basis prior to disclosure by LICENSOR; or (b) is
part of the public domain and know to the general public at the time it was
disclosed to LICENSEE.
1.6 TERRITORY means the entire United States of America, its territories
and possessions, and foreign countries in which Patent Rights exist.
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 2
<PAGE> 3
SECTION 2
GRANT OF LICENSE
2.1 SCOPE OF LICENSE. Subject to the terms and conditions of this
Agreement, LICENSOR hereby grants to LICENSEE a License (the "License"):
2.1.1 to use the information or secrets disclosed in the TECHNOLOGY
to develop Brister's Thunder Karts LICENSED PRODUCTS;
2.1.2 to incorporate the information or secrets disclosed in the
TECHNOLOGY in Brister's Thunder Karts LICENSED PRODUCTS;
2.1.3 to manufacture or have manufactured Brister's Thunder Karts
LICENSED PRODUCTS containing the information or secrets disclosed in the
TECHNOLOGY;
2.1.4 to sell or have sold Brister's Thunder Karts LICENSED PRODUCTS
containing the information or secrets disclosed in the TECHNOLOGY.
2.2 NON-EXCLUSIVE LICENSE. The License is a non-exclusive License in the
TERRITORY for the TECHNOLOGY for Brister's Thunder Karts LICENSED PRODUCTS.
2.3 LICENSE TERM. The term of the License granted in Section 2 of this
Agreement with respect to PATENT RIGHTS shall begin on the Effective Date and
shall terminate on the last Patent expiration date of the PATENT RIGHTS. The
license granted in Section 2 of this Agreement with respect to PROPRIETARY
MATERIALS, not including PATENT RIGHTS, shall survive any termination of this
Agreement.
2.4 ROYALTY. All fees and royalties are on terms at least as favorable as
LICENSOR has received or could have received in arms-length transactions with
third parties.
2.5 IMPLEMENTATION. LICENSOR and LICENSEE agree that LICENSEE (i) will
implement or integrate the information or secrets contained in the TECHNOLOGY
into the Brister's Thunder Karts Products and (ii) shall be the exclusive owner
of such Brister's Thunder Karts Products.
2.6 SUBLICENSING. LICENSEE shall have, with the written consent by the
LICENSOR, (i) the right to sublicense purchases of the Brister's Thunder Karts
Products to use the
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 3
<PAGE> 4
information or secrets contained in the TECHNOLOGY as part of the Brister's
Thunder Karts Products and (ii) the right to sublicense developers of Brister's
Thunder Karts Products to use the information or secrets contained in the
Licensed Technology for the sole purpose of developing Brister's Thunder Karts
Products to be owned by Brister's Thunder Karts. The LICENSEE is not empowered
by this clause to veto subsequent licenses.
2.7 RIGHTS RETAINED. All rights not specifically assigned to LICENSEE are
retained by LICENSOR.
2.8 The terms and rights established under Section 2 of this Agreement in
no way affect the terms and rights established under Section 4 of this
Agreement.
SECTION 3
TITLE
3.1 TITLE TO THE LICENSED TECHNOLOGY. LICENSOR represents and warrants
that it is the sole owner of all right, title and interest in and to the
TECHNOLOGY, except as otherwise provided in Appendix A, attached hereto.
SECTION 4
LICENSE OPTION
4.1 TERMS. For a period of five (5) years beginning on the Effective Date
of this Agreement, LICENSEE shall have a License Option. Under this License
Option, LICENSOR agrees to license to the LICENSEE, at LICENSEE's sole option,
all TECHNOLOGY developed and/or owned by LICENSOR during this five-year period
wherein:
4.1.1 if a patent application or a provisional application is filed
for such TECHNOLOGY during the term of this License Option, then LICENSOR shall
give written notice accordingly to LICENSEE. Upon receipt of the written
notice, LICENSEE shall have the exclusive right and option, exercisable upon
written notice
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 4
<PAGE> 5
to LICENSOR at any time during a period of thirty (30) days from the date of
receipt, to purchase a license to the patent application or provisional
application and any subsequently-issued patent. The license shall be exclusive
and free of charge for a period of one year from the filing date of the patent
application or the provisional application. Thereafter, such license shall be
at such prices and on such other terms as the parties hereto may mutually agree
provided that such terms are at least as favorable as the LICENSOR would
receive in an arms-length transaction with any third party. If LICENSEE fails
to exercise its option, then LICENSOR shall be free to offer such TECHNOLOGY to
third parties; or
4.1.2 if a patent application or a provisional application is not
filed and will not be filed for such TECHNOLOGY by LICENSOR, and the TECHNOLOGY
has achieved a commercially viable status that LICENSOR seeks to take advantage
of, then LICENSOR shall give written notice to LICENSEE setting out this
TECHNOLOGY in detail. Upon receipt of the detailed written notice, LICENSEE
shall have the exclusive right and option, exercisable upon written notice to
LICENSOR at any time during a period of thirty (30) days from the date of
receipt of notice from LICENSOR, to purchase a license of the TECHNOLOGY. Such
a license shall be exclusive and free of charge for a period of one year from
receipt of the detailed written notice from LICENSEE. Thereafter, such license
shall be at such prices and on such other terms as the parties hereto may
mutually agree provided that such terms are at least as favorable as the
LICENSOR would receive in an arms-length transaction with any third party. If
LICENSEE fails to exercise its option, then LICENSOR shall be free to offer
such TECHNOLOGY to third parties.
SECTION 5
LIMITATIONS OF LIABILITY
5.1 DISCLAIMER. Except as specifically set forth herein, LICENSOR makes no
warranties, express or implied, regarding or relating to the TECHNOLOGY or to
any other materials or services furnished or provided to the LICENSEE
hereunder.
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 5
<PAGE> 6
5.2 LIMITATION OF LIABILITY. In no event shall the LICENSOR or any person
or entity involved in creating the TECHNOLOGY be liable under any claim, demand
or action arising out of or relating to performance or lack thereof under this
Agreement for any special, indirect, incidental, exemplary or consequential
damages, whether or not LICENSOR or such person has been advised of the
possibility of such claim, demand or action.
5.3 LICENSOR represents and warrants that it has sufficient right, title
and interest in and to the TECHNOLOGY to enter into this Agreement, and further
warrants that the TECHNOLOGY does not, to the best of LICENSOR'S knowledge,
infringe any patent, copyright or other proprietary right of a third party when
used as contemplated by this Agreement and that LICENSOR has not been notified
of a possibility that the TECHNOLOGY might infringe any patent, copyright or
other proprietary rights of a third party.
SECTION 6
TERMINATION
6.1 TERMINATION BY EITHER PARTY. Either party may terminate this Agreement
upon 30 (thirty) days written notice to the other party if the other party
commits a material breach of any term hereof and fails to cure said breach
within the 30 (thirty) day period. Such notice shall set forth the basis of
termination. A material breach is considered to be, but not limited to, the
following: (1) default of performance; (2) failure to meet payments; (3)
failure to provide reports and access to records; or (4) unauthorized
disclosures.
6.2 AUTOMATIC TERMINATION. If LICENSEE shall be adjudicated insolvent, is
the subject of an involuntary petition in bankruptcy not dismissed within the
60 days of the filing of said involuntary petition, or files a petition in
bankruptcy, or for reorganization, or if LICENSEE shall take advantage of any
insolvency act, or make an assignment for the benefit of creditors, then, and
in any such event, this Agreement shall forthwith terminate and the license
herein granted shall not constitute an asset in
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 6
<PAGE> 7
reorganization, bankruptcy or insolvency which may be assigned or which may
accrue to any court or creditor appointed referee, receiver or committee.
6.3 ACTIONS UPON TERMINATION. Upon termination of this Agreement for any
reason, LICENSEE shall immediately cease use of, and forthwith return to
LICENSOR the TECHNOLOGY and tangible manifestations or copies thereof and all
licenses theretofore granted by LICENSEE under this Agreement will be
transferred and assigned by LICENSEE to LICENSOR or to that person, firm, or
corporation LICENSOR designates for that purpose.
SECTION 7
MISCELLANEOUS
7.1 ASSIGNMENT. Except as provided herein, LICENSEE shall not sell,
transfer, assign or subcontract any right or obligation hereunder without prior
written consent of the LICENSOR, provided however, LICENSEE may upon ten (10)
days written notice to, but without prior consent of the LICENSOR assign this
Agreement pursuant to:
7.1.1 the merger or consolidation of the LICENSEE; or
7.1.2 the sale of substantially of all the assets of the LICENSEE to
a third party, provided the party remains fully liable for its obligation
hereunder and such third party agrees to be liable for the party's obligations
hereunder.
7.2 SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the
successors and permitted assigns of the parties hereto.
7.3 DISPUTE RESOLUTION. The parties will conduct friendly negotiations to
resolve any dispute. Failing resolution, disputes will be finally resolved by
arbitration in Dallas, Texas, pursuant to the Commercial rules of the American
Arbitration Association, by one arbitrator appointed in accordance with such
rules. The parties agree that any arbitral award and any matter requiring
injunctive or other provisional relief may be instituted and enforced in any
court having jurisdiction. In the event of any dispute
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 7
<PAGE> 8
between the parties relating to this Agreement, the party substantially
prevailing will be entitled to recover all costs and expenses of any subsequent
proceedings (including trial, arbitration and appellate proceedings), including
the attorney fees incurred therein.
7.4 CHOICE OF LAW. The interpretation and construction of this Agreement
shall be governed by the laws of the State of Texas.
7.5 SEVERABILITY. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, the remaining provisions of this
Agreement will remain in full force and effect.
7.6 NOTICE. Any notice required or permitted to be made or given by either
party under this Agreement shall be deemed to have been duly given if
delivered, postage prepaid, certified mail, return receipt requested:
If LICENSOR to: Charles Brister
505 Ellis Road
Amite, Louisiana 70422
If LICENSEE to: Brister's Thunder Karts, Inc.
Highway 51 South
Roseland, Louisiana 70456
and/or to any such person(s) address(es) as either part shall have specified in
writing to the other.
7.7 MARKING OF PRODUCTS. LICENSEE shall accordingly affix or cause to be
affixed proper statutory patent, trademark and/or copyright notices to each
apparatus made by LICENSEE under this Agreement.
7.8 ENTIRE AGREEMENT. The provisions herein together with the Appendix
attached hereto, constitute the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
or written, and all other communications relating to the subject matter hereof.
No amendment or modification
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 8
<PAGE> 9
of any provision of this Agreement will be effective unless set forth in a
document that purports to amend this Agreement and that is executed by both
parties hereto.
7.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be an original and will be effective as of the
date set forth on the first page when signed on behalf of LICENSOR and
LICENSEE.
IN WITNESS WHEREOF, the parties have caused this Agreement to be effective as
of the date first set forth above:
Charles Brister Brister's Thunder Karts, Inc.
By: /s/ CHARLES BRISTER By: /s/ V. LYNN GRAYBILL
------------------------------ ----------------------------
Title: PRESIDENT
----------------------------
BRISTER-BRISTER'S THUNDER KARTS
LICENSE AGREEMENT - Page 9
<PAGE> 10
APPENDIX A
1. United States Patent Number 5,477,940, issued December 26, 1995, for
"ACCELERATOR PEDAL OVERRIDE APPARATUS FOR SELF-PROPELLED MOTORIZED CART WITH
ALIGNED BRAKE AND ACCELERATOR PUSHROD TYPE OPERATOR PEDALS."
BRISTER-BRISTER'S THUNDER KARTS, INC
APPENDIX A
<PAGE> 1
EXHIBIT 10.3
ADDENDUM "A" TO LICENSE AGREEMENT
(License Fee)
This Addendum "A" to License Agreement (the "Addendum A") is entered
into on this 15th day of March, 1997, by and among Charles Brister, an
individual ("Licensor"), Brister's Thunder Karts, Inc., a Louisiana corporation
("Brister's") and Karts International Incorporated, a Nevada corporation
("Licensee").
W I T N E S S E T H
WHEREAS, Brister's is a wholly owned subsidiary of Licensee;
WHEREAS, Licensor and Brister's entered into that certain License
Agreement effective March 15, 1996 (the "License Agreement");
WHEREAS, the License Agreement granted to Brister's a license to
utilize United States Patent Number 5,477,940, issued December 26, 1995, for
"Acceleration Pedal Override Apparatus for Self-Propelled Motorized Cart with
Aligned Brake and Accelerator Pushrod Type Operator Pedals" (the "Pedal
Override Apparatus");
WHEREAS, Brister's desires to assign its rights under the License
Agreement to Licensee and Licensee agrees to accept such assignment;
WHEREAS, Licensor and Licensee desire to modify the License Agreement
to set forth the fee which Licensee will pay to Licensor specifically for the
extension of the license relating to the Pedal Override Apparatus; and
WHEREAS, unless otherwise defined, all defined terms contained herein
shall have the same meanings assigned to them in the License Agreement.
NOW THEREFORE, in consideration of the sum of ten dollars ($10.00) and
other good and valuable consideration, the receipt of which is hereby
irrevocably acknowledged, the parties hereto hereby agree as follows:
1. Assignment. Brister's assigns to Licensee all of its right,
title and interest under the License Agreement and Licensee accepts all of
Brister's right, title and interest under the License Agreement. Licensor
hereby consents to such assignment.
2. License. Without in any other way modifying the other terms
and conditions of the License Agreement, except as set forth herein, Licensee,
and any of its affiliates or subsidiaries are granted, during the term of this
Addendum A, an exclusive license to the Pedal Override Apparatus.
3. Term. The term of this Addendum A shall be for a period of
three years commencing on the Effective Date.
ADDENDUM "A" TO LICENSE AGREEMENT - Page 1
<PAGE> 2
4. License Fee. Solely with regard to the licensing of the Pedal
Override Apparatus as set forth in Section 1 hereof, Licensee, simultaneously
with the execution of this Addendum A, hereby agrees to pay to Licensor for
exclusive use of the Pedal Override Apparatus, during the term of this Addendum
A, an initial license fee of $10,000.
5. Royalty. No royalty payment is due Licensor for use of the
Pedal Override Apparatus pursuant to this Agreement.
6. Miscellaneous. The parties hereto acknowledge and incorporate
herein by reference those provisions in Section 7 of the License Agreement.
IN WITNESS WHEREOF, the parties have caused this Addendum to be
effective as of March 15, 1997 (the "Effective Date").
CHARLES BRISTER BRISTER'S THUNDER KARTS, INC.
Charles Brister By: /s/ V. LYNN GRAYBILL
- ------------------------- ----------------------------
V. Lynn Graybill, President
KARTS INTERNATIONAL
INCORPORATED
By: /s/ V. LYNN GRAYBILL
----------------------------
V. Lynn Graybill, President
ADDENDUM "A" TO LICENSE AGREEMENT - Page 2
<PAGE> 1
EXHIBIT 10.4
ROYALTY AGREEMENT
This Royalty Agreement (the "Agreement") is entered into on this 15th
day of March, 1997, by and among Charles Brister, an individual ("Licensor")
and Karts International Incorporated, a Nevada corporation ("Licensee").
W I T N E S S E T H
WHEREAS, Brister's Thunder Karts, Inc., a Louisiana corporation
("Brister's") is a wholly owned subsidiary of Licensee;
WHEREAS, Licensor and Brister's entered into that certain License
Agreement effective March 15, 1996 (the "License Agreement"), which was amended
and assigned to Licensee on March 15, 1997, by that certain Addendum "A" to
License Agreement ("Addendum A") (the License Agreement and Addendum A will
hereinafter collectively be referred to as the "License Agreement");
WHEREAS, the License Agreement granted to Licensee a license to
utilize United States Patent Number 5,477,940, issued December 26, 1995, for
"Acceleration Pedal Override Apparatus for Self-Propelled Motorized Cart with
Aligned Brake and Accelerator Pushrod Type Operator Pedals" (the "Pedal
Override Apparatus");
WHEREAS, Licensor and Licensee desire to set forth the royalties which
Licensee will pay to Licensor specifically for the license relating to the
Pedal Override Apparatus; and
WHEREAS, the License Agreement is incorporated herein by this
reference and, unless otherwise defined, all defined terms contained herein
shall have the same meanings assigned to them in the License Agreement.
NOW THEREFORE, in consideration of the sum of ten dollars ($10.00) and
other good and valuable consideration, the receipt of which is hereby
irrevocably acknowledged, the parties hereto hereby agree as follows:
1. License. Licensee and any of its affiliates or subsidiaries
are granted, during the term of this Agreement, an exclusive license to the
Pedal Override Apparatus.
2. Term. The term of this Agreement shall be for a period of
three years commencing on the Effective Date.
3. Royalty. With regard to the licensing of the Pedal Override
Apparatus as set forth in Section 1 hereof, Licensee hereby agrees to pay to
Licensor royalties as follows: (i) a royalty of $1.00 for each of the Licensed
Products sold by Licensee or any of its affiliates or subsidiaries containing
or utilizing the Pedal Override Apparatus during the period beginning March 15,
1997 and ending December 31, 1997, (ii) a royalty equal to $1.00 for each of
the Licensed Products sold by Licensee or any of its affiliates or subsidiaries
containing or utilizing
ROYALTY AGREEMENT - Page 1
<PAGE> 2
the Pedal Override Apparatus during the period beginning January 1, 1998 and
ending December 31, 1998, however, in the event that the number of Licensed
Products sold by Licensee and any of its affiliates or subsidiaries does not
exceed 20,000 for such period, Licensee agrees to pay Licensor a royalty
payment of $20,000 for said period, (iii) a royalty equal to $1.00 for each of
the Licensed Products sold by Licensee or any of its affiliates or subsidiaries
containing or utilizing the Pedal Override Apparatus during the period
beginning January 1, 1999 and ending December 31, 1999, however, in the event
the number of Licensed Products sold by Licensee and any of its affiliates or
subsidiaries does not exceed 20,000 for such period, Licensee agrees to pay
Licensor a royalty payment of $20,000 for said period, and (iv) a royalty of
$1.00 for each of the Licensed Products sold by Licensee or any of its
affiliates or subsidiaries containing or utilizing the Pedal Override Apparatus
during the period beginning January 1, 2000 and ending March 14, 2000.
Licensee shall remit payment of accrued royalties on June 30 and December 31 of
each year during the term of this Agreement with any remaining accrued
royalties due on termination of this Agreement.
4. Miscellaneous. The parties hereto acknowledge and incorporate
herein by reference those provisions in Section 7 of the License Agreement.
IN WITNESS WHEREOF, the parties have caused this Addendum to be
effective as of March 15, 1997 (the "Effective Date").
CHARLES BRISTER KARTS INTERNATIONAL
INCORPORATED
/s/ CHARLES BRISTER By: /s/ V. LYNN GRABILL
- ---------------------------- -----------------------------
V. Lynn Graybill, President
ROYALTY AGREEMENT - Page 2
<PAGE> 1
EXHIBIT 10.5
EXCEPT AS OTHERWISE PROVIDED HEREIN, THE RIGHTS OF PAYEE (AS HEREINAFTER
DEFINED) TO RECEIVE PAYMENT OF ANY PRINCIPAL OR INTEREST ON THIS SUBORDINATED
PROMISSORY NOTE IS SUBJECT AND SUBORDINATE TO THE PRIOR PAYMENT OF THE
PRINCIPAL OF, (AND PREMIUM, IF ANY) AND THE INTEREST ON, ALL OTHER INDEBTEDNESS
OF MAKER (AS HEREINAFTER DEFINED), NOW OUTSTANDING, WHETHER SECURED OR
UNSECURED, AND ANY DEFERRALS, RENEWALS, EXTENSIONS OF SUCH INDEBTEDNESS OR ANY
DEBENTURES, BONDS, OR NOTES EVIDENCING SUCH INDEBTEDNESS (THE "SENIOR
INDEBTEDNESS"). UPON ANY RECEIVERSHIP, INSOLVENCY, ASSIGNMENT FOR THE BENEFIT
OF CREDITORS, BANKRUPTCY, REORGANIZATION, SALE OF SUBSTANTIALLY ALL OF THE
ASSETS, DISSOLUTION, LIQUIDATION, OR ANY OTHER MARSHALLING OF THE ASSETS AND
LIABILITIES OF MAKER OR IF THIS SUBORDINATED PROMISSORY NOTE IS DECLARED DUE
AND PAYABLE IN ACCORDANCE WITH ITS TERMS, THEN NO AMOUNT SHALL BE PAID BY MAKER
WITH RESPECT TO THE PRINCIPAL AND INTEREST HEREON UNLESS AND UNTIL THE
PRINCIPAL OF, AND INTEREST ON, ALL SENIOR INDEBTEDNESS THEN OUTSTANDING IS PAID
IN FULL.
SUBORDINATED PROMISSORY NOTE
$1,000,000 Dallas, Texas March 15, 1996
FOR VALUE RECEIVED, the undersigned, Brister's Thunder Karts. Inc., a
Louisiana corporation ("Maker"), promises to pay to the order of Charles
Brister, an individual residing in the state of Louisiana (together with all
subsequent holders of this Note, collectively referred to as "Payee"), the
principal sum of One Million Dollars ($1,000,000), payable as provided herein,
plus accrued interest on the outstanding principal balance as herein specified.
The principal and accrued interest thereon shall be due and payable by
Maker to the Payee in accordance with the schedule set forth on Exhibit A
hereto. All past due interest shall bear interest at the highest rate permitted
by applicable law. Principal and accrued interest under this Note, or any
portion thereof, may be prepaid without penalty. All payments and prepayments
shall be applied first to accrued and unpaid interest, and the balance of any
such payments or prepayments shall be applied to outstanding principal in the
order of maturity.
Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the maximum rate permitted by applicable law. If any
interest in excess of such maximum rate is herein provided for, or shall be
adjudicated to be so provided, in this Note or otherwise in connection with this
transaction giving rise to the execution hereof, the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to
<PAGE> 2
pay the excess amount of such interest or any other excess sum paid for the use,
forbearance or detention of sums loaned pursuant hereto. If for any reason
interest in excess of the maximum rate of interest permitted by applicable law
shall be deemed, charged, required or permitted by a court of competent
jurisdiction, any such excess shall be applied as a payment and reduction of the
principal of indebtedness evidenced by this Note; and, if the principal amount
hereof has been paid in full, any remaining excess shall forthwith be paid to
Maker.
This Note is secured by a Security Agreement dated the date hereof
executed by the Pledgors named therein ("Pledgors") in favor of Payee covering
the collateral more fully described on Exhibit B hereto.
Maker, and any endorser or guarantors of this Note and all other
persons who may become liable for all or any part of the obligations
represented by this Note, severally waive presentment for payment, protest,
notice of protest and of nonpayment, notice of intention to accelerate, and
notice of acceleration.
In the event of default by Maker in the payment of any part of the
principal or interest on this Note when due and the continuance thereof for
fifteen (15) days following Maker's and Pledgors' receipt of written notice of
such default, the entire unpaid balance of principal and accrued interest on
this Note shall, at the option of Payee, become immediately due and payable.
Failure by the holder to exercise any option upon one (1) default will not
constitute a waiver thereof or the waiver of the right to exercise such option
in the event of a subsequent default. If after default this Note is placed in
the hands of an attorney for collection or is collected through judicial
proceedings, Maker shall pay, in addition to the sums referred to above, a
reasonable sum as collection or attorneys' fees and all other costs incurred by
the holder in collection of the unpaid amounts due hereunder.
In addition, in the event that the parent company of Maker, Karts
International Incorporated, successfully completes an underwritten public
offering of its common stock, the entire unpaid balance of principal and
accrued interest on this Note shall, at the option of Payee, become immediately
due and payable.
This Note is made and is performable in Dallas, Dallas County, Texas.
This Note shall be governed by and construed in accordance with the laws of the
State of Texas and the applicable laws of the United States of America.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
15th day of March, 1996.
BRISTER'S THUNDER KARTS, INC.
By: /s/ V. LYNN GRAYBILL
--------------------------------
V. Lynn Graybill, President
2
<PAGE> 3
EXHIBIT A
PAYMENT SCHEDULE
The following annualized amounts shall be paid in equal quarterly
payments during the years set forth below beginning on June 15, 1996:
<TABLE>
<CAPTION>
Principal Total Amount
Year Interest Rate (%) Interest Payable Payable Payable
---- ----------------- ---------------- --------- ------------
<S> <C> <C> <C> <C>
1996-1997 8 $ 80,00 $ 0 $ 80,000
1997-1998 9 90,000 0 90,000
1998-1999 10 100,000 0 100,000
1999-2000 11 110,000 250,000 360,000
2000-2001 12 90,000 250,000 340,000
2001-2002 13 65,000 250,000 315,000
2002-2003 14 35,000 250,000 285,000
</TABLE>
<PAGE> 4
EXHIBIT B
COLLATERAL
<TABLE>
<CAPTION>
Number of Shares Market Price Aggregate
Company of Common Stock Per Share Market Value
------- ---------------- ------------ -------------
<S> <C> <C> <C>
Hunter Resources, Inc. 1,000,000 $ .50 $ 500,000.00
NewCare Health Corporation 196,464 2.545 500,000.88
TOTAL $1,000,000.88
</TABLE>
<PAGE> 1
EXHIBIT 10.6
PROMISSORY NOTE
$200,000.00 Dallas, Texas April 1, 1996
FOR VALUE RECEIVED, the undersigned, Karts International Incorporated,
a Nevada corporation, with its principal office at 109 North Park Blvd., Suite
210, Covington, Louisiana 70433 (the "Maker") hereby unconditionally promises
to pay to the order of Charles Brister, an individual residing in Amite,
Tangipahoa Parish, Louisiana (the "Lender"), at 505 Ellis Road, Amite,
Louisiana 70422, or at such place as the Lender may from time to time designate
in writing, the principal sum of TWO HUNDRED THOUSAND AND NO/100 DOLLARS
($200,000.00), in lawful money of the United States of America, together with
interest as set forth below.
ARTICLE I.
INTEREST RATE
The unpaid principal balance hereof that is not past due shall bear
interest (calculated on the basis of the actual days elapsed in a year
consisting of 360 days) from the date hereof until maturity at a rate of ten
percent (10%) per annum. Notwithstanding anything to the contrary herein
contained, Maker shall never be required to pay interest in excess of the
Maximum Rate permitted by law. Maker and Lender agree that the "Maximum Rate"
to be charged shall be the maximum rate of interest permitted to be charged
under the laws of the State of Louisiana.
Regardless of any provision contained in this Note, no holder of this
Note shall ever be entitled to receive, collect or apply, as interest on any
amount owing hereunder, any amount in excess of the Maximum Rate of interest
permitted to be charged by applicable law, and in the event any holder of this
Note ever receives, collects or applies, as interest, any such excess, such
amount which would be excessive interest shall be deemed a partial prepayment
of principal and treated hereunder as such; and if the principal amount of this
Note is paid in full, any remaining excess shall forthwith be paid to the
Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, the undersigned and any holder
of this Note shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effect thereof,
and (iii) amortize, prorate, allocate and spread, in equal parts, the total
amount of interest throughout the entire contemplated term of this Note so that
the interest rate is uniform throughout the term of this Note; provided that if
this Note is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence hereof exceeds the Maximum Rate, the holder of this Note shall
refund to the undersigned the amount of such excess or credit the amount of
such excess against the principal amount of this Note, and in such event, no
holder of this Note shall be subject to any penalties provided by any laws for
contracting for, charging or receiving interest in excess of the Maximum Rate.
If, at any time and from time to time, Lender is prevented from
collecting the rate of interest and the fees specified in this Note, by
applicable law or governmental regulation, it shall be entitled to recoup the
amount it would have otherwise been able to collect when such recoupment will
not violate such applicable law or governmental regulation. Such recoupment
shall be accomplished by Maker paying interest at the Maximum Rate until such
time as Lender shall have fully recouped the interest it would have otherwise
been able to collect from the Maker in the absence of such applicable law or
government regulation. During any such period of recoupment, interest collected
by Lender shall first be credited to payment of current interest due at the
rate specified in this Note, then any
<PAGE> 2
remaining interest collected shall be applied to recoupment. When Lender shall
have recouped all such interest, the interest rate charged hereunder shall
revert to the rate specified in this Note. In no event, however, shall the
interest rate charged hereunder ever exceed the Maximum Rate of interest
permitted by law.
ARTICLE II.
PAYMENT OF INTEREST AND PRINCIPAL
Principal and interest shall be due and payable in accordance with the
payment schedule set forth in Schedule "A" attached hereto, which Schedule is
incorporated herein by this reference.
All past due principal, and if permitted, accrued interest on this Note
shall bear interest at the Maximum Rate until paid. All such payments shall be
made at Lender's address set forth above.
If any payment of principal or interest on this Note shall become due
on a Saturday, Sunday or public holiday under the laws of the State of
Louisiana, or on any other day on which banking institutions are authorized or
obligated by law to close in the City of Amite, State of Louisiana, such
payment shall be made on the next succeeding business day, and such extension
of time shall in such case be included in computing interest in connection with
such payment.
Maker shall have the right to prepay, at any time and from time to time
without premium or penalty, the entire unpaid principal balance of this Note or
any portion thereof.
ARTICLE III.
EVENTS OF DEFAULT
Maker shall be in default under this Note upon the happening of any of
the following events or conditions (the "Events of Default"):
A. Any sum payable on account of the principal or interest of this
Note is not paid in full within ninety (90) days after said sum is due under
this Note;
B. The Maker shall make a general assignment for the benefit of
creditors, or file a petition in voluntary bankruptcy or a petition or answer
seeking reorganization of the Maker or a readjustment of its indebtedness under
the federal bankruptcy laws, or consent to the appointment of a receiver or
trustee of its properties; or
C. The Maker shall be adjudged bankrupt or insolvent, or a
petition or proceedings for bankruptcy or for reorganization shall be filed
against it and it shall admit the material allegations thereof, or an order,
judgment or decree shall be made approving such a petition and such order,
judgment or decree shall not be vacated or stayed within thirty (30) days of
its entry, or a receiver or trustee shall be appointed for the Maker or its
properties or any part thereof and remain in possession thereof for thirty
(30) days.
ARTICLE IV.
DEFAULT
Upon the occurrence of any of the Events of Default, the holder hereof
may, at its option, declare the entire unpaid principal of and accrued interest
owing upon this Note accelerated and thereupon immediately due and payable
without declaration, notice, presentment, protest or demand
<PAGE> 3
of any kind, notice of intent to accelerate or notice of acceleration, all of
which are hereby expressly waived, and upon such declaration, the same shall
become and shall be accelerated and immediately due and payable and the Lender
or the holder hereof shall have the right to foreclose or otherwise enforce
all liens or security interests securing payment hereof, or any part hereof, and
offset against this Note any sum or sums owed by the Lender or holder hereof to
the Maker. Provided, however, that upon the occurrence of any of the Events of
Default under Article III., Sections B. or C. thereof, the entire unpaid
principal of and accrued interest owing upon this Note shall become
automatically accelerated and thereupon immediately due and payable without
declaration, notice, presentment, protest or demand, notice of intent to
accelerate, or notice of acceleration, all of which are hereby expressly waived.
ARTICLE V.
WAIVER OF PROTEST AND EXTENSION OF TIME
The Maker of this Note does hereby waive demand, grace, presentment for
payment and protest, notice of intent to accelerate, and notice of
acceleration; and, further, does hereby agree and consent that this Note may be
renewed and the time of payment extended without notice, and without releasing
the Maker.
ARTICLE VI.
WAIVER
If, after any of said Events of Default shall occur, the Lender shall
waive its powers or rights arising thereunder, such waiver shall not be deemed
to waive Lender's powers or rights upon the later occurrence or recurrence of
any of the Events of Default. No delay or omission on the part of the Lender in
exercising any right hereunder shall operate as a waiver of such right, or of
any other right under this Note.
ARTICLE VII.
NOTICES
Any notice or communication required or permitted hereunder to be
given to the Maker pursuant to the terms hereof shall be given in writing, sent
by (i) personal delivery, or (ii) expedited delivery service with proof of
delivery, or (iii) United States mail, postage prepaid, registered or certified
mail or, (iv) prepaid telegram or telex (provided that such telegram or telex
is confirmed by expedited delivery service or by mail in the manner previously
described), addressed to the Maker at its above stated address or to such other
address as the Maker may from time to time file with the Lender. Any such
notice or communication shall be deemed to have been given either at the time
of personal delivery or in the case of mail, as of two (2) days after postmark
when sent by United States mail at the address and in the manner provided
herein, or in the case of telegram or telex, upon receipt.
ARTICLE VIII.
MISCELLANEOUS
A. Maker and each co-maker, surety, endorser, guarantor and other
party ever liable for payment for any sums of money payable on this Note,
jointly and severally waive presentment and demand for payment, protest, notice
of protest and nonpayment, notice of dishonor, notice of acceleration or notice
of intention to accelerate, bringing of suit and diligence in taking any action
to collect any amount called for hereunder and in handling of securities at any
time in connection
<PAGE> 4
herewith, and agree that their liability under this Note shall not be affected
by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for payment of this
Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes regardless of the number of such renewals, extensions,
indulgences, releases or changes.
B. As evidenced by his signature below, Lender acknowledges that
this Note reflects the method of payment pursuant to which Maker shall satisfy
its obligation to Lender under paragraph 4. of the "Post-Closing Matters"
section of the Memorandum of Closing II -- Stock Purchase Agreement executed on
March 15, 1996.
C. In the event that Maker successfully completes an underwritten
public offering of its common stock, the entire unpaid balance of principal and
accrued interest on this Note shall, at the option of Lender, become
immediately due and payable.
D. This Note is performable in Amite, Tangipahoa Parish,
Louisiana, and Maker and each surety, guarantor, endorser, and any other party
ever liable for payment of any sums of money payable on this Note, jointly and
severally waive the right to be sued hereon elsewhere. This Note shall be
governed by and construed in accordance with the laws of the State of Louisiana
and the applicable laws of the United States of America.
MAKER:
KARTS INTERNATIONAL INCORPORATED, a
Nevada corporation
By: /s/ V. LYNN GRAYBILL
---------------------------------
V. Lynn Graybill, President
The provisions of Article VIII(B) are
acknowledged and accepted by Lender
on this 9th day of June, 1996.
LENDER:
/s/ CHARLES BRISTER
- -----------------------------
Charles Brister
<PAGE> 5
SCHEDULE "A"
PROMISSORY NOTE
Schedule of Payments of Principal and Interest
- --------------------------------------------------------------------------------
Amount of Amount of Unpaid
Payment Principal Principal
Date Due Paid Balance
- --------------------------------------------------------------------------------
April 1, 1997 $ 20,000(1) $ - 0 - $ 200,000
July 1, 1997 $ 55,000 $ 50,000 $ 150,000
October 1, 1997 $ 53,750 $ 50,000 $ 100,000
January 1, 1998 $ 52,500 $ 50,000 $ 50,000
April 1, 1998 $ 51,250 $ 50,000 $ - 0 -
<PAGE> 1
EXHIBIT 10.7
COMMERCIAL SECURITY AGREEMENT
This Commercial Security Agreement (the "Agreement") is entered as of
the date hereinafter set forth by and between:
CHARLES BRISTER (the "Secured Party"), an individual residing in
Tangipahoa Parish, Louisiana, whose Social Security number is
, and
ROBERT W. BELL, an individual residing in Pinellas County, Florida,
whose Social Security number is , ("Bell"), and GARY C.
EVANS, an individual residing in Dallas County, Texas, whose Social
Security number is , ("Evans"), (Bell and Evans are
individually referred to as "Pledgor" and jointly referred to herein
as the "Pledgors"), and
BRISTER'S THUNDER KARTS, INC. (the "Borrower"), Tax Identification
Number 75-2639196, a Louisiana corporation having its principal place
of business at Highway 51 South, Roseland, Louisiana, 70456
represented herein by V. Lynn Graybill, its President, duly
authorized by resolution attached hereto,
under the following terms and conditions:
SECTION 1. GRANT OF SECURITY INTEREST. For value received and in order to
secure the prompt and punctual payment and satisfaction of the Obligations as
defined hereinafter, the Pledgors do by these presents hereby grant a
continuing security interest in favor of the Secured Party as affecting the
Collateral described in the Description of Collateral (Section 3) section of
this Agreement and agrees with the Secured Party as hereinafter provided. The
security interest granted in the Collateral described in the Description of
Collateral section of this Agreement in favor of the Secured Party will
continue until such time as all of the Obligations as defined hereinafter are
fully paid and satisfied and this Agreement is cancelled or terminated by the
Secured Party under a written cancellation instrument and the Collateral in the
possession of the Secured Party or a financial intermediary (as defined in
R.S.10:8-313(4)) has been placed in the possession of Pledgors or their
designated agents.
SECTION 2. OBLIGATIONS SECURED. The security interest granted hereby is granted
to secure the prompt and punctual payment and satisfaction of the following
(which is herein separately and collectively referred to as the "Obligations"):
A. That loan indebtedness of Borrower to the Secured Party
represented by that certain subordinated promissory note made by
Borrower dated March 15, 1996 payable to the order of the Secured
Party and all subsequent holders of the note, in the
<PAGE> 2
principal amount of ONE MILLION AND NO 100 ($1,000,000.00) DOLLARS,
with interest and attorney's fees and payable as provided therein.
B. Any advances or expenditures made by the Secured Party or
expenses incurred by the Secured Party in protection or in furtherance
of its rights under this Agreement.
SECTION 3. DESCRIPTION OF COLLATERAL. Pledgors hereby grant to Secured Party a
security interest in and agree that Secured Party shall continue to have a
security interest in the following property (the "Collateral") to-wit:
The securities described below, together with all instruments and
general intangibles related thereto and all monies, income, proceeds and
benefits attributable or accruing to said property, including, but not limited
to, all stock rights, options, rights to subscribe, any dividends (except cash
dividends), new security or other properties or benefits to which Pledgors are
or may hereafter become entitled to receive on account of said property:
<TABLE>
<CAPTION>
Company No. of Common Shares Pledgor
- ------- -------------------- -------
<S> <C> <C>
Hunter Resources, Inc. 1,000,000 Evans
NewCare Health Corporation 196,464 Bell
</TABLE>
together with any accessions, additions and attachments to the foregoing and
the proceeds and products thereof (except immovable property), including
without limitation, all cash, general intangibles, accounts, inventory,
equipment, fixtures, farm products, notes, drafts, acceptances, securities,
instruments, chattel paper, insurance proceeds payable because of loss or
damage, or other property, benefits or rights arising therefrom, and in and to
all returned or repossessed goods arising from or relating to any of the
property described herein or other proceeds of any sale or other disposition of
such property.
On each anniversary date of the Agreement, the market value of the
Collateral shall be determined based upon the closing price of such Collateral
on its applicable trading market on the day immediately preceding such
anniversary date. On such date or as soon as practicable thereafter (i) if the
market value of the Collateral pledged by each Pledgor exceeds 50% of the
principal amount of the Obligations due and owing on such date, such Pledgor
will be entitled to have released to him a number of shares having a market
value equal to such excess, or (ii) if the market value of the Collateral
pledged by each Pledgor is less than 50% of the principal amount of the
Obligations due and owing on such date, such Pledgor shall pledge additional
securities having a market value equal to such deficiency. Any such additional
securities shall be included in the definition of Obligations hereunder and
shall be subject to the terms and conditions of the Agreement.
2
<PAGE> 3
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGORS. Pledgors
represent and warrant as follows:
A. OWNERSHIP; NO ENCUMBRANCES. Except for the security interest
granted hereby, Evans is the owner of the Hunter Resources, Inc.
shares and Bell is the owner of the NewCare Health Corporation shares,
and Pledgors are and during the term of this Agreement will be, the
owners of their respective stock constituting the Collateral free and
clear from all charges, liens, security interests, adverse claims and
encumbrances of any and every nature whatsoever.
B. NO FINANCING STATEMENTS. There is no financing statement,
notice of security interest, pledge agreement, assignment, notice of
assignment or similar document now on file or of record in any public
office covering any part of the Collateral, and Pledgors will not
execute and there will not be on file or of record in any public
office any financing statement(s), notice of security interest, pledge
agreement, assignment, notice of assignment or similar document except
the financing statement(s) filed or to be filed in favor of Secured
Party.
C. PERFECTION OF SECURITY INTEREST. The Pledgors shall transfer a
security interest in the Collateral, and maintain such security
interest in the Collateral during the term of this Agreement at the
option of the Pledgors by (i) placing the Collateral in the possession
of the Secured Party, or (ii) by placing a financial intermediary in
possession of certificated securities representing the Collateral
appropriately endorsed in blank and the financial intermediary shall
send confirmation to the Secured Party and also by book entry or
otherwise identify the security interest in compliance with La.
R.S.10:8-313.
D. ACCURACY OF INFORMATION. All information furnished to Secured
Party concerning Pledgors, the Collateral and the Obligations, or
otherwise for the purpose of obtaining or maintaining credit, is or
will be at the time the same is furnished, accurate and complete in
all material respects.
E. AUTHORITY. Each of the Pledgors have the full right and
authority to execute and perform this Agreement and to create the
security interest created by this Agreement. The making and
performance by Pledgors of this Agreement will not violate any
articles of incorporation, bylaws or similar document respecting
Pledgors, any provision of law or any previous agreement of Pledgors.
F. IDENTIFICATION. The Pledgors' correct Social Security Numbers
are shown on the first page of this Agreement, and each Pledgor shall
give notice to the Secured Party
3
<PAGE> 4
immediately of any change in that number. Each Pledgor warrants to
give notice to the Secured Party immediately should there be any
change in Pledgor's name or legal status.
G. CONTINUING OBLIGATIONS. The above representations and
warranties and all other representations and warranties contained in
this Agreement are and will be continuing in nature and will remain in
full force and effect until such time as this Agreement is cancelled
in the manner provided above.
H. ADDITIONAL WARRANTIES. As to each and all securities and
similar property included within the Collateral (including securities
hereafter acquired that are part of the Collateral), Pledgors further
represent and warrant (as of the time of delivery of same to Secured
Party) as follows: (a) such securities are genuine, validly issued and
outstanding, fully paid and nonassessable, and are not issued in
violation of the preemptive rights of any person or of any agreement
by which the issuer or obligor thereof or Pledgors are bound, (b) such
securities are not subject to any interest, option or right of any
third person, (c) such securities are in compliance with applicable
law concerning form, content and manner of preparation and execution
and (d) Pledgors acquired and hold the securities in compliance with
all applicable laws and regulations.
I. DIVIDENDS AND PROCEEDS. Any and all payments, dividends, other
distributions (including stock redemption proceeds), or other
securities in respect of or in exchange for the Collateral, whether by
way of any dividends (except cash dividends), stock dividends,
recapitalizations, mergers, consolidations, stock splits, combinations
or exchanges of shares or otherwise, received by Pledgors shall be
held by Pledgors or the financial intermediary, as the case may be, in
trust for Secured Party and Pledgors shall immediately deliver same to
Secured Party or a financial intermediary to be held as part of the
Collateral. Pledgors may retain ordinary cash dividends.
J. VOTING RIGHTS. Secured Party shall have no voting rights
unless there has been a default under this Agreement and Secured Party
has obtained ownership of the Collateral.
K. FURTHER ASSURANCES. Pledgors agree to execute such stock
powers, endorse such instruments, or execute such additional pledge
agreements or other documents as may be required by Secured Party in
order effectively to grant to Secured Party the security interest in
the Collateral and to enforce and exercise Secured Party's rights
regarding same.
4
<PAGE> 5
L. SECURITIES LAWS. In the event of default, Pledgors hereby
agree to cooperate fully with Secured Party in order to permit Secured
Party to sell, at foreclosure or public or private sale, the
Collateral pledged hereunder. Specifically, Pledgors agree to fully
comply with the securities laws of the United States and of the State
of Louisiana.
SECTION 7. GENERAL COVENANTS: Pledgors covenant and agree as follows:
A. NOTICES AND REPORTS; RECORDS. Each Pledgor shall promptly
notify Secured Party in writing of any change in the name, identity or
structure of such Pledgor, any charge, lien, security interest, claim
or encumbrance asserted against the Collateral, any theft, loss,
injury or similar incident involving the Collateral, and any other
material matter adversely affecting Pledgor or the Collateral.
B. ADDITIONAL FILINGS. Pledgors agree to execute and deliver such
financing statement or statements, or amendments thereof or
supplements thereto, or other documents as Secured Party may from time
to time reasonably require in order to comply with the Commercial Laws
of Louisiana, the Uniform Commercial Code (or other applicable state
law of the jurisdiction where any of the Collateral is located) and to
preserve and protect the Secured Party's rights to the Collateral.
C. PROTECTION OF COLLATERAL. Secured Party, at its option,
whether before or after default, but without any obligation whatsoever
to do so, may (a) discharge taxes, claims, charges, liens, security
interests, assessments or other encumbrances of any and every nature
whatsoever at any time levied, placed upon or asserted against the
Collateral, (b) pay all filing, recording, licensing or certification
fees or other fees and charges related to the Collateral, or (c) take
any other action to preserve and protect the Collateral and Secured
Party's rights and remedies under this Agreement as Secured Party may
deem necessary and appropriate. Pledgors agree that Secured Party
shall have no duty or obligation whatsoever to take any of the
foregoing action.
D. INSPECTION. Pledgors shall at all reasonable times allow
Secured Party by or through any of its officers, agents, attorneys or
accountants, to examine the Collateral.
SECTION 8. EVENTS OF DEFAULT: Pledgors shall be in default hereunder upon the
happening of any of the following events or conditions:
A. Failure by either Borrower to pay the principal of or any
installment of the principal of the obligations when due, or failure
to pay any interest on the obligations when due, and
5
<PAGE> 6
such nonpayment shall have continued for a period of fifteen (15) days
after receipt of written notice thereof;
B. If any representation or warranty made in this Agreement that
shall prove to have been untrue or misleading in any material respect
when made;
C. Default in the observance or performance of any covenant or
agreement contained in this Agreement, and if such default shall have
continued for a period of fifteen (15) days after receipt of written
notice thereof;
D. If either Borrower or Pledgors shall commence any case,
proceeding or other action (i) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution, composition or other relief with
respect to it or its debts; or (ii) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, or either Borrower or Pledgors shall
make a general assignment for the benefit of its creditors; or (iii)
there shall be commenced against either Borrower or Pledgors any case,
proceeding or other action of a nature referred to in clauses (i) or
(ii) above or seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of
its property, which case, proceeding or other action results in the
entry of an order for relief or remains undismissed, undischarged or
unbonded for a period of 60 days; or (iv) either Borrower or Pledgors
shall take any action indicating its consent to, approval of, or
acquiescence in, or in furtherance of, any of the acts set forth in
clauses (i), (ii) or (iii) above; or (v) either Borrower or Pledgors
shall generally not, or shall be unable to, pay its debts as they
become due or shall admit in writing its inability to pay its debts;
SECTION 9. REMEDIES: Upon the occurrence of any event of default and the
applicable notice thereof, if any, Secured Party, at its option, shall be
entitled to exercise any one or more of the following remedies (all of which
are cumulative):
A. DECLARE OBLIGATIONS DUE. Secured Party, at its option, may
declare the Obligations or any part thereof immediately due and
payable, without demand, notice of intention to accelerate, notice of
acceleration, notice of nonpayment, presentment, protest, notice of
dishonor, or any other notice whatsoever, all of which are hereby
waived by Pledgors and any
6
<PAGE> 7
maker, endorser, guarantor, surety or other party liable in any
capacity for any of the obligations.
B. DEFAULT REMEDIES. Should any event of default occur, and in
addition to the rights of Secured Party with respect to possessory
collateral, Secured Party shall have the right, at its sole
discretion, to accelerate payment of all amounts that either Borrower
may then owe to Secured Party, which will then entitle Secured Party
to foreclose under this Agreement under ordinary or executory process
procedures, and to cause the Collateral to be immediately seized
wherever found, and sold with or without appraisal, in regular session
of court or in vacation, in accordance with applicable Louisiana law,
subject to Paragraph C of this Subsection and the notice provisions in
Section 8 herein.
Should the Collateral for any reason be located in another state at or
following any default under the Obligations or under this Agreement,
or should there be a subsequent change in Louisiana law permitting
self-help remedies with regard to non-possessory collateral, Pledgors
agree that Secured Party may take possession of the Collateral in any
manner then permitted under the laws of the state in which the
Collateral is then located or under the laws of Louisiana as then
applicable. Should Secured Party for any reason have or acquire
possession of the Collateral at or following default, Secured Party
may sell the Collateral at public or private sale as authorized by
Louisiana law or the applicable provisions of the Uniform Commercial
Code or similar laws in effect in the state where the Collateral is
then located. Pledgor agrees that the requirement of reasonable notice
shall be met if the Secured Party mails such notice to Borrower and
Pledgors at Pledgors' addresses as shown in this Agreement and to any
financial intermediary in possession of the Collateral at least ten
(10) days before the time of any public sale or, if disposition is by
private sale, at least ten (10) days before the time after which
private sale may occur. During such notice period, Borrower, Pledgors,
or any third party on behalf of Borrower or Pledgors may cure any
default. If public sale is held, there will be sufficient compliance
with all requirements of notice to the public by a single publication
in a newspaper in general circulation in the parish or county where
the Collateral is then located. This notice should include the time
and place of sale, and a brief description of the property to be sold.
C. PRO RATA SEIZURE OF COLLATERAL. SECURED PARTY AGREES THAT IN
THE EVENT OF SEIZURE OF THE COLLATERAL UPON A DEFAULT, SUCH COLLATERAL
OF EVANS AND BELL SHALL BE SEIZED AND SOLD ON A PRO RATA BASIS ONLY.
BY WAY OF EXAMPLE, IN THE EVENT OF $100,000 REMAINED OWED TO THE
SECURED PARTY UPON DEFAULT, SO MUCH OF EVANS AND BELL'S SHARES SHALL
BE SEIZED AND SOLD SO
7
<PAGE> 8
THAT THE SHARES OF EVANS AND BELL EACH ACCOUNT FOR $50,000 OF THE
$100,000 DEBT. IN THE EVENT THE COLLATERAL PLEDGED BY EITHER PLEDGOR
WHEN SOLD ON A PRO RATA BASIS IS EXHAUSTED WITHOUT THE OBLIGATION TO
THE SECURED PARTY HAVING BEEN FULLY REPAID, SECURED PARTY MAY PROCEED
TO SEIZE AND SELL THE ADDITIONAL COLLATERAL PLEDGED BY THE OTHER
PLEDGOR NECESSARY TO FULLY REPAY THE OBLIGATIONS. BY WAY OF EXAMPLE,
IF $1,000,000 REMAINED OWED TO SECURED PARTY AND BELL'S COLLATERAL HAD
A PRESENT MARKET VALUE OF $400,000, AND EVAN'S COLLATERAL HAD A
PRESENT MARKET VALUE OF $700,000, THE SECURED PARTY WOULD SEIZE AND
SELL ALL OF BELL'S COLLATERAL RESULTING IN $400,000 AND THAT PORTION
OF EVAN'S COLLATERAL TO SATISFY THE OBLIGATION ($400,000 PLUS AN
ADDITIONAL $200,000).
D. PROCEEDS; SURPLUS; DEFICIENCIES. Secured Party may apply any
proceeds derived or to be derived from the sale, collection or other
disposition of the Collateral first to the reimbursement of any
reasonable expenses incurred by Secured Party in connection therewith,
including the fees of Secured Party's attorney and court costs; and
then to the payment of any additional sums that Secured Party may
advance on Pledgor's and/or Borrower's behalf under this Agreement,
together with interest thereon at the rate of twelve (12%) percent per
annum; and then to the payment of the Obligations in such order and
with such priority as Secured Party may determine within its sole
discretion. Pledgors shall be entitled to any surplus if one
results after application of the proceeds and Borrower shall remain
liable for any deficiency.
E. EXPENSES. Borrower shall be liable for and agrees to pay on
demand the reasonable expenses incurred by Secured Party in enforcing
its rights and remedies, in retaking, holding, testing, repairing,
improving, selling, leasing or disposing of the Collateral, or like
expenses, including, without limitation, attorney's fees and legal
expenses incurred by Secured Party. These expenses, together with
interest thereon at the rate of twelve (12%) percent per annum from
the date incurred until paid by Borrower which Borrower agrees to pay,
shall constitute additional Obligations and shall be secured by and
entitled to the benefits of this Agreement.
F. REMEDIES CUMULATIVE. The rights and remedies of Secured Party
are cumulative and the exercise of any one or more of the rights or
remedies shall not be deemed an election of rights or remedies or a
waiver of any other right or remedy. Pledgor agrees that nothing under
this Agreement shall limit or restrict the remedies available to
Secured Party following any event of default. Secured Party may remedy
any default and may waive any default without waiving the default
remedied or without waiving any other prior or subsequent default.
8
<PAGE> 9
SECTION 10. PROTECTION OF SECURED PARTY'S SECURITY RIGHTS: Pledgors agree to be
fully responsible for any losses that Secured Party may suffer as a result of
anyone other than Secured Party asserting any rights or interest in the
Collateral. Pledgors further agree to appear in and defend all actions and
proceedings purporting to affect Secured Party's security rights and interest.
Should Pledgors fail to do what is required of it under this Agreement, or if
any action or proceeding is commenced naming Secured Party as a party, or
affecting Secured Party's security interest, or the rights and powers granted
under this Agreement, then Secured Party may, without releasing Pledgor from any
of its obligations, do whatever Secured Party believes is necessary and proper
within its sole discretion, including advancing additional sum on Pledgors'
behalf as provided herein, to protect Secured Party's security rights and
interests.
SECTION 11. OTHER AGREEMENTS:
A. USE OF COPIES; FILING FEES. Any carbon, photographic or other
reproduction of this Security Agreement or any financing statement
signed by Pledgors is sufficient as a financing statement for all
purposes, including without limitation, filing in any state as may be
permitted by the provisions of the Uniform Commercial Code of such
state. Pledgors agree that Secured Party may file a carbon,
photographic, facsimile or other type of copy of this Agreement, or of
a UCC Financing Statement, in lieu of filing an original containing
the signatures of Pledgors or of Pledgors' duly authorized
representative. Pledgors further agrees to reimburse Secured Party for
the cost of filing, amending, continuing, terminating and releasing
Pledgors' ucc Financing Statement(s), to the extent applicable, which
costs shall be considered additional Obligations secured under this
Agreement.
B. RELATIONSHIP TO OTHER AGREEMENTS. This Security Agreement and
the security interests (and pledges and assignments as applicable)
herein granted are in addition to (and not in substitution, novation
or discharge of) any and all prior or contemporaneous security
agreements, security interests, pledges, assignments, liens, rights,
titles or other interests in favor of Secured Party or assigned to
Secured Party by others in connection with the Obligations. All
rights and remedies of Secured Party in all such agreements are
cumulative, but in the event of actual conflict in terms and
conditions, the terms and conditions of the latest security agreement
shall govern and control.
C. NOTICES. Any notice or demand given by Secured Party to
Borrower and Pledgors in connection with this Agreement, the
Collateral or the Obligations shall be deemed given and effective upon
deposit in the United States by certified mail, postage
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<PAGE> 10
prepaid, addressed to Borrowers and Pledgors at the addresses of
Borrowers and Pledgors designated at the beginning of this Agreement.
Actual notice to Borrowers and Pledgors shall always be effective no
matter how given or received.
D. HEADINGS AND GENDER. Paragraph headings in this Agreement are
for convenience only and shall be given no meaning or significance in
interpreting this Agreement. All words used herein shall be construed
to be of such gender or number as the circumstances require.
E. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Louisiana.
F. EXEMPTIONS FROM SEIZURE. In entering into this Agreement,
Pledgors are, to the extent applicable, waiving any exemption from
seizure with regard to the Collateral to which Pledgors may be
entitled under applicable Louisiana law and the laws of the United
States.
G. AGREEMENTS, REPRESENTATIONS, COVENANTS AND WARRANTIES OF EVANS
AND BELL. Any agreement, representation, covenant or warranty made
herein by Evans shall only apply to Evans or Evans' stock in Hunter
Resources, Inc. Evans makes no representations, warranties, covenants
or agreements of any nature with respect to Bell or Bell's shares of
NewCare Health Corporation. Any agreement, representation, covenant or
warranty made herein by Bell shall apply only to Bell or Bell's stock
in NewCare Health corporation. Bell makes no representations,
warranties, covenants or agreements of any nature with respect to
Evans or Evans' shares of Hunter Resources, Inc.
H. ACKNOWLEDGMENT OF MERGER NEGOTIATIONS. Secured Party
acknowledges that NewCare Health Corporation is presently in merger
negotiations with Retirement Care Associates (NYSE:RCA) and that
Hunter Resources, Inc. is presently in merger negotiations with Magnum
Petroleum, Inc. (AMEX:MPM). Merger agreements have been executed in
both proposed mergers but there is no certainty that either of these
mergers will be consummated. Secured Party acknowledges that in the
event either merger occurs, or a merger with any other company occurs,
known or unknown at this time, no default under the terms of this
agreement will result from the conversion of shares resulting from the
merger.
I. SEPARATE COUNSEL. Secured Party expressly acknowledges that he
has been advised that he has not been represented by Borrower or
Halter Financial Group, Inc.'s legal counsel in this matter and has
been advised and urged to seek separate legal counsel for advice in
this matter.
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<PAGE> 11
IN WITNESS WHEREOF, this Agreement is executed by Robert W. Bell at Pinelms
County, Largo, Florida on March 14, 1996 in the presence of the undersigned two
competent witnesses after due reading of the whole.
WITNESSES: Robert W. Bell
/s/ Joyce K. Reynolds By: /s/ Robert W. Bell
- -------------------------------- --------------------------------
Robert W. Bell
/s/ John W. Konlren
- --------------------------------
IN WITNESS WHEREOF, this Agreement is executed by Gary C. Evans at _________
County, _______, ________ on ________, 1996 in the presence of the undersigned
two competent witnesses after due reading of the whole.
WITNESSES: Gary C. Evans
By:
- -------------------------------- --------------------------------
Gary C. Evans
- --------------------------------
IN WITNESS WHEREOF, this Agreement is executed by the Borrower at __________
County, ________, _______ on ________, 1996 in the presence of the undersigned
two competent witnesses after due reading of the whole.
WITNESSES: Brister's Thunder Karts, Inc.
By:
- -------------------------------- --------------------------------
V. Lynn Graybill
President
- --------------------------------
11
<PAGE> 12
SIGNATURES: IN WITNESS WHEREOF, this Agreement is executed by the Secured party
at Tangipahoa Parish, Roseland, Louisiana, on ___________, 1996 in the presence
of the undersigned two competent witnesses after due reading of the whole.
WITNESSES: Charles Brister
/s/ Klara Albaral By: /s/ Charles Brister
- -------------------------------- --------------------------------
Charles Brister
/s/ George Johnson
- --------------------------------
IN WITNESS WHEREOF, this Agreement is executed by Robert W. Bell at _________
County, _______, Florida on ________, 1996 in the presence of the undersigned
two competent witnesses after due reading of the whole.
WITNESSES: Robert W. Bell
By:
- -------------------------------- --------------------------------
Robert W. Bell
- --------------------------------
IN WITNESS WHEREOF, this Agreement is executed by Gary C. Evans at Dallas
County, Texas, on March 15, 1996 in the presence of the undersigned two
competent witnesses after due reading of the whole.
WITNESSES: Gary C. Evans
/s/ Vicki Newman By: /s/ Gary C. Evans
- -------------------------------- --------------------------------
Gary C. Evans
/s/ Brenda M. Yerian
- --------------------------------
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<PAGE> 13
IN WITNESS WHEREOF, this Agreement is executed by the Borrower at Dallas
County, Texas, ________ on March 15, 1996 in the presence of the undersigned
two competent witnesses after due reading of the whole.
WITNESSES: Brister's Thunder Karts, Inc.
/s/ Klara Albaral By: /s/ V. Lynn Graybill
- -------------------------------- --------------------------------
V. Lynn Graybill
/s/ George Johnson President
- --------------------------------
12
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
Secured by Borrower's Assets
$2,000,000 dated effective as of March 15, 1996
"Borrower" promises to pay to the order of The Schlinger Foundation "Holder,"
at its office at 1944 Edison Street, Santa Ynez, California 93460, or at such
other place as the holder may designate in writing, in lawful money of the
United States of America the principal sum of Two Million and No/100 Dollars
($2,000,000), with interest thereon until maturity at fourteen percent (14%)
per annum. This Note is non negotiable.
Interest shall be payable on the 15th day of each consecutive month beginning
on the date this Note is endorsed and continuing through February 15, 2001,
plus a final installment equal to the entire unpaid principal balance and all
accrued and unpaid interest on March 15, 2001.
The loan evidenced by this Note shall bear interest as set forth above and
shall be payable as follows:
<TABLE>
<CAPTION>
YEARS* INTEREST MONTHLY ANNUAL TOTAL TOTAL ANNUAL
RATE INTEREST PRINCIPAL MONTHLY AMOUNT
PAYABLE PAYABLE PAYABLE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 - 14% $23,333.33 -0- $23,333.33 $280,000.00
1997
1997 - 14% 23,333.33 -0- 23,333.33 280,000.00
1998
1998 - 14% 23,333.33 + 399,996.00 23,333.33 680,000.00
1999
1999 - 14% 18,666.66 + 399,996.00 18,666.71 623,999.92
2000
2000 - 14% 14,000.00 +1,200,008.00 14,000.00 1,368,000.00
2001
---------------------------------------------------------
TOTALS $3,231,991
</TABLE>
* THE NOTE YEAR SHALL BE FROM MARCH 15 TO MARCH 14 OF EACH YEAR.
NOTE: THIS SCHEDULE IS BASED ON A FIVE (5) YEAR NOTE, THE FIRST TWO OF WHICH
ARE INTEREST ONLY PAYMENTS. ALL PAYMENTS ARE BASED ON SIMPLE INTEREST.
PRINCIPAL PAYMENTS ARE DUE AT THE NOTE YEAR'S END OF EACH OF YEARS 3, 4 AND ALL
PAYMENTS ARE DUE AND PAYABLE AT THE END OF YEAR 5.
MONTHLY PAYMENTS SHALL BE MADE BY ELECTRONIC DEPOSIT TO THE BANK OF CALIFORNIA,
WALNUT CREEK REGIONAL OFFICE, 100 PRINGLE AVENUE, SUITE 150, WALNUT CREEK,
CALIFORNIA 94596, WITH INSTRUCTIONS TO DEPOSIT TO ACCOUNT NO.
<PAGE> 2
OR AT DIFFERENT PLACE IF REQUIRED BY HOLDER.
THIS NOTE CAN BE PREPAID WITHOUT PENALTY.
Principal, interest and all other sums owed Holder shall be evidenced by
entries in records maintained by Holder for such purpose. Each payment on and
any other credits with respect to principal, interest and all other sums
outstanding shall be evidenced by entries in such records. Holder's records
shall be conclusive evidence thereof.
Notwithstanding the rights given to Borrower pursuant to provisions in the laws
of the state specified in the governing law clause of this document (and any
amendments or successors thereto), to designate how payments will be applied,
Borrower hereby waives such rights and Holder shall have the right in its sole
discretion to determine the order and method of the application of payments to
this Note.
If the proceeds of the loan evidenced by this Note are, at Borrower's request,
to be wire transferred to Borrower or any other individual or entity, including
without limitation Holder where the context so permits and in Holder's sole
discretion. Such transfer shall be subject to all applicable laws and
regulations, and the policy of the Board of Governors of the Federal Reserve
System on Reduction of Payments System Risk in effect from time to time
("Applicable Law and Policy"). Borrower acknowledges that as a result of
Applicable Law and Policy, the transmission of the proceeds of any advance
under this Note which Borrower has requested to be wire-transferred may be
significantly delayed.
Any unpaid payments of principal or interest on this Note shall bear interest
from their respective maturities, whether scheduled or accelerated, until paid
in full, whether before or after judgment.
In no event shall Borrower be obligated to pay interest at a rate in excess of
the highest rate permitted by applicable law from time to time in effect.
The occurrence of any of the following shall at Holder's option make all sums
of interest, principal and any other amounts owing under this Note immediately
due and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor or any other notices or demands;
and give Holder the right to exercise any other right or remedy provided by
contract or applicable law:
(a) Borrower shall fail to make any payment of principal or interest
when due under this Note or to pay any fees or other charges when due,
or Borrower or any other Person shall fail to provide Holder with, or to
perform any obligation under,
2
<PAGE> 3
this Note or any contract, instrument, addenda or document executed in
connection with this Note, including without limitation any guaranty,
pledge agreement, security agreement or deed of trust (including this
Note, each a "Loan Document"). Any default in the provisions of this
Note are subject to the notice provisions set forth in Section 10 of the
Commercial Security Agreement. Said Agreement is attached as Exhibit "A"
hereto and incorporated herein by this reference. This incorporation by
reference shall, however, not prevent Holder from proceeding on the Note
itself under California law at Holder's option. In that event,
references to notices under Louisiana law shall be read as references to
California law.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower or any guarantor
("Guarantor") of the obligations evidenced by this Note ("Obligations")
shall prove to have been false or misleading.
(c) Borrower or any Guarantor shall fail to pay its debts generally as
they become due or shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors; an involuntary petition shall be filed under any bankruptcy law
against Borrower or any Guarantor, or a custodian, receiver, trustee,
assignee for the benefit of creditors, or other similar official, shall
be appointed to take possession, custody or control of the properties of
Borrower or any Guarantor; or the death, incapacity, dissolution or
termination of the business of Borrower or any Guarantor.
(d) Borrower or any Guarantor shall fail to perform under any other
agreement involving the borrowing of money, the purchase of property,
the advance of credit or any other monetary liability of any kind to any
Person which shall have a material adverse effect upon the business
operations of the Borrower; or any guaranty of the Obligations shall be
revoked or terminated.
(e) Any governmental or regulatory authority shall take any action, any
defined benefit pension plan maintained by Borrower or any Guarantor
shall have any unfunded liabilities, or any other event shall occur, any
of which, in the judgment of Holder, might have a material adverse
effect on the financial condition or business of Borrower or any
Guarantor.
(f) Any sale, transfer or other disposition of all or a substantial or
material part of the assets of Borrower or any Guarantor, including
without limitation to any trust or similar entity, shall occur.
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(g) Failure to perform Borrower's obligations under the terms of any
promissory note, contract or other obligation that is held by Holder as
collateral for the Obligations; or Holder shall not have a perfected
security interest in, or shall not maintain full collateralization of the
Note with respect to the value of, any collateral being held for the
Obligations.
(h) Any judgment(s) shall be entered against Borrower or any Guarantor,
or any involuntary lien(s) of any kind or character shall attach to any
assets or property of Borrower or any Guarantor, any of which might have
a material adverse effect on the collateral securing this agreement or
the financial condition or business of Borrower or any Guarantor.
(i) Borrower shall fail to perform any of its duties or obligations
under any Loan Document not specifically referenced hereinabove.
No failure or delay on the part of Holder in exercising any power, right or
privilege under any Loan Document shall operate as a waiver thereof, and no
single or partial exercise of any such power, right or privilege shall preclude
any further exercise thereof or the exercise of any other power, right or
privilege.
Holder has the right at its sole option to continue to accept interest and/or
principal payments due under the Loan Documents after default, and such
acceptance shall not constitute a waiver of said default or an extension of the
maturity date unless Holder agrees otherwise in writing.
DISPUTE RESOLUTION
(Sections (a) and (b) below are to be construed in accordance with
California law)
(a) MANDATORY MEDIATION/ARBITRATION. Any controversy or claim between or
among the parties, their agents, employees and affiliates, including but
not limited to those arising out of or relating to this Note or any
related agreements or instruments ("Subject Documents"), including
without limitation any claim based on or arising from an alleged tort,
shall, at the option of any party, and at that party's expense, be
submitted to mediation, using either the American Arbitration
Association ("AAA") or Judicial Arbitration and Mediation Services, Inc.
("JAMS") . If mediation is not used, or if it is used and it fails to
resolve the dispute within 30 days from the date AAA or JAMS is engaged,
then the dispute shall be determined by arbitration in accordance with
the rules of either JAMS or AAA (at the option of the party initiating
the arbitration) and Title 9 of the U.S. Code, notwithstanding any other
choice of law provision in the Subject Documents. All statutes of
limitations or any waivers
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contained herein which would otherwise be applicable shall
apply to any arbitration proceeding under this subparagraph (a). The
parties agree that related arbitration proceedings may be consolidated.
The arbitrator shall prepare written reasons for the award. Judgment
upon the award rendered may be entered in any court having
jurisdiction. This subparagraph (a) shall apply only if, at the time of
the proposed submission to AAA or JAMS, none of the obligations to Holder
described in or covered by any of the Loan Documents are secured by real
property collateral, or, if so secured all parties consent to such
submission.
(b) JURY WAIVER/JUDICIAL REFERENCE. If the controversy or claim is not
submitted to arbitration as provided and limited in subparagraph (a),
but becomes the subject of a judicial action, each party hereby waives
its respective right to trial by jury of the controversy or claim. In
addition, any party may elect to have all decisions of fact and law
determined by a referee appointed by the court in accordance with
applicable state reference procedures. The party requesting the
reference procedure shall ask AAA or JAMS to provide a panel of retired
judges and the court shall select the referee from the designated panel.
The referee shall prepare written findings of fact and conclusions of
law. Judgment upon the award rendered shall be entered in the court in
which each proceeding was commenced.
(c) PROVISIONAL REMEDIES, SELF HELP, AND FORECLOSURE. To the extent
allowed under applicable law no provision of, or the exercise of any
rights under, subparagraph (a), shall limit the right of any party to
exercise self help remedies such as setoff, to foreclose against any
real or personal property collateral, or to obtain provisional or
ancillary remedies such as injunctive relief or the appointment of a
receiver from a court having jurisdiction before, during or after the
pendency of any mediation or arbitration. The institution and
maintenance of an action for judicial relief or pursuit of provisional
or ancillary remedies or exercise of self help remedies shall not
constitute a waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to mediation or arbitration.
To the extent any provision of the dispute resolution clause is unenforceable
in the jurisdiction under which it is asserted the applicable law shall
control.
Borrower shall pay and protect, defend and indemnify Holder and Holder's
employees, officers, directors, shareholders, affiliates, correspondents,
agents and representatives (other than Holder, collectively "Agents") against,
and hold Holder and each such Agent harmless from, all claims, actions,
proceedings, liabilities, damages, losses, expenses (including, without
limitation,
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attorneys' fees and costs) and other amounts incurred by Holder and each such
Agent, arising from (i) the matters contemplated by this Note or any Loan
Document or (ii) any contention that Borrower has failed to comply with any
law, rule, regulation, order or directive applicable to Borrower's sales,
leases or performance of services to Borrower's customers, including without
limitation those sales leases and services requiring consumer or other
disclosures; PROVIDED, HOWEVER, that this indemnification shall not apply to any
of the foregoing incurred solely as the result of Holder's or any Agent's
gross negligence or willful conduct. This indemnification shall survive the
payment and satisfaction of all of Borrower's obligations and liabilities to
Holder.
Borrower shall reimburse Holder for all costs and expenses, including without
limitation reasonable attorneys' fees and disbursements (and fees and
disbursements of Holder's in-house counsel) expended or incurred by Holder in
connection with (a) the negotiation, preparation, amendment, interpretation and
enforcement of the Loan Documents, including without limitation during any
workout, attempted workout, and/or in connection with the rendering of legal
advice as to Holder's rights, remedies and obligations under the Loan
Documents, (b) collecting any sum which becomes due Holder under any Loan
Document, (c) any proceeding for declaratory relief, any counterclaim to any
proceeding, or any appeal, or (d) the protection, reservation or enforcement of
any rights of Holder. For the purposes of this section, attorneys' fees shall
include, without limitation, fees incurred in connection with the following:
(1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other
activity of any kind in connection with a bankruptcy proceeding or case arising
out of or relating to any petition under Title 11 of the United States Code, as
the same shall be in effect from time to time, or any similar law; (4)
garnishment, levy, and debtor and third party examinations; and (5) post-
judgment motions and proceedings of any kind, including without limitation any
activity taken to collect or enforce any judgment.
Each Borrower is jointly and severally liable for the obligations evidenced by
this Note, and all references to "Borrower" shall be to "each" or "any"
Borrower as the context requires.
This Note shall be governed by, and construed in accordance with, the laws of
the State of California or Louisiana at Holder's option as authorized by
applicable law. Holder's principal office is in California and the collateral
for this loan are Borrower's business assets in Louisiana.
All terms and conditions of the security agreement and/or other written
agreements between the parties are incorporated by this reference.
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BORROWER
KARTS INTERNATIONAL INCORPORATED
A Nevada Corporation
By /s/ V. LYNN GRAYBILL
------------------------------
V. LYNN GRAYBILL, President
Brister's Thunder Karts, Inc., the Pledgor under the Commercial Security
Agreement attached hereto as Exhibit "A", acknowledges this Note.
BRISTER'S THUNDER KARTS, INC.
By: /s/ V. LYNN GRAYBILL
-------------------------------
V. LYNN GRAYBILL, President
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EXHIBIT 10.9
COMMERCIAL SECURITY AGREEMENT
This Commercial Security Agreement (the "Agreement") is entered as of
the date hereinafter set forth by and between:
THE SCHLINGER FOUNDATION (the "Secured Party"), a California nonprofit
public benefit corporation, organized under the laws of the State of
California, having its principal place of business at 1944 Edison
Street, Santa Ynez, California, 93460, represented herein by Evert I.
Schlinger, its duly authorized President, and
BRISTER'S THUNDER KARTS, INC. (the "Pledgor"), Tax Identification
Number 72-0797992, a Louisiana corporation having its principal place
of business at Highway 51 South, Roseland, Louisiana, 70456
represented herein by V. Lynn Graybill, its President, duly
authorized by resolution attached hereto,
KARTS INTERNATIONAL INCORPORATED (the "Borrower"), Tax Identification
Number 59-2621118, a Nevada corporation having its principal place of
business at 4851 LBJ Freeway, Suite 201, Dallas, Texas 75244,
represented herein by V. Lynn Graybill, its President, duly authorized
by resolution attached hereto,
under the following terms and conditions:
SECTION 1. GRANT OF SECURITY INTEREST. For value received and in order to
secure the prompt and punctual payment and satisfaction of the Obligations as
defined hereinafter, the Pledgor does by these presents hereby grant a
continuing security interest in favor of the Secured Party as affecting the
Collateral described in the Description of Collateral (Section 3) section of
this Agreement and agrees with the Secured Party as hereinafter provided. The
security interest granted in the Collateral described in the Description of
Collateral section of this Agreement in favor of the Secured Party will
continue until such time as all of the Obligations as defined hereinafter are
fully paid and satisfied and this Agreement is cancelled or terminated by the
Secured Party under a written cancellation instrument.
SECTION 2. OBLIGATIONS SECURED. The security interest granted hereby is
granted to secure the prompt and punctual payment and satisfaction of the
following (all of which are herein separately and collectively referred to as
the "Obligations"):
A. That loan indebtedness of Borrower to the Secured Party
represented by that certain promissory note made by Borrower March 15,
1996 payable to the order of the Secured Party, in the principal
amount of TWO MILLION AND NO/100 ($2,000,000.00)
<PAGE> 2
DOLLARS, with interest and attorney's fees and payable provided
therein; and
B. Any and all present and future advances, loans, extensions of
credit and/or other financial accommodations obtained and/or to be
obtained by either Borrower or Pledgor from the Secured Party, as well
as from the successors and assigns of the Secured Party, from time to
time, one or more times, now or in the future, and any and all
promissory notes and other instruments or agreements evidencing such
present and future loan advances, extensions of credit and/or other
financial accommodations, as well as any and all other obligations and
liabilities that either Borrower or Pledgor, may now and/or in the
future owe to or incur in favor of the Secured Party; and
C. Any advances or expenditures made by the Secured Party or
expenses incurred by the Secured Party in protection or in furtherance
of its rights under this Agreement, including but not limited to the
expenditures, expenses and rights referred to in Section 8G., Section
10C. and Section 11 of this Agreement.
SECTION 3. DESCRIPTION OF COLLATERAL. Pledgor hereby grants to Secured
Party a security interest in and agrees that Secured Party shall continue to
have a security interest in the following property (the "Collateral") to-wit:
Any and all of the Pledgor's present and future rights, title and
interest in and to all of its equipment (as defined in R.S.10:9-109(2));
Any and all of the Pledgor's present and future rights, title and
interest in and to all of its accounts receivable or accounts (as defined in
R.S.10:9-106);
Any and all of Pledgor's present and future rights, title and interest
in and to inventory (as defined in R.S.10:9-109(4));
together with any accessions, additions and attachments to the foregoing and
the proceeds and products thereof (except immovable property), including
without limitation, all cash, general intangibles, accounts, inventory,
equipment, fixtures, farm products, notes, drafts, acceptances, securities,
instruments, chattel paper, insurance proceeds payable because of loss or
damage, or other property, benefits or rights arising therefrom, and in and to
all returned or repossessed goods arising from or relating to any of the
property described herein or other proceeds of any sale or other disposition of
such property; and
SECTION 4: ADDITIONAL SECURITY IN DEPOSIT ACCOUNTS. As additional security for
the punctual payment and performance of the
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Obligations (with the exception of obligations under consumer credit card
accounts), and as part of the Collateral, Pledgor hereby grants to Secured
Party a security interest in, and a pledge and assignment of, any and all
money, property (except immovable property), deposit accounts, accounts,
securities, documents, chattel paper, claims, demands, instruments, items or
deposits of the Pledgor, and each of them. After ten (10) days written notice
to the Pledgor, Secured Party may exercise its rights granted above at any time
when an event of default, as defined in Section 9 herein, has occurred.
Secured Party's rights and remedies under this paragraph shall be in addition
to and cumulative of any other rights or remedies at law and equity, including,
without limitation, any rights of setoff to which Secured Party may be
entitled.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Pledgor
represents and warrants as follows:
A. USE OF THE COLLATERAL. The Collateral will be used by the
Pledgor primarily for business use.
B. OWNERSHIP; NO ENCUMBRANCES. Except for the security interest
granted hereby, the Pledgor is, and as to any property acquired after
the date hereof which is included within the Collateral, Pledgor will
be, the owner of all such Collateral free and clear from all charges,
liens, security interests, adverse claims and encumbrances of any and
every nature whatsoever.
C. ACCURACY OF INFORMATION. All information furnished to Secured
Party concerning Pledgor, the Collateral and the Obligations, or
otherwise for the purpose of obtaining or maintaining credit, is or
will be at the time the same is furnished, accurate and complete in
all material respects.
D. AUTHORITY. Pledgor has full right and authority to execute and
perform this Agreement and to create the security interest created by
this Agreement. The making and performance by Pledgor of this
Agreement will not violate any articles of incorporation, bylaws or
similar document respecting Pledgor, any provision of law or any
previous agreement of Pledgor.
E. ADDRESS, IDENTIFICATION. The address of Pledgor designated at
the beginning of this Agreement is Pledgor's place of business if
Pledgor has only one place of business; Pledgor's principal place of
business if Pledgor has more than one place of business; or Pledgor's
residence if Pledgor has no place of business. Pledgor agrees not to
change such address without advance written notice to Secured Party.
The Pledgor's correct Social Security Number or Tax Identification
Number is shown on the first page of this Agreement, and the
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Pledgor shall give notice to the Secured Party, immediately of any
change in that number. The Pledgor warrants to give notice to the
Secured Party, immediately should there be any change in Pledgor's
name or legal status.
F. CONTINUING OBLIGATIONS. The above representations and
warranties and all other representations and warranties contained in
this Agreement are and will be continuing in nature and will remain in
full force and effect until such time as this Agreement is cancelled
in the manner provided above.
SECTION 6. LOCATION OF COLLATERAL. The security interest of the Secured Party
will affect the Collateral wherever located. Except in the ordinary course of
business, Pledgor agrees not to remove or relocate or to permit the removal or
relocation of the Collateral from the State of Louisiana for a period in excess
of sixty (60) consecutive days without first obtaining the prior written
consent of the Secured Party. To the extent that the Collateral consists of a
titled motor vehicle or motor vehicles, the vehicle or vehicles will be kept at
the following address whenever not in use elsewhere: Highway 51 South,
Roseland, LA 70456.
SECTION 7. PROHIBITIONS REGARDING THE COLLATERAL: So long as this Agreement
remains in effect, and to the extent applicable, Pledgor agrees not to, without
the prior written consent of Secured Party: (a) except in the ordinary course
of business, sell, assign, transfer, convey, option, mortgage or lease the
Collateral; (b) grant or permit any lien, encumbrance or other security
interest to be placed on or attached to the Collateral; (c) permit any of the
Collateral to be attached to real (and movable) property so as to become a
"fixture" within the context of LSA-R.S.10:9-313(l); (d) do any thing or
permit any thing to be done that may in any way impair the security interest
and rights of the Secured Party in and to the Collateral; or (e) modify,
adjust, compromise, settle, waive or forego any rights that Pledgor may have
with regard to the Collateral.
SECTION 8. GENERAL COVENANTS: Pledgor covenants and agrees as follows:
A. OPERATION OF THE COLLATERAL. Pledgor agrees to maintain and
use the Collateral solely in the conduct of its own business, in a
careful and proper manner, and in conformity with all applicable laws,
ordinances, regulations, permits and licenses. Pledgor shall comply in
all respects with all applicable statutes, laws, ordinances and
regulations.
B. CONDITION. Pledgor shall maintain, service and repair the
Collateral so as to keep it in good operating condition and shall pay
any charges due for the same. Pledgor will not make
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or permit to be made any alterations to the Collateral that may reduce
or impair Collateral's use or value.
C. ASSESSMENTS, TAXES. Pledgor shall promptly pay when due all
taxes, assessments, license fees, registration fees, and governmental
charges levied or assessed against Pledgor or with respect to the
Collateral or any part thereof. Pledgor will additionally provide the
Secured Party with evidence of such payment.
D. NOTICES AND REPORTS; RECORDS. Pledgor shall promptly notify
Secured Party in writing of any change in the name, identity or
structure of Pledgor, any charge, lien, security interest, claim or
encumbrance asserted against the Collateral, any material litigation
against Pledgor or the Collateral, any theft, loss, injury or similar
incident involving the Collateral, and any other material matter
adversely affecting Pledgor or the Collateral. Pledgor shall furnish
such other reports, information and data regarding Pledgor's financial
condition and operations, the Collateral and such other matters as
Secured Party may request from time to time. Pledgor will keep proper
books and records with regard to the business activities of Pledgor
and the Collateral subject to this Agreement.
E. LANDLORD'S WAIVERS. Pledgor shall furnish to Secured Party, if
requested, a landlord's waiver of all liens with respect to any
Collateral covered by this Agreement that is or may be located upon
leased premises, such landlord's waivers to be in such form and upon
such terms as are acceptable to Secured Party.
F. ADDITIONAL FILINGS. Pledgor agrees to execute and deliver such
financing statement or statements, or amendments thereof or
supplements thereto, or other documents as Secured Party may from time
to time require in order to comply with the Commercial Laws of
Louisiana, the Uniform Commercial Code (or other applicable state law
of the jurisdiction where any of the Collateral is located) and to
preserve and protect the Secured Party's rights to the Collateral.
G. PROTECTION OF COLLATERAL. Secured Party, at its option,
whether before or after default, but without any obligation whatsoever
to do so, may (a) discharge taxes, claims, charges, liens, security
interests, assessments or other encumbrances of any and every nature
whatsoever at any time levied, placed upon or asserted against the
Collateral, (b) place and pay for insurance on the Collateral,
including insurance that only protects Secured Party's interest, (c)
pay for the repair, improvement, testing, maintenance and preservation
of the Collateral, (d) pay all filing, recording, registration,
licensing or certification fees or other fees and charges
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related to the Collateral, or (e) take any other action to preserve
and protect the Collateral and Secured Party's rights and remedies
under this Agreement as Secured Party may deem necessary and
appropriate. Pledgor agrees that Secured Party shall have no duty or
obligation whatsoever to take any of the foregoing action. Pledgor
agrees to promptly reimburse Secured Party upon demand for any payment
made or any expense incurred by the Secured Party pursuant to this
authorization. These payments and expenditures, together with interest
thereon from date incurred until paid by Pledgor at the rate of
eighteen (18%) percent per annum until paid, which Pledgor agrees to
pay, shall constitute additional Obligations and shall be secured by
and entitled to the benefits of this Agreement.
H. INSPECTION. Pledgor shall at all reasonable times allow
Secured Party by or through any of its officers, agents, attorneys or
accountants, to examine the Collateral, wherever located, and to
examine and make extracts from Pledgor's books and records.
I. INSURANCE. Pledgor shall have and maintain insurance at
Pledgor's sole expense at all times with respect to all Collateral
insuring against risks of fire (including so-called extended
coverage), theft and other risks as Secured Party may require,
containing such terms, in such form and amounts and written by such
companies as may be satisfactory to Secured Party. Pledgor will name
Secured Party as a loss payee beneficiary under such insurance
policies, which policies must contain a non-contributory lender loss
payable endorsement in favor of Secured Party. Such policies of
insurance must also contain a provision prohibiting the cancellation
or alteration of such insurance without at least thirty (30) days
prior written notice to Secured Party. Pledgor further will provide
the Secured Party with originals or certified copies of such insurance
policies along with evidence that the Pledgor has paid the policy
premiums and all renewal premiums when due.
The Secured Party shall have the right to directly receive all
proceeds payable under such insurance policies and Secured Party is
hereby authorized to act as agent for Pledgor in obtaining, adjusting,
settling and cancelling such insurance and endorsing any drafts or
instruments. Should Pledgor receive any such insurance proceeds,
Pledgor will immediately turn such proceeds over to and pay the same
to Secured Party. Secured Party shall apply such insurance proceeds
(after payment of all reasonable costs, expenses and attorney fees
incurred by Secured Party) for the purpose of (a) repairing, replacing
or restoring the lost, stolen or damaged Collateral or (b) reducing
the outstanding balance of the Obligations. Pledgor specifically
authorizes Secured Party to disclose
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information from the policies of insurance to prospective insurers
regarding the Collateral.
SECTION 9. EVENTS OF DEFAULT: Pledgor shall be in default hereunder upon
the happening of any of the following events or conditions:
A. Failure by either Borrower or Pledgor to pay the principal of
or any installment of the principal of the Obligations when due, or
failure to pay any interest on the Obligations when due, and such
nonpayment shall have continued for a period of fifteen (15) days
after receipt of written notice thereof;
B. If any representation or warranty made in this Agreement or in
any certificate, financial or other statement furnished at any time
under or in connection with this Agreement shall prove to have been
untrue or misleading in any material respect when made;
C. Default in the observance or performance of any covenant or
agreement contained in this Agreement, and if such default shall have
continued for a period of fifteen (15) days after receipt of written
notice thereof;
D. If either Borrower or Pledgor shall commence any case,
proceeding or other action (i) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution, composition or other relief with
respect to it or its debts; or (ii) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, or either Borrower or Pledgor shall
make a general assignment for the benefit of its creditors; or (iii)
there shall be commenced against either Borrower or Pledgor any case,
proceeding or other action of a nature referred to in clauses (i) or
(ii) above or seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of
its property, which case, proceeding or other action results in the
entry of an order for relief or remains undismissed, undischarged or
unbonded for a period of 60 days; or (iv) either Borrower or Pledgor
shall take any action indicating its consent to, approval of, or
acquiescence in, or in furtherance of, any of the acts set forth in
clauses (i), (ii) or (iii) above; or (v) either Borrower or Pledgor
shall generally not, or shall be unable to, pay its debts as they
become due or shall admit in writing its inability to pay its debts;
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SECTION 10. REMEDIES: Upon the occurrence of any event of default and the
applicable notice thereof, if any, Secured Party, at its option, shall be
entitled to exercise any one or more of the following remedies (all of which
are cumulative):
A. DECLARE OBLIGATIONS DUE. Secured Party, at its option, may
declare the Obligations or any part thereof immediately due and
payable, without demand, notice of intention to accelerate, notice of
acceleration, notice of nonpayment, presentment, protest, notice of
dishonor, or any other notice whatsoever, all of which are hereby
waived by Pledgor and any maker, endorser, guarantor, surety or other
party liable in any capacity for any of the Obligations.
B. DEFAULT REMEDIES. Should any event of default occur, and in
addition to the rights of Secured Party with respect to possessory
collateral, Secured Party shall have the right, at its sole
discretion, to accelerate payment of all amounts that either Borrower
or Pledgor may then owe to Secured Party, which will then entitle
Secured Party to foreclose under this Agreement under ordinary or
executory process procedures, and to cause the Collateral to be
immediately seized wherever found, and sold with or without appraisal,
in regular session of court or in vacation, in accordance with
applicable Louisiana law, without the necessity of further demanding
payment from either Borrower or Pledgor or of notifying or either
Borrower or Pledgor placing either Borrower or Pledgor in default,
subject to the notice provisions in Section 8(D) herein. For purposes
of foreclosure under Louisiana executory process procedures, Pledgor
confesses judgment and acknowledges to be indebted to Secured Party up
to the full amount of the Obligations, in principal, interest, costs,
expenses, attorney's fees and other fees and charges, and all other
amounts secured by this Agreement.
Should the Collateral for any reason be located in another state at or
following any default under the Obligations or under this Agreement,
or should there be a subsequent change in Louisiana law permitting
self-help remedies with regard to non-possessory collateral, Pledgor
agrees that Secured Party may take possession of the Collateral in any
manner then permitted under the laws of the state in which the
Collateral is then located or under the laws of Louisiana as then
applicable. Should Secured Party for any reason have or acquire
possession of the Collateral at or following default, Secured Party
may sell the Collateral at public or private sale as authorized by
Louisiana law or the applicable provisions of the Uniform Commercial
Code or similar laws in effect in the state where the Collateral is
then located. If Secured Party is required by law to give Pledgor
notice of the public or private sale of the Collateral, Pledgor agrees
that the requirements of reasonable notice shall be met if the
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Secured Party mails such notice to Pledgor at Pledgor's address as
shown in this Agreement at least ten (10) days before the time of any
public sale or, if disposition is by private sale, at least ten (10)
days before the time after which private sale may occur. If public
sale is held, there will be sufficient compliance with all
requirements of notice to the public by a single publication in a
newspaper in general circulation in the parish or county where the
Collateral is then located. This notice should include the time and
place of sale, and a brief description of the property to be sold.
C. PROCEEDS; SURPLUS; DEFICIENCIES. Secured Party may apply any
proceeds derived or to be derived from the sale, collection or other
disposition of the Collateral first to the reimbursement of any
expenses incurred by Secured Party in connection therewith, including
the fees of Secured Party's attorney and court costs; and then to the
payment of any additional sums that Secured Party may advance on
Pledgor's and/or Borrower's behalf under this Agreement, together with
interest thereon at the rate of eighteen (18%) percent per annum; and
then to the payment of the Obligations in such order and with such
priority as Secured Party may determine within its sole discretion.
Pledgor shall be entitled to any surplus if one results after
application of the proceeds and the debtors to the obligations shall
remain liable for any deficiency.
D. EXPENSES. Pledgor shall be liable for and agrees to pay on
demand the reasonable expenses incurred by Secured Party in enforcing
its rights and remedies, in retaking, holding, testing, repairing,
improving, selling, leasing or disposing of the Collateral, or like
expenses, including, without limitation, attorney's fees and legal
expenses incurred by Secured Party. These expenses, together with
interest thereon at the rate of eighteen (18%) percent per annum from
the date incurred until paid by Pledgor, which Pledgor agrees to pay,
shall constitute additional Obligations and shall be secured by and
entitled to the benefits of this Agreement.
E. REMEDIES CUMULATIVE. The rights and remedies of Secured Party
are cumulative and the exercise of any one or more of the rights or
remedies shall not be deemed an election of rights or remedies or a
waiver of any other right or remedy. Pledgor agrees that nothing under
this Agreement shall limit or restrict the remedies available to
Secured Party following any event of default. Secured Party may remedy
any default and may waive any default without waiving the default
remedied or without waiving any other prior or subsequent default.
SECTION 11. PROTECTION OF SECURED PARTY'S SECURITY RIGHTS: Pledgor agrees to be
fully responsible for any losses that Secured
9
<PAGE> 10
Party may suffer as a result of anyone other than Secured Party
asserting any rights or interest in the Collateral. Pledgor further
agrees to appear in and defend all actions and proceedings purporting
to affect Secured Party's security rights and interest. Should Pledgor
fail to do what is required of it under this Agreement, or if any
action or proceeding is commenced naming Secured Party as a party, or
affecting Secured Party's security interest, or the rights and powers
granted under this Agreement, then Secured Party may, without
releasing Pledgor from any of its obligations, do whatever Secured
Party believes is necessary and proper within its sole discretion,
including advancing additional sums on Pledgor's behalf as provided
herein, to protect Secured Party's security rights and interests.
SECTION 12. OTHER AGREEMENTS:
A. USE OF COPIES; FILING FEES. Any carbon, photographic or other
reproduction of this Security Agreement or any financing statement
signed by Pledgor is sufficient as a financing statement for all
purposes, including without limitation, filing in any state as may be
permitted by the provisions of the Uniform Commercial Code of such
state. Pledgor agrees that Secured Party may file a carbon,
photographic, facsimile or other type of copy of this Agreement, or of
a UCC Financing Statement, in lieu of filing an original containing
the signature of Pledgor or of Pledgor's duly authorized
representative. Pledgor further agrees to reimburse Secured Party for
the cost of filing, amending, continuing, terminating and releasing
Pledgor's UCC Financing Statement(s), to the extent applicable, which
costs shall be considered additional Obligations secured under this
Agreement.
B. RELATIONSHIP TO OTHER AGREEMENTS. This Security Agreement and
the security interests (and pledges and assignments as applicable)
herein granted are in addition to (and not in substitution, novation or
discharge of) any and all prior or contemporaneous security
agreements, security interests, pledges, assignments, liens, rights,
titles or other interests in favor of Secured Party or assigned to
Secured Party by others in connection with the Obligations. All
rights and remedies of Secured Party in all such agreements are
cumulative, but in the event of actual conflict in terms and
conditions, the terms and conditions of the latest security agreement
shall govern and control.
C. NOTICES. Any notice or demand given by Secured Party to
Pledgor in connection with this Agreement, the Collateral or the
Obligations shall be deemed given and effective upon deposit in the
United States mail, postage prepaid, addressed to Pledgor at the
address of Pledgor designated at the
10
<PAGE> 11
beginning of this Agreement. Actual notice to Pledgor shall always be
effective no matter how given or received.
D. HEADINGS AND GENDER. Paragraph headings in this Agreement are
for convenience only and shall be given no meaning or significance in
interpreting this Agreement. All words used herein shall be construed
to be of such gender or number as the circumstances require.
E. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Louisiana.
F. EXEMPTIONS FROM SEIZURE. In entering into this Agreement,
Pledgor is, to the extent applicable, waiving any exemption from
seizure with regard to the Collateral to which Pledgor may be entitled
under applicable Louisiana law and the laws of the United States.
SIGNATURES: IN WITNESS WHEREOF, this Agreement is executed by the Secured party
at Santa Barbara County, Solvang, California on March 13, 1996 in the presence
of the undersigned two competent witnesses after due reading of the whole.
WITNESSES: The Schlinger Foundation
/s/ BRAD O. HELMS By: /s/ EVERT I. SCHLINGER
- --------------------------------- ---------------------------------
Evert I. Schlinger
/s/ JULIA A. SUMMERS President
- ---------------------------------
11
<PAGE> 12
IN WITNESS WHEREOF, this Agreement is executed by the Pledgor at Dallas County,
Dallas, Texas, on March 15, 1996 in the presence of the undersigned two
competent witnesses after due reading of the whole.
WITNESSES: Brister's Thunder Karts, Inc.
/s/ RICHARD GOODNER By: V. LYNN GRAYBILL
- --------------------------------- ---------------------------------
V. Lynn Graybill
/s/ GEORGE DIAMOND President
- ---------------------------------
IN WITNESS WHEREOF, this Agreement is executed by the Borrower at Dallas
County, Texas, on March 15, 1996 in the presence of the undersigned two
competent witnesses after due reading of the whole.
WITNESSES: Karts International Incorporated
/s/ RICHARD GOODNER By: /s/ V. LYNN GRAYBILL
- --------------------------------- ---------------------------------
V. Lynn Graybill
/s/ GEORGE DIAMMOND President
- ---------------------------------
12
<PAGE> 1
EXHIBIT 10.10
VENDOR AGREEMENT
<TABLE>
<S> <C> <C> <C> <C> <C>
WAL-MART STORES, INC. Effective VENDOR NO DEPT SEQ
Corporate Office Date 6/5/96 150170 6 30
Bentonville, AR 72716
(501) 273-4000
[ ] WAL-MART [ ] EXISTING VENDOR [ ] PURCHASE/MDSE CATEGORY
[X] SAM'S CLUB [X] NEW VENDOR [ ] EXPENSE & DEPARTMENT
[ ] SUPERCENTER [ ] UPDATE Type ________ BUYER Sherry Bridges
[ ] OTHER__________ [ ] NEW SEQ.
</TABLE>
================================================================================
Enter the Federal Taxpayer Identification Number (TIN) of the Payee Named
Below. If a "TIN" has not been issued, enter the Employer's Social Security
Number.
72-0797992 OR -- --
------- -------- --------
TYPE OF PAYEE (CHECK ONLY ONE):
Individual/Sole Proprietorship X Corporation
--- ---
Partnership Other
--- ---
PURCHASER RESERVES THE RIGHT TO REMIT TO THE PARTY TO WHOM
THE PURCHASE ORDER IS ISSUED
<TABLE>
<S> <C>
ADDRESS TO MAIL PAYMENT: ADDRESS TO SEND PURCHASE ORDERS:
Vendor Name Brister's Thunder Karts, Inc. Vendor Name Brister's Thunder Karts, Inc.
----------------------------------- ----------------------------------------------
Address P.O. Box 324 Attention Mr. Mike Passman
---------------------------------------- ------------------------------------------------
City Roseland State LA Zip 70456 Address P.O. Box 324
----------------- ------- --------- --------------------------------------------------
Factor Name City Roseland State LA Zip 70456
------------------------------------ -------------------------- -------- --------
Vendor Also Doing Business As (Attach a list Street Address for use by delivery services other than
to this Agreement if space below is insufficient) the U.S. Mail, if not already shown in the Purchase
Order address above.
Vendor # Room
- ----------------------- ----------------- ------------------------------------------ --------
Expedite Orders: Phone -- --
---------- ---------- --------
ADDRESS TO MAIL CLAIM DOCUMENTATION: ADDRESS TO SEND PRICING TICKETS:
Attention Mr. Mike Passman Vendor Name Brister's Thunder Karts, Inc.
-------------------------------------- ----------------------------------------------
Address P.O. Box 324 Attention Mr. Mike Passman
---------------------------------------- ------------------------------------------------
City Roseland State LA Zip 70456 Address P.O. Box 324
----------------- ------- --------- --------------------------------------------------
Accounting Phone Number 800-438-5278 City Roseland State LA Zip 70456
----------------------- -------------------------- --------- --------
Toll Free Number 800-438-5278
-------------------------------
FAX Number 800-867-5278
-------------------------------------
</TABLE>
================================================================================
VENDOR FINANCIAL INFORMATION
Vendor agrees to furnish, when returning this completed agreement, a complete
set of current financial statements. Publicly held companies should include
the Annual Report to Shareholders, Management Proxy information and AIF, if
any. If financial statements are not available, a Dun & Bradstreet should be
furnished. 12/31/95
================================================================================
NOTICE REGARDING ASSIGNMENT OF ACCOUNTS
The Vendor shall provide Purchaser written notice of an assignment,
factoring, or other transfer of its right to receive payments arising under
this agreement 30 days prior to such assignment, factoring, or other transfer
taking legal effect. Such written notice shall include the name and address of
assignee/transferee, date assignment is to begin, and terms of the assignment,
and shall be considered delivered upon receipt of such written notice by the
Vendor Master Clerk. Vendor shall be allowed to have only one assignment,
factoring or transfer legally effective at any one point in time. No multiple
assignments, factorings or transfers by the Vendor shall be permitted.
Vendor shall indemnify Purchaser against and hold Purchaser harmless
from any and all lawsuits, claims, actions, damages (including reasonable
attorney fees, obligations, liabilities, and liens) arising or imposed in
connection with the assignment or transfer of any account or right arising
thereunder where the vendor has not complied with the notification assignment
requirements of this section. Vendor also releases and waives any right, claim,
or action against Purchaser for amounts due and owing under this agreement
where vendor has not complied with the notice requirements of this section.
Such notice shall be mailed directly to:
INVOICE CONTROL DEPT.
ATTN: VENDOR MASTER CLERK
BENTONVILLE, AR 72716-8002
================================================================================
VENDOR ELECTRONIC DATA INTERCHANGE RESPONSIBILITIES
VENDOR AGREES TO RECEIVE ORDERS AND SEND WAL-MART INVOICES VIA EDI (ELECTRONIC
TRANSMISSION) UNLESS SPECIFICALLY WAIVED BY WAL-MART.
1. Vendor will establish a user I.D. to identify its company. The
presence of this user I.D. in the EDI interchange will be sufficient
to verify the source of the data and the authenticity of the document.
2. Documents containing the user I.D. will constitute a signed writing
and neither party shall contest the validity or enforceability of the
document on this basis.
3. EDI documents or printout thereof shall constitute an original when
maintained in the normal course of business. Vendor waiver is
approved.
G.M.M. WAIVER
================================================================================
SHIPPING TERMS
<TABLE>
<S> <C>
FREIGHT TERMS No charge to vendor for sub-standard MINIMUM FOR PREPAID FREIGHT TERMS:
pallets - pallet exchange vendor
[X] COLLECT - FOB VENDOR ___ POUNDS
[ ] PREPAID - FOB PURCHASER ___ UNITS
[ ] PREPAID TO CONSOLIDATOR - FOB PURCHASER'S CONSOLIDATOR ___ DOLLARS
</TABLE>
CONDITION OF SALE
Attach Details of Available Programs. Programs that are accepted will become an
addendum to Agreement.
[X] Guaranteed Sales [ ] Consignment [ ] Preticketing [ ] Prepricing
[ ] Stock Balancing [ ] Coop Advertising [ ] Other
================================================================================
STANDARD PURCHASE ORDER ALLOWANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DISC HOW PAID WHEN PAID
SPECIAL INSTRUCTIONS Each Inv. Other
CODE ALLOWANCE % OI CM CK EI Q S A
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SA Line Level New Store Discount X X
(% Applied to each line item for --- --- --- --- --- --- --- ---
each new store)
OL P.O. Level New Store Discount
(% Applied to total amount of --- --- --- --- --- --- --- ---
each purchase order)
NW New Distribution Center
--- --- --- --- --- --- --- ---
WA Warehouse Allowance
--- --- --- --- --- --- --- ---
QD Warehouse Distribution Allow
(Order Type 33 Only) --- --- --- --- --- --- --- ---
DM Defective/Returned Mdse. Allowance
--- --- --- --- --- --- --- ---
SD Soft Goods Defective Allow
--- --- --- --- --- --- --- ---
PA Promotional Allowance
--- --- --- --- --- --- --- ---
VD Volume Discount
--- --- --- --- --- --- --- ---
FA Freight Allowance
--- --- --- --- --- --- --- ---
AA Advertising Allowance
--- --- --- --- --- --- --- ---
TR TV/Radio Media Allowance
--- --- --- --- --- --- --- ---
DA Display/Endcap Allowance
--- --- --- --- --- --- --- ---
EB Early Buy Allowance
--- --- --- --- --- --- --- ---
HA Handling Allowance
--- --- --- --- --- --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OI-Off.Invoice CM-Credit Memo CK-Check EI-Each Invoice
Q-Quarterly S-Semi-Annually A-Annually
Page 1 of 6
<PAGE> 2
CONDITION OF MERCHANDISE
Vendor agrees to only ship goods which comply with the "Warranties and
Guarantees" section of the "Purchase Order Terms and Conditions" which is
attached hereto and incorporated herein.
================================================================================
PRICE GUARANTEE
Prices are guaranteed by Vendor against manufacturer's or Vendor's own price
decline and against legitimate competition until date of shipment with
Purchaser's owned inventories price protected by credit memo. In the event that
prior to the final shipment under any order Vendor sells or offers to others
goods substantially of the same kind as ordered at lower prices and or on terms
more favorable to a third party than those stated on the purchase order, the
prices and terms shall be deemed automatically revised to equal the lowest
prices and most favorable terms at which Vendor shall have sold or shall have
offered such goods and payment shall be made accordingly. In the event
Purchaser shall become entitled to such lower prices, but shall have made
payment at any prices in excess thereof, Vendor shall promptly refund the
difference in price to Purchaser. In the event that a court or regulatory
agency or body finds that the prices on an order are in excess of that allowed
by any law or regulation of any governmental agency, the prices shall be
automatically revised to equal a price which is not in violation of said law or
regulations. If Purchaser shall have made payment before it is determined that
there has been a violation, Vendor shall promptly refund an amount of money
equal to the difference between the price paid for the goods and the price
which is not in violation of said regulations.
================================================================================
NOTICE REGARDING PRICE INCREASES
Purchaser requires at least 60 days written notice prior to any price increase.
================================================================================
DEBIT BALANCES
If Vendor has a Debit Balance with Purchaser, the amount owed Purchaser will be
deducted from the next remittance or a check from Vendor to clear this amount
will be paid within 30 days at the option of Purchaser. Purchaser reserves the
right to charge the Vendor penalties and interest for any Debit Balances not
paid within 30 days. Unless waived by Purchaser, the Vendor will be required to
submit a Letter of Credit for the amount specified below.
$ X D.M.M. Waiver
-------------- ------------
================================================================================
**IMPORTANT NOTICE** ALL PAYMENTS OF MONIES MUST BE MAILED TO
THE ADDRESS INDICATED BELOW:
[ ] P.O. BOX 889, LOWELL, AR 72745
[ ] P.O. BOX 18045 B, ST. LOUIS, MO 63160
[ ] P.O. BOX 500646, ST. LOUIS, MO 63150-0646 (Allowance Checks)
[ ] P.O. BOX 60128, ST. LOUIS, MO 63160 (Special Divisions)
================================================================================
WARRANTY POLICY
- --------------------------------------------------------------------------------
VENDOR MUST CHECK OPTIONS BELOW AND COMPLETE INFORMATION BEFORE
AGREEMENT CAN BE APPROVED
- --------------------------------------------------------------------------------
Vendor will be charged current costs plus a 10% handling charge for all
returned merchandise except where a Defective/Returned Merchandise Allowance is
given by the vendor. Returned merchandise will be shipped with return freight
charges billed back to the vendor. Returns are F.O.B. Purchaser.
[ ] VENDOR OPTION #1: VENDOR WANTS RETURNED MERCHANDISE SENT TO THEM:
[ ] Returned merchandise will be sent to the vendor direct from
each store. Permanent return authorization
#________________________, if required for shipment. If
automatic return is not possible, an 800 number should be
provided or the vendor must accept purchaser's collect calls
to secure return authorization over the phone.
Phone ____ -- ____ -- ____ Contact__________________________
[ ] Returned merchandise will be sent from store locations to the
return center and sent to the vendor.
Permanent return authorization #________________________, if
required for shipment. The practice of requesting a separate
return authorization number for each return claim (shipment)
will be discontinued.
ADDRESS TO SHIP RETURNS TO:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMENTS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] VENDOR OPTION #2: VENDOR DOES NOT WANT RETURNED MERCHANDISE SENT TO THEM
[ ] Returned merchandise will be sent from store locations to the
Return Center for disposal
[ ] Return Center may dispose of returned merchandise through
salvage outlets.
[ ] Return Center must destroy returned merchandise.
[ ] Returned merchandise must be disposed of by the individual
store.
COMMENTS:
See vendors warranty - Attachment A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] VENDOR OPTION #3: DEFECTIVE/RETURNED MERCHANDISE ALLOWANCE
Vendor will allow the Defective/Returned Merchandise Allowance shown on the
reverse side of this agreement. The percentage must be adequate to cover all
defective/returned merchandise or additional claims will be filed by the Return
Center at our fiscal year end.
[ ] Return Center may dispose of returned merchandise through
salvage outlets.
[ ] Return Center must destroy returned merchandise.
[ ] Returned merchandise will be sent from store locations to the
Return Center and sent to the vendor. If vendor requests the
returned merchandise to be sent to them, they will be charged
a 10% handling charge and the merchandise will be shipped with
return freight charges billed back to the vendor.
ADDRESS TO SHIP RETURNS TO:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMENTS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
PAYMENT TERMS
ALL DATING SHALL BEGIN AT THE DATE OF RECEIPT OF THE GOODS AT PURCHASER'S DOCK.
ON ALL E.O.M. (END OF MONTH) DATINGS, GOODS RECEIVED AFTER THE 24TH OF ANY
MONTH SHALL BE PAYABLE AS IF RECEIVED IN THE FOLLOWING MONTH INVOICES SHOULD BE
MAILED OR ELECTRONICALLY TRANSMITTED ON THE SAME GOODS ARE SHIPPED AND SHALL
DATE FROM PURCHASER'S RECEIPT OF THE GOODS CASH DISCOUNT WILL BE CALCULATED ON
THE GROSS AMOUNT OF VENDOR'S INVOICE.
1. Cash Discount -- Enter whole percents
- --- --- ---
Cash Discount Days Available must be filled in if a
- --- --- --- Cash Discount is used
3 0 2. Net Payment Days Available
- --- --- ---
Yes No X 3. E.O.M.
--- ---
NEW STORE/WHSE TERMS IF DIFFERENT THAN REGULAR TERMS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
INSURANCE REQUIREMENTS
A copy of your current Certificate of Insurance with the following requirements
must be attached to this Vendor Agreement. Certificate Holder should read:
WAL-MART STORES, INC. ITS SUBSIDIARIES & ITS AFFILIATES
702 SW 8th Street
Bentonville, AR 72716-9078
Attn: Risk Management
1. COMMERCIAL GENERAL LIABILITY Including Contractual.
Products and Completed Operations with certificate holder named as
Additional Insured as evidenced by attached endorsement.
LIMITS: $2,000,000* Per Occurrence
2. WORKERS' COMPENSATION required provided vendor will be entering
Wal-Mart premises:
Workers' Compensation STATUTORY
EMPLOYERS' LIABILITY $1,000,000
Waiver of Subrogation where permitted by law
3. Notice of Cancellation must be for 30 days.
4. Your Vendor number needs to be stated on certificate of insurance.
Vendor number for new vendors will be assigned upon receipt of vendor
agreement.
5. Renewals of certificates of insurance must be submitted prior to
expiration of insurance with vendor number stated.
6. Please direct any questions regarding your insurance to Risk
Management at (501) 273-6516.
7. If certificate of insurance does not comply with requests, vendor
agreement will be returned until compliances are met.
8. CONTACT FOR PRODUCT LIABILITY CLAIMS:
NAME: Brister's Thunder Karts, Inc.
--------------------------------------------------------------
ADDRESS: P.O. Box 324
--------------------------------------------------------------
CITY: Roseland STATE LA ZIP 70456
-------------------------------- --------- -----------
ATTN: Mr. Mike Passman PHONE 800-438-5278
----------------------------------------- ---------------
FAX 800-867-5278
---------------
INSURING COMPANY: Palomar Insurance Corp.
--------------------------------
PHONE: 334-270-0105
-----------------------------------------------------------------
*$5,000,000 if determined by Wal-Mart as a high risk vendor
================================================================================
COMPLIANCE WITH STANDARDS FOR VENDOR PARTNERS
Vendor agrees to comply with the obligations expressed in the "WAL-MART
STANDARDS FOR VENDOR PARTNERS: which is attached hereto and incorporated
herein.
================================================================================
Vendor shall protect, defend, hold harmless and indemnify Purchaser from and
against any and all claims, actions, liabilities, losses, costs and expenses,
even if such claims are groundless, fraudulent or false, arising out of any
actual or alleged infringement of any patent, trademark or copyright by any
merchandise sold to the purchaser hereunder, or arising out of any actual or
alleged death of or injury to any person, damage to any property, or any other
damage or loss, by whomsoever suffered, resulting or claimed to result in whole
or in part from any actual or alleged defect in such merchandise, whether
latent or patent, including actual or alleged improper construction or design
of said merchandise or the failure of said merchandise to comply with
specifications or with any express or implied warranties of Vendor, or arising
out of any actual or alleged violation by such merchandise, or its
manufacturer, possession or use or sales, of any law, statute or ordinance of
any governmental administrative order, rule or regulation arising out of
Vendor's installation of merchandise covered by this agreement. The duties and
obligations of Vendor created hereby shall not be affected or limited in any
way by Purchaser's extension of express or implied warranties to its customers,
except to the extent that any such warranties expressly extend beyond the scope
of Vendor's warranties, express or implied, to Purchaser. It is further agreed
that all duties and obligations of Vendor set forth in this paragraph shall
extend in full force and effect to pallet at the direction of Vendor.
================================================================================
ALL PURCHASES MADE BY PURCHASER SHALL BE CONTROLLED BY THE PURCHASER'S PURCHASE
ORDER "TERMS AND CONDITIONS", WHICH IS ATTACHED AS A PART OF THIS AGREEMENT AND
INCLUDED WITH EACH MANUALLY TRANSMITTED ORDER. THIS AGREEMENT AND ALL DISPUTES
ARISING HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ARKANSAS. THE PARTIES AGREE THAT THE EXCLUSIVE
JURISDICTION OF ANY DISPUTE ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY
DISPUTE RELATING TO THE SERVICES OR GOODS PROVIDED HEREUNDER SHALL BE IN THE
STATE AND FEDERAL COURTS OF THE COUNTIES OF BENTON OR WASHINGTON, STATE OF
ARKANSAS.
By the execution of this Vendor Merchandise Agreement. Vendor agrees to the
representations stated above, and on the following page. Vendor further agrees
that Purchaser may rely on these representations in placing any purchase orders
pursuant to information contained in this Agreement. Any changes to this
Agreement must be in writing and executed by both parties.
SELLER:
By: /s/ MIKE PASSMAN DATE 6/5/96
------------------------------------------------------------ -----------
(Principal of the company) (Signature needed on all copies)
Title: Vice President & Plant Manager
-------------------------------------------------------------------------
PURCHASER:
By: /s/ SHERRY BRIDGES DATE 6/11/96
------------------------------------------------------------ -----------
(Buyer)
By: DATE
------------------------------------------------------------ -----------
(Division Merchandise Manager)
Salesman: Mike Passman
-----------------------------------------------------------------------
Address: P.O. Box 324
-----------------------------------------------------------------------
Roseland, LA 70456
-----------------------------------------------------------------------
Phone Number: 800-438-5278
----------------------
Sales Mgr. or V.P. Sales: Mike Passman
-------------------------------------------------------
Address: P.O. Box 324
-----------------------------------------------------------------------
Roseland, LA 70456
-----------------------------------------------------------------------
Phone Number: 800-438-5278
----------------------
Pres. Name: V. Lynn Graybill
---------------------------------------------------------------
Address: 109 Northpark Blvd., Suite 210
---------------------------------------------------------------
Covington, LA 70433
---------------------------------------------------------------
Page 2 of 6
<PAGE> 1
EXHIBIT 10.11
Vendor No. Department No. Effective Date
-------------- ------------ -----------
WAL-MART STORES, INC.
STANDARDS
FOR
VENDOR PARTNERS
Wal-Mart Stores, Inc. ("Wal-Mart") has enjoyed success by adhering to three
basic principles since its founding in 1962. The FIRST PRINCIPLE is the
concept of providing value and service to our customers by offering quality
merchandise at low prices every day. Wal-Mart has built the relationship with
its customers on this basis, and we believe it is a fundamental reason for the
Company's rapid growth and success. The SECOND PRINCIPLE is corporate
dedication to a partnership between the Company's associates (employees),
ownership and management. This concept is extended to Wal-Mart's Vendor
Partners who have increased their business as Wal-Mart has grown. The THIRD
PRINCIPLE is a commitment by Wal-Mart to the United States and the communities
in which stores and distribution centers are located.
Wal-Mart strives to conduct its business in a manner that reflects these three
basic principles and the resultant fundamental values. Each of our Vendor
Partners, including our Vendor Partners outside the United States, are expected
to conform to those principles and values and to assure compliance in all
contracting, subcontracting or other relationships.
Since Wal-Mart believes that the conduct of its Vendor Partners can be
transferred to Wal-Mart and affect its reputation, Wal-Mart requires that its
Vendor Partners conform to standards of business practices which are consistent
with the three principles described above. More specifically, Wal-Mart requires
conformity from its Vendor Partners with the following standards, and hereby
reserves the right to make periodic, unannounced inspections of Vendor
Partner's facilities to satisfy itself of Vendor Partner's compliance with
these standards:
1. COMPLIANCE WITH APPLICABLE LAWS
All Vendor Partners shall comply with the legal requirements and
standards of their industry under the national laws of the countries
in which the Vendor Partners are doing business. Should the legal
requirements and standards of the industry conflict, Vendor Partners
must, at a minimum, be in compliance with the legal requirements of
the country in which the products are manufactured. If, however, the
industry standards exceed the country's legal requirements, Wal-Mart
will favor Vendor Partners who meet such industry standards. Vendor
Partners shall comply with all import requirements of the U.S. Customs
Service and all U.S. Government agencies. Necessary invoices and
required documentation must be provided in compliance with U.S. law.
Vendor Partners shall warrant to Wal-Mart that no merchandise sold to
Wal-Mart infringes the patents, trademarks or copyrights of others and
shall provide to Wal-Mart all necessary licenses for selling
merchandise sold to Wal-Mart which is under license from a third
party to protect intellectual property rights in the United States or
elsewhere. All merchandise shall be accurately marked or labeled with
its country of origin in compliance with the laws of the United States
and those of the country of manufacture. All shipments of merchandise
will be accompanied by the requisite documentation issued by the
proper governmental authorities, including but not limited to Form
A's, import licenses, quota allocations and visas and shall comply
with orderly marketing agreements, voluntary restraint agreements and
other such agreements in accordance with U.S. law. The commercial
invoice shall, in English, accurately describe all the merchandise
contained in the shipment, identify the country of origin of each
article contained in the shipment, and shall list all payments,
whether direct or indirect, to be made for the merchandise, including,
but not limited to any assists, selling commissions or royalty
payments. Backup documentation, and any Wal-Mart required changes to
any documentation, will be provided by Vendor Partners promptly.
2. EMPLOYMENT
Wal-Mart is a success because its associates are considered partners
and a strong level of teamwork has developed within the Company.
Wal-Mart expects the spirit of its commitment to be reflected by its
Vendor Partners with respect to their employees. At a minimum,
Wal-Mart expects its Vendor Partners to meet the following terms and
conditions of employment:
COMPENSATION
Vendor Partners shall fairly compensate their employees by
providing wages and benefits which are in compliance with the
national laws of the countries in which the Vendor Partners
are going business and which are consistent with the
prevailing local standards in the countries in which the
Vendor Partners are doing business, if the prevailing local
standards are higher.
HOURS OF LABOR
Vendor Partners shall maintain reasonable employee work hours
in compliance with local standards and applicable national
laws of the countries in which the Vendor Partners are doing
business. Employees shall not work more hours in one week than
allowable under applicable law, and shall be compensated as
appropriate for overtime work. We favor Vendor Partners who
utilize less than sixty-hour work weeks, and we will not use
suppliers who, on a regularly scheduled basis, require
employees to work in excess of a sixty-hour week. Employees
should be permitted reasonable days off (which we define as
meaning at least one day off for every seven-day period--in
other words, the employee would work six days and have at
least one day off during a seven day period) and leave
privileges.
FORCED LABOR/PRISON LABOR
Vendor Partners shall maintain employment on a voluntary
basis. Forced or prison labor will not be tolerated by
Wal-Mart. Wal-Mart will not accept products from Vendor
Partners who utilize in any manner forced labor or prison
labor in the manufacture or in their contracting,
subcontracting or other relationships for the manufacture of
their products.
CHILD LABOR
Wal-Mart will not tolerate the use of child labor in the
manufacture of products it sells. We will not accept products
from Vendor Partners that utilize in any manner child labor in
their contracting, subcontracting or other relationships for
the manufacture of their products. For a definition of
"Child", we will look first to the national laws of the
country in which the Vendor Partner is doing business. If,
however, the laws of that country do not provide such a
definition or if the definition includes individuals below the
age of 15, Wal-Mart will define "Child", for purposes of
determining use of illegal child labor, as any one who is:
a. less than 15 years of age; or
b. younger than the compulsory age to be in school in
the country in which the Vendor Partner is doing
business, if that age is higher than 15.
Wal-Mart supports legitimate workplace apprenticeship
education programs for younger persons.
Page 5 of 6
<PAGE> 2
DISCRIMINATION/HUMAN RIGHTS
Wal-Mart recognizes that cultural differences exist and
different standards apply in various countries, however, we
believe that all terms and conditions of employment should be
based on an individual's ability to do the job, not on the
basis of personal characteristics or beliefs. Wal-Mart favors
Vendor Partners who have a social and political commitment to
basic principles of human rights and who do not discriminate
against their employees in hiring practices or any other term
or condition of work, on the basis of race, color, national
origin, gender, religion, disability, sexual orientation or
political opinion.
3. WORKPLACE ENVIRONMENT
Wal-Mart maintains a safe, clean, healthy and productive environment
for its associates and expects the same from its Vendor Partners.
Vendor Partners shall furnish employees with safe and healthy working
conditions. Factories working on Wal-Mart merchandise shall provide
adequate medical facilities, fire exits and safety equipment, well lit
and comfortable workstations, clean restrooms, and adequate living
quarters where necessary. Wal-Mart will not do business with any
Vendor Partner which provides an unhealthy or hazardous work
environment or which utilizes mental or physical disciplinary
practices.
4. CONCERN FOR THE ENVIRONMENT
We believe it is our role to be a leader in protecting our
environment. We encourage our customers and associates to always
Reduce, Reuse, and Recycle. We also encourage our Vendor Partners to
reduce excess packaging and to use recycled and non-toxic materials
whenever possible. We will favor Vendor Partners who share our
commitment to the environment.
5. BUY AMERICAN COMMITMENT
Wal-Mart has a strong commitment to buy as much merchandise made in
the United States as feasible. Vendor Partners are encouraged to buy
as many materials and components from United States sources as
possible and communicate this information to Wal-Mart. Further, Vendor
Partners are encouraged to establish U.S. manufacturing operations.
6. REGULAR INSPECTION AND CERTIFICATION BY VENDOR PARTNER
Vendor Partner shall designate, on a copy of the Wal-Mart Vendor
Partner Inspection and Certification Form, one or more of its officers
to inspect each of its facilities which produces merchandise sold to
Wal-Mart. Such inspections shall be done on at least a quarterly basis
to insure compliance with the standards, terms and conditions set
forth herein. The Vendor Partner Officer designated to perform such
inspections shall certify to Wal-Mart following each inspection that
he or she performed such inspection and that the results reflected on
such compliance inspection form are true and correct.
7. RIGHT OF INSPECTION
To further assure proper implementation of and compliance with the
standards set forth in this Memorandum of Understanding, Wal-Mart or a
third party designated by Wal-Mart will undertake affirmative
measures, such as on-site inspection of production facilities, to
implement and monitor said standards. Any Vendor Partner which fails
or refuses to comply with these standards is subject to immediate
cancellation by Wal-Mart of all its outstanding orders with that
Vendor partner as well as refusal by Wal-Mart to continue to do
business in any manner with that Vendor Partner.
As an officer of __________________, a Vendor Partner of Wal-Mart, I have read
the principles and terms described in this document and understand my company's
business relationship with Wal-Mart is based upon said company being in full
compliance with these principles and terms. I further understand that failure
by a Vendor Partner to abide by any of the terms and conditions stated herein
may result in the immediate cancellation by Wal-Mart of all outstanding orders
with that Vendor Partner and refusal by Wal-Mart to continue to do business in
any manner with said Vendor Partner. I am signing this statement, as a
corporate representative of ______________________, to acknowledge, accept and
agree to abide by the standards, terms and conditions set forth in this
Memorandum of Understanding between my company and Wal-Mart. I hereby affirm
that all actions, legal and corporate, to make this Agreement binding and
enforceable against __________________ have been completed.
VENDOR PARTNER COMPANY NAME,
ADDRESS, TELEPHONE AND FAX NUMBER
- --------------------------------- Representative Name:
/s/ MIKE PASSMAN
- --------------------------------- ---------------------------------
- --------------------------------- Typed Name: Mike Passman
---------------------
- --------------------------------- Title Vice President & Plant Manager
---------------------------------
- --------------------------------- Date: 6-7-96
---------------------------------
Page 6 of 6
<PAGE> 3
Attachment A
Warranty Policy
Brister's Thunder Karts, Inc.
Brister's Thunder Karts, Inc. (manufacturer) warrants its fun kart products on
a limited warranty basis for a period of ninety (90) days against manufacturers
defects only.
Any of the manufacturer's products must be sent to an authorized service center
as designated by Brister's Thunder Karts, Inc. for evaluation and repair. If
the kart is covered under warranty, the service center will repair and file a
claim against the appropriate party. If it is determined that the
manufacturer's product is defective, Sam's club can then file a 20% markdown
allowance and sell the item. If it is determined by the service center that the
product was abused and not defective, no credit will be allowed and no markdown
allowance filed.
Examples of abuse or other types of returns for which credit will not be
allowed are:
1. Axles torn off
2. No oil was put in crankcase
3. Kart will not "go fast enough"
4. Metal parts of the kart are bent
5. Any other evidence of abuse of the kart
<PAGE> 4
VENDOR AGREEMENT
WAL-MART STORES, INC.
Corporate Office
Bentonville, AR 72716
(501) 273-4000
THIS AGREEMENT IS A LEGALLY BINDING DOCUMENT AND THE PARTIES HERETO AGREE TO BE
BOUND BY ALL TERMS AND CONDITIONS HEREIN; HOWEVER, THIS VENDOR AGREEMENT AND
OTHER TERMS, CONDITIONS AND STANDARDS INCORPORATED HEREIN DO NOT CREATE AN
OBLIGATION FOR PURCHASER TO PURCHASE MERCHANDISE OR OTHER GOODS.
<TABLE>
<S> <C> <C> <C> <C> <C>
TO BE COMPLETED BY PURCHASER Effective Date VENDOR NO DEPT SEQ
--------------------- 211394 6 0
[X] WAL-MART [ ] EXISTING VENDOR [X] PURCHASE/MDSE CATEGORY
[ ] SAM'S CLUB [X] NEW VENDOR [ ] EXPENSE & ---------------------------------------------
[ ] SUPERCENTER [ ] UPDATE Type DEPARTMENT 16
[ ] OTHER [X] NEW SEQ. --------- -------------------------------------------
---------- BUYER S. McCall EXT
---------------------------- ---------------
</TABLE>
================================================================================
GENERAL VENDOR INFORMATION
Company Classification: (Please disregard this section if you are not a minority
owned business)
Minority Owned? Woman-Owned?
------- -------
B Black P Asian-Pacific American I Asian Indian N Eskimo
--- --- --- ---
H Hispanic N American Indian N Aleut N Native American
--- --- --- ---
IF YOUR COMPANY FALLS WITHIN ANY OF THE ABOVE MINORITY CLASSES AND HAS BEEN
CERTIFIED AS MINORITY OWNED BY A GOVERNMENT AGENCY OR PURCHASING COUNCIL, YOU
ARE QUALIFIED FOR THE FIRST STEP IN THE WAL-MART MINORITY OWNED BUSINESS
DEVELOPMENT PROGRAM. A COPY OF YOUR CERTIFICATION MUST BE ATTACHED TO QUALIFY.
- --------------------------------------------------------------------------------
Enter the Federal Taxpayer Identification Number (TIN) of the Payee Named
Below. If a "TIN" has not been issued, enter the Employer's Social Security
Number.
63-1059139 OR -- --
------- -------- --------
TYPE OF PAYEE (CHECK ONLY ONE):
Individual/Sole Proprietorship X Corporation
--- ---
Partnership Other
--- ---
PURCHASER RESERVES THE RIGHT TO REMIT TO THE PARTY TO WHOM THE PURCHASE ORDER
IS ISSUED
<TABLE>
<S> <C>
ADDRESS TO MAIL PAYMENT: ADDRESS TO SEND PURCHASE ORDERS:
Vendor Name USA INDUSTRIES, INC. Vendor Name USA INDUSTRIES, INC.
-------------------------------------- ----------------------------------------------
Address P.O. Box 45547 Attention MICHAEL ALLEN
------------------------------------------- ------------------------------------------------
City ATLANTA State GA Zip 30320-0547 Address 202 CHALLENGE AVENUE
----------------- ------- ------------ --------------------------------------------------
Factor Name City PRATTVILLE State AL Zip 36067
--------------------------------------- -------------------------- -------- --------
Vendor Also Doing Business As (Attach a list to Street Address for use by delivery services other than
this Agreement if space below is insufficient) the U.S. Mail, if not already shown in the Purchase
Order address above.
Vendor # Room
- ----------------------- ----------------- ------------------------------------------ --------
Expedite Orders: Phone -- --
---------- ---------- --------
ADDRESS TO MAIL CLAIM DOCUMENTATION: ADDRESS TO SEND PRICING TICKETS:
Attention Mr. MICHAEL ALLEN Vendor Name
-------------------------------------- ----------------------------------------------
Address 202 CHALLENGE AVENUE Attention
---------------------------------------- ------------------------------------------------
City PRATTVILLE State AL Zip 36067 Address
----------------- ------- --------- -------------------------------------------------
Accounting Phone Number 800-774-9393 City State Zip
----------------------- -------------------------- --------- --------
Toll Free Number 800-774-9393
-------------------------------
FAX Number 334-365-9345
-------------------------------------
</TABLE>
================================================================================
VENDOR FINANCIAL INFORMATION
Vendor shall furnish to Purchaser, when returning this completed agreement, a
complete set of current financial statements. If such statements are not
available, a Dun & Bradstreet financial report shall be provided by Vendor.
Publicly-held companies shall provide to Purchaser the most recent Annual
Report to Shareholders and Management Proxy information. In the event that
Purchaser's purchases from Vendor constitutes twenty percent (20%) or more of
Vendor's gross annual sales, Vendor agrees to notify Purchaser of the fact in
writing within thirty (30) days of said event.
================================================================================
NOTICE REGARDING ASSIGNMENT OF ACCOUNTS
The Vendor shall provide Purchaser written notice of an assignment,
factoring, or other transfer of its right to receive payments arising under
this agreement 30 days prior to such assignment, factoring, or other transfer
taking legal effect. Such written notice shall include the name and address of
assignee/transferee, date assignment is to begin, and terms of the assignment,
and shall be considered delivered upon receipt of such written notice by the
Vendor Master Clerk. Vendor shall be allowed to have only one assignment,
factoring or transfer legally effective at any one point in time. No multiple
assignments, factorings or transfers by the Vendor shall be permitted.
Purchaser shall have the right to take deduction or other set-offs
against any payment assigned, transferred, or factored by the Vendor and Vendor
shall indemnify Purchaser against and hold Purchaser harmless from any and all
lawsuits, claims, actions, damages (including reasonable attorney fees,
court costs, obligations, liabilities, or liens) arising or imposed in
connection with the such deductions or set-offs or with the assignment or
transfer of factoring of any account or right arising thereunder Vendor also
releases and waives any right, claim or action against Purchaser for amounts due
and owing under this Agreement where Vendor has not complied with the notice
requirements of this provision. Such notice shall be mailed directly to:
INVOICE CONTROL DEPT.
ATTN: VENDOR MASTER CLERK
BENTONVILLE, AR 72716-8002
================================================================================
VENDOR ELECTRONIC DATA INTERCHANGE RESPONSIBILITIES
Vendor agrees to receive orders and send Wal-Mart invoices VIA EDI (electronic
transmission) unless specifically waived by Purchaser.
1. Vendor will establish a user I.D. to identify its company. The
presence of this user I.D. in the EDI interchange will be sufficient
to verify the source of the data and the authenticity of the document.
2. Documents containing the user I.D. will constitute a signed writing
and neither party shall contest the validity or enforceability of the
document on this basis.
3. EDI documents or printout thereof shall constitute an original when
maintained in the normal course of business. Vendor waiver is
approved.
EDI WAIVER REQUESTED
* Purchaser agrees to waive the EDI requirements of vendor. Purchase orders will
be sent via overnight mail at vendors expense. G.M.M. WAIVER
-------------
================================================================================
SHIPPING TERMS
<TABLE>
<S> <C>
FREIGHT TERMS MINIMUM FOR PREPAID FREIGHT TERMS:
WHOLE
[X] COLLECT - FOB VENDOR ___ POUNDS ___ UNITS ___ DOLLARS
[ ] PREPAID - FOB PURCHASER
[ ] PREPAID TO CONSOLIDATOR - FOB PURCHASER'S CONSOLIDATOR
</TABLE>
================================================================================
SHIPPER LOAD AND COUNT RESPONSIBILITIES
The Vendor who is shipping collect to Wal-Mart/Sam's a full truckload, will be
responsible for monitoring their shipping process including closing the trailer
and securing it with a vendor provided seal. This seal number MUST be referenced
and identified as the seal number on all copies of the Bill of Lading. If the
Vendor fails to seal the trailer, the driver will seal the trailer on the
Vendor's behalf. The driver will then document that seal number on the Bill of
Lading before providing the Vendor with his/her copy. If the load is properly
sealed and a shortage does occur, Vendor shall be liable for said shortage.
================================================================================
CONDITION OF SALE
Attach Details of Available Programs. Programs that are accepted will become an
addendum to Agreement.
[X] Guaranteed Sales [ ] Consignment [ ] Preticketing [ ] Prepricing
[ ] Stock Balancing [ ] Shelf Labels
================================================================================
STANDARD PURCHASE ORDER ALLOWANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DISC HOW PAID WHEN PAID
MEMO Each Inv. Other
CODE ALLOWANCE % OI CM CK EI M Q S A
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SA Item Level New Store/Club Discount 10 X X
(% Applied to each line item for --- --- --- --- --- --- --- --- ---
each new store)
OL P.O. Level New Store/Club Discount
(% Applied to total amount of --- --- --- --- --- --- --- --- ---
each purchase order)
NW New Distribution Center
--- --- --- --- --- --- --- --- ---
WA Warehouse Allowance
--- --- --- --- --- --- --- --- ---
QD Warehouse Distribution Allow
(Order Type 33 Only) --- --- --- --- --- --- --- --- ---
DM Defective/Returned Mdse. Allowance
--- --- --- --- --- --- --- --- ---
SD Soft Goods Defective Allow
--- --- --- --- --- --- --- --- ---
PA Promotional Allowance DEPT/SEQ 160
--- VENDOR # 211394 --- --- --- --- --- --- --- ---
VD Volume Discount CODE 1
--- KEY DATE 10-2-96 --- --- --- --- --- --- --- ---
FA Freight Allowance VM CJM
--- --- --- --- --- --- --- --- ---
AA Advertising Allowance
--- --- --- --- --- --- --- --- ---
TR TV/Radio Media Allowance
--- --- --- --- --- --- --- --- ---
DA Display/Endcap Allowance
--- --- --- --- --- --- --- --- ---
EB Early Buy Allowance
--- --- --- --- --- --- --- --- ---
HA Handling Allowance
--- --- --- --- --- --- --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OI-Off.Invoice CM-Credit Memo CK-Check EI-Each Invoice
M-Monthly Q-Quarterly S-Semi-Annually A-Annually
<PAGE> 5
CONDITION OF MERCHANDISE
Vendor agrees to only ship goods which comply with the "Warranties and
Guarantees" section of the "Purchase Order Terms and Conditions" which is
attached hereto and incorporated herein.
================================================================================
PRICE GUARANTEE AND NOTICE OF PRICE INCREASES
Prices are guaranteed by Vendor against manufacturer's or Vendor's own price
decline and against legitimate competition until date of shipment with
Purchaser's owned inventories price protected by credit memo. In the event that
prior to the final shipment under any order Vendor sells or offers to others
goods substantially of the same kind as ordered at lower prices and or on terms
more favorable to a third party than those stated on the purchase order, the
prices and or terms shall be deemed automatically revised to equal the lowest
prices and most favorable terms at which Vendor shall have sold or shall have
offered such goods and payment shall be made accordingly. In the event
Purchaser shall become entitled to such lower prices, but shall have made
payment at any prices in excess thereof, Vendor shall promptly refund the
difference in price to Purchaser. In the event that a court or regulatory
agency or body finds that the prices on an order are in excess of that allowed
by any law or regulation of any governmental agency, the prices shall be
automatically revised to equal a price which is not in violation of said law or
regulations. If Purchaser shall have made payment before it is determined that
there has been a violation, Vendor shall promptly refund an amount of money
equal to the difference between the price paid for the goods and the price
which is not in violation of said regulations. In the event of a prior
increase, Vendor shall give Wal-Mart written notice of any such increase at
least (60) days prior to the effective date of the increase.
================================================================================
DEBIT BALANCES
If Vendor has a Debit Balance with Purchaser, the amount owed Purchaser will be
deducted from the next remittance or a check from Vendor to clear this amount
will be paid within 30 days at the option of Purchaser. Purchaser reserves the
right to charge the Vendor penalties and interest for any Debit Balances not
paid within 30 days.
================================================================================
**IMPORTANT NOTICE** ALL PAYMENTS OF MONIES MUST BE MAILED TO
THE ADDRESS INDICATED BELOW:
[ ] P.O. BOX 889, LOWELL, AR 72745
[ ] P.O. BOX 18045 B, ST. LOUIS, MO 63160
[ ] P.O. BOX 500646, ST. LOUIS, MO 63150-0646 (Allowance Checks)
[ ] P.O. BOX 60128, ST. LOUIS, MO 63160 (Special Divisions)
================================================================================
WARRANTY POLICY
- --------------------------------------------------------------------------------
VENDOR MUST CHECK OPTIONS BELOW AND COMPLETE INFORMATION BEFORE AGREEMENT CAN
BE APPROVED
- --------------------------------------------------------------------------------
Vendor will be charged current costs plus a 10% handling charge for all
returned merchandise except where a Defective/Returned Merchandise Allowance is
given by the vendor. Returned merchandise will be shipped with return freight
charges billed back to the vendor. Returns are F.O.B. Purchaser.
[X] VENDOR OPTION #1: VENDOR WANTS RETURNED MERCHANDISE SENT TO THEM:
[X] Returned merchandise will be sent to the vendor direct from
each store. Permanent return authorization
#________________________, if required for shipment. If
automatic return is not possible, an 800 number should be
provided or the vendor must accept purchaser's collect calls
to secure return authorization over the phone.
Phone 800-774-9393 Contact Michael Allen
--------------------- --------------------------
[ ] Returned merchandise will be sent from store locations to the
return center and sent to the vendor. Permanent return
authorization #________________________, if required for
shipment. The practice of requesting a separate return
authorization number for each return claim (shipment) will be
discontinued.
ADDRESS TO SHIP RETURNS TO:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMENTS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] VENDOR OPTION #2: VENDOR DOES NOT WANT RETURNED MERCHANDISE SENT TO THEM
[ ] Returned merchandise will be sent from store locations to the
Return Center for disposal
[ ] Return Center may dispose of returned merchandise through
salvage outlets.
[ ] Return Center must destroy returned merchandise.
[ ] Returned merchandise must be disposed of by the individual
store.
COMMENTS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] VENDOR OPTION #3: DEFECTIVE/RETURNED MERCHANDISE ALLOWANCE
Vendor will allow the Defective/Returned Merchandise Allowance shown on the
reverse side of this agreement. The percentage must be adequate to cover all
defective/returned merchandise or additional claims will be filed by the Return
Center at our fiscal year end.
[ ] Return Center may dispose of returned merchandise through
salvage outlets.
[ ] Return Center must destroy returned merchandise.
[ ] Returned merchandise will be sent from store locations to the
Return Center and sent to the vendor. If vendor requests the
returned merchandise to be sent to them, they will be charged
a 10% handling charge and the merchandise will be shipped with
return freight charges billed back to the vendor.
ADDRESS TO SHIP RETURNS TO:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMENTS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
PAYMENT TERMS
ALL DATING SHALL BEGIN AT THE DATE OF RECEIPT OF THE GOODS AT PURCHASER'S DOCK
ON ALL E.O.M. (END OF MONTH) DATINGS, GOODS RECEIVED AFTER THE 24TH OF ANY
MONTH SHALL BE PAYABLE AS IF RECEIVED IN THE FOLLOWING MONTH INVOICES SHOULD BE
MAILED OR ELECTRONICALLY TRANSMITTED ON THE SAME GOODS ARE SHIPPED AND SHALL
DATE FROM PURCHASER'S RECEIPT OF THE GOODS CASH DISCOUNT WILL BE CALCULATED ON
THE GROSS AMOUNT OF VENDOR'S INVOICE.
1. Cash Discount
- --- --- ---
Cash Discount Days Available
- --- --- ---
3 0 2. Net Payment Days Available (must be at least one
- --- --- --- day more than Cash Discount Days Available)
Yes No X 3. E.O.M.
--- ---
NEW STORE/WHSE TERMS IF DIFFERENT THAN REGULAR TERMS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
INSURANCE REQUIREMENTS
A copy of your current Certificate of Insurance with the following requirements
must be attached to this Vendor Agreement. Certificate Holder should read:
WAL-MART STORES, INC. ITS SUBSIDIARIES & ITS AFFILIATES
702 SW 8th Street
Bentonville, AR 72716-9078
Attn: Risk Management
1. COMMERCIAL GENERAL LIABILITY Including Contractual.
Products and Completed Operations with certificate holder named as
Additional Insured as evidenced by attached endorsement. LIMITS:
$2,000,000* Per Occurrence
2. WORKERS' COMPENSATION required provided vendor will be entering
Wal-Mart premises:
Workers' Compensation STATUTORY
EMPLOYERS' LIABILITY $1,000,000
Waiver of Subrogation where permitted by law
3. Notice of Cancellation must be for 30 days.
4. Your Vendor number needs to be stated on certificate of insurance.
Vendor number for new vendors will be assigned upon receipt of vendor
agreement.
5. Renewals of certificates of insurance must be submitted prior to
expiration of insurance with vendor number stated.
6. Please direct any questions regarding your insurance to Risk
Management at (501) 273-6516.
7. If certificate of insurance does not comply with requests, vendor
agreement will be returned until compliances are met.
8. CONTACT FOR PRODUCT LIABILITY CLAIMS:
NAME: USA INDUSTRIES, INC.
--------------------------------------------------------------
ADDRESS: 202 CHALLENGE AVE.
--------------------------------------------------------------
CITY: PRATTVILLE STATE AL ZIP 36067
-------------------------------- --------- -----------
ATTN: MICHAEL ALLEN PHONE 800-774-9393
----------------------------------------- ---------------
FAX 334-365-9345
--------------
INSURING COMPANY: PALOMAR INSURANCE CORPORATION
--------------------------------
PHONE: 334-270-0105
-----------------------------------------------------------------
*$5,000,000 if determined by Wal-Mart as a high risk vendor
================================================================================
COMPLIANCE WITH STANDARDS FOR VENDOR PARTNERS
Vendor agrees to comply with the obligations expressed in the "WAL-MART
STANDARDS FOR VENDOR PARTNERS" which is incorporated herein as part of this
Vendor Agreement. Wal-Mart reserves the right to cancel any outstanding order,
refuse any shipments and otherwise cease to do business with Vendor in the
event Vendor fails to comply with all terms of said Standards or if Wal-Mart
has reason to believe Vendor has failed to comply with said Standards.
================================================================================
Vendor shall protect, defend, hold harmless and indemnify Purchaser from and
against any and all claims, actions, liabilities, losses, costs and expenses,
even if such claims are groundless, fraudulent or false, arising out of any
actual or alleged infringement of any patent, trademark or copyright by any
merchandise sold to the purchaser hereunder, or arising out of any actual or
alleged death of or injury to any person, damage to any property, or any other
damage or loss, by whomsoever suffered, resulting or claimed to result in whole
or in part from any actual or alleged defect in such merchandise, whether
latent or patent, including actual or alleged improper construction or design
of said merchandise or the failure of said merchandise to comply with
specifications or with any express or implied warranties of Vendor, or arising
out of any actual or alleged violation by such merchandise, or its
manufacturer, possession or use or sales, of any law, statute or ordinance of
any governmental administrative order, rule or regulation arising out of
Vendor's installation of merchandise covered by this agreement. The duties and
obligations of Vendor created hereby shall not be affected or limited in any
way by Purchaser's extension of express or implied warranties to its customers,
except to the extent that any such warranties expressly extend beyond the scope
of Vendor's warranties., express or implied, to Purchaser. It is further agreed
that all duties and obligations of Vendor set forth in this paragraph shall
extend in full force and effect to pallet at the direction of Vendor.
================================================================================
ALL PURCHASES MADE BY PURCHASER SHALL BE CONTROLLED BY THE PURCHASER'S PURCHASE
ORDER "TERMS AND CONDITIONS", WHICH IS ATTACHED AS A PART OF THIS AGREEMENT AND
INCLUDED WITH EACH MANUALLY TRANSMITTED ORDER. THIS AGREEMENT AND ALL DISPUTES
ARISING HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ARKANSAS. THE PARTIES AGREE THAT THE EXCLUSIVE
JURISDICTION OF ANY DISPUTE ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY
DISPUTE RELATING TO THE SERVICES OR GOODS PROVIDED HEREUNDER SHALL BE IN THE
STATE AND FEDERAL COURTS OF THE COUNTIES OF BENTON OR WASHINGTON, STATE OF
ARKANSAS. ANY LEGAL ACTION BROUGHT BY VENDOR AGAINST PURCHASER WITH RESPECT TO
THIS AGREEMENT SHALL BE FILLED IN ONE OF THE ABOVE-REFERENCED JURISDICTIONS
WITHIN TWO (2) YEARS AFTER THE CAUSE ACTION ARISES. THE PARTIES ACKNOWLEDGE
THAT THEY HAVE READ AND UNDERSTOOD THIS CLAUSE AND AGREE ______________________
LIMITATION OF DAMAGES. IN NO EVENT SHALL WAL-MART BE LIABLE FOR ANY INCIDENTAL
OR CONSEQUENTIAL DAMAGES INCLUDING WITHOUT LIMITATION, LOSS OF PROFITS OR
BUSINESS, OR OTHER CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO,
DAMAGES ARISING OUT OF WAL-MART'S CANCELLATION OF ORDERS OR THE TERMINATION OF
BUSINESS RELATIONS WITH VENDOR) EVEN IF WAL-MART HAS BEEN ADVISED BY VENDOR OF
THE POSSIBILITY OF SUCH DAMAGES.
By the execution of this Vendor Merchandise Agreement. Vendor agrees to the
representations stated above, and on the following page. Vendor further agrees
that Purchaser may rely on these representations in placing any purchase orders
pursuant to information contained in this Agreement. Any changes to this
Agreement must be in writing and executed by both parties. Furthermore, in the
event of a conflict of terms between the Vendor Agreement and a Purchase Order,
the Vendor Agreement shall be the controlling document.
SELLER:
By: /s/ MICHAEL ALLEN DATE 9/25/96
------------------------------------------------------------ -----------
(Principal of the company) (Signature needed on all copies)
Title: President
-------------------------------------------------------------------------
PURCHASER:
By: /s/ SCOTT MCCALL DATE 9/30/96
------------------------------------------------------------ -----------
(Buyer)
By: /s/ SCOTT MCCALL DATE 9/30/96
------------------------------------------------------------ -----------
(Division Merchandise Manager)
Salesman:
-----------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Phone Number:
----------------------
Sales Mgr. or V.P. Sales:
-------------------------------------------------------
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Phone Number:
----------------------
Pres. Name: MICHAEL ALLEN
---------------------------------------------------------------
202 CHALLENGE AVE.
---------------------------------------------------------------
PRATTVILLE AL 36067
---------------------------------------------------------------
<PAGE> 6
ATTACHMENT A
WARRANTY/RETURN POLICY
USA INDUSTRIES, INC.
REVISED 10-01-96
USA Industries, Inc. (manufacturer) warrants its fun kart products on a limited
warranty basis for a period of ninety (90) days against manufacturers defects
only.
Any of the manufacturers products must be sent to an authorized service center
as designated by USA Industries, Inc. for evaluation and repair. If the kart is
covered under warranty, the service center will repair and file a claim against
the appropriate party. If it is determined that the manufacturers product is
defective, Wal-Mart can then file for a "Return Authorization Number" from the
factory by calling 1-800-774-9393. If it is determined by the service center
that the product was abused and not defective, no credit will be allowed and no
return authorization will be given.
Examples of abuse or other types of returns for which credit will not be
allowed are:
1. Axles torn off
2. No oil was put in the crank case
3. Kart will not "go fast enough"
4. Metal parts of the kart are bent
5. Any other evidence of abuse of the kart
The warranty will be considered void if the repairs are not handled through an
authorized service center.
<PAGE> 7
I, Michael Allen, President of USA Industries, Inc. give permission to Charity,
Assistant to Scott McCall, with Wal-Mart Corporation, the authorization to
change the appropriate box on our vendors agreement to reflect the attached
warranty/return policy revision of 10-01-96.
/s/ MICHAEL ALLEN
- ------------------------------------
<PAGE> 1
EXHIBIT 10.12
FLOORPLAN AGREEMENT
This Floorplan Agreement ("Agreement") is made as of September 9, 1996
between DEUTSCHE FINANCIAL SERVICES CORPORATION ("DFS"), having a principal
place of business at 655 Maryville Centre Drive, St. Louis, Missouri 63141, and
KARTS INTERNATIONAL/BRISTER'S THUNDER KARTS, INC. [Full and exact name of
Vendor] ("Vendor"), having a principal place of business located at Highway 51
South Roseland, LA 70456.
Vendor sells various products ("Merchandise") to dealers and/or
distributors (individually and collectively "Dealer") who may require financial
assistance in order to make such purchases from Vendor. To induce DFS to
finance the acquisition of Merchandise by any Dealer and in consideration
thereof, Vendor and DFS agree that:
1. VENDOR'S WARRANTIES. Whenever a Dealer requests the shipment
of Merchandise from Vendor and that DFS finance such Merchandise, Vendor may
deliver to DFS an invoice(s) describing the Merchandise. By delivery of an
invoice, Vendor and DFS warrant the following:
a. That Vendor transfers to Dealer all right, title and
interest in and to the Merchandise so described,
contingent upon DFS' approval to finance the
transaction;
b. That Vendor's title to the Merchandise is free and
clear of all liens and encumbrances when transferred
to Dealer;
c. That the Merchandise is in salable condition suitable
for ordinary retail sale, free of any defects;
d. That the Merchandise is the subject of a bona fide
order by Dealer placed with and accepted by Vendor,
and that Dealer has requested the transaction be
financed by DFS; and
e. That the Merchandise subject to the transaction has
been shipped to Dealer not more than ten (10) days
prior to the invoice date.
If Vendor breaches any of the above-described warranties,
Vendor will immediately: (i) pay to DFS an amount equal to the total unpaid
balance (being principal and finance charges) owed to DFS on all Merchandise
related to the breach; and (ii) reimburse DFS for all costs and expenses
(including, but not limited to, reasonable attorneys' fees) incurred by DFS as
a result of the breach.
2. FINANCING OF MERCHANDISE. DFS will only be bound to finance
Merchandise which DFS has accepted to finance (such acceptances will be
indicated by DFS' issuance of an approval number, draft or other instrument to
Vendor in payment of the invoice, less the amount of DFS' charges as agreed
upon from time to time) and only if: (a) the Merchandise is delivered to Dealer
within thirty (30) days following DFS' acceptance; (b) DFS has received
Vendor's invoice for such Merchandise within ten (10) days from the date of
delivery of the Merchandise to Dealer; and (c) DFS has not revoked its
acceptance prior to the shipment of the Merchandise to Dealer.
3. PURCHASE OF MERCHANDISE. Whenever DFS deems it necessary in
its sole discretion to repossess or if DFS otherwise comes into possession,
actual or constructive, of any Merchandise in which it has a security interest
or other lien, Vendor will purchase such Merchandise from DFS at the time of
DFS' repossession or other acquisition of possession in accordance with the
following terms and conditions:
a. Vendor will purchase such Merchandise, regardless of
its condition, at the point where DFS repossesses it
or where it otherwise comes into DFS' possession;
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b. The purchase price Vendor will pay to DFS for such
Merchandise will be due and payable immediately in
full, and will be an amount equal to (i) the total
unpaid balance (being principal and finance charges)
owed to DFS with respect to such Merchandise, or
Vendor's original invoice price for such Merchandise,
whichever is greater, and (ii) all costs and expenses
(including, but not limited to, reasonable attorneys'
fees) paid or incurred by DFS in connection with the
repossession of such Merchandise; and
c. Vendor shall not assert or obtain any interest in or
to any Merchandise acquired by Vendor until the
purchase price therefor is paid in full.
4. ADDITIONAL TERMS OF PURCHASE. In addition to Vendor's
obligations set forth above, if DFS at any time repossesses or otherwise comes
into possession of any Merchandise from any Dealer who received the Merchandise
from a third party and not directly from Vendor, Vendor shall purchase such
Merchandise from DFS on demand, in accordance with the terms set forth above in
Section 3; provided, however; (a) DFS will first request such third party to
purchase such Merchandise from DFS; and (b) if such third party fails to
immediately purchase such Merchandise from DFS, Vendor shall immediately
purchase such Merchandise and pay DFS a purchase price therefor in an amount
equal to the total unpaid balance (being principal and finance charges) owed to
DFS with respect to such Merchandise and all costs and expenses (including,
without limitation, reasonable attorneys' fees) paid or incurred by DFS in
connection with its repossession of such Merchandise, but in no event will
Vendor's liability with respect to any item of such Merchandise exceed Vendors
invoice price for such item.
5. EXTENSION OF TIME; WAIVERS. DFS may extend the time of a
Dealer in default to fulfill its obligations to DFS without notice to Vendor
and without altering Vendor's obligations hereunder. Vendor waives any rights
it may have to notice of nonpayment, nonperformance, dishonor, the amount of
indebtedness of a Dealer outstanding at any time, any legal proceeding against
a Dealer, and any other demands and notices except as required by law, and any
rights it may have to require DFS to proceed against a Dealer or the
Merchandise or to pursue any other remedy in DFS' power. Vendor's liability to
DFS is direct and unconditional and will not be affected by any change in the
terms of payment or performance of any agreement between DFS and Dealer, or the
release, settlement or compromise of or with any party liable for the payment
or performance thereof, the release or non-perfection of any security
thereunder, any change in Dealer's financial condition, or the interruption of
business relations between DFS and Dealer.
6. EXPENSES; RELEASE OF INFORMATION. Vendor will pay all DFS'
expenses (including, but not limited to, court costs, arbitration fees and
reasonable attorneys' fees) in the event DFS is required to enforce its rights
against Vendor. Vendor will release to DFS any credit, financial or other
information on any Dealer upon each request by DFS. Vendor will immediately
notify DFS if Vendor reasonably believes that Dealer has violated the terms of
any franchise, permission, license or right to sell or deal in the Merchandise.
DFS' failure to exercise any rights granted hereunder shall not operate as a
waiver of those rights.
7. INVOICES. Invoices submitted to DFS by Vendor should indicate
that the Merchandise is "Sold to (Name of Dealer) and "Financed by Deutsche
Financial Services Corporation." However, if Vendor's invoices read "Sold to
Deutsche Financial Services Corporation", and, regardless of the invoice,
Vendor acknowledges and agrees that DFS is not purchasing Merchandise, but is
only financing said Merchandise for Dealer.
8. SUCCESSORS AND ASSIGNS; OBLIGATIONS. This Agreement will be
binding upon and inure to the benefit of DFS' successors and assigns. Vendor
cannot assign this Agreement without DFS' prior written consent. DFS may
perform or cause to be performed any or all of its obligations hereunder by any
of its subsidiaries and/or affiliated companies. Vendor's obligations under
this Agreement inure to the benefit of any of DFS' subsidiaries and/or
affiliated companies.
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9. EVENTS OF DEFAULT. The occurrence of any of the following
events shall be deemed an "Event of Default" under this Agreement: (a)
Vendor's failure to pay when due any amount owed DFS hereunder or under any
other agreement between DFS and Vendor; (b) Vendor's failure to perform or
observe any covenant, term or provision hereunder or under any other agreement
between DFS and Vendor; (c) termination or impairment of any guaranty of
Vendor's obligations hereunder; (d) Vendor shall cease existence as a
corporation, partnership, limited liability company or trust, as applicable;
(e) Vendor ceases or suspends business; (f) Vendor makes a general assignment
for the benefit of creditors; (g) Vendor becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law; (h) any receiver is appointed for any assets
of Vendor; (i) Vendor sells, transfers or assigns all or substantially all of
its assets; (j) Vendor merges its business with another business, regardless of
whether Vendor is the surviving entity; or (k) there is any material adverse
change in Vendor's financial condition.
10. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of
Default, DFS shall have the right, at DFS' option, to immediately exercise one
or more of the following remedies: (a) refuse to extend any further financing
to Dealers; (b) terminate the Agreement; or (c) exercise any other rights it
may have under the laws of the state governing this Agreement.
11. TERMINATION. Either party may terminate this Agreement by
notice to the other in writing, the termination to be effective thirty (30)
days after receipt (which receipt is presumed to be five (5) business days
after the same is sent) of notice by the other party provided, however, that
DFS may terminate this Agreement immediately if an Event of Default has
occurred. In any event, no termination of this Agreement will affect any of
Vendor's (or its assignees, whether permitted or unpermitted) liability with
respect to any financial transactions entered into by DFS with any Dealer prior
to the effective date of termination, including, without limitation,
transactions that will not be completed until after the effective date of
termination.
12. MISCELLANEOUS. Vendor will notify DFS of any change in its
name or business structure. Vendor waives notice of DFS' acceptance of this
Agreement. This Agreement is not intended, nor shall it be deemed to, directly
or indirectly, benefit any person or entity, including any Dealer, who is not a
party hereto.
13. NO ORAL AGREEMENTS. There are no oral or unwritten agreements
between DFS and Vendor regarding the subject matter hereof. Vendor and DFS
acknowledge and agree that all agreements and understandings between them are
set forth in this Agreement and any terms letters executed in connection
herewith (as the same may be revised from time to time without necessitating an
amendment of this Agreement) or in any other writing between the parties
relating hereto.
14. BINDING ARBITRATION. Any controversy or claim arising out of
or relating to this Agreement, the relationship resulting in or from this
Agreement, the breach of any duties hereunder or any other relationship,
transaction or dealing between the parties (collectively "Disputes") will be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of The American Arbitration Association, 140 West 51st Street, New York,
New York 10020-1203. Except as otherwise stated herein, all notices,
arbitration claims, responses, requests and documents will be sufficiently
given or served if mailed or delivered: (a) to DFS at 655 Maryville Centre
Drive, St. Louis, Missouri 63141-5832. Attention: General Counsel; and (b) to
any other party at the address specified herein; or such other address as the
parties may specify from time to time in writing. The parties agree that all
arbitrators selected will be attorneys with at least five (5) years secured
transactions experience. Any award rendered by the arbitrator(s) may be entered
as a judgment or order and confirmed or enforced by either party in any state
or federal court having competent jurisdiction thereof. If either party
brings or appeals any judicial action to vacate or modify any award rendered
pursuant to arbitration or opposes the confirmation of such award and the party
bringing or appealing such action
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or opposing confirmation of such award does not prevail, such party will pay
all of the costs and expenses (including, without limitation, court costs,
arbitrators fees and expenses and attorneys' fees) incurred by the other party
in defending such action. Additionally, if either party brings any action for
judicial relief in the first instance without pursuing arbitration prior
thereto, the party bringing such action for judicial relief will be liable for
and will immediately pay to the other party all of the other party's costs and
expenses (including, without limitation, court costs and attorneys' fees) to
stay or dismiss such judicial action and/or remove it to arbitration. The
failure of either party to exercise any rights granted hereunder shall not
operate as a waiver of any of those rights. THE LAWS OF THE STATE OF ILLINOIS
WILL GOVERN THIS AGREEMENT AND ALL TRANSACTIONS HEREUNDER AS TO INTERPRETATION,
ENFORCEMENT VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS; PROVIDED,
HOWEVER, THAT THE FEDERAL ARBITRATION ACT ("FAA"), TO THE EXTENT INCONSISTENT,
WILL SUPERSEDE THE LAWS OF SUCH STATE AND GOVERN. This Agreement concerns
transactions involving commerce among the several states. The arbitrators will
not be empowered to award punitive damages. The agreement to arbitrate will
survive termination of this Agreement. IF THIS AGREEMENT IS FOUND TO BE NOT
SUBJECT TO ARBITRATION, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
THE COURTS LOCATED WITHIN SUCH STATE AND AGREE THAT ALL LEGAL PROCEEDINGS WILL
BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. EACH
PARTY WAIVES ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING.
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.
KARTS INTERNATIONAL/BRISTER'S THUNDER KARTS, INC.
-------------------------------------------------
ATTEST:
/s/ TIMOTHY P. HALTER By: /s/ V. LYNN GRAYBILL
- -------------------------- ---------------------------------------------
Name: V. Lynn Graybill
--------------------------------------------
Title: President
-------------------------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
- ---------
(1) Name of Vendor
(2) Signature of Vendor's Authorized Representative
(3) Signature of Vendor's Secretary, if Vendor is
a Corporation, Otherwise a Witness' Signature
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EXHIBIT 10.13
GUARANTY OF VENDOR
TO: DEUTSCHE FINANCIAL SERVICES CORPORATION
In consideration of financing provided or to be provided by you to
dealers and/or distributors of __________________________________ ("Vendor"),
under the terms of that certain FLOORPLAN AGREEMENT entered into between you
and Vendor on __________, 1996, and all current and future amendments and
addenda thereto ("Agreement"), and for other good and valuable consideration
received, we jointly, severally, unconditionally and absolutely guaranty to
you, from property held separately, jointly or in community, the immediate
payment when due of all current and future liabilities owed by Vendor to you
under the Agreement, whether such liabilities are direct, indirect or owed by
Vendor to a third party and acquired by you ("Liabilities"). We will pay you on
demand the full amount of all Liabilities due from Vendor, together with all
costs and expenses (including, without limitation, reasonable attorneys' fees).
We also indemnify and hold you harmless from and against all (a) losses, costs
and expenses you incur and/or are liable for (including, without limitation,
reasonable attorneys' fees) and (b) claims, actions and demands made by Vendor
or any third party against you, which in any way relate to any relationship or
transaction between you and Vendor.
Our guaranty will not be released, discharged or affected by, and we
irrevocably consent to, any: (a) change in the manner, place, interest rate,
finance or other charges, or terms of payment or performance in any current or
future agreement between you and Vendor, and/or any Dealer or distributor of
Vendor (collectively "Dealer"), the release, settlement or compromise of or
with any party liable for the payment or performance thereof or the
substitution, release, non-perfection, impairment, sale or other disposition of
any collateral thereunder; (b) change in Vendor's and/or any of Dealer's
financial condition; (c) interruption of relations between Vendor and you or
us; (d) interruption of relations between you and any Dealer; (e) claim or
action by Vendor, and/or any Dealer, against you; and/or (f) increases or
decreases in any credit you may provide to Vendor and/or any Dealer. We will
pay you even if you have not (i) notified Vendor that it is in default of the
Liabilities, or (ii) exercised any of your rights or remedies against Vendor,
any Dealer, any other person or any current or future collateral. This Guaranty
is assignable by you and will inure to the benefit of your assignee. If Vendor
hereafter undergoes any change in its ownership, identity or organizational
structure, this Guaranty will extend to all current and future obligations
which such new or changed legal entity owes to you.
We irrevocably waive: notice of your acceptance of this Guaranty,
presentment, demand, protest, nonpayment, nonperformance, notice of breach or
default, any right of contribution from other guarantors, dishonor, the amount
of indebtedness of Vendor, and/or any Dealer, outstanding at any time, the
number and amount of advances made by you to any Dealer in reliance on this
Guaranty and any claim or action against Vendor and/or any dealer or
distributor of Vendor; notice and hearing as to any prejudgment remedy against
Vendor and/or any Dealer; all other demands and notices required by law
directly or indirectly relating to Vendor and/or any Dealer; all rights of
offset and counterclaims against you or Vendor; all rights in, and notices or
demands relating to, any collateral now or hereafter securing any Liabilities
(including, without limitation, all rights, notices or demands directly or
indirectly relating to the sale or other disposition of such collateral or the
manner of such sale or other disposition); all defenses to the enforceability
of this Guaranty (including, without limitation, fraudulent inducement). We
further waive all defenses based on suretyship or impairment of collateral, and
defenses which the Vendor may assert on the underlying debt, including but not
limited to, failure of consideration, breach of warranty, fraud, payment,
statute of frauds, bankruptcy, lack of legal capacity, statute of limitations,
lender liability, deceptive trade practices, accord and satisfaction and usury.
We also waive all rights to claim, arbitrate for or sue for any punitive or
exemplary damages. In addition, we hereby irrevocably subordinate to you any
and all of our present and
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future rights and remedies: (a) of subrogation against Vendor to any of your
rights or remedies against Vendor and/or any Dealer; (b) of contribution,
reimbursement, indemnification and restoration from Vendor and/or any Dealer;
and (c) to assert any other claim or action against Vendor, and/or any Dealer
directly or indirectly relating to this Guaranty, such subordinations to last
until you have been paid in full for all Liabilities. All our waivers and
subordinations herein will survive any termination of this Guaranty.
We have made an independent investigation of the financial condition
of Vendor and give this Guaranty based on that investigation and not upon any
representation made by you. We have access to current and future Vendor
financial information which enables us to remain continuously informed of
Vendor's financial condition. We represent and warrant to you that we have
received and will receive substantial direct or indirect benefit by making this
Guaranty and incurring the Liabilities. We will provide you with financial
statements on us each year within ninety (90) days after the end of our fiscal
year end. We warrant and represent to you that all financial statements and
information relating to us or Vendor which have been or may hereafter be
delivered by us or Vendor to you are true and correct and have been and will be
prepared in accordance with generally accepted accounting principles
consistently applied and, with respect to previously delivered statements and
information, there has been no material adverse change in the financial or
business condition of us or Vendor since the submission to you, either as of
the date of delivery, or if different, the date specified therein, and we
acknowledge your reliance thereon. This Guaranty will survive any federal
and/or state bankruptcy or insolvency action involving Vendor. We are solvent
and our execution of this Guaranty will not make us insolvent. If you are
required in any action involving Vendor to return or rescind any payment made
to or value received by you from or for the account of Vendor, this Guaranty
will remain in full force and effect and will be automatically reinstated
without any further action by you and notwithstanding any termination of this
Guaranty or your release of us. Any delay or failure by you, or your
successors or assigns, in exercising any of your rights or remedies hereunder
will not waive any such rights or remedies. Oral agreements or commitments to
loan money, extend credit or to forbear from enforcing repayment of a debt
including promises to extend or renew such debt are not enforceable. To protect
us and you from misunderstanding or disappointment, any agreements we reach
covering such matters are contained in this writing, which is the complete and
exclusive statement of the agreement between us, except as specifically
provided herein or as we may later agree in writing to modify it.
Notwithstanding anything herein to the contrary: (a) you may rely on any
facsimile copy, electronic data transmission or electronic data storage of this
Guaranty, any agreement between you and Vendor, any Statement of Transaction,
billing statement, invoice from Vendor, financial statements or other report,
and (b) such facsimile copy, electronic data transmission or electronic data
storage will be deemed an original, and the best evidence thereof for all
purposes, including, without limitation, under this Guaranty or any other
agreement between you and us, and for all evidentiary purposes before any
arbitrator, court or other adjudicatory authority. We may terminate this
Guaranty by a written notice to you, the termination to be effective sixty (60)
days after you receive and acknowledge it, but the termination will not
terminate our obligations hereunder arising prior to the effective termination
date. We have read and understood all terms and provisions of this Guaranty. We
acknowledge receipt of a true copy of this Guaranty and of all agreements
between you and Vendor. The meanings of all terms herein are equally applicable
to both the singular and plural forms of such terms.
BINDING ARBITRATION. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
of good faith, fair dealing, and the commercial reasonableness
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of any collateral disposition, or any other contract claim, all claims of
deceptive trade practices or lender liability, and all claims questioning the
reasonableness or lawfulness of any act), whether arising before or after the
date of this Guaranty, and whether directly or indirectly relating to: (a) this
Guaranty and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between you and
us; (c) any act committed by you or by any parent company, subsidiary or
affiliated company of you (the "DFS Companies"), or by an employee, agent,
officer or director of a DFS Company, whether or not arising within the scope
and course of employment or other contractual representation of the DFS
Companies provided that such act arises under a relationship, transaction or
dealing between you and Vendor or you and us; and/or (d) any other
relationship, transaction, dealing or agreement between you and Vendor or you
and us (collectively the "Disputes"), will be subject to and resolved by
binding arbitration.
All arbitration hereunder will be conducted in accordance with the
Commercial Arbitration Rules of The American Arbitration Association ("AAA").
If the AAA is dissolved, disbanded or becomes subject to any state or federal
bankruptcy or insolvency proceeding, the parties will remain subject to binding
arbitration which will be conducted by a mutually agreeable arbitral forum. The
parties agree that all arbitrator(s) selected will be attorneys with at least
five (5) years secured transactions experience. The arbitrator(s) will decide if
any inconsistency exists between the rules of any applicable arbitral forum and
the arbitration provisions contained herein. If such inconsistency exists, the
arbitration provisions contained herein will control and supersede such rules.
The site of all arbitrations will be in the Division of the Federal Judicial
District in which AAA maintains a regional office that is closest to Vendor.
Discovery permitted in any arbitration proceeding commenced hereunder
is limited as follows: No later than thirty (30) days after the filing of a
claim for arbitration, the parties will exchange detailed statements setting
forth the facts supporting the claim(s) and all defenses to be raised during
the arbitration, and a list of all exhibits and witnesses. No later than
twenty-one (21) days prior to the arbitration hearing, the parties will
exchange a final list of all exhibits and all witnesses, including any
designation of any expert witness(es) together with a summary of their
testimony; a copy of all documents and a detailed description of any property
to be introduced at the hearing. Under no circumstances will the use of
interrogatories, requests for admission, requests for the production of
documents or the taking of depositions be permitted. However, in the event of
the designation of any expert witness(es), the following will occur: (a) all
information and documents relied upon by the expert witness(es) will be
delivered to the opposing party, (b) the opposing party will be permitted to
depose the expert witness(es), (c) the opposing party will be permitted to
designate rebuttal expert witness(es), and (d) the arbitration hearing will be
continued to the earliest possible date that enables the foregoing limited
discovery to be accomplished.
The Arbitrator(s) will not have the authority to award exemplary or
punitive damages.
All arbitration proceedings, including testimony or evidence at
hearings, will be kept confidential, although any award or order rendered by
the arbitrator(s) pursuant to the terms of this Guaranty may be entered as a
judgment or order in any state or federal court and may be entered as a
judgment or order within the federal judicial district which includes the
residence of the party against whom such award or order was entered. This
Guaranty concerns transactions involving commerce among the several states. The
Federal Arbitration Act ("FAA") will govern all arbitration(s) and confirmation
proceedings hereunder.
Nothing herein will be construed to prevent your or our use of
bankruptcy, receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, dation and/or any
other prejudgment or provisional
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action or remedy relating to any Collateral for any current or future debt owed
by either party to the other. Any such action or remedy will not waive your or
our right to compel arbitration of any Dispute.
If either we or you bring any other action for judicial relief with
respect to any Dispute (other than those set forth in the immediately preceding
paragraph), the party bringing such action will be liable for and immediately
pay all of the other party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer such Dispute to
arbitration. If either we or you bring or appeal an action to vacate or modify
an arbitration award and such party does not prevail, such party will pay all
costs and expenses, including attorneys' fees, incurred by the other party in
defending such action. Additionally, if we sue you or institute any arbitration
claim or counterclaim against you in which you are the prevailing party, we
will pay all costs and expenses (including attorneys' fees) incurred by you in
the course of defending such action or proceeding.
Any arbitration proceeding must be instituted: (a) with respect to any
Dispute for the collection of any debt owed by either party to the other,
within two (2) years after the date the last payment was received by the
instituting party; and (b) with respect to any other Dispute, within two (2)
years after the date the incident giving rise thereto occurred, whether or not
any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such
period will constitute an absolute bar and waiver to the institution of any
proceeding with respect to such Dispute. Except as otherwise stated herein, all
notices, arbitration claims, responses, requests and documents will be
sufficiently given or served if mailed or delivered: (i) to us at our address
below; (ii) to you at 655 Maryville Centre Drive, St. Louis, Missouri
63141-5832, Attention: General Counsel; or such other address as the parties
may specify from time to time in writing.
The agreement to arbitrate will survive the termination of this
Guaranty.
IF THIS GUARANTY IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL
PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. WE WAIVE ANY RIGHT TO A JURY TRIAL IN
ANY SUCH PROCEEDING.
We acknowledge and agree that this Guaranty and all agreements between
Vendor and you have been substantially negotiated, and will be performed, in
the state of Illinois. Accordingly, we agree that all Disputes will be governed
by, and construed in accordance with, the laws of such state, except to the
extent inconsistent with the provisions of the FAA which will control and
govern all arbitration proceedings hereunder.
THIS GUARANTY CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS.
Date: September 9, 1996
(1) INDIVIDUAL GUARANTOR(S): (2) CORPORATE, PARTNERSHIP OR LIMITED
LIABILITY COMPANY GUARANTOR:
Signed By: KARTS INTERNATIONAL/
---------------------------- BRISTER'S THUNDER KARTS, INC.
--------------------------------------
(Print Name: ) (Name of Corporate, Partnership or
------------------------- Limited Liability Company Guarantor)
WITNESS: /s/ COURTENAY ROLSTON By: /s/ V. LYNN GRAYBILL
----------------------------- ----------------------------------
(Print Name: Courtenay Rolston ) (Print Name: V. Lynn Graybill )
------------------------- -------------------------
Title: President
-------------------------------
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SIGNED By: (3)
-------------------------
(Print Name: ) Address of Guarantor(s):
-----------------------
WITNESS: (4) --------------------------------------
---------------------------
(Print Name: ) --------------------------------------
-----------------------
--------------------------------------
(1)NOTARY STATEMENT
On this 9th day of September, 1996, before me, the subscriber, a Notary Public,
personally appeared V. Lynn Graybill(7) known to me to be the person(s)
described in and who executed the above Guaranty of Vendor, and who
acknowledged the execution thereof to be their free act and deed.
Notary Public: /s/ JOHN J. RABALAIS
--------------------
My Commission Expires: at death, 19
-----
(SEAL)
JOHN J. RABALAIS
NOTARY PUBLIC
State of Louisiana
My Commission Is Issued For Life
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(6)SECRETARY'S CERTIFICATE
I hereby certify that I am the Secretary or Assistant Secretary
of KARTS INTERNATIONAL & BRISTER'S THUNDERKARTS, INC. ("Guarantor") and that
execution of the above Guaranty of Vendor was ratified, approved and confirmed
by the Shareholders at a meeting, if necessary, and pursuant to a resolution of
the Board of Directors of Guarantor at a meeting of the Board of Directors duly
called, and which is currently in effect, which resolution was duly presented,
seconded and adopted and reads as follows:
"BE IT RESOLVED that any officer of this corporation is hereby
authorized to execute a guaranty of the obligations of KARTS INTERNATIONAL/
BRISTER'S THUNDERKARTS, INC., ("Vendor") to Deutsche Financial Services
Corporation on behalf of the corporation, which instrument may contain such
terms as the above named persons may see fit including, but not limited to a
waiver of notice of the acceptance of the guaranty; presentment; demand;
protest; notices of nonpayment, nonperformance, dishonor, the amount of
indebtedness of Vendor, and/or any dealer or distributor of Vendor, outstanding
at any time, any legal proceedings against Vendor and/or any dealer or
distributor of Vendor, and any other demands and notices required by law
directly or indirectly relating to Vendor and/or any dealer or distributor of
Vendor; any right of contribution from other guarantors; and all offsets."
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate seal on this 9th day of September, 1996.
(SEAL) Secretary: /s/ Timothy P. Halter
-----------------------------
- -------------
(1) Complete this Section only if Individual Guarantor(s)
(2) Complete this Section only if Corporate, Partnership or Limited
Liability Company Guarantor
(3) Individual Guarantor's Signature
(4) Signature of Witness to Individual Guarantor's Signature (Must be DFS
Employee)
(5) Signature of Corporate, Partnership or Limited Liability Company
Representative
(6) Title of Corporate, Partnership or Limited Liability Company
Representative
(7) Name of Each Individual Guarantor
(8) Complete this Section only if Corporate Guarantor
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This Agreement is made on March 15, 1996, by and between Karts
International Incorporated, a Nevada corporation (the "Corporation"), and Mr.
V. Lynn Graybill (the "Employee").
WHEREAS, the Corporation is engaged in the business of designing,
manufacturing, distributing and marketing go karts; and
WHEREAS, the Corporation desires to retain the services of the
Employee in the capacity of its President, Chief Executive Officer and Chairman
of the Board.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
Section 1. Employment. The Corporation agrees to employ the Employee and
the Employee agrees to accept the employment described in this Agreement.
Section 2. Duties. The Employee shall serve as President, Chief
Executive Officer and Chairman of the Board, with such duties, power and
authority as are customarily associated with such positions. Without limiting
the generality of the foregoing, the Employee shall be responsible for and have
complete authority for: (a) day-to-day operations; (b) implementation of
strategic plans approved by the Board of Directors; (c) all personnel decisions
including complete hire and fire authority; and (d) determining an employee
organizational structure. The Employee will be a voting member of the Board of
Directors and be entitled to attend any and all meetings of the Board of
Directors or any committees established by the Board of Directors.
The Employee shall report to the Board of Directors. Without limiting
the generality of the foregoing, the Employee shall have the following
reporting obligations to the Board of Directors; (a) monthly operating
financial statements; (b) quarterly presentations at mutually agreed upon dates
and times regarding the Corporation's operations. In addition, without
limiting the generality of the foregoing, the Employee shall submit the
following to the Board of Directors for approval: (a) an annual budget; and
(b) any proposals regarding capital expenditures exceeding an aggregate of
$40,000, provided that such expenditures shall not include those incurred in
the ordinary course of business. Leases for the subsidiary company plant sites
and the Karts International corporate offices will be considered in the
category of ordinary course of business provided that such leases were approved
in the annual budget by the Board of Directors.
Section 3. Extent of Services. The Employee shall devote his entire
working time, (exclusive of vacation, reasonable personal matters, funeral
leave, illness, temporary disability, holidays and weekends) attention, and
energies to the performance of his duties. The Employee shall at all times
faithfully and to the best of his ability perform his duties under this
Agreement.
<PAGE> 2
The duties shall be rendered at the Corporation's principal office, at any of
the subsidiary company locations, or at such other place or places and at such
times as the needs of the Corporation may from time-to-time dictate.
Section 4. Term. The term of this Agreement shall begin on March 15,
1996 ("Effective Date"), and shall continue for a three-year period. The
parties presently anticipate that the employment relationship may continue
beyond this three-year term. This Agreement shall not give the Employee any
enforceable right to employment beyond this term.
Section 5. Compensation.
(a) Base Compensation.
(i) The Employee will receive a base salary of $150,000 per year,
payable in accordance with the Corporation's standard payroll
procedures.
(ii) The Employee shall receive, in the manner set forth herein,
210,000 shares of common stock of the Corporation. As soon as
practicable after the date hereof, the Corporation will place such
shares (the "Escrow Shares") in an escrow account pursuant to an
escrow agreement by and among the Corporation, the Employee and the
escrow agent. Such escrow agreement shall provide as follows: (A)
105,000 of the Escrow Shares shall be delivered to the Employee upon
the completion of the first year of his employment with the
Corporation; (B) 52,500 of the Escrow Shares shall be delivered to the
Employee upon the completion of the second year of his employment with
the Corporation; and (C) 52,500 of the Escrow Shares shall be
delivered to the Employee upon the completion of the third year of his
employment with the Corporation. In the event that this Agreement is
terminated by the Company "for cause" (as hereinafter defined) or by
the Employee for any reason, the Employee shall not receive any Escrow
Shares remaining in the escrow account at the time of such
termination. In the event that this Agreement is terminated for any
other reason, the Employee shall be entitled to receive any escrow
shares remaining in the escrow account at the time of such
termination.
(iii) The Employee is eligible for performance-based bonuses in the
form of common stock options. Such bonuses will be paid, if at all,
in the sole discretion of the Board of Directors.
The Employee shall not be entitled to additional compensation by
reason of service as a director of the Corporation.
(b) Benefits. The Employee and his spouse shall receive medical
insurance with the terms thereof to be mutually agreed by the parties hereto,
provided that the cost of such insurance will not exceed $7,200 per year.
(c) Expenses. The Corporation shall reimburse the Employee for
reasonable out-of-pocket expenses incurred by the Employee in connection with
his relocation to Louisiana,
<PAGE> 3
provided such expenses shall not exceed $25,000. In addition, the Corporation
shall reimburse the Employee for reasonable out-of-pocket expenses incurred by
the Employee in fulfilling his duties. In addition, the Corporation shall
provide the Employee and any corporate staff members recruited by the Employee
with suitable office facilities not to exceed 3,500 square feet, at class A
office market rates, located on the North shore area in St. Tammany Parish,
Louisiana or other reasonable location selected by the Employee.
Section 6. Termination.
(a) For Cause. The Corporation may terminate the Employee's
employment at any time "for cause" with immediate effect upon delivering
written notice to the Employee. For purposes of this Agreement, "for cause"
shall include: (i) embezzlement, theft, larceny, material fraud, or other acts
of dishonesty; (ii) material violation by the Employee of any of his
obligations under this Agreement; (iii) conviction of or entrance of a plea of
guilty or nolo contendere to a felony or other crime which has or may have a
material adverse effect on the Employee's ability to carry out his duties under
this Agreement or upon the reputation of the Corporation; (iv) conduct
involving moral turpitude; (v) material or repeated insubordination to the
Board of Directors; or (vi) material and continuing failure by the Employee to
perform the duties described in Section 2 above in a quality and professional
manner for at least thirty (30) days after written warning by the Board of
Directors. Upon termination for cause, with the exception of cause items (v)
and (vi) above, the Corporation's sole and exclusive obligation will be to pay
the Employee his compensation earned under Section 5 (a)(i) hereof through the
date of termination, and the Employee shall not be entitled to any compensation
after the date of termination. If termination occurs for cause items (v) or
(vi) the Employee will receive severance pay in the amount of the Employee's
compensation, including health care benefits, then in effect for a period of
three (3) months subsequent to the date of termination.
(b) Upon Death. In the event of the Employee's death during the
term of this Agreement, the Corporation's sole and exclusive obligation will be
to pay to the Employee's spouse, if living, or to his estate, if his spouse is
not then living, the Employee's compensation earned through the date of death.
(c) Upon Disability. The Corporation may terminate the Employee's
employment upon the Employee's total disability. The Employee shall be deemed
to be totally disabled if he is unable to perform his duties under this
Agreement by reason of mental or physical illness or accident for a period of
three consecutive months. Upon termination by reason of the Employee's
disability, the Corporation's sole and exclusive obligation will be to pay the
Employee his compensation earned through the date of termination.
(d) Without Cause. The Corporation may terminate the Employee's
employment without cause at any time after expiration of the three-year term of
this Agreement. If termination occurs without cause, the Employee shall
receive severance pay in the amount of the Employee's compensation, including
health care benefits, then in effect for a period of six (6) months subsequent
to the date of termination.
3
<PAGE> 4
Section 7. Covenant Not to Compete.
(a) Covenant. Except as provided herein, for the period during
which the Employee is employed by the Corporation, and for a three-year period
after the Employee's employment with the Corporation has been terminated by
either party, the Employee will not directly or indirectly:
(i) enter into or attempt to enter into the "Restricted Business"
(as defined below) in any area in which the Corporation engages in the
Restricted Business;
(ii) induce or attempt to persuade any former, current or future
employee, agent, manager, consultant, director, or other participant
in the Corporation's business to terminate such employment or other
relationship in order to enter into any relationship with the
Employee, any business organization in which the Employee is a
participant in any capacity whatsoever, or any other business
organization in competition with the Corporation's business; or
(iii) use contracts, proprietary information, trade secrets,
confidential information, customer lists, mailing lists, goodwill, or
other intangible property used or useful in connection with the
Corporation's business.
This Section 7 will not apply to the Employee's activities in the
State of Louisiana, which will be governed by that Noncompetition Agreement
dated the date hereof by and between the parties hereto and by the laws of the
State of Louisiana.
(b) Indirect Activity. The term "indirectly," as used in this
Section 7, includes acting as a paid or unpaid director, officer, agent,
representative, employee of, or consultant to any enterprise, or acting as a
proprietor of an enterprise, or holding any direct or indirect participation in
any enterprise as an owner, partner, limited partner, joint venturer,
shareholder, or creditor.
(c) Restricted Business. The term "Restricted Business" means the
the design, manufacture, distribution and marketing of go karts. Nevertheless,
the Employee may own not more than five percent of the outstanding equity
securities of a corporation that is engaged in the Restricted Business if the
equity securities are listed for trading on a national stock exchange or are
registered under the Securities Exchange Act of 1934.
Section 8. Miscellaneous
(a) Severability. It is the desire and intent of the parties that
the provisions of Section 7 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, to the extent that the covenants
hereunder shall be adjudicated to be invalid or unenforceable in any one such
jurisdiction, Section 7 shall be deemed amended to delete therefrom or reform
the portion thus adjudicated to be invalid or unenforceable, such deletion or
reformation to apply only with respect to the operation of Section 7 in the
particular jurisdiction in which such adjudication is made. Moreover, each
provision of this Agreement is intended to be severable; and in the event
4
<PAGE> 5
that any one or more of the provisions contained in this Agreement shall for
any reason be adjudicated to be invalid or unenforceable in any jurisdiction,
the same shall not affect the validity or enforceability of any other
provisions of this Agreement in that jurisdiction, but this Agreement shall be
construed in such jurisdiction as if such invalid or unenforceable provision
had never been contained therein.
(b) Confidentiality. The Employee acknowledges that he will
develop and be exposed to information that is or will be confidential and
proprietary to the Corporation. The information includes customer lists,
marketing plans, pricing data, product plans, software, and other intangible
information. Such information shall be deemed confidential to the extent not
generally known within the trade. The Employee agrees to make use of such
information only in the performance of his duties under this Agreement, to
maintain such information in confidence and to disclose the information only to
persons with a need to know.
(c) Remedies. The Employee acknowledges that monetary damages
would be inadequate to compensate the Corporation for any breach by the
Employee of the covenants set forth in Section 7 above. The Employee agrees
that, in addition to other remedies which may be available, the Corporation
shall be entitled to obtain injunctive relief against the threatened breach of
this Agreement or the continuation of any breach, or both, without the
necessity of proving actual damages.
(d) Waiver. The waiver by the Corporation of the breach of any
provision of this Agreement by the Employee shall not operate or be construed
as a waiver of any subsequent breach by the Employee.
(e) Notices. Any notices permitted or required under this
Agreement shall be deemed given upon the date of personal delivery or
forty-eight (48) hours after deposit in the United States mail, postage fully
prepaid, return receipt requested, addressed to the Corporation at:
Timothy P. Halter
4851 LBJ Freeway, Suite 201
Dallas, Texas 75244
addressed to the Employee at:
V. Lynn Graybill
24 Oak Forest Drive
Longview, Texas 75605
or at any other address as any party may, from time to time, designate by
notice given in compliance with this Section.
(f) Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
5
<PAGE> 6
(g) Titles and Captions. All section titles or captions contained
in this Agreement are for convenience only and shall not be deemed part of the
context nor effect the interpretation of this Agreement.
(h) Entire Agreement. This Agreement contains the entire
understanding between and among the parties and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
(i) Agreement Binding. This Agreement shall be binding upon the
heirs, executors, administrators, successors and assigns of the parties hereto.
(j) Attorney Fees. In the event an arbitration, suit or action is
brought by any party under this Agreement to enforce any of its terms, or in
any appeal therefrom, it is agreed that the prevailing party shall be entitled
to reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
(k) Computation of Time. In computing any period of time pursuant
to this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it is a
Saturday, Sunday, or a legal holiday, in which event the period shall begin to
run on the next day which is not a Saturday, Sunday, or legal holiday, in which
event the period shall run until the end of the next day thereafter which is
not a Saturday, Sunday, or legal holiday.
(l) Pronouns and Plurals. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular, or
plural as the identity of the person or persons may require.
(m) Presumption. This Agreement or any section thereof shall not
be construed against any party due to the fact that said Agreement or any
section thereof was drafted by said party.
(n) Further Action. The parties hereto shall execute and deliver
all documents, provide all information and take or forbear from all such action
as may be necessary or appropriate to achieve the purposes of the Agreement.
(o) Parties in Interest. Nothing herein shall be construed to be
to the benefit of any third party, nor is it intended that any provision shall
be for the benefit of any third party.
(p) Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
(q) Separate Counsel. The parties acknowledge that the
Corporation has been represented in this transaction by its own attorneys, that
the Employee has not been represented
6
<PAGE> 7
in this transaction by the Corporation's attorneys, and the Employee has been
advised to seek separate legal advice and representation in this matter.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day first above written.
KARTS INTERNATIONAL INCORPORATED
By: /s/ TIMOTHY P. HALTER
----------------------------------
Timothy P. Halter
Vice President
By: /s/ V. LYNN GRAYBILL
----------------------------------
V. Lynn Graybill, individually
7
<PAGE> 8
ADDENDUM TO EMPLOYMENT AGREEMENT
BETWEEN KARTS INTERNATIONAL INCORPORATED
AND V. LYNN GRAYBILL
THIS ADDENDUM TO THE EMPLOYMENT AGREEMENT, dated March 15, 1996,
entered into by and between Karts International Incorporated, a Nevada
corporation (the "Corporation"), and Mr. V. Lynn Graybill (the "Employee") is
made and effective as of March 15, 1996 (the "Effective Date").
WHEREAS, the Corporation and Employee began negotiations for an
agreement reflecting the terms and conditions of the Employee's employment by
the Corporation during December 1995 and early January 1996;
WHEREAS, on January 17, 1996, the Employee and Halter Financial Group,
Inc., as representative of Karts International Incorporated, agreed to a letter
of intent which set forth the basic terms and conditions of Employee's
employment with the Corporation;
WHEREAS, on March 15, 1996, the parties executed an Employment
Agreement;
WHEREAS, immediately after execution of the Employment Agreement, the
parties agreed and determined that Section 5(a)(ii) did not accurately set
forth the previous agreement and understanding between the Employee and
Corporation regarding the subject matter as set forth in said Section; and
WHEREAS, the parties now desire to amend the Employment Agreement, and
in particular, Section 5(a)(ii) of the Employment Agreement to accurately set
forth and reflect the parties' previous understanding and agreements.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
a. The parties hereto agree that Section 5(a)(ii) of the
Employment Agreement should be deleted in its entirety and in
its place and stead the parties have hereto agreed to the
following provisions:
Section 5(a)(ii). The Employee shall receive as additional
consideration for entering into this Agreement with the Corporation
and for accepting employment with the Corporation under the terms and
conditions as herein set forth, a signing bonus in the amount of 10%
of the Employee's base salary of $150,000 (or $15,000) to be paid
concurrent with the execution of this Agreement by the Corporation
with the issuance to Employee of 210,000 shares of common stock of the
Corporation. It is further agreed and understood between the parties
that the 210,000 shares of common stock of the Corporation to be
issued to Employee (the "Escrowed Shares") shall be subject to an
Escrow Agreement by and among the Corporation, the Employee and the
Escrow Agent. Such Escrow Agreement shall provide, in part, as
follows:
ADDENDUM TO EMPLOYMENT AGREEMENT - Page 1
<PAGE> 9
(a) If the Employee's employment with the
Corporation is terminated for cause or voluntarily by Employee
prior to the completion of the first year of his employment
with the Corporation, the Corporation shall have the right to
buy back all of the Escrowed Shares from the Employee for
$16,800 or $0.08 per share;
(b) If the Employee's employment with the
Corporation is terminated for cause or voluntarily by Employee
prior to the completion of the second year of his employment
with the Corporation, then the Corporation shall have the
right to purchase from the Employee 105,000 of the Escrowed
Shares for $8,400 or $0.08 per share; and
(c) If the Employee's employment with the
Corporation is terminated for cause or voluntarily by Employee
prior to the completion of the third year of his employment
with the Corporation, then the Corporation shall have the
right to purchase from the Employee 52,500 of the Escrowed
Shares for $4,200 or $0.08 per share. In the event that this
Agreement is terminated for any reason other than "for cause"
(as hereinafter defined in this Agreement) or voluntarily by
the Employee for any reason, the provisions relating to the
repurchase right of the Corporation of the Escrowed Shares
shall terminate and any such Escrowed Shares which shall
remain subject to such repurchase right of the Corporation
shall be delivered to the Employee or his legal
representatives.
IN WITNESS WHEREOF, on this 15th day of March, 1996, the parties have
executed this Addendum to the Employment Agreement to be effective as of March
15, 1996.
KARTS INTERNATIONAL INCORPORATED
By: /s/ TIMOTHY P. HALTER
----------------------------------
Timothy P. Halter, Vice President
/s/ V. LYNN GRAYBILL
-----------------------------------
V. LYNN GRAYBILL, Individually
ADDENDUM TO EMPLOYMENT AGREEMENT - Page 2
<PAGE> 1
EXHIBIT 10.15
109 Northpark Blvd., Suite 210
Covington, LA 70433
(504) 875-7350 Phone (504) 875-7353 Fax
Date: 2-19-97
CONSULTING ENGAGEMENT LETTER
PROJECT DESCRIPTION: Torque Converter Development with Max-Torque
For Application to Big Thunder, Landrunner,
Coyote & TCII Models
PROJECT NO.: 100
CONSULTING FIRM: Chuck Brister
Dear Mr. Brister:
The above identified project is authorized by Karts International Incorporated
(the Company) and Chuck Brister (Consultant) subject to your acceptance as an
independent contractor on the following terms:
The estimated range of consulting hours for the subject project are: 40 to 60
Hours.
The hourly consulting rate for the project is $400 per day in the Roseland, LA
area and $800 per day while traveling in connection with the above stated
project. Payment shall be made on the 15th day of each month. Consultant's
travel involved with the project will be billed to KARTS INTERNATIONAL
including first class air fare, lodging and other reasonable out of pocket
expenses to support the above named project.
The project is to commence on Feb 26, 1997 and conclude on March 28, 1997.
Chuck Brister, Consultant, agrees that he will not use his knowledge of the
Company's business for the benefit of any other person or company or divulge to
others information or data concerning the Company's affairs.
Karts International Incorporated and Chuck Brister, Consultant, agree that
Consultant assumes no liability whatsoever, now or in future, for the
consulting advice provided to Karts International related to this project.
Karts International Incorporated fully indemnifies Chuck Brister, Consultant,
from and against any and all claims, actions, liabilities, losses, costs and
expenses, even if such claims are groundless, fraudulent or false, arising
out of the consulting advice provided to the Company.
Agreed to this 19th day of February, 1997.
Karts International Incorporated Consultant
By: /s/ V. LYNN GRAYBILL By: /s/ CHUCK BRISTER
---------------------------- ----------------------------------
<PAGE> 1
EXHIBIT 10.16
[EASY CARE LETTERHEAD]
January 21, 1997
Mr. V. Lynn Graybill
Chairman, President and CEO
Karts International Incorporated
109 Northpark Blvd., Suite 210
Covington, LA 70433
Dear Lynn:
Per your request, the following is a quote for services from Bobby Labonte.
There are two options, one with the appearance at the show in Louisville and
one without.
Bobby Labonte will become the national spokesperson for Karl International,
Inc. products. This would included
o The right for Kart to use Bobby Labonte's likeness as well as the
picture of the #44 Busch Grand National car in all of its brochures
and advertising materials, on promotions for their products that might
run on the Internet and in trade magazines. Labonte Racing will
provide a standard color photo or negative of Bobby and the car. All
cost of brochures or advertisements are the responsibility of Karts
International
o Mr. Labonte or his representatives will have the right to approve each
particular advertisement and picture that is used. Permission to use
any particular ad or picture will not be unreasonably withheld.
o Kart International will have the right to have a decal approximately
3" by 12" displayed on the #44 Busch Grand National Car. Labonte
racing will determine the location of the decal on the car.
The cost for the above endorsement and promotional activities is $80,000 for
1997 with an option to renew for 1998, if Labonte Racing enters a Busch Grand
National car for the 1998 season, at a rate of $88,000.
o Karts International may choose to have Bobby Labonte appear at the
Lawn and Garden Expo in Louisville, KY along with the #38 Busch Grand
National Show Car for an additional fee of $24,000 plus travel, food
and lodging expenses. Bobby travels in his own plane and Kart would be
charged $800 per hour of actual flying time estimated at approximately
3-4 hours round trip. First class hotel accommodations and
transportation to and from the airport, hotel and event would be
handled by Kart. The Show Car would arrive on Friday evening, July 25,
1997 at the event in Louisville, KY and be available for display for
July 26, 27, 28. Bobby would be available for a maximum of 6 hours per
day on July 27 and July 28 to sign autographs, meet clients and
promote Kart International go karts.
<PAGE> 2
Lynn, this is obviously not a legal contract, but I have spoken with Bobby and
these numbers are acceptable to him. If you agree I will have my in house
counsel draw up a real short contract for both of you to sign.
I have enclosed some information about Bobby. I personally believe you cannot
get a more professional individual in racing to be your spokesperson. Our
EasyCare relationship with Bobby has been excellent and he has done a great job
of promoting our products to our clients.
Some other things you will need to consider.
o You will want to do an autograph card. I have enclosed one of ours and
some others from the industry that you can get some ideas from. We can
assist you in developing yours. The idea is a picture of car and
driver, your logo on front and history of driver and sponsor.
o You will want to prepare a press release to announce the association
and I can get a quote from Bobby, once he has reviewed the information
about your products, which will fit well. If you want some assistance
in writing the press release let me know.
o Also, our people in can tell you which publications in racing you want
to send the release to, but you will want to choose the trade journals
and I believe you could get a good story written about the association
with racing if you made a few calls.
Please call me once you have reviewed this.
Sincerely,
/s/ Larry Dorfman
- ----------------------------
Larry Dorfman
President CEO
LD/li
Accepted as stated above with the addition of payment terms as follows:
$52,000 upon signing the agreement (check is enclosed)
26,000 payable on 4-1-97
26,000 payable on 6-1-97
Bobby Labonte would agree to provide Karts International with a
Federal ID Number.
Attached please find financial statements for KII as of 12-31-96
(calendar fiscal year end)
/s/ V. Lynn Graybill
--------------------------
V. Lynn Graybill, CEO
Karts International Incorporated
<PAGE> 1
EXHIBIT 10.17
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and entered into
effective as of the 16th day of March, 1997, by and among Halter Financial
Group, Inc., a Texas corporation ("HFG") and Karts International Incorporated,
a Nevada corporation (the "Client").
RECITALS
A. HFG owns 15% of the outstanding capital stock of the Client.
B. HFG is experienced in assisting publicly-held companies in
shareholder and investor relations and financial public relations.
C. HFG will provide certain consulting services to the Client on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Consulting Services. HFG hereby agrees to provide the
following consulting services to the Client under the terms and conditions set
forth in this Agreement:
(a) Preparing a program of shareholder communications and
relations including, but not limited to: (i) preparation or review of periodic
letters to shareholders; (ii) preparation of a Company Profile; and (iii)
preparation or review and distribution of press releases;
(b) Preparing a program of communication with brokerage
professionals, investment bankers, and market- makers including, but not
limited to: (i) written communication with brokerage firms, investment bankers,
and market- maker(s); (ii) introductions to retail brokers and investment
bankers; (iii) assistance with brokerage presentations; (iv) coordinating
conference calls with brokers; and
(c) Providing such other general assistance and advice as may be
mutually agreed by the parties.
2. Compensation. As compensation for entering into this
Agreement, the Client will pay to HFG $10,000.
3. Expenses. The Client will be responsible for all costs, fees
and expenses that HFG incurs in connection with the performance of the
services under this Agreement. In the event that the parties agree that HFG
will undertake any project for or on behalf of the Client outside the scope of
this Agreement, the Client will approve and authorize the projected costs and
expenses for such project. HFG will provide the Client with an itemized list
of such costs
<PAGE> 2
and expenses that it incurs on behalf of the Client and the Client will
reimburse HFG for such costs and expenses within 30 days of receipt thereof.
4. Term. This Agreement shall commence on the execution date of
this Agreement and shall continue for a term of 12 months, unless terminated
earlier pursuant to Section 5 hereof.
5. Termination. This Agreement may be terminated:
(a) if there has been a material breach of this Agreement and such
breach has not been cured by the alleged breaching party on or before
30 days from the date of the receipt of written notice from the
non-breaching party detailing the breach; or
(b) upon the mutual written agreement of the parties.
6. Remedies. Upon termination of this Agreement for any reason,
the Client agrees to immediately pay all sums due to HFG in accordance with
this Agreement. The Client agrees to pay a late charge of 1 1/2% per month on
any amount due to HFG which has not been paid within the five days immediately
following its due date until such amount shall have been paid in full.
7. Accuracy of Information and Indemnification. The Client
agrees to fully cooperate with HFG in the performance of HFG's consulting
services as HFG may request. In this regard, the Client agrees to furnish to
HFG complete, truthful and accurate information in all respects. The Client
agrees to indemnify and hold harmless HFG from any loss, liability, damages,
costs and expenses (including attorneys' and other professional fees) that HFG
may incur as a result of the Client furnishing to HFG any untruthful or
inaccurate information or failing to provide any material information necessary
to make the statements being made or the information being furnished accurate
and truthful in light of all the circumstances.
8. Miscellaneous.
(a) Assignability. Unless otherwise agreed to in writing by both
parties hereto, the rights, obligations and benefits established by
this Agreement shall be nonassignable by either of the parties hereto
and any such attempt of assignment shall be null and void and of no
effect whatsoever.
(b) Relationship of the Parties. The management and employees of
HFG shall not be considered employees of the Client. Furthermore, the
parties agree that HFG shall not be deemed to be an employee, servant,
partner or joint venturer of the Client. HFG shall be considered an
independent contractor for all purposes.
(c) Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof,
and may not be changed except by a writing signed by the party against
whom enforcement or discharge is sought.
2
<PAGE> 3
(d) Waiver of Breach. The waiver by either party of a breach of
any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other
party.
(e) Construction of Language. The language used in this
Agreement shall be construed as a whole according to its fair meaning,
and not strictly for nor against either party.
(f) Captions and Headings. The paragraph headings throughout
this Agreement are for convenience and reference only, and shall in no
way be deemed to define, limit or add to the meaning of any provision
of this Agreement.
(g) State Law. This Agreement, its interpretation and its
application shall be governed by the laws of the State of Texas.
(h) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
Execution and delivery of this Agreement by exchange of facsimile
copies bearing facsimile signature of a party shall constitute a valid
and binding execution and delivery of this Agreement by such party.
Such facsimile copies shall constitute enforceable original documents.
(i) Costs. In the event of any legal proceeding between any of
the parties to enforce or defend the terms and rights set forth in
this Agreement, the prevailing party or parties shall be paid all
reasonable costs of such legal proceeding, including but not limited
to, attorneys' fees by the other party or parties.
(j) Notices and Waivers. Any notice or waiver required or
permitted to be given by the parties hereto shall be in writing and
shall be deemed to have been given, when delivered, three business
days after being mailed by certified or registered mail, faxed during
regular business hours of the recipient and there is confirmation of
receipt, or sent by prepaid full rate telegram to the following
addresses:
To HFG:
Timothy P. Halter, President
Halter Financial Group, Inc.
4851 LBJ Freeway, Suite 201
Dallas, Texas 75244
To the Client:
Mr. V. Lynn Graybill, President
Karts International Incorporated
109 North Park Boulevard, Suite 210
Covington, Louisiana 70433
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement
to be effective as of the day first above written.
HALTER FINANCIAL GROUP, INC.
By: /s/ TIMOTHY P. HALTER
--------------------------------
Timothy P. Halter, President
KARTS INTERNATIONAL INCORPORATED
By: /s/ V. LYNN GRAYBILL
--------------------------------
V. Lynn Graybill, President
4
<PAGE> 1
EXHIBIT 10.18
[KARTS INTERNATIONAL INCORPORATED LETTERHEAD]
Ervin L. Betts
25 Garner Street
Norwalk, CT 06854
RE: PRIVATE PLACEMENT SUBSCRIPTION PARTICIPATION OPTION NOTICE
Dear Ervin L. Betts:
Karts International Incorporated (the"Company") is in the process of
preparing a secondary public offering of the Company's securities and is
simultaneously attempting to gain SmallCaps listing status of the Company's
common shares and common stock purchase warrants on Nasdaq's market quotation
system. To help facilitate the Company's application to Nasdaq, the Company is
currently in the process of effectuating a reverse split whereby existing
security holders will receive two shares (or warrants) in the exchange for every
three shares (or warrants) owned. The resulting reduction in the number of
outstanding securities should have a positive effect on the market price of the
Company's securities and help the Company meet Nasdaq's initial listing
requirements. Additionally, in working with Nasdaq on the listing application,
the Company has been informed that Nasdaq will not pass favorably on the
Company's application if any securities have been issued by the Company within
the immediate prior twelve month period in any "bridge financing" transaction.
The Company has determined that the recently closed private placement of
preferred stock and redeemable common stock purchase warrants as closed on
November 15, 1996 (the "Private Placement") may be determined by Nasdaq as such
a "bridge financing" transaction.
Therefore, in order for the Company to satisfy Nasdaq's listing criteria
and move forward with the proposed secondary offering, the Company must formally
offer you a choice of the following two options with regard to the Private
Placement in which you are a subscriber ("Subscriber"):
(i) The Company hereby offers each Subscriber the right to receive a
refund of the original Private Placement funds submitted to the
Company with simple interest applied thereon at 12.0% per annum (or
the legal rate prescribed by governing state law, if any). If this
option is selected, funds will be payable to the Subscriber on the day
of closing of the secondary offering upon surrender of the
Subscriber's preferred stock and warrant certificates; or,
(ii) The Subscriber may retain the original participation in the Private
Placement. This includes commitments of all monies and securities as
described in the subscription documents. Additionally, for each unit
of the Private Placement purchased, the Subscriber will receive an
additional 20,000 redeemable common stock purchase warrants with an
exercise price equal to the secondary offering price. However, all
the Subscriber's securities (the preferred stock and any securities
the preferred stock is convertible into including all common shares
and all warrants) must be voluntarily locked-up and may not be sold by
the Subscriber for 18 months from the closing of the Company's
secondary public offering. Accordingly, the registration rights
contained in the subscription documents must be waived by the
Subscriber. Upon release of the lock-up, the securities may then be
sold in accordance with Rule 144 of the Securities and Exchange Act of
1934, which places certain volume limitations on the sale of
securities. Furthermore, by electing this option, the Subscriber will
be deemed an affiliate of any underwriter of the secondary public
securities offering by the Company and as such the Subscriber will not
be eligible to purchase any securities offered at the time of the
secondary public offering.
<PAGE> 2
Private Placement Subscription Participation Option Notice
March 6, 1997
Page Two
Accordingly, the Company asks that you please indicate the option you wish
to select on the accompanying sheet and return the signed and notarized original
to the Company. While you have thirty days from the date of this notice to make
your decision, the Company asks that you respond immediately so the Company may
more quickly proceed with the proposed secondary public offering and the
application for listing the Company's securities with Nasdaq. To facilitate
this time request, the Company has included a pre-paid Federal Express return
label for your use.
PLEASE NOTE: IF THE COMPANY DOES NOT RECEIVE ANY RESPONSE FROM YOU SELECTING
ONE OF THE TWO OPTIONS GIVEN ON THE FORM PROVIDED, THEN THE COMPANY WILL PROCEED
UNDER A DETERMINATION THAT THE NON-RESPONSIVE SUBSCRIBER HAS ELECTED OPTION #1.
If there are any questions with regard to this notice, please call Tim Halter at
(972) 233-0300.
Sincerely yours,
KARTS INTERNATIONAL INCORPORATED
V. Lynn Graybill
Chief Executive Officer
<PAGE> 3
Mr. V. Lynn Graybill
Chief Executive Officer
Karts International Incorporated
109 Northpark Boulevard - Suite 210
Covington, Louisiana 70433
Dear Mr. Graybill:
I acknowledge receipt of your March 5, 1997 Private Placement Subscription
Participation Option Notice and as a subscriber ("Subscriber") to the Karts
International Incorporated (the"Company") private placement of preferred stock
and redeemable common stock purchase warrants as closed on November 15, 1996
(the "Private Placement") have accordingly selected the option indicated below:
[ ] I elect to receive a refund of the original Private Placement funds
submitted to the Company with simple interest applied thereon at 12.0% per
annum (or the legal rate prescribed by governing state law, if any). I
understand that by selecting this option all funds due will be payable to
the Subscriber on the day of closing of the secondary offering upon
surrender of the Subscriber's preferred stock and warrant certificates.
[ ] I elect to retain the original participation in the Private Placement.
This includes commitments of all monies and securities as described in the
subscription documents. Additionally, for each unit of the Private
Placement purchased, I will receive an additional 20,000 redeemable common
stock purchase warrants with an exercise price equal to the secondary
offering price. However, I acknowledge and agree that all the
Subscriber's securities (the preferred stock and any securities the
preferred stock is convertible into including all common shares and all
warrants) will be voluntarily locked-up and will not be sold for 18 months
from the closing of the Company's secondary public offering. Accordingly,
I formally waive any and all registration rights as contained in the
subscription documents for the Private Placement. I further agree that
upon expiration of the lock-up term, my securities in the Company will
only be sold in compliance with all provisions of Rule 144 of the
Securities and Exchange Act of 1934. I further acknowledge that by
electing this option I have accepted designation as an affiliate of any
underwriter of any secondary public securities offering by the Company and
I acknowledge that as such I will not be eligible to purchase any
securities of the Company offered at the time of the secondary public
offering.
SIGNED BY: Number of Private Placement
Units Subscribed:
- ----------------------------------- -----------------------------
Ervin L. Betts Date
25 Garner Street
Norwalk, CT 06854
NOTARY PUBLIC: State of: , County of:
-------------- -----------------
I hereby affirm that the above signed person personally appeared before me
and affixed their seal in my presence.
- -------------------------------------
Date
My Commission Expires:
----------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Brister's Thunder Karts, Inc., a Louisiana Corporation
USA Industries, Inc., a Alabama Corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in the Form SB-2 Registration Statement under The
Securities Act of 1933 of Karts International Incorporated (a Nevada
corporation) of our report dated February 28, 1997 (except for Note 1 as to
which the date is March 6, 1997) on the consolidated financial statements of
Karts International Incorporated as of December 31, 1996 and 1995 and for each
of the years then ended, accompanying the financial statements contained in such
Form SB-2 Registration Statement Under The Securities Act of 1933, and to the
use of our name and the statements with respect to us as appearing under the
heading "Experts".
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DEC-31-1996 AUDITED FINANCIAL STATEMENTS OF KARTS INTERNATIONAL INCORPORATED AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN FORM
SB-2
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 630,028
<SECURITIES> 0
<RECEIVABLES> 1,800,802
<ALLOWANCES> 5,000
<INVENTORY> 958,381
<CURRENT-ASSETS> 3,391,290
<PP&E> 771,374
<DEPRECIATION> 34,598
<TOTAL-ASSETS> 10,094,717
<CURRENT-LIABILITIES> 1,382,932
<BONDS> 0
625,000
0
<COMMON> 2,718
<OTHER-SE> 4,751,407
<TOTAL-LIABILITY-AND-EQUITY> 10,084,717
<SALES> 8,327,316
<TOTAL-REVENUES> 8,327,316
<CGS> 5,842,532
<TOTAL-COSTS> 1,855,436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 396,589
<INCOME-PRETAX> 661,921
<INCOME-TAX> 193,575
<INCOME-CONTINUING> 468,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 468,346
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0
</TABLE>
