JOINT VENTURE SHAREHOLDERS AGREEMENT
between
FRIEDSHELF 401 (PROPRIETARY) LIMITED
and
SPAR GROUP INTERNATIONAL, INC.
and
DEREK O'BRIEN
and
BRIAN MASON
and
SMD MERIDIAN CC
and
MERIDIAN SALES & MERCHANDISING (WESTERN CAPE) CC
and
RETAIL CONSUMER MARKETING CC
and
MERHOLD HOLDING TRUST
in respect of
SGRP MERIDIAN (PROPRIETARY) LIMITED ("THE COMPANY")
Mallinicks Attorneys
Telephone +27 21 410 2200
Fax +27 21 410 9000
3rd Floor Granger Bay Court
Beach Road, V&A Waterfront
Cape Town 8001
PO Box 3667 Cape Town 8000
<PAGE>
TABLE OF CONTENTS
1. CONDITIONS
PRECEDENT.....................................................3
2. EFFECTIVE
DATE...........................................................4
3.
ESTABLISHMENT............................................................5
4. BUSINESS
PURPOSES........................................................5
5.
LOCATION.................................................................5
6. MEMORANDUM AND
ARTICLES OF
ASSOCIATION...................................5
7.
CAPITAL..................................................................6
8. PREPARATION OF
ESTABLISHMENT OF THE
COMPANY..............................6
9. SECTION 197
TRANSFER.....................................................8
10. ORDINARY AND EXTRAORDINARY
GENERAL MEETINGS..............................9
11. QUORUM AND
RESOLUTION....................................................9
12. MINORITY
PROTECTIONS....................................................10
13. EARNINGS AND
LOSSES.....................................................10
14. CAPITAL
CONTRIBUTIONS...................................................11
15.
DIRECTORS...............................................................11
16. ACCOUNTING
PERIOD.......................................................18
17.
AUDITORS................................................................18
18. INSPECTION OF ACCOUNTING
RECORDS AND BOOKS..............................18
19. INCREASE OF
CAPITAL.....................................................19
20.
DEADLOCK................................................................19
21. RESTRICTIONS ON TRANSFER OF
SHARES......................................20
22. PRE-EMPTIVE RIGHT AND
OPTION............................................20
23. CO-OPERATION IN
FINANCING...............................................22
24. BUSINESS AND SOFTWARE
SUPPORT...........................................22
25.
NON-COMPETITION.........................................................23
26. PUBLIC
OFFERING.........................................................25
27. CONFIDENTIAL
INFORMATION................................................25
28.
TERMINATION.............................................................26
29. FORCE
MAJEURE...........................................................27
30.
NOTICES.................................................................27
31.
ASSIGNMENT..............................................................28
32.
ARBITRATION.............................................................28
33.
IMPLEMENTATION..........................................................29
34. GOVERNING
LAW...........................................................29
35.
WAIVER..................................................................29
36. JOINT AND
SEVERAL.......................................................30
37. CO-OPERATION AND GOOD
FAITH.............................................30
38. ENTIRE
AGREEMENT........................................................30
39.
COSTS...................................................................31
40. HEADINGS AND
INTERPRETATION.............................................31
<PAGE>
Page 2
This agreement is made as on this day of 2004 by
and between
Friedshelf
401
(Pty) Ltd (registration
number 2004/000538/07), a company organised and existing
under the laws of the Republic of South Africa (hereinafter called
"Friedshelf"), SPAR Group International Inc. a company organized and
existing
under the laws of the State of
Nevada, USA, having its principal place of
business at 580 White Plains
Road, Tarrytown, NY, USA, 10591 (hereinafter called
"SPAR"), SMD Meridian CC (CK
No. 2001/062950/23), Meridian Sales & Merchandising
(Western Cape) CC (CK No.
1998/55070/23),
Retail Consumer
Marketing CC (CK No.
1996/00917/23) and Friedshelf
Holding Trust
(registration no. IT
151/99) Derek
Michael O'Brien (identity number 451011 5047 18 9
("O'Brien") and Brian Peter
Mason, identity number 551201
5030 08 2 ("Mason").
RECORDAL
WHEREAS, SMD Meridian CC, Meridian Sales & Merchandising (Western Cape) CC,
Retail Consumer Marketing CC and Merhold Holding
Trust (together referred to as
the "Meridian Entities") are engaged in the business of retail solution and
merchandising services in South Africa, having a
wide range of clients and also
having knowledge and human resources with respect to retailing
businesses
in
South Africa;
WHEREAS, SPAR is engaged in retail solution businesses in the USA, having
computer software useful for agency,
assistance,
instruction and
reporting of
storefront activities and also having
operational know-how with respect to such
software;
WHEREAS, Friedshelf and SPAR have
incorporated a
company, SGRP Meridian
(Pty)
Ltd (the "Company")
(registration
number 2003/012518/07), the equity whereof
will be held as to 49% (forty
nine percent) by
Friedshelf and as to
51% (fifty
one percent) by SPAR to jointly conduct a retail solution business in South
Africa (hereinafter called
"territory"); and
WHEREAS, SPAR proposes to contribute a software licence agreement, annexed
hereto as annexure "A",
software set-up,
software training,
computer
hardware
and business support to the
Company;
WHEREAS, the Meridian Entities and
Friedshelf will procure that they contribute
the existing client base and
certain office equipment and office supplies of the
Meridian Entities to the Company and
WHEREAS such client
base will require the
proper rendering of services to ensure
its optimal use, the Company undertakes
to appoint Friedshelf or such other company
as agreed between
SPAR, Mason
and
O'Brien as a consultant to the Company to oversee and
<PAGE>
Page 3
manage the day-to-day operations and management of the business in
accordance
with the terms of the
consultancy agreement annexed hereto as annexure "B".
NOW, THEREFORE, in consideration of the mutual
covenants and agreement herein
contained, the parties hereto
agree as follows:
1.
CONDITIONS PRECEDENT
1.1 This
agreement is conditional on the satisfaction of the
following conditions precedent:
1.1.1 that
the net turnover of
the Meridian
Entities
for
the financial year ending 30 September 2003, will not
be less than R38 000
000,00 (thirty
eight million
Rand), calculated
on the same
basis and using the
same accounting
policies and
principles as used
in
the 30 September 2003
year-end accounts
previously
disclosed to
SPAR which are attached hereto as
annexure "C" (the "Accounts");
1.1.2 that
the net turnover of
the Meridian
Entities
for
the 6 (six) months ending 31 March 2004, will not be
less than R15 000
000,00 (fifteen million Rand),
calculated on the
same basis and using the same
accounting policies
and principles as used in the
Accounts;
1.1.3 that
the Meridian Entities will not have an
accumulated loss in
excess of R1 100 000,00 (one
million one hundred
thousand Rand) for the financial
year ending 30 September 2003, calculated on the same
basis and using the same accounting policies as used
in the Accounts;
1.1.4 that
the Meridian Entities will not have an
accumulated loss in
excess of R1 350 000,00 (one
million three hundred
and fifty thousand
Rand) for
the 6 (six) months
ending 31 March 2004,
calculated
on the same basis
and using the same accounting
policies as used in the Accounts;
1.1.5 that
the Meridian Entities and Friedshelf will
transfer to the
Company the legal and beneficial
ownership of the Meridian client
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Page 4
base and such office
equipment and office
supplies
utilised by
the Meridian Entities necessary to
properly conduct of their business;
1.1.6 the
completion,
to the satisfaction of SPAR, of a
financial and legal
due diligence
on the Meridian
Entities and Friedshelf; and
1.1.7 that
Friedshelf,
or such other company as agreed
between SPAR,
Mason and O'Brien,
will enter into
a
consultancy agreement
with the Company in the form
annexed hereto as annexure "B";
1.2 The
conditions
precedent are
stipulated
for the benefit
of
SPAR who shall be entitled, in its sole discretion,
to waive
them, either in whole or in part.
1.3 Unless the
conditions
precedent are fulfilled or waived
(as
the case may be), by 1
May 2004 (or such later date as may be
mutually agreed
between the parties) this agreement shall be
of no force or effect.
1.4 The
parties shall use all reasonable endeavours to procure
the
fulfillment of the conditions precedent.
1.5 Should
this agreement
become of no force or
effect by reason
of the provisions
of clause 1.3,
then the parties
shall be
restored, as near as may be possible, to the position in
which
they would have been had this agreement not been entered
into
and no shareholder
shall have any claims against the other as
a result of the failure of the conditions precedent, except
for such damages
(if any) as may
result from a breach the
provisions of clause 1.4.
2.
EFFECTIVE DATE
This agreement shall
become effective on 1
April 2004, regardless
of
the date of execution hereof.
<PAGE>
Page 5
ORGANIZATION OF THE
COMPANY
---------------------------
3.
ESTABLISHMENT
It is recorded
that the parties have caused the "Company" to be
incorporated under the laws of the Republic of South
Africa.
4.
BUSINESS PURPOSES
The business purposes
of the Company shall
include but not be limited
to the following:
4.1 providing
retail merchandising and product demonstration
services
4.2 agency,
assistance, instruction and report of storefront sales
activities;
4.3
implementation of
market research
and analysis of results
thereof;
4.4 assembly
of setups used for sales promotion;
4.5 consulting
regarding store management;
4.6
development and sale of management system regarding
retailing;
4.7 designing
and sale of database; and
4.8 any and
all businesses
incidental
or relating to any of
the
foregoing.
5.
LOCATION
The Company
shall have its main office at such address as shall be
mutually agreed between the shareholders.
6.
MEMORANDUM AND ARTICLES OF ASSOCIATION
The memorandum
and articles of
association of the Company shall be in
the form attached hereto as annexure "D".
<PAGE>
Page 6
7.
CAPITAL
7.1 The
Company is a private company duly incorporated in
accordance with the
company laws of the Republic of South
Africa and shall, at
the effective date,
have an
authorised
share capital of R1 000.00 (one thousand Rand) divided into 1
000 (one thousand) shares with a par value of R1.00 (one
Rand)
each, ranking pari passu in all respects.
7.2 On the
effective date or so soon thereafter as reasonably
possible:
7.2.1 SPAR
shall subscribe
in cash for 510 (five
hundred
and ten) shares in the
Company at their par value;
and
7.2.2
Friedshelf shall
subscribe in cash for 490 (four
hundred and
ninety) shares in the Company at
their
par value.
7.3 The issued
share capital of the
Company will
accordingly
be
held as follows:
7.3.1
Friedshelf: 490 (four
hundred and ninety) shares
representing 49%
(forty nine percent) of the
Company's total issued share capital; and
7.3.2
SPAR: 510 (five hundred and ten) shares representing
51% (fifty one percent) of the Company's total issued
share capital.
PREPARATION OF ESTABLISHMENT
OF THE NEW COMPANY
-----------------------------------------------
8.
PREPARATION OF ESTABLISHMENT OF THE COMPANY
8.1 Each
party shall take its role as described below for the
preparation of the commencement of the Company's
business.
8.2 SPAR
shall, for no consideration:
8.2.1 make
certain proprietary
software available to the
Company pursuant to a licence agreement to the value
of US$540 000 (five
hundred and forty
thousand US
dollars), such
licence agreement to be in the
form
attached hereto
as annexure "C" (the "license
agreement"). For
reference,
the license
agreement
includes the obligations of SPAR to:
<PAGE>
Page 7
8.2.1.1 localize
and set up
software provided by
SPAR to work in South Africa;
8.2.1.2 consult on the
organization of merchandising
services: and;
8.2.1.3 give advice on
budgeting and
development of
each business plan.
8.2.2
provide software
set up to the Company
to the value
of US$40 000.00;
8.2.3
provide software training to the Company to the value
of US$25 000.00;
8.2.4
provide computer
hardware set up to the Company
to
the value of US$20 000.00; and
8.2.5
provide 3 (three)
years' business support to the
Company to the value of US$165 000.00.
8.3 The
Meridian Entities, Mason and O'Brien undertake or
undertake to
procure that Friedshelf shall, for no
consideration:
8.3.1
contribute the
existing business of the Meridian
Entities to the Company which business shall comprise
at least the client base, certain office equipment
and office supplies;
8.3.2
arrange meetings
with their existing clients to
promote the Company's business; and
8.3.3
contribute the
employees employed by the Meridian
Entities as at 1 April 2004 to the Company.
8.4 For the
avoidance of doubt, it is recorded that the Company is
not:
8.4.1
acquiring any of the
accounts receivable,
accounts
payable, fixed
assets
or stock in trade or
inventories of the Meridian Entities; and
8.4.2
acquiring any of the assets of the Meridian Entities,
other than the
client base, office supplies and
office furniture; and
<PAGE>
Page 8
8.4.3
assuming any liabilities of the Meridian Entities.
9.
SECTION 197 TRANSFER
9.1 As a
consequence
of the contributions made by the Meridian
Entities to the Company in accordance with clause 8.3, part
of
the business of the Meridian Entities will be transferred to
the Company
on 1 April 2004 ("date of transfer") and
accordingly, the
parties agree that Section 197 of the Labour
Relations Act,
No. 66 of 1995 ("the
LRA"), as amended, is
applicable to
the transfer. Accordingly, the following
provisions will
apply as between the Company and the
employees:
9.1.1 the
Company is automatically substituted in the place
of the Meridian
Entities in respect of all contracts
of employment
of the employees in existence
immediately before the date of transfer;
9.1.2 all
the rights and
obligations between
the Meridian
Entities and an
employee at the time of the transfer
continue in force as
if they had
been rights and
obligations between the Company and the employee;
9.1.3
anything done before
the transfer by or in
relation
to the Meridian Entities, including the dismissal
of
an employee or the
commission
of an unfair
labour
practice or
act of unfair discrimination, is
considered to have been done by or in relation to the
Company; and
9.1.4 the
transfer does not interrupt an employee's
continuity of employment and an employee's contract
of employment
continues with the
Company as if with
the Meridian Entities.
9.2 The
Company shall be bound by any arbitration award (referred
to in 197(5)(b)(1)) and any collective agreements (referred
to
in 197(5)(b)(ii)
and (iii)) which were applicable to the
employees prior to the date of transfer.
9.3 The
parties acknowledge that in terms of Section 197 of
the
LRA, the parties are required to agree in writing to a
valuation (hereinafter referred to as the statutory
valuation)
in respect of the items listed in Section 197(7)(a)(i)-(iii).
The parties
have agreed to the statutory valuation which
written agreement is annexed hereto as Annexure "E".
<PAGE>
Page 9
9.4 The
Meridian Entities, Mason and O'Brien warrant and
represent
to the Company
and to SPAR that there
are no claims
whether
actual or pending,
against any of the
Meridian Entities in
respect of any
of the employees to be transferred to the
Company pursuant to this clause 9.
9.5 The
Meridian Entities, Mason and O'Brien undertake to
indemnify the Company
against any claim of whatsoever nature
arising out of a breach of the warranty and representation
set
out in 9.4 together with all costs associated therewith.
GENERAL MEETING OF
SHAREHOLDERS
10. ORDINARY
AND EXTRAORDINARY GENERAL MEETINGS
10.1
The annual general meeting of shareholders shall be convened
by resolution
of the board of directors and held in South
Africa or any other place within 3 (three) months after the
expiration of each financial year end of the Company or at
any
other time
agreed to by the shareholders (subject to
compliance with the Companies Act 61 of 1973).
10.2
An extraordinary
general meeting of the shareholders shall be
convened by a resolution of the board of directors whenever
deemed necessary.
11. QUORUM AND
RESOLUTION
11.1
A quorum necessary
for a valid
meeting of the
shareholders
shall be at least so many shareholders representing 55%
(fifty
five percent) of the Company's total issued share
capital.
11.2
All resolutions
of shareholders shall be adopted by the
affirmative vote of
shareholders
holding not less than 55%
(fifty five
percent) of the
Company's total issued share
capital save for
those resolutions which, in terms of the
Companies Act 61 of 1973, require a higher level of
acceptance
to be effective.
<PAGE>
Page 10
12. MINORITY
PROTECTIONS
Notwithstanding anything to the contrary contained in this
agreement or
the memorandum and
articles of association of the Company, a majority
shareholder vote shall
consist of at least 55% (fifty five percent) of
the Company's
total issued share capital to be considered a valid
majority. Any
shareholder vote consisting of less than 55% (fifty five
percent) of
the Company's total issued share capital shall be
considered a minority.
EARNINGS AND
LOSSES
-------------------
13. EARNINGS
AND LOSSES
13.1
SPAR and Friedshelf shall, subject to 13.2 below, share in
the
net earnings
or losses of the Company based upon their
respective ownership.
13.2
Notwithstanding 13.1
above, for the first
three years of the
Company's operation
after the effective date (the "Maximum
Loss Period"),
if in any year during
the Maximum Loss Period
the net loss of the Company exceeds R2 200 000,00 (two
million
two hundred
thousand
Rand) (the Annual Maximum Loss"),
Friedshelf, O'Brien
and Mason jointly and severally undertake
to make a cash payment
to the Company equal
to the amount of
the Company's
net loss in excess of
the Annual Maximum
Loss
(the "Annual
Maximum Loss Payment"), provided that, in
calculating the Annual
Maximum Loss for the first 12 (twelve)
month period
during the
Maximum Loss Period, the parties
shall, in calculating
whether the Company's loss is in excess
of
the Annual
Maximum Loss, allow up to the amount of
R500
000,00 (five hundred
thousand Rand) to be excluded from
the
calculation of any
Annual Maximum Loss
which the Company may
incur, provided that Friedshelf can reasonably demonstrate to
SPAR that such amount of up to R500 000,00 (five hundred
thousand Rand)
represents
start-up costs incurred by the
Company in
establishing and
setting up the new joint venture
business. For the
avoidance of doubt,
the allowance of
R500
000,00 (five hundred thousand Rand) in respect of the
start-up
costs of the Company
shall only apply in respect of the first
12 (twelve)
months following the effective date and not
thereafter.
<PAGE>
Page 11
13.3
Any payment
pursuant to clause 13.2 shall increase the
shareholders' equity in the Company.
13.4
The Annual Maximum
Loss Payment shall be
paid by
Friedshelf
and/or O'Brien
and/or
Mason to the Company within 45
(forty-five) days
after the issue of the annual audit report
by the Company's auditors.
13.5
Given that the
effective date of this
agreement is 1 April
2004, the Annual
Maximum Loss Payment calculated for the
period ending
December 31, 2004 will be calculated on a
nine-month period,
being the 9 (nine)
month period from
the
effective date to 31 December 2004.
13.6
If any Annual Maximum
Loss Payment
calculation
is for less
than a 12 month
period, the
Annual Maximum Loss shall be
reduced by
an amount equal to the Annual Maximum Loss
multiplied by the
product of the
remainder of 12 minus the
number of months included in the calculation divided by
twelve.
13.7
It is the intention
of the parties that the Maximum Loss
Period shall
continue for a period
of 36 (thirty six) months
commencing on the effective date. Therefore, a short-period
Annual Maximum Loss
Payment will be calculated for the period
of 1 January 2007 through 31 March 2007.
13.8
If the effective date
of this agreement is later than 1 April
2004, the period on which the short-period Annual Maximum
Loss
Payment is calculated
shall be adjusted so that the
Maximum
Loss Period shall equal 36 (thirty six) months.
14. CAPITAL
CONTRIBUTIONS
Capital contributions
necessary for the working capital of the Company
will be made as to 51% (fifty one percent) by SPAR and as to 49%
(forty
nine percent) by Friedshelf.
BOARD OF DIRECTORS AND
OFFICERS
-------------------------------
15.
DIRECTORS
15.1
The overall supervision, control and management of the
affairs
of the Company
shall be vested in the board who shall be
entitled to delegate the
<PAGE>
Page 12
day-to-day running
and management of the business of the
Company to officers nominated by the board.
15.2
Friedshelf and SPAR
shall each be entitled
but shall not
be
obliged to appoint two
directors to the board and to
remove
any such director or
to replace any such
director who is
so
removed or who ceases for any other reason to be a director
of
the Company.
15.3
Each director
shall be appointed
for an initial term of
one
year and shall on the expiry of the initial period be
entitled
to stand for re-election.
15.4
The shareholders
may appoint additional non-executive
directors to the
board to add
value and expertise to the
Company at a fee to be
agreed between the board and such
non-executive directors.
15.5
Each director shall be
entitled, in writing,
to appoint
any
other director as his
alternate at any meeting of
directors
and such alternate
shall be entitled to
exercise the vote of
the director
whom he represents in accordance with the
instructions of such
director or in the
absence thereof in
such manner that the
alternate deems fit,
in addition to the
vote which he may exercise in his capacity as director.
15.6
Any appointment and/or
removal and/or replacement in terms of
this clause shall be
made by written notice
to the
Company,
signed by the
shareholder exercising
such right and shall be
operative as soon as
such written
notice is received at
the
registered offices of the Company.
15.7
The quorum necessary
for the transacting
of business of
the
board shall be at least 3 (three) directors.
15.8 If a
quorum is not present at a directors' meeting, the
chairman of the
meeting shall
postpone such meeting for a
period of 7 (seven) days and notice of such postponed meeting
including the date,
time and place of such postponed meeting
shall be sent to the
directors in terms of the provisions of
this agreement.
15.9
If a quorum is not present at a postponed meeting as referred
to in clause 15.8 and after proper notice has been given,
any
directors' resolution to be taken at such meeting shall:
<PAGE>
Page 13
15.9.1 fall away
and be of no effect; and
15.9.2 be
referred to a shareholders' meeting to be convened
for that purpose
within 14 (fourteen)
days of
such
postponed meeting.
15.10 The
Company undertakes to procure that:-
15.10.1 at least 7
(seven) days' prior
written notice
shall
be given to the directors of any directors' meetings
provided that the
directors may unanimously agree to
reduce this period or waive the requirement for any
particular meeting;
15.10.2 at
least 7 (seven) days before any directors'
meeting, the agenda of the matters to be discussed at
such directors' meeting is given to the directors. If
the agenda for the meeting is not given timeously to
the directors,
no meeting shall be held until the
agenda is given
timeously to the
directors,
unless
the directors unanimously agree otherwise.
15.11 The
following provisions shall apply to voting by d
