Escrow Agreement

KARTS INTERNATIONAL INCORPORATED
4851 LBJ FREEWAY, SUITE 201
DALLAS, TEXAS 75244


March 31, 1996


Securities Transfer Corporation P. O. Box 701629 Dallas, Texas 75370


Attention: Kevin B. Halter, Jr., President


Dear Mr. Halter:


You have been advised that Karts International Incorporated (the "Company") is offering to sell in a private offering (the "Offering") up to 350,000 shares of its common stock, par value $.001 per share (the "Offering Shares") at a purchase price of $1.50 per share in accordance with that certain Confidential Private Placement Memorandum, as amended (the "Memorandum"), originally dated February 27, 1996, which Memorandum and all amendments thereto set forth the terms and conditions of the Offering. Under the terms of the Offering, the Offering Shares are being offered on a "best efforts" basis. Unless the Offering Shares are sold before March 31, 1996 (which period can be extended), the Offering will terminate. All defined terms set forth herein shall have the same meaning ascribed to them in the Memorandum unless otherwise set forth herein.


As further consideration for the purchase of the Offering Shares, the Company and HFG have agreed to issue to the investors in the Offering additional shares of the Company's Common Stock if on the "Offering Valuation Date" (as defined herein) the "Stock Market Value" (as defined herein) does not equal or exceed $3.00 per share of Common Stock. HFG has agreed to transfer and assign, for no additional consideration, to each original investor who is a record shareholder of the Company on the Offering Valuation Date such number of shares of the Common Stock of the Company necessary for each investor's Stock Market Value for the shares purchased in this Offering to be equal to $3.00 per share. This provision shall apply only to investors who originally purchased Offering Shares in this Offering and have executed Subscription Documents and will not be applicable to such investors if their Offering Shares are sold, assigned or transferred by such investors prior to the Offering Valuation Date. If the Common Stock is not publicly traded on the Offering Valuation Date, the Company will obtain an independent valuation of the per share value of Common Stock.


As required under the terms of the Offering, within thirty (30) days of the Offering Valuation Date, or as soon thereafter as practicable, HFG shall cause to be deposited with you, as escrow agent, certificates evidencing 350,000 shares of the Common Stock of the Company owned by HFG (the "HFG Shares") pursuant to this escrow agreement. If the HFG Shares are insufficient to meet the obligation to the investors, 2 Securities Transfer Corporation March 31, 1996 Page 2


the Company has agreed to issue such additional shares of Common Stock to the investors as may be necessary to fulfill the obligation to investors. If, on the Offering Valuation Date, the Stock Market Value is more than $3.00 per share, the HFG Shares will be delivered by you to HFG without further notice to the investors.


For purposes of this agreement, the "Offering Valuation Date" shall be the second annual anniversary date of the Closing Date of the Offering and "Stock Market Value" shall mean the average closing bid price of the Company's Common Stock for ten trading days prior to and including the Offering Valuation Date. If the Common Stock of the Company is listed on the OTC Bulletin Board or the Nasdaq Stock Market, the Stock Market Value shall be the average of the closing bid prices for the last ten trading days prior to and including the Offering Valuation Date or if the Common Stock of the Company is listed on any national or regional exchange, the Stock Market Valuation shall be the average of the last reported sales prices for the ten trading days prior to and including the Offering Valuation Date.


Securities Transfer Corporation ("Escrow Agent") has agreed to act as the Escrow Agent for the Company relating to the retention and distribution of the HFG Shares. Accordingly, you are hereby authorized and directed to hold such HFG Shares in the escrow account for the benefit of the investors in the Offering until receipt by you from HFG of written instruction as to the distribution of the HFG Shares in accordance with the terms of the Memorandum and this escrow agreement.


The Company and HFG hereby agree that the Escrow Agent shall incur no liability with respect to, and that the Company and HFG will indemnify Escrow Agent against, any action taken or suffered by it in reliance upon any notice, direction, instruction, consent, statement or other document not actually known by it not to be genuine and duly authorized, nor for anything except its own willful misconduct or gross negligence. The Escrow Agent ...