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KENNETH FAUGHT July 21, 2015
HOUSTON KARTING VS. P2R KARTING 1
CAUSE NO. 2015-22518
HOUSTON KARTING &
ENTERTAINMENT, LLC d/b/a
FORMULA RACING CENTER
Plaintiff,
IN THE DISTRICT COURT
P2R KARTING, INC.,
KENNETH FAUGHT AND JASON
WILLIAMS
)
)
)
)
)
vs. ) HARRIS COUNTY, TEXAS
)
)
)
)
Defendants. )
157TH JUDICIAL DISTRICT
ORAL VIDEOTAPED DEPOSITION
ORAL VIDEOTAPED DEPOSITION OF KENNETH FAUGHT,
produced as a witness at the instance of the Plaintiff
and duly sworn, was taken in the above-styled and
numbered cause on July 21, 2015, from 10:02 a.m. to
4:17 p.m., before Melinda Barre, Certified Shorthand
Reporter in and for the State of Texas, reported by
computerized stenotype machine at the offices of Gordon
& Rees, LLP, 1900 West Loop South, Suite 1000, Houston,
Harris County, Texas, pursuant to the Texas Rules of
Civil Procedure and the provisions stated on the record
or attached hereto.
EXHIBIT
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215)
KENNETH FAUGHT July 21, 2015
HOUSTON KARTING VS. P2R KARTING 2
APPEARANCES
FOR PLAINTIFF:
Mr. Eric S. Lipper
HIRSCH & WESTHEIMER, P.C.
1415 Louisiana, 36th Floor
Houston, Texas 77002
Telephone: 713.223.5181
E-mail: elipper@hirschwest.com
FOR DEFENDANTS KENNETH FAUGHT P2R Karting, Inc.:
Mr. Glenn R. LeMay
Mr. Christopher Raney
Mr. Joseph DiCecco
GORDON & REES, LLP
1900 West Loop South, Suite 1000
Houston, Texas 77027
Telephone: 713.961.3366
E-mail: glemay@gordonrees.com
FOR DEFENDANT JASON WILLIAMS:
Ms. Alyssa McDaniel
BECK REDDEN, LLP
1221 McKinney Street, Suite 4500
Houston, Texas 77010
Telephone: 713.951.6280
E-mail: amcdaniel@beckredden.com
ALSO PRESENT: Barrett Parker, Videographer; Michael Barron
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KENNETH FAUGHT
HOUSTON KARTING VS. P2R KARTING
July 21, 2015
3
Examination by Mr. Lipper
INDEX
Signature Page ..........-.-. ee eee
Court Reporter's Certificate
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800.211.DEPO (3376)
EsquireSolutions.comKENNETH FAUGHT
HOUSTON KARTING VS. P2R KARTING
July 21, 2015
4
9 MR. LEMAY: I'm Glenn LeMay, and I
10/represent P2R Karting, Inc. and Ken Faught.
4% MS. McDANIEL: I'm Alyssa McD
12|represent Jason Williams.
13
14 KENNETH FAUGHT,
15 |having been first duly sworn, testified as
16 EXAMINATION
17 |
aniel, and I
follows:
c the
25 Q. At the opposite end of the table you see
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HOUSTON KARTING VS. P2R KARTING 67
1 @: Was it not profitable in 2012?
a A. I don't recall.
id you represent Mike
9 Q. I want you to switch gears because I want to
10|}get into some of the paper here for a second.
24 Q. Is this a pretty typical financial statement
25|for somebody that's going to be a franchisee of your
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KENNETH FAUGHT
July 21, 2015
HOUSTON KARTING VS. P2R KARTING 68
company?
A. I don't know we have a typical financial
statement.
) N much does apitalize and
1a
ey: No?
A. (Witness shakes head negatively.)
©. Are you familiar with like reading financial
statements to understand them with any degree of
19 |}understanding?
20
A. Ver,
a: You don't think those are going to be capital
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KENNETH FAUGHT
July 21, 2015
HOUSTON KARTING VS. P2R KARTING 69
for building a facility,
‘As No.
do you?
Q. And you don't think the value of the house, his
primary residence, is going to be capital for building a
facility, right?
A. No.
Q- And so you knew when you approved Mr. Barron
that this was all he was
the situation, right?
A. No.
going to be able to apply to
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8 Q. And if there was going to be any other money,
9|/it was going to have to come from another capital
10|source, either an investor or a lender or something like
1l|that, right?
12 A. Yes.
23 Oe So you approved it based upon Mr. Whistler as
24/|well, correct?
25 A. Based on Michael Barron's representations, yes.
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HOUSTON KARTING VS. P2R KARTING 71
\ in a 1 ne
Vv Vi in.
7 Q. You knew that before the first shovel got
8|turned, didn't you?
9 A. I don't know.
Well, Whistler never showed ut a rou a
L g id
Ne
frar se fee come f 11
A it was a wire
Well k w wi i an ym
Al L at thi
at ct Nj or L t 1 whi C Ss et
2 Mr s i 3 1g
25 Q. You could tell looking at this financial
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KENNETH FAUGHT July 21, 2015
HOUSTON KARTING VS. P2R KARTING 73
Qu And so you knew that if you approved this
financial statement, that there was going to be a
franchise agreement signed, right?
A. I believe so.
Q. Well, you were intending this to be a franchise
location, weren't you?
A. Yes. But because they submit an application
doesn't mean that they're going to go through with the
whole process.
o: Not my question. My question was is if you
approved the franchise application, it's your
expectation you're doing so to get a franchise agreement
signed, right?
A. It's our desire.
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96
1 ud.
2|may happen in the future; but you know at least at that
So you don't know when you approve them what
3|moment in time they're okay with you, right?
4
A.
Correct.
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eah A
24 Oy Well, what this says is is it's in reliance
25}upon the application and the representations in that
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1/application.
2 A. Okay. I'll agree that it says that this relies
LC his L t
have t h
Ll igh 1 a t t e
10 Aa (Witness complies.)
i ig starts with aph ss
s ar I You see N 1 ot al
) that tha
A [ lding
Yes V Lf this he
D ve t
Can you acco
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6 Qh Okay. Thank you.
7 All right. Now, this agreement, the
8jinvestor agreement, did you take a role in the drafting
9jof this limitation?
10 A. I Can" rédall.
11 Q. Do you know why this definition of confidential
12])information was reached?
iL? A. I do not know.
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A. No.
Oia So everybody else --
A. Let me rephrase that. We allowed it to happen.
Although we disagreed with it, we accepted that that was
a workable outcome to help resolve the last lawsuit
between HKE and P2R.
Ox So is it your understanding that this investor
agreement was executed in connection with the resolution
of the lawsuit or before the lawsuit?
A. I can't recall.
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+(( EARREELEVENESD
od Dn uw &
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On Now, one of the things that is in this
agreement on page 2, at the bottom it's got Eyal Farage?
A. Yep.
Q. Why was it necessary to have the parties agree
Eyal Farage was an investor in HKE?
A. I think we just wanted to agree that everybody
who was an investor in HKE was there, and then we also
wanted to look at the 10 percent clause that allows --
or requires anybody who has 10 percent ownership to also
be a guarantor. That's my understanding.
Q. So for those reasons and perhaps others, the
admission of Eyal Farage as a member of HKE was
acceptable to P2R?
A. It was acceptable to this agreement as drafted.
Q. Right. To this agreement and by your own
agreement as well. I mean, you knew that was one of the
subjects of the agreement before you signed it?
A. Yes.
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MR. LEMAY: Objection; form.
Q. (By Mr. Lipper) Well, how about like things
that had happened with regard to your approval of the
franchisee at that point? Did you think that was stuff
that was really behind us at this point?
A. Yes.
© © YD UF WN
(OW And disputes over like the buildout of the
10|space, did you think that was kind of behind you at this
11 |point?
12 A. Unsure.
13 Qs Well, then, did you read this release and
14|decide what was included or not or did it not pass your
15 |muster?
16 A. At the time I did. I just -- I haven't read it
17|for a while and haven't read the other lawsuit for a
18 |while.
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KENNETH FAUGHT July 21, 2015
HOUSTON KARTING VS. P2R KARTING 128
Oy And the kinds of things that the franchisor
owed money for was approvals for certain items. If you
look on Exhibit C, Bates page 238, you'll see that.
A. Okay.
Q. So let's look at these. Like one was the
initial billing for the ownership change, a $10,000 fee.
Why was that charged?
A. The legal fees that we have.
Q. So was that a pass-through? The lawyers charge
exactly $10,000, and you pass it through?
A. I don't know exactly how it was.
Os And there was a progress payment on the
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HOUSTON KARTING VS. P2R KARTING 129
ownership change and another $15,000. What would that
have been for?
A. I think these are all retired, that we decided
that we were waiving this.
Q. I don't think that's right. I think these were
all to be retired by cash payment from HKE because HKE
was writing a check in this settlement. Is that
inconsistent with your memory?
A. I don't believe HKE wrote checks for all these
things.
Q. Well, take a look then back to page 3 of the
release.
A. Okay.
On Do you see where it says Payment from
Plaintiffs, paragraph 4?
A. Yes, I do.
A. Yes. What I was confused on prior, I thought
you were meaning that all of these were requiring
payment for the 10,983, the other 10,000. We went away
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HOUSTON KARTING VS. P2R KARTING 130
1/from that.
2 a: I just want to get clear what was going on.
5 A. Okay.
wner 1 ani v k lange ill
a vi lashing lights, food items and
ment 00 those inds ill yere
S e E the payme L
rect
10 Q. And you negotiated and agreed to that
11 |agreement?
12 A. Yer.
12th of 2014, we were \ ] Ose ar
1 nm t
A Ss Wi the payr ts t E made ol E
n n Bu e agreement wa not
ta a these old things aga after we signed t
SSRs SMe
[ don k f v = di
em re et a u n an
4 Ll
| he release whe1 ays ea
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KENNETH FAUGHT July 21, 2015
HOUSTON KARTING VS. P2R KARTING 131
Q. And obviously it was conditioned upon all the
payments being made?
A. Yes.
Q. When this was prepared, another thing that was
requested was allegations in the lawsuit that was
pending be redrafted. Do you know why that was
requested?
A. I can't recall.
Q. Do you know whether that, in fact, happened?
A. I believe it did.
Or And after going from March 12th of 2014, did
you ever have an effort to declare a default in the
settlement agreement?
A. I don't recall.
Q. Have you ever claimed the settlement agreement
was unenforceable?
A. No.
Q. As far as you know, it's a binding agreement?
A. Yes.
Q. Is there any amount of money that you claim HKE
is in default in the payment of under the settlement
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HOUSTON KARTING VS. P2R KARTING 144
24 Q. And you want to still work with them even
25|though you believe -- strike that.
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HOUSTON KARTING VS. P2R KARTING
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A
Ss audit tha was to be conducted
22 De Did the audit have anything to do with the
22|manner in which the races were being run having an
23 |intermediate speed?
24 A. No.
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HOUSTON KARTING VS. P2R KARTING 152
Ov And why did you harbor that concern?
A. Because of conversations that we have had with
the group of HKE we had heard from other vendors. And
our goal was to help them come together as a group and
try to resolve the issues so that we could protect Pole
Position Raceway.
Ol: So let me get back to the solvency issue. Had
somebody led you to the belief that they were insolvent?
A. Yes.
Q. And who told you that?
A, Louis Tannos had made comments, I believe, to
Brad Mark; and we had also after seeing some of the
balance sheets and seeing where they were with overall
bill pay and had been there for a long time with being
behind on so many payments, that it was a concern of
ours.
Q. You still have that concern today?
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HOUSTON KARTING VS. P2R KARTING 153
Bu That they're insolvent?
Gy Yes, sir.
A. Yes.
do you plan to work with them to
And so how
Q. So you want to change the capitalization
structure of the franchisee?
A. We're not sure what could happen. We don't
know what it really needs. We don't know if there's an
opportunity for some of the other investors to be able
to sell some of their stock to -- we don't know what the
options are. We're not -- we've never had to look at
that perspective. But having the ability to figure out
how to raise capital to be able to go forward, that has
been the underlying problem since day one.
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KENNETH FAUGHT July 21, 2015
HOUSTON KARTING VS. P2R KARTING 173
Oh So why did P2R let Michael Barron continue on
this franchise if he didn't have enough capital and
didn't have enough investors?
A. I think the challenge is that Michael had
continually represented that he had the ability of
money. At one time when Mr. Whistler was trying to get
his funds -- it was supposed to be from a BP oil spill
settlement agreement -- that we had received information
from Michael, Mr. Barron, saying that if Jay can't get
that money, his uncle was going to loan it to him to be
able to fund it.
Then it went to several other groups. And
he had committed at this time, from my recollection,
already to the lease. And from that felt that it was
impossible for him to be able to get out of the lease.
And then at that point that he had to go through and
find other options to be able to make the business
happen.
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C has al
ow, has al
On Well, how is the business going to operate if
+
4|it doesn't have sufficient capital?
5 A. That was his responsibility to raise capital
6|for the business, not ours.
7 @s So what you're saying is is that it was never
8 |going to be successful and you knew it?
9 A. No. I'm not saying that at all. You're
10|putting words in my mouth.
saying unless he raised
12 |capita it wasn't going to
for a long time, right?
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Rowsey's
company,
Q.
for that.
A.
Q.
A.
Q.
happy if
A.
were looking at doing to help the position of the
the financial picture could overall improve.
They were looking at selling Sharon
stock. There were a bunch of things that they
and we were kind of cautiously optimistic that
I didn't have a question pending. Thank you
Do you have anything else to say?
No.
Okay.
Thanks for asking.
Usually I ask questions and get answers but I'm
you have some more speeches.
I won't let it happen again.
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HOUSTON KARTING VS. P2R KARTING 186
1 oh Did you read and approve this before it was
2|filed?
3 A. I discussed content, and I can't remember if I
4|read this version or not.
22 Q. Which vehicle was overstated?
23 A. I cam't recall,
24 @.« Let's take a look at Bates page
25|Exhibit 2.
411 of
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HOUSTON KARTING VS. P2R KARTING 189
A. For which aspect of the default? The whole
thing?
Q. No. Your pleading says, "The agreement
contains a myriad of events that cause a default of the
agreement." One is the material misrepresentation by
HKE in its application. What do you want to have happen
for that?
MR. LEMAY: Objection; form.
A. What we want is for HKE to convert back to Pole
Position Raceway, to be able to go back to the way that
the business was run at the very beginning when we
helped set the business up with Mr. Barron.
And from there we, as I mentioned before,
want him to honor his ten-year commitment to P2R
Karting. And if we can't come to an agreement on that,
then there's other remedies available inside the
counterclaim.
Q. (By Mr. Lipper) Okay. That's what I'm trying
to figure out is what the remedy is that you want.
A. Which page are you looking at?
Q. Exhibit 40, your counterclaim, paragraph 47.
A. Give me a second.
Q. These are your remedies, I believe. It says,
P2R asks the Court to enjoin HKE from, the first one,
"directly or indirectly operating a go-cart within
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HOUSTON KARTING VS. P2R KARTING 190
Ae Going back and operating as a Pole Position
Raceway franchise and working on a way to help solve the
insolvency issues.
Q. Okay. That's not my question.
A. Okay.
tz
©
0
Pole P
Q. "Using or disclosing P2R's trade secrets."
Identify for me what trade secrets of P2R's are being
used to disclose by Formula Racing.
MR. LEMAY: Objection; form.
A. We have the concrete racing surface. We have
the way that we wind up setting up the racetrack with
the anchoring and the anchor points, the way that we
design that around some of the safety poles and the way
that the surface and the barriers work together with the
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| A I would
24 on You can decipher that code pretty quick, can't
25 |you?
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HOUSTON KARTING VS. P2R KARTING 192
A. I think it's a regular concept.
q a e C n¢ wle e
We £ TL a
a Fig
t Lew Ss
MR. LEMAY: Objection; form.
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be a a s 1 i
e L Ww lisee
lication t t LY al ee
) tise sa e Pos anc
t e u. et me type
Q. What's that business worth today?
A. I haven't seen a recent balance sheet to be
23 }able to make any type of determination.
Why don't : just tak 1 ee
1 T run it L W want 1 i
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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 1 CAUSE NO. 2015-22518 HOUSTON KARTING & ENTERTAINMENT, LLC d/b/a FORMULA RACING CENTER Plaintiff, IN THE DISTRICT COURT P2R KARTING, INC., KENNETH FAUGHT AND JASON WILLIAMS ) ) ) ) ) vs. ) HARRIS COUNTY, TEXAS ) ) ) ) Defendants. ) 157TH JUDICIAL DISTRICT ORAL VIDEOTAPED DEPOSITION ORAL VIDEOTAPED DEPOSITION OF KENNETH FAUGHT, produced as a witness at the instance of the Plaintiff and duly sworn, was taken in the above-styled and numbered cause on July 21, 2015, from 10:02 a.m. to 4:17 p.m., before Melinda Barre, Certified Shorthand Reporter in and for the State of Texas, reported by computerized stenotype machine at the offices of Gordon & Rees, LLP, 1900 West Loop South, Suite 1000, Houston, Harris County, Texas, pursuant to the Texas Rules of Civil Procedure and the provisions stated on the record or attached hereto. EXHIBIT iC Qo ESQUI Ras 800.211.DEPO (3376) povuTion EsquireSolutions.com10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 215) KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 2 APPEARANCES FOR PLAINTIFF: Mr. Eric S. Lipper HIRSCH & WESTHEIMER, P.C. 1415 Louisiana, 36th Floor Houston, Texas 77002 Telephone: 713.223.5181 E-mail: elipper@hirschwest.com FOR DEFENDANTS KENNETH FAUGHT P2R Karting, Inc.: Mr. Glenn R. LeMay Mr. Christopher Raney Mr. Joseph DiCecco GORDON & REES, LLP 1900 West Loop South, Suite 1000 Houston, Texas 77027 Telephone: 713.961.3366 E-mail: glemay@gordonrees.com FOR DEFENDANT JASON WILLIAMS: Ms. Alyssa McDaniel BECK REDDEN, LLP 1221 McKinney Street, Suite 4500 Houston, Texas 77010 Telephone: 713.951.6280 E-mail: amcdaniel@beckredden.com ALSO PRESENT: Barrett Parker, Videographer; Michael Barron @ESQUIRE 800.211.DEPO (3376) souuTions EsquireSolutions.com10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 KENNETH FAUGHT HOUSTON KARTING VS. P2R KARTING July 21, 2015 3 Examination by Mr. Lipper INDEX Signature Page ..........-.-. ee eee Court Reporter's Certificate QESQUIRE sovUuTIONS 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT HOUSTON KARTING VS. P2R KARTING July 21, 2015 4 9 MR. LEMAY: I'm Glenn LeMay, and I 10/represent P2R Karting, Inc. and Ken Faught. 4% MS. McDANIEL: I'm Alyssa McD 12|represent Jason Williams. 13 14 KENNETH FAUGHT, 15 |having been first duly sworn, testified as 16 EXAMINATION 17 | aniel, and I follows: c the 25 Q. At the opposite end of the table you see @ESQUIRE 800.211.DEPO (3376) sovuTions EsquireSolutions.comKENNETH FAUGHT duly 21, 2015 HOUSTON KARTING VS. P2R KARTING 67 1 @: Was it not profitable in 2012? a A. I don't recall. id you represent Mike 9 Q. I want you to switch gears because I want to 10|}get into some of the paper here for a second. 24 Q. Is this a pretty typical financial statement 25|for somebody that's going to be a franchisee of your 8 ESQUIRE 800.211.DEPO (3376) DCU TIONS EsquireSolutions.com1 2 1s 16 1? 18 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 68 company? A. I don't know we have a typical financial statement. ) N much does apitalize and 1a ey: No? A. (Witness shakes head negatively.) ©. Are you familiar with like reading financial statements to understand them with any degree of 19 |}understanding? 20 A. Ver, a: You don't think those are going to be capital BESQI UIRE OLuUTIONS 800.211.DEPO (3376) EsquireSolutions.comNn TF BF WN BP 25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 69 for building a facility, ‘As No. do you? Q. And you don't think the value of the house, his primary residence, is going to be capital for building a facility, right? A. No. Q- And so you knew when you approved Mr. Barron that this was all he was the situation, right? A. No. going to be able to apply to @QESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS, P2R KARTING 70 8 Q. And if there was going to be any other money, 9|/it was going to have to come from another capital 10|source, either an investor or a lender or something like 1l|that, right? 12 A. Yes. 23 Oe So you approved it based upon Mr. Whistler as 24/|well, correct? 25 A. Based on Michael Barron's representations, yes. @ESQUIRE 800.211.DEPO (3376) SOLUTIONS EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 71 \ in a 1 ne Vv Vi in. 7 Q. You knew that before the first shovel got 8|turned, didn't you? 9 A. I don't know. Well, Whistler never showed ut a rou a L g id Ne frar se fee come f 11 A it was a wire Well k w wi i an ym Al L at thi at ct Nj or L t 1 whi C Ss et 2 Mr s i 3 1g 25 Q. You could tell looking at this financial 8 ESQUIR 800.211.DEPO (3376) sOuuUTIONS EsquireSolutions.comAt 18 14 20 24. 22 23 24 25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 73 Qu And so you knew that if you approved this financial statement, that there was going to be a franchise agreement signed, right? A. I believe so. Q. Well, you were intending this to be a franchise location, weren't you? A. Yes. But because they submit an application doesn't mean that they're going to go through with the whole process. o: Not my question. My question was is if you approved the franchise application, it's your expectation you're doing so to get a franchise agreement signed, right? A. It's our desire. i) ESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT HOUSTON KARTING VS. P2R KARTING July 21, 2015 96 1 ud. 2|may happen in the future; but you know at least at that So you don't know when you approve them what 3|moment in time they're okay with you, right? 4 A. Correct. QESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 97 eah A 24 Oy Well, what this says is is it's in reliance 25}upon the application and the representations in that @ESQUIRE 800.211.DEPO (3376) souuTions EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 98 1/application. 2 A. Okay. I'll agree that it says that this relies LC his L t have t h Ll igh 1 a t t e 10 Aa (Witness complies.) i ig starts with aph ss s ar I You see N 1 ot al ) that tha A [ lding Yes V Lf this he D ve t Can you acco 8 ESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 124 6 Qh Okay. Thank you. 7 All right. Now, this agreement, the 8jinvestor agreement, did you take a role in the drafting 9jof this limitation? 10 A. I Can" rédall. 11 Q. Do you know why this definition of confidential 12])information was reached? iL? A. I do not know. 8 ESQUIRE 800.211.DEPO (3376) cutrons EsquireSolutions.comeB WON KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 125 A. No. Oia So everybody else -- A. Let me rephrase that. We allowed it to happen. Although we disagreed with it, we accepted that that was a workable outcome to help resolve the last lawsuit between HKE and P2R. Ox So is it your understanding that this investor agreement was executed in connection with the resolution of the lawsuit or before the lawsuit? A. I can't recall. 8 ESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 126 +(( EARREELEVENESD od Dn uw & 10 a 12 13 14 15 16 17 18 119) On Now, one of the things that is in this agreement on page 2, at the bottom it's got Eyal Farage? A. Yep. Q. Why was it necessary to have the parties agree Eyal Farage was an investor in HKE? A. I think we just wanted to agree that everybody who was an investor in HKE was there, and then we also wanted to look at the 10 percent clause that allows -- or requires anybody who has 10 percent ownership to also be a guarantor. That's my understanding. Q. So for those reasons and perhaps others, the admission of Eyal Farage as a member of HKE was acceptable to P2R? A. It was acceptable to this agreement as drafted. Q. Right. To this agreement and by your own agreement as well. I mean, you knew that was one of the subjects of the agreement before you signed it? A. Yes. 8 ESQUIRE 800.211.DEPO (3376) Uurrows EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 127 MR. LEMAY: Objection; form. Q. (By Mr. Lipper) Well, how about like things that had happened with regard to your approval of the franchisee at that point? Did you think that was stuff that was really behind us at this point? A. Yes. © © YD UF WN (OW And disputes over like the buildout of the 10|space, did you think that was kind of behind you at this 11 |point? 12 A. Unsure. 13 Qs Well, then, did you read this release and 14|decide what was included or not or did it not pass your 15 |muster? 16 A. At the time I did. I just -- I haven't read it 17|for a while and haven't read the other lawsuit for a 18 |while. 8 ESQUIRE 800.211.DEPO (3376) Corie ws EsquireSolutions.com14 13 16 17 18 19 20 21 pee) 23 24 25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 128 Oy And the kinds of things that the franchisor owed money for was approvals for certain items. If you look on Exhibit C, Bates page 238, you'll see that. A. Okay. Q. So let's look at these. Like one was the initial billing for the ownership change, a $10,000 fee. Why was that charged? A. The legal fees that we have. Q. So was that a pass-through? The lawyers charge exactly $10,000, and you pass it through? A. I don't know exactly how it was. Os And there was a progress payment on the 8 ESQUIRE 800.211.DEPO (3376) EsquireSolutions.com10 11 12 3 14 5 16 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 129 ownership change and another $15,000. What would that have been for? A. I think these are all retired, that we decided that we were waiving this. Q. I don't think that's right. I think these were all to be retired by cash payment from HKE because HKE was writing a check in this settlement. Is that inconsistent with your memory? A. I don't believe HKE wrote checks for all these things. Q. Well, take a look then back to page 3 of the release. A. Okay. On Do you see where it says Payment from Plaintiffs, paragraph 4? A. Yes, I do. A. Yes. What I was confused on prior, I thought you were meaning that all of these were requiring payment for the 10,983, the other 10,000. We went away @ESQUIRE 800.211.DEPO (3376) OUUTIONS EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 130 1/from that. 2 a: I just want to get clear what was going on. 5 A. Okay. wner 1 ani v k lange ill a vi lashing lights, food items and ment 00 those inds ill yere S e E the payme L rect 10 Q. And you negotiated and agreed to that 11 |agreement? 12 A. Yer. 12th of 2014, we were \ ] Ose ar 1 nm t A Ss Wi the payr ts t E made ol E n n Bu e agreement wa not ta a these old things aga after we signed t SSRs SMe [ don k f v = di em re et a u n an 4 Ll | he release whe1 ays ea QB ESQUIRE 800.211.DEPO (3376) SovuTi ons EsquireSolutions.com10 11 12 a3 14 5 16 17 18 19 20 21 aa 23 24 25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 131 Q. And obviously it was conditioned upon all the payments being made? A. Yes. Q. When this was prepared, another thing that was requested was allegations in the lawsuit that was pending be redrafted. Do you know why that was requested? A. I can't recall. Q. Do you know whether that, in fact, happened? A. I believe it did. Or And after going from March 12th of 2014, did you ever have an effort to declare a default in the settlement agreement? A. I don't recall. Q. Have you ever claimed the settlement agreement was unenforceable? A. No. Q. As far as you know, it's a binding agreement? A. Yes. Q. Is there any amount of money that you claim HKE is in default in the payment of under the settlement i) ESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 144 24 Q. And you want to still work with them even 25|though you believe -- strike that. B ESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 151 A Ss audit tha was to be conducted 22 De Did the audit have anything to do with the 22|manner in which the races were being run having an 23 |intermediate speed? 24 A. No. 8 ESQUIRE 800.211.DEPO (3376) Sovurions EsquireSolutions.com14 15 16 an 18 Lo 20 21 22 23 24 25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 152 Ov And why did you harbor that concern? A. Because of conversations that we have had with the group of HKE we had heard from other vendors. And our goal was to help them come together as a group and try to resolve the issues so that we could protect Pole Position Raceway. Ol: So let me get back to the solvency issue. Had somebody led you to the belief that they were insolvent? A. Yes. Q. And who told you that? A, Louis Tannos had made comments, I believe, to Brad Mark; and we had also after seeing some of the balance sheets and seeing where they were with overall bill pay and had been there for a long time with being behind on so many payments, that it was a concern of ours. Q. You still have that concern today? @ESQUIRE 800.211.DEPO (3376) Corrows EsquireSolutions.com43 14 LS 16 ut 18 19 20 21 22 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 153 Bu That they're insolvent? Gy Yes, sir. A. Yes. do you plan to work with them to And so how Q. So you want to change the capitalization structure of the franchisee? A. We're not sure what could happen. We don't know what it really needs. We don't know if there's an opportunity for some of the other investors to be able to sell some of their stock to -- we don't know what the options are. We're not -- we've never had to look at that perspective. But having the ability to figure out how to raise capital to be able to go forward, that has been the underlying problem since day one. @ESQUIRE 800.211.DEPO (3376) EsquireSolutions.com© oO YH HO B® 10 11 12 13 14 25 16 17 18 ng 20 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 173 Oh So why did P2R let Michael Barron continue on this franchise if he didn't have enough capital and didn't have enough investors? A. I think the challenge is that Michael had continually represented that he had the ability of money. At one time when Mr. Whistler was trying to get his funds -- it was supposed to be from a BP oil spill settlement agreement -- that we had received information from Michael, Mr. Barron, saying that if Jay can't get that money, his uncle was going to loan it to him to be able to fund it. Then it went to several other groups. And he had committed at this time, from my recollection, already to the lease. And from that felt that it was impossible for him to be able to get out of the lease. And then at that point that he had to go through and find other options to be able to make the business happen. ) ESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT duly 21, 2015 HOUSTON KARTING VS. P2R KARTING 174 C has al ow, has al On Well, how is the business going to operate if + 4|it doesn't have sufficient capital? 5 A. That was his responsibility to raise capital 6|for the business, not ours. 7 @s So what you're saying is is that it was never 8 |going to be successful and you knew it? 9 A. No. I'm not saying that at all. You're 10|putting words in my mouth. saying unless he raised 12 |capita it wasn't going to for a long time, right? @ESQUIRE 800.211.DEPO (3376) Solutions EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 175 Rowsey's company, Q. for that. A. Q. A. Q. happy if A. were looking at doing to help the position of the the financial picture could overall improve. They were looking at selling Sharon stock. There were a bunch of things that they and we were kind of cautiously optimistic that I didn't have a question pending. Thank you Do you have anything else to say? No. Okay. Thanks for asking. Usually I ask questions and get answers but I'm you have some more speeches. I won't let it happen again. @ESQUIR 800.211.DEPO (3376) sovuTions EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 186 1 oh Did you read and approve this before it was 2|filed? 3 A. I discussed content, and I can't remember if I 4|read this version or not. 22 Q. Which vehicle was overstated? 23 A. I cam't recall, 24 @.« Let's take a look at Bates page 25|Exhibit 2. 411 of @ESQUIR sovuTIONS 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT HOUSTON KARTING VS. P2R KARTING July 21, 2015 187 QESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT HOUSTON KARTING VS. P2R KARTING Mr July 21, 2015 188 vurions @ESQUIRE 800.211.DEPO (3376) EsquireSolutions.com11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 189 A. For which aspect of the default? The whole thing? Q. No. Your pleading says, "The agreement contains a myriad of events that cause a default of the agreement." One is the material misrepresentation by HKE in its application. What do you want to have happen for that? MR. LEMAY: Objection; form. A. What we want is for HKE to convert back to Pole Position Raceway, to be able to go back to the way that the business was run at the very beginning when we helped set the business up with Mr. Barron. And from there we, as I mentioned before, want him to honor his ten-year commitment to P2R Karting. And if we can't come to an agreement on that, then there's other remedies available inside the counterclaim. Q. (By Mr. Lipper) Okay. That's what I'm trying to figure out is what the remedy is that you want. A. Which page are you looking at? Q. Exhibit 40, your counterclaim, paragraph 47. A. Give me a second. Q. These are your remedies, I believe. It says, P2R asks the Court to enjoin HKE from, the first one, "directly or indirectly operating a go-cart within 8 ESQUIRE 800.211.DEPO (3376) Curiows EsquireSolutions.com10 Ai iz Et 18 1? 20 21 22 23 24 25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 190 Ae Going back and operating as a Pole Position Raceway franchise and working on a way to help solve the insolvency issues. Q. Okay. That's not my question. A. Okay. tz © 0 Pole P Q. "Using or disclosing P2R's trade secrets." Identify for me what trade secrets of P2R's are being used to disclose by Formula Racing. MR. LEMAY: Objection; form. A. We have the concrete racing surface. We have the way that we wind up setting up the racetrack with the anchoring and the anchor points, the way that we design that around some of the safety poles and the way that the surface and the barriers work together with the 8 ESQUIRE 800.211.DEPO (3376) Uutrrows EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 191 | A I would 24 on You can decipher that code pretty quick, can't 25 |you? 8B ESQUIRE 800.211.DEPO (3376) EsquireSolutions.com25 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 192 A. I think it's a regular concept. q a e C n¢ wle e We £ TL a a Fig t Lew Ss MR. LEMAY: Objection; form. 8 ESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 197 13 @ESQUIRE 800.241 DEPO (9376)21 22 KENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 198 be a a s 1 i e L Ww lisee lication t t LY al ee ) tise sa e Pos anc t e u. et me type Q. What's that business worth today? A. I haven't seen a recent balance sheet to be 23 }able to make any type of determination. Why don't : just tak 1 ee 1 T run it L W want 1 i 8B ESQUIRE 800.211.DEPO (3376) EsquireSolutions.comKENNETH FAUGHT July 21, 2015 HOUSTON KARTING VS. P2R KARTING 199 8 ESQUIRE : 800.211.DEPO (3376) EsquireSolutions.com