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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
March 6, 1998
Date of Report
(Date of Earliest Event Reported)
INTERNATIONAL HERITAGE, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Nevada 002-97690-D 87-0421191
(State or other (Commission File No.) (IRS Employer I.D. No.)
Jurisdiction)
Carolina Place
2626 Glenwood Ave. Suite #200
Raleigh, North Carolina 27608
(Address of Principal Executive Offices)
(919)571-4646
Registrant's Telephone Number
55 West 200 North
Provo, Utah 84601
(Former Name or Former Address if changed Since Last Report)
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Item 1. Changes in Control of Registrant.
(a) Pursuant to an Agreement and Plan of Reorganization (the
"Plan") dated March 6, 1998, between the Registrant; International Heritage,
Inc., a North Carolina corporation ("IHI"), certain stockholders and option
holders of IHI who were "accredited investors" and up to 35 non-accredited
persons who, by reason of a "purchaser representative," education, business
acumen, past experience or other factors, were believed to be capable of
evaluating the risks and merits of the proposed exchange(the "IHI
Stockholders" and "IHI Option Holders"), the IHI Stockholders became the
controlling stockholders of the Registrant in a transaction viewed as a
reverse acquisition, and IHI became a majority-owned subsidiary of the
Registrant. The Plan was treated as a recapitalization of IHI for accounting
purposes.
The Plan was adopted, ratified and approved by the Consent of the
sole member of the Board of Directors of the Registrant.
As of the Closing, the former principal stockholders of the
Registrant and their percentage of ownership of the outstanding voting
securities of the Registrant prior to the completion of the Plan were: David
N. Nemelka, Jr., 87.7%, and Summer Ventures, Inc., 5.7%. See the first table
below entitled "Former Controlling Stockholders."
The source of the consideration used by the IHI Stockholders to
acquire their controlling interest in the Registrant was the exchange of
97.73% (7,379,493 shares equaling 22,138,479 of the Registrant under the Plan)
of the outstanding common stock of IHI pursuant to the Plan.
The basis of the "control" by the IHI Stockholders is stock
ownership. See the table below under Paragraph (b) of this Item.
Pursuant to the Plan, the Registrant was required that:
1. The IHI Stockholders who were "accredited investors" agree to
exchange with the Registrant at the closing (the "Closing") not less than 80%
of the outstanding common stock of IHI, in exchange for the $0.001 par value
"unregistered" and "restricted" shares of common voting stock of the
Registrant (which will be limited to public resale under Rule 144 of the
Securities and Exchange Commission following satisfaction of the minimum one
year holding period thereunder and other requirements of the Rule), amounting
to three shares of the Registrant for each outstanding share IHI common stock.
Assuming 100% of IHI is eventually acquired, the Registrant would be required
to issue 22,652,268 shares under the Plan, and taking into account the
pre-Plan outstanding shares of the Registrant amounting to 4,559,761 shares,
there would then be 27,212,029 outstanding shares of the Registrant's common
stock. The Plan provides for the reservation of sufficient shares of the
Registrant's common stock for a period of two years to allow all IHI
Stockholders listed in Exhibit A of the Plan to participate in the Plan on the
same terms and conditions;
2. Certain IHI Option Holders have also agreed to exchange
8,341,428 options to acquire shares of common stock of IHI for similar options
to acquired "unregistered" and "restricted" shares of common stock of the
Registrant, on like terms, on a one for one basis. The Plan provides for the
reservation of sufficient shares of the Registrant's common stock for a period
of two years to allow all IHI Option Holders listed in Exhibit A-1 of the Plan
to participate in the Plan on the same terms and conditions;
3. Following resignations, in seriatim, of the directors and
executive officers of the Registrant, the designation and election, in
seriatim, of the persons listed in Exhibit 99.2 hereof, which is entitled
"Newly Elected Directors and Executive Officers," as directors and executive
officers of the Registrant, to serve until the next annual meetings of the
stockholders and the Board of Directors, respectively, and until their
respective successors are elected and qualified or until their respective
prior resignations or terminations. These persons served in these same
capacities for IHI prior to the completion of the Plan. See Item 7 of this
Report; and
4. The name of the Registrant was changed to "International
Heritage, Incorporated," and the authorized capital of the Registrant was
increased to 100,000,000 shares of common stock, par value $0.001 per share.
A copy of the Plan, including exhibits and related
instruments, accompanies this Report, which, by this reference, is
incorporated herein; the foregoing summary is modified in its entirety by such
reference. See Item 7 of this Report.
Former Controlling Stockholders
Number of
Shares
Beneficially Percent
Name and Address Owned of Class
David N. Nemelka, Jr. 4,004,000 87.7%
897 South Artistic Cr.
Springville, UT 84663
*Summer Ventures, Inc. 184,600 4%
1310 East 1600 South
Mapleton, UT 84664
(b) The following table entitled "Current Controlling Stockholders"
contains information regarding share holdings of the Registrant's directors
and executive officers and those persons or entities who beneficially own more
than 5% of the Registrant's common stock, after taking into account the
Closing of the Plan:
Current Controlling Stockholders
Amount and Nature* Percent*
Beneficial of
Name Title Stock Ownership Class
Barry Ackel Director 379,375(1) 1.4%
1239 Heyman Lane
Alexandria, LA 71303
John Brothers COO 82,500(2) .3%
9416 Koupela Drive
Raleigh, NC 27615
John W. Hemmer Director -0- -0-
88 Meadow Road
Briarcliff Manor, NY 10510
Jimmie D. Knowles Director 497,925(3) 1.9%
105 Beechtree Lane
Apex, NC 27502
Harry B. Mains Director -0- -0-
2210 South Front Street
Melbourne, FL 32901
Franco P. Merlo Director -0- -0-
P. O. Box 6831 CH-8023
Zurich, Switzerland
Georgina Marie Mollick, VP Legal Affairs -0- -0-
Esq. Asst. Corporate Sec.
2626 Glenwood Ave. #200
Raleigh, NC 20678
Christopher A. Ried VP Compliance -0- -0-
2626 Glenwood Ave. #200
Raleigh, NC 20678
Derrick L. Rodgers Director 419,250(4) 1.6%
409 Jackson Park Road
Kannapolis, NC 28083
Kenneth Rudd, III Director -0- -0-
7992 Bradwick Way
Melbourne, FL 32940
Claude Savage Director 597,750 2.2%
106 Benbow Lane
Charlotte, NC 28214
Larry G. Smith Director 686,250(5) 2.5%
2435 E. North Street
Suite #354
Greenville, SC 29615
Angie C. Stewart Corporate Sec. -0- -0-
2626 Glenwood Ave. #200
Raleigh, NC 20678
Stanley H. Van Etten President, CEO, 275,808 1.0%
10504 Tredwood Drive Chairman of the Board
Raleigh, NC 27615 Director
David N. Nemelka, Jr. Stockholder 4,004,000 15.0%
897 South Artistic Cr.
Springville, UT 84663
All executive officers and directors
as a group (14) 6,942,858 26.0%
* Does not include the following options exchanged under
the Plan on a one for one basis by the following persons listed in the
foregoing table, nor the shares of common stock of IHI underlying options
granted to IHI employees and consultants under IHI's 1996 Stock Option Plan
(the "Stock Option Plan"), which is anticipated to be canceled and converted
to similar options to acquire the same number of shares of common stock of the
Registrant on similar terms and conditions, to-wit: Claude Savage has
1,350,000 options exchanged under the Plan exercisable at $2.00; Larry G.
Smith has 1,350,000 options exchanged under the Plan exercisable at $2.00;
Stanley H. Van Etten has 5,256,800 options exchanged under the Plan
exercisable at $2.00; and John D. Brothers has been granted 315,000 options
under the Stock Option Plan, exercisable at $1.33 with 5,000 of those options
exercisable at $2.00; Georgina Mollick, Esq. has been granted 152,500 options
under the Stock Option Plan, exercisable at $1.33 with 10,000 of those options
exercisable at $2.00; Christopher A. Ried has been granted 35,000 options
under the Stock Option Plan, exercisable at $1.33 with 10,000 of those options
exercisable at $2.00; Angie C. Stewart has been granted 46,000 options under
the Stock Option Plan, exercisable at $1.33 with 10,000 of those options
exercisable at $2.00; and, Stanley H. Van Etten has been granted 285,000
options under the Stock Option Plan, exercisable at $1.33 with 10,000 of those
options exercisable at $2.00.
(1) Owned in the name of Acme Holdings.
(2) Owned in the name of To the Top We Go, Inc.
(3) Owned jointly with Portia G. Knowles
(4) Owned in the name of Capital Dynamics Financial Group
(5) Owned in the name of Imperial Management Fund
Item 2. Acquisition or Disposition of Assets.
(a) See Item 1 of this Report. The consideration exchanged under
the Plan was negotiated at "arms length" between the directors and executive
officers of the Registrant, the Board of Directors of IHI, the IHI
Stockholders, and the IHI Option Holders and the Board of Directors of the
Registrant used criteria used in similar proposals involving the Registrant in
the past, including the relative value of the assets of the Registrant; its
present and past business operations; future potential of IHI; its management;
and the potential benefit to the stockholders of the Registrant. The members
of the Board of Directors determined in their good faith that the
consideration for the exchange was reasonable, under these circumstances.
No director, executive officer or person who may be deemed to be an
affiliate of the Registrant had any direct or indirect interest in IHI prior
to the completion of the Plan.
(b) The Registrant intends to continue the business operations
formerly conducted by IHI, which are described in Exhibit 19.1, which is
entitled "Proxy Statement of International Heritage, Inc. dated February 27,
1998," Exhibit B thereunder. See Item 7 of this Report.
For additional information on Management, see Exhibit 99.2, which is
entitled "Newly Elected Directors and Executive Officers." See Item 7 of this
Report.
For additional information on "Risk Factors" relating to IHI and the
reorganized Registrant, see Exhibit 19.1, which is entitled "Proxy Statement
of International Heritage, Inc. dated February 27, 1998." See Item 7 of this
Report.
Item 3. Bankruptcy or Receivership.
None; not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
None; not applicable.
Item 5. Other Events.
Effective March 3, 1998, the Registrant's Articles of Incorporation
were amended to increase its authorized capital from 50,000,000 shares to
100,000,000 shares of $0.001 par value common stock and to change the name of
the Registrant to "International Heritage, Incorporated." A copy of these
Articles of Amendment is attached hereto and is incorporated herein by
reference. See Item 7.
Item 6. Resignations of Directors and Executive Officers.
Effective March 6, 1998, David N. Nemelka, Jr., the sole director
and executive officer of the Registrant resigned, and the directors and
executive officers of IHI were designated to serve as directors and executive
officers of the Registrant, in the same capacities in which they respectively
served as directors and executive officers of IHI. See Exhibit 99.2, which is
entitled "Newly Elected Directors and Executive Officers." See Item 7 of this
Report.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Copies of the Unaudited Consolidated Balance Sheet
and Income Statement of International Heritage, Inc. for the
period ended December 31, 1997, and its Audited Consolidated Financial
Statements for the years ended December 31, 1996 and 1995 were attached
to its Proxy Statement, which is attached hereto as Exhibit 19.1.
Audited Financial Statements of IHI for the year ended December 31,
1997, will be filed as soon as available, but within 75 days of the date of
this Report.
(b) Pro Forma Financial Information.
Pro Forma Financial Statements, taking into account the completion of
the Plan, will be filed as soon as available, but within 75 days of the date
of this Report.
(c) Exhibits.
Exhibit
Description of Exhibit* Number
Articles of Amendment to the Articles of
Incorporation of the Registrant reflecting a name
change and an increase in authorized capital 3
Proxy Statement of International
Heritage, Inc. dated February 27, 1998 19.1
Exhibit A: 10-KSB Annual Report of the
Registrant for the fiscal year ended
December 31, 1997**
Exhibit B: Description of Business of
International Heritage, Inc.
Unaudited Consolidated Balance Sheet and
Income Statement of International Heritage,
Inc. for the period ended December 31, 1997
Audited Consolidated Financial Statements of
International Heritage, Inc. for the years ended
December 31, 1996 and 1995
Exhibit C: Article 13 of the North Carolina
Business Corporation Act respecting Dissenters'
Rights
Exhibit D: Demand for Payment
Proxy Form
Confidential Accredited Investor Questionnaire
Letter of the Registrant to its Stockholders dated
February 17, 1998 (which included a copy the IHI Proxy Statement
dated February 27, 1998, and the material exhibits thereto,
which are referred to above) 19.2
Letter of Proposal to certain "accredited investors"
who were IHI Stockholders and IHI Option Holders respecting the
Plan 19.3
Agreement and Plan of Reorganization
Exhibit A: IHI Stockholders
Exhibit A1: IHI Option Holders
Exhibit B: Registrant Financial Statements**
Exhibit C: Exceptions
Exhibit D: IHI Financial Statements (see above)
Exhibit E: Exceptions
Exhibit F: Investment Letter
Exhibit G: Registrant Compliance Certificate
Exhibit H: IHI Compliance Certificate
News Release dated March 9, 1998 99.1
Newly Elected Directors and Executive Officers 99.2
* Summaries of any exhibit are modified in their
entirety by this reference to each exhibit.
** Incorporated by Reference.
Item 8. Change in Fiscal Year.
None; not applicable.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
None; not applicable.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
INTERNATIONAL HERITAGE, INCORPORATED
Date: 3/9/98. By /s/ Stanley H. Van Etten
---------------------
President, CEO and Director
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CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
KARA INTERNATIONAL, INC.
The undersigned, David N. Nemelka, Jr., President and Secretary of
Kara International, Inc., a Nevada corporation (the "Corporation"), does
hereby certify:
I
Pursuant to Section 78.390 of the Nevada Revised Statutes, the
Articles of Incorporation of the Corporation shall be amended as follows:
ARTICLE I - NAME
The name of the Corporation is "International Heritage,
Incorporated."
ARTICLE IV - STOCK
The aggregate number of shares which this corporation shall have
authority to issue is 100,000,000 shares of Common Stock having a par value of
$0.001 per share. All stock of the Corporation shall be of the same class,
common, and shall have the same rights and preferences. Fully-paid stock of
this Corporation shall not be liable to any further call or assessment.
II
The foregoing amendment was adopted by Unanimous Consent of the
Board of Directors pursuant to Section 78.315 of the Nevada Revised Statutes
and by Consent of Majority Stockholder pursuant to Section 78.320 of the
Nevada Revised Statutes.
III
The number of shares entitled to vote on the amendment was
4,559,761.
IV
The number of shares voted in favor of the amendment was
4,004,000, with none opposing and none abstaining.
/s/David N. Nemelka, Jr., President and
Secretary
STATE OF UTAH )
) ss
COUNTY OF UTAH )
On the 3rd day of March, 1998, personally appeared before me, a
Notary Public, David N. Nemelka, Jr., who acknowledged that he is the
President and Secretary of Kara International, Inc., and that he is authorized
to and did execute the above instrument.
/s/Kim B. Neff
NOTARY PUBLIC
(Notary Seal)
IMPORTANT INFORMATION
FOR SHAREHOLDERS
OF
INTERNATIONAL HERITAGE, INC.
The documents you hold in your hands contain your Proxy Statement, a
Proxy Form, a Dissenters' Notice, a Confidential Investor Questionnaire and a
Purchaser Representative Questionnaire. A proxy statement is a statement
providing you with information regarding actions by the Company and its Board
of Directors, some of which may entitle you to vote on certain matters. A
proxy form is, in essence a ballot. When you vote your proxy it tells us how
to vote on your behalf on important issues relating to International Heritage,
Inc. ("IHI" or the "Company"). If you complete and sign the proxy, we will
vote it exactly as you tell us. If you simply sign the proxy, we will vote it
in accordance with the Board of Directors' recommendation. A dissenters'
notice entitles you to invoke your dissenters' rights and demand payment for
your stock if you disagree with corporate action and no longer wish to be a
Company shareholder. A confidential accredited investor questionnaire is a
survey for determining whether you are an accredited investor as defined by
Rule 501 of Regulation D of the Securities Act of 1933, as amended
("Securities Act"), and thus able to participate in the voluntary share
exchange contemplated by the Company. A Shareholder may also be accredited
through a purchaser representative as set forth in Rule 501 of Regulation D of
the Securities Act.
Proxies may be revoked at any time before they are exercised by
written notice to the Corporate Secretary, by timely notice of a properly
executed later dated proxy or by voting in person at the Meeting. Voting your
proxy will in no way limit your right to vote at the meeting if you decide to
vote in person and have confirmed your intent to attend the meeting before
March 25, 1998. However, proxies will enable us to tabulate most of the
results prior to the Meeting without wasting time during the Meeting counting
ballots and will allow those who cannot or do not want to attend, to vote
their shares.
When shareholders do not return their proxies in sufficient numbers,
we have to incur the expense of follow-up solicitations, which can cost the
Company money and thus effect the value of your stock. Please return your
Proxy Form promptly so we may assure receipt of your vote. Also, please
return your Confidential Accredited Investor Questionnaire so that Kara
International, Inc. may determine if you are an accredited investor and able
to participate in the voluntary share exchange.
We want to know how you would like to vote and welcome your comments.
Please take a few moments with these materials and return your Proxy Form and
Confidential Accredited Investor Questionnaire (and Purchaser Representative
Questionnaire, if applicable) to us right away. If you have any questions
with respect to execution of these documents, please contact Georgina Mollick,
Vice President of Legal Affairs or Angie C. Stewart, Corporate Secretary at
(919) 571-4646.
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INTERNATIONAL HERITAGE, INC.
2626 Glenwood Avenue
Suite 200
Raleigh, North Carolina 27608
SPECIAL MEETING OF SHAREHOLDERS
TIME . . . . . . . . . . . . . . . . 2:00 PM, EST on February 27, 1998
PLACE . . . . . . . . . . . . . . . .2626 Glenwood Avenue, Suite 200
Raleigh, North Carolina 27608
ITEMS OF BUSINESS . . . . . . . . . (1) To increase the authorized common
stock of the Company to 50,000,000
shares;
(2) To provide information regarding the
voluntary share for share exchange of the
stock of International Heritage, Inc.
with Kara International, Inc.;
(3) To provide dissenters' rights to
shareholders pursuant to resolution
adopted by the Board of Directors
pursuant to N.C. Gen. Stat.
55-13-02(a)(5); and
(4) To transact such other business as
may properly come before the Meeting and
any adjournment thereof.
RECORD DATE . . . . . . . . . . . . Holders of Common Stock of record
at the close of business, December 31,
1997, are entitled to vote at the
Meeting.
PROXY VOTING . . . . . . . . . . It is important that your Shares
be represented and voted at the Meeting.
Please MARK, SIGN, DATE AND RETURN
PROMPTLY the enclosed Proxy Form and
Confidential Accredited Investor
Questionnaire via facsimile (919)
571-8744 to the attention of Angie C.
Stewart, Corporate Secretary, and return
the original in the postage-paid
envelope furnished for that purpose. Any
proxy may be revoked in the manner
described in the accompanying Proxy
Statement at any time prior to its
exercise at the Meeting.
STANLEY H. VAN ETTEN
President, Chief Executive
Officer and Chairman of the Board
ANGIE C. STEWART
Corporate Secretary
February 16, 1998
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INTERNATIONAL HERITAGE, INC.
INTRODUCTION
This Proxy Statement is furnished to the shareholders of
International Heritage, Inc., a North Carolina corporation ("IHI" or the
"Company"), in connection with the solicitation by the IHI Board of Directors,
of proxies to be used at the Special Meeting of Shareholders (the "Meeting")
to be held on February 27, 1998, at 2:00 PM, EST, at the executive offices of
International Heritage, Inc. located at: 2626 Glenwood Avenue, Suite 200,
Raleigh, North Carolina 27608, to consider and act upon the matters set forth
herein and at any meeting following the adjournment thereof.
The Meeting has been called to vote upon: (1) the increase in the
authorized capital stock of the Company to 50,000,000 shares of Common Stock
in order to accommodate the conversion of the Notes and Debentures outstanding
from the Regulation D private offering dated July 17, 1997 ("Reg D Offering")
and the Regulation S offering dated November 11, 1997 ("Reg S Offering"),
respectively; and (2) to transact such other business as may properly come
before the Meeting and any adjournment thereof. This Proxy Statement and
accompanying Proxy Form are being mailed to holders of Common Shares on the
record date which is December 31, 1997 (the "Record Date"). This Proxy
Statement is also being furnished to all Shareholders in order to provide
information regarding the voluntary share exchange by accredited investors of
the Company with Kara International, Inc., a Nevada corporation, ("Kara")
publicly trading on the Over-the-Counter ("OTC") Bulletin Board of the
National Association of Securities Dealers, Inc. ("NASD"); and to provide
Shareholders the right to dissent pursuant to resolution adopted by the
Company's Board of Directors pursuant to N.C. Gen. Stat. 55-13-02(a)(5).
The Proxy Form accompanying this Proxy Statement is solicited by the
IHI Board of Directors for its use at the Meeting. A proxy may be revoked by
a Shareholder, at any time before it is exercised, by attending the Meeting
and voting in person or by delivering to: Angie C. Stewart, Corporate
Secretary, at 2626 Glenwood Avenue, Suite 200, Raleigh, North Carolina 27608,
either written notice of revocation or a duly executed proxy bearing a date
later than that of the previous proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY FORM AND CONFIDENTIAL ACCREDITED INVESTOR
QUESTIONNAIRE AND RETURN IT PROMPTLY VIA FACSIMILE (919) 571-8744 ATTENTION:
ANGIE C. STEWART, CORPORATE SECRETARY, AND VIA FIRST CLASS MAIL IN THE
ENVELOPE ENCLOSED IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. IF YOU
PLAN ON ATTENDING THE MEETING, PLEASE INDICATE SUCH ON THE PROXY FORM AND
R.S.V.P. TO DIANA WILSON (919) 571-4646 EXT. 1247 ON OR BEFORE FEBRUARY 25,
1998. ALL PROXIES AND CONFIDENTIAL ACCREDITED INVESTOR QUESTIONNAIRES MUST BE
RECEIVED ON OR BEFORE FEBRUARY 26, 1998.
Purpose of the Meeting
The Meeting has been called to vote upon: (1) the increase in the
authorized capital stock of the Company to 50,000,000 shares of Common Stock
in order to accommodate the conversion of the Notes and Debentures outstanding
from the Reg D Offering and the Reg S Offering, respectively; and (2) to
transact such other business as may properly come before the Meeting and any
adjournment thereof.
You may elect whether or not you would like to attend the Meeting in
person. The Meeting is not mandatory. Only issues discussed in the Proxy
Statement will be addressed at the Meeting. This Proxy Statement also
includes information regarding the voluntary share exchange between accredited
Shareholders of IHI and Kara. Any minutes from the Meeting or handouts will
be mailed to the Shareholders of record after the Meeting; therefore, even if
you do not attend the Meeting in person, you will receive the same information
as those who do.
Proxies
YOUR VOTE IS IMPORTANT! Because many Shareholders cannot personally
attend the Meeting, it is necessary that a large number be represented by
proxy. Also when Shareholders vote by proxy, the results can be tabulated
more efficiently thereby expediting the course of the Meeting. Shareholders
may vote their proxy by marking, signing, dating and returning promptly the
enclosed Proxy Form and return it via facsimile (919) 571-8744, Attention:
Angie C. Stewart, Corporate Secretary and via mail in the postage paid
envelope provided.
Proxies may be revoked at any time before they are exercised by
written notice to the Corporate Secretary, by timely notice of a properly
executed later-dated proxy or by voting in person at the Meeting.
Voting your proxy will in no way limit your right to vote at the
Meeting if you decide to vote in person and have confirmed your intent to
attend the Meeting before February 27, 1998.
All Shares entitled to vote and represented by properly executed
proxies received prior to the Meeting by Angie C. Stewart, Corporate
Secretary, will be voted at the Meeting in accordance with the instructions
indicated on those proxies. If no instructions are indicated on an otherwise
properly executed proxy, the Shares represented by that proxy will be voted as
recommended by the Board of Directors.
If any other matters are properly presented at the Meeting for
consideration, including among other things, consideration of a motion to
adjourn the Meeting to another time or place, the person named on the enclosed
Proxy Form and acting thereunder will have discretion to vote on those matters
in accordance with their best judgment to the same extent as the person
signing the proxy would be entitled to vote. The Company does not currently
anticipate that any other matters will be raised at the Meeting.
Record Date
The date for determining the Shareholders entitled to vote at the
Meeting was the close of business on December 31, 1997. At the Record Date,
there were issued and outstanding 7,540,756 shares of Common Stock.
Shareholders will be entitled to one vote per share of Common Stock held on
the Record Date on all matters coming before the Meeting. Optionees,
Note holders and Debenture holders are not entitled to vote.
Vote Required
The presence, in person or by proxy, of the holders of the majority
of the votes entitled to be cast by the Shareholders entitled to vote
generally at the Meeting is necessary to constitute a quorum. Abstentions are
counted as present and entitled to vote for purposes of determining a quorum.
Pursuant to the North Carolina Business Corporation Act ("N.C.
Business Corporation Act"), the approval of the increase in authorized shares
requires the affirmative vote of the holders of at least a majority of all the
shares of Common Stock outstanding on the Record Date.
The affirmative vote by the holders of the majority of the Common
Stock present in person or represented by proxy and entitled to vote on the
matter is required to approve any other matter to be acted upon at the
Meeting. An abstention is counted as a vote against.
Cost of Proxy Solicitation
The cost of soliciting proxies will be borne by the Company. Proxies
may be solicited on behalf of the Company by the Board of Directors, officers
or employees of the Company in person or by telephone, facsimile transmission,
telegram or electronic transmission.
INCREASE AUTHORIZED SHARES OF COMMON STOCK
General
Currently the Company has authorized 25,000,000 shares of Common
Stock. As of the Record Date there were 7,540,756 shares issued and
outstanding, 6,250,000 options inside the International Heritage, Inc. 1996
Stock Option Plan ("Option Plan"), 7,905,264 options outside the Option Plan,
$4,335,661.67 in Notes outstanding convertible into 2,167,831 shares of Common
Stock and up to $10,000,000 in 8.5% Convertible Debentures ("Debentures")
outstanding convertible into 5,500,000 shares of Common Stock and 3,000,000
Warrants exercisable at a price of $4.00 per share.
The Notes issued pursuant to the Reg D Offering are convertible at
any time prior to repayment upon the following: (i) an initial public offering
providing gross proceeds of a minimum of $10,000,000 at a per share price of
no less than $4.00 and the per share price remains over $4.00 for any thirty
day period thereafter, (ii) a sale of all or substantially all of the assets
of the Company to a public company and the per share price of the common stock
of such company remains over $4.00 for any thirty day period thereafter, or
(iii) any recapitalization, reconsolidation, merger or share exchange of or by
the Company that results in the existing shareholders of the Company owning
less than 51% of the Company, or the successor thereafter becomes a public
company and the per share price of the common stock remains over $4.00 for any
thirty day period thereafter. The Notes are also convertible at the option of
the Noteholders under the same conversion terms. The Company must have an
adequate number of shares authorized to accommodate the conversion of all of
the outstanding Notes, and therefore must have 2,167,831 shares of Common
Stock authorized and available for the conversion of the Notes.
The Debentures issued pursuant to the Reg S Offering are
automatically converted upon the occurrence of any of following: (i) an
initial public offering providing gross proceeds of a minimum of $10,000,000
at a per share price of no less than $4.00 and the per share price remains
over $4.00 for any thirty day period thereafter; (ii) a sale of all or
substantially all of the assets of the Company to a public company and the per
share price of the common stock of such company remains over $4.00 for any
thirty day period thereafter, or (iii) any recapitalization, reconsolidation,
merger or share exchange of or by the Company that results in the existing
shareholders of the Company owning less than 51% of the Company, or the
successor thereafter becomes a public company and the per share price of the
Common Stock remains over $4.00 for any thirty day period thereafter. The
Debentures are also convertible at the option of the Debenture holders under
the same conversion terms. Common Stock issued upon the exercise of the
Warrants or conversion of the Debentures shall be subject to a 12-month
lock-up commencing from the date of exercise or automatic conversion,
as may be applicable. The Warrants are exercisable by the holder at an
exercise price of $4.00 per share, in whole or in part, at any time on or
before December 15, 1999. The Company must have an adequate number of shares
authorized to accommodate the conversion of all of the outstanding Debentures
and the exercise of all outstanding Warrants, and therefore must have
8,500,000 shares of Common Stock authorized and available for the conversion
of the Debentures and exercise of the Warrants.
In order to accommodate the potential exercise of all options and
Warrants as well as the conversion of the Notes and Debentures, the Company
would need a total of 24,823,095 shares of Common Stock authorized and
available for issue. Hence the Company does not currently have authorized a
sufficient number of shares of Common Stock.
The Board of Directors in its meeting of February 10, 1998 voted to
amend the Articles of Incorporation and increase the number of authorized
shares of Common Stock to 50,000,000 shares in order to accommodate the
potential exercise of all outstanding options and Warrants, the conversion of
all outstanding Notes and Debentures, as well as to provide additional shares
for other capitalization purposes. Shares do not have a dilutive effect upon
authorization, only upon issuance.
The Board of Directors recommends that the Shareholders vote FOR the
amendment of the Articles of Incorporation to authorize 50,000,000 shares of
Common Stock.
Vote Required
Pursuant to the N.C. Business Corporation Act, the approval of the
amendment of the Articles of Incorporation to authorize 50,000,000 shares of
Common Stock, requires the affirmative vote of the holders of at least a
majority of all of the shares of Common Stock outstanding on the Record Date.
INFORMATION REGARDING THE VOLUNTARY SHARE EXCHANGE
BY ACCREDITED SHAREHOLDERS OF INTERNATIONAL HERITAGE, INC.
WITH KARA INTERNATIONAL, INC.
Agreement and Plan of Reorganization
Introduction
Kara International, Inc., a corporation organized under the laws of
the State of Nevada on April 22, 1985 ("Kara"), is a "corporate shell," having
no material assets or liabilities; 4,559,761 outstanding shares of $0.001 par
value common voting stock, of which 4,004,000 shares are owned by its sole
director and executive officer, David N. Nemelka, Jr. with the remaining
shares being owned by approximately 395 public stockholders; and its common
shares are quoted on the OTC Bulletin Board of the NASD, though there is no
"established trading market" for these shares and any trading activity during
the past year has been based primarily on speculation of what, if any,
business venture Kara may acquire, including its proposal to IHI, which was
briefly outlined in an 8-K Current Report dated October 1, 1997, which was
filed by Kara with the Securities and Exchange Commission (the "Commission").
A copy of Kara=s 10-KSB Annual Report for the fiscal year ended December 31,
1997, which has been recently filed with the Commission, is attached hereto as
Exhibit A and is incorporated herein by reference (the "Kara 1997 Annual
Report"); additional historical information respecting Kara can be obtained by
reviewing past EDGAR filings of Kara with the Commission, at
http:\\www.sec.gov.
The only material business operations conducted by Kara during the
past year involved seeking and reviewing prospective business ventures which
could be acquired by acquisition, reorganization or merger.
Kara recognizes that the number of suitable potential business
ventures that may be available to it are extremely limited, and may be
restricted to entities who desire to avoid what these entities may deem to be
the adverse factors related to an initial public offering ("IPO"). The most
prevalent of these factors include substantial time requirements, legal and
accounting costs, the inability to obtain an underwriter who is willing to
publicly offer and sell shares, the lack of or the inability to obtain the
required financial statements for such an undertaking, limitations on the
amount of dilution to public investors in comparison to the stockholders of
any such entities, along with other conditions or requirements imposed by
various federal and state securities laws, rules and regulations.
Kara proposes to acquire 100% of the outstanding voting securities of
IHI, by exchanging its "restricted securities" for outstanding shares of
common voting stock of IHI with persons who currently own securities of IHI,
and proposes to exchange like options of Kara for outstanding options of IHI,
to purchase shares of common stock of IHI. Initially, Kara intends to acquire
not less than 80% of the outstanding voting securities of IHI in a stock for
stock exchange with certain Shareholders of IHI who are "accredited investors"
as that term is defined in Regulation D of the Securities Act of 1933, as
amended ("Securities Act"), including members of management who have
tentatively agreed to this exchange. Once 80% of the outstanding securities
of IHI have been acquired, IHI will become a majority-owned subsidiary of
Kara, and Kara will change its name to "International Heritage Incorporated."
Kara will then seek to acquire the remaining outstanding common stock of IHI
through applicable federal and state exemptions from the registration of
securities or through registration with appropriate federal and state
agencies, including the Commission, on the same terms and conditions, and will
reserve a sufficient number of its securities for this purpose for a period of
two years.
Kara believes that it can acquire all of the securities of IHI owned
by "accredited investors" and the securities of not more than 35
non-accredited investors pursuant to available federal and state exemptions
from registration; however, if there are substantially more than 35
non-accredited investors in IHI, Kara may be required register the balance of
the contemplated exchange with the Commission and appropriate state agencies
where IHI Shareholders reside, and this would be a lengthy and time consuming
process. In such event, Shareholders of IHI who do not have the initial
opportunity to exchange their securities of IHI for "restricted securities" of
Kara may be at a distinct disadvantage in any market that may develop for the
securities of Kara.
The determination of whether Shareholders of IHI are "accredited
investors" will be made by Kara primarily based upon a review of responses of
IHI Shareholders in the Confidential Accredited Investor Questionnaires being
provided to IHI Shareholders, which accompany this Proxy Statement; therefore,
it is very important that these questionnaires be completed fully and
accurately. Incomplete questionnaires will result in delays and additional
cost and expense.
The proposed reorganization is considered a "reverse reorganization"
because once the initial 80% of IHI has been acquired, the IHI Shareholders
who have exchanged their securities of IHI for securities of Kara will become
the controlling stockholders of Kara; current management of Kara will resign,
while designating the current directors and executive officers of IHI as
directors and executive officers of Kara, in the same positions each held
prior to the reorganization; and the business of IHI will continue, with Kara
as the "parent" and IHI as the "majority-owned subsidiary."
Kara intends to provide each Shareholder of IHI with whom it intends
to approach to acquire the initial 80% of IHI with a copy of an Agreement and
Plan of Reorganization (the "Plan") and related exhibits; and copies of the
Kara 1997 Annual Report and all quarterly and other reports filed with the
Commission during the past 12 months. Each IHI Shareholder who desires to
exchange IHI securities for securities of Kara will be required to execute and
deliver a copy of the Counterpart Signature Page to the Plan, thereby becoming
a party to the Plan (representations and warranties of IHI in the Plan will be
made by IHI and its principal executive officers only); to deliver his/her/its
duly signed stock certificate representing the IHI securities being exchanged,
with the signature guaranteed to the satisfaction of Kara; and to execute and
deliver an Investment Letter whereby he/she/it acknowledges that the
securities of Kara being received in the exchange are "restricted securities"
which may not be sold unless there is an available exemption from the
registration provisions of the Securities Act of 1933, as amended (the "1933
Act"), or the offer and sale is registered with the Commission. In essence,
the stockholder is agreeing that the "restricted securities" of Kara cannot be
publicly sold unless the sale is made in accordance with Rule 144 of the
Commission, which requires a minimum holding period of one year.
Unless at least 80% of the outstanding securities of IHI can be
acquired, the proposal will be abandoned. Kara believes that if not less than
80% of the securities of IHI are acquired in the exchange, that the exchange
will be a "tax free reorganization" in accordance with Section 368(a)(1)(B) of
the Internal Revenue Code of 1986.
The Plan
The definitive agreement shall provide, among other terms and
provisions, for:
Exchange. Each outstanding share of IHI will be exchanged for three
(3) shares of Kara, and each outstanding option of IHI will be exchanged for
one (1) option to acquire one (1) share of Kara on like terms and conditions.
Charter Amendments. The Articles of Incorporation of Kara shall be
amended to change Kara=s name to "International Heritage Incorporated," or
such other name as the respective Boards of Directors of Kara and IHI shall
determine. David N. Nemelka, Jr. the sole director and executive officer of
Kara, owns sufficient voting securities of Kara (approximately 88%) to adopt
the required resolutions to effect this name change in accordance with the
Nevada Revised Statutes.
Representations and Warranties. Customary and usual representations
and warranties by the parties (exchanging IHI Shareholders warranties shall be
limited to those related to ownership of the securities of IHI being
exchanged) shall be provided, including, but not limited to (i), corporate
standing and licensing and qualification to do business in all jurisdictions
where business is conducted; (ii), authorized, outstanding and lawful issuance
of outstanding securities; (iii), financial status, assets, liabilities and
lack of or disclosure of any exceptions to the respective financial statements
of the parties; (iv), confidentiality, in the event the Plan is not completed;
(v), corporate authority and due authorization; (vi), material environmental
matters; and (vii), access to all material information regarding the other
party.
Opinions of Counsel. For the delivery at closing of favorable
opinions of counsel for the corporate parties with respect to customary and
usual matters of law covered under similar plans and parties.
Conduct of Business. Until consummation or termination of the Plan,
the parties will conduct business only in the ordinary course and none of the
assets of either shall be sold or disposed of except in the ordinary course of
business or with the written consent of the other party.
Consents. The parties shall have received all permits,
authorizations, regulatory approvals and third party consents necessary for
the consummation of the exchange, and all applicable legal requirements shall
have been satisfied.
Conditions Precedent to the Obligations of the Parties. Each party=s
obligations under the Plan shall be subject to the representations and
warranties of the other having been made therein being true and correct at
closing, and with respect to Kara, that persons owning not less than 80% of
the outstanding voting securities of IHI agree to and do become party to the
Plan.
The foregoing is a summary of the material provisions of the proposed
definitive agreement which will embody the Plan, and such summary is modified
in its entirety by the actual Plan, a copy of which shall be delivered to each
IHI Shareholder who is contacted with respect to his/her/its interest in the
exchange, which will not occur until Kara has had an opportunity to review the
completed questionnaires of the IHI Shareholders. Accordingly, this summary
of this proposal should in no way be deemed to be an offer of the exchange of
securities of Kara for securities of IHI; this offer can only come from Kara.
Risk Factors Relating to the Share Exchange
There are numerous risk factors related to the Plan and any
reorganization with Kara, and each IHI Shareholder should use his/her/its
expertise to consider the following risk factors and to determine others which
are apparent or exist; securities like those of Kara are highly speculative.
Additional risk factors will be outlined to the IHI Shareholders by Kara once
the questionnaires have been reviewed and the "accredited investors" have been
determined, as part of the offer of exchange.
Limited Market for Common Stock. Although the Kara's common stock is
listed on the OTC Bulletin Board of the NASD, the market for such shares only
commenced in 1997, and its is based entirely on speculation of what business
venture Kara may acquire; there can be no assurance that it will continue or
be maintained, regardless of the completion of the Plan. Any market price for
shares of common stock of the Kara is likely to be very volatile, and factors
such the current lack of a substantial "public float" (all but 555,761 shares
of Kara are owned by David N. Nemelka, Jr., Kara=s sole director and executive
officer), governmental regulation and fluctuations in operating results may
all have a significant effect. In addition, the stock markets generally have
experienced, and continue to experience, extreme price and volume fluctuations
which have affected the market price of many small capital companies and which
have often been unrelated to the operating performance of these companies.
These broad market fluctuations, as well as general economic and political
conditions, may adversely affect the market price of Kara's common stock.
Future Sales of Common Stock. David N. Nemelka, Jr. currently
beneficially owns approximately 4,004,000 shares of the common stock of Kara
or approximately 88% of its outstanding voting securities, which he acquired
from Kara for the sum of $20,000. On April 10, 1998, Mr. Nemelka will have
beneficially owned these securities for one year, and subject to compliance
with the applicable provisions of Rule 144 of the Commission, he may then
commence to sell these "restricted securities" in an amount equal to up to 1%
of the then outstanding securities of Kara, or the average weekly trading
volume in the securities of Kara on any recognized automated system (the OTC
Bulletin Board is such a system) during the four weeks preceding any Notice of
Sale pursuant to Rule 144, in any three month period, provided Kara satisfies
the "current public information" requirements of Rule 144 at that time. Since
Kara is a "reporting issuer" with the Commission, it is anticipated that these
requirements will be satisfied. In such event, such sales could have a
substantial adverse effect on any public market that may then exist in the
reorganized Kara=s common stock. Sales of any of these securities by Mr.
Nemelka could severely affect the ability of the reorganized Kara to secure
the necessary debt or equity funding for the reorganized Kara=s proposed
business operations. Mr. Nemelka has already had preliminary negotiations
with a number of persons who were instrumental in apprising Kara of the IHI
opportunity, who include members of management of IHI, respecting the
possibility of selling a block of these securities at a substantial reduction
below the current quoted price for shares of common stock of Kara. Although
Mr. Nemelka has no firm arrangements or understandings respecting the sale of
any of these securities, in such event, these persons may be able to "tack"
the holding period of Mr. Nemelka and avail themselves of the resale
provisions of Rule 144. Further, in either event, Mr. Nemelka may profit
substantially from his $20,000 investment.
Dilution Kara has no material assets or liabilities, and its book
value is nil. Assuming Kara acquired the outstanding voting securities of
IHI, based upon Kara having a book value of $-0- and Kara currently having
4,559,761 outstanding shares of common stock, the IHI exchanging stockholders
would experience an immediate and substantial dilution of their current
ownership in IHI and the book value per share of their IHI common stock as a
result thereof. An exact estimate of the actual dilution anticipated will be
provided to each IHI stockholder who is approached by Kara, once the completed
questionnaires of IHI Shareholders are received and reviewed.
Restricted Securities The securities of Kara to be received in the
exchange by the IHI Shareholders shall be "restricted securities" as defined
in Rule 144 of the Commission, and the exchange commences a new holding period
for IHI Shareholders, independent of when their respective shares of common
stock of IHI were acquired. These securities will have to be held for at
least one year prior to public sale under Rule 144; and if there were
presently a market for shares of common stock of IHI, IHI Shareholders who had
owned their shares of common stock of IHI for in excess of one year may be
able to utilize Rule 144 for the sale of these securities, and if any had held
their securities for in excess of two years, such securities could be sold
without limitation (if the Shareholder was not a director, executive officer
or an "affiliate" of IHI).
Effect of Transaction on Optionees According to the Plan of
reorganization, Kara shall adopt the 1996 International Heritage, Inc. Stock
Option Plan ("Stock Option Plan") and shall substitute options of Kara for
options of IHI. The substituted options shall be subject to the same terms
and conditions as they were under the Stock Option Plan. Optionees shall have
the same rights to exercise their shares. It is anticipated that the
reorganized company shall endeavor to file an S-8 Registration Statement to
attempt to register the shares underlying the stock options. However, the
Company can make no assurance that such a registration will be accomplished,
and optionees may remain subject to the terms of Rule 144 after the exercise
of their options for "restricted securities."
Risk Factors Relating to the Reorganized Company
Forward-Looking Statements The Private Securities Litigation Reform
Act of 1995 provides a "safe harbor" for forward-looking statements. This
document contains forward-looking statements which reflect the views of IHI
and the proposed new members of management with respect to anticipated future
events and financial performance. These forward-looking statements are
subject to certain uncertainties and other factors that could cause actual
results to differ materially from such statements. These uncertainties and
other factors include, but are not limited to the words "anticipates,"
"believes," "estimates," "expects," "plans," "projects" or "targets" and
similar expressions which identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made. IHI undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Securities and Exchange Commission Informal Investigation. The
Atlanta office of the SEC sent an informal request for certain information to
IHI regarding its prior securities offerings (to include Rescission Offers)
and information substantiating why IHI's marketing program does not involve
the sale of securities. IHI has provided the SEC with all information
requested to date. There can be no assurance that the SEC will not proceed
with a formal investigation, administrative proceeding or legal action in the
future. Any such action could have a material adverse effect on IHI's
financial condition and results of operations.
Rescission Offer and Related Contingent Liabilities. On August 15,
1995, IHI privately offered to rescind all of its prior sales of securities to
its then 57 Shareholders ("August Rescission Offer"). On December 15, 1995,
IHI privately offered to rescind all of its prior sales of securities to its
then 194 Shareholders ("December Rescission Offer" and together with the
August Rescission, the "Rescission Offers"). A total of four Shareholders
accepted the Rescission Offers for a total stock value of $20,000. The
Rescission Offers by IHI were voluntary. IHI, in its private offering of
securities, to which the Rescission Offers applied, had relied on various
exemptions which in some respects may have been technically deficient in some
of the states where the securities were offered. IHI determined it would be
in its best interest to voluntarily offer rescission to all Shareholders so as
to treat all Shareholders equitably.
IHI was required in connection with the sale of certain of its
securities to make a rescission offer to Shareholders in the State of
Washington. From August 1995 through December 1995, IHI privately offered and
sold shares of its Common Stock within the State of Washington. A total of 40
Washington residents (the "Washington Shareholders") purchased shares through
that offering (the "Washington Offering", which resulted in proceeds to IHI of
$100,650. The Washington Offering was not registered with the Securities
Division of the Department of Financial Institutions of Washington
("Securities Division"), and IHI did not file a notification of claim of
exemption for the Washington Offering with the Securities Division. IHI
notified the Securities Division upon discovering that the Washington
Offering may not qualify for an exemption from the registration requirements
under the Securities Act of Washington. IHI then filed an application with
the Securities Division to register a rescission offer. IHI subsequently
withdrew the application and, on March 8, 1996, voluntarily refunded
Washington Shareholders their initial investment plus interest totaling
$104,538.49. IHI without admitting or denying any wrongdoing entered into a
Consent Agreement with the Securities Division on September 5, 1996. There is
no assurance that in the future that any state or the Commission could
commence an administrative proceeding or legal action which could cause IHI to
be required to offer rescission to its shareholders. Any such action could
have a material adverse effect on IHI, its financial condition and results of
operations.
Upon the completion of the Rescission Offers, IHI had offered the
right to rescind to all Shareholders other than those who had received their
shares by gift or for services for which no value had been assigned at the
time rescission was offered. IHI can give no assurances that it will not be
liable for administrative penalties and sanctions as a result of these
transactions, which could have a material and adverse effect on IHI.
The Rescission Offers were not registered under the Securities Act
and IHI relied on Section 4(2) of the Securities Act to voluntarily offer
rescission to Shareholders who did not receive their stock by gift or in
exchange for services for which no value had been determined at the time of
the rescission offer. IHI offered rescission because certain notice filings
were not made to perfect exemptions at the state level in some of the states
where the securities were offered. In order to treat all Shareholders
equitably, rescission was offered to all shareholders, even where there were
proper exemptions in place. IHI is unaware of any liability, contingent or
otherwise, growing out of unregistered sales of the securities; however, there
can be no assurance that no liabilities are outstanding. Any future liability
or requirement to offer rescission to the holders of IHI's debt or equity
securities could have a material and adverse effect on IHI's financial
condition and results of operations.
Uncertain Ability to Manage Growth. Many of IHI's officers, managers
and key employees have had limited experience in managing companies as large
and as rapidly growing as IHI. IHI's strategy of continuing its growth and
expansion will place additional demands upon IHI's current management and
other resources and will require additional information systems, management
personnel and operational and financial resources. The continued growth of
IHI will depend on various factors, including, among others, its relations
with IRSRs, the capacity of IHI's computer systems to continue to handle the
growing number of IRSRs and the increasing sales, the ability of IHI's
suppliers to fulfill orders, the ability of IHI to provide adequate IRSR
training and to open new markets in other countries. Not all of the foregoing
factors are within the control of IHI. IHI's ability to manage growth
successfully will require IHI to continue to enhance its operational,
management, financial and information systems and controls. No assurance can
be given that IHI will be able to manage its expanding operations and, if
IHI's management is unable to manage growth effectively, IHI's business,
operating results, and financial condition could be materially and adversely
affected. Furthermore, there can be no assurance that the growth experienced
by IHI in the past will continue.
History of Operating Losses; Uncertainty of Future Profitability.
IHI was incorporated on April 28, 1995, and from that date until June 21,
1995, IHI's operations consisted primarily of raising capital, developing a
business plan, implementing business policies, recruiting professional
advisors and administrative activities. During this development stage, IHI
incurred losses of approximately $225,000. From the date of inception through
December 31, 1996, IHI had accumulated losses of $617,572. As of December 31,
1996, IHI had stockholders' equity of $305,827, and its current liabilities
exceed its current assets by $1,664,390. This situation was caused by the
high cost associated with building and developing an international direct
sales company. IHI had actual expenditures of $880,000, $471,000 and
$1,999,000 for professional fees, computer hardware, software and other
related costs, and sales and training material development, production costs
and inventory, respectively. IHI had net income of $1,312,251 for the year
ended December 31, 1996. However, IHI lost approximately $12,824,000 during
1997 primarily due to the decline in margins from IHI's commission payout
structure. IHI modified its commission payout structure in November, 1997 to
attempt to generate better margins. At year end 1997, the margin (with
commissions) was 5%. However, management believes these margins will continue
to improve with the consistent application of the 65% cap on the commission
payout in the future. Additional factors affecting IHI's profitability in
1997 consisted of, but were not limited to: negotiating a consent agreement
with the North Carolina Attorney General's office; the wrongful withholding of
approximately $1,000,000 in funds by IHI's former credit card processor, First
Data Corporation, the embezzlement of $684,000 by former IHI employees, the
expenses relating to the first annual convention ($1,000,000) and expenses
accrued in association with an attempt to file an S-1 Registration Statement.
Management believes the introduction in March, 1998 of consumable products and
the Flex-Level Compensation Plan will further ensure profitability from IHI's
commission pay out structure. Additionally IHI has cut its selling, general
and administrative expenses to approximately 16%. However, there can be no
assurance that IHI's strategy to increase profitability will be successful or
that IHI will be profitable in the future.
Refund Policy & Money-Back Guaranty. IHI provides a one hundred
percent (100%) money back guarantee for all products or items purchased by
IRSRs, other than sales aids returned within 60 days of receipt. Sales aids
and Kits are subject to a ninety percent (90%) refund for one year so long as
the items are unopened (standard set by the Direct Selling Association).
Additionally, IHI conforms with regulations with respect to refunds in the
states and provinces in which IHI conducts business. The following states, by
statute, require longer periods for refunds: Georgia, Maryland, Massachusetts,
Oklahoma and Texas. However, none of these states requires a refund after one
year, thus IHI's maximum exposure for refunds in these states is one year.
All other states have no defined refund and/or return provision. IHI had
returns (or refunds) of approximately 10% in 1996. The rate of returns or
refunds in the traditional retail market, selling products similar to those
sold by IHI (i.e. department stores), is also approximately 10%. IHI cannot
predict the percentage of returns or refunds in the future; however, IHI
anticipates that the returns shall be approximately 12.5%.
Dependence on Independent Retail Sales Representatives. IHI's
success depends in significant part upon its ability to attract, maintain, and
motivate a large base of Independent Retail Sales Representatives ("IRSRs"),
independent contractors who purchase products from IHI and either resell them
to the public or keep them for personal use, who, in turn, recruit other
IRSRs, all of whom solicit purchasers for IHI's products. Any significant
turnover among IRSRs requires the sponsoring of new IRSRs by existing IRSRs in
order to maintain or increase the overall IRSR sales force. For the year
ended December 31, 1995, IHI experienced an attrition rate of approximately
9.3% for IRSRs (using the method for measuring attrition used by the Direct
Selling Association). For the years ended December 31, 1996 and 1997, IHI
experienced an attrition rate of approximately 10%. The industry average
attrition rate, which is in excess of 22% according to the Direct Selling
Association, is significantly higher than IHI has experienced to date even in
light of entering into the Settlement Agreement with the North Carolina
Attorney General. Activities of the IRSRs in obtaining new IRSRs are
particularly impacted by: (i) changes in the level of motivation,
which in turn can be positively or negatively affected by general economic
conditions; (ii) modifications to the pay-out under the IHI Bi-Lateral
Compensation Plan (the "Bi-Lateral Plan"); (iii) the availability of training
and leadership conferences; (iv) the quality and diversity of product
availability; and, (v) a number of intangible factors." IHI's ability to
attract IRSRs could be negatively affected by adverse publicity relating to
the network marketing industry, IHI, its products, or its operations, as well
as competition with other network marketing companies who may recruit IHI's
IRSRs. IHI does not pay any commissions or fees for recruiting IRSRs. IHI
only pays commissions on product sales. Because of the number of factors that
impact the recruiting of IRSRs, IHI cannot predict when or to what extent such
increases or decreases in the level of IRSR retention will occur. In
addition, the number of IRSRs (as a percentage of the population) may reach
levels that become difficult to exceed due to the finite number of persons
inclined to pursue work in the independent direct selling business. However,
IHI's success and the success of its IRSRs is not dependent upon the
recruitment or the sponsorship of new IRSRs into IHI. The success of IHI and
the success of each IRSR is dependent upon the sale of IHI products. There
can be no assurance that the number or productivity of IRSRs will be sustained
at current levels or will increase in the future.
Dependence on Third Party Manufacturers. The products bought by IHI
and resold to its IRSRs are manufactured by third party manufacturers;
therefore, IHI does not have direct control over the quality of manufacturing.
Additionally, some of the third party manufacturers market their own products
and/or supply their products to more traditional retailers to which
preferential treatment may be given. Any of the foregoing would adversely
affect IHI's revenues from the sale of such products. There can be no
assurance that in the future these third parties' manufacturing or fulfillment
capacities will be sufficient to satisfy IHI's requirements, that
interruptions or delays in manufacturing or fulfillment will not adversely
affect IHI's operations, or that alternative manufacturing or fulfillment
sources will be available to IHI on commercially reasonable terms or at all.
Liquidity and Capital Resources. As of December 31, 1997, IHI had a
cash balance of approximately $88,406. IHI's operating activities used cash
of approximately $8,061,000 for the year ended December, 1997, compared to
cash provided by operations for the year ended December 1996 of $1,491,000.
The single largest factor in the change between the two periods was IHI's
deterioration of gross margins. Management believes that this condition will
be corrected once the newly introduced commission payout plan has been
implemented for several pay periods and the new consumable products and
Flex-Level Compensation Plan are introduced and implemented; however, there
can be no assurance that such commission adjustment and product introduction
will improve IHI's cash flow from operations.
The liquidity of IHI has historically been dependent on revenue
remaining constant or increasing. The internal support structure has been
built to service the current level of revenue. A material deficiency in
liquidity will occur if sales decline for a period of time. IHI has met its
capital requirements to date in part through the investment of the initial 57
shareholders ("Founding Shareholders"), shareholder loans, proceeds from a
Regulation D private placemen of approximately $4,000,000, and cash flow from
operations. IHI believes that its existing sources of cash are not sufficient
to run IHI at its current growth rate and, therefore, needs cash to help fund
operations, capital expenditures, and working capital. IHI had anticipated
raising capital through an initial public offering ("IPO") in early 1997;
however, IHI terminated its planned IPO due to market conditions and the
action commenced and subsequently settled, with the North Carolina Attorney
General's office. As a result, IHI initiated a Regulation D private offering
to raise up to $5,000,000 and, subsequently a Regulation S offering to raise
an additional $10,000,000.
Although management believes the net proceeds of the Reg D and the
Reg S Offerings are sufficient to fund continued growth through 1998,
unforeseen events may occur which would require IHI to seek additional capital
in the future. The extent and timing of such requirements will depend upon
many factors, including, but not limited to, economic conditions, the level of
product sales, competition and cash flow levels. IHI believes that the funds
generated by the offerings, together with existing resources and cash
generated from operations, will be sufficient to fund its operations through
1998. However, no assurances can be given that unforeseen circumstances will
not alter IHI's capital requirements, or that adequate funds will be
available on acceptable terms, if at all. IHI's shareholders will have no
obligation to provide any such funds that may be required in the future.
No Dividends. IHI has never paid any cash dividends on the Common
Stock and it is currently the intention of IHI not to pay cash dividends on
its Common Stock for the foreseeable future. As a condition of the Debentures
offered in the Reg S Offering, IHI will not, and will not permit any of its
subsidiaries to declare or make any dividend payment at any time so long as
the Debentures are outstanding. Management intends to reinvest earnings, if
any, in the development and expansion of IHI's business. Any future
declaration of cash dividends will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements, financial
position of IHI, general economic conditions and other pertinent factors.
Experience of Management; Dependence Upon Key Personnel. IHI is
dependent upon key personnel, including its management, and upon recruiting
and retaining skilled IRSRs. In addition, IHI's other officers, executive
directors and managers have a greater than usual importance to IHI because of
the complexity of a network marketing/independent contractor based business.
Any loss of or failure to retain key personnel could have a material and
adverse effect upon IHI.
Prior Transactions With Affiliates. IHI has in the past entered into
and may in the future enter into transactions and agreements with its
officers, directors and principal shareholders and entities controlled by such
individuals. While IHI believes that the terms of the transactions and
agreements have been no less favorable to IHI than could have been obtained
from unaffiliated third parties, no assurance can be given that unaffiliated
third parties would not have offered terms more advantageous to IHI. All
future material affiliated transactions and loans will be made or entered into
on terms that are no less favorable to IHI than those that can be obtained
from unaffiliated third parties. The independent directors, who do not have
an interest in the particular transaction(s), will determine the fairness of
all transactions and agreements with Company officers, directors and principal
shareholders and entities controlled by such individuals.
Litigation. IHI is party to various litigation which if determined
adversely to IHI could have a material adverse effect on IHI's financial
condition and results of operations. Such litigation includes but is not
limited to the following: International Heritage, Inc. v. First Data Merchant
Services Corporation, Unified Merchant Services, and Kelvin Carvana; 97 CVS
3683, Wake County Superior Court, Wake County, Raleigh, North Carolina. This
action was initiated on March 27, 1997, in the Wake County Superior Court by
IHI. Within its complaint, IHI alleged that the Defendants, First Data
Merchant Services Corporation ("First Data") and Unified Merchant Services
("UMS") had breached a contract to provide credit card processing services to
IHI. In addition, IHI alleged that all of the Defendants had defrauded IHI
and committed unfair and deceptive trade practices as a result of the actions,
in part, of the third Defendant, Kelvin Carvana, an agent of First Data and
UMS. Because IHI alleged that First Data and UMS wrongfully held funds which
belonged to IHI and had wrongfully breached the agreement with IHI, IHI sought
and initially obtained a mandatory restraining order requiring First Data and
UMS to continue with the credit card processing relationship with IHI so that
it could avoid some anticipated damages as a result of the fraudulent and
other wrongful acts of all of the Defendants. Because, in part, IHI was
successful in obtaining new credit card processors, the mandatory restraining
order has subsequently been lifted by the Court. IHI seeks damages from the
Defendants in an amount in excess of $10,000 as well as the return of
approximately $1,000,000 wrongfully held by First Data and/or UMS. In
February, 1988, First Data returned $830,000 to the Company. The return of
these funds does not effect the Company's outstanding claims against First
Data and the remaining defendants. Currently, no counterclaim has been
asserted by any of the Defendants against IHI. Management believes that,
because alternative credit card processors have been located by IHI, this
matter will not have a significant adverse impact on IHI.
International Heritage, Inc. v. Cedric Dobbins, individually and
d/b/a CL Enterprises, et al., 97 CVS 07577, Wake County Superior Court, Wake
County, Raleigh, North Carolina. This action was filed July 1, 1997 by IHI
against four of its former employees and several other individuals and
entities which, according to IHI, were the recipients of funds and personal
property belonging to IHI wrongfully taken by one or more of the former
employee defendants. The complaint alleges inter alia: wrongful taking,
conversion, fraud and conspiracy to defraud. IHI requested a temporary
restraining order and preliminary injunction to enjoin the defendants and
their agents from disposing of the assets of IHI in their possession. The
temporary restraining order was granted July 1, 1997 and an injunctive order
was issued by the court July 7, 1997. IHI has recovered over $100,000 in cash
and $35,000 in personal property and anticipates recovering (voluntarily) at
least an additional $100,000 in cash and personal property.
Network Marketing Industry Compliance; North Carolina Settlement
Agreement. Regulations regarding network marketing companies are a complexity
of overlapping laws which vary from jurisdiction to jurisdiction. Network
sales programs are affected by combinations of business opportunity,
franchise, securities, anti-pyramid, network distribution, and state lottery
statutes, as well as U.S. Post Office, lottery and Federal Trade Commission
fraud regulations, among others. Failure to comply with the laws of any
jurisdiction can result in the loss of IHI's ability to operate therein for
indefinite periods of time and could possibly affect its ability to operate in
other jurisdictions as well. Any limitation on IHI's ability to operate in a
jurisdiction could have a material and adverse effect on IHI.
On April 29, 1997, the State of North Carolina Department of Justice,
Consumer Protection Division ("NC Attorney General") forwarded to IHI's
counsel a letter indicating that the NC Attorney General was investigating IHI
to determine whether its operations, and more specifically, its marketing plan
complied with North Carolina law. IHI and the NC Attorney General entered
into an Agreement on June 3, 1997 (the "Settlement Agreement"), which sets out
the following: (i) that IHI will refrain from charging or allowing IRSRs to
pay for any type of business benefit, (ii) that IHI will refrain from allowing
any connection between a IRSR's purchase of a product or service and his
status as an IRSR, (iii) that IHI will refrain from selling the opportunity to
recruit others, (iv) that IHI will refrain from permitting avoidance of the
Agreement by use of any sham or alter-ego, (v) that IHI will refrain from
allowing movement into subsequent levels based on recruitment rather than
product sales, (vi) that IHI will refrain from representing potential sales
or earnings figures to prospective IRSRs, (vii) that IHI will refrain from
making visual displays of bonus or commission checks, (viii) that IHI will
refrain from allowing or condoning the use of participant-produced sales aids,
(ix) that IHI will refrain from engaging in misleading acts or
representations; (x) at least 70% of all North Carolina sales revenue are
required to be from retail sales to persons not connected in any way with
IHI's sales force; (xi) IHI will communicate the terms of the Settlement
Agreement to all relevant parties; (xii) IHI will terminate any representative
who violates the terms of the Settlement Agreement; (xiii) IHI will clearly
disclose when IRSRs will be compensated in any manner other than money; (xiv)
IHI will not require payment or investment of any type in order to
participate in IHI's marketing program; (xv) IHI will limit all North Carolina
IRSRs to one Retail Business Center (defined below) in the organization; (xvi)
IHI will prohibit the purchase of Retail Business Centers or buying into
levels; and, (xvii) IHI will require certain record keeping, forms and
modifications to IHI's marketing plan reflecting the terms and conditions of
the Settlement Agreement. The Settlement Agreement does not effect IHI's
ability to do business in any other state. However, there can be no assurance
that one or more states will not bring administrative proceedings or legal
actions in the future which seek to cause IHI to change the way it conducts
its business or to limit its ability to do business in any state or that IHI
will be able to comply with the Settlement Agreement or to continue to do
business in North Carolina. Any such action could have a material adverse
effect on IHI's financial condition and results of operations. IHI may
proceed with its business without modification in all other states and
provinces, and with some modifications to its marketing plan in North
Carolina. IHI was permitted to maintain its headquarters in North
Carolina.
Competition. IHI operates in a highly competitive business. IHI
competes with a number of established network marketing companies, some of
which also sell jewelry. In addition, IHI competes with retail sellers of
fine jewelry and fine collectibles, many of which are typically located in
shopping malls and other more traditional retail outlets. Some of IHI's
competitors may have substantially greater financial resources than IHI.
IHI's future success will depend to a significant extent upon its ability to
remain competitive in the areas of cost control, service responsiveness,
reliability, and marketing.
Suppliers. IHI currently secures its jewelry products that it
markets from A&A Jewelers, Inc.-Canada/E.B. Harvey, Inc.-USA (collectively "E.
B. Harvey"), Jewels by Evonne and John Kragh Jewelers. IHI can procure any of
the jewelry products featured in its catalogs from any of these suppliers.
IHI's current access to the fine collectibles products it offers to the
public is maintained through E.B. Harvey and the agreements that E. B. Harvey
has with the individual fine collectibles suppliers. IHI does not anticipate
entering into direct agreements with the fine collectible manufacturers and
vendors. IHI also provides telecommunications products through a strategic
relationship with Business Telecommunications, Inc. ("BTI"). IHI also
provides pro-line golf products and accessories directly from the
manufacturers of such products and accessories. IHI does not have formal
written agreements with any of its jewelry, collectible and golf suppliers in
accordance with common industry practice. However, IHI has formal written
agreements with its nutritional product, skin care and logo item suppliers.
Any interruption of the supply of products could have a material and adverse
effect on IHI's ability to fill customer orders. Such an interruption could
lead to loss of IRSRs and retail customers. IHI, therefore, can give no
assurance that it will be able to continue to offer any of its current
products in the future.
Dependence on Consumer Spending. The success of IHI's operations
depends upon a number of factors relating to consumer spending, including, but
not limited to, future economic conditions affecting disposable consumer
income such as employment, business conditions, interest rates and taxation.
There can be no assurance that consumer spending will not decline in response
to economic conditions, potentially adversely affecting IHI's growth, net
sales and profitability.
For information on IHI and the proposed reorganized company, see
Business of International Heritage, Inc. attached hereto and incorporated by
reference as Exhibit B.
All Shareholders must complete a Confidential Accredited Investor
Questionnaire to determine whether they are accredited and able to participate
in the voluntary share exchange.
<PAGE>
DISSENTERS' RIGHTS
Pursuant to N.C.Gen.Stat. 55-13-02(a)(5) the Board of Directors, on
February 10, 1998, resolved to provide all Shareholders with the right to
dissent from the voluntary Share Exchange and obtain payment for their shares.
Shareholders are or may be entitled to assert dissenters' rights under Article
13 of the N.C. Business Corporation Act, a copy of which is attached as
Exhibit C hereto.
If you wish to assert your right to dissent you must:
Submit a demand for payment and a certificate for certificated
shares, on or before March 20, 1998 to:
Angie C. Stewart, Corporate Secretary
International Heritage, Inc.
2626 Glenwood Avenue
Suite 200
Raleigh, North Carolina 27608
After payment demand is received, holders of uncertificated shares
will be restricted from transferring the same as follows:
(3) A form for demanding payment is attached hereto as Exhibit D.
If you wish to assert your right to dissent you must give the
Company, and the Company must actually receive, written notice of your intent
to demand payment for your shares, if the proposed action is effectuated, on
the form attached hereto as Exhibit C on or before March 20, 1998.
OTHER MATTERS
The Company is not aware of any other matters that will be presented
for action at the Meeting. However, if any other matters properly come before
the Meeting, the persons named in the accompanying proxy intend to exercise
the discretion conferred by the proxy and to vote in accordance with their
judgment on any such matters.
Whether or not you plan to attend the Meeting, please sign, date and
return the enclosed Proxy Form and Confidential Accredited Investor
Questionnaire via facsimile (919) 571- 8744 to the attention of Angie C.
Stewart, Corporate Secretary, and mail the original in the enclosed postage
pre-paid envelope. If you plan to attend the Meeting you must also R.S.V.P.
to Diana Wilson at (919) 571-4646, Ext. 1247 on or before February 25, 1998.
STANLEY H. VAN ETTEN
President, Chief Executive Officer
and Chairman of the Board
ANGIE C. STEWART
Corporate Secretary
February 16, 1998
<PAGE>
EXHIBIT A
KARA INTERNATIONAL, INC.
10-KSB ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1997
Incorporated by Reference
<PAGE>
EXHIBIT B
<PAGE>
BUSINESS OF INTERNATIONAL HERITAGE, INC.
History and Overview
International Heritage, Inc. ("IHI") is engaged principally in the
direct sale of fine 14K, 18K and 24K gold and precious stone jewelry, fine
collectibles, pro-line golf products and accessories, premium incentive
products and telecommunications products and services in the United States and
Canada. Beginning in March 1998, at its annual convention, IHI will unveil its
new lines of nutritional and skin care products. IHI utilizes a network
marketing distribution system to market its products through catalog sales.
Compensation to IHI and to its network of Independent Retail Sales
Representatives ("IRSRs"), independent contractors who purchase products from
IHI and either resell them to the public or keep them for personal use, is
based on the volume and price of Company products sold. No commissions or
fees are paid on sponsorship, training or recruitment of new IRSRs.
Commissions are only paid on product sales.
IHI offers IRSRs products of recognized value which are sold to IRSRs
at a significant cost savings as compared to their suggested retail prices.
IHI allows IRSRs to buy products at competitive prices, which is IHI's
"value-based" philosophy.
Claude W. Savage, Larry G. Smith and Stanley H. Van Etten (the
"Founders") founded IHI in April 1995 with the goal of building and developing
an international network marketing company. IHI started by making its
products available to a small number of highly motivated professional people
in key sales regions. These initial IRSRs earned sales commissions by selling
products through their own Retail Sales Organizations (defined below), or
networks. IRSRs build a Retail Sales Organization by sponsoring new IRSRs.
All IRSRs who join IHI are given the same opportunities to sell products
through a Retail Sales Organization, and, as the process repeats itself, IHI's
distribution system expands. Currently, IHI has more than 150,000 IRSRs
throughout the United States and its territories (except North Dakota and
South Dakota where IHI believes the demographics are unfavorable and,
therefore, do not warrant the cost for business expansion), and the provinces
of Alberta, British Columbia, Ontario, Quebec and Saskatchewan Canada. (IHI
intends to expand throughout the remaining Canadian provinces during 1998.)
IHI develops the marketing materials used by IRSRs, including, but
not limited to, sales brochures, audio and video tapes, training manuals,
business forms, and warehousing and transporting products. The Kit, which
contains everything an IRSR needs to start in his or her business, currently
sells for $100. The Kit contains: tri-fold presentation binder with flip
chart, daily planner, IHI audio tape, Corporate Introduction video, Quick
Start Training video, Business Presentation video, Understanding Your Career
Kit video, Retailing IHI Products video, Jewelry Value Series Brochure,
Collectibles Value Series Brochure, Jewelry Catalog with price guide,
Collectibles Catalog with price guide, Apparel Catalog, Opportunity Brochure,
Pin System Brochure, Money Makers Monthly reprint articles, the most recent
copy of the IHI Business Journal, Gettin' The Business sales handbook, Sellin'
Retail retail sales handbook, Network Marketing Brochure by Jeffrey Babener,
Retail Business Agreement, Certification Letter, Retail Product Order Form,
Sales Aid Order Form, Retail Receipt Form, IDCC Sign-up Flyer, IDCC "How To"
Training Seminars, IDCC Flowchart, Internet Application, I-Care Brochure,
Premium incentive letter, new product folder with flyers and price guides, IHI
Representative Handbook, IRS Form W-9, Credit Card Authorization Form, IHI
Stationary Order Form, Check Acceptance Form, Compliance Department Memo and
Change of Address Form. No other material purchases are required for an
individual to become an IRSR and to build a Retail Sales Organization.
However, IRSRs may purchase, at their option, additional marketing materials
from IHI to help develop his or her sales skills, to assist the IRSR in
marketing Company products and to assist the IRSR in sponsoring and training
new IRSRs within his or her Retail Sales Organization.
By providing materials and support to IRSRs at an affordable cost,
IHI benefits from reduced advertising expenditures, a highly motivated sales
force, positive word of mouth, a sense of customer and IRSR loyalty and a high
volume of repeat sales. The IRSR should be able to start his or her own
business with minimal start-up costs and operating expenditures thereby
providing the IRSR with a reasonable expectation of profits for their efforts.
Further, the IRSR should benefit from the following: high earnings potential,
the ability to be his or her own boss, the ability to operate a business from
home, the ability to work on a part-time or full-time basis, the ability to
buy products at a reduced cost, no franchise fees, and the opportunity to work
with family, friends and relatives.
IHI's existing shareholders consist primarily of IRSRs, management
and employees. A benefit of this basis of stock ownership, especially
ownership by IRSRs, is the creation of a national network to help enforce
compliance with IHI's policies and procedures and to create Company loyalty
among the IRSRs. IRSRs with an ownership stake in IHI work to assure other
IRSRs are selling Company products, building their Retail Sales Organizations
and complying with Company policies and procedure. IHI has also developed the
IHI Training, Leadership Development, and Support System (the "System"). The
System is a comprehensive plan for identifying and developing leadership
within the IRSR sales force. The System is designed to give IRSRs the tools
and support they will need to develop a profitable Retail Sales Organization,
unlike many traditional network marketing systems which provide no Company
support for representatives, but rather rely on sponsoring representatives to
train and support new representatives.
Network marketing companies generally have significant attrition
among their representatives because there is no plan or program in place that
is designed to help and support their representatives. Generally, when a
representative sponsors an individual into his or her network marketing sales
organization, the new recruit is totally dependent on the sponsor to learn how
to sell IHI's products and how to build a network marketing sales
organization. This creates a "sponsor dependent" environment where each new
recruit is dependent completely on his/her sponsor for training, help and
support. This is problematic because each sponsor is limited as to the time,
energy, and support he/she is able and willing to devote to each new recruit.
When a representative sponsors several recruits, there is insufficient time to
properly train and support each one of the new recruits. This lack of support
results in many representatives leaving the network marketing business.
Management believes the System has created an environment where the IRSRs are
system dependent, rather than sponsor dependent; as a result, IHI's attrition
rate is lower than the industry average. See "Network Development and
Training."
Product Sales and Development. IHI markets and sells its products
through a network of IRSRs. While IRSRs are in business for themselves, IHI
provides support for their efforts by making available certain sales, training
and motivational tools and other technical and supervisory assistance. All
IRSRs must adhere to IHI's written policies and procedures in order to
maintain their affiliation with IHI. See "Network Marketing Industry
Compliance." Compensation is paid to IRSRs in accordance with the Bi-Lateral
Compensation Plan ("Plan"). See "Bi-Lateral Compensation Plan."
IHI negotiates for and secures the rights (through contract, license
or other agreement) to market and sell the various products available to the
IRSRs. IHI, through oral agreements with E. B. Harvey, Jewels by Evonne and
John Kragh Jewelers, markets various items of fine jewelry and collectibles
which historically have represented 90% of IHI's consolidated revenue.
(Management believes that the new nutritional and skin care products will
modify the overall percentage of revenue generated from jewelry sales). The
items of jewelry currently available to IHI from E. B. Harvey, Jewels by
Evonne and John Kragh Jewelers include gold (14K, 18K and 24K) and precious
stone jewelry. IHI's current access to the fine collectible products
manufactured by Lalique, Mark Hopkins, Sorrento, Mont Blanc, Lladro, Chilmark,
Marlene's Collection, Swarovski, Reed & Barton, Hummel, Precious Moments,
Barbie, Coca-Cola, Bill Blass, Enesco, Armani, Bosca, Legends, Miller Rogaska,
The Doll Maker and Paul Miller is maintained through oral agreements with the
respective manufacturers or manufacturer's representatives and E. B. Harvey.
E. B. HARVEY fulfills orders for fine collectible products.
In March 1997, IHI introduced at its first national convention long
distance service for both residential and business customers from BTI, one of
the nation's largest long distance suppliers, based in Raleigh, North
Carolina. BTI service provides a more traditional consumable product for its
IRSRs to sell which falls within IHI's value-added product philosophy. Since
BTI provides a range of services, including paging and wireless communication,
in addition to long distance, management believes this new product should
effectively compete with companies such as Excel Communications, AT&T and MCI,
all of whom sell communication services through direct sales or network
marketing distribution channels. As of December 31, 1997 the sale of BTI
products and services produced revenues of $2,285,020 (net of commissions) or
approximately 2.6% of gross sales (with commissions). IHI plans to continue
to expand its line of telecommunications products, and has several products
currently in the research and development stage, with the anticipation of
launching the same during 1998.
IHI also unveiled in March 1997 its new pro-line of golf products.
Some of the brands of golf equipment, clubs and accessories carried by IHI
include: Callaway, Taylor Made, King Cobra, Top Flite, Titleist, Yonex, Mizuno
and Snake Eyes. IHI believes that it is one of the first network marketing or
direct sales companies to sell golf clubs, equipment and accessories.
IHI displays the various products for sale in color catalogs which
are available for purchase by IRSRs. IHI charges IRSRs for the catalogs in
order to defray the costs of production. In addition, IHI assists its IRSRs,
for no additional fee, in ordering products, tracking delivery and recording
and paying compensation associated with the sale of products. IHI is
constantly reviewing and evaluating the possibility of adding additional
product lines, additional product suppliers, as well as arrangements directly
with manufacturers of other products which fit within IHI's "value-based"
product philosophy.
IHI has recently added a toll free product order department which
allows retail customers to telephone IHI directly to place catalog orders.
Each catalog will have an IRSR identification number, and upon order entry,
the IRSR responsible for distributing the catalog shall receive a commission
from the sale.
Operations. IHI uses state of the art technology and a full staff to
service its IRSRs. Customer service agents answer phones Monday through
Saturday. There are several bilingual service agents, proficient in various
languages, available to service IHI's IRSRs. Business is processed and
entered on a daily basis. IRSRs also have technological support available 24
hours a day via the International Data Communications Center ("IDCC"),
fax-on-demand, and the Internet to assist and provide support for all facets
of the business.
The core computer software package used by IHI has been used within
the network marketing industry for over 20 years. The software package has
been proven to support companies with annual sales of over $500 million. IHI
has a long-term license for the current software system along with future
improvements. IHI, in striving to improve upon this successful software to
make interaction with the IRSRs more efficient and productive than it
currently is, has secured an unlimited world-wide user license for a program,
currently being developed, which will allow IRSRs through their own personal
computer to interact with IHI's system to access information such as product
order status, sales, volume, commissions and updates on Company marketing
materials to name a few.
IRSRs may join IHI and sell Company products at retail price at no
cost other than to purchase a $100 (not-for-profit) Kit. An IRSR's retail sale
is recognized by IHI for accounting purposes when the product is shipped. An
IRSR may purchase a product directly, may "earn-out" a product by applying
commissions earned from retail sales toward the purchase of a product or may
open a Retail Business Center without making a product purchase. However, to
earn override commissions, an IRSR must certify his or her Retail Business
Center by accumulating a minimum of 200 Retail Sales Business Volume (defined
below). (North Carolina residents receive pre-certified Retail Business
Centers). See "Bi-Lateral Compensation Plan." IHI defers a portion of all
other revenue from sales aids, fees (optional administrative, technology
maintenance and IDCC) and other sources at the time of receipt by IHI and
after the 60-day time period for refunds under IHI's money back guaranty has
elapsed, the remaining revenue is recognized. Commissions are earned by IRSRs
based on sales volume levels. IHI periodically conducts sales contests and
various incentive plans to enhance revenue growth.
The BTI products offered through IHI are made available through a
strategic relationship between BTI and International Communications
Corporation ("ICC"). ICC is an authorized corporate partner (reseller or
agent) of BTI products and services. IHI is an authorized agent (or corporate
partner) of ICC, thus allowing IHI's IRSRs to act as agents for purposes of
selling BTI products and services. IHI's IRSRs are authorized to sell three
BTI packages, the Value Added and Deluxe Leadership packages, which are
especially designed for IRSRs and the Referral package which is specifically
designed for non-representatives wishing to take advantage of BTI's nationwide
services. The various BTI packages include nationwide long-distance service,
both residential and business, paging, toll-free services, calling cards and
conference calling. Since June 1997, IHI has been BTI's highest selling
corporate partner.
IHI services its Canadian IRSRs through approximately a 7,800 square
foot facility located in Toronto, Ontario, Canada. This facility serves as
the executive office, Customer Service and fulfillment facility for IHI's
Canadian operations.
Bi-Lateral Compensation Plan. IRSRs are compensated for sales of
IHI's products in accordance with the Plan. The Plan is copyrighted under
federal law and IRSRs are not permitted to modify or create any derivative
forms or versions of the Plan when presenting IHI's business.
Further, IHI has formulated various policies and procedures to ensure
that IRSRs present the Plan in a consistent manner and in accordance with
relevant government regulations. IHI drafted its Plan to comply with
applicable federal and state law, rules and regulations. Pursuant to the
terms of the Settlement Agreement, IHI created the North Carolina Compensation
Plan which governs business practices in North Carolina and sales to North
Carolina residents, which is more fully described below. In order to assure
that IRSRs present the Plan properly and consistently, IHI requires IRSRs to
use only Company-prepared or Company-approved materials. When IRSRs fail to
use Company materials, they are subject to probation, fine and/or termination.
These policies and procedures are enforced by IHI's Compliance Department.
IRSRs earn compensation under the Plan in several ways. First, IRSRs
may purchase products at Representative Cost (the wholesale price paid by an
IRSR) from IHI and sell them at a marked-up retail price to consumers.
Second, IRSRs may undertake to build a Retail Sales Organization and earn
commissions on the sales made by the other IRSRs in their Retail Sales
Organization ("Override Commissions"). Third, IRSRs may earn Development
Bonuses by helping or managing other IRSRs in their Retail Sales Organization.
Finally, IRSRs can save money on their own purchases of Company products.
Override Commissions are earned from sales of IHI products made
through two Retail Sales Organizations under a Retail Business Center (a
"store" or position in IHI computer system used to track an IRSR's Retail
Business Sales Volume). In order to earn Override Commissions, an IRSR must
"Apply" to become an IRSR, "Learn" about IHI's products, the compensation
plan and selling in general, "Sell" Company products, and "Build" a Retail
Sales Organization by sharing the business opportunity with others and earning
override commissions from the sale of Company products by the RISR and others
in his or her Retail Sales Organization. Attendant with the opportunity to
earn Override Commissions and Development Bonuses, IHI places an obligation on
the sponsoring IRSR to supervise, manage and otherwise support and aid the
downline IRSRs in their sales efforts. The Plan promotes the management,
support and development of downline IRSRs.
To "Apply", a prospective IRSR must complete an Independent Retail
Sales Representative Agreement and Certification Letter ("Certification
Letter") and send the Certification Letter to IHI for approval and acceptance.
There is no cost or fee associated with executing the Certification Letter and
becoming an IRSR. The IRSR does not need to purchase a product in order to be
eligible to market or sell IHI's products. IHI has absolute prohibitions
against inventory loading (purchasing inventory without retailing the same
merely to qualify for commissions). However, each prospective IRSR must
"Learn" IHI's business by purchasing the Kit prior to selling any Company
products or building a Retail Sales Organization, and the prospective IRSR is
required to read everything contained in the Kit and to certify to IHI in
writing that he/she has read and agrees to abide by the terms of IHI's
Policies and Procedures.
The IRSR may then "Sell" Company products. Every product that IHI
carries has a Representative Cost and a certain amount of Retail Sales
Business Volume ("RSBV") which is based on IHI's gross profit margin on a
particular product. RSBV is used to calculate the Override Commissions on the
sale of products in an IRSR's Retail Sales Organization (i.e. profit sharing
in the form of commissions and bonuses to the selling IRSR on products sold).
During each weekly pay cycle RSBV is automatically totaled for each side of
the Retail Sales Organization. Once an IRSR has accumulated at least 1,000
RSBV on each side of his or her Retail Sales Organization, Level 1 earnings
are achieved and a $250 product/commission is paid. As RSBV accumulates to
another 1,000 on each side of the Retail Sales Organization, Level 2 is
completed and another $250 commission is earned. The same occurs when Level 3
is completed, for an additional $500 commission.
The maximum earnings potential for a single Retail Business Center is
$1,000 per week in Override Commissions on retail sales of Company products
and $750 per week as a Development Bonus, and $750 per week as a Cycle Bonus
for a maximum total compensation of $2,500 per week. Each Retail Business
Center must be "Re-Certified" every quarter (13 weeks) in order to permit the
IRSR to continue earning Override Commissions, Development Bonuses and Cycle
Bonuses. In order to Re-Certify, 200 RSBV must be accumulated in the Retail
Business Center.
Finally, the IRSR may "Build" two Retail Sales Organizations under
his or her Retail Business Center if he or she duplicates the process by
sponsoring two additional IRSRs who also create Retail Sales Organizations of
their own. To "sponsor" an IRSR, a current IRSR must recruit another
individual who Applies (completes a Certification Letter that is accepted by
IHI) and who subsequently accrues 1,000 RSBV on each side of his or her Retail
Business Organization by selling Company products himself or herself. Once
the new IRSR has opened a Retail Business Center, he or she has been
"sponsored" into the business. Prospective IRSRs who are not initially
sponsored are assigned a sponsor. No one may become an IRSR without a
sponsor. No commissions are paid when an IRSR or prospective IRSR is
sponsored. Although no more than two sponsored IRSRs may be
sponsored directly under a Retail Business Center, there is no limit on the
number of IRSRs who may be sponsored, so long as the sponsoring IRSR properly
supervises his or her Retail Sales Organization pursuant to IHI's Policies and
Procedures.
Override Commissions and Development Bonuses are tracked and
calculated by IHI and paid out weekly to qualifying IRSRs. To maintain their
qualification to receive Override Commissions, Development Bonuses and Cycle
Bonuses, all IRSRs are required to meet certain retailing requirements (see
below) by selling Company products to consumers who are not IRSRs. IHI pays
commissions on product sales only. The performance criteria used in
determining Override Commissions, Development Bonuses and Cycle Bonuses is the
same for all IRSRs. A "Pay Cycle" in the Plan is comprised of a Level 1
Commission, a Level 2 Commission, and a Level 3 Commission. An IRSR earns
each level of compensation the same way. Each Retail Business Center has a
left and a right side, and in order to earn commissions, RSBV realized from
the sale of Company products must be accumulated on both the left and right
sides of the Retail Business Center. In order for an IRSR to earn a Level 1
Commission of $250, he or she must accumulate 1000 in RSBV on each side of his
or her Retail Business Center. In order for an IRSR to earn a Level 2
Commission of $250, he or she must accumulate 2000 in RSBV on each side of his
or her Retail Business Center. In order for an IRSR to earn a Level 3
Commission of $500, he or she must accumulate 3000 in RSBV on each side of his
or her Retail Business Center. To earn a Development Bonus, an IRSR must earn
a Level 3 Commission. At the same time, or within two weeks of achieving a
Level 3 Commission, the IRSR must have an IRSR on each side of his or her
Retail Business Center earn a Level 3 Commission as well. This qualifies the
IRSR for a Development Bonus. It is possible to earn a Development Bonus on a
weekly basis provided the IRSR meets the retail qualifications. There is a
maximum earnings potential of one $750 Development Bonus per Retail Business
Center in any pay cycle, regardless of how many IRSRs are qualifying by
earning Level 3 Commissions. Before a Development Bonus can be earned from
the same Retail Business Center, another Level 3 Commission must be earned by
said Retail Business Center. To earn a Cycle Bonus, an IRSR must earn a Level
3 commission check and a Development Bonus within a one week Pay Cycle. IRSRs
are personally responsible for all taxes due on their earnings. The
Development Bonus and the Cycle Bonus are incentives provided by IHI to
encourage IRSRs to manage, train and motivate IRSRs in their respective
"downline" Retail Sales Organization.
The Plan provides an opportunity for the IRSR to expand his or her
business and income by using Development Certificates. (Development
Certificates are not available in North Carolina). Development Certificates
are precertified Retail Business Centers. Each of the first two times that an
IRSR earns a Level 3 Commission from a Retail Business Center, IHI provides
the IRSR with a Development Certificate which allows the IRSR to expand his or
her business. The new Retail Business Center must be placed downline from the
IRSR's original Retail Business Center. A Retail Business Center can earn a
maximum of two Development Certificates. The Development Certificate
opportunity provides for stable and controlled growth and insures that a
Retail Sales Organization has leadership, management and training.
Development Certificates help IHI insure that its sponsoring IRSRs are
managing and overseeing their respective Retail Sales Organizations.
Development Certificate's create interaction and management
in a Retail Sales Organization between the leaders and sponsoring IRSRs in a
Retail Sales Organization and new IRSRs.
All IRSRs have a quarterly retailing requirement to sell twelve
Company products, six of which must be sold to non-IRSRs, in order to earn
Override Commissions, Development Bonuses and Cycle Bonuses. As a result of
the Settlement Agreement, North Carolina residents have a different retailing
requirement wherein 70% of the total revenue from sales in North Carolina must
be generated from retail sales to persons who are not connected in any way to
IHI. These limitations do not apply to IHI's operations other than the State
of North Carolina. In addition, once an IRSR's Retail Business Center has
achieved a level of earnings, there is a quarterly (13 week) requirement of
attaining 200 in RSBV to maintain certification ("Recertify") a Retail
Business Center for Override Commissions and Development Bonuses. (Pursuant to
the Settlement Agreement, recertification is not required in North Carolina).
Recertification is necessary every thirteen weeks once a Retail Business
Center has achieved a level of earnings and is necessary for each Retail
Business Center that has achieved a level of earnings within a Retail Sales
Organization.
In North Carolina, the Plan has been modified to conform with the
terms of the Settlement Agreement. The terms of the Settlement Agreement
apply only to business practices within the State of North Carolina and sales
to North Carolina residents. The Settlement Agreement does not apply to sales
outside of North Carolina or sponsorship outside of North Carolina by any
IRSR, including those who reside in North Carolina. The Settlement Agreement
also does not affect the maintenance of IHI's corporate headquarters in
Raleigh, North Carolina. The North Carolina Compensation Plan like IHI's
general Plan is as follows: "Apply," "Learn," "Sell" and "Build. A new NC
IRSR will receive only one Retail Business Center which will be automatically
certified. NC IRSRs may select three products with a Representative Cost of
at least $250 ("Bonus Products") to be earned out by applying Level 1
Commissions. These products will not carry RSBV and are not necessary to
recertify a Retail Business Center because all NC IRSRs will receive certified
centers upon joining IHI. Bonus Products that are successfully earned are
considered commissions and are not subject to the 70% retail requirement
unless the product is subsequently resold and a retail receipt
is submitted.
The North Carolina Compensation Plan, created pursuant to the terms
of the Settlement Agreement, applies to all NC IRSRs whether new or existing.
The North Carolina Compensation Plan applies to all sales by NC IRSRs,
including sales outside of North Carolina. NC IRSRs may no longer recertify
Retail Business Centers with a product purchase, however, they will continue
to select a Bonus Product every 13 weeks to which Level 1 Commissions will be
applied. (This only applies to a Retail Business Center that has successfully
achieved a Level 1 Commission). 70% of all North Carolina sales revenues must
be retail sales to persons who are not connected to IHI's sales force, either
as an IRSR or as a member of the IRSR's household. IHI will track these
retail sales by use of the retail receipt forms. To simplify this process,
IHI has combined the product order form and the retail receipt form into one
document. IHI has also made certain modifications to its policies and
procedures which are applicable only to NC IRSRs. Any NC IRSR who violates
these policies and procedures is subject to disciplinary action. The North
Carolina addendum to the Policies and Procedures Manual provides a new
definition of sales to the end consumer which provides that an NC IRSR will
not be eligible for Override Commissions, Development Bonuses or Cycle Bonuses
unless at least 70% of all North Carolina sales revenue that is generated by
all NC IRSRs is achieved through retail sales to persons who are not connected
in any way with IHI's sales force. Further, IHI, on a weekly basis, will
verify all sales in North Carolina to determine whether there is compliance
with the 70% retail sales requirement contained in the Settlement Agreement.
Additionally, the return policy for sales in North Carolina provides that
direct product purchases will be fully refunded or exchanged for a new product
within 30 days of the sale and earned-out products will be subject to exchange
within 30 days of the product earn- out. These changes to IHI's Plan and
Policies and Procedures Manual, with respect to North Carolina, allow IHI to
comply with the terms of the Settlement Agreement without currently affecting
their operations in any of the other states or provinces in
which IHI conducts its business. There can be no assurances, however, in the
future other states will not require IHI to modify its business practices, and
more specifically its Plan, similar to those now followed in the State of
North Carolina.
IHI, at its annual convention in New Orleans, in March 1998, plans on
unveiling its Flex-Level Compensation Plan which will provide a unique type
of compensation for its IRSRs for the sale of its nutritional and skin care
products. The Flex-Level Compensation Plan is intended to work in
conjunction with the Bi-Lateral Compensation Plan and will provide various
degrees of commissions earned on sales of the nutritional and skin care
products.
Network Development and Training. An individual becomes an IRSR by
being sponsored into the business by an existing IRSR. All potential IRSRs
must Learn the business by purchasing a Kit which contains various materials
that they are obligated to read and study before being accepted by IHI as
IRSRs. The prospective IRSR must sign the Certification Letter attesting to
the fact that he or she has read and understands all the materials contained
in the Kit and he or she agrees to abide by the policies and procedures of IHI
and applicable state and federal regulations. Once a potential IRSR has
submitted a Certification Letter, and it is accepted by IHI, he or she has
been sponsored "into IHI." The sponsoring IRSR can then earn Override
Commissions, Development Bonuses and Cycle Bonuses on the retail Sales of the
new IRSR that he or she has sponsored. This process then repeats itself,
thereby allowing an IRSR to Build a Retail Sales Organization and for IHI to
build its sales force.
In 1996 IHI implemented the IHI "System." The System is designed to
stimulate and support recruiting activity and organized growth of an IRSR's
Retail Sales Organization, enhance retention of IRSRs, develop responsive
field leadership, thereby extending IHI's philosophy and vision throughout its
network of IRSRs, create and promote a working partnership between IHI and its
network of IRSRs and to assure compliance with Company Policies and Procedures
and adherence to applicable state and federal regulations. The System is
supported by a series of events, recognition (retail sales production and
Retail Sales Organization development) and tools.
The first component of the System is events. The events include:
local weekly business meetings, area, regional, and national events and
conventions, international conference calls with IHI's President and various
guest speakers, corporate leadership courses, leadership retreats, special
meetings and contest/incentive trips. The event portion of the System
provides for local weekly meetings and training in each market area. Once a
quarter, there is a larger area event and a regional event. The largest event
is the annual event which is held twice a year, the first occurred in
Orlando, Florida in March 1997. The Fall event is an annual trip to the
Bahamas. The second annual event is scheduled March 12, 1998 in New Orleans,
Louisiana. This event system gives the IRSRs a course to follow in the
development of his or her business. When a new IRSR joins IHI, he/she is
encouraged to begin participating in the local weekly meetings and training
events in order to learn the fundamentals of the business. As IRSRs gain
experience and begin to realize success in their business, they are
invited to the area events to gain added exposure and experience. If their
success continues, they are invited to speak and to train at the regional
events. Finally, the IRSRs will participate in and be featured at the
national events. In addition to the standard event portion of the System,
there are also monthly leadership workshops, special training meetings, and
contest/incentive trips.
The next component of the System is recognition. IHI has implemented
a unique two part Pin Recognition System that recognizes outstanding
achievement in developing a successful Retail Sales Organization and in
retailing Company products to consumers. The Retail Sales Organization Pin
Recognition System ("RSO Pin System") recognizes IRSRs for six levels of
achievement from achieving Level 1 Commissions to developing an extensive
Retail Sales Organization. Tied to the various levels of achievement (not the
same as levels of earnings) are cash bonuses and potential stock option
bonuses. The first level recognized in the RSO Pin System is the RSO
Director, which is awarded to an IRSR who has earned a minimum of $18,000 per
quarter. Each RSO Director receives a cash bonus of $500 per month so long as
the quarterly minimum earnings are maintained. The highest level recognized
in the RSO Pin System is the Chairman's Circle, which is awarded to an IRSR
who has earned a minimum of $50,000 per quarter. Each member of the
Chairman's Circle receives a cash bonus of $6,000 per month so long
as the minimum quarterly earnings are maintained. The Retail Product Sales
Pin Recognition System ("Product Pin System") recognizes an IRSR for various
levels of retail sales per quarter. Tied to the seven levels of achievement
are cash bonuses. The first level of recognition within the Product Pin
System is Sapphire, which is awarded to an IRSR who has retailed $25,000 of
Company products over one quarter. A Sapphire IRSR receives a $500 cash
bonus. The highest level of recognition within the Product Pin System is
Platinum Diamond, which is awarded to an IRSR who has retailed $250,000 of
Company products over one quarter. A Platinum Diamond IRSR receives a $5,000
cash bonus. These benefits further enhance momentum and motivation as key
elements of the recognition component of the System. The two part Pin
Recognition System rewards IRSRs who help others have success, which is
consistent with IHI's team-building philosophy. Both the RSO Pin System and
Product Pin System are designed to increase sales momentum and IRSR
motivation.
The final component of the System is comprised of tools. The tools
include the Kit, a series of audio and video tapes on IHI ("Building a Retail
Sales Organization," "Quickstart Training," "Retailing Products," "How to Fill
Out Company Forms" and "Most Frequently Asked Questions and Answers"), slide
presentations, overhead presentations, flip chart presentations, a monthly
newsletter (The IHI Business Journal), fax-on-demand (which provides an
overview of IHI), monthly conference calls, an Internet home page
(www.aable.com/ihi/), various sales and marketing publications (Gettin' the
Business; A Sales Professional's Handbook and Sellin' Retail which are
included in the Kit) and IDCC.
Competition. IHI operates in a highly competitive business. IHI
competes with a number of established network marketing companies including
several that are better known than IHI. Among others, IHI competes with
Jewelway (a jewelry distributor), Amway (a disposable goods distributor),
Shacklee (a health products distributor) and Mary Kay (a beauty products
distributor). With its network marketing competitors, IHI competes not only
for the sale of products but also for the services of successful IRSRs. IHI
believes its products are of a higher quality than its network marketing
competitors, and that it offers more services and a more attractive
compensation formula for IRSRs than its competitors. Further, IHI management
believes that with the introduction of its nutritional and skin care products,
as well as the Flex-Level Compensation Plantm to compensate IRSR's for the
sale of these products, IHI will have a greater competitive strength within
the network marketing industry.
IHI believes it is extremely competitive when compared to other
companies within the network marketing industry. IHI, with its state of the
art support and services, prestigious products, and compensation plan that
allows part-time IRSRs to earn consistent income (the Plan does not have any
time limits, RSBV accumulates until pay levels are reached) attracts very
professional individuals to IHI. By attracting talented and credible IRSRs to
IHI and offering training under the System, IHI believes it is well positioned
to compete successfully. IHI also intends to remain competitive by continuing
to add new products and services.
In addition, IHI also competes with more traditional storefront
retail sellers of fine jewelry, fine collectibles and pro-line golf products.
IHI believes its marketing approach is more efficient and effective than these
traditional storefront retailers, and that it can provide its products at more
attractive prices because of the absence of traditional retail overhead costs.
However, consumers may be more accustomed to traditional means of purchasing
jewelry, fine collectible and pro-line golf products, and, as a consequence,
IHI may have to work harder to penetrate a more traditional consumer market.
IHI believes it has a significant competitive advantage over
traditional retail stores because its IRSRs take products directly to the
marketplace. The traditional retail business is dependent on walk-in
prospective customers in order to make sales. The best way for the retail
store to increase its exposure (and thus its "walk-in" traffic) and sales is
to increase its advertising budget to increase awareness of its market
presence. IHI, with its 150,000 IRSRs across the United States and Canada,
has a sales force that is virtually unlimited in its market. IRSRs present
IHI's products to their sphere of influence, including their friends, family
members and business associates. IHI believes that many people prefer to
purchase fine jewelry and collectibles from people they already know and
trust, and these consumers enjoy the convenience of having the product
delivered to them by the IRSRs, rather than making such purchases from
traditional retail outlets. Further, IHI's products are generally sold at a
retail price which is less than that offered by traditional retail outlets for
the same products and thus IHI believes that the cost savings afforded
consumers provides IHI with a competitive advantage as well.
Network Marketing Industry Compliance. Regulations regarding network
marketing companies are a complexity of overlapping laws which vary from
jurisdiction to jurisdiction. Network sales programs are affected by
combinations of business opportunity, franchise, securities, anti-pyramid,
network distribution, and state lottery statutes, as well as U.S. Post Office
lottery and Federal Trade Commission fraud regulations, among others. Failure
to comply with the laws of any jurisdiction can result in the loss of IHI's
ability to operate therein for indefinite periods of time and could possibly
affect its ability to operate in other jurisdictions as well. Though it can
give no assurances, IHI believes it has taken significant measures to comply
with the various laws that would apply to it in the jurisdictions in which it
currently operates. IHI has created a training program and a Compliance
Department to monitor IRSR adherence to IHI's policies and procedures and
conducts periodic reviews of its IRSRs to ensure policy, procedure and
regulatory compliance. The policies and procedures adopted and enforced by
IHI are designed to assure compliance with the various laws that govern its
business. IHI devotes significant efforts and resources to monitoring its
operations and sales force since any limitation on IHI's ability
to conduct its business in a particular jurisdiction could have a material and
adverse effect on IHI and its profitability.
IHI's marketing program and the Plan have been structured to fit
within the "Amway safeguards" applicable to direct selling companies. These
safeguards were approved in the landmark 1979 Federal Trade Commission Amway
decision. Among the anti-pyramiding safeguards adopted by IHI are: (1)
ongoing retailing requirements (in order to qualify for ongoing commissions,
IRSRs are required to make twelve product sales to retail customers per
quarter, six of which must be to non-IRSRs, in North Carolina 70% of sales
must be to non-IRSRs); (2) IRSRs may not reorder products unless and until
they have sold or consumed 70% of their previous purchase orders; (3) the
industry standard 90% buy back policy for products returned by terminating
IRSRs (IHI has actually exceeded the standard percentage buyback by adopting a
60-day, 100% buyback policy (30 days in North Carolina)); (4) requiring
prospective IRSRs to purchase only the "not-for-profit" Kit for $100 before
becoming an IRSR, which is within the exemption of the business opportunity
statute in each state in which IHI conducts its business, assuring no product
purchase or investment is necessary to become an IRSR; (5) a prohibition from
presenting hypothetical earnings projections; (6) an absolute prohibition on
front-end or inventory loading (purchasing inventory without retailing the
same merely to qualify for commissions); (7) IRSRs may not buy into levels or
positions; (8) IRSRs who sponsor other IRSRs must fulfill supervisory
activities, including ongoing communication and managerial supervision with
the IRSRs within their Retail Sales Organization in order to qualify for
ongoing commissions and bonuses; and (9) commissions and bonuses are derived
solely from sales as opposed to headhunting, sponsoring or any similar
activities.
Properties. IHI owns no real property. IHI conducts its operations
through its headquarters in Raleigh, North Carolina. IHI presently leases
approximately 10,485 square feet of office space for its executive offices.
This lease expires on November 30, 2002. IHI leases an additional 15,336
square feet of office space for its operations center which includes the: data
entry, representative services and fulfillment departments. This lease
expires on September 30, 2002.
Employees. As of December 31, 1997, IHI had 182 employees, of whom
31 performed management and supervisory functions and 151 performed technical,
administrative and support functions related to IHI's sales and network
marketing operations. As of December 31, 1997, all but 12 of IHI's employees
were full-time employees including two in Canada. IHI is not a party to any
collective bargaining agreements. IHI considers relations with its employees
to be good.
<TABLE>
INTERNATIONAL HERITAGE, INC.
Consolidated Balance Sheet
December 31, 1997
UNAUDITED
<S> <C>
CURRENT ASSETS
Cash $88,406
Certificates of Deposit 1,079,053
Inventory 1,280,903
Employee Advances 59,219
Due from Representatives, Net 686,365
Deposits and Prepaid Expenses 397,794
Other Current Asset 1,678,541
Total Current Asset 5,270,281
PROPERTY AND EQUIPMENT - AT COST
Asses Not Placed in Service 553,166
Computer Software 423,725
Computer Hardware 810,288
Office Furniture and Equipment 413,937
Leasehold Improvements 257,900
2,459,016
Less Accumulated Depreciation (392,610)
Net Property and Equipment 2,066,406
OTHER ASSETS
Deferred Registration Costs 1.673,401
Organization Cost 261,207
Start-Up Costs 15,674
Down line Development 840,810
Accumulated Amortization (358,783)
Total Other Asses 2,432,309
TOTAL ASSETS $9,768,996
CURRENT LIABILITIES
Trade Account Payable 52,346,888
Payable to Representatives 230,767
Other Payables 1.787,889
Deferred Revenue 1,777,068
Income Tax Payable 7,000
Sales Tax Payable 21,845
Accrued Payroll and Payroll Taxes 831,954
Accrued commissions 1,751,633
Accrued Interest Payable 161,660
Total Current Liabilities 8,916,703
LONG-TERM DEBT
10% Convertible Debt 4,335,662
8.5% Convertible Subordinated Debenture 8,750,000
Total Long-Term Debt 13,085,662
STOCKHOLDERS' EQUITY
Common Stock 10,009
Additional Paid-In Capital 1,112,195
Additional Paid-In Capital - Stock Options 64,406
Equity Adjustment - Foreign Currency Translation 21,767
Retained Earnings (Deficit) (13,441,746)
Total Stockholders' Equity (12,233,369)
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $9,768,996
</TABLE>
<TABLE>
INTERNATIONAL HERITAGE, INC.
Consolidated Income Statement
For the Twelve Months Ending December 31, 1997
UNAUDITED
<S> <C>
REVENUE
Sales - Product $98,249,739
Sales - Business Kits 6,974,720
Sales - Other Revenue 2,005,925
Total Revenue 107,230,384
COST OF SALES
Commissions 72,724,417
Product 15,178,855
Business Kits 6,975,352
Other 7,839,789
Total Cost of Sales 102,718,413
GROSS INCOME (LOSS) 4,511,971
SELLING & ADMINISTRATIVE EXPENSES 17,336,140
Income (Loss) Before Taxes (12,824,169)
Provision for Income Taxes
NET INCOME (LOSS) ($12,324,169)
</TABLE>
<PAGE>
INTERNATIONAL HERITAGE, INC.
Raleigh, North Carolina
Consolidated Financial Statements
and Supplemental Information
Year Ended December 31, 1996 and
Period Ended December 31, 1995
EILERS JONES, BROWN & McLEOD [letterhead]
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
International Heritage, Inc.
Raleigh, North Carolina
We have audited he accompanying consolidated balance sheets of
International Heritage, Inc. as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1996 and the
period April 28, 1995 (date of inception) to December 31, 1995.
These consolidated financial statements are the responsibility of
the management of International Heritage, Inc. 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
performed the audit to certain reasonable assurance about whether
the financial statements are free or 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 consolidated financial statements referred to
above present fairly, in all material respect s, the financial
position of International Heritage, Inc. as of December 31, 1996 and
1995, and the results of its operations and its cash flows ,or the
year end period then ended in conformity with generally accepted
accounting principles.
Our audits were conducted for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. The
supplemental information on page F-20 is presented for purposes of
additional analysis and is not a required part of the basic
consolidated financial statements. Such information has been
subjected to the same auditing procedures applied in the audit of
the basic consolidated financial statements and, in our opinion, is
fairly stated in all material respects, in relation to the basic
consolidated financial statements taken as a whole.
/s/ Eilers, Jones, Brown & McLoed, CPAs, pa
February 14, 1997
<TABLE>
INTERNATIONAL HERITAGE, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<CAPTION>
ASSETS
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash $ 38,004 $ 306,099
Certificates of deposit 91,734 10,000
Inventory 664,632 283,371
Employee and stockholder advances 11,734 39,556
Due from representatives, less allowance for
doubtful accounts of 5455,000 in 1996 1,933,086 142,023
Sales tax refunds due 36,796
Other receivables 22,603 22,998
Deposit on promotional inventory 146,316
Other deposits 54,721 79,419
Prepaid commissions 411,136
Other prepaid expenses 25,021 1,438
Total Current Assets 3,436,783 884,909
PROPERTY AND EQUIPMENT - AT COST
Computer software 261,035 124,933
Computer hardware 462,383 101,114
Office furniture and equipment 180,517 88,136
Leasehold improvements 117,004
1,010,939 314,183
Less accumulated depreciation and amortization 125,841 21,832
Net Property and Equipment 885,098 292,351
OTHER ASSETS
Deferred registration costs 568,850 116,543
Organization costs, net 184,230 260,232
Start-up costs, net 12,461 15,062
Acquisition costs, net 319,578 160,349
Total Other Assets 1,085,119 552,186
$ 5,407,000 $ 1,729,446
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,580,725 $ 594,851
Product ordered payable to IRSRs 440,994 253,913
Other payables to IRSRs 150,485 103,331
Cash overdrafts 95,708 94,034
Deferred revenue 1,682,827 408,375
Income taxes payable 7,000
Sales tax payable 157,396 135,913
Accrued payroll and payroll taxes 387,085 13,215
Accrued commissions 593,953 915,421
Accrued interest payable - 2,675
Notes payable - stockholders - 165,545
Potential investor deposits - 115,650
Total Liabilities 5,101,173 2,802,923
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value:
authorized - 25,000,000 shares;
issued and outstanding - 7,273,246
shares 9,693 9,633
Additional paid-in capital 910,903 846,497
Equity adjustment for foreign currency translation 2,803 156
Accumulated deficit (617,572) (1,929,823)
Total Stockholders' Equity 305,827 (1,073,477)
$ 5,407,000 $ 1,729,446
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
INTERNATIONAL HERITAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1996 and Period Ended December 31, 1995
<CAPTION>
1996 1995
<S> <C> <C>
REVENUE
Sales - product $ 41,261,709 $ 4,254,278
Sales - business kits 3,316,575 312,110
Sales - administrative fees 3,126,917 285,854
Total Revenue 47,705,202 4,852,242
COST OF SALES
Commissions 19,631,091 2,580,177
Product 13,534,224 1,912,157
Business kits 3,223,348 358,549
Other 1,451,125 67,454
Total Cost of Sales 37,839,789 4,918,337
GROSS INCOME (LOSS) 9,865,413 (66,095)
SELLING AND ADMINISTRATIVE EXPENSES 8,553,162 1,863,728
INCOME (LOSS) BEFORE INCOME TAXES 1,312,251 (1,929,823)
PROVISION FOR INCOME TAXES - -
NET INCOME (LOSS) $ 1,312,251 $ (1,929,823)
Earnings per common share
and common equivalent share $ 0.11 $ (0.14)
Earnings per common share
assuming full dilution $ 0.11 $ (0.14)
Weighted average number of common and
common equivalent shares outstanding 13,569,147 12,737,149
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
INTERNATIONAL HERITAGE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended December 31, 1996 and Period Ended December 31, 1995
<CAPTION>
Common Stock $.001 par value, Adjustment
25,000,000 shares authorized for Foreign Total
Additional Currency Accumulated
Stockholders'
Shares Amount Paid-in Capital Translation Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Issuance of
common stock
for cash
consideration 6,605,348 $ 8,802 $ 382,364 $ - $ - $ 391,186
Conversion of
notes payable
to common
stock 575,250 767 340,727 - - 341,494
Issuance of
common stock
for services
rendered 92,648 124 123,406 - - 123,530
Adjustment for
foreign currency
translation - - - 156 - 156
Net loss - - - - (1,929,823) (1,929,823)
Balance December
31, 1995 7,273,246 9,693 846,497 156 (1,929,823) (1,073,477)
Value attributed
to options
granted for
services - - 64,406 - - 64,406
Adjustment for
foreign currency
translation - - - 2,647 - 2,647
Net income - - - - 1,312,251 1,312,251
Balance December
31, 1996 7,273,246 $ 9,693 $ 910,903 $ 2,803 $ (617,572) $ 305,827
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
INTERNATIONAL HERITAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 and Period Ended December 31, 1995
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,312,251 $ (1,929,823)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 109,039 21,832
Amortization 112,513 47,511
Common stock options granted for services 64,406 -
Other 52,789 -
Changes in Assets and Labilities:
Inventory (381,261) (283,371)
Receivables, net (1,759,637) (204,582)
Deposits and prepaid expenses (557,337) (80,857)
Payables 1,225,109 952,095
Deferred revenue 1,274,452 408,375
Accrued expenses and taxes payable 78,210 1,067,224
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,490,534 (1,596)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 795 -
Purchases of property and equipment (731,061) (314,183)
Purchases of certificates of deposit (81,734) (10,000)
NET CASH USED IN INVESTING ACTIVITIES (812,000) (324,183)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of stock - 391,166
Payments for deferred registration costs (452,307) (116,543)
Proceeds from notes payable 222,775 511,539
Payments on notes payable (388,320) (4,500)
Deposits from potential investors - 120,650
Refunds to investors (115,650) (5,000)
Payments for organization ant start-up costs (1,627) (184,136)
Payments for acquisition costs (215,821) (175,488)
Cash overdraft 1,674 94,034
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (949,276) 631,722
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,647 156
NET INCREASE (DECREASE) IN CASH AT END
OF PERIOD (268,095) 306,099
Cash at beginning of period 306,099 -
CASH AT END OF PERIOD $ 38,004 $ 306,099
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
INTERNATIONAL HERITAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY - International Heritage, Inc. (the "Company") was incorporated in
North Carolina on April 28, 1995. It is principally engaged in the direct'
sale of fine jewelry and collectibles in forty-eight states. The Company
recruits Independent Retail Sales Representatives (.IRSRs~) who build retail
sales organizations. IRSRs purchase products from the Company and retails them
to the public.
The Company has a wholly owned subsidiary, International Heritage of Canada.
Inc., that was incorporated in Canada on July 25, 1995, and is engaged in the
same direct sales business in Canada as the parent Company. he accounts of the
Canadian Company have been consolidated with the Company and all significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES-The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
RECLASSIFICATION - In October 1996, the Company canceled 300,000 shares of
stock originally valued at $400,000 and issued in 1595 in exchange for
services provided to the Company in the organization of the Canadian
subsidiary, and has retroactively treated this cancellation as of December 31,
1995. This retroactive cancellation has reduced both organization costs and
paid in capital balances by $400,000 as of December 31, 1995. Certain other
1995 amounts have been reclassified to conform to current year presentation.
None of these reclassification affected the statements of operations. During
1996, it was discovered that the number of shares of common stock was
understated by 3,375 shares. The number of shares of common stock has been
restated in 'he attached consolidated financial statements effective December
31, 1995. This restatement has no effect on the consolidated financial
statement balances.
CASH - For purposes of reporting cash flows, cash includes cash on hand and
amounts due from banks. As of December 31, 1551 i, the Company had U.S. bank
balances of $416,454 of which $239,537 was in excess of the insured limits
prescribed by the Federal Deposit Insurance Corporation.
CERTIFICATES OF DEPOSIT - The Company was required to deposit $90,000 in 1996
and $10,000 in 1995 into certificates of deposit in order to obtain a merchant
credit card account with a financial institution. The certificates of deposit
are required to be maintained with this financial institution until they
mature on various dates in 1997.
INVENTORY - Inventory, consisting primarily of retail business center kits
containing sales and other business materials, is stated at the lower of cost
or market, with cost determined under the first-in first-out (FIFO) method.
Inventory also includes approximately $57,000 of jewelry used for display
purposes and $70,000 in promotional items.
PROPERTY AND EQUIPMENT- Depreciation expense is calculated on the straight-
line method over useful lives as follows:
Estimated Useful life
Computer software 5 years
Computer hardware 5 years
Office furniture and equipment 7 years
Leasehold improvements 7 years
Expenditures for repairs and maintenance are charged to expense as incurred.
The cost of major renewals and betterments are capitalized and depreciated
ever their estimated useful lives. Upon disposition of equipment, the
respective assets and accumulated depreciation accounts are relieved and any
related gain or loss is reflected in operations.
ORGANIZATION AND START-UP COSTS - Organization costs consist primarily of
legal, consulting and accounting fees associated with the organization of the
Company and are being amortized on a straight-line basis over 5 years
(accumulated amortization was $76,977 as of December 31, 1996 and $31,761 as
of December 31, 1995). During 1996, the Company wrote off $24,309 (net book
value) in organization costs for the development of a training video which has
been updated and replaced to reflect he ,act that the underlying
asset no longer had value. start-up costs consist of legal and consulting fees
associated with the start-up of the Canadian operations and are being
amortized on a straight-line basis over 5 years (accumulated amortization was
$3,213 as of December 31, 1996 and $612 as of December 31, 1955).
ACQUISITION COSTS - In order to facilitate a larger retail sales organization
in a short time period, the Company acquired sales organizations from third
parties and paid for these acquisitions through direct product cost to the new
representatives. More than 90% of these representatives acquired have remained
active with the Company through December 31, 1996. Accordingly, the direct
costs associated with these acquisitions have been capitalized (does not
include any management or overhead cost) and are being amortized on a straight
line basis over 5 years (accumulated amortization was 571,730 as of December
31, 1996 and $15,133 as of December 31, 1995).
REVENUE RECOGNITION AND DEFERRED REVENUE - IRSRs may join ff~.e Company and
retail product at no cost ether than to purchase a $100 professional retail
business career kit When the IRSRs sell a product the sale is recognized when
the product is shipped.
The Company allows IRSRs to stop selling the Company s products without
penalty or obligation within 60 days and receive a complete refund. The
Company records revenues for down payments made on product sales and provides
allowances for sales returns and allowances based on past experience. After a
60 day period has elapsed, all such revenue is recognized. Revenue July 1998,
IRSRs who enter with more than one business center or have earned a commission
check are not eligible for a refund.
In addition, the Company provides a 100% satisfaction Guarantee on all product
and sales aids purchased by IRSRs or customers. Commissions are earned by the
IRSRs based on sales volume levels. The Company periodically conduct's sales
contests and various incentive plans to enhance revenue growth. The Company
recognized revenue on an annual $25 optional administration fee when an IRSRs
or customer first joins the Company and every year thereafter and an annual
$50 technology maintenance fee earned throughout the year and billed at the
end of each year.
INVESTOR DEPOSITS - Subsequent to the initial issuance of common stock for
$111,491 in cash and services the Company received $809,105 of funds and
services from potential investors. The Company sold these securities under an
exemption from registration; however, it was later determined that the
exemption may have been technically deficient in some states. Thus, the
Company voluntary (under no regulatory directive) offered to rescind such
prior sales to all investors who deposited monies during the period from May
to December 1995 by refunding the price paid for the securities plus interest
(the "Rescission Offer"). The Company has recorded deposits made by investors
who rejected the Recision Offer as equity. Four investors, for a total of
$20,000, accepted the Recision Offer and received a refund. In addition, the
Company refunded 5100,650 plus interest to potential investors from the state
of Washington, since the Company withdrew its offering in that state. All
other investors rejected the Rescission Offer. Any investor who rejected the
Rescission Offer received shares of the Company's stock at the rate of 7.5
shares for each $10 investment.
ADVERTISING COSTS - Advertising costs are expensed the first time the
advertising takes place.
PER SHARE AMOUNTS - Earnings per common and common equivalent share were
computed by dividing adjusted net income (loss) by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period. Common stock options have been considered to be the equivalent of
common stock from the time of their issuance, and have been treated as
outstanding for all reported periods. The number of common shares was
increased by the number of shares issuable on the exercise of stock options
when the estimated initial public offering price of the common stock ($5.00
per share) exceeds the exercise price of the options. This increase in the
number of common shares was reduced by the number of common shares that are
assumed to have been purchased with the proceeds from the exercise of the
options. those purchases were assumed to have been made at the estimated
initial public offering price of the common stock and have been limited so as
not to exceed twenty percent of the outstanding common stock as of December
31, 1996. Net income (loss) has been adjusted to reflect investment interest,
net of tax, assuming the balance of the funds assumed to have been obtained
from the exercise of options in excess of the twenty percent limitation
referred to above were invested in U. S. government securities. Earnings per
common share assuming full dilution were computed under the same assumptions
as earnings per common and common equivalent share. See Note 5 for additional
information.
STOCK OPTIONS - The Company recognizes compensation cost for nonvariable
employee stock options at the differences between what the stock has last sold
for to outside investors ($1.33 per share) less the amount, if any, the
employee is required to pay. The method used is the intrinsic value based
method and is expensed over the estimated period of service. As of December
31, 1995 and 1996, there are no outstanding employee Stock options requiring
the recognition of compensation expense.
The Company recognizes compensation cost for all non-employee stock options at
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. There were 286,250
non employee stock options outstanding at December 71, 1996 and no such
options outstanding at December 31, 1995. The Company has recorded $64,406 in
related compensation expense in 1996.
INCOME TAXES - Temporary differences in the basis of assets and liabilities
for financial statement and income tax reporting arise from using different
methods and periods to calculate depreciation, allowances for bad debt and
various accrued liabilities. Provision has been made for income taxes due on
taxable income and for the deferred taxes on the temporary differences.
International Heritage of Canada, Inc. files their tax returns separately from
the Company.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS
The Company was formed April 28, 1995 and from that date until June 21, 1995,
the Company's operations consisted primarily of raising capital, developing
and implementing business policies and administrative activities. During this
development stage, the Company incurred approximately $225,000 of losses.
NOTE 3 - NOTES PAYABLE AND LETTERS OF CREDIT
The Company has no outstanding loans to stockholders as of December 31, 1996,
and had loans of 533,733 to several stockholders as of December 31, 1595.
these notes have interest rates of 12% and mature in one year. Interest
expense was S,,467 in 1596 and $2,554 in 1995. All loans were repaid as of
December 6, 1996.
In August 1996, Mayflower Holdings, Inc., a stockholder which is principally
owned by the President of the Company, loaned the company $200,000 with
interest at 123/0. The note is payable in monthly installments of $50,000
beginning in October 1996 with a final payment including interest due in
January 1997. The note is secured by the assets of the Company. During 1996,
the Company offset S 8,172 in receivables from Mayflower Holdings, Inc against
the note principal. The note was repaid on November 1, 1996. Interest expense
was $4,100 in 1996.
The Company owed $131,812 to Mayflower Holdings. Inc. as of December 31,
1995. This note bears interest at 3% per annum and was payable on demand. The
note was secured by all assets of the Company. The note was repaid in February
1996. Interest expense was $7,581 in 1996 and $5,508 in 1995.
In January 1996, the Company borrowed $22,775 under a note payable to a
finance company, bearing interest at 12.5%. The note was secured by a vehicle
and was scheduled to mature January 4, 1999. In October 1996, the Company
repaid the note balance. Interest expense was $1,168 in 1996.
The Company has a $10,000 letter of credit with a bank for the benefit of a
telephone company. The related note bears interest at a variable rate (8.25%
as of July 3, 1996) and matures on July 3, 1997. The note is secured by
certain cash balances maintained with the bank. The Company has a $7,300
letter of credit with a bank for the benefit of the Canadian Ministry of
Housing, Recreations and Consumer Services. The related note bears interest at
one percent above the prime rate (prime rate was 8.25% as of December 31,
1996) and matures on March 17, 1997. The note is secured by a certificate of
deposit with the bank. No amounts are outstanding under either letter as of
December 31, 1996.
NOTE 4 - PROVISION FOR INCOME TAXES
The provision for income taxes consisted of:
1996
Current taxes payable
Federal $ 594,000
State 147,000
741,000
Deferred taxes
Federal (181,500)
State (27,500)
(209,000)
Less NOL Carryforward (532,000)
$ -
No income tax provision was calculated for 1995 since the Company had a net
loss.
Deferred taxes result from timing differences in the recognition of revenue
and expense for tax and financial reporting purposes. The source of these
differences and the tax effect of each is as follows:
1996
Excess of tax over book
depreciation and amortization $ 49,000
Nondeductible bad debt expense (177,000)
Nondeductible expenses related to
certain book liabilities (81,000)
$ (209,000)
The Company's total deferred tax assets, deferred tax liabilities, and
deferred tax asset valuation allowances at December 31, 1996 are as follows:
1996
Total deferred tax assets $ 258,000
Less valuation allowance -
258,000
Total deferred tax liabilities (49,000)
Net deferred tax asset $ 209,000
The following table reconciles the tax provision with the expected
provision obtained by applying statutory rates to pretax income:
1996
Expected tax provision $ 446,000
State income taxes, net of federal
income tax benefit 67,000
Canadian income tax effect (5,000)
Non-deductible expenses 24,000
$ 532,000
For financial statement purposes, the Company has approximately $620,000 of
net operating loss carryforwards as of December 31, 1996, which expire on
2010.
NOTE 5 - COMMON STOCK AND STOCK OPTIONS
On July 1, 1996, the shareholders approved an increase in authorized shares of
common stock to 25,000,000 shares and a ten for one common stock split.
Concurrent with this amendment, the par value of common stock changed from
$0.01 to $0.001 per share. Effective October 31, 1996, the Board of Directors
approved a three for one reverse common stock split. Concurrent with this
amendment, the par value of common stock changed from $0.001 to $0.00133 per
share (rounded to $0.001 for financial statement reporting purposes).
During 1995, the Company granted the initial Board of Directors and founders
options for 15% of the issued and outstanding shares at $.02 per share.
Effective October 31, 1996, the Board of Directors approved and the original
founders accepted the cancellation of these options and the grant of new
options for 1,350,000 shares in exchange for the canceled options. These new
options are exercisable at $1.33 per share and expire October 31, 1999. These
options remain outstanding at December 31, 1996 and are not subject to the
option plan noted below.
In 1996, the Company issued Mayflower Holdings, Inc. 187,500 shares of common
stock (valued at $250,000) in exchange for consulting fees. The shares were
then canceled and options were granted for 375,000 shares effective October
31, 1996, at an exercise price of $1.33 per share. The options expire on
October 31, 1999, and are outstanding as of December 31, 1996. These options
are not subject to the option plan noted below.
Under a 1995 employment contract and based on the Company's achievement of
certain revenue goals, the President of the Company is entitled to receive
stock incentives in the amount of 1% of issued and outstanding shares as of
December 31, 1995, 2% as of December 31, 1996, and 3% as of each year ended
December 31, 1997 through 2000. These stock incentives were granted to the
President as additional compensation and were at no cost to the President. In
1995, the Company did not meet the sales level noted in the President's
contract, but in March 1996, the Board granted the incentive stock to the
President based on accrued sales and deferred revenue combined. Effective
October 31, 1996, the President gave back the incentive stock and the Company
granted additional stock options of 151,300 shares of common stock at an
exercise price of $1.33 per share. Effective October 31, 1996, the President
agreed to and has been granted stock options for 2,295,000 shares, exercisable
at $1.33 per share in exchange for the 1996, 1997, 1998, 1999 and 2000
incentive stock referred to above. As a result of having been granted these
options, the President is no longer entitled to receive the stock incentives
referred to above and the options are not contingent on the Company's
achievement of the specified revenue goals. These options are outstanding at
December 31, 1996, expire on October 31, 2001, and are not subject to the
option plan noted below. No compensation expense has been recorded since the
options granted have exercise prices that approximate fair market value.
In 1996, the Company ,formalized and consolidated all previously existing
options into a single option plan effective October 31, 1996, and reissued
options for 3,579,250 shares (previously 3,175,000 shares) to its Board of
Directors, management, advisory board members, consultants, named experts and
council, IRSRs and others. These options are exercisable at $1.33 per share
and expire on October 31, 1999. All are outstanding as of December 31, 1996.
The weighted average exercise price for all outstanding options is $1.33 per
share. If all of the above options were exercised as of December 31, 1996,
this would result in 7,750,550 shares of additional outstanding common stock
The following table summarizes information about fixed stock options both
outstanding and exercisable at December 31, 1996:
<TABLE>
Number Weighted-average
Range of outstanding remaining Weighted average
exercise prices at 12/31/96 contractual life exercise price
<S> <C> <C> <C>
$1.33 5,304,250 3.0 years $1.33
1.33 2,446,300 5.0 1.33
1.33 7,750,550 3.8 1.33
</TABLE>
A summary of the status of the Company's stock options as of December 31, 1996
and 1995, and changes during the periods ended are as follows:
<TABLE>
1996 1995
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding
beginning of
period 1,501,300 $1.33
Granted 6,249,250 $1.33 1,501,300 $1.33
Outstanding
end of period 7,750,550 1,501,300
Options exercisable
at end of period 7,750,550 -
Weighted average
fair value of
options granted
during the period $ 0.28 $ 0.25
</TABLE>
The Company has recognized no compensation cost for its stock options issued
to employees under the intrinsic-value based method. If the Company had
applied the provisions of Statement of Financial Accounting Standards No. 123
requiring the fair-value based method for these employee stock options, the
Company would have reported a net loss of $2,279,871 in 1995 and a net loss of
$123,619 in 1996, and earnings per share would have been $(0.17) in 1995 and
$0.00 in 1996.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1995 and 1996: dividend yield of zero percent;
expected volatility of 30%; risk-free interest rates or 6.38% for options
granted to the President under his employment contract and 6.25% for all other
options granted; and expected lives of 2.5 years for options granted to the
President under his employment contract and 1.5 years for all other options
granted.
NOTE 6 - LEASE COMMITMENTS
On November 11, 1996, the Company entered into a lease for its U.S. office
space under an operating lease agreement expiring on November 30, 2002. The
rental rate will escalate each November based on changes in the consumer price
index, not to exceed) a five percent annual increase. On September 1, 1995,
the Company entered into a lease for its Canadian operations under an
operating lease which automatically renews for six month terms. Certain office
equipment is being leased under operating leases expiring in 1999. Certain
other office equipment is being leased on a month-to-month basis.
The combined future minimum lease payments are as follows:
Year Ending December 31, Amount
1997 $ 204,727
1998 198,727
1999 193,321
2000 189,734
2001 171,639
Thereafter 155,828
$ 1,113,976
Rent expense was $192,477 in 1996 and $94,197 in 1995.
NOTE 7 - ECONOMIC DEPENDENCY
A material amount of the Company's jewelry and collectibles products are
acquired from three suppliers, the loss of which may have an adverse effect on
the Company in the near term. These suppliers accounted for approximately 88%
of the jewelry products purchased as of December 31, 1996. The Company has
made arrangements with other suppliers in order to mitigate this dependency.
Based on these arrangements and due to the nature of the Company's products,
management does not believe that the loss of these suppliers would adversely
affect the Company in the long term.
A material amount of the Company's retail business career kits are acquired
from three principal suppliers, the loss of which may have an adverse effect
on the Company. These suppliers accounted for approximately 90% of the
inventory on hand at December 31,1996.
NOTE 8 - CONTINGENCIES
As a result of the transactions leading to the Recision Offer referred to in
Note 1 under investor deposits, the Company may be liable for administrative
penalties and sanctions. The Company knows of no administrative proceedings or
regulatory investigations related to the Recision Offer that are currently
pending or proposed. The amount of any such penalties and sanctions cannot be
estimated.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company incurred costs totaling approximately $60,667 in 1996 and $389,068
in 1996 from Mayflower Holdings, Inc., a stockholder which is principally
owned by the President of the Company, related to the organization, start-up
and other operating expenses of the Company. Of these costs, $48,138 was
capitalized as deferred registration costs in 1996 and $130,815 was
capitalized as organizational costs in 1996. The remaining amounts were
expensed as incurred. As of December 31, 1996, the amount due from Mayflower
Holdings, Inc. was $2,163.
The Company subleases office space to Mayflower Holdings, Inc. on a
month-to-month basis. Rental income was $6,000 in 1996.
In 1996, the Company issued Mayflower Holdings, Inc. 187,500 shares of common
stock (valued at $250,000) in exchange for consulting fees. The shares were
then canceled and options were granted for 375,000 shares effective October
31, 1996, at an exercise price of $1.33 per share. The options expire on
October 31, 1999, and are outstanding as of December 31, 1996. These options
are not subject to the option plan noted in Note 5 above.
Under a 1995 employment contract and based on the Company's achievement of
certain revenue goals, the President of the Company is entitled to receive
stock incentives which have since been replaced with stock options. See Note 5
for additional information.
The Company entered into an agreement with the President and a relative to
create a sales training handbook for its sales representatives. The agreement
calls for a lump sum payment of $10,000 to the authors as well as a $4 per
book royalty for all books sold to the Company. $132,000 was paid to these
individuals in 1996 and $30,600 was paid in 1995. No amounts were due at
December 31, 1996.
The Company acquires its jewelry and collectibles from three suppliers, one of
whom is a stockholder of the Company. 15% of the Company's products were
acquired from this stockholder in 1996 and 0% in 1595.
The Company entered into an agreement with a member of the Board of Directors
to create a business presentation video. The agreement calls for a $0.50 per
video royalty for each video sold. $1,942 was paid to this individual in 1996.
The Company entered into an agreement with a stockholder to create a retail
sales video. The agreement calls for a $0.50 per video royalty for each video
sold. $982 was paid to this individual in 1996.
The Company has an agreement with a stockholder to provide the Company with a
promotional line of merchandise. $13,926 was paid to this individual in 1996.
During 1996, two stockholders received employee advances for a combined total
of $60,876 at their highest. These balances have been repaid prior to December
31, 1996.
The Company owed $131,812 outstanding to Mayflower Holdings, Inc. as of
December 31, 1995. This note bears interest at 8% per annum. The note was paid
off in February 1996.
During 1996, the Company awarded a stockholder the use of a company-owned
vehicle for the calendar year 1996 in recognition of his achievements as the
top sales representative. In October 1996, the Company gave title to the
vehicle to the stockholder and recognized $27,859 as additional commission
expense.
In August 1996, Mayflower Holdings, Inc. loaned the Company $200,000, with
interest at 12%. The note was repaid on November 1, 1996. See Note 3 for
additional information.
In 1996, the Company began renting use of an airplane on a per-use basis from
Mayflower Aviation, LLC, which is owned by the President of the Company and
his wife. $34,416 was paid to this company in 1996.
NOTE 10 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
Cash payments during the periods were as follows:
1996 1995
<S> <C> <C>
Interest $ 26,661 $ 2,833
Income taxes - -
Non-cash investing and financing activities during the periods were as
follows:
1996 1995
Conversion of notes payable to stock $ - $ 341,494
Stock issued for services provided in
the organization of the Company - 123,530
Common stock options granted 64,406
</TABLE>
As indicated in Note 1, the Company has valued services provided in exchange
for stock at the fair market value of the stock issued. The fair market value
was determined as the price the stock last sold to outside investors at the
time the services were performed.
SCHEDULES OF CONSOLIDATED SELLING AND ADMINISTRATIVE EXPENSES
Year Ended December 31, 1996 and Period Ended December 31, 1995
<TABLE>
1996 1995
<S> <C> <C>
Salaries and employee benefits 3,226,129 $ 526,613
Rent 192,477 94,197
Seminars and meeting room 106,431 3,893
Telephone 288,276 94,919
Utilities 19,499 601
Insurance 71,073 12,280
Office supplies and expenses 149,316 24,035
Postage and shipping 380,369 107,367
Repair and maintenance 3,777 3,705
Dues and subscriptions 3,674 1,041
Fulfillment fees 178,650 53,297
Taxes and licenses 12,971 1,343
Advertising 42,062 17,444
Annual sales meeting 956,113 -
Sales presentations and promotions 130,553 248,815
Printing and binders 127,715 120,700
Royalties 134,924 17,500
Meals and entertainment 92,989 2,968
Travel 462,325 113,046
Professional and consulting fees 503,057 150,440
Directors fees 6,100 -
Computer services 110,494 20,661
Temporary and contract help 43,666 18,716
Depreciation 109,039 21,832
Amortization 112,513 47,511
Product development 20,000 -
Conference calls 87,051 -
Bank charges and fees 220,929 25,656
Recruiting and training 34,727 4,950
Business development 147,919 96,182
Bad debt 455,083 -
Fax and mobile communications 68,707 23,929
Interest 25,453 8,062
Charitable contributions 27,550 -
Exchange loss 5,905 737
Other (4,354) 1,288
$ 8,553,162 $ 1,863,728
</TABLE>
EXHBIT C
ARTICLE 13 OF THE NORTH CAROLINA
BUSINESS CORPORATION ACT
NC ST 55-13-01, Definitions Page 1
*9706 G.S. 55-13-01
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Current through End of 1996 Legislation
55-13-01. Definitions
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when
and in the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be
inequitable.
(4) "Interest" means *merest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances, giving due consideration to the rate
currently paid by the corporation on its principal bank loans, if any,
but not less than the rate provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
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NC ST 55-13-02. Right to dissent Page 1
*9707 G.S. 55-13-02
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Current through End of 1996 Legislation
55-13-02. Right to dissent
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his
shares in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other than
a parent corporation in a merger under G.S. 55-11-04) is a party unless
(i) approval by the shareholders of that corporation is not required
under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be received in
exchange for such shares;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than as permitted by G.S. 55-12-01,
including a sale in dissolution, but not including a sale pursuant to
court order or a sale pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed in cash to the
shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it
(i) alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares; (iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes; (v)
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit
corporation or cooperative organization;
*9708 (5) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in
exchange for cash or other property, unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
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NC ST 55-13-03, Dissent by nominees and beneficial owners Page 1
*9709 G.S. 55-13-03
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Current through End of 1996 Legislation
55-13-03. Dissent by nominees and beneficial owners
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to
all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose
behalf he asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which he
dissents and his other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters" rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and (2) He does so with respect to all shares
of which he is the beneficial shareholder.
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NC ST 55-13-04 to 55-13-19, 55-13-04 to 55-13-19. Reserved Page 1
*9710 G.S. 55-13-04 to 55-13-19
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Current through End of 1996 Legislation
55-13-04 to 55-13-19. Reserved
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works.
NC ST 55-13-20, Notice of dissenters' rights Page 1
*9711 G.S. 55-13-20
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-20. Notice of dissenters' rights
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this Article and be accompanied by a copy of
this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02
is taken without a vote of shareholders, the corporation shall no later
than 10 days thereafter notify in writing all shareholders entitled to
assert dissenters' rights that the action was taken and send them the
dissenters' notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this
section, such failure shall not invalidate any corporate action taken;
but any shareholder may recover from the corporation any damage which he
suffered from such failure in a civil action brought in his own name
within three years after the taking of the corporate action creating
dissenters' rights under G.S. 55-13-02 unless he voted for such corporate
action.
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NC ST 55-13-21, Notice of intent to demand payment Page 1
*9712 G.S. 55-13-21
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-21. Notice of intent to demand payment
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken
written notice of his intent to demand payment for his shares if the
proposed action is effectuated;
and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this Article.
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NC ST 55-13-22, Dissenters' notice Page 1
*9713 G.S. 55-13-22
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-22. Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall
mail by registered or certified mail, return receipt requested, a written
dissenters' notice to all shareholders who satisfied the requirements of
G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated
shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted
after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be
fewer than 30 nor more than 60 days after the date the subsection (a)
notice is mailed; and
(5) Be accompanied by a copy of this Article.
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NC ST 55-13-23, Duty to demand payment Page 1
*9714 G.S. 55-13-23
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-23. Duty to demand payment
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22
must demand payment and deposit his share certificates in accordance with
the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a
shareholder until these rights are canceled or modified by the taking of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this Article.
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works.
NC ST 55-13-24, Share restrictions Page 1
*9715 G.S. 55-13-24
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-24. Share restrictions
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed
corporate action.
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NC ST 55-13-25, Offer of payment Page 1
*9716 G.S. 55-13-25
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-25. Offer of payment
(a) As soon as the proposed corporate action is taken, or upon receipt of
a payment demand, the corporation shall offer to pay each dissenter who
complied with G.S. 55-13-23 the amount the corporation estimates to be
the fair value of his shares, plus interest accrued to the date of
payment, and shall pay this amount to each dissenter who agrees in
writing to accept it in full satisfaction of his demand.
(b) The offer of payment must be accompanied by:
(1) The corporation's most recent available balance sheet as of the end
of a fiscal year ending not more than 16 months before the date of offer
of payment, an income statement for that year, a statement of cash flows
for that year, and the latest available interim financial statements, if
any; (2) A statement of the corporation's estimate of the fair value of
the shares; (3) An explanation of how the interest was calculated; (4) A
statement of the dissenter's right to demand payment under G.S. 55-13-28;
and (5) A copy of this Article.
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NC ST 55-13-26, Failure to take action Page 1
*9717 G.S. 55-13-26
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-26. Failure to take action
(a) If the corporation does not take the proposed action within 60 days
after me date set for demanding payment and depositing- share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a
new dissenters' notice under G.S. 55-13-22 and repeat the payment demand
procedure.
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NC ST 55-13-27 55-13-27. Reserved Page 1
*9718 G.S. 55-13-27
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-27. Reserved
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NC ST 55-13-28, Procedure if shareholder dissatisfied with
corporation's offer or failure to Page 1
perform
*9719 G.S. 55-13-28
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-28. Procedure if shareholder dissatisfied with corporation's
offer or failure to perform
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand
payment of his estimate or reject the corporation's offer under G.S. 55-13-25
and demand payment of the fair value of his shares and interest
due, if:
(1) The dissenter believes that the amount offered under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment to a dissenter who accepts the
corporation's offer under G.S. 55-13-25 within 30 days after the
dissenter's acceptance; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(l) within 30 days after the corporation offered payment
for his shares or (ii) under subdivisions (a)(2) and (a)(3) within 30
days after the corporation has failed to perform timely. A dissenter who
fails to notify the corporation of his demand under subsection (a) within
such 30-day period shall be deemed to have withdrawn his dissent and
demand for payment.
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NC ST 55-13-29, ~ 55-13-29. Reserved Page 1
*9720 G.S. 55-13-29
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Current through End of 1996 Legislation
55-13-29. Reserved
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NC ST 55-13-30, Court action Page 1
*9721 G.S. 55-13-30
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 3. JUDICIAL APPRAISAL OF SHARES
Current through End of 1996 Legislation
55-13-30. Court action
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the date of his
payment demand under G.S. 55-13-28 and petition the court to determine
the fair value of the shares and accrued interest. Upon service upon it
of the petition filed with the court, the corporation shall pay to the
dissenter the amount offered by the corporation under G.S. 55-13-25.
(al) If the dissenter does not commence the proceeding within the 60-day
period, the dissenter shall have an additional 30 days to either (i)
accept in writing the amount offered by the corporation under G.S. 55-13-25,
upon which the corporation shall pay such amount to the dissenter in
full satisfaction of his demand, or (ii) withdraw his demand for payment
and resume the status of a nondissenting shareholder. A dissenter who
takes no action within such 30-day period shall be deemed to have
withdrawn his dissent and demand for payment.
(b) Reserved.
(c) The court shall have the discretion to make all dissenters (whether
or not residents of this State) whose demands remain unsettled parties to
the proceeding as in an action against their shares and all parties must
be served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one
or more persons as appraisers to receive evidence and recommend decision
on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The parties are
entitled to the same discovery rights as parties in other civil
proceedings. However, in a proceeding by a dissenter in a public
corporation, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation.
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NC ST 55-13-31, Court costs and counsel fees Page 1
*9722 G.S. 55-13-31
WEST'S NORTH CAROLINA STATUTES
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 3. JUDICIAL APPRAISAL OF SHARES
Current through End of 1996 Legislation
55-13-31. Court costs and counsel fees
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall
assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(l) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either or
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and
that the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to be
paid out of the amounts awarded the dissenters who were benefited.
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EXHIBIT D
DEMAND FOR PAYMENT
Pursuant to the Notice of Dissenters' Rights provided to the
Shareholders
of International Heritage, Inc. dated February 16, 1998, pursuant to the
resolution of the Company's Board of Directors to provide dissenters' rights
according to the provisions of N.C. Gen. Stat. 55-13-02 (a)(5), the
undersigned
Shareholder, having been the beneficial owner of _____ shares of International
Heritage, Inc. Common Stock, hereby demands payment for such stock pursuant to
said Shareholders' Dissenters' Rights. Said Shareholder hereby certifies that
said Shareholder did, in fact, acquire beneficial ownership of said stock
before
February 16, 1998.
Dated: ________________
SHAREHOLDER
____________________________________________
Printed Name:
________________________________
JOINT SHAREHOLDER, IF ANY
____________________________________________
Printed Name:
________________________________
Certificate(s) for shares of International Heritage, Inc. Common Stock must
accompany this Demand for Payment. Forward this Demand for Payment and any
and
all Certificates to:
Angie C. Stewart, Corporate Secretary
International Heritage, Inc.
2626 Glenwood Avenue
Suite 200
Raleigh, North Carolina 27608
PROXY FORM
Know, all men by these presents, that, the undersigned, being the holder
of the shares of common stock of International Heritage, Inc., a North
Carolina corporation (the Company ), does hereby constitute and appoint
Stanley H. Van Etten, Chairman of the Board of Directors, and Angie C.
Stewart, Corporate Secretary, and each of them, with full power of
substitution, as the undersigned s attorneys and proxies to attend the Special
Meeting of the Shareholders of the Company to be held on February 27, 1998 at
2:00 PM, EST, at the executive offices of the Company, 2626 Glenwood Avenue,
Suite 200, Raleigh, North Carolina 27608, and any continuation or adjournment
thereof, with full power to vote the undersigned shares as indicated below:
1. To increase the authorized capitalization of the Company to 50,000,000
shares of Common Stock (The Board of Directors recommends a vote FOR
APPROVAL)
FOR APPROVAL _ AGAINST APPROVAL _ ABSTAIN _
2. To transact such other business as may properly be presented
GRANT AUTHORITY _ WITHHOLD AUTHORITY _
3. I PLAN TO ATTEND THE MEETING* _
*You MUST R.S.V.P. to Diana Wilson (919) 571-4646 Ext. 1247 before
February 25, 1998.
This proxy will be voted as directed. If no direction, this proxy will
be voted according to the recommendation of the Board of Directors and in the
discretion of the proxies with respect to other matters.
Dated: ______________________, 199____.
____________________________________
Signature
Printed Name: _______________________
____________________________________
Joint Shareholder (If Any)
Printed Name: _______________________
Sign, date and return the Proxy promptly via facsimile (919) 571-8744
Attention: Angie C. Stewart, Corporate Secretary and via first class mail
using the return envelope provided.
CONFIDENTIAL ACCREDITED INVESTOR QUESTIONNAIRE
PURPOSE OF THIS QUESTIONNAIRE
The purpose of this Questionnaire is to provide information to Kara
International, Inc., a Nevada corporation ("KARA" or the "Company")
publicly traded on the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. ("NASD'), regarding your qualifications to
participate in a voluntary share for share exchange with KARA through a
voluntary exchange of common stock on a basis of 3 shares of KARA for
every share of International Heritage, Inc., a North Carolina Corporation
("IHI") common stock ("Share Exchange"). This transaction is intended to
qualify as a tax-free reorganization under Section 368 of the Internal Revenue
Code, as amended, and which is being offered without registration under the
Securities Act of 1933, as amended (the "Act"), in reliance on the exemption
contained in Section 4(2) of the Act and/or pursuant to the provisions of
Regulation D promulgated thereunder ("Regulation D") and on similar exemptions
under applicable state laws. Under Section 4(2) and Regulation D and/or
certain state laws, KARA may be required to determine that an individual, or
an individual together with a "purchaser representative" or each individual
equity owner of an "investing entity" meets certain suitability requirements
before the exchange of shares by such individual or entity. KARA WILL NOT
EXCHANGE SHARES WITH ANY INDIVIDUAL WHO HAS NOT FILLED OUT, AS THOROUGHLY AS
POSSIBLE, THIS QUESTIONNAIRE. IN THE CASE OF AN INVESTOR THAT IS A
PARTNERSHIP, TRUST, CORPORATION OR OTHER BUSINESS ENTITY THAT PLACES A
CHECK MARK OPPOSITE QUESTION 8B(xi), EACH EQUITY OWNER THEREOF MUST
COMPLETE EXHIBIT A ATTACHED TO THIS QUESTIONNAIRE. This Questionnaire
does not constitute an offer to sell or a solicitation of an offer to buy
KARA stock or any other security.
INSTRUCTIONS
PLEASE ANSWER ALL QUESTIONS. If the appropriate answer is "None" or "Not
Applicable," so state. Please print or type your answers to all
questions. Attach additional sheets if necessary to complete your answers
to any item.
Your answers will be kept strictly confidential at all times. However, the
Company may present this Questionnaire to such parties as it deems
appropriate in order to assure itself that the Share Exchange will not
result in a violation of the Act or a violation of the securities laws of
any state.
1. Please provide the following information:
Name:
Name of additional purchaser:
(Please complete information in Question 5)
Date of birth, or, if other than an individual, year of organization or
incorporation:
2. Residence address, or, if other than an individual, principal office
address:
Telephone number:
Social Security Number:
Taxpayer Identification Number:
3. Business address:
Business telephone number:
4. Send mail to: Residence Business
5. With respect to tenants in common, joint tenants and tenants by the
entirety, complete only if information differs from that above:
Residence address:
Telephone number:
Social Security Number:
Taxpayer Identification Number:
Business address:
Business telephone number:
Send mail to: Residence _ Business _
6. Please describe your present or most recent business or occupation
and indicate such information as the nature of your employment, bow fang you
have been employed there, the principal business of your employer, the
principal activities under your management or supervision and the scope (e.g.
dollar volume, industry rank, etc.) of such activities:
7. Please state whether you (i) are associated with or affiliated with a
member of the National Association of Securities Dealers, Inc. (the "NASD"),
(ii) are an owner of stock or other securities of an NASD member (other than
stock or other securities purchased on the open market), or (iii) have made a
subordinated loan to any NASD member:
Yes No
If you answered yes to any of (i)4iii) above, please indicate the
applicable answer and briefly describe the facts below:
8A. Applicable to Individuals ONLY. Please answer the following
questions concerning your financial condition as an "accredited investor"
(within the meaning of Rule 501 of Regulation D). If the purchaser
is more than one individual, each individual must initial an answer
where the question indicates a "yes" or "no" response and must answer any
other question fully, indicating to which individual it applies. If
the purchaser is purchasing jointly with his or her spouse, one answer
may be indicated for the couple as a whole:
8.1 Does your net worth* (or joint net worth with your spouse) exceed
$1,000,000?
Yes No
8.2 Did you have an individual income** in excess of $200,000 or joint
income together with your spouse in excess of $300,000 in each of the two most
recent years (1996 and 1997) and do you reasonably expect to reach the same
income level in the current year (1998)?
Yes No
8.3 Are you an executive officer or director of International Heritage,
Inc. or any of its subsidiaries?
Yes No
* For purposes hereof, net worth shall be deemed to include ALL of your
assets, liquid or illiquid (including such items as home, furnishings,
automobile and restricted securities) MINUS any liabilities (including
such items as home mortgages and other debts and liabilities).
** For purposes hereof, the term "income" is not limited to "adjusted
gross income" as that term is defined for federal income tax purposes,
but rather includes certain items of income which are deducted in
computing "adjusted gross income." For investors who are salaried
employees, the gross salary of such investor, minus any significant
expenses personally incurred by such investor in connection with earning
the salary, plus any income from any other source including unearned
income, is a fair measure of "income" for purposes hereof. For investors
who are self-employed, "income" is generally construed to mean fatal
revenues received during the calendar year minus significant expenses
incurred in connection with earning such revenues.
8B. Applicable to Corporations, Partnerships and other Entities ONLY:
The purchaser is an accredited investor because the purchaser falls
within at least one of the following categories (Check all appropriate
lines):
(i) a bank as defined in Section 3(a)(2) of the Act or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the
Act whether acting in its individual or fiduciary capacity;
(ii) a broker dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended;
(iii) an insurance company as defined in Section 2(13) of the Act,
(iv) an investment company registered under the Investment Company Act of
1940, as amended (the "Investment Act"), or a business development
company as defined in Section 2(a)(48) of the Investment Act;
(v) a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958, as amended;
(vi) a plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, where such plan
has to al assets in excess of $5,000,000;
(vii) an employee benefit plan within the meaning of Title 1 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
where the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of ERISA, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or an
employee benefit plan that has fatal assets in excess of $5,000,000, or a
self directed plan the investment decisions of which are made solely by
persons that are accredited investors;
(viii) a private business development company, as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, as amended,
(ix) an organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, a corporation, a Massachusetts or
similar business trust, or a partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets in excess
of $5,000,000;
(x) a trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase
is directed by a "sophisticated" person, who has such knowledge and
experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment;
(xi) an entity in which all of the equity investors are persons or
entities described above ("accredited investors"). ALL EQUITY OWNERS
MUST COMPLETE "EXHIBIT A" ATTACHED HERETO.
9A. Do you have sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks
associated with investing in the Company?
Yes No
ANSWER QUESTION 9B ONLY IF THE ANSWER TO QUESTION 9A WAS "NO."
9B. If the answer to Question 9A was "NO," do you have a financial or
investment adviser (a) that is acting in the capacity as a purchaser
representative and (b) who has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the
merits and risks associated with investing in the Company?
Yes No
If you have a financial or investment adviser(s), please identify each
such person and indicate HIS or HER business address and telephone number in
the space below. (Each such person must complete, and you must review and
acknowledge, a separate Purchaser Representative Questionnaire is attached as
Exhibit B hereto).
10. You have the right, will be afforded an opportunity, and are encouraged to
investigate the Company and review relevant factors and documents pertaining
to the officers, directors and the Company and its business and to ask
questions of a qualified representative of the Company regarding this
investment and the properties, operations, and methods of doing business of
the Company.
Have you or your purchaser representative, if any, conducted any such
investigation, sought such documents or asked questions of a qualified I
representative of the Company regarding this investment and the properties,
operations, and methods of doing business of the Company?
Yes No
If so, briefly describe:
If so, have you completed your investigation and/or received satisfactory
answers to your questions?
Yes No
11. Do you understand the nature of an investment in the Company and the
risks associated with such an investment?
Yes No
12. Do you understand that there is no guarantee of any financial return
on this investment and that you incur the risk of losing your entire
investment?
Yes No
13. Do you understand that this investment is not liquid?
Yes No
14. Do you have adequate means of providing for your current needs and
personal contingencies in view of the fact that this is not a liquid
investment?
Yes No
15. Are you aware of the Company's business affairs and financial
condition, and have you acquired all such information about the Company as you
deem necessary and appropriate to enable you to reach an informed and
knowledgeable decision to participate in the Share Exchange?
Yes No
16. Do you have a "pre-existing relationship" with the Company or any
of its officers, directors or controlling persons?
Yes No
(For purposes hereof, "pre existing relationship" means any relationship
consisting of personal or business contacts of a nature and duration such
as would enable a reasonably prudent investor to be aware of the
character, business acumen, and general business and financial
circumstances of ~e person with whom such relationship exists.)
If so, please name the individual or other person with whom you have a
pre-existing relationship and describe the relationship:
[SIGNATURE PAGE ATTACHED]
Dated: , 1998
IF PURCHASER IS ONE OR MORE INDIVIDUALS (ALL INDIVIDUALS MUST SIGN):
(Type or print name of prospective purchaser)
Signature of prospective purchaser
Social Security Number
(Type or print name of additional purchaser)
Signature of spouse, joint tenant, tenant in common or other signature,
if required
Social Security Number
Dated: , 1998
IF PURCHASER IS A PARTNERSHIP, TRUST CORPORATION, OR OTHER BUSINESS
ENTITY:
(Name of Entity - Please Print)
Taxpayer Identification Number
By:
Name
Title:
EXHIBIT "A" TO CONFIDENTIAL ACCREDITED INVESTOR QUESTIONNAIRE
ACCREDITED CORPORATIONS, PARTNERSHIPS, TRUSTS OR OTHER ENTITIES PLACING A
CHECK MARK OPPOSITE QUESTION 8B(xi) MUST PROVIDE THE FOLLOWING INFORMATION.
I hereby certify that set forth below is a complete list of all equity
owners in
[NAME OF ENTITY], a [TYPE OF ENTITY] formed pursuant to the laws of
the State of . I also certify that EACH SUCH OWNER HAS INITIALED THE
SPACE OPPOSITE HIS NAME and that each such owner understands that by
initialing that space he is representing that he is an accredited
individual investor satisfying the test for accredited individual
investors indicated under "ACCREDITED INVESTOR STATUS."
-----------------------------------------
Signature of authorized corporate officer,
general partner or trustee
Name of Equity Owner type of Accredited Investor'
I Indicate which Subparagraph of 8.1 - 8.3 the equity owner satisfies.
EXHIBIT "B" TO CONFIDENTIAL ACCREDITED INVESTOR QUESTIONNAIRE
PURCHASER REPRESENTATIVE QUESTIONNAIRE AND DISCLOSURE
The following information is being furnished to you in order to enable
you to determine whether the undersigned may act as a Purchaser
Representative as such term is used in Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act'), in connection with the
voluntary share exchange between Kara International, Inc. and International
Heritage, Inc.
On behalf of (the "Investor")
(Name of Investor)
By my signature at the end of this Purchaser Representative Questionnaire
and Disclosure, I certify that my responses set forth herein are true,
complete and correct, and Kara International, Inc. is entitled to rely on
them in making the foregoing determination. (Please attach additional
sheets if required.)
1. Purchaser Representative's Name:
Age:
2. My present occupation or position is as follows:
Profession:
Nature of Duties:
Firm Name:
Nature of Business:
Business Address:
Business address:
City: State:
Business Telephone ( )
3. Any other occupations or positions during the past five years:
4. The undersigned has had prior experience in advising clients with
respect to investments similar to that presently offered.
Yes No
5. The following sets forth the factors (current and prior employment,
investment and business experience, professional licenses, participation in
evaluation of similar investments in the past, etc.) bearing upon the
undersigned's ability to evaluate the merits and risks of an investment
in the Interests:
6. Post secondary professional and business education background:
Date(s) of Areas(s) of Degree(s)
School(s) Attendance Study Conferred
7A. Except as previously disclosed to the Investor in writing, neither
In or any of my affiliates* now has or has had at any time during the past two
years any material* relationship with the Partnership or any of its affiliates
and no such relationship is contemplated to the best of my knowledge, except
as follows (if none, please indicate):
7B. Except as previously disclosed to the Investor in writing, no compensation
has been received, nor is any compensation to be received by the undersigned
as a result of the relationship described above. The compensation received or
to be received as a result of the material relationship(s) described in Item
7A (including any compensation received or to be received in conjunction
with this transaction) is as follows (if none, please so indicated):
8. The undersigned has know the Investor for years, in the following
capacity:
9. In advising the Investor in connection with the contemplated
investment in the Partnership, will the undersigned rely, in any respect, on
the Investor's own expertise in certain areas?
Yes No
If "Yes," describe the specific expertise upon which the undersigned will
rely:
10. In advising the Investor in connection with the contemplated
investment in the Partnership, will the undersigned rely, in any respect, on
the expertise of any other person?
Yes No
If "Yes," provide the name and address of such person and the nature of
the expertise on which the undersigned will rely:
11. The undersigned represents that he, either alone or together with
the Investor or other persons indicated in Item 10 above, has such knowledge
and experience in financial and business matters generally and in
similar investments in particular so as to be capable of evaluating the
merits and risks of the proposed investment.
12. The undersigned confirms that he is not an affiliate*, director,
officer or other employee of, or beneficial owner of 10% or more of any class
of the equity securities or 10% or more of the equity interest in
International Heritage, Inc. or Kara International, Inc. or any of their
affiliates.
13. Prior to any agreement to advise the Investor in connection with the
voluntary share exchange, the undersigned has disclosed to the Investor, in
writing, any material relationship between the undersigned
or any affiliate* thereof and International Heritage, Inc. or Kara
International, Inc. or their affiliates which now exist or are mutually
understood to be contemplated or which has existed at any time during
the previous two years, and any compensation received or to be received
as the result of such relationship, including any compensation received or to
be received as the result of such relationship, including any compensation
received or to be received in connection with the offering of the Interest.
14. The undersigned has not during the past ten (10) years (a) been
convicted, indicted or investigated in connection with any past or present
criminal proceeding (excluding traffic violations and other minor
offenses), or (b) been the subject of any order, judgment or decree of
any court of competent jurisdiction permanently or temporarily enjoining the
undersigned from acting as an investment or financial advisor,
underwriter, broker or dealer in securities or commodities or as an
affiliated person, director or employee of an investment company, or from
engaging in or continuing any conduct or practice in connection, with
any such activity or in connection with the purchase or sale of any
security or commodity, or been the subject of any order of a federal or
state authority barring or suspending for more than sixty (60) days the
undersigned's right to be engaged in any such activity, or to be
associated with persons engaged in any such activity, which order has not
been reversed or suspended.
The undersigned confirms and represents to you that the information
supplied above is true and correct. The undersigned agrees to furnish you
with any additional information which you may request and to advise you
of any changes which occur in any information which the undersigned has
furnished you prior to the acceptance of the Investor's voluntary
exchange of shares. The undersigned agrees that the information contained
in this Purchaser Representative Questionnaire and Disclosure may be
released to such persons as you deem appropriate to establish that the
proposed offer and sale of the Interest is exempt from registration under
the Act.
Dated: , 1998
(Type or print name of Purchaser Representative)
- --------------------------------------
Signature of Purchaser Representative
* The term "affiliate" of a person means a person who directly or
indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such person.
The term "material" when used to modify "relationship" means any
relationship that a reasonable investor might consider important in the
making of the decision whether to acknowledge a person as his Purchaser
Representative.
KARA INTERNATIONAL, INC.
55 WEST 200 NORTH
PROVO, UTAH 84601
(801) 377-1758 (Business)
February 17, 1998
Dear Shareholder:
Kara International, Inc. announced today that it is continuing
negotiations whereby it is contemplated that International Heritage, Inc.
("IHI"), a North Carolina corporation, will become a wholly-owned subsidiary
of the Company, despite the expiration of the Letter of Intent between the
parties.
Enclosed please find a copy of the IHI's Proxy Statement which will not
only give you information concerning the Company (the Company's 10-KSB Annual
Report for the fiscal year ended December 31, 1997 is attached thereto in
Exhibit A), but will also further explain the proposed acquisition (a brief
description of the proposed reorganization is included under the caption
"Agreement and Plan of Reorganization" on page 6 therein and a description of
the business of IHI is included in Exhibit B).
IHI forwarded certain information to its stockholders concerning the
Company's proposal on February 17, 1998, together with questionnaires required
by the Company to determine the number of stockholders of IHI who are
"accredited investors." This information must be reviewed prior to
determining which stockholders of IHI the Company will contact respecting its
planned proposal to exchange three "unregistered" and "restricted" shares of
its common voting stock for each outstanding share of common stock of IHI, and
the exchange of like options of the Company for certain outstanding options to
acquire shares of common stock of IHI on a one for one basis.
The Board of Directors of IHI has tentatively approved the proposal,
subject to the execution of a definitive agreement, and the delivery
(following a review of the questionnaires) and acceptance of the intended
proposal of the Company to "accredited investors" of IHI owning not less that
80 percent of the outstanding common stock of IHI.
Sincerely yours,
KARA INTERNATIONAL, INC.
By:/s/David N. Nemelka
David N. Nemelka, President
KARA INTERNATIONAL, INC.
55 West 200 North
Provo, Utah 84601
Telephone: (801) 377-1758
March 6, 1998
Certain IHI Stockholders and
Certain IHI Option Holders who
are Accredited Investors
Re: Agreement and Plan of Reorganization (the Plan )
between Kara International, Inc., a Nevada corporation
( Kara ) and International Heritage, Inc., a North
Carolina corporation ( IHI ), with a proposal to
exchange unregistered and restricted shares of
common stock (the Kara Shares ) and options to
acquire shares of common stock of Kara (the Kara
Options ) with certain accredited investors who own
shares of common stock and certain options to acquire
shares of common stock of IHI (the IHI Shares and
the IHI Options )
Dear IHI Stockholder or IHI Option Holder:
You are receiving this communication because you have received
from IHI a Proxy Statement outlining a Plan pursuant to which a proposal to
exchange Kara Shares for certain IHI Shares and like Kara Options for certain
outstanding IHI Options, in accordance with the terms and conditions of the
Plan, and because you have completed a Confidential Accredited Investor
Questionnaire provided to you and have indicated therein that you are an
accredited investor, as outlined in Exhibit A attached hereto. Three Kara
Shares will be exchanged for each one IHI Share and one Kara Option will be
exchanged for each one IHI Option.
The determination of being an accredited investor as outlined in
Exhibit A is based solely on income or assets, and your satisfaction of one of
these categories may not mean that you have the education, business acumen,
experience or other knowledge through which you can adequately evaluate the
risks and merits of the Plan and the exchange contemplated thereby. In such
event, you are urged to seek independent advice from persons who have no
interest in the Plan prior to considering whether to become a party to the
Plan. Further, if you are not an accredited investor, you should read no
further and these materials should be promptly returned to the address above.
Enclosed herewith please find two packages, which include the
following, to-wit:
First Package:
1. Copy of this letter dated March 6, 1998, with an accredited
investor Exhibit A attached to it.
2. The Plan with a Counterpart Signature Page and the following
exhibits:
Exhibit A - IHI Stockholders
Exhibit A-1- IHI Option Holders
Exhibit B - Kara Financial Statements
Exhibit C - Exceptions
Exhibit D - IHI Financial Statements
Exhibit E - Exceptions
Exhibit F - Investment Letter
Exhibit G - Kara Compliance Certificate
Exhibit H - IHI Compliance Certificate
Second Package:
Counterpart Signature Page
Investment Letter
The first package is for your records, and includes a copy of each
of the documents outlined under the caption Second Package.
You should now carefully review the Proxy Statement of IHI and
specifically, the caption Agreement and Plan of Reorganization commencing on
page 6 and ending on page 10 therein, and the related Risk Factors regarding
Kara and IHI commencing on page 10 and ending on page 16 therein. You should
also review the 1997 10-KSB Annual Report of Kara for the fiscal year ended
December 31, 1997, which is attached to the Proxy Statement of IHI as Exhibit
A.
If after reviewing all of these documents you believe you would
like to participate in the exchange of IHI Shares or IHI Options for Kara
Shares and like Kara Options, you should also consider the following.
Kara is a corporate shell, and at the completion of the Plan
will result in an immediate and substantial dilution in your percentage of
ownership in IHI amounting to 16.7% assuming 100% of IHI is acquired in this
exchange; this is based upon computations to the effect that there are
currently 7,540,756 shares of IHI outstanding which, if 100% of the IHI shares
were acquired, would result in there being 22,622,268 Kara Shares being issued
in the exchange, and there are currently 4,559,761 Kara Shares outstanding.
Therefore, the Kara stockholders would retain an ownership of 16.7%, even
though Kara has no assets or liabilities and a book value of $-0-.
Further, based on the unaudited balance sheet and income statement
of IHI contained within the Plan, IHI has a book value of ($12,233,369). This
amount would not change, on a consolidated basis, on completion of the Plan,
assuming 100% of the IHI Shares are acquired, but there would be an additional
4,559,761 Kara Shares outstanding. By dividing the total outstanding shares
into this amount, the book value per share would be decreased by ($0.45),
which would result in a cash dilution of ($1.17)(taking into account the three
for one exchange).
You should also consider that the Kara Shares are unregistered
and restricted shares and that you will commence a new holding period once
the Plan is completed with respect to the Kara Shares; accordingly, you may
not be able to sell these shares in the public market or avail yourself of the
provisions of Rule 144 of the Securities and Exchange Commission for at least
one year from the completion of the exchange.
The holding period with respect to the shares underlying the
options exchanged does not commence until the exercise of the options.
Concerning the IHI Options currently outstanding, where the IHI
shares are being exchanged on the basis of three Kara Shares for each of the
IHI Shares, the IHI Options are being exchanged on a one for one basis, and
there is no reduction in the exercise price. Agreeing to the exchange of
options may waive or compromise certain anti-dilution provisions which may be
present in the agreement covering the IHI Options.
You should also understand that this Plan will not be completed
unless persons owning at least 80% of the IHI Shares agree to the exchange.
If you desire further information regarding Kara, you should
contact its sole director and executive officer, who is also its President,
David N. Nemelka, Jr., at the above address and telephone number; or Kara's
counsel, Leonard W. Burningham, Esq., or Pritchett, Siler & Hardy, its
certified public accountants. Kara s quarterly reports for the last year can
be reviewed on the Internet at www.sec.gov in the EDGAR archives.
Instructions if you intend to participate:
If, after reviewing all of the foregoing, and taking into
consideration all of the risk factors and having the opportunity to ask
questions and receive answers to any such questions you may have of any
director, executive officer, legal counsel or accountant for Kara, and for
that fact, of IHI, you should execute the Counterpart Signature Page and fill
in your name and address; execute the Investment Letter; and sign your IHI
stock certificate and return these materials to Georgina Marie Mollick, Esq.,
at IHI, 2626 Glenwood Avenue, Suite 200, Raleigh, North Carolina 27608, as
soon as possible.
In the event that persons owning at least 80% of the IHI shares do
not adopt, ratify and approve the Plan within thirty days, your stock
certificate will be returned to you. Otherwise, a stock certificate
representing the Kara Shares you are to receive in the exchange shall be
delivered to you promptly; this stock certificate shall bear a restrictive
legend as outlined in the Investment Letter.
Thank you.
Very truly yours,
David N. Nemelka, Jr.
Enclosures
EXHIBIT "A"
"Accredited investor" shall mean any person who comes within any
of the following categories, or whom the Company reasonably believes comes
within any of the following categories, at the time of the sale of the Shares
to that person:
(1) Any bank as defined in Section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Act, whether acting in its
individual or fiduciary capacity; any broker or dealer
registered pursuant to Section 15 of the Securities Exchange
Act of 1934; any insurance company as defined in Section
2(13) of the Act; any investment company registered under
the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; Small
Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; any plan established
and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan
has total assets in excess of $5,000,000; employee benefit
plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by
a plan fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association,
insurance company or registered investment adviser, or if
the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited
investors;
(2) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring securities offered, with total assets
in excess of $5,000,000;
(4) Any director, executive officer or general partner of the
issuer of the securities being offered or sold, or any
director, executive officer or general partner of a general
partner of that issuer;
(5) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his or her
purchase exceeds $1,000,000;
(6) Any natural person who had individual income in excess of
$200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated
person as described in Section 230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors.
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT (the "Agreement") is made this 6th day of
March, 1998, between Kara International, Inc., a Nevada corporation
("Kara"); International Heritage, Incorporated, a North Carolina corporation
("IHI"); and certain persons listed in Exhibits A and A-1 hereof who are
respectively the owners of record of certain shares of the outstanding common
stock and certain option holders who own rights to acquire common stock of IHI
and who execute and deliver a copy of this Agreement (respectively, the IHI
Stockholders and the IHI Option Holders ).
WITNESSETH:
WHEREAS, Kara wishes to acquire all of the outstanding common
stock of IHI in exchange for common stock of Kara in a transaction qualifying
as a tax-free exchange pursuant to Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended; and
WHEREAS, Kara also desires to exchange like options to acquire
shares of its common stock for the outstanding IHI options to acquire shares
of common stock of IHI, all as outlined in Exhibit A-1 hereof;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, IT IS AGREED:
Section 1
Exchange of Stock and Options
1.1 Number of Shares. The IHI Stockholders agree to transfer to
Kara at the closing (the "Closing") 100% of the outstanding securities of IHI,
which are listed in Exhibit A hereof attached hereto and incorporated herein
by reference (the "IHI Shares" or IHI Share ), in exchange for the $0.001 par
value "unregistered" and "restricted" common voting stock of Kara set forth
opposite the respective names of each such IHI Stockholder, amounting to three
(3) shares of Kara for each outstanding IHI Share.
1.2 Delivery of Certificates by IHI Stockholders. The transfer
of the IHI Shares by the IHI Stockholders shall be effected by the delivery to
Kara at the Closing of a stock certificate or certificates representing the
transferred shares duly endorsed in blank or accompanied by stock powers
executed in blank, with all signatures witnessed or guaranteed to the
satisfaction of Kara and with all necessary transfer taxes and other revenue
stamps affixed and acquired at the IHI Stockholders expense.
1.3 Further Assurances. At the Closing and from time to time
thereafter, the IHI Stockholders shall execute such additional instruments and
take such other action as Kara may request in order to exchange and transfer
clear title and ownership in the IHI Shares to Kara.
1.4 Resignation of Present Sole Director and Executive Officer
Kara and Designation of New Directors and Executive Officers of Kara. On
Closing, the present sole director and executive officer of Kara shall resign
and designate the directors and executive officers nominated by IHI to serve
in his place and stead, until the next respective annual meetings of the
stockholders and Board of Directors of Kara, and until their respective
successors shall be elected and qualified or until their respective prior
resignations or terminations.
1.6 Assets and Liabilities of Kara at Closing. Kara shall have
no material assets and no liabilities at Closing, and all costs incurred by
Kara incident to the Agreement shall have been paid or satisfied.
1.7 Exchange of Like Options. Kara agrees to exchange like
options of Kara for certain outstanding options of IHI to acquire IHI Shares
(collectively, the IHI Options ), on the basis of one option to acquire one
share of Kara for each outstanding option to acquire one share of IHI, only to
the extent outlined in Exhibit A-1 hereof; and agrees to issue shares of its
unregistered and restricted common stock in lieu of IHI Shares in
accordance with Exhibit A-1, on exercise.
1.8 Closing. The Agreement may close on the execution and
delivery of Counterpart Signature Pages by persons who own not less than 80%
of the outstanding IHI Shares; and Kara will use its best efforts to acquire
in exchange for unregistered and restricted shares of its common stock or
like options the remaining outstanding IHI Shares and IHI Options, to the
extent that such securities can be acquired pursuant to available exemptions
from the registration requirements of applicable securities laws, rules and
regulations, or, in the sole discretion of Kara, by registration pursuant to
applicable securities laws, rules and regulations, on similar terms and
conditions, for a period of two years from the Closing; and Kara shall reserve
a sufficient number of shares of its unregistered and restricted common
stock to cover the exchange of the remaining IHI Shares and those shares
underlying outstanding IHI Options which are not exchanged hereunder.
1.9 Name Change and Increase of Authorized Shares of Kara.
On Closing, the name of Kara shall be changed to International Heritage,
Incorporated or such other name as the respective Boards of Directors of Kara
and IHI shall determine; the authorized shares of Kara shall be increased from
50,000,000 shares to 100,000,000 shares, retaining the par value at $0.001;
and David N. Nemelka, Jr., who is the sole director and executive officer of
Kara, who owns approximately 88% of the outstanding voting securities of Kara,
shall have adopted and ratified all required or necessary resolutions under
the Nevada Revised Statutes to effect such changes.
Section 2
Closing
The Closing contemplated by Section 1.1 shall be held at the
offices of Leonard W. Burningham, Esq., Suite 205 Hermes Building, 455 East
500 South, Salt Lake City, Utah 84111, unless another place or time is agreed
upon in writing by the parties. The Closing may be accomplished by wire,
express mail or other courier service, conference telephone communications or
as otherwise agreed by the respective parties or their duly authorized
representatives.
Section 3
Representations and Warranties of Kara
Kara represents and warrants to, and covenants with, the IHI
Stockholders, the IHI Option Holders and IHI as follows:
3.1 Corporate Status. Kara is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada
and is licensed or qualified as a foreign corporation in all states in which
the nature of its business or the character or ownership of its properties
makes such licensing or qualification necessary (Nevada only). Kara is a
publicly held company, having previously and lawfully offered and sold a
portion of its securities in accordance with applicable federal and state
securities laws, rules and regulations. Kara files reports with the
Securities and Exchange Commission pursuant to Section 15(d) of the Securities
Exchange Act of 1934, as amended (the 1934 Act ), and all reports required to
have been filed by it during the past 12 months have been filed and are true
and correct in every material respect. The common stock of Kara is quoted in
the OTC Bulletin Board of the National Association of Securities Dealers, Inc.
(the NASD ) under the symbol KARA, though there is currently no
established trading market in these securities.
3.2 Capitalization. The authorized capital stock of Kara
consists of 50,000,000 shares of one mill ($0.001) par value common voting
stock, of which 4,559,761 shares are issued and outstanding, all fully paid
and non-assessable. There are no outstanding options, warrants or calls
pursuant to which any person has the right to purchase any authorized and
unissued capital stock of Kara. All outstanding common stock of Kara has been
lawfully issued in accordance with applicable federal and state securities
laws, rules and regulations.
3.3 Financial Statements. The financial statements of Kara
furnished to the IHI Stockholders, the IHI Option Holders and IHI, consisting
of audited financial statements for the fiscal years ended December 31, 1997
and 1996, attached hereto as Exhibit B, are correct and fairly present the
financial condition of Kara at such dates and for the periods involved; such
statements were prepared in accordance with generally accepted accounting
principles consistently applied, and no material change has occurred in the
matters disclosed therein, except as indicated in Exhibit C, which is attached
hereto and incorporated herein by reference. Such financial statements do not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
3.4 Undisclosed Liabilities. Kara has no liabilities of any
nature except to the extent reflected or reserved against in its balance
sheets, whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities and interest due or to become due, except as set
forth in Exhibit C.
3.5 Interim Changes. Since the date of its balance sheets,
except as set forth in Exhibit C, there have been no (1) changes in financial
condition, assets, liabilities or business of Kara which, in the aggregate,
have been materially adverse; (2) damages, destruction or losses of or to
property of Kara, payments of any dividend or other distribution in respect of
any class of stock of Kara, or any direct or indirect redemption, purchase or
other acquisition of any class of any such stock; or (3) increases paid or
agreed to in the compensation, retirement benefits or other commitments to
employees.
3.6 Title to Property. Kara has good and marketable title to
all properties and assets, real and personal, reflected in its balance sheets,
and the properties and assets of Kara are subject to no mortgage, pledge, lien
or encumbrance, except for liens shown therein or in Exhibit C, with respect
to which no default exists.
3.7 Litigation. There is no litigation or proceeding pending,
or to the knowledge of Kara, threatened, against or relating to Kara, its
properties or business, except as set forth in Exhibit C. Further, no
officer, director or person who may be deemed to be an affiliate of Kara is
party to any material legal proceeding which could have an adverse effect on
Kara (financial or otherwise), and none is party to any action or proceeding
wherein any has an interest adverse to Kara.
3.8 Books and Records. From the date of this Agreement to the
Closing, Kara will (1) give to the IHI Stockholders, the IHI Option Holders
and IHI or their respective representatives full access during normal business
hours to all of its offices, books, records, contracts and other corporate
documents and properties so that the IHI Stockholders, the IHI Option Holders
and IHI or their respective representatives may inspect and audit them; and
(2) furnish such information concerning the properties and affairs of Kara as
the IHI Stockholders, the IHI Option Holders and IHI or their respective
representatives may reasonably request.
3.9 Tax Returns. Kara has filed all federal and state income or
franchise tax returns required to be filed or has received currently effective
extensions of the required filing dates.
3.10 Confidentiality. Until the Closing (and thereafter if there
is no Closing), Kara and its representatives will keep confidential any
information which they obtain from the IHI Stockholders, the IHI Option
Holders or from IHI concerning the properties, assets and business of IHI. If
the transactions contemplated by this Agreement are not consummated by March
15, 1998, Kara will return to IHI all written matter with respect to IHI
obtained by Kara in connection with the negotiation or consummation of this
Agreement.
3.11 Investment Intent. Kara is acquiring the IHI Shares to be
transferred to it under this Agreement for investment and not with a view to
the sale or distribution thereof, and Kara has no commitment or present
intention to liquidate IHI or to sell or otherwise dispose of the IHI Shares.
3.12 Corporate Authority. Kara has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder and will deliver to the IHI Stockholders, the IHI Option Holders and
IHI or their respective representatives at the Closing a certified copy of
resolutions of its Board of Directors authorizing execution of this Agreement
by its officers and performance thereunder, and the sole director adopting and
delivering such resolutions is the duly elected and incumbent director of
Kara.
3.13 Due Authorization. Execution of this Agreement and
performance by Kara hereunder have been duly authorized by all requisite
corporate action on the part of Kara, and this Agreement constitutes a valid
and binding obligation of Kara and performance hereunder will not violate any
provision of the Articles of Incorporation, Bylaws, agreements, mortgages or
other commitments of Kara.
3.14 Environmental Matters. Kara has no knowledge of any
assertion by any governmental agency or other regulatory authority of any
environmental lien, action or proceeding, or of any cause for any such lien,
action or proceeding related to the business operations of Kara. In addition,
to the best knowledge of Kara, there are no substances or conditions which may
support a claim or cause of action against Kara or any of its current or
former officers, directors, agents or employees, whether by a governmental
agency or body, private party or individual, under any Hazardous Materials
Regulations. Hazardous Materials means any oil or petrochemical products,
PCB s, asbestos, urea formaldehyde, flammable explosives, radioactive
materials, solid or hazardous wastes, chemicals, toxic substances or related
materials, including, without limitation, any substances defined as or
included in the definition of hazardous substances, hazardous wastes,
hazardous materials, or toxic substances under any applicable federal or
state laws or regulations. Hazardous Materials Regulations means any
regulations governing the use, generation, handling, storage, treatment,
disposal or release of hazardous materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act and the Federal Water Pollution Control
Act.
3.15 Access to Information Regarding IHI. Kara acknowledges that
it has been delivered copies of what has been represented to be documentation
containing all material information respecting IHI and its present and
contemplated business operations, potential acquisitions, management and other
factors; that it has had a reasonable opportunity to review such documentation
and discuss it, to the extent desired, with its legal counsel, directors and
executive officers; that it has had, to the extent desired, the opportunity to
ask questions of and receive responses from the directors and executive
officers of IHI, and with the legal and accounting firms of IHI, with respect
to such documentation; and that to the extent requested, all questions raised
have been answered to its complete satisfaction.
Section 4
Representations, Warranties and Covenants of IHI
the IHI Stockholders and the IHI Option Holders
IHI, the IHI Stockholders and the IHI Option Holders represent
and warrant to, and covenant with, Kara as follows (the representations and
warranties contained in Sections 4.2 through 4.10, and Sections 4.13 through
4.16 apply only to IHI Stockholders or IHI Option Holders who are directors,
executive officers or 10% stockholders of IHI):
4.1 IHI Shares and IHI Options. The IHI Stockholders and the
IHI Option Holders are the record and beneficial owners of all of the IHI
Shares and the IHI Options listed in Exhibits A and A-1, free and clear of
adverse claims of third parties; and Exhibits A and A-1 correctly set forth
the names, addresses and the number of IHI Shares and IHI Options
respectively owned by the IHI Stockholders and the IHI Option Holders.
4.2 Corporate Status. IHI is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina and is licensed or qualified as a foreign corporation in all states
in which the nature of its business or the character or ownership of its
properties makes such licensing or qualification necessary.
4.3 Capitalization. The authorized capital stock of IHI
consists of 25,000,000 shares of common voting stock, one mill ($0.001) par
value, of which 7,540,756 shares are issued and outstanding, all fully paid
and non-assessable. Except as set forth in Exhibits A and A-1, there are no
outstanding options, warrants or calls pursuant to which any person has the
right to purchase any authorized and unissued capital stock of IHI. Except as
disclosed to Kara in writing, all outstanding common stock of IHI has been
lawfully issued in accordance with applicable federal and state securities
laws, rules and regulations.
4.4 Financial Statements. The financial statements of IHI
furnished to the Kara, consisting of the unaudited December 31, 1997
Consolidated Balance Sheet and Income Statement, and Consolidated Financial
Statements and Supplemental Information for the Year Ended December 31, 1996,
and the Period Ended December 31, 1995, attached hereto as Exhibit D, are
correct and fairly present the financial condition of IHI as of that date and
for the periods involved, and such statements were prepared in accordance with
generally accepted accounting principles consistently applied. These
financial statements do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading.
4.5 Undisclosed Liabilities. IHI has no material liabilities of
any nature except to the extent reflected or reserved against in the balance
sheets, whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities and interest due or to become due, except as set
forth in Exhibit E attached hereto and incorporated herein by reference.
4.6 Interim Changes. Since the date of these balance sheets,
except as set forth in Exhibit E, there have been no (1) changes in the
financial condition, assets, liabilities or business of IHI, which in the
aggregate, have been materially adverse; (2) damages, destruction or loss of
or to the property of IHI, payment of any dividend or other distribution in
respect of the capital stock of IHI, or any direct or indirect redemption,
purchase or other acquisition of any such stock; or (3) increases paid or
agreed to in the compensation, retirement benefits or other commitments to
their employees.
4.7 Title to Property. IHI has good and marketable title to all
properties and assets, real and personal, proprietary or otherwise, reflected
in these balance sheets, and the properties and assets of IHI are subject to
no mortgage, pledge, lien or encumbrance, except as reflected in the balance
sheet or in Exhibit E, with respect to which no default exists.
4.8 Litigation. There is no litigation or proceeding pending,
or to the knowledge of IHI, threatened, against or relating to IHI or its
properties or business, except as set forth in Exhibit E. Further, no
officer, director or person who may be deemed to be an affiliate of IHI is
party to any material legal proceeding which could have an adverse effect on
IHI (financial or otherwise), and none is party to any action or proceeding
wherein any has an interest adverse to IHI.
4.9 Books and Records. From the date of this Agreement to the
Closing, the IHI Stockholders and the IHI Option Holders will cause IHI to (1)
give to Kara and its representatives full access during normal business hours
to all of its offices, books, records, contracts and other corporate documents
and properties so that Kara may inspect and audit them; and (2) furnish such
information concerning the properties and affairs of IHI as Kara may
reasonably request.
4.10 Tax Returns. IHI has filed all federal and state income or
franchise tax returns required to be filed or has received currently effective
extensions of the required filing dates.
4.11 Confidentiality. Until the Closing (and continuously if
there is no Closing), IHI, the IHI Stockholders, the IHI Option Holders and
their representatives will keep confidential any information which they obtain
from Kara concerning its properties, assets and business. If the transactions
contemplated by this Agreement are not consummated by March 15, 1998, IHI, the
IHI Stockholders and the IHI Option Holders will return to Kara all written
matter with respect to Kara obtained by them in connection with the
negotiation or consummation of this Agreement.
4.12 Investment Intent. The IHI Stockholders and the IHI Option
Holders are acquiring the shares or options to be exchanged and delivered to
them under this Agreement for investment and not with a view to the sale or
distribution thereof, and the IHI Stockholders and the IHI Option Holders have
no commitment or present intention to sell or otherwise dispose of the Kara
shares or options to be received in exchange for the IHI Shares or the IHI
Options hereunder. The IHI Stockholders and the IHI Option Holders shall
execute and deliver to Kara on the Closing an Investment Letter attached
hereto as Exhibit F and incorporated herein by reference, acknowledging the
receipt of a copy of the Agreement, the "unregistered" and "restricted" nature
of the shares or options of Kara being received under the Agreement in
exchange for the IHI Shares or IHI Options, and receipt of certain material
information regarding Kara, including, but not limited to copies of the
reports of Kara which have been filed with the Securities and Exchange
Commission under Section 15(d) of the 1934 Act during the past 12 months.
4.13 Corporate Authority. IHI has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder and will deliver to Kara or its representative at the Closing a
certified copy of resolutions of its Board of Directors authorizing execution
of this Agreement by its officers and performance thereunder.
4.14 Due Authorization. Execution of this Agreement and
performance by IHI hereunder have been duly authorized by all requisite
corporate action on the part of IHI, and this Agreement constitutes a valid
and binding obligation of IHI and performance hereunder will not violate any
provision of the Articles of Incorporation, Bylaws, agreements, mortgages or
other commitments of IHI. IHI shall provide Kara with copies of duly signed
and authorized consents of all persons or entities whose consent is required
to complete the transactions contemplated hereby.
4.15 Environmental Matters. IHI, the IHI Stockholders and the
IHI Option Holders have no knowledge of any assertion by any governmental
agency or other regulatory authority of any environmental lien, action or
proceeding, or of any cause for any such lien, action or proceeding related to
the business operations of IHI or its predecessors. In addition, to the best
knowledge of IHI, there are no substances or conditions which may support a
claim or cause of action against IHI or any of its current or former officers,
directors, agents, employees or predecessors, whether by a governmental agency
or body, private party or individual, under any Hazardous Materials
Regulations. Hazardous Materials means any oil or petrochemical products,
PCB s, asbestos, urea formaldehyde, flammable explosives, radioactive
materials, solid or hazardous wastes, chemicals, toxic substances or related
materials, including, without limitation, any substances defined as or
included in the definition of hazardous substances, hazardous wastes,
hazardous materials, or toxic substances under any applicable federal or
state laws or regulations. Hazardous Materials Regulations means any
regulations governing the use, generation, handling, storage, treatment,
disposal or release of hazardous materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act and the Federal Water Pollution Control
Act.
4.16 Access to Information Regarding Kara. IHI, the IHI
Stockholders and the IHI Option Holders acknowledge that they have been
delivered copies of what has been represented to be documentation containing
all material information respecting Kara and its present and contemplated
business operations, potential acquisitions, management and other factors;
that they have had a reasonable opportunity to review such documentation and
discuss it, to the extent desired, with their legal counsel, directors and
executive officers; that they have had, to the extent desired, the opportunity
to ask questions of and receive responses from the directors and executive
officers of Kara, and with the legal and accounting firms of Kara, with
respect to such documentation; and that to the extent requested, all questions
raised have been answered to their complete satisfaction.
Section 5
Conditions Precedent to Obligations of IHI,
the IHI Stockholders
and the IHI Option Holders
All obligations of IHI, the IHI Stockholders and the IHI Option
Holders under this Agreement are subject, at their option, to the fulfillment,
before or at the Closing, of each of the following conditions:
5.1 Representations and Warranties True at Closing. The
representations and warranties of Kara contained in this Agreement shall be
deemed to have been made again at and as of the Closing and shall then be true
in all material respects and shall survive the Closing.
5.2 Due Performance. Kara shall have performed and complied
with all of the terms and conditions required by this Agreement to be
performed or complied with by it before the Closing.
5.3 Officers' Certificate. IHI, the IHI Stockholders and the
IHI Option Holders shall have been furnished with a certificate signed by the
President of Kara, attached hereto as Exhibit G and incorporated herein by
reference, dated as of the Closing, certifying (1) that all representations
and warranties of Kara contained herein are true and correct; and (2) that
since the date of the financial statements (Exhibit B hereto), there has been
no material adverse change in the financial condition, business or properties
of Kara, taken as a whole.
5.4 Opinion of Counsel of Kara. IHI, the IHI Stockholders and
the IHI Option Holders shall have received an opinion of counsel for Kara,
dated as of the Closing, to the effect that (1) the representations of
Sections 3.1, 3.2 and 3.12 are correct; (2) except as specified in the
opinion, counsel knows of no inaccuracy in the representations in 3.5, 3.6 or
3.7; (3) the shares of Kara to be issued to the IHI Stockholders under this
Agreement will, when so issued, be validly issued, fully paid and non-
assessable; and (4) the options of Kara to be exchanged with the IHI Option
Holders shall deemed to be validly issued.
5.5 Assets and Liabilities of Kara. Kara shall have no material
assets and no liabilities at Closing, and all costs, expenses and fees
incident to the Agreement shall have been paid.
5.6 Resignation of Sole Director and Executive Officer and
Designation of New Directors and Executive Officers. The present sole
director and executive officer of Kara shall resign, and shall have designated
nominees of IHI as directors and executive officers of Kara to serve in his
place and stead, until the next respective annual meetings of the stockholders
and Board of Directors of Kara, and until their respective successors shall be
elected and qualified or until their respective prior resignations or
terminations.
5.7 Name Change of Kara. On Closing, the name of Kara shall
be
changed to International Heritage, Incorporated or such other name as the
respective Boards of Directors of Kara and IHI shall determine, and David N.
Nemelka, Jr., who is the sole director and executive officer of Kara, who owns
approximately 88% of the outstanding voting securities of Kara, shall have
adopted and ratified all required or necessary resolutions under the Nevada
Revised Statutes to effect such name change.
Section 6
Conditions Precedent to Obligations of Kara
All obligations of Kara under this Agreement are subject, at its
option, to the fulfillment, before or at the Closing, of each of the following
conditions:
6.1 Representations and Warranties True at Closing. The
representations and warranties of IHI, the IHI Stockholders and the IHI Option
Holders contained in this Agreement shall be deemed to have been made again at
and as of the Closing and shall then be true in all material respects and
shall survive the Closing.
6.2 Due Performance. IHI, the IHI Stockholders and the IHI
Option Holders shall have performed and complied with all of the terms and
conditions required by this Agreement to be performed or complied with by them
before the Closing.
6.3 Officers' Certificate. Kara shall have been furnished with
a certificate signed by the President of IHI, attached hereto as Exhibit H
and incorporated herein by reference, dated as of the Closing, certifying (1)
that all representations and warranties of IHI, the IHI Stockholders and the
IHI Option Holders contained herein are true and correct; and (2) that since
the date of the financial statements (Exhibit D), there has been no material
adverse change in the financial condition, business or properties of IHI,
taken as a whole.
6.4 Opinion of Counsel of IHI. Kara shall have received an
opinion of counsel for IHI, dated as of the Closing, to the effect that (1)
the representations of Sections 4.2, 4.3 and 4.13 are correct; (2) except as
specified in the opinion, counsel knows of no inaccuracy in the
representations in 4.6, 4.7 or 4.8; (3) the IHI Shares to be delivered to Kara
under this Agreement will, when so delivered, have been validly issued, fully
paid and non-assessable; and the IHI Options are validly issued.
6.5 Books and Records. The IHI Stockholders, the IHI Option
Holders or the Board of Directors of IHI shall have caused IHI to make
available all books and records of IHI, including minute books and stock
transfer records; provided, however, only to the extent requested in writing
by Kara at Closing.
6.6 Acceptance by IHI Stockholders. The terms of this Agreement
shall have been accepted by the IHI Stockholders who own not less than 80% of
the IHI Shares by their execution and delivery of a copy of the Agreement and
related instruments.
Section 7
Termination
Prior to Closing, this Agreement may be terminated (1) by mutual
consent in writing; (2) by either the sole director of Kara or IHI, the IHI
Stockholders and the IHI Option Holders if there has been a material
misrepresentation or material breach of any warranty or covenant by the other
party; or (3) by either the sole director of Kara or IHI, the IHI Stockholders
and the IHI Option Holders if the Closing shall not have taken place, unless
adjourned to a later date by mutual consent in writing, by the date fixed in
Section 2.
Section 8
General Provisions
8.1 Further Assurances. At any time, and from time to time,
after the Closing, each party will execute such additional instruments and
take such action as may be reasonably requested by the other party to confirm
or perfect title to any property transferred hereunder or otherwise to carry
out the intent and purposes of this Agreement.
8.2 Waiver. Any failure on the part of any party hereto to
comply with any of its obligations, agreements or conditions hereunder may be
waived in writing by the party to whom such compliance is owed.
8.3 Brokers. Each party represents to the other parties
hereunder that no broker or finder has acted for it in connection with this
Agreement, and agrees to indemnify and hold harmless the other parties against
any fee, loss or expense arising out of claims by brokers or finders employed
or alleged to have been employed by he/she/it.
8.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered in
person or sent by prepaid first-class registered or certified mail, return
receipt requested, as follows:
If to Kara: 55 West 200 North
Provo, Utah 84601
With a copy to: Leonard W. Burningham, Esq.
455 East 500 South, #205
Salt Lake City, Utah 84111
If to IHI: 2626 Glenwood Avenue, Suite 200
Raleigh, North Carolina 27608
Attn: Georgina Marie Mollick, Esq.
Vice President, Legal Affairs
If to the IHI Stockholders
or IHI Option Holders: To the addresses listed in Exhibits
A and A-1
8.5 Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any other agreement,
representation, or communication, whether oral or written, between the parties
hereto relating to the transactions contemplated herein or the subject matter
hereof.
8.6 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.7 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Nevada,
except to the extent pre-empted by federal law, in which event (and to that
extent only), federal law shall govern.
8.8 Assignment. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their successors and assigns;
provided however, that any assignment by any party of its rights under this
Agreement without the prior written consent of the other parties shall be
void.
8.9 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement and
Plan of Reorganization effective the day and year first above written.
KARA INTERNATIONAL, INC.
Date: 3/5/98 By/s/ David N. Nemelka, Jr.
David N. Nemelka, Jr., President
INTERNATIONAL HERITAGE, INC.
Date: 3/6/98 By/s/Stanley H. Van Etten
Stanley H. Van Etten, President
COUNTERPART SIGNATURE PAGE
AGREEMENT AND PLAN OF REORGANIZATION
This Counterpart Signature Page for that certain Agreement and Plan of
Reorganization (the "Agreement") dated as of the 23rd day of February, 1998,
among Kara International, Inc., a Nevada corporation ("Kara"); International
Heritage, Inc., a North Carolina corporation ("IHI"); and the persons listed
in Exhibits A and A-1 hereof who are respectively the owners of record of all
of the outstanding common stock and certain option holders who own rights to
acquire common stock of IHI who are signatories thereto is executed by the
undersigned, an IHI Stockholder or IHI Option Holder, as of the date first
written above. The undersigned, through execution and delivery of this
Counterpart Signature page, intends to be legally bound by the terms of the
Agreement.
NAME DATE
/s/ Acme Holdings 2/28/98
/s/ David P. Accurso 2/26/98
/s/ Lorraine Lee Allen 3/5/98
/s/ Advance Equities 3/2/98
/s/ Frank Wesley Alexander 3/2/98
/s/ Richard Anderson 3/5/98
/s/ Jeff Ayersman 3/3/98
/s/ George B. Bain 3/2/98
/s/ Judith Paige Bankston 3/2/98
/s/ Michael D. Batchelor &
Eugenia M. Batchelor (JTROS) 2/26/98
/s/ Bobbie Lee Baer 3/3/98
/s/ Gary L. and Valorie R. Bisbey (JTRS) 2/27/98
/s/ William Allison Blackman 2/25/98
/s/ Faiger M. Blackwell 3/4/98
/s/ James L. Blackwelder/Nina L.
Blackwelder (JTRS) 2/26/98
/s/ Ray Boudreaux 2/25/98
/s/ Paul Bourque 2/25/98
/s/ Carroll J. Boutte III 2/25/98
/s/ Chris S. Brackett 3/5/98
/s/ Dennis E. & Linda C. Brackett 3/5/98
/s/ Stephen E. Brackett 3/5/98
/s/ Darin Brewer/Jennifer Brewer 3/2/98
/s/ William J. Brewer 3/6/98
/s/ Bobby Wreen Bristow 2/25/98
/s/ Bobby W. & Shirley E. Bristow (JTRS) 2/25/98
/s/ Charles H. Brock 3/4/98
/s/ Steven & Kim Brown (JTRS) 2/27/98
/s/ John B. Buhrman 3/2/98
/s/ Patricia Cain Buhrman 3/4/98
/s/ Kathleen Hellen Caldwell 3/3/98
/s/ Melissa A. Caldwell 2/25/98
/s/ Muriel Kathleen Caldwell 3/3/98
/s/ Enrico Victor Cannella and
Vicki W. Cannella (JTRS) 2/25/98
/s/ David Matthew Canning 3/3/98
/s/ Michael F. Canning, Jr. 3/3/98
/s/ Lawrence A. Canning 3/3/98
/s/ Neva Marie Canning 2/28/98
/s/ Neva Marie Canning/Freeland R.
Goldammer (JTRS) 2/28/98
/s/ Capital Financial Dynamics Group 3/5/98
/s/ Luke J. Carline 2/25/98
/s/ Ronald W. & Brenda G. Cassese 3/4/98
/s/ H. Russell Caston 2/27/98
/s/ Robert L. Chalmers 3/3/98
/s/ Nick Collias 3/3/98
/s/ Edgar Collins 3/3/98
/s/ Philip A. & Kathryn C. Crist (JTWRS) 3/2/98
/s/ Thomas S. Cromer & Betty Jean (JTRS) 3/1/98
/s/ Donald E. Dawson 3/3/98
/s/ Kay Wood Disman 2/25/98
/s/ Edmund E. & Rosemarie J. Dreyer (JTRS) 3/4/98
/s/ Harvell Clay Duncan 3/2/98
/s/ William Larry Duncan 3/2/98
/s/ Dujay Living Trust 1994 (Patricia
Ann Dujay, Trustee) 2/27/98
/s/ Dorothy Grant Eaddy 2/27/98
/s/ Evonne B. Eckenroth 3/3/98
/s/ Charles C. Edmondson, Jr. 2/26/98
/s/ Dean Truitt Elliott 3/3/98
/s/ Wendell D. & Jodie D. Elliott (JTRS) 3/3/98
/s/ Larry L. Ellis 3/2/98
/s/ Charles Barron Elrod 2/27/98
/s/ DeAnn Elrod 3/3/98
/s/ David English, MD 2/25/98
/s/ McCleldon Van Evans/Judith Ann
Evans (JTRS) 2/25/98
/s/ Etablissement Pour Le Placment Prive 3/2/98
/s/ David R. Fanning 2/25/98
/s/ Carl Richard Fears 3/2/98
/s/ Homer R. & Ruth J. Fears (JTRS) 3/2/98
/s/ Roger L. Flowers 3/5/98
/s/ Roger Dale Gadd 2/27/98
/s/ Charles C. Geoffroy 2/25/98
/s/ Eric J. Geoffroy 2/25/98
/s/ Lloyd Geoffroy, Jr. 2/25/98
/s/ Gold Raven, Inc. 2/27/98
/s/ Edward Grant/Bernadett Grant (JTRS) 2/27/98
/s/ Dwight D. Hallman/Jennifer J. Hallman
(JTRS) 2/26/98
/s/ Norma Hamilton 2/28/98
/s/ Frank S. Hart 3/3/98
/s/ Joyce M. Hatley 2/26/98
/s/ Kenny Kawkins 3/5/98
/s/ Reine R. and David Hemelright (JTRS) 3/3/98
/s/ Randy C. Herrin 2/26/98
/s/ Jeffrey L. Hooks 3/3/98
/s/ Ronald Franklin Hopson 2/25/98
/s/ Paul Hoyle 3/2/98
/s/ John F. Hudson & Margaret H. Hudson
(JTRS) 2/25/98
/s/ Freddie Walton Huffman & Susan
Diane Huffman, JTRS 2/27/98
/s/ Richard A. Hungate 2/26/98
/s/ Imperial Management Fund 3/3/98
/s/ Infinity Marketing 2/26/98
/s/ Joe Ingram 2/25/98
/s/ Frances Kathy Isbell 3/3/98
/s/ Jade Resources Institute 2/25/98
/s/ Diane B. James 3/4/98
/s/ Bruce W. Jones 2/25/98
/s/ Kevin D. Jones 3/4/98
/s/ Helen W. Kennedy 3/6/98
/s/ Johnny R. Kennedy, Sr. 3/6/98
/s/ Frederick Michael Kennel 2/25/98
/s/ Hans Friedrich Kennel 2/25/98
/s/ Sean Kilmartin 2/25/98
/s/ Jimmie D. & Portia G. Knowles (JTRS) 3/5/98
/s/ Norman Kornfeld 3/3/98
/s/ Ricki Lagle 3/3/98
/s/ Michael LaRocco 2/28/98
/s/ Michael Lawrence 3/3/98
/s/ Leisure Time Rentals & Mgmt, Inc. 3/3/98
/s/ Kathleen Canning Leone 2/25/98
/s/ Benjamin F. Lewis 3/2/98
/s/ Marian Lewis 2/27/98
/s/ Jeff Majewski 2/26/98
/s/ Philip Andre Martin 3/5/98
/s/ Robert Matera 3/5/98
/s/ The Eddie L. Mattox Irrevocable Trust 2/26/98
/s/ Conda McCall 3/3/98
/s/ Robin K. Savage McDaniel 2/26/98
/s/ Braxton F. Mettitt 3/5/98
/s/ Egbert L. Ming 3/3/98
/s/ Norbert L. Ming & Patricia A. Ming (JTRS)3/3/98
/s/ Melvola J. Mitchell 2/25/98
/s/ Charles T. & Rachel E. Moore (JTRS) 2/26/98
/s/ Dr. William A. Myers III 3/5/98
/s/ Ray & Joanne Norville (JTRS) 2/25/98
/s/ Darrell Murray Olinger 2/27/98
/s/ Jerry D. Phillips 2/27/98
/s/ Harold Walter Queen 3/2/98
/s/ Harold W. & Linda W. Queen (JTRS) 2/25/98
/s/ Robert A. Reckenbeil 3/1/98
/s/ James Reynolds 3/5/98
/s/ Larry J. Rikard 2/26/98
/s/ Clotilda Rodgers 3/2/98
/s/ Barbara M. Romero 2/26/98
/s/ Fannie Lenora Ross 3/2/98
/s/ Dr. T. Martin Runion &/or
Nina W. Runion (JTRS) 3/2/98
/s/ Rebecca G. Rushing 2/25/98
/s/ SPS Investments 3/4/98
/s/ Tracy E. Sabates 2/26/98
/s/ Samuel Barron Saxon 3/3/98
/s/ Claude W. Savage, Jr. 2/26/98
/s/ Claude W. Savage 2/26/98
/s/ Patricia S. Schnell 3/2/98
/s/ Douglas Rene Schexnayder 2/25/98
/s/ Cornelius Sexton 3/2/98
/s/ Sheehan & Associates Profit Sharing Trust
91-1670713 2/27/98
/s/ James Ronnie Sherrill-Sylvia Mann
Sherrill (JTRS) 2/28/98
/s/ (Walter R. Siemian) Walter Siemian) 3/2/98
/s/ Daniel Simonson/Judy Simonson, JWROS 2/26/98
/s/ Lynn and Eunice Simonson, JWROS 2/25/98
/s/ Fred B. Smith & Associates 3/4/98
/s/ Joseph Smith 3/2/98
/s/ Richard Blaine Smith 2/26/98
/s/ Ann M. Smoak 3/2/98
/s/ Joe F. Spoon 2/25/98
/s/ Jerry D./Doretha P. Staley 2/25/98
/s/ Steven E. & Nanette N. Taitt (JTRS) 2/26/98
/s/ Betty Jean H. Taylor 3/3/98
/s/ Craig M. Taylor 2/26/98
/s/ David J. Thurlow 2/25/98
/s/ David Lane Tillman 3/2/98
/s/ To the Top We Go, Inc. John Brothers 2/25/98
/s/ Glenn R. Turner 2/25/98
/s/ Stanley H. Van Etten 3/2/98
/s/ Aubrey L. & Brenda S. Vincent (JTRS) 2/25/98
/s/ Brian D. & Debra J. Waite (JTRS) 2/25/98
/s/ Calvin Michael Ward 3/4/98
/s/ Keith & Kelly Wasinger 3/1/98
/s/ Jack E. Weatherly 3/4/98
/s/ Charles E. White, Sr./Patricia J. White 3/3/98
/s/ Kenneth W. Wilkinson & Helen
W. Wilkinson (JTRS) 2/25/98
AGREEMENT AND PLAN OF REORGANIZATION
COUNTERPART SIGNATURE PAGE
This Counterpart Signature Page for that certain Agreement and Plan of
Reorganization (the "Agreement") dated as of the 23rd day of February, 1998,
among Kara International, Inc., a Nevada corporation ("Kara"); International
Heritage, Inc., a North Carolina corporation ("IHI"); and the persons listed
in Exhibits A and A-1 hereof who are respectively the owners of record of all
of the outstanding common stock and certain option holders who own rights to
acquire common stock of IHI who are signatories thereto is executed by the
undersigned, an IHI Stockholder or IHI Option Holder, as of the date first
written above. The undersigned, through execution and delivery of this
Counterpart Signature page, intends to be legally bound by the terms of the
Agreement.
OPTIONEES DATE
/s/ Barbara A. Anderson 2/25/98
/s/ Gary Anderson 2/25/98
/s/ Imperial Management Fund 3/3/98
/s/ Mayflower Venture Capital Fund, LLC 3/5/98
/s/ Dale Nelson 3/4/98
/s/ Claude W. Savage 3/2/98
/s/ Stanley Howland Van Etten 3/5/98
/s/ Stanley Leroy Van Etten 3/2/98
/s/ Tom Van Etten 3/3/98
/s/ John Van Etten 3/6/98
<PAGE>
EXHIBIT A
The attached list outlines the persons or entities who own common
shares of IHI. Each person or entity who is an accredited investor and who
executes and delivers a copy of the Plan will receive three shares of Kara for
each one share that they own of IHI.
<TABLE>
International Heritage, Inc Shareholders 2/23/98
<S> <C> <C>
SHAREHOLDER NAME ADDRESS TOTAL SHARES
Accurso David P. 1070 St. George Rd. 7,500
Merritt Island, FL 32952
Acme Holdings P. O. box 12595 379,375
(Barry Ackel) Alexandria, LA 71315
72-9405092
Advance Equities P. O. Box 1418 206,400
Jimmy Aymond Winnfield, LA 71483
###-##-####
Alexander Frank Wesley P. O. Box 56 750
Union, SC 29379
Allen Lorraine Lee 1015 Old Metairie Place 3,750
Metairie, LA 70001
Alvord Rodney Dean 9216 NE 148th Court M101 7,500
Bothell, WA 98011
Anderson Richard 1568 Little Cove Road 375
Owens Cross Road, AL 35763
Associated International Marketing, Inc. 45,000
Johnston, Samuel W. & Carolyn III
1915 NW 13th Street
Gainesville, FL 32609
Ayersman Jeff 1401-G Diggs Drive 750
Raleigh, NC 27603
Baer Bobbie Lee 208 Melody Lane 1,500
###-##-#### Greenwood, SC 29649
Bain George B. 4600 Big Tree Way 10-P 45,000
###-##-#### Greensboro, NC 27406
Bankston Paige 395 Co. Rd. 580 1,500
Courtland, AL 35618
Batchelor Michael D & Eugenia M 45,000
###-##-#### ###-##-#### 603 Gardendale
Quincy, Il 62301
Bisbey Gary Lee & Valerie 2954 S. Skagit Highway 4,500
Sedro Woolley, WA 98294
Blackman William A 3508 Baltusrol Ct 46,875
###-##-#### Clayton, NC 27520
Blackwelder James P & Nina L, JWROS 715 Crestmont Drive 46,125
###-##-#### ###-##-#### Concord, NC 28025
Blackwell Faiger M P.O. Box 2828 22,500
Burlington, NC 27216
Boudreaux Ray Paul P.O. Box 53995 375
###-##-#### Lafayette, LA 70505
3502 L Theriot Rd
New Iberia, LA 70560
Bourque Paul 8004 Jackie Street 4,500
###-##-#### New Iberia, LA 70560
Boutte Caroll Joseph III 7100 Leleux Rd. Lot 14 750
###-##-#### New Iberia, LA 70560
Brackett Chris S 4731 Rounding Run Rd 45,000
###-##-#### Charlotte, NC 28277
Brackett Dennis E & Linda C 2335 Fairfax Drive 45,000
244-56-761 ###-##-#### Gastonia, NC 28054
Brackett Stephen E 518 Brook Forest Drive 45,000
Belmont, NC 28012
Brewer Darin & Jennifer 2410 Francis Rd 4,500
###-##-#### ###-##-#### Mt Vernon, WA 98273
Brewer William Route 3 Box 1065 3,750
Manning, SC 29102
Bristow Bobby Wrenn 2137 Crosby Drive 1,500
###-##-#### Burlington, NC 27215
Bristow Bobby W & Shirley E 2137 Crosby Drive 45,000
###-##-#### ###-##-#### Burlington NC 27215
Brock Charles H P.O. Box 42054 750
Fayetteville, NC 28309
Broughton Deborah A 499 Gambellville Rd RR #2 15,000
Cambeliville, Ontario,
Canada LOP 1BO
Brown Steven & Kim 216 Sunray Lane 12,500
Sunnyvale, TX 75182
Buhrman John 113 Main Street 22,500
###-##-#### Blythewood, SC 29016
Buhrman Patricia 113 Main Street 22,500
Blythewood, SC 29016
Caldwell Kathleen Helen 4826 S. 8th Street 1,500
###-##-#### Arlington, VA 22204
Caldwell Melissa Aine 4846 8th Street S. 750
Arlington, VA 2220
Caldwell Muriel Kathleen 4846 8th Street S 750
Arlington, VA 22204
Cannella Enrico Victor 4207 Earl Drive 7,500
###-##-#### Alexandria, LA 71303
Canning David Matthew 307 Yoakum Pkwy #714 3,750
Alexandria, VA 22304
Canning Lawrence A 691 L Houston St 750
###-##-#### Atlanta, GA 30312
Canning, Jr Michael Francis 1570 Fallowfield Ct 28,500
###-##-#### Crofton, MA 21114
Canning Neva Marie 307 Yoakum Pkwy #714 45,000
Alexandria, VA 22304
Canning Neva Marie & Goldammer307 Yoakum Pkwy #714 3,750
Freeland R Alexandria, VA 22304
Capital Dynamics Financial Group 409 Jackson Park Rd 419,250
Rodgers IDerrick L Kannapolis, NC 28083
Carline Luke J 525 Fontelieu Drive 450
New Iberia, LA 70560
Cassese Ronald W & Brenda 5805 Cold Harbor Dr 101,250
###-##-#### Greensboro, NC 27410
Central Welding & Industriai Supply 1510 Hawkins Ave 1,875
(Tommy C. Mann, Jr.) Sanford, NC 27330
56-0894511
Caston H. Russell 103 S. Boyce St 750
###-##-#### Union, SC 29379
Chalmers Robert L c/o International Heritage
of Can 45,000
###-##-#### 2800 Skymark Plaza
Suite #33
Mississauga, Ontario L4W 5A6
Collias Nick 6601 Sharon Hills Drive 135,000
Charlotte, NC 28210
Collins Edgar 128OO Laurens Ridge # 1213 45,000
Charlotte, NC 28273-4737
Cranford Karen 1804 Arbor Way 1,875
###-##-#### Albermarle, NC 28001
Crist Kathryn C 4729 Squaw Valley Ct 9,375
###-##-#### Glen Allen, VA 23060
Cromer Jr Thomas S & Betty J 212 Quail Run Circle 1,500
###-##-#### ###-##-#### Fountain, SC 29644
Dawson Donald E P.O. Box 861 3,750
###-##-#### Mt Pleasant, SC 29465
Disrnan Kay Wood P.O. Box 12114 90,000
464484899 Alexandria, LA 71315
Dreyer Edmund 8 Rosemarie 1428 NW 50th Terrace 3,750
Gainesville, FL 32605
Dujay Living Trust of 1994 120 Hudson Lane 3,750
(Patricia Ann Dujay, Trustee) Pineville, LA 71360
Duncan Harvell Clay 421 Jackson Street S. E. 1,500
###-##-#### Decatur, AL 35601-3005
Duncan William Larry 8211 Stephanie Drive 375
Huntsville, AL 35802
Dunlap Burl & Becky 2514 Willena Drive 1,500
###-##-#### ###-##-#### Huntsville, AL 35803
Eaddy Dorothy Grant P.O. Box 1828 2,250
###-##-#### Murrells Inlet, SC 29576
Eckenroth Evonne B 5840 Rock Springs Circle 262,500
Buford, GA 30518
Edmondson Jr Charles Campbell 1233 Hawthome Rd 7,500
###-##-#### Lancaster, SC 29720
Elliot Dean Truitt 2156 Hwy 521 Bypass S. 28,125
###-##-#### Lancaster, SC 29720
Elliot Wendel D & Jodie C P.O. Box 2167 102,375
###-##-#### ###-##-#### Lancaster, SC 29721
Ellis Larry L 8509 Mann's Loop Rd 187,500
Apex, NC 27502
Elrod Charles Barron 200 Partridge Rd 750
###-##-#### Union, SC 29379
Irod DeAnne 101 River Bluff Ct 750
###-##-#### Columbia, SC 29210
English M.D. David 202 Auburn Ave 37,500
Auburn, WA 98002
Etablissement Pour le Placement Prive 128 Mount Street 50,000
London W1Y 5HA
United Kingdom
Evans McCleldon & Judith 2923 Chaville 2,250
Cypress, TX 77429
Fanning David R 170 Old Baptist Rd 3,750
###-##-#### Ardmore, TN 38449
Fears Carl Richard 141 County Lake Rd 5,250
###-##-#### New Market, AL 35761
Fears Homer R & Ruth J 119 County Lake Rd 1,500
New Market, AL 35761
Flowers Roger US 15 North 3,750
Summerton, SC 29148
Forbis Jr Clinton S & Lavada P P.O. Box 111 18,750
###-##-#### ###-##-#### Kannapolis, NC 28082
Gadd Roger Dale 567 Gatsby Place 37,500
###-##-#### Concord, NC 28027
Gee Peter 69 Elm Court 750
Kennesaw, GA 30144
Geoffroy Charles C 1709 E. Saint Peter St. 3,375
###-##-#### New Iberia, LA 70560
Geoffroy Eric J 1709 E. Saint Peter St. 3,375
###-##-#### New Iberia, LA 70560
Geoffroy, Jr Lloyd 1709 E. Saint Peter St. 4,500
###-##-#### New Iberia, LA 70560
Giles John H 7575 Delk Rd #11 30C 750
###-##-#### Marietta, GA 30067
Gold Raven, Inc 5698-C Strawberry Hill Drive37,500
(TWAlred, Jr.) Charlotte, NC 28211
Gore Patricia A 1800 N Normandie Ave #304 225
Los Angeles, CA 90027
Grant Edward & Bernadett P.O. Box 543 7,500
Murrells Inlet, SC 29576
Guerard Jane 1264 S. Barksdale Rd
###-##-#### Mt Pleasant, SC 29464
sold 3,750 to Donald E Dawson
Hallman Dwight & Jennifer 3609 Satellite Court 93,750
Raleigh, NC 27604
Hamilton Norma 2057 Wood Lawn Drive 750
Huntsville, AL 35802
Hart Frank S P.O. Box 12310 3,750
###-##-#### Columbia, SC 29211
Harrell Bemard A. 5805 Wnthrop Drive 1,875
Raleigh, NC 27612
Hatley Joyce M 31 Hillcreek Boulevard 3,000
Charleston, SC 29412
Hawkins Kenneth A 605 Germantown Rd 1,875
Raleigh, NC 27607
Hemelright Reine R & David 3602 Holland Trail 1,500
###-##-#### ###-##-#### Lenoir City, TN 37772
Herrin Randy 32672 Millingport Rd 1,875
New London, NC 28127
Hines Kenneth R 3443 Sherbrook Drive 1,500
Uniontown, OH 44685
Holt David A & Kathy J 2114 Mosier Rd 4,500
###-##-#### ###-##-#### Sedro Woolley, WA 98284
Hooks Jeffrey L 118 Birklands Drive 93,750
Cary, NC 27511
Hopson Ronald Franklin 1304 Sheffeld Drive 1,500
###-##-#### Florence, SC 29505
Hoyle Paul 406 Holly Hill Ln 45,000
###-##-#### Burlington, NC 27215
Hudson John F & Margaret H 774 Octavia St 22,500
###-##-#### ###-##-#### Concord, NC 28025
Huffman Freddie Walton 535 Sharon Lane 1,875
###-##-#### Alexandria, LA 71303
Hungate Richard A 10805 Canaan Valiey Ct 140,625
###-##-#### Glen Allen, VA 23060
Imperial Management Fund 435 East North St, Ste 354 686,250
Larry G Smith 57-9407968 Greenville, SC 29615
(formerly Omega Leasing)
Infinity Marketing 125 Michli Rd 3,000
Sims Douglas L Madison, AL 35758
###-##-####
Ingram Joe P.O. Box 237 1,875
Tioga, LA 71477
Isbell Frances Kathy 109 Hazel Trace 7,500
###-##-#### Hazel Green, AL 35750
Jade Resource Institute 103 Ansley Ct 37,500
Kathleen Illian Coreer, SC 29650
###-##-####
James Diane B 2 Wild Partridge Ct 37,500
###-##-#### Greensboro, NC 27455
Johnson Wesley Hunt 3305 Derrualt Drive 7,500
Greensboro, NC 27410
Jones Bruce W 1110 Koulee Drive 3,750
Lafayette, LA 70578
Edward D. Jon FBO: Joe Oscar Matthews 201 Progress Pkwy 750
Tax ID 43-034 Cust. No.000-00002-0-8 Maryland Heights, MO 63043
Cusip No. 459641-10-6
Jones James & Catherine 201 Third St 2,250
###-##-#### ###-##-#### Jonesville, LA 71343
Jones Kathi Jean 913 Park Rd
*sold 525 to W. Wasinger Rose Hill, KS 67133
Jones Kevin 2212 Millpine Drive 10
###-##-#### Raleigh, NC 27614
Kennedy Helen W 5136 JRK Drive 750
Durham, NC 27705
Kennedy Sr Johnny R 5136 JRK Drive 1,500
Durham, NC 27705
Kennedy Michael J 860 Apricot Drive Apt A 1,875
Campbell, CA 95008
Kennel Frederick Michael 605 Douglas Lane 5,250
###-##-#### Huntsville, AL 35801
Kennel Hans Friedrich 605 Douglas Lane 5,250
###-##-#### Huntsville, AL 35801
Kilmartin Sean 9651 Sweet Cedar Lane 3,750
Charlotte, NC 28210
Kornfeld Norman 201 Center Street, Box 30 60,000
Val Marie, SK SON 2TO
Canada
Knowles Jimmie D & Portia G 105 Beechtree 497,925
Apex, NC 27502
Lagle Rickie 309 Turrentine Church Rd 22,500
###-##-#### Mocksville, NC 27028
Landry Anthony 123 Braken Ridge Apt 336 A 2,250
San Antonio, TX 88209
LaRocco Michael 8 Woodlawn Green Suite 150 22,500
###-##-#### Charlotte, NC 28217
Lawrence Michael 105 Cat-Cay Court 15,000
Atlanta GA 30350
Leisure Time Rentals & Mgmt P.O. Box 582 45,000
(Bill Griffin) ###-##-#### N. Myrtle Beach SC 29597
Leone Kathleen Canning 173 Top Sail Rd 750
###-##-#### N. Top Sail Beach, NC 28460
Leventhal Jerome V & Sandra Y 20501 Ventura Blvd Ste 190 3,750
###-##-#### ###-##-#### Woodland Hills, CA 91364
Lewis Benjamin F 106 Devon Park 7,500
###-##-#### Greenwood, SC 29649
Lewis David J & Patsy B 805 Mitchell Rd 375
Jacksonville, NC 28504
Lewis Marian Route 12, Box 399 750
Lake City, FL 32025-8108
Little Huston Allen 36457 Carter Rd 750
New London, NC 28127
Lovelace Art 8400 S. Schneider Rd 3,750
###-##-#### Camby, OR 97013
Lucas James LeRoyal 2700 Rockwell Rd 1,125
###-##-#### Rockwell, NC 28138
Macklin Sherry T 12029 Comenche Trail 863
Huntsville, AL 35803
Majewski Jeff 4011 Atlantic Avenue 25,000
Raleigh, NC 27604
Martin Philip Andre 118-Conque Drive 7,500
###-##-#### Lafayette, LA 70506
Matera Robert W 710 West Ave 1,500
###-##-#### Ocean City, NJ 08226
Mattox Eddie L. Irrevocable Trust 3286 Highway 160 West 45,000
Fort Mill, SC 29715
McCall Conda P.O. Box 602 45,000
Cashiers, NC 28717
McCollum-Shelton Anita 205 Beech Lane 1,500
Madison, W1 25130
McDaniel Air Conditioning & 915 N. San Jacinto 18,750
Heating, Inc. Cleveland, TX 77327
76-0048615
McDaniel Robin K Savage 106 Benbow Lane 37,500
Charlotte, NC 28214
Merritt Braxton 6010 Bush Rd 180,000
Brown Summit, NC 27214
Ming Egbert Louis 921 1/2 Eleanor Street 63,750
New Orleans, LA 70115
Ming Norbert Louis 4736 Wingrove Blvd 18,750
Orlando, FL 32819
Mitchell Marc Homer 4806 Fountain Ave 2,025
###-##-#### Los Angeles, CA 90029
Mitchell Melvola J P.O. Box 41 2,250
###-##-#### Cade, LA 70519
Moore Charles T & Rachel E 711 Crestmont Drive 750
Concord, NC 28025
Morgan Benny G & Martha N 932 Brintonial Way 750
###-##-#### ###-##-#### Winston-Salem, NC 27104
Myers III William A 1791 Dunbarton Drive 7,500
###-##-#### Charleston, SC 29407
Neil John Bell 804 MacSherry Drive 2,250
Arnold, MD 21012
Newman David & Leslie Family 20501 Ventura Blvd #190 3,750
###-##-#### Trust Woodland Hills, CA 91364
Norville Ray & Joanne Rt 2 Box 16 22,500
Old Gilbert Town Rd
Rutherfordton, NC 28134
Oakley Elizabeth M 2116 Front St D-3 1,500
###-##-#### Durham, NC 27705
Olinger Darrell Murray 6654 Lower Lake Drive 7,500
Westerville, OH 43082
Ostrander Burch & Company, Inc3605 Glenwood Ave Ste 510 7,500
(Craig C Ostrander) Raleigh, NC 27622
Pastore Mario 14 Orchard Street 22,500
###-##-#### Mt Vernon, NY 10552
Phillips Terry D 1051 Darlene St 52,500
###-##-#### Palmyra, PA 17078
Queen Harold W & Linda W 606 Newbern Court 45,000
###-##-#### ###-##-#### Burlington, NC 27215
Queen Harold Walter 606 Newbem Court 825
###-##-#### Burlington, NC 27215
Reckenbeil Robert A 7101 Winding Way 3,750
###-##-#### Wake Forest NC 27587
Reynolds Charles O & Deborah 718 Ideal Drive 375
Concord, NC 28025
Reynolds James R 360 Barbara Street 30,000
Landisville, PA 17538
Rikard Larry J 201 Elam Rd 22,500
###-##-#### Lawndale, NC 28090
Rodgers Clotilda W 4326 Chilton Way 45,000
###-##-#### High Point, NC 27265
Romero Barbara M 504 East Third Street 750
Broussard, LA 70518
Ross Fannie Lenora 26118 NW CR 239 6,000
###-##-#### Alachua, FL 32615
Rourk Helen G 4810 Cameilla Drive 3,000
Myrtle Beach, SC 29577
Runion Dr Martin & Nina W 50 Tradd Rd 198,750
###-##-#### Georgetown, SC 29440
Rushing Rebecca G 313 Calypso Lane 375
Lafayette LA 70508
Sabastes Tracy E 106 Benbow Lane 37,500
Charlotte, NC 28214
Sardinas Karen Elaine 26514 NW 98th Street 1,500
###-##-#### Alachua, FL 32615
Savage Claude W 106 Benbow Lane 597,750
Charlotte, NC 28214
Savage Jr Claude W (Chris) 106 Benbow Lane 37,500
Charlotte, NC 28214
Saxon Samuel Barron 119 Sherwood Lane 1,125
Greenwood, SC 29649
Schexnayder Douglas Rene 1505 Dehart Street Apt D 2,400
New Iberia, LA 70560
Schnell Patricia S 1931 NW 32nd Terrace 3,750
###-##-#### Gainesville, FL 32605
Sexton Comelius 6916 Chamonix Place 1,500
###-##-#### Raleigh, NC 27613
Sheehan Jeffrey 4 Elm Creek Drive Apt 506 15,000
Elmhurst, IL 60126
Sherrill James R & Sylvia M 722 Sherwin Lane 22,500
Concord, NC 28025
Sidden Bobby Dean 225 Collins Rd 7,500
###-##-#### China Grove, NC 28023
Siemian Walter 9513 Lavill Ct 7,500
###-##-#### Windermere, FL 34786
Simonson Daniel & Judy JWROS HC 61 Box 23B 12,500
Loring, MT 59537
Simonson Lynn & Eunice JWROS HC 74 Box 200 12,500
Saco, MT 59261
Skidmore Eric O & Trina C 904 Lafayette Drive 3,000
###-##-#### ###-##-#### Albermarle, NC 28001
Fred B. Smith Assoc. 3009 Vanderbilt Dr #28 206,400
Huntsville, AL 35801
Smith Joseph 1608 Nella Drive 750
Athens, AL 35611
Smith Lawrence L & Dorothy 1123 NW 107th Terrace 3,750
Gainesville, FL 32606
Smith Richard Blaine 2103 Cottage Place 1,500
Greensboro, NC 27458
Smoak Ann M 927 Portabella Lane 3,000
Charleston, SC 29412
Snyder Donald & Patricia P.O. Box 276 4,500
###-##-#### ###-##-#### Clear Lake, WA 98235
(Patricia Van De Grift)
Spoon Joe F 2124 Crescent Drive 22,500
###-##-#### Graham, NC 27253
SPS Investments 4201 Congress St. Suite 350 150,000
John D. Phillip Charlotte, NC 28209
Staley Jerry D & Dorothea P. 4805 Woodcock Dr 3,750
###-##-#### ###-##-#### Greensboro, NC 27406
Starnes Rhett M 39 Willow Creek Court 1,125
Baltimore, MD 21234
Strauss Gregg 110 Rabbit Run Rd 750
Sewell, NJ 08080
Stewart Mollie M P.O. Box 130 1,500
Valhermasa Sprgs, AL 35775
Stewart Mollie M & P.O. Box 130 750
Pharaoh H. Smith Valhermasa Sprgs, AL 35775
Taitt Steven E & Nanette N 1020 S. Williamson Ave 22,500
###-##-#### ###-##-#### Elon College, NC 27244
Taylor Betty Jean H P.O. Box 547 1,500
###-##-#### Ardmore, TN 38449
Taylor Craig 11317 Snap Finger Drive 750
Charlotte, NC 28277
Teal Dorothy 46 Turquoise Way 1,125
###-##-#### Eustis, FL 32726
Thomas Jr Bradley Reed 4432 McCart Ave 750
###-##-#### Ft. Worth, TX 76115
Thomas Joel Daniel 2451 Cumberland Pkwy 750
###-##-#### Apt 3454
Atlanta, GA 30339
Thomas Mary H c/o Joanne Moorehead 750
300 Sunset Drive
Abbeville, SC 29620
Thomas Scot Rolland 2158 Cumberland Pkwy 750
256499951 Suite 4106
Atlanta, GA 30339
Thurlow David J 1929 Lunar Lane 9,375
Wilmington, NC 28405
Thyfault Trust M&C 3716 Canal Blvd #C 1,500
Hays, KS 67601
Tillman David Lane 191 Calvert Rd 750
Lacey's Spring, AL 35754
To the Top We Go, Inc 9416 Koupela Drive 82,500
(John D Brothers) Raleigh, NC 27615
Turner Eric & Alfie 3059-A Von Steuben Place 375
###-##-#### West Point, NY 10996
Turner Glenn R 103 Churchview Circle 750
###-##-#### Toney, AL 35773
Turner Henry C & Winifred E 108 Nobleton Lane 3,000
###-##-#### ###-##-#### Huntsville, AL 35806
Vales John 24525 Avenida de Marcia 150
Yorba Linda, CA 92687
Vales Recovable Living Trust 24525 Avenida de Marcia 18,750
(Nonelon Vales, Trustee) Yorba Linda, CA 92687
Van Etten Stanley H 10504 Tredwood Drive 275,808
Raleigh, NC 27615
Vincent Aubrey L & Brenda S 215 Fisk Avenue 3,750
###-##-#### 467-944701 Brownwood, TX 76801
Waite Brian D & Debra J P.O. Box 354 4,500
###-##-#### ###-##-#### Clear Lake, WA 98235
Ward Calvin Michael 1807 Pisgah Church Rd 101,250
Greensboro, NC 27455
Wasinger Keith & Kelly 8810 W. 77th Street 525
Overland Park, KS 66204
Weatherly Jack F 4604-C Mercury Drive 45,000
###-##-#### Greensboro, NC 27410
White Charles E & Patricia J 1132 Josephine Ct 3,750
###-##-#### ###-##-#### Sebring, FL 33872
Wilkinson Kenneth W & Helen W P.O. Box 1147 45,000
###-##-#### ###-##-#### Concord, NC 28026
Williams Martin 24588 Strand Drive 3,750
###-##-#### Albermarle, NC 28001
Windscheffell Stephen 3001 Castle Court 1,875
###-##-#### Salina, KS 67401
7,550,756
</TABLE>
<PAGE>
<TABLE>
EXHIBIT A-1
IHI Option Holders
<CAPTION>
Number of IHI Number of Kara
Options to be Options to be Change in
Received in Received in Option Exercise
Name and Address Exchange Exchange Price
<S> <C> <C> <C>
Anderson, Barbara A. 2,000 2,000 None
P. O. Box 1622
Malta, MT 59538
Anderson, Gary 2,000 2,000 None
P. O. Box 1622
Malta, MT 59538
Imperial Management Fund 1,350,000 1,350,000 None
Larry G. Smith
2435 E. North Street,
Suite 354
Greenville, SC 29615
Mayflower Venture Capital 100,000 100,000 None
Fund, LLC
2626 Glenwood Avenue,
Suite 200
Raleigh, NC 27608
Nelson, Dale 18,128 18,128 None
P. O. Box 475
Shelby, MT 59474
Savage, Claude W. 1,350,000 1,350,000 None
106 Benbow Lane
Charlotte, NC 28214
Van Etten, Stanley H. 5,256,800 5,256,800 None
10504 Tredwood Drive
Raleigh, NC 27615
Van Etten, Stanley L. 62,500 62,500 None
Route 1 Box 75
Lawsonville, NC 27022
Van Etten, Tom 100,000 100,000 None
P. O. Box 688
Wilkesboro, NC 28697
Van Etten, John 100,000 100,000 None
144 Rusty Gans Drive
Panama City, FL 32408
8,341,428 8,341,428 None
</TABLE>
<PAGE>
EXHIBIT B
KARA INTERNATIONAL, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1997 and 1996*
*Incorporated by Reference
<PAGE>
EXHIBIT C
None.
<PAGE>
EXHIBIT D
INTERNATIONAL HERITAGE, INC.
UNAUDITED BALANCE SHEET AND INCOME STATEMENT
FOR THE PERIOD ENDED DECEMBER 31, 1997*
and
CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTAL INFORMATION FOR THE
YEAR ENDED DECEMBER 31, 1996 AND THE
PERIOD ENDED DECEMBER 31, 1995*
*See Exhibit 19.1
<PAGE>
EXHIBIT E
Litigation. IHI is party to various litigation which if determined
adversely to IHI could have a material adverse effect on IHI's financial
condition and results of operations. Such litigation includes but is not
limited to the following: International Heritage, Inc. v. First Data Merchant
Services Corporation, Unified Merchant Services, and Kelvin Carvana; 97 CVS
3683, Wake County Superior Court, Wake County, Raleigh, North Carolina. This
action was initiated on March 27, 1997, in the Wake County Superior Court by
IHI. Within its complaint, IHI alleged that the Defendants, First Data
Merchant Services Corporation ("First Data") and Unified Merchant Services
("UMS") had breached a contract to provide credit card processing services to
IHI. In addition, IHI alleged that all of the Defendants had defrauded IHI
and committed unfair and deceptive trade practices as a result of the actions,
in part, of the third Defendant, Kelvin Carvana, an agent of First Data and
UMS. Because IHI alleged that First Data and UMS wrongfully held funds which
belonged to IHI and had wrongfully breached the agreement with IHI, IHI sought
and initially obtained a mandatory restraining order requiring First Data and
UMS to continue with the credit card processing relationship with IHI so that
it could avoid some anticipated damages as a result of the fraudulent and
other wrongful acts of all of the Defendants. Because, in part, IHI was
successful in obtaining new credit card processors, the mandatory restraining
order has subsequently been lifted by the Court. IHI seeks damages from the
Defendants in an amount in excess of $10,000 as well as the return of
approximately $1,000,000 wrongfully held by First Data and/or UMS. In
February, 1988, First Data returned $830,000 to the Company. The return of
these funds does not effect the Company's outstanding claims against First
Data and the remaining defendants. Currently, no counterclaim has been
asserted by any of the Defendants against IHI. Management believes that,
because alternative credit card processors have been located by IHI, this
matter will not have a significant adverse impact on IHI.
International Heritage, Inc. v. Cedric Dobbins, individually and
d/b/a CL Enterprises, et al., 97 CVS 07577, Wake County Superior Court, Wake
County, Raleigh, North Carolina. This action was filed July 1, 1997 by IHI
against four of its former employees and several other individuals and
entities which, according to IHI, were the recipients of funds and personal
property belonging to IHI wrongfully taken by one or more of the former
employee defendants. The complaint alleges inter alia: wrongful taking,
conversion, fraud and conspiracy to defraud. IHI requested a temporary
restraining order and preliminary injunction to enjoin the defendants and
their agents from disposing of the assets of IHI in their possession. The
temporary restraining order was granted July 1, 1997 and an injunctive order
was issued by the court July 7, 1997. IHI has recovered over $100,000 in cash
and $35,000 in personal property and anticipates recovering (voluntarily) at
least an additional $100,000 in cash and personal property.
Donald L. Wilson v. International Heritage, Inc. 98 CVM00121, Wake
County Small Calims Court, Wake County, Raleigh, North Carolina. This action
was filed December 30, 1997 for money owed in the amount of $1,750. This
matter was settled January, 1998.
Erick S. Block and Tina Block v. International Heritage, Inc.,
97CVS12302, Wake County Superior Court, Wake county, Raleigh, North Carolina.
Complaint filed for breach of contract and failure to fulfill promises made in
presentaions. An answer denying the claims was filed. Motion to Compel
Respronses to Discovery for Eric S. Block and Tina Block was filed January 21,
1998.
Lunde Development v. International Heritage, inc., Small Claim No.
7335, Vancouver, Washington. Complaint filed alleging failure to perform a
contract for delvery of product. The Company filed an answer and request for
dismissal for lack of jurisdiction February, 1998.
Scrugs, Jordan, Dodd, Dodd & Thompson. P.A. v. Rex A. Howell and
International Heritage. Incorporated, CV-98-36, Circuit Court for Dekalb
County, Alabama. Plaintiffs in this action allege that Mr. Howell falsely made
claims that the Plaintiff law firm had endorsed the International Heritage,
Inc. ("IHI") marketing program in order to induce others to join IHI as sales
representatives. The Plaintiffs are seeking to enjoin Mr. Howell from making
fur her claims regarding the Plaintiff, to inform other IHI representatives of
the same and for costs and Attorney's fees. The Company intends to vigorously
defend this action, since such action by Mr. Howell is clearly a violation of
the Company's policies and procedures governing the conduct of
representatives.
Principals of the Company have been, or currently are involved in
legal proceedings as set forth below:
Anthony J. and Deborah M. Vrsecky v. F. N. Wolf & Co.. Inc.. Franklin
N. Wolf. Stanley H. Van Etten John E. Dell and Darin Dowell, NASD arbitration,
filed March 16, 1995. Mr. Van Etten, Chairman of the Board, President and
Chief Executive Officer of the Company, was a respondent in this action. Mr.
Van Etten answered the complaint denying all allegations. On February 5, 1996,
this case was dismissed due to the bankruptcy petition filed by F. N. Wolf &
Co., Inc. ("F. N. Wolf"). The claimants elected not to pursue their claim
against the individual respondents and, hence, the action was dismissed
against Mr. Van Etten and the other individuals named in the action as well.
James and Selwvn Matthews v. F. N. Wolf & Co.. Inc.. Stanley H. Van
Etten. John D. Brothers Franklin N. Wolf et. al., NASD arbitration, filed
August 15, 1994. Mr. Van Etten, Chairman of the Board, President and Chief
Executive Officer and Mr. Brothers, Chief Operating Officer and Director of
the Company were respondents in this action. Both Messrs. Van Etten and
Brothers filed cross claims and third party claims along with their answers.
The claims were stayed as a result of other litigation which was subsequently
settled and/or dismissed. The claimants were awarded a total of $87,750 of
which F. N. Wolf was liable for $73,000 plus $6,750 in interest, $1,000 in
costs and $5,000 in attorney's fees. F. N. Wolf subsequently filed bankruptcy.
With respect to Mr. Van Etten, the arbitration panel made a finding that Mr.
Van Etten failed to supervise a registered representative and awarded the
claimants $1,500. The claimants were also awarded $500 to be paid by Mr.
Brothers who had served as a broker in the subject transactions. The
cross-claims and third party claims filed by Messrs. Van Etten and Brothers,
were dismissed. Both Messrs. Brothers and Van Etten deny the allegations against
them but satisfied the awards to claimants in full.
Fred A. Poovey v. F. N. Wolf & Co.. Inc. and John David Brothers, NASD
arbitration filed February 23, 1994. Mr. Brothers, Chief Operating Officer and
Director of the Company was a respondent in this action. Upon the filing of
the bankruptcy petition by F. N. Wolf, this matter was dismissed and the
claimant did not elect to pursue this matter against the individual
respondent, Mr. Brothers. This matter was dismissed without any response or
action in the case.
Jerry W. Kapp. et. al. v. F. N. Wolf & Co.. Inc.. et. al., 93 CVS
02170, Wake County Superior Court; 93-207-CIV-5-BO, United States District
Court for the Eastern District of North Carolina, Raleigh Division. This
action was initiated on February 26, 1993, in the Wake County Superior Court.
The Complaint was filed by Jerry W. Kapp against F. N. Wolf and Stanley H. Van
Etten. The Plaintiff alleged that he had been damaged through the Defendant's
sale of unregistered securities, market manipulation, and fraud in connection
with the sale of securities in violation of the North Carolina Securities Act,
as well as, through common law fraud, negligent misrepresentation and breach
of an implied contract of good faith and fair dealing. The Complaint also
sought to certify as a class, all North Carolina investors who purchased
shares of Treats International Enterprises, Inc. from F. N. Wolf. Mr. Van
Etten denied the allegations. Through an answer, cross claim and third party
claim, Mr. Van Etten asserted claims against John E. Dell, Franklin N. Wolf,
James R. Guntle, John Csenge and Richard T. Sullivan. Plaintiffs later join
these parties as additional defendants as well. On August 24, 1994, F. N. Wolf
filed for Chapter 11 Bankruptcy protection in the United States District Court
for the Southern District of New York. Subsequently, the Plaintiffs were
enjoined temporarily from prosecuting the* action provided that a disclosure
statement was approved by the Bankruptcy Court and provided that a plan of
reorganization was confirmed. This matter was tried in the Wake County
Superior Court and on January 10, 1997, Mr. Dell and Mr. Wolf confessed
judgment in open court and agreed to pay $2,000,000 to dismiss the case
against Defendants Dell, Wolf, Guntle, Csenge and Sullivan. The Plaintiffs
accepted the settlement with all the individual Defendants with the exception
of Mr. Van Etten. The jury returned a verdict finding F. N. Wolf had violated
G.S. 78A-12(a)(5) by creating a scheme for the purpose of manipulating the
market in the sale of Treats stock for the purpose of defrauding investors and
G.S. 78A-S(2) by knowingly making untrue statements of material facts or
omissions. The jury found with respect to Mr. Van Etten, no liability on all
counts.
Theodore J. Kocak v. Mario Martinez. Claude W. Savage Richardo Vega
and Also Trading Corp., Mecklenberg County, North Carolina, Superior Court
Division, file number: 88-CVS-12287, entry of default and default judgment was
entered against Claude W. Savage, Director, on January 19, 1989, for the sum
of $49,000. This judgment was paid and satisfied February 28, 1997.
Gary F. Huelter v. Claude Savage. Archie S. Cobb. Jr.. William C.
Edward and Paulette Edwards. Mecklenberg County, North Carolina, District
Court Division, file number 89 CVS 4922, entry of default and default judgment
was entered against the defendants on October 9, 1990 for the sum of $86,257.
Partial Satisfaction of Judgment was filed with respect to defendant Savage,
Director of the Company, on February 26, 1997.
Bryce H. Moore v. Claude W. Savage and Wilma Jean Savage, Mecklenberg
County, North Carolina, Superior Court Division, file number: 89-CVS-11039,
entry of default and default judgment was entered against the defendants,
Claude W. Savage, Director, and his wife, jointly and severally, on June 1,
1990, in the amount of $31,430.15. This judgment was released and satisfied on
February 28, 1997.
Aubrey J. Elam v. Claude W. Savage, Mecklenberg County, North
Carolina, Superior Court Division, file number 90-CVS-5232, involved claims
for lease payments in connection with a lease dated November 25, 1991 between
Claude W. Savage, Director, Aubrey J. Elam, Jr., Timothy A. Lowary and Lincoln
National Life Insurance Company for property located at 4421 Stewart Andrew
Boulevard, Charlotte, North Carolina. This matter was voluntarily dismissed
with prejudice on February 27, 1997 upon settlement of this matter by the
parties.
Haywood Seafoods. Inc. V. Fish Farm. Inc., Mecklenberg County, North
Carolina, Superior Court Division, file number 91-CVS-14468, default judgment
was entered against the defendant, a corporation principally owned by Mr.
Savage, Director, on July 8, 1992, for $24,902.67. This judgment was canceled
February 28, 1997.
Reid v. Hung. Maricopa County, Arizona, Superior Court Division, file
number CV 96-16246, Mr. Reid, Vice President of Compliance filed an action
against Raymond Hung, former president of Quorum International, Ltd. for
slander. The suit seeks damages in excess of $10,000. This matter is currently
pending.
See Also the risk disclosures regarding the Company included in the
Proxy Statement dated February 16, 1998 distributed to all Shareholders of
Record.
<PAGE>
EXHIBIT F
Interwest Transfer
1981 East Murray-Holladay Road
Salt Lake City, Utah 84117
Kara International, Inc.
55 West 200 North
Provo, Utah 84601
Re: Exchange of shares of International Heritage, Inc., a
North Carolina corporation ("IHI"), for shares of Kara
International, Inc., a Nevada corporation ("Kara or
the "Company")
Dear Ladies and Gentlemen:
Pursuant to that certain Agreement and Plan of Reorganization (the
"Plan") between the undersigned, IHI, certain other stockholders and certain
other option holders of IHI, and Kara, I acknowledge that I have approved this
exchange; that I am aware of all of the terms and conditions of the Plan; that
I have received and personally reviewed a copy of any and all material
documents regarding the Company, including, but not limited to copies of the
reports of Kara which have been filed with the Securities and Exchange
Commission under Section 15(d) of the 1934 Act during the past 12 months. I
represent and warrant that no director or officer of the Company or any
associate of either has solicited this exchange; that I am an "accredited
investor" as that term is known under the Rules and Regulations of the
Securities and Exchange Commission (see Exhibit "A" hereto); and/or, I
represent and warrant that I have sufficient knowledge and experience to
understand the nature of the exchange and am fully capable of bearing the
economic risk of the loss of my entire cost basis.
I further understand that immediately prior to the completion of
the Plan, Kara had little, if any assets, of any measurable value, and that in
actuality, the completion of the Plan and the exchange of my shares of IHI for
shares of Kara results in a decrease in the actual percentage of ownership
that my shares of IHI represented in IHI prior to the completion of the Plan.
I understand that you have and will make books and records of your
Company available to me for my inspection in connection with the contemplated
exchange of my shares, and that I have been encouraged to review the
information and ask any questions I may have concerning the information of any
director or officer of the Company or of the legal and accounting firms for
the Company. I understand that the accounting firm for Kara is Pritchett,
Siler & Hardy, P.C., Certified Public Accountants, 430 East 400 South, Salt
Lake City, Utah 84111, Telephone (801) 328-2727; and that legal counsel for
Kara is Leonard W. Burningham, Esq., 455 East 5th South, Suite 205, Salt Lake
City, Utah 84111, Telephone #801-363-7411.
I also understand that I must bear the economic risk of ownership
of any of the Kara shares for a long period of time, the minimum of which will
be one (1) year, as these shares are "unregistered" shares and may not be sold
unless any subsequent offer or sale is registered with the United States
Securities and Exchange Commission or otherwise exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), or other
applicable laws, rules and regulations.
I intend that you rely on all of my representations made herein
and those in the personal questionnaire (if applicable) I provided to IHI for
use by Kara as they are made to induce you to issue me the shares of Kara
under the Plan, and I further represent (of my personal knowledge or by virtue
of my reliance on one or more personal representatives), and agree as follows,
to-wit:
1. That the shares being acquired are being received for
investment purposes and not with a view toward further distribution;
2. That I have a full and complete understanding of the phrase
"for investment purposes and not with a view toward further distribution";
3. That I understand the meaning of "unregistered shares" and
know that they are not freely tradeable;
4. That any stock certificate issued by you to me in connection
with the shares being acquired shall be imprinted with a legend restricting
the sale, assignment, hypothecation or other disposition unless it can be made
in accordance with applicable laws, rules and regulations;
5. I agree that the stock transfer records of your Company
shall reflect that I have requested the Company not to effect any transfer of
any stock certificate representing any of the shares being acquired unless I
shall first have obtained an opinion of legal counsel to the effect that the
shares may be sold in accordance with applicable laws, rules and regulations,
and I understand that any opinion must be from legal counsel satisfactory to
the Company and, regardless of any opinion, I understand that the exemption
covered by any opinion must in fact be applicable to the shares;
6. That I shall not sell, offer to sell, transfer, assign,
hypothecate or make any other disposition of any interest in the shares being
acquired except as may be pursuant to any applicable laws, rules and
regulations;
7. I fully understand that my shares which are being exchanged
for shares of the Company are "risk capital," and I am fully capable of
bearing the economic risks attendant to
this investment, without qualification; and
8. I also understand that without approval of counsel for Kara,
all shares of Kara to be issued and delivered to me in exchange for my shares
of IHI shall be represented by
one stock certificate only and which such stock certificate shall be imprinted
with the following legend or a reasonable facsimile thereof on the front and
reverse sides thereof:
The shares of stock represented by this certificate
have not been registered under the Securities Act of
1933, as amended, and may not be sold or otherwise
transferred unless compliance with the registration
provisions of such Act has been made or unless
availability of an exemption from such registration
provisions has been established, or unless sold
pursuant to Rule 144 under the Act.
Any request for more than one stock certificate must be
accompanied by a letter signed by the requesting stockholder setting forth all
relevant facts relating to the request. Kara will attempt to accommodate any
stockholders' request where Kara views the request is made for valid business
or personal reasons so long as in the sole discretion of Kara, the granting of
the request will not facilitate a "public" distribution of unregistered shares
of common voting stock of Kara.
You are requested and instructed to issue a stock certificate as
follows, to-wit:
________________________________________________________
(Name(s) and Number of Shares)
________________________________________________________
(Address)
________________________________________________________
(City, State and Zip Code)
If joint tenancy with full rights of survivorship is
desired, put the initials JTRS after your names.
Dated this ________ day of ____________________, 1998.
Very truly yours,
______________________________________
<PAGE>
EXHIBIT "A"
"Accredited investor" shall mean any person who comes within any
of the following categories, or whom the Company reasonably believes comes
within any of the following categories, at the time of the sale of the Shares
to that person:
(1) Any bank as defined in Section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Act, whether acting in its
individual or fiduciary capacity; any broker or dealer
registered pursuant to Section 15 of the Securities Exchange
Act of 1934; any insurance company as defined in Section
2(13) of the Act; any investment company registered under
the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; Small
Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; any plan established
and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan
has total assets in excess of $5,000,000; employee benefit
plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by
a plan fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association,
insurance company or registered investment adviser, or if
the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited
investors;
(2) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring securities offered, with total assets
in excess of $5,000,000;
(4) Any director, executive officer or general partner of the
issuer of the securities being offered or sold, or any
director, executive officer or general partner of a general
partner of that issuer;
(5) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his or her
purchase exceeds $1,000,000;
(6) Any natural person who had individual income in excess of
$200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated
person as described in Section 230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors.
<PAGE>
EXHIBIT G
CERTIFICATE OF OFFICER PURSUANT TO
AGREEMENT AND PLAN OF REORGANIZATION
The undersigned, the President of Kara International, Inc., a
Nevada corporation ("Kara"), represents and warrants the following as required
by the Agreement and Plan of Reorganization (the "Plan") between Kara and
International Heritage, Inc., a North Carolina corporation ("IHI"), and
certain stockholders and certain option holders of IHI (the IHI Stockholders
or the IHI Option Holders ):
1. That he is the President of Kara and has been authorized and
empowered by its Board of Directors to execute and deliver this Certificate to
IHI and the IHI Stockholders or the IHI Option Holders.
2. Based on his personal knowledge, information, belief and
opinions of counsel for Kara regarding the Plan:
(i) All representations and warranties of Kara contained
within the Plan are true and correct;
(ii) Kara has complied with all terms and provisions
required of it pursuant to the Plan; and
(iii) There have been no material adverse changes in the
financial position of Kara as set forth in its
financial statements for the periods ended December
31, 1997 and 1996, except as set forth in Exhibit C to
the Plan.
KARA INTERNATIONAL, INC.
By /s/ David N. Nemelka, Jr.
David N. Nemelka, Jr., President
<PAGE>
EXHIBIT H
CERTIFICATE OF OFFICER PURSUANT TO
AGREEMENT AND PLAN OF REORGANIZATION
The undersigned, the President of International Heritage, Inc., a
North Carolina corporation ("IHI"), represents and warrants the following as
required by the Agreement and Plan of Reorganization (the "Plan") between IHI,
certain of its stockholders and certain option holders (the "IHI Stockholders"
and the IHI Option Holders ) and Kara International, Inc., a Nevada
corporation ("Kara"):
1. That he is the President of IHI and has been authorized and
empowered by its Board of Directors to execute and deliver this Certificate to
Kara.
2. Based on his personal knowledge, information, belief:
(i) All representations and warranties of IHI contained
within the Plan are true and correct;
(ii) IHI has complied with all terms and provisions
required of it pursuant to the Plan; and
(iii) There have been no material adverse changes in the
financial position of IHI as set forth in its
unaudited balance sheet and income statement for the
period ended December 31, 1997, and Consolidated
Financial Statements and Supplemental Information for
the Year Ended December 31, 1996, and the Period Ended
December 31, 1995, except as set forth in Exhibit E to
the Plan.
INTERNATIONAL HERITAGE, INC.
By /s/ Stanley H. Van Etten
Stanley H. Van Etten, President
KARA INTERNATIONAL, INC.
55 West 200 North
Provo, UT 84601
NEWS RELEASE
Kara International, Inc., a Nevada corporation (the "Company,"
[OTC Bulletin Board Symbol "KARA"]), announced today that it completed the
acquisition of 97.73% of International Heritage Inc., a privately held North
Carolina corporation ("IHI"), through a share for share exchange as initially
contemplated in a Letter of Intent reported in the Company's 8-K Current
Report dated September 16, 1997. IHI is now a majority-owned subsidiary of
the Company.
The Company has reserved sufficient shares of its common stock for
a period of two years to allow for the acquisition of all of the outstanding
shares of common stock of IHI and to provide shares underlying options of IHI
exchanged for like options to acquire shares of common stock of the Company.
The Company's name has been changed to "International Heritage,
Incorporated," and the Company has applied for a new symbol on the OTC
Bulletin Board, with the following preferences: "NIHI," or "IHIN" or "INIH."
IHI is a distribution company with more than 160,000 sales
representatives throughout the United States and Canada. IHI has corporate
offices in Raleigh, North Carolina and Toronto, Canada. The Company had sales
of approximately $107 million for 1997 year end and losses of approximately
$12,824,000, based upon the unaudited consolidated balance sheet and income
statement of IHI filed as part of an exhibit to the 8-K Current Report to be
dated March 9, 1998, and filed with the Securities and Exchange Commission.
IHI sells fine 14K, 18K and 24K gold and precious stone jewelry,
fine collectibles from some of the world's most prestigious manufacturers, a
full line of name brand golf equipment and accessories, telecommunication
products and sports and leisure equipment.
For further review, an 8-K Current Report dated March 9, 1998,
which contains more complete disclosures and includes risk disclosures and
operating histories for both companies, has been filed with the Securities and
Exchange Commission. This Current Report and other material information
regarding the Company can be viewed in the EDGAR archives of the Securities
and Exchange Commission at www.sec.gov.
March 9, 1998
cc: Dow Wire Service Fax No. 212-416-4008
Bloomberg Financial Markets Fax No. 609-279-5976
Reuters Fax No. 212-859-1717
Company Contact: Marks Lane, Director of Communications
International Heritage, Incorporated
Telephone: (919) 571-4646
Newly Elected Directors and Executive Officers
Directors
<TABLE>
<S> <C> <C>
Name Address
Stanley H. Van Etten Chairman 10504 Tredwood Drive
Raliegh, NC 27615
John D. Brothers Director 9416 Koupela Drive
Raleigh, NC 27615
Derrick Rodgers Director 411 Jackson Park Road
Kannapolis, NC 28083
Harry B. Mains Director 593 Hawks Gill Island Dr.
Tortoise Island
Satellite Beach, FL 32937
John W. Hemmer Director 88 Meadow Road
Briarcliff Manor, NY 10510
Jimmie D. Knowles Director 105 Beechtree Court
Apex, NC 27502
Claude W. Savage Director 106 Benhow Lane
Charlotte, NC 28214
Barry Ackel Director 1239 Heyman Lane
Alexandria, LA 71303
Larry G. Smith Director 2435 E. North Street
Greenville, SC 29615
O. Kenneth Rudd III Director 7992 Bradwick Way
Melbourne, Fl 32940
Franco Merlo Director POSTFACH 6831
CH-8023
ZURICH 23
Executive Officers
</TABLE>
<TABLE>
<S> <C> <C>
Name Title Address
Stanley H. Van Etten President and CEO 10504 Tredwood Drive
Raleigh, NC 27615
John D. Brothers Chief Operating 9416 Koupela Drive
Officer Raleigh, NC 27615
Georgina M. Mollick Vice President/Legal 614 Capital Blvd. #224
Affairs Raleigh, NC 27603
Christopher A. Reid Vice President/ 2208 Oxford Road
Compliance Raleigh, NC 27608
Angie C. Stewart Corporate Secretary 1768 Keith Hills Road
Buies Creek, NC 27506
</TABLE>
