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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1999
KARTS INTERNATIONAL INCORPORATED
(Exact name of registrant as specified in its charter)
Nevada
(State of incorporation)
000-23041 75-2639196
(Commission File Number) (I.R.S. Employer Identification Number)
62204 Commercial Street
P.O. Box 695
Roseland, Louisiana 70456
(Address of principal executive offices) (Zip Code)
(504) 747-1111
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
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INFORMATION INCLUDED IN REPORT ON FORM 8-K
Item 5. Other Events.
Offering of 9% Cumulative Convertible Preferred Stock
On June 30, 1999, Karts International Incorporated, a Nevada
corporation (the "Registrant"), consummated a private offering (the "Offering")
of its 9% Cumulative Convertible Preferred Stock (the "Preferred Stock").
Pursuant to the terms and conditions set forth in the Registrant's Private
Placement Memorandum dated March 31, 1999, the Registrant sold an aggregate of
1,550,000 shares of Preferred Stock for aggregate Offering proceeds of
$1,550,000 or a per share purchase price of $1.00. The proceeds from the sale of
the Preferred Stock are being used by the Registrant for working capital and
payment of trade debt.
The Preferred Stock was sold to investors, which included officers and
directors of the Registrant who purchased an aggregate of 520,000 shares of
Preferred Stock on the same terms as other investors.
Set forth below is a summary of the terms and provisions of the
Preferred Stock. This summary does not purport to be complete and is qualified
in its entirety by reference to the Certificate of Designation, Preferences and
Rights of 9% Cumulative Convertible Preferred Stock filed as an exhibit to this
Current Report.
Dividends. Holders of shares of the Preferred Stock are entitled to
receive, out of funds legally available therefor, a dividend at the rate of $.09
per share per annum, payable in semi-annual installments on June 30 and December
31, commencing December 31, 1999. Such dividends may be paid in cash or shares
of the Registrant's common stock, par value $.001 per share (the "Common
Stock"), at the Registrant's option. The number of shares of Common Stock to be
issued as a stock dividend shall be determined by the current market price of a
share of Common Stock on the record date for such stock dividend. The current
market price of a share of Common Stock on the record date shall be the closing
sale price on such day as reported by the Nasdaq SmallCap Market or on any other
exchange on which the shares of Common Stock may be traded. No fractional shares
will be issued for dividends. The amount of any dividends represented by such
fractional shares will be payable by rounding up to the next whole number for
such stock dividend. Dividends on the Preferred Stock will be cumulative from
the date of initial issuance of the Preferred Stock. Dividends will be payable
to holders of record as they appear on the stock books of the Registrant on such
record dates, not more than 60 days nor less than 10 days preceding the payment
dates, as shall be fixed by the Board.
If dividends are not paid in full upon the Preferred Stock and any
other preferred stock ranking on a parity as to dividends with the Preferred
Stock, all dividends declared upon shares of Preferred Stock and such other
preferred stock will be declared pro rata so that in all cases the amount of
dividends declared per share on the Preferred Stock and such other preferred
stock bear the same ratio to each other that accumulated dividends per share on
the shares of the Preferred Stock and such other preferred stock bear to each
other. Except as set forth above, unless full cumulative dividends on the
Preferred Stock have been paid, dividends (other than in Common Stock) may not
be paid or declared and set aside for payment and other distributions may not be
made upon the Common Stock or on any other stock of the Registrant ranking
junior to or on a parity with the Preferred Stock as to dividends, nor may any
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Common Stock or any other stock of the Registrant ranking junior to or on a
parity with the Preferred Stock as to dividends be redeemed, purchased or
otherwise acquired for any consideration (or any payment made to or available
for a sinking fund for the redemption of any shares of any shares of such stock)
by the Registrant (except by conversion into or exchange for stock of the
Registrant ranking junior to the Preferred Stock as to dividends). The
Registrant has agreed not to declare or pay any cash dividend on its Common
Stock during such period that the Preferred Stock remains outstanding.
Conversion Rights. The holder of any shares of the Preferred Stock will
have the right, at the holder's option, to convert any or all such shares into
Common Stock at any time during the period commencing on June 30, 1999 and
expiring on the fourth anniversary of such date (the "Conversion Period").
Subject to certain adjustments as described below, the Preferred Stock is
convertible at the rate of one share of Common Stock for each $.25 in Face
Amount of the Preferred Stock converted (initially four shares of Common Stock
for each share of Preferred Stock converted). If the Preferred Stock is not
voluntarily converted prior to the expiration of the Conversion Period, each
share of Preferred Stock then outstanding shall be automatically converted at
the rate of one share of Common Stock for each $.25 in Face Amount of the
Preferred Stock converted, subject to certain adjustments described below. The
Registrant shall also be required to pay all accrued but unpaid dividends due
and owing to the holders of the Preferred Stock as of expiration date of the
Conversion Period. The holders of the Preferred Stock have contractually agreed
to suspend their right to convert their shares of Preferred Stock into shares of
Common Stock until such time as the matters contemplated by this proposal and
Proposal 4 below have been ratified and/or approved by the stockholders.
In the event the Preferred Stock is called for redemption, the
conversion right will terminate at the close of business on the fifth business
day prior to the date fixed for redemption. Payment or adjustment shall be made
upon any conversion of any share of Preferred Stock on account of any unpaid and
accrued dividends on the shares surrendered for conversion. No fractional shares
of Common Stock will be issued upon conversion but, in lieu thereof, the
Registrant shall round up the fractional share.
The conversion rate will be subject to adjustment upon the occurrence
of the following events: (i) stock split, recapitalization, combination of
shares of the Registrant, or other similar event or (ii) the sale or other
issuance of shares of Common Stock at a price less than the then applicable
conversion rate. If during the Conversion Period the Registrant sells or issues
shares of Common Stock at less than the then applicable conversion rate, the
conversion rate shall then become the price at which such securities were sold
on a per share basis. The conversion rate will not be adjusted upon (i) the
issuance of Common Stock as dividends on either the outstanding Common Stock,
the Preferred Stock or other duly issued securities of the Registrant; (ii) the
issuance of shares of Common Stock upon the exercise of outstanding options or
warrants; (iii) the issuance of shares of Common Stock upon the exercise of
options granted under the Registrant's 1998 Stock Compensation Plan; (iv) any
issuance of shares of Common Stock to Charles Brister, Chief Executive Officer
and President of the Registrant, or any other executive officer of the
Registrant in lieu of compensation during calendar year 1999; and (v) an
issuance or distribution of Common Stock, rights or warrants to subscribe for
shares of Common Stock, or other securities or debt instruments convertible into
Common Stock, subject only to the requirement that such securities be sold at a
price per share or be convertible into Common Stock at a price in excess of the
then applicable conversion rate of the Preferred Stock.
In case of any reclassification of the Common Stock, any consolidation
of the Registrant with, or merger of the Registrant into, any other entity, any
merger of any entity into the Registrant (other than a merger which does not
result in any reclassification, conversion, exchange or cancellation of
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outstanding shares of Common Stock), any sale or transfer of all or
substantially all of the assets of the Registrant or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
other property, then provision shall be made such that the holder of each share
of Preferred Stock then outstanding shall have the right thereafter, during the
period such share of Preferred Stock shall be convertible, to convert such share
only into the kind and amount of securities, cash and other property receivable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock into which such
shares of Preferred Stock might have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange.
Holders of the Preferred Stock converted into Common Stock will be
entitled to the same rights applicable at the time of conversion to other
holders of Common Stock. The holders of the shares of the Preferred Stock have
no preemptive rights with respect to any securities of the Registrant.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Registrant, the holders of shares of the Preferred Stock are
entitled to receive out of assets of the Registrant available for distribution
to stockholders, before any distribution of assets is made to holders of Common
Stock or any other junior stock, liquidating distributions in the amount of
$1.00 per share plus accumulated and unpaid dividends. If upon any liquidation,
dissolution or winding up of the Registrant, the assets distributable to the
holders of the Preferred Stock and any other preferred stock ranking as to any
such distribution on a parity with the Preferred Stock are insufficient to fully
pay the preferential amount, the holders of the Preferred Stock and of such
other preferred stock will share ratably in such distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of the Preferred Stock will not
be entitled to any further participation in any distribution of assets by the
Registrant. Neither a consolidation or merger of the Registrant with another
corporation nor a sale or transfer of all or part of the Registrant's assets for
cash or securities will be considered a liquidation, dissolution or winding up
of the Registrant.
The right of the Registrant, and the rights of its creditors and
stockholders (including holders of the Preferred Stock), to participate in the
distribution of the assets of any subsidiary of the Registrant upon any
liquidation or reorganization of such subsidiary, or otherwise, will be subject
to the prior claims of creditors of such subsidiary (except to the extent the
Registrant may itself be a creditor with recognized claims against such
subsidiary).
Redemption at the Option of Registrant. The Preferred Stock may not be
redeemed prior to March 31, 2000. The Preferred Stock is redeemable thereafter
for cash, in whole or in part, at any time at the option of the Registrant at
$1.09 per share.
If less than all of the outstanding shares of the Preferred Stock are
to be redeemed, the Registrant will select those shares to be redeemed pro rata
or by lot or in such other manner as the Board may determine. There is no
mandatory redemption or sinking fund obligation with respect to the Preferred
Stock. In the event the Registrant has failed to pay accrued and unpaid
dividends on the Preferred Stock, it may not redeem any of the then outstanding
shares of Preferred Stock until all such accrued and unpaid dividends have been
paid in full.
In the event the Preferred Stock is called for redemption, the
conversion right will terminate at the close of business on the fifth business
day prior to the date fixed for redemption. After the redemption date, dividends
will cease to accrue on the shares of the Preferred Stock called for redemption
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and all rights of the holders of such shares will terminate except the right to
receive the redemption price without interest (unless the Registrant defaults in
the payment of the redemption price).
Voting Rights. Except as indicated below, the holders of shares of
Preferred Stock have no voting rights. If the equivalent of two consecutive
semi-annual (one year) dividends payable on the Preferred Stock or on any other
preferred stock is in arrears, the number of directors of the Registrant will be
increased by two and the holders of all outstanding shares of the Preferred
Stock and any other preferred stock ranking on a parity as to dividends or upon
liquidation with the Preferred Stock, voting as a single class without regard to
series, will be entitled to elect two additional directors until all cumulative
dividends in arrears have been paid in full and until any non-cumulative
dividends payable on all preferred stock have been paid regularly for at least
one year.
In addition, without the vote or consent of the holders of at least a
majority of the number of then outstanding shares of the Preferred Stock and any
other preferred stock ranking on a parity as to dividends or upon liquidation
with the Preferred Stock, the Registrant shall not (i) create, or increase the
authorized number of shares of, any series or class of stock ranking prior to
the Preferred Stock either as to dividends or upon liquidation, (ii) amend,
alter or repeal any of the rights and preferences of the Preferred Stock or
(iii) authorize any reclassification of the Preferred Stock. Accordingly, the
voting rights of the holders of the Preferred Stock could under certain
circumstances operate to restrict the flexibility the Registrant would otherwise
have in connection with future changes to its capital structure.
$1.5 Million Convertible Term Loan from The Schlinger Foundation
On June 3, 1999, the Registrant concluded a loan transaction (the
"Schlinger Loan") whereby the Registrant borrowed from The Schlinger Foundation
("The Foundation") the principal amount of $1,500,000 as evidenced by a $1.5
Million Convertible Term Note (the "Term Note") executed by the Registrant in
favor of The Foundation. The Term Note requires that interest on the principal
balance be paid monthly commencing June 30, 1999, with the principal of the loan
plus accrued but unpaid interest being due and payable in one installment on May
31, 2004. The principal balance of the Term Note bears interest at the rate of
twelve percent (12%) per annum. The principal balance of the Term Note is
convertible, in whole or in part (in integral multiples of $500,000), into
shares of Common Stock (the "Schlinger Conversion Shares"). The number of
Schlinger Conversion Shares to be issued upon conversion is equal to the amount
of unpaid principal converted divided by the conversion price of $.375. The
conversion price is subject to adjustment upon the occurrence of certain events,
including stock splits and combinations, dividends or distributions, and
reclassifications, exchanges and substitutions.
The Term Note is subject to the terms and conditions set forth in the
Loan Agreement dated June 3, 1999 (the "Loan Agreement") by and between the
Registrant and The Foundation. The Loan Agreement imposes upon the Registrant
affirmative, negative and financial covenants customary in this type of loan
transaction. Specifically, under the affirmative covenants, the Registrant must
maintain adequate books and records, remain in compliance with applicable laws,
satisfy all tax obligations, maintain proper insurance and advise The Foundation
of certain corporate changes or events. A further affirmative covenant requires
that the Registrant effect an amendment to its Articles of Incorporation to
increase its authorized shares of Common Stock within 120 days of the date of
the Loan Agreement. The negative covenants to which the Registrant is subject
prohibit the Registrant from changing the nature of its business, liquidating,
merging, consolidating or selling substantially all of its assets, or incurring
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any additional debt obligations without the prior written consent of The
Foundation. The financial covenants require that the Registrant (i) maintain a
monthly ratio of current assets to current liabilities of not less than 1.5 to
1.0, (ii) maintain a total liabilities to tangible net worth ratio of 2.5 to 1.0
and (iii) have a monthly tangible net worth of $2.5 million. Failure by the
Registrant to abide by or satisfy any of the foregoing covenants will result in
an event of default under the Term Note. Upon an event of default, The
Foundation may declare the unpaid principal balance plus accrued and unpaid
interest immediately due and payable or foreclose on all liens granted to The
Foundation.
The Term Note is secured by all of the accounts, inventory and
equipment of the Registrant and each of its wholly-owned subsidiaries.
Furthermore, the obligations of the Registrant under the Term Note are
guaranteed by each of the Registrant's wholly-owned subsidiaries.
On July 12, 1999, the Registrant and The Foundation executed the Waiver
and First Amendment to Loan Agreement (the "Amended Loan Agreement") whereby the
Registrant agreed to obtain stockholder ratification and approval of the
Schlinger Loan and the issuance of the Schlinger Conversion Shares on or before
September 30, 1999. The failure of the Registrant to obtain stockholder
ratification of the Schlinger Loan and approval of the issuance of the Schlinger
Conversion Shares will constitute an event of default under the Loan Agreement.
Item 7. Exhibits.
Exhibit No. Description
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4.9 Certificate of Designation, Preferences and Rights of 9% Cumulative
Convertible Preferred Stock, filed with the Secretary of State of
Nevada on May 3, 1999.
10.43 Loan Agreement dated June 3, 1999 by and between the Registrant and
The Schlinger Foundation.
10.44 Convertible Term Note dated June 3, 1999 in the principal amount of
$1,500,000 executed by the Registrant and payable to The Schlinger
Foundation.
10.45 Security Agreement dated June 3, 1999 by and between the Registrant
and The Schlinger Foundation.
10.46 Waiver and First Amendment to Loan Agreement dated July 12, 1999 by
and between the Registrant and The Schlinger Foundation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KARTS INTERNATIONAL INCORPORATED
By: /s/ Charles Brister
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Charles Brister, Chief Executive
Officer and President
Date: July 27, 1999
EXHIBIT 4.9
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KARTS INTERNATIONAL INCORPORATED
(a Nevada corporation)
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
9% CUMULATIVE CONVERTIBLE PREFERRED STOCK
($0.001 Par Value)
Pursuant to the provisions of Section 78.195, 78.1955 and 78.196 of the
Nevada General Corporation Law (the "Act"), the undersigned corporation, KARTS
INTERNATIONAL INCORPORATED (the "Corporation), hereby submits the following
statement for the purpose of establishing and designating a series of shares of
preferred stock to be known as 9% Cumulative Convertible Preferred Stock and
fixing and determining the relative rights and preferences thereof:
ARTICLE ONE
NAME
1. The name of the Corporation is KARTS INTERNATIONAL INCORPORATED.
ARTICLE TWO
CORPORATE RESOLUTIONS
2. The following resolution establishing and designating a series of
preferred stock, to-wit: the 9% Cumulative Convertible Preferred Stock (the
"Convertible Preferred Stock"), and fixing and determining the relative rights
and preferences thereof was duly adopted by the Board of Directors of the
Corporation on March 25, 1999:
BE IT RESOLVED that, pursuant to the authority expressly
granted and vested in the Board of Directors of the Corporation in
accordance with Article Fourth of the Corporation's Articles of
Incorporation, authorizing 10,000,000 shares of Preferred Stock (the
"Preferred Stock"), $0.001 par value per share, approved and adopted on
February 21, 1996, in accordance with and pursuant to the provisions of
Sections 78.195, 78.1955 and 78.196 of the Act, the Board of Directors
of the Corporation does hereby approve and adopt the following
resolutions designating and authorizing for issuance, in accordance
with the provisions of the Act, the Convertible Preferred Stock of the
Corporation, said resolutions hereby effected being prior to the
issuance of any shares of Convertible Preferred Stock, such shares of
Convertible Preferred Stock to consist of 2,500,000 shares, each having
a par value of $0.001 per share, and each of which shares of
Convertible Preferred Stock shall have the dividend rights, voting
powers, redemption provisions, liquidation preferences and the
relative, optional or other special rights, and shall be subject to the
qualifications, limitations or restrictions set forth below and the
remaining 7,500,000 authorized shares of the Convertible Preferred
Stock shall remain undesignated and reserved for future issuance
subject to the future action of the Board of Directors of the
Corporation.
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Rights and Preferences of Convertible Preferred Stock
1. Dividends.
(a) Amount and Payment of Dividend. Subject to the limitations hereinafter
set forth, the holders of Convertible Preferred Stock shall be entitled to
receive, but only when, if and as declared by the Board of Directors, dividends
at the rate of nine percent (9%) per annum of the original issue price thereof
of One and No/100 Dollars ($1.00) per share, and no more, payable in semiannual
installments out of the funds of the Corporation legally available therefor on
June 30 and December 31 of each year (the "Dividend Payment Date") commencing
June 30, 1999, (or, if any such Dividend Payment Date shall be a weekend or a
bank holiday, on the next business day thereafter). Such dividends may be paid
in cash or in shares of Common Stock of the Corporation, or partly in cash and
partly in shares of Common Stock of the Corporation as determined by the
Corporation's Board of Directors in its sole discretion; provided, however, (i)
no fractional shares of Common Stock may be issued for dividends, and (ii) the
amount of any dividends represented by such fractional shares will be payable by
rounding up to the next whole number for such stock dividend, and provided
further that if any such dividend is paid in whole or in part by shares of
Common Stock, the number of shares of Common Stock to be issued as a stock
dividend shall be determined by the current market price of a share of Common
Stock on the record date for such stock dividend. The current market price of a
share of Common Stock on the record date shall be the closing sale price on such
day as reported by the NASDAQ Small Cap Market or any other exchange on which
the shares of Common Stock may be traded. Any shares of Convertible Preferred
Stock issued after the date hereof shall accrue dividends from the date of
issuance. Dividends will be payable to holders of record as they appear on the
stock books of the Company on such record dates, not more than 60 days nor less
than 10 days preceding the payment dates, as shall be fixed by the Corporation's
Board of Directors.
(b) Cumulative Rights. To the extent, if any, that dividends at the rate
set forth in Section 1(a) above shall not be paid or set apart in full for the
Convertible Preferred Stock, the aggregate deficiency shall be cumulated and
must be fully paid or set apart for payment before any dividends may be paid
upon or set apart for the Common Stock of the Corporation or before the
Corporation may purchase, redeem or otherwise acquire for any consideration (or
any payment made to or available for a sinking fund for the redemption of any of
its Common Stock or any other stock of the Company ranking junior to or on a
parity with the Convertible Preferred Stock as to dividends) any of its Common
Stock or any other stock of the Company ranking junior to or on a parity with
the Convertible Preferred Stock as to dividends or otherwise make any
distribution on account of its Common Stock or any other class of capital stock
now or hereafter authorized or issued by the Corporation which ranks on a parity
with or junior to the Convertible Preferred Stock (other than (i) a dividend
payable in Common Stock, or (ii) by conversion into or exchange for capital
stock of the Corporation ranking junior to the Convertible Preferred Stock as to
dividends).
(c) No Interest on Accrued Dividends. Any accumulations of dividends on the
Convertible Preferred Stock shall not bear interest.
(d) Declaration. Dividends on the Convertible Preferred Stock shall be
declared if, when and as the Board of Directors of the Corporation shall in its
sole discretion deem advisable, and only from the surplus of the Corporation as
such shall be fixed and determined by the said Board of Directors. The
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determination of the Board of Directors at any time of the amount of surplus
available for the payment of dividends shall be binding and conclusive on the
holders of the shares of Convertible Preferred Stock then outstanding. If
dividends are not paid in full upon the Convertible Preferred Stock and any
other Preferred Stock ranking on a parity as to dividends with the Convertible
Preferred Stock, all dividends declared upon shares of Convertible Preferred
Stock and upon such other shares of Preferred Stock will be declared pro rata so
that in all cases the amount of dividends declared per share on the Convertible
Preferred Stock and such other Preferred Stock shall bear the same ratio to each
other that the accumulated dividends per share on the shares of the Convertible
Preferred Stock and such other shares of Preferred Stock bear to each other. The
holders of the Convertible Preferred Stock shall not be entitled to receive any
dividends thereon other than the dividends provided for in the preceding
provisions of this Section.
2. Voting Rights and Notice of Meetings. Except as otherwise provided in
Paragraphs (a) and (b) of this Section, the holders of the Common Stock shall
have the exclusive right and power to vote on any matter submitted to a vote of
the stockholders of the Corporation, and the holders of the Convertible
Preferred Stock shall have no right or power whether authorized by the Act or
otherwise to vote on any matter or in any proceeding or to be represented at or
to receive notice of any meeting of the stockholders.
(a) Protective Voting Rights. The holders of Convertible Preferred Stock
and any other Preferred Stock ranking on a parity as to dividends or upon
liquidation with the Convertible Preferred Stock shall be entitled to vote
separately as a class upon any proposed amendment(s) to the Corporation's
Articles of Incorporation which would (i) create, or increase the authorized
number of shares of, any series or class of stock ranking prior to the
Convertible Preferred Stock either as to dividends or upon liquidation; (ii)
amend, alter or repeal any of the rights and preferences of the Convertible
Preferred Stock; or (iii) authorize any reclassification of the Preferred Stock.
Such a proposed amendment must be approved by the holders of at least a majority
of the number of then outstanding shares of the Convertible Preferred Stock and
any other Preferred Stock ranking on a parity as to dividends or upon
liquidation with the Preferred Stock.
(b) Contingent Right to Elect Directors.
(1) Preferred Stockholders' Right to Elect Directors When Dividends Not
Paid and Divestment of Such Right. If at any time declared and accrued dividends
on the Convertible Preferred Stock or any other Preferred Stock shall not have
been paid in an amount equivalent to two (2) consecutive full semiannual
dividends on all Convertible Preferred Stock or any other Preferred Stock at the
time outstanding, the number of Directors of the Corporation shall be increased
by two (2) and the holders of the Convertible Preferred Stock and the holders of
any other Preferred Stock ranking on a parity as to dividends or upon
liquidation with the Convertible Preferred Stock, voting as a single class
without regard to series, shall be entitled to elect two (2) Directors and the
holders of the Common Stock, voting separately as a class, shall be entitled to
elect the remaining Directors of the Corporation. Such right of the holders of
the Convertible Preferred Stock to elect two (2) Directors may be exercised
until all such declared and accrued dividends on the Convertible Preferred Stock
shall have been paid in full and until any noncumulative dividends payable on
all shares of Preferred Stock then outstanding have been paid regularly for at
least one (1) year or funds sufficient therefor deposited in trust, at which
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time the holders of the Convertible Preferred Stock shall be divested of such
voting rights, but subject always to the same provisions for the vesting of such
voting rights in the holders of the Convertible Preferred Stock in the case of
any future dividend default or defaults.
(2) Procedure for Election of Such Directors. The foregoing right of the
holders of the Convertible Preferred Stock with respect to the election of
Directors of the Corporation may be exercised at any annual meeting of
stockholders or, within the limitations hereinafter provided, at a special
meeting of stockholders held for such purpose. If the date on which such right
of the holders of the Convertible Preferred Stock shall become vested shall be
more than ninety (90) days preceding the date of the next annual meeting of
stockholders as fixed by the bylaws of the Corporation, the President of the
Corporation shall, within ten (10) days after delivery to the Corporation at its
principal office of a request to such effect signed by the holders of at least
ten percent (10%) of the Convertible Preferred Stock then outstanding, call a
special meeting of the holders of the Convertible Preferred Stock to be held
within sixty (60) days after the delivery of such request for the purpose of
electing two (2) Directors to serve until the next annual meeting and until
their successors shall be elected and shall qualify. Notice of such meeting
shall be mailed to each holder of the Convertible Preferred Stock not less than
ten (10) nor more than sixty (60) days prior to the date of such meeting.
Whenever the holders of the Convertible Preferred Stock shall be entitled to
elect two (2) Directors, any such holder shall have the right, during regular
business hours, in person or by a duly authorized representative, to examine and
to make transcripts of the stock records of the Corporation for the Convertible
Preferred Stock for the purpose of communicating with other holders of such
Convertible Preferred Stock with respect to the exercise of such right of
election.
(3) Term of Office. Each Director elected by the holders of the Convertible
Preferred Stock shall serve until the next annual meeting of the stockholders or
until his successor shall be elected and shall qualify; provided, however, that
whenever the holders of the Convertible Preferred Stock shall be divested of
voting power as provided in Section 2(b)(1) above, the term of office of the
persons elected as Directors by the holders of the Convertible Preferred Stock
shall terminate, and the number of Directors comprising the Board of Directors
shall be reduced accordingly.
(4) Quorum. At any annual or special meeting of stockholders held for the
purpose of electing Directors when the holders of the Convertible Preferred
Stock shall be entitled to elect two (2) Directors, the presence in person or by
proxy of the holders of a majority of the outstanding Convertible Preferred
Stock shall be required to constitute a quorum for the election by such class of
such Directors, and the presence in person or by proxy of the holders of a
majority of the outstanding Common Stock shall be required to constitute a
quorum for the election by such class of the remaining Directors; provided,
however, that the majority of the holders of any such class of shares who are
present in person or by proxy shall have power to adjourn such meeting for the
election of Directors by such class from time to time, for a period of less than
thirty (30) days, without notice other than announcement at the meeting. No
delay or failure by the holders of either such class of shares to elect the
members of the Board of Directors whom such holders are entitled to elect shall
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invalidate the election of the remaining members of the Board of Directors by
the holders of the other such class of shares.
(5) Filling Vacancies in Board of Directors. If, during any interval
between annual meetings of stockholders for the election of Directors and while
the holders of the Convertible Preferred Stock shall be entitled to elect two
(2) Directors, the number of Directors in office who have been elected by the
holders of the Convertible Preferred Stock or the Common Stock, as the case may
be, shall, by reason of resignation, death, or removal, be less than the total
number of Directors subject to election by the holders of shares of such class:
(i) The vacancy or vacancies in the Directors elected by the holders
of such class shall be filled by a majority vote of the remaining Directors
then in office, although less than a quorum, on nomination by a majority of
the remaining Directors elected by the holders of such class or their
successors, or by the sole remaining Director elected by the holders of
such class or succeeding a Director so elected; and
(ii) If not so filled within sixty (60) days after the creation
thereof, the President of the Corporation shall call a special meeting of
the holders of the shares of such class and such vacancy or vacancies shall
be filled at such special meeting.
(6) Removal of Directors. During such time that the holders of the
Convertible Preferred Stock shall have members of the Board of Directors sitting
on their behalf, any Director may be removed from office by vote of the holders
of a majority of the shares of the class of shares by which his successor would
be elected. A special meeting of the holders of shares of such class may be
called by a majority vote of the Board of Directors for the purpose of removing
a Director in accordance with the provisions of this subparagraph. The President
of the Corporation shall, in any event, within ten (10) days after delivery to
the Corporation at its principal office of a request to such effect signed by
the holders of at least ten percent (10%) of the outstanding shares of such
class, call a special meeting for such purpose to be held within sixty (60) days
after the delivery of such request.
As to the foregoing matters only, each holder of the
Convertible Preferred Stock shall be entitled to one (1)
vote for each share thereof standing in his name on the
books of the Corporation on the record date fixed for a
stockholders' meeting to vote on such transaction.
3. Redemption.
(a) Selection of Shares for Redemption. At any time on or after March 31,
2000, the Corporation may purchase or redeem all, or from time to time any part
of, the shares of Convertible Preferred Stock then issued and outstanding;
provided, however, no shares of Convertible Preferred Stock may be redeemed
until all accrued and unpaid dividends, if any, on all outstanding shares of
Convertible Preferred Stock have been paid in full. If less than all of the
shares of Convertible Preferred Stock then issued and outstanding are to be
redeemed at one time, the shares of Convertible Preferred Stock to be redeemed
shall be selected pro rata or by lot in such manner as may be prescribed by the
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<PAGE>
resolution of the Board of Directors of the Corporation. The Corporation shall
on the redemption date pay the holders of the shares of Convertible Preferred
Stock so purchased or redeemed the Redemption Price (as hereinafter defined) for
such shares out of the funds of the Corporation legally available therefor. Such
redemption shall be effected by call and written or printed notice (the
"Redemption Notice") shall be given to each holder of record of Convertible
Preferred Stock shares being called, either personally or by mail to such
holders last known address as shown on the records of the Corporation, not less
than twenty (20) nor more than sixty (60) days before the date fixed for
redemption. The Redemption Notice shall set forth (i) the shares of Convertible
Preferred Stock, or part thereof, to be redeemed, (ii) the date fixed for
redemption, (iii) the Redemption Price, and (iv) the place at which the holders
of Convertible Preferred Stock may obtain payment of the Redemption Price upon
surrender of their respective share certificates. The redemption price (the
"Redemption Price") for the shares of Convertible Preferred Stock being redeemed
shall be One and 09/100 Dollars ($1.09) per share. There is no mandatory
redemption or sinking fund obligation with respect to the Convertible Preferred
Stock.
(b) Surrender of Shares. On or after the date fixed for redemption, each
holder of Convertible Preferred Stock called for redemption shall, unless such
holder shall have previously exercised such holder's option to convert the
Convertible Preferred Stock into Common Stock in the manner set forth in Section
4 below, surrender such holder's certificates for such shares of Convertible
Preferred Stock to the Corporation at the place designated in the Redemption
Notice and shall thereupon be entitled to receive the Redemption Price. Should
less than all the shares of Convertible Preferred Stock represented by any
surrendered certificate be redeemed, a new certificate for the unredeemed shares
shall be issued to the holder of record of such unredeemed shares.
(c) Cessation of Rights as Stockholder. From and after the redemption date
(unless default shall be made by the Corporation in duly paying the Redemption
Price in which case all rights of the holders of Convertible Preferred Stock
shall continue), the holders of the shares of the Convertible Preferred Stock
called for redemption shall cease to have any rights as stockholders of the
Corporation except the right to receive, without interest, the Redemption Price
thereof upon surrender of the certificate(s) representing the shares of
Convertible Preferred Stock being redeemed, and such shares shall not thereafter
be transferred (except with the consent of the Corporation) on the books of the
Corporation and shall not be deemed outstanding for any purpose whatsoever.
(d) Cancellation of Redeemed Shares. All shares of Convertible Preferred
Stock that are redeemed shall be cancelled and such shares shall be restored to
the status of authorized but unissued shares of Preferred Stock.
(e) Deposit of Redemption Price into Trust. If, on or prior to any date
fixed for redemption of shares of Convertible Preferred Stock as provided in
this Section, the Corporation deposits with any bank or trust company, or any
bank or trust company in the United States duly appointed and acting as transfer
agent for the Corporation, as a trust fund, a sum sufficient to redeem, on the
date fixed for redemption, the shares called for redemption, with irrevocable
instructions and authority to the bank or trust company to publish the notice of
redemption, or to complete such publication if already commenced, and to pay, on
and after the date fixed for redemption or prior to such date, the Redemption
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<PAGE>
Price of the shares to their respective holders on surrender of their share
certificates, then from and after the date of the deposit, even though such date
may be prior to the date fixed for redemption, the shares so called shall be
deemed to be redeemed and dividends on those shares shall cease to accrue after
the date fixed for redemption. The deposit shall be deemed to constitute full
payment of the shares to their holders and from and after the date of the
deposit the shares shall be deemed to be no longer outstanding, and the holders
of the shares shall cease to be stockholders with respect to such shares and
shall have no rights with respect to such shares, except the right to receive
from the bank or trust company payment of the Redemption Price of the shares,
without interest, on surrender of their certificates, or the right to convert
said shares to Common Stock as provided in Section 4 below. Any money so
deposited on account of the Redemption Price of Convertible Preferred Stock
shares converted after the making of the deposit shall be repaid immediately to
the Corporation on the conversion of such preferred shares. Money so deposited
and unclaimed at the end of three (3) years shall be repaid to the Corporation
and thereafter the holders of such shares of Convertible Preferred Stock called
for redemption shall look only to the Corporation for payment.
4. Conversion of Convertible Preferred Stock.
(a) Conversion Right of Holder. Each share of the Convertible Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of initial issuance of such share of Convertible Preferred Stock
(or, if such share is called for redemption, at any time up to and including,
but not after, the close of business on the fifth full business day prior to the
date fixed for such redemption, unless default shall be made by the Corporation
in providing funds for the payment of the Redemption Price) and until the fourth
anniversary of such date (the "Conversion Period") into fully-paid and
nonassessable whole shares of Common Stock upon the terms and conditions set
forth in the following paragraphs of this Section. If the shares of Convertible
Preferred Stock are not voluntarily converted prior to the expiration of the
Conversion Period, each share of Convertible Preferred Stock then outstanding
shall be automatically converted at the Conversion Rate (as defined below),
subject to adjustment as provided in Section 4(d) hereof.
(b) Exercise of Conversion Right. Any holder of the Convertible Preferred
Stock electing to convert such stock into Common Stock pursuant to Section 4(a)
hereof shall deposit the certificates for the Convertible Preferred Stock at the
Corporation's principal office, with the form of written notice to the
Corporation endorsed on such certificate(s) of his election to convert such
Convertible Preferred Stock into Common Stock duly filled out and executed. The
conversion right in respect of any such Convertible Preferred Stock shall be
deemed to have been exercised at the date on which the certificates therefor and
such notice of election duly filled out and executed shall have been so
deposited with the Corporation. The person entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such Common Stock on such date; provided, however, that the conversion
right in respect of any certificate(s) so deposited after the close of business
on any day shall not be deemed to have been exercised until the next succeeding
business day. As soon as practicable, and in any event within thirty (30)
business days after the date of conversion of any Convertible Preferred Stock
into Common Stock pursuant to Section 4(a) hereof, the Corporation shall deliver
to the person entitled thereto, certificate(s) representing the shares of Common
Stock to which such person shall be entitled on such conversion. The
Corporation, as a condition to the exercise of such rights of conversion, may
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<PAGE>
require the payment of a sum equal to any transfer tax or other governmental
charge (but not including any tax payable upon the issue of stock deliverable
upon such conversion) that may be imposed or required by law, upon any transfer
incidental or prior thereto, or the submission of proper proof that the same has
been paid. The Company shall pay all accrued but unpaid dividends due and owing
to the then converting holder of the Convertible Preferred Stock as of either
the conversion date or the expiration of the Conversion Period, as applicable.
(c) Conversion Rate. Each share of Convertible Preferred Stock, converted
as provided in Section 4(a) hereof, shall entitle the holder to receive upon
conversion for each $.25 in face amount of Convertible Preferred Stock one share
of Common Stock (the "Conversion Rate"), subject to adjustment as provided in
Section 4(d) below. "Face Amount" meaning for all purposes herein the price of
$1.00 per share of Convertible Preferred Stock. The Conversion Rate will
initially allow a holder of Convertible Preferred Stock to receive four shares
of Common Stock for each share of Convertible Preferred Stock converted. The
Corporation shall not be required, in connection with any such conversion, to
issue a fraction of a share of its Common Stock nor to deliver any stock
certificate representing a fraction thereof. In lieu thereof, the Company shall
round up such fractional share and issue such full share accordingly.
(d) Adjustment of Conversion Rate. The Conversion Rate shall be subject to
adjustment from time to time in certain instances, as follows:
(1) On Recapitalization. On any recapitalization of the Corporation
through a stock split or any subdivision or combination of its outstanding
Common Stock into a greater or smaller number of shares, the number of
shares of Common Stock into which the shares of Convertible Preferred Stock
may be converted shall be increased or reduced in the same proportion,
which shall have a corresponding effect upon the Conversion Rate.
(2) On Sale of Additional Common Stock at Less Than $.25 Per Share or
the then Applicable Conversion Rate. Except in those circumstances set
forth in paragraph (4) of this Section 4(d), if the Corporation sells or
otherwise issues shares of its Common Stock on payment of an amount less
than the Conversion Rate, as applicable at the time of such sale or
issuance, the Conversion Rate, at the time of such sale or issuance, shall
be adjusted such that the Conversion Rate shall equal the price at which
the shares of Common Stock were sold in the transaction resulting in the
adjustment to the Conversion Rate required by this paragraph (2).
(3) On Capital Reorganization, Reclassification, Consolidation,
Merger, or Sale of Corporate Assets. On any capital reorganization,
reclassification of the capital stock, consolidation, merger, sale or
conveyance of all or substantially all of the assets of the Corporation to
another corporation, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash, or other property, each
share of Convertible Preferred Stock shall be convertible into the same
kind and amounts of securities, including share or other assets, or both,
to which the number of common shares of the Corporation which would have
been deliverable on conversion of such shares of Convertible Preferred
Stock immediately prior to such reorganization, reclassification,
consolidation, merger, sale, or conveyance would have been entitled.
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<PAGE>
Appropriate adjustments, as determined by the Board of Directors of the
Corporation, shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of
the Convertible Preferred Stock so that said provisions, including the
provisions with respect to changes in, and other adjustments of, the
Conversion Rate, shall thereafter be applicable, as nearly as reasonably
may be, in relation to any securities or other assets thereafter
deliverable on conversion of the shares of Convertible Preferred Stock.
(4) Events Not Requiring Adjustment to the Conversion Rate. The occurrence
of any of the following events shall not require an adjustment to the Conversion
Rate as contemplated by paragraph (2) above:
(i) the issuance of Common Stock as dividends on either the
outstanding Common Stock, the Convertible Preferred Stock or
other duly issued security of the Company;
(ii) the issuance of shares of Common Stock upon the exercise of
outstanding options or warrants;
(iii)the issuance of shares of Common Stock upon the exercise of
options granted under the Corporation's 1998 Stock Compensation
Plan;
(iv)any issuance of shares of Common Stock to Charles Brister, Chief
Executive Officer and President of the Corporation or any other
executive officer of the Corporation, in lieu of compensation
during calendar year 1999; and
(v)the distribution or issuance of Common Stock, rights or warrants to
subscribe for or purchase Common Stock or any other security, or
other securities or debt instruments convertible into Common
Stock, subject only to the requirement that such securities be
sold at a price per share or be convertible into Common Stock at
a rate in excess of the then applicable Conversion Rate.
(e) Statement of Adjusted Amount. Whenever the amount of shares of Common
Stock or other securities deliverable on the conversion of Convertible Preferred
Stock shall be adjusted pursuant to the provisions hereof, the Corporation shall
forthwith maintain at its office and deliver to each holder of the Convertible
Preferred Stock, a statement signed by the President or a Vice President of the
Corporation and by its Chief Financial Officer, stating the adjusted amount of
the Common Stock or other securities deliverable for each share of Convertible
Preferred Stock, calculated to the nearest one hundredth (1/100) share, and
setting forth in reasonable detail the method of calculation and the facts
requiring such adjustment and on which the calculation is based. Each adjustment
shall remain in effect until a subsequent adjustment hereunder is required.
(f) Payment of Taxes on Conversion of Convertible Preferred Stock. The
Corporation shall not pay any issue or other taxes that may be payable in
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<PAGE>
respect of any issue or delivery of Common Stock on conversion of shares of
Convertible Preferred Stock pursuant hereto.
(g) Reservation of Sufficient Common Stock. So long as any shares of
Convertible Preferred Stock shall remain outstanding and the holders thereof
shall have the right to convert said shares in accordance with the provisions of
this Section 4, the Corporation will at all times reserve from the authorized
and unissued shares of its Common Stock a sufficient number of shares to provide
for such conversions, and will take such other corporate action as may be
necessary from time to time in order that it may validly and legally issue
fully-paid and non-assessable shares of such Common Stock upon conversion of the
Convertible Preferred Stock.
(h) Definition of Common Stock. In each case where reference is made to the
Common Stock of the Corporation in this Section, unless a different intention is
expressed, such reference is to the class of Common Stock of the Corporation as
such class of stock exists at the date of the adoption of these provisions, or
stock into which the same may be changed from time to time.
(i) Status of Converted Preferred Shares. All shares of Convertible
Preferred Stock so converted shall be cancelled and such shares shall be
restored to the status of authorized but unissued shares of Preferred Stock.
5. Liquidation Rights.
(a) Liquidation Preference Amount. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the business or affairs of
the Corporation, and after payment of, or adequate provision for payment of, the
debts, liabilities and other claims of the Corporation as determined by its
Board of Directors, each holder of the Convertible Preferred Stock shall be
entitled to receive, out of the remaining net assets of the Corporation legally
available for distribution to its stockholders, before any payment or
distribution shall be made on the Common Stock, or on any other class of stock
of the Corporation ranking junior to the shares of Convertible Preferred Stock
upon liquidation, the amount of One and No/100 Dollar ($1.00) per share of
Convertible Preferred Stock, plus all accrued and unpaid dividends on each such
share up to the date fixed for distribution.
(b) Proportionate Distribution Where Assets Insufficient. In the event the
assets of the Corporation available for distribution to the holders of shares of
Convertible Preferred Stock upon dissolution, liquidation or winding up of the
Corporation whether voluntary or involuntary, shall be insufficient to pay in
full all amounts to which such holders are entitled pursuant to paragraph (a) of
this Section, no such distribution shall be made on account of any shares of any
class of capital stock of the Corporation ranking on a parity with the shares of
Convertible Preferred Stock upon such dissolution, liquidation or winding up
unless proportionate distributive amounts shall be paid on account of the shares
of Convertible Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(c) Nonparticipation Right. After the payment to the holders of the shares
of Convertible Preferred Stock of the full preferential amounts provided for in
either paragraph (a) or (b) of this Section, as applicable, the holders of
Convertible Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
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<PAGE>
(d) Excluded Transactions. Neither the consolidation nor merger of the
Corporation with or into any other corporation, nor the sale, mortgage, exchange
or conveyance of all or substantially all of the properties, assets or business
of the Corporation, nor any liquidation, dissolution or winding up of the
Corporation occurring substantially concurrently with any such transaction shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning hereof, unless otherwise determined by the Board of Directors
of the Corporation.
6. No Preemptive Rights. No holder of shares of the Convertible Preferred
Stock shall, as such holder, have any preemptive right to subscribe to or
purchase any shares of any class of capital stock of the Corporation now or
hereafter authorized or issued, whether or not exchangeable for any capital
stock of the Corporation of any class or classes now or hereafter authorized or
issued; nor shall any holder of shares of the Convertible Preferred Stock, as
such holder, have any right to purchase, acquire or subscribe for any securities
which the Corporation may issue or sell whether or not convertible into or
exchangeable for shares of capital stock of the Corporation of any class or
classes, and whether or not any such securities have attached or appurtenant
thereto warrants, options or other instruments which entitle the holders thereof
to purchase, acquire or subscribe for shares of capital stock of any class or
classes of the Corporation.
7. Covenants of the Corporation. The Corporation will not, by amendment to
its Articles of Incorporation, as amended, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the preferences and limitations of
Convertible Preferred Stock to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions set forth herein relating to Convertible Preferred Stock and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Convertible Preferred Stock against
dilution or other impairment.
IN WITNESS WHEREOF, KARTS INTERNATIONAL INCORPORATED has caused this
Certificate of Designation, Preferences and Rights to be signed by Charles
Brister, its President and Chief Executive Officer, and attested by Timothy P.
Halter, its Secretary, this 29th day of April, 1999.
KARTS INTERNATIONAL INCORPORATED
By: /s/ Charles Brister
-------------------------------------
CHARLES BRISTER
President and Chief Executive Officer
By: /s/ Timothy P. Halter
-------------------------------------
TIMOTHY P. HALTER
Secretary
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STATE OF LOUISIANA
PARISH OF ____________________
The foregoing instrument was acknowledged before me this day of
____________, 1999, by Charles Brister, as President and Chief Executive Officer
of Karts International Incorporated, a Nevada corporation, on behalf of the
corporation.
[SEAL]
Print Name:
Notary Public
Commission No.
My Commission Expires:
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this day of
____________, 1999, by Timothy P. Halter, as Secretary of Karts International
Incorporated, a Nevada corporation, on behalf of the corporation.
[SEAL]
Print Name:
Notary Public
Commission No.
My Commission Expires:
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EXHIBIT 10.43
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of this 3rd day of June, 1999
by and between KARTS INTERNATIONAL INCORPORATED, a Nevada corporation
("Borrower") and THE SCHLINGER FOUNDATION ("Schlinger"). In connection with the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
1. Definitions. All terms and phrases used herein which are defined in the
Uniform Commercial Code in the State of Texas, as amended from time to
time (the "UCC"), shall have the meanings given them in the UCC unless
otherwise defined herein. The following definitions shall apply
throughout this Agreement:
"Affiliate" means with respect to any Person in question, any other
Person owned or controlled by, or which owns or controls or is under
common control or is otherwise affiliated with such Person in question.
A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise.
"BTK" means Brister's Thunder Karts, Inc., a Louisiana corporation.
"Business Day" means any day other than Saturday, Sunday or any other
day on which financial institutions doing business in Dallas, Texas are
closed.
"Collateral" has the meaning given it in Section 4.
"Common Stock" shall mean the common stock, $.001 par value, of the
Borrower.
"Environmental Laws" means any and all federal, state and local laws,
regulations, rules, orders, licenses, agreements or other governmental
restrictions relating to the protection of human health or the
environment or to emissions, discharges or releases of pollutants or
industrial, toxic or hazardous substances into the environment, or
otherwise relating to the manufacture, processing, treatment, transport
or handling of pollutants or industrial, toxic or hazardous substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations
promulgated with respect thereto.
"ERISA Affiliate" means with respect to any Person in question, any
Person that would be treated as a single, employer with Borrower.
"ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA maintained by Borrower or any ERISA Affiliate thereof with
respect to which Borrower or any ERISA Affiliate has a fixed or
contingent liability.
"Event of Default" has the meaning given it in Section 12.
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"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting
Standards Board (or any generally recognized successor), consistently
applied throughout the period involved.
"Guarantors" means USA, BTK, KINT and Straight Line (whether one or
more).
"Indemnified Claims" means any and all claims, demands, actions, causes
of action, judgments, suits, liabilities, obligations, losses, damages
and consequential damages, penalties, fines, costs, fees, expenses and
disbursements (including without limitation, fees and expenses of
attorneys and other professional consultants and experts in connection
with any investigation or defense) of every kind or nature, known or
unknown, existing or hereafter arising, foreseeable or unforeseeable,
which may be imposed upon, threatened or asserted against or incurred
or paid by any Indemnified Person at any time and from time to time,
because of or resulting from, in connection with or in any way relating
to or arising out of the Loan, the Collateral or any other transaction,
act, omission, event or circumstance in any way connected with or
contemplated by this Agreement or the other Loan Documents or any
action taken or omitted by any such Indemnified Person under or in
connection with any of the foregoing (including but not limited to any
investigation, litigation, proceeding, enforcement of Schlinger's
rights or defense of Schlinger's actions related to or arising out of
this Agreement or the other Loan Documents), whether or not any
Indemnified Person is a party hereto.
"Indemnified Person" shall collectively mean Schlinger and its
officers, directors, shareholders, employees, attorneys,
representatives, agents, Affiliates, successors and assigns.
"KBK" means KBK Financial, Inc., a Delaware corporation.
"KBK Debt" means the indebtedness, liabilities and obligations of
Borrower and the other Obligors to KBK pursuant to the KBK Loan
Agreement and the other KBK Loan Documents.
"KBK Loan Agreement" means that certain Loan Agreement dated as of
September 28, 1998 between KBK and Borrower as the same may have been
amended, modified, supplemented, renewed, extended or restated from
time to time.
"KBK Loan Documents" means the Loan Documents as defined in the KBK
Loan Agreement that were heretofore or are hereafter entered into in
connection the KBK Loan Agreement.
"KINT" means KINT, L.L.C., a Louisiana limited liability company.
"Lien" means any mortgage, lien, pledge, assignment, adverse claim,
charge, security interest or other encumbrance.
"Loan" has the meaning given it in Section 2.
"Loan Documents" means this Agreement, the Note and all other
documents, agreements and instruments now or hereafter required by
Schlinger to be executed and delivered in connection herewith
(including, without limitation, all documents, agreements and
instruments evidencing, securing, governing, guaranteeing and/or
pertaining to the Note and the Loan).
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<PAGE>
"Maximum Rate" means, with respect to Schlinger, the maximum
non-usurious interest rate, if any, that any time or from time to time
may be contracted for, taken, reserved, charged or received with
respect to the Loan or other amount as to which such rate is to be
determined, payable to Schlinger pursuant to this Agreement or any
other Loan Document, under laws applicable to Schlinger which are
presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a
higher maximum non-usurious interest rate than applicable laws now
allow. The Maximum Rate shall be calculated in a manner that takes into
account any and all fees, payments and other charges in respect of the
Loan Documents that constitute interest under applicable law. Each
change in any interest rate provided for herein based upon the Maximum
Rate resulting from a change in the Maximum Rate shall take effect
without notice to the Borrower at the time of such change in the
Maximum Rate. For purposes of determining the Maximum Rate under Texas
law, the applicable rate ceiling shall be the weekly rate ceiling
described in, and computed in accordance with the Texas Finance Code or
any successor or replacement statute; provided, however, that, to the
extent permitted by applicable law, Schlinger shall have the right to
change the applicable rate ceiling from time to time in accordance with
applicable law.
"Net Profit" means net income after taxes (including extraordinary
losses and excluding extraordinary gains) as of the end of time period
being measured.
"Note" has the meaning given it in Section 3.
"Obligors" means Borrower and Guarantors.
"Person" means a corporation, association, partnership, limited
liability company, organization, business, individual, governmental or
political subdivision thereof or governmental agency.
"Subordinated Debt" means indebtedness owing by Borrower to a creditor
other than Schlinger or KBK which has been subordinated and subject in
right of payment to the prior payment of all indebtedness and
obligations now or hereafter owing by Borrower to Schlinger, such
subordination to be evidenced by a written agreement between Schlinger
and the subordinated creditor which is in form and substance
satisfactory to Schlinger.
"Straight Line" means Straight Line Manufacturing, Inc., a Michigan
corporation.
"Tangible Net Worth" means, as of any date, the amount by which
Borrower's total assets exceeds its total liabilities plus Subordinated
Debt, less any intangible assets (as defined by GAAP), less deferred
charges.
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) of
ERISA or (ii) any other reportable event described in Section 4043 of
ERISA other than a reportable event not subject to the provision for
30-day notice to the Pension Benefit Guaranty Corporation pursuant to a
waiver by such corporation under Section 4043(a) of ERISA, (b) the
withdrawal of Borrower or any Affiliate of Borrower from any ERISA Plan
during a plan year in which it was a "substantial employer" as defined
in Section 4001(a)(2) of ERISA, or (c) any event or condition which
might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
ERISA Plan. "USA" means USA Industries Incorporated, an Alabama
corporation.
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<PAGE>
2. Loan.
(a) Loan and Repayment. Subject to the terms of this Agreement, on the
date of this Agreement or at such time that all applicable conditions
have been satisfied, whichever is later, Schlinger will make a loan to
the Borrower (the "Loan"), to the extent requested by the Borrower as
of such date, in the original principal amount of One Million Five
Hundred Thousand and No/100 Dollars ($1,500,000). Principal of the Loan
shall be due and payable in one installment of all unpaid principal and
accrued unpaid interest on May 31, 2004.
(b) Prepayment. On or after the second anniversary of the date hereof,
Borrower may prepay the Loan in full or in part at any time prior to
May 31, 2004, provided, that the Borrower shall (i) give Schlinger
thirty (30) days' written notice of the Borrower's intention to do so
and (ii) pay to Schlinger, as liquidated damages and not as a penalty,
an amount equal to the twelve percent (12%) multiplied by the principal
amount of the Loan being prepaid at such time.
3. Promissory Note.
(a) Note. Borrower agrees to execute, contemporaneously herewith,
a promissory note payable to the order of Schlinger, in form
and substance acceptable to Schlinger in Schlinger's sole and
absolute discretion, for the Loan provided hereunder to
evidence the indebtedness owing by Borrower to Schlinger under
the Loan (whether one or more, together with any renewals,
extensions and increases thereof, the "Note").
(b) Rate and Payments. The principal of and interest on the Note
shall be due and payable and may be prepaid in accordance with
the terms and conditions set forth in the Note and in this
Agreement. Interest on the Note shall accrue at the rate set
forth therein.
(c) Conversion. The Note and the outstanding amount of the Loan
shall be convertible into common stock of the Borrower and
shall have certain registration rights in favor of the holder
thereof, in accordance with the terms and conditions set forth
therein.
4. Collateral. As security for the indebtedness evidenced by the Note and
any and all other indebtedness or obligations owing from time to time
by Borrower to Schlinger under this Agreement, Schlinger shall receive
a Lien in and to the collateral described in the other Loan Documents
(the "Collateral").
5. Guarantors. As a condition precedent to Schlinger's obligation to
provide the Loan to Borrower, Borrower agrees to cause the Guarantors
to each execute and deliver to Schlinger contemporaneously herewith a
guaranty agreement, in form and substance acceptable to Schlinger in
Schlinger's sole and absolute discretion.
6. Representations and Warranties. Borrower hereby represents and warrants
to Schlinger as follows:
(a) Existence. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the state of
its incorporation and is duly licensed, qualified to do
business and is in good standing in all other states in which
such licensing, qualification and good standing are necessary.
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Borrower has all requisite power and authority (i) to own and
operate its properties, (ii) to carry on its business as now
conducted and as proposed to be conducted, and (iii) to
execute and deliver this Agreement and the other Loan
Documents to which Borrower is a party.
(b) Binding Obligations. The execution, delivery, and performance
of this Agreement and all of the other Loan Documents by
Borrower have been duly authorized by all necessary action by
Borrower, have been duly executed and delivered by Borrower
and constitute legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective
terms, except as limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of
creditors' rights and except to the extent specific remedies
may generally be limited by equitable principles.
(c) No Consent. The execution, delivery and performance of this
Agreement and the other Loan Documents, and the consummation
of the transactions contemplated hereby and thereby, do not
(i) conflict with, result in a violation of, or constitute a
default under (A) any provision of Borrower's articles or
certificate of incorporation or bylaws, (B) any law,
governmental regulation, court decree or order applicable to
Borrower, or (C) any other document or agreement to which
Borrower is a party, or (ii) require the consent, approval or
authorization of any third party other than KBK.
(d) Financial Condition. Each financial statement of Borrower
supplied to Schlinger is true, correct and complete in all
material respects and fairly presents Borrower's financial
condition in all material respects as of the date of each such
statement. There has been no material adverse change in such
financial condition or results of operations of Borrower
subsequent to the date of the most recent financial statement
supplied to Schlinger.
(e) Litigation. There are no actions, suits or proceedings,
pending or, to the knowledge of Borrower, threatened against
or affecting Borrower or the properties of Borrower, before
any court or governmental department, commission or board,
which, if determined adversely to Borrower, would have a
material adverse effect on the business, financial condition,
properties, operations or prospects of Borrower.
(f) Taxes. Governmental Charges. Borrower has filed all federal,
state and local tax reports and returns required by any law or
regulation to be filed by it and has either duly paid all
taxes, duties and charges indicated due on the basis of such
returns and reports, or made adequate provision for the
payment thereof, and the assessment of any material amount of
additional taxes in excess of those paid and reported is not
reasonably expected. There is no tax Lien notice against
Borrower or its properties presently on file.
(g) ERISA Compliance. Borrower is in compliance with ERISA
concerning Borrower's ERISA Plan, if any, or is not required
to contribute to any "multi-employer plan" as defined in
Section 401 of ERISA.
(h) Compliance with Laws. Borrower is conducting its business in
material compliance with all statutes, rules, regulations
and/or ordinances imposed by any governmental unit upon
Borrower or upon its businesses, operations and property
(including, without limitation, all Environmental Laws).
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Borrower has all permits and licenses necessary for the
operations of its business as presently conducted and as
proposed to be conducted.
(i) Tradenames. Borrower and Guarantors conduct business under no
trade or assumed name except KINT conducts business under the
tradename Bird Promotions.
7. Conditions Precedent to Loan. Schlinger's obligation to make the Loan
under this Agreement and the other Loan Documents shall be subject to
the conditions precedent that, as of the date of such Loan and after
giving effect thereto (i) all representations and warranties made to
Schlinger in this Agreement and the other Loan Documents shall be true
and correct, as of and as if made on such date, (ii) no material
adverse change in the financial condition of Borrower or its business
since the effective date of the most recent financial statements
furnished to Schlinger by Borrower shall have occurred, (iii) no Event
of Default shall have occurred and no event has occurred and is
continuing, or would result from the requested Loan, which with notice
or lapse of time, or both, would constitute an Event of Default (as
hereinafter defined), (iv) Schlinger shall have received all Loan
Documents appropriately executed by Borrower and all other proper
parties and all such Loan Documents are in full force and effect,
(v) the KBK Loan Agreement shall have been amended to modify the
financial covenants contained therein, in form and substance
satisfactory to Schlinger, and (vi) Schlinger shall have received all
fees and expenses owing to Schlinger under this Agreement and the
other Loan Documents.
8. Affirmative Covenants. Until the Note and all other obligations and
liabilities of Borrower under this Agreement and the other Loan
Documents are fully paid and satisfied, and Borrower agrees and
covenants that it will, unless Schlinger shall otherwise consent in
writing (which consent may be withheld by Schlinger in Schlinger's sole
and absolute discretion):
(a) Accounts and Records. Maintain its books and records in
accordance with GAAP.
(b) Right of Inspection. Permit Schlinger to visit its properties
and installations and to examine, audit and make and take away
copies or reproductions of Borrower's books and records, at
all reasonable times. Borrower agrees to pay all costs
associated with any such audits, at a rate equal to $500.00
per day, per person, plus out-of-pocket expenses; provided,
however, as long as no Event of Default has occurred,
Borrower's obligation for Schlinger's audits shall not exceed
$15,000.00 per calendar year.
(c) Right to Additional Information. Furnish Schlinger with such
additional information and statements, lists of assets and
liabilities, tax returns, and other reports with respect to
Borrower's financial condition and business operations as
Schlinger may request from time to time.
(d) Compliance with Laws. Conduct its business in an orderly and
efficient manner consistent with good business practices, and
perform and comply with all statutes, rules, regulations
and/or ordinances imposed by any governmental unit upon
Borrower, its businesses, operations and properties (including
without limitation, all Environmental Laws).
(e) Taxes. Pay and discharge when due all assessments, taxes,
governmental charges and levies, of every kind and nature,
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imposed upon Borrower or its properties, income or profits,
prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a Lien upon any
of Borrower's property, income or profits; provided,
however, Borrower will not be required to pay and discharge
any such assessment, tax, charge, levy or claim so long as
(i) same shall be contested in good faith by appropriate
judicial, administrative or other legal proceedings timely
instituted, (ii) Borrower shall have established adequate
reserves with respect to such contested assessment, tax,
charge, levy or claim in accordance with GAAP, and (iii) the
perfection and priority of Schlinger's security interest in
the Collateral, or the value of the Collateral, is not
impaired.
(f) Insurance. Maintain, with financially sound and reputable
insurers, such insurance as deemed necessary or otherwise
reasonably required by Schlinger, including but not limited
to, fire insurance, comprehensive property damage, public
liability, worker's compensation and business interruption
insurance.
(g) Notice of Material Change/Litigation. Borrower shall promptly
notify Schlinger in writing (i) of any material adverse change
in Borrower's financial condition or its businesses, and (ii)
of any litigation or claims against Borrower which could
materially affect Borrower or its business operations,
financial condition or prospects.
(h) Corporate Existence. Maintain its corporate existence and good
standing in the state of its incorporation and its
qualification and good standing in all other states where
required by applicable law.
(i) ERISA. Borrower shall promptly notify Schlinger in writing of
the adoption or amendment of any plan that results in the
representations in Subsection 7(g) no longer being true and
correct.
(j) Additional Documentation. Execute and deliver, or cause to be
executed and delivered, any and all other agreements,
instruments or documents which Schlinger may reasonably
request in order to give effect to the transactions
contemplated under this Agreement and the other Loan
Documents.
(k) Authorization and Reservation of Sufficient Common Stock.
(i) The Borrower shall, within one hundred twenty (120) after
the date hereof:
(A) take such corporate action as may be
necessary to amend its articles of
incorporation to increase the number of
authorized but unissued shares of common
stock of the Borrower as shall be sufficient
to effect the conversion of the Note into
Common Stock of the Borrower pursuant to the
terms thereof; and
(B) reserve and keep available such shares of
Common Stock out if its authorized but
unissued shares of Common Stock, solely for
the purpose of effecting the conversion of
the Note into Common Stock of the Borrower,
such number of its shares of Common Stock as
shall be sufficient to effect the conversion
of the entire outstanding principal amount
of the Note in accordance the with
provisions thereof.
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The failure of the Borrower to amend its
Articles of Incorporation and to reserve
such number of shares of Common Stock as
required by this Section 8 (k)(i) shall
constitute an Event of Default under this
Agreement.
(ii) From and after the effective date of the amendment to the
articles required in Section 8(k)(i) above, the Borrower
shall at all times reserve and keep available, out of its
authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the Note,
such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of
the Note pursuant to the terms thereof; and if at any
time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the
conversion of the entire outstanding principal amount
of the Note, in addition to such other remedies as shall
be available to the holder of the Note, the Borrower
will use its best efforts to take such corporate action
as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient
for such purposes.
(l) On or before thirty (30) days from the date hereof (i) Charles
Brister shall have entered into an employment agreement with
Borrower that is for a term of at least three (3) years and
is otherwise in form and substance satisfactory to Schlinger
and (ii) in connection with such employment agreement Borrower
shall execute an agreement to and in favor of Schlinger
whereby Borrower agrees to provide adequate anti-dilution
protection that Schlinger deems necessary for the shares of
Common Stock that may be issued to Schlinger pursuant to the
conversion of the Note as a result of any Common Stock that
may be issued to Charles Brister in connection with such
employment agreement.
9. Negative Covenants. Until the Note and all other obligations and
liabilities of Borrower under this Agreement and the other Loan
Documents are fully paid and satisfied, Borrower will not and will
cause Guarantors to not, without the prior written consent of Schlinger
(which consent, withhold in Schlinger's sole and absolute discretion):
(a) Nature of Business. Make any material change in the nature of
its business as carried on as of the date hereof.
(b) Liquidations, Mergers, Consolidations; Acquisitions; Name
Change. Liquidate, merge or consolidate with or into any other
Person, convert from one type of legal entity to another type
of legal entity, form or acquire any new subsidiary or acquire
by purchase or otherwise all or substantially all of the
assets of any other Person, or change its name or operate
under any new trade or assumed names.
(c) Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange
of property or the rendering of any service, with any
Affiliate of any Obligor, except in the ordinary course of and
pursuant to the reasonable requirements of an Obligor's
business, upon fair and reasonable terms no less favorable to
Obligor than would be obtained in a comparable arm's-length
transaction with a person or entity not an Affiliate of any
Obligor and in accordance with the terms and provisions of the
Loan Documents.
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(d) Sale of Assets. Sell, lease, transfer or otherwise dispose of
all or substantially all of its assets or properties, other
than inventory sold in the ordinary course of business and as
necessary to replace obsolete equipment.
(e) Liens. Create or incur any Lien on any of its assets, other
than (i) Liens securing indebtedness owing to Schlinger,
(ii) Liens securing the KBK Debt, (iii) pledges or deposits
to secure the payment of obligations under any worker's
compensation laws or similar laws, (iv) deposits to secure
the payment of public or statutory obligations, (v)
mechanic's, carriers', workman's, repairman's or other Liens
arising by operation of law in the ordinary course of
business which secure obligations that are not overdue or
are being contested in good faith and for which such entity
has established adequate reserves in accordance with
generally accepted accounting principles, (and for which
Schlinger's security interest in the Collateral is not
impaired) and (vi) Liens existing as of the date hereof
which have been disclosed to and approved by Schlinger in
writing.
(f) Change in Management. Permit a change in the senior management
of Borrower.
(g) Loans. Make any loans to any person or entity.
10. Financial Covenants. Until the Note and all other obligations and
liabilities of Borrower under this Agreement and the other Loan
Documents are fully paid and satisfied, Obligors, on a consolidated
basis, will maintain the following financial covenants:
(a) Current Ratio. At the end of each fiscal month, a ratio of (i)
current assets (excluding prepaid expenses), to (ii) current
liabilities of not less than 1.5 to 1.0.
(b) Debt/Tangible Net Worth Ratio. At the end of each fiscal
month, a ratio of total liabilities to Tangible Net Worth of
less than 2.5 to 1.0.
(c) Tangible Net Worth. At the end of each fiscal month, its
Tangible Net Worth of not less than $2,500,000.00.
Unless otherwise specified, all accounting and financial terms and
covenants set forth above are to be determined according to GAAP.
11. Reporting Requirements. Until the Note and all other obligations and
liabilities of Borrower under this Agreement and the other Loan
Documents are fully paid and satisfied, Borrower will and will cause
the Guarantors to, unless Schlinger shall otherwise consent in writing,
furnish to Schlinger:
(a) Financial Statements. The following financial statements: (i)
within 120 days after the last day of each fiscal year of
Borrower a consolidated statement of income and a
consolidated statement of cash flows of Obligors for such
fiscal year, and a consolidated balance sheet of Obligors as
of the last day of such fiscal year in each case audited by
an independent certified public accounting firm acceptable
to Schlinger, together with a copy of any report to
management delivered to Borrower by such accountants in
connection therewith; and (ii) within 30 days after the last
day of each fiscal month of Borrower, an unaudited
consolidated statement of income and statement of cash flows
of Obligors for such fiscal month, and an unaudited
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consolidated balance sheet of Obligors as of the last day of
such fiscal month. Borrower represents and warrants that
each such statement of income and statement of cash flows
will fairly represent, in all material respects, the results
of operations and cash flows of Borrower for the period set
forth therein, and that each such balance sheet will fairly
represent, in all material respects, the financial condition
of Borrower as of the date set forth therein, all in
accordance with GAAP, (or, with respect to unaudited
financial statements, in the notes thereto and subject to
year-end review adjustments).
(b) Inventory Listing. A list of inventory for USA and BTK by
location and type (to include the following: raw materials,
work in process and finished goods) within ten (10) Business
Days after the end of each month, in form and detail
satisfactory to Schlinger.
12. Events of Default. Each of the following shall constitute an "Event of
Default" under this Agreement and the other Loan Documents:
(a) Failure to Pay Indebtedness. Borrower shall fail to pay as and
when due any part of the principal of, or interest on, the
Note or any other indebtedness or obligations now or hereafter
owing to Schlinger by Borrower.
(b) Event of Default Under KBK Loan Documents. A default or event
of default shall occur under the KBK Loan Agreement or any of
the other KBK Loan Documents.
(c) Non-Performance of Covenants. Any of the Obligors shall breach
any covenant or agreement made herein in any of the other Loan
Documents or in any other agreement now or hereafter entered
into between any of the Obligors and Schlinger.
(d) False Representation. Any warranty or representation made
herein, or in any of the other Loan Documents shall be false
or misleading in any material respect when made.
(e) Default Under Other Loan Documents. The occurrence of an event
of default under any of the other Loan Documents or any other
agreement now or hereafter entered into between any of the
Obligors and Schlinger.
(f) Untrue Financial Report. Any report, certificate, schedule,
financial statement, profit and loss statement or other
statement furnished by any Obligor, or by any other person on
behalf of any Obligor, to Schlinger is not true and correct in
any material respect.
(g) Default to Third Party. The occurrence of any event which
permits the acceleration of the maturity of any indebtedness
owing by any of the Obligors to any third party, including,
without limitation, KBK, under any agreement or undertaking.
(h) Bankruptcy. The filing of a voluntary or involuntary case by
or against any of the Obligors under the United States
Bankruptcy Code or other present or future federal or state
insolvency, bankruptcy or similar laws, or the appointment of
a receiver, trustee, conservator or custodian for a
substantial portion of the assets of any of the Obligors.
(i) Insolvency. Any of the Obligors shall become insolvent, make a
transfer in fraud of creditors or make an assignment for the
benefit of creditors.
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(j) Involuntary Lien. The filing or commencement of any
involuntary Lien, garnishment, attachment or the like shall be
issued against or with respect to the Collateral.
(k) Material Adverse Change. A material adverse change shall have
occurred in the financial condition, business prospects or
operations of any of the Obligors.
(l) Tax Lien. Any of the Obligors shall have a federal or state
tax Lien filed against any of its properties.
(m) Execution on Collateral. The Collateral or any portion thereof
is taken on execution or other process of law.
(n) ERISA Plan. Either (i) any "accumulated funding deficiency"
(as defined in Section 412(a) of the Internal Revenue Code of
1986, as amended) in excess of $25,000 exists with respect to
any ERISA Plan of Borrower or its ERISA Affiliate, or (ii) any
Termination Event occurs with respect to any ERISA Plan of
Borrower or its ERISA Affiliate and the then current value of
such ERISA Plan's benefit liabilities exceeds the then current
value of such ERISA Plan's assets available for the payment of
such benefit liabilities by more than $25,000.
(o) Guarantor's Obligations. If any of the obligations of any
Guarantor is limited or terminated by operation of law or by
such Guarantor, or any such Guarantor becomes the subject of
an insolvency proceeding.
(p) Judgment. The entry against any of the Obligors of a final and
nonappealable judgment for the payment of money in excess of
$25,000 (not covered by insurance satisfactory to Schlinger in
Schlinger's sole discretion).
Nothing contained in this Loan Agreement shall be construed to limit
the events of default enumerated in any of the other Loan Documents and
all such events of default shall be cumulative.
13. Remedies. Upon the occurrence of any one or more of the foregoing
Events of Default, the entire unpaid balance of principal of the Note,
together with all accrued but unpaid interest thereon, and all other
indebtedness owing to Schlinger by Borrower at such time shall, at the
option of Schlinger, become immediately due and payable without
further notice, demand, presentation, notice of dishonor, notice of
intent to accelerate, notice of acceleration, protest or notice of
protest of any kind, all of which are expressly waived by Borrower;
provided, however, concurrently and automatically with the occurrence
of an Event of Default under Subsections (h) or (i) in the Section
entitled "Event of Default" the Note and all other indebtedness owing
to Schlinger by Borrower at such time shall, without any action by
Schlinger, become immediately due and payable, without further notice,
demand, presentation, notice of dishonor, notice of acceleration,
notice of intent to accelerate, protest or notice of protest of any
kind, all of which are expressly waived by Borrower. All rights and
remedies of Schlinger set forth in this Agreement and in any of the
other Loan Documents are cumulative and may also be exercised by
Schlinger, at its option and in its sole discretion, upon the
occurrence of an Event of Default.
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14. Indemnification. Borrower hereby indemnifies and agrees to hold
harmless and defend all Indemnified Persons from and against any and
all Indemnified Claims. THE FOREGOING INDEMNIFICATION SHALL APPLY
WHETHER OR NOT SUCH INDEMNIFIED CLAIMS ARE IN ANY WAY OR TO ANY EXTENT
OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT
LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR
OMISSION OF ANY INDEMNIFIED PERSON, but shall exclude any of the
foregoing resulting from such Indemnified Person's gross negligence or
willful misconduct. If Borrower or any third party ever alleges any
gross negligence or willful misconduct by any Indemnified Person, the
indemnification provided for in this Section shall nonetheless be paid
upon demand, subject to later adjustment or reimbursement, until such
time as a court of competent jurisdiction enters a final judgment as
to the extent and affect of the alleged gross negligence or willful
misconduct. Upon notification and demand, Borrower agrees to provide
defense of any Indemnified Claim and to pay all costs and expenses of
counsel selected by any Indemnified Person in respect thereof. Any
Indemnified Person against whom any Indemnified Claim may be asserted
reserves the right to settle or compromise any such Indemnified Claim
as such Indemnified Person may determine in its sole discretion, and
the obligations of such Indemnified Person, if any, pursuant to any
such settlement or compromise shall be deemed included within the
Indemnified Claims. Except as specifically provided in this Section,
Borrower waives all notices from any Indemnified Person. The provisions
of this Section shall survive the termination of this Agreement.
15. Rights Cumulative. All rights of Schlinger under the terms of this
Agreement shall be cumulative of, and in addition to, the rights of
Schlinger under any and all other agreements between Borrower and
Schlinger (including, but not limited to, the other Loan Documents),
and not in substitution or diminution of any rights now or hereafter
held by Schlinger under the terms of any other agreement.
16. Waiver and Agreement. Neither the failure nor any delay on the part of
Schlinger to exercise any right, power or privilege herein or under
any of the other Loan Documents shall operate as a waiver thereof, nor
shall any single or partial exercise of such right, power or privilege
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. No waiver of any provision in this
Loan Agreement or in any of the other Loan Documents and no departure
by Borrower therefrom shall be effective unless the same shall be in
writing and signed by Schlinger, and then shall be effective only in
the specific instance as specified in such writing. No modification or
amendment to this Loan Agreement or to any of the other Loan Documents
shall be valid or effective unless the same is signed by the party
against whom it is sought to be enforced.
17. Benefits. This Agreement shall be binding upon and inure to the benefit
of Schlinger and Borrower, and their respective successors and assigns;
provided, however, that Borrower may not, without the prior written
consent of Schlinger, assign any rights, powers, duties or obligations
under this Agreement or any of the other Loan Documents.
18. Notices. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be
in writing and given by (i) personal delivery, (ii) expedited delivery
service with proof of delivery, (iii) United States mail, postage
prepaid, registered or certified mail, return receipt requested, or
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(iv) telecopy (with receipt thereof confirmed by telecopier) sent to
the intended addressee at the address set forth on the signature page
hereof and shall be deemed to have been received either, in the case
of personal delivery, as of the time of personal delivery, in the case
of expedited delivery service, as of the date of first attempted
delivery at the address and in the manner provided herein, in the case
of mail, upon deposit in a depository receptacle under the care and
custody of the United States Postal Service, or in the case of
telecopy, upon receipt. Either party shall have the right to change
its address for notice hereunder to any other location within the
continental United States by notice to the other party of such new
address at least thirty (30) days prior to the effective date of such
new address.
19. Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT
PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE
SECURITY INTEREST GRANTED HEREUNDER OR THEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS ARE PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS.
BORROWER AND SCHLINGER EACH AGREE THAT DALLAS COUNTY, TEXAS, SHALL BE
THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING
UNDER OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND
THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH
DISPUTE OR CLAIM. BORROWER AND SCHLINGER EACH CONSENT TO THE PERSONAL
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY,
TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. BORROWER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
20. Waiver of Jury Trial. BORROWER AND SCHLINGER EACH HEREBY IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY
AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT
OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
21. Invalid Provisions. If any provision of this Agreement or any of the
other Loan Documents is held to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable
and the remaining provisions of this Agreement or any of the other Loan
Documents shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its
severance.
22. Expenses. Borrower shall pay all costs and expenses (including, without
limitation, reasonable attorneys' fees) in connection with (i) the
preparation of the Loan Documents, (ii) any action required in the
course of administration of the indebtedness and obligations evidenced
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by the Loan Documents, and (iii) any action in the enforcement of
Schlinger's rights upon the occurrence of Event of Default.
23. Participation of the Loan. Provided that the prospective purchaser
and/or assignee is not a business competitor of Borrower, as determined
by Schlinger in its reasonable discretion, Borrower agrees that
Schlinger may, at its option, sell interests in the Loan and its rights
under this Agreement and the other Loan Documents and, in connection
with each such sale, Schlinger may disclose any financial and other
information available to Schlinger concerning Borrower to each
prospective purchaser and assignee.
24. Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any
time the interest rate (the "Contract Rate") for the Loan or any
other indebtedness, liability or obligation shall exceed the
Maximum Rate, thereby causing the interest accruing thereon to be
limited to the Maximum Rate, then any subsequent reduction in the
Contract Rate therefor shall not reduce the rate of interest
therefor below the Maximum Rate until the aggregate amount of
interest accrued thereon equals the aggregate amount of interest
which would have accrued thereon if the Contract Rate had at all
times been in effect.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, none of the terms and
provisions of this Agreement or the other Loan Documents shall
ever be construed to create a contract or obligation to pay
interest at a rate in excess of the Maximum Rate; and Schlinger
shall never charge, receive, take, collect, reserve or apply, as
interest on the Loan or any other indebtedness, liability or
obligation, any amount in excess of the Maximum Rate. The parties
hereto agree that any interest, charge, fee, expense or other
obligation provided for in this Agreement or in the other Loan
Documents which constitutes interest under applicable law shall
be, ipso facto and under any and all circumstances, limited or
reduced to an amount equal to the lesser of (i) the amount of
such interest, charge, fee, expense or other obligation that
would be payable in the absence of this Section 24(b) or (ii) an
amount, which when added to all other interest payable under this
Agreement and the other Loan Documents, equals the Maximum Rate.
If, notwithstanding the foregoing, Schlinger ever contracts for,
charges, receives, takes, collects, reserves or applies as
interest any amount in excess of the Maximum Rate, such amount
which would be deemed excessive interest shall be deemed a
partial payment or prepayment of principal of the Loan or any
other indebtedness, liability or obligation and treated hereunder
as such; and if the Loan or any other indebtedness, liability or
obligation, or applicable portions thereof, are paid in full, any
remaining excess shall promptly be paid to the Borrower or other
applicable Obligor or Obligors (as appropriate). In determining
whether the interest paid or payable, under any specific
contingency, exceeds the Maximum Rate, the Borrower and the other
Obligors and Schlinger shall, to the maximum extent permitted by
applicable law, (a) characterize any nonprincipal payment as an
expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of the
Loan or any other indebtedness, liability or obligation, or
applicable portions thereof, so that the interest rate does not
exceed the Maximum Rate at any time during the term of the Loan
14
<PAGE>
or any other indebtedness, liability or obligation; provided
that, if the unpaid principal balance is paid and performed in
full prior to the end of the full contemplated term thereof, and
if the interest received for the actual period of existence
thereof exceeds the Maximum Rate, Schlinger shall refund to the
Borrower or other applicable Obligor or Obligors (as appropriate)
the amount of such excess and, in such event, Schlinger shall not
be subject to any penalties provided by any laws for contracting
for, charging, receiving, taking, collecting, reserving or
applying interest in excess of the Maximum Rate.
25. Conflicts. In the event any term or provision hereof is inconsistent
with or conflicts with any term or provision in any of the Loan
Documents, the terms and provisions contained in this Agreement shall
be controlling.
26. Counterparts. This Agreement may be separately executed in any number
of counterparts, each of which shall be an original, but all of which,
taken together, shall be deemed to constitute one and the same
instrument. Delivery of an executed counterpart of this Agreement by
telecopy shall be equally as effective as delivery of a manually
executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telecopy also shall deliver a
manually executed counterpart of this Agreement but the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
27. Agreement Subject to Subordination Agreement. This Agreement and the
terms and provisions hereof are subject to the terms and provisions of
that certain Subordination Agreement of even date herewith between
Schlinger and KBK.
28. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. THIS AGREEMENT ALSO AMENDS AND SUPERSEDES ANY OF THE TERMS OF
ANY PRIOR WRITTEN AGREEMENTS WITH RESPECT TO THE MATTERS SET FORTH IN
THIS AGREEMENT.
15
<PAGE>
EXECUTED as of the date first above written.
BORROWER: SCHLINGER:
KARTS INTERNATIONAL THE SCHLINGER FOUNDATION
INCORPORATED
By: /s/ Charles Brister By:
------------------------
Charles Brister Name:
President & C.E.O. Title:
Borrower's Address: Schlinger's Address:
P. O. Box 695 The Schlinger Foundation
62204 Commercial Street 1944 Edison Street
Roseland, Louisiana 70456 Santa Yinez, California 93460
Telecopy No.: 504-747-2700 Telecopy No.: (805) 686-1618
16
EXHIBIT 10.44
<PAGE>
CONVERTIBLE TERM NOTE
$1,500,000.00 June 3, 1999
FOR VALUE RECEIVED, on or before May 31, 2004 ("Maturity Date"), the
undersigned and if more than one, each of them, jointly and severally
(hereinafter referred to as "Borrower"), promises to pay to the order of THE
SCHLINGER FOUNDATION ("Schlinger") at its offices in 1944 Edison Street, Santa
Yinez, California 93460, the principal amount of ONE MILLION FIVE HUNDRED
THOUSAND AND 00/100 DOLLARS ($1,500,000.00) ("Total Principal Amount"), together
with interest at the rate set forth below.
1. Interest Rate. The unpaid principal amount of this Note shall bear
interest at a rate per annum which shall be equal to twelve percent (12%)
("Contract Rate"); provided, however, in no event shall the Contract Rate exceed
the maximum rate allowed by applicable law.
2. Repayment Terms. The principal of and all accrued but unpaid interest on
this Note (the "Loan") shall be due and payable as follows:
(a) interest shall be due and payable monthly as it accrues,
commencing on the 30th day of June, 1999 and continuing on the
last day of each successive month thereafter during the term of
this Note; and
(b) principal of the Loan shall be due and payable in one installment
of all unpaid principal and accrued unpaid interest on May 31,
2004.
3. Prepayment Penalty. On or after the second anniversary of the date
hereof, Borrower may prepay the Loan in full or in part at any time prior to May
31, 2004, provided, that the Borrower shall (i) give Schlinger thirty (30) days'
written notice of the Borrower's intention to do so and (ii) pay to Schlinger,
as liquidated damages and not as a penalty, an amount equal to the twelve
percent (12%) multiplied by the principal amount of the Loan being prepaid at
such time.
4. Loan Documents. This Note is subject to the terms and conditions set
forth in that certain Loan Agreement dated June __, 1999 by and between Borrower
and Schlinger, as may be amended from time to time (the "Loan Agreement"). All
capitalized terms used herein that are not otherwise defined herein shall have
the same meaning given to such terms in the Loan Agreement. This Note, the Loan
Agreement and all other documents evidencing, securing, governing, guaranteeing
and/or pertaining to this Note are hereinafter collectively referred to as the
"Loan Documents". The holder of this Note is entitled to the benefits and
security provided in the Loan Documents.
5. Purpose. Borrower agrees that no proceeds of the Loan under this Note
shall be used for personal, family or household purposes, and that the proceeds
of the Loan hereunder shall be used solely for business, commercial, investment
or other similar purposes.
6. Event of Default. Borrower agrees that upon the occurrence of any one
ormore of the following events of default ("Event of Default"):
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(a) failure of Borrower to pay when due any installment of principal
of or interest on this Note or on any other indebtedness now or
hereafter owing by Borrower to Schlinger, or
(b) the occurrence of any event of default specified in any of the
other Loan Documents; or
(c) the bankruptcy or insolvency of, the assignment for the benefit
of creditors by, or the appointment of a receiver for any of the
property of, or the liquidation, termination, dissolution or
death or legal incapacity of Borrower;
the holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid interest
on this Note at once due and payable, (ii) foreclose all liens securing payment
hereof, (iii) pursue any and all other rights, remedies and recourses available
to the holder hereof, including but not limited to any such rights, remedies or
recourses under the other Loan Documents, at law or in equity, or (iv) pursue
any combination of the foregoing. The failure to exercise the option to
accelerate the maturity of this Note or any other right, remedy or recourse
available to the holder hereof upon the occurrence of an Event of Default
hereunder shall not constitute a waiver of the right of the holder of this Note
to exercise the same at that time or at any subsequent time with respect to such
Event of Default or any other Event of Default. The rights, remedies and
recourses of the holder hereof, as provided in this Note and in any of the other
Loan Documents, shall be cumulative and concurrent and may be pursued
separately, successively or together as often as occasion therefore shall arise,
at the sole discretion of the holder hereof. The acceptance by the holder hereof
of any payment under this Note which is less than the payment in full of all
amounts due and payable at the time of such payment shall not (i) constitute a
waiver of or impair, reduce, release or extinguish any right, remedy or recourse
of the holder hereof, or nullify any prior exercise of any such right, remedy or
recourse, or (ii) impair, reduce, release or extinguish the obligations of any
party liable under any of the other Loan Documents as originally provided herein
or therein.
7. Conversion Rights.
(a) Conversion into Shares of Common Stock at Option of Holder. At
any time, the holder of this Note ("Holder") shall have the right
by delivering at least five (5) business days prior to the
anticipated conversion date an irrevocable Conversion Notice (as
defined below) to convert all or any part (in integral multiples
of $500,000) of the principal balance this Note into such number
of fully paid and non-assessable shares of common stock, $.001
par value, of the Borrower (the "Common Stock") as is equal to
the amount of unpaid principal under this Note to be converted as
specified in the Conversion Notice, divided by the Conversion
Price (as defined below) then in effect.
(b) Conversion into Shares of Common Stock at Option of Borrower. If
(i) the average closing bid price (as reported on the NASDAQ) of
a share of Common Stock for a twenty-five (25) consecutive
trading day period (the "Average Closing Price") is at least
$4.00 per share (the "Target Price"), or (ii) an underwriter for
the Borrower's Common Stock shall have agreed to sell in a firm
commitment underwriting on behalf of Schlinger the Common Stock
to be held by Schlinger upon conversion hereunder to result in
2
<PAGE>
net proceeds (after underwriting discounts, commissions and
expenses) to Schlinger from such offering of not less than
$1,500,000, the Borrower shall have the right (subject to the
requirements set forth in the next sentence) to convert all or
any part (in integral multiples of $500,000) of the unpaid
principal of this Note into such number of fully paid and
non-assessable shares of Common Stock as is equal to the amount
of unpaid principal of this Note to be converted as specified in
the Conversion Notice, divided by the Conversion Price (as
defined below) then in effect. Upon receipt of a Conversion
Notice from the Borrower, Holder may elect, upon one (1) business
day's notice, to have such conversion be effected prior to the
conversion date specified in the Conversion Notice.
(c) Obligations Upon Conversion. In the event of any conversion of
all or any part of this Note by either Borrower or Holder, all
accrued but unpaid interest on the principal to be converted to,
but not including, the effective date of such conversion shall be
paid to Holder within ten (10) business days of such conversion.
Upon the conversion of all or any part of this Note by either
Borrower or Holder, Holder shall deliver this Note to the
Borrower and, upon such delivery, Holder shall be entitled to
receive, as soon as practicable but in no event later than ten
(10) days thereafter, and the Borrower shall issue: (i) a
certificate evidencing the number of shares of Common Stock
issuable upon conversion hereof ("Conversion Shares") (or if such
shares of Common Stock have been converted into cash, securities
or other property in connection with the sale, transfer or other
disposition of the Borrower or substantially all of the
Borrower's assets, such cash, securities or other property), (ii)
payment of any accrued but unpaid interest to, but not including,
the effective date of such conversion, (iii) cash for any
fractional share resulting from the conversion of this Note into
Common Stock, and (iv) a replacement Note evidencing the
remaining balance not converted. As soon as practicable after the
date of such conversion and the surrender of this Note, the
Borrower shall cause to be issued and delivered to Holder, or to
Holder's written order, a certificate or certificates for the
number of full shares of Common Stock or other securities
issuable on such conversion (or if such shares of Common Stock
have been converted into cash, securities or other property in
connection with a sale, transfer or other disposition of all or
substantially all of the Borrower's assets, such cash, securities
or other property) in accordance with the provisions hereof and
cash for any fractional share.
(d) Conversion Price; Conversion Notice. For purposes hereof, the
term "Conversion Price" shall initially mean $0.375. For purposes
hereof, the term "Conversion Notice" shall mean a written notice
delivered pursuant to conversion by Borrower or Holder as
described above specifying the principal amount hereunder to be
converted, and the date on which such conversion is proposed to
be completed.
(e) Adjustment for Stock Splits and Combinations. If at any time or
from time to time after the date hereof, the Borrower (i) effects
a subdivision of the outstanding Common Stock, then, and in each
such event, the then current Conversion Price shall be
proportionately decreased, or (ii) combines the outstanding
shares of Common Stock into a smaller number of shares, then, and
in each such event, the Conversion Price shall be proportionately
increased. Any adjustment under this paragraph shall become
3
<PAGE>
effective at the close of business on the date the subdivision or
combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. If at any
time or from time to time after the date hereof, the Borrower
makes a dividend or other distribution payable in additional
shares of Common Stock, then, and in each such event, the then
current Conversion Price shall be decreased by multiplying the
then current Conversion Price by a fraction (A) the numerator of
which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date, and (B) the denominator of
which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution.
(g) Adjustments for Other Dividends and Distributions. If at any time
or from time to time after the date hereof, the Borrower makes a
dividend or other distribution payable in securities of the
Borrower other than shares of Common Stock, then and in each such
event, provision shall be made so that Holder shall receive upon
conversion of this Note, in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of
the Borrower that Holder would have received had this Note been
converted into Common Stock on the date of such event and had
Holder thereafter, during the period from the date of such event
to and including the conversion date, retained such securities
receivable by Holder during such period, subject to all other
adjustments called for during such period hereunder with respect
to the rights under this Note.
(h) Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the date hereof, the Common
Stock issuable upon the conversion of this Note is changed into
the same or a different number of shares of any class or classes
of stock, whether by recapitalization, reclassification, exchange
or otherwise (other than a subdivision or combination of shares
or dividend or distribution provided for above), then and in any
such event thereafter this Note shall be convertible into the
kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification, exchange
or other change by holders of the number of shares of Common
Stock into which the Note could have been converted immediately
prior to such recapitalization, reclassification or exchange, all
subject to further adjustment as provided herein.
(i) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion hereof. In lieu of any fractional shares
to which Holder would otherwise be entitled, the Borrower shall
pay cash equal to the fair market value of the fractional share
of Common Stock into which this Note would otherwise be
converted.
8. Registration Rights.
(a) Optional Registrations.
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<PAGE>
(i) If the Borrower decides to register any of its Common Stock
or securities convertible into or exchangeable for Common
Stock under the Securities Act on a form which is suitable
for an offering for cash of shares of the Borrower held by
third parties and which is not a registration solely to
implement an employee benefit plan or a transaction to which
Rule 145, S-8 or any other similar rule of the Securities
and Exchange Commission (the "Commission") is applicable,
the Borrower will promptly give written notice to the
Holder, and the Borrower will use all reasonable efforts to
effect the registration under the Securities Act of all
Registrable Securities that the Holder requests be included
in such registration by a written notice delivered to the
Borrower within fifteen (15) days after the notice given by
the Borrower. The Holder agrees that any securities it
requests to be included in a Company registration pursuant
to this Section 8(a) shall be included by the Borrower on
the same form of registration statement as has been selected
by the Borrower for the securities the Borrower is
registering for sale for its own account.
(ii) If the registration involves an underwritten public
offering, the Borrower will not be required to register
Registrable Securities in excess of the amount that the
principal underwriter reasonably and in good faith
recommends may be included in such offering (a "Cutback"),
which recommendation, and supporting reasoning, shall be
delivered in writing to the Holder. If such a Cutback
occurs, the number of shares that are entitled to be
included in the registration and underwriting shall first be
allocated to the Borrower for securities being sold for its
own account and thereafter shall be allocated to the Holder
requesting inclusion in the registration.
(iii)If the Borrower elects to terminate any registration filed
under this Section 8(a), the Borrower will have no
obligation to register the securities sought to be included
by the Holder in such registration. If the Borrower includes
in such registration any securities to be offered by it, all
expenses of the registration and offering and the reasonable
fees and expenses of not more than one independent counsel
for the Holder will be borne by the Borrower, except that
the Holder will bear underwriting discounts and commissions
attributable to its Registrable Securities being registered
and transfer taxes on shares being sold by it.
(b) Required Registrations.
(i) If the Holder notifies the Borrower in writing that the
Holder intends to offer for public sale any Registrable
Securities, the Borrower will cause the Conversion Shares as
may be requested by the Holder to be included in a
registration statement under the Securities Act of 1933, as
amended (the "Securities Act"). In connection with one (1)
registration made by the Borrower pursuant to this Section
8(b), all expenses of such registration and the reasonable
fees and expenses of not more than one independent counsel
for the Holder will be borne by the Borrower, except that
the Holder will bear underwriting discounts and commissions
and transfer taxes on shares being sold by the Holder. The
Borrower shall not be required to file any registration
5
<PAGE>
statement for securities other than shares of Common Stock,
although any conversion of this Note may be conditioned upon
such registration statement becoming effective, to the
extent that the conversion relates to Conversion Shares
covered by the Holder's written notice of an intended public
offering. In connection with all other registrations made by
the Borrower pursuant to this Section 8(b), all expenses of
any such registrations (other than audit and "blue sky" fees
and expenses, which fees and expenses will be borne by the
Borrower) shall be borne by the Holder; provided, however,
that if the Borrower for its own account or any other holder
of shares elects to register its shares under this Section
8(b) as permitted below, the expenses of such registration
shall be borne pro rata by all parties to the registration
based upon the ratio that the number of such shares being
registered by such entity bears to the total number of
shares to be registered pursuant to this Section 8(b).
Except as provided in Section 8(c), this Section 8(b) will
not apply to a request for registration on Form S-3 (or
successor form) which will be governed by Section 8(c). In
the event any registration attempted under this Section 8(b)
pursuant to which the Borrower would be responsible for the
above expenses of the Holder is not consummated, then the
Borrower shall pay such expenses and shall remain
responsible for the above expenses of the Holder with
respect to one (1) consummated registration under this
Section 8(b).
(ii) The registration statement filed pursuant to the request of
the Holder may include other securities of the Borrower,
with respect to which "piggyback" registration rights have
been granted, and may include securities of the Borrower
being sold for the account of the Borrower; provided,
however, that if the Borrower shall request inclusion in any
registration pursuant to this Section 8(b) of the securities
being sold for its own account, or if other persons shall
request inclusion in any registration pursuant to this
Section 8(b), the Holder shall, on behalf of all entities
requesting inclusion in such registration, offer to include
such securities in the offering and may condition such offer
on their acceptance of any other reasonable conditions
(including, without limitation, if such offering is
underwritten, that such requesting holders agree in writing
to enter into an underwriting agreement with usual and
customary terms). Notwithstanding any other provisions of
this Section 8(b), if the representative of the underwriters
advises the Holder in writing that marketing factors require
a limitation on the number of shares to be underwritten, the
number of shares to be included in the underwriting or
registration shall be allocated first to the Holder, second
to the Borrower and thereafter to the holders requesting
inclusion in the registration on the basis of the number of
shares each requesting holder requests be included bears to
the total number of shares of all requesting holders that
have been requested be included in such registration. If a
person who has requested inclusion in such registration as
provided above does not agree to the terms of any such
underwriting, such person shall be excluded therefrom by
written notice from the Borrower, the underwriter or the
Holder. The securities so excluded shall also be withdrawn
from registration.
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<PAGE>
(c) Form S-3.
(i) Once the Borrower is eligible to effect a registration of
its securities under Form S-3 (or a successor form), the
Holder will have the right to request and have effected
registrations of shares of its Registrable Securities on
Form S-3 as long as the aggregate proposed offering price is
not less than $1,000,000 for any such registration.
(ii) Upon written request of the Holder, the Borrower will cause
the registration of all Registrable Securities on Form S-3
or such successor form to the extent requested by the
Holder. All expenses incurred in connection with such
registration requested pursuant to this Section 8(c) shall
be borne by the Holder; provided, however, that if the
Borrower for its own account or any other holder of shares
elects to register its shares as permitted below, the
expenses of such registration shall be borne pro rata by all
parties to the registration based upon the ratio that the
number of such shares registered by such entity bears to the
total number of shares to be registered; provided, further,
however, that if the Holder elects to treat this request as
a required registration pursuant to Section 8(b) above, then
the Borrower, if requested by the Holder, will bear all such
expenses as provided in such Section to the extent that it
would be required to pursuant to said Section.
(iii)The registration statement filed pursuant to the request of
the Holder may include other securities of the Borrower,
with respect to which "piggyback" registration rights have
been granted, and may include securities of the Borrower
being sold for the account of the Borrower; provided,
however, that any Cutback shall be dealt with in the same
manner as the second paragraph of Section 8(b).
(d) Procedure for Registration. Whenever the Borrower is required
under this Agreement to register Common Stock, it agrees to the
following:
(i) Use all reasonable efforts to prepare promptly for filing
with the Commission a registration statement and such
amendments and supplements to said registration statement
and the prospectus as may be necessary to keep the
registration statement effective and to comply with the
provisions of the Securities Act for the period necessary to
complete the proposed public offering, but not more than 180
days;
(ii) Furnish to each selling holder such copies of each
preliminary and final prospectus and such other documents as
such holder may reasonably request to facilitate the public
offering of its Common Stock;
(iii)Enter into any underwriting agreement with provisions
reasonably required by the proposed underwriter for the
selling holders, if any; and
(iv) Use all reasonable efforts to register or qualify the Common
Stock covered by the registration statement under the
securities or "blue-sky" laws of such jurisdictions as any
7
<PAGE>
selling holder may reasonably request, although the Borrower
will not have to register in any states that require it to
qualify to do business or subject itself to general service
of process, and for a registration under Section 8(a), the
Borrower will not be required to register in more states
than are necessary to permit the sale of the securities.
(e) Limitation on Registration. The Borrower is not required to file
a registration statement requested under Sections 8(b) or 8(c)
prior to the earlier of (i) twenty- four (24) months from the
date of this Agreement, or (ii) ninety (90) days following the
effective date of any other registration statement initiated by
the Borrower except for registrations being initiated solely to
implement an employee's benefit plan. The Borrower is not
required to file a registration statement requested under Section
8(b) unless requested by holders owning in the aggregate a
majority of the Registrable Securities. The Borrower may postpone
the filing of any registration statement required under Sections
8(b) or 8(c) for a reasonable period of time, not to exceed
ninety (90) days, if the Borrower has been advised by legal
counsel that such filing would require the disclosure of a
material fact, and the Borrower determines reasonably and in good
faith that such disclosure would have a material adverse effect
on the Borrower. In addition, if (i) in the good faith judgment
of the Board of Directors of the Borrower, a required
registration under Section 8(b) or 8(c) would be seriously
detrimental to the Borrower and the Board of Directors of the
Borrower concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii)
the Borrower shall furnish to the Holder a certificate signed by
the President of the Borrower stating that in the good faith
judgment of the Board of Directors of the Borrower, it would be
seriously detrimental to the Borrower for such registration
statement to be filed in the near future and that it is,
therefore, essential to defer the filing of such registration
statement, then the Borrower shall have the right to defer such
filing for a period of not more than one hundred eighty (180)
days after receipt of the request of the Holder, and, provided
further, that the Borrower shall not defer its obligation in this
manner more than once in any twelve-month period.
(f) Indemnification. Subject to applicable law, the Borrower will
indemnify each underwriter and the Holder and each person
controlling any of them, against all claims, losses, damages and
liabilities, including legal and other expenses reasonably
incurred, arising out of any untrue or allegedly untrue statement
of a material fact contained in the registration statement, or
any omission or alleged omission to state a material fact
required to be stated in the registration statement or necessary
to make the statements not misleading, or arising out of any
violation by the Borrower of the Securities Act, any state
securities or "blue-sky" laws or any applicable rule or
regulation. This indemnification will not apply to any claims,
losses, damages or liabilities to the extent they may have been
caused by an untrue statement or omission based upon information
furnished in writing to the Borrower by such underwriter, the
Holder, or controlling person, respectively, expressly for use in
the registration statement. With respect to such untrue statement
or omission in the information furnished in writing to the
Borrower by the Holder, such person will indemnify the
underwriters, the Borrower, its directors and officers, the other
persons selling securities under the registration statement and
each person controlling any of them against any losses, claims,
8
<PAGE>
damages, expenses or liabilities to which any of them may become
subject as a result of such untrue statement or omission
(including those incurred in connection with investigating or
defending against such claims).
(g) Rule 144 Requirements. The Borrower will file with the Commission
such information as the Commission may require and will make
available Rule 144 under the Securities Act (or any successor
exemptive rule).
(h) Obligations of Investor and Others in a Registration. The Holder
agrees timely to furnish such information regarding such person
and the securities sought to be registered and to take such other
action as the Borrower may reasonably request in connection with
the registration, qualification or compliance. The Borrower
agrees that, in connection with any offering undertaken pursuant
to Section 8(b), the Holder shall have the right if it deems an
underwriter or underwriters necessary or appropriate, to
designate such underwriter(s), which underwriters shall be
reasonably acceptable to the Borrower and subject to the written
approval of the Borrower, which approval shall not be
unreasonably withheld. If the registration involves an
underwriter, the Holder agrees, upon the request of such
underwriter, not to sell any unregistered securities of the
Borrower for a period of ninety (90) days following the effective
date of the registration statement for such offering and to enter
into an underwriting agreement with such underwriters containing
usual and customary terms and provisions.
(i) Preparation: Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Borrower will give
the holders of Registrable Securities registered under such
registration statement, their underwriters, if any, and one
counsel or firm of counsel and one accountant or firm of
accountants representing all the holders of Registrable
Securities to be registered under such registration statement,
the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed
with the Commission, and each amendment thereof or supplement
thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the
Borrower with its officers and the independent public accountants
who have certified its financial statements as shall be necessary
in the opinion of such holders' and such underwriters' respective
counsel to conduct a reasonable investigation within the meaning
of the Securities Act.
(j) Rule 144A. The Borrower agrees that, upon the request of any
holder of Registrable Securities or any prospective purchaser of
Registrable Securities designated by a holder, the Borrower shall
promptly provide (but in any case within 15 days of a request) to
such holder or potential purchaser, the following information:
(i) a brief statement of the nature of the business of the
Borrower and any Subsidiaries and the products and services
they offer;
(ii) the most recent consolidated balance sheets and profit and
losses and retained earnings statements, and similar
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financial statements of the Borrower for the two most recent
fiscal years (such financial information shall be audited,
to the extent reasonably available); and
(iii)such other information about the Borrower, any
Subsidiaries, and their business, financial condition and
results of operations as the requesting holder or purchaser
of such Registrable Securities shall request in order to
comply with Rule 144A, as amended, and the antifraud
provisions of the federal and state securities laws.
The Borrower hereby represents and warrants to any such requesting
holder and any prospective purchaser of Registrable Securities from such holder
that the information provided by the Borrower pursuant to this Section 8(j) will
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.
(k) Limitations on Subsequent Registration Rights. The Borrower will
not, without the prior written consent of the Holder, enter into
any agreement with any holder or prospective holder of any
securities of the Borrower which would grant such holder or
prospective holder registration rights with respect to securities
of the Borrower.
(l) Definitions. For purposes of this Note:
"Conversion Shares" shall mean any securities of the Borrower
issued or issuable upon conversion of this Note.
"Registrable Securities" shall mean any shares of Common Stock
issuable to the Holder upon conversion of this Note and any other
Common Stock distributable on, with respect to, or in
substitution for such Registrable Securities, including those
which have been transferred as permitted under Section 8(h),
except for those that have been sold or transferred pursuant to
an effective registration statement or pursuant to Rule 144 under
the Securities Act.
9. Compliance With Usury Laws.
(a) No interest rate specified in this Note or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the
Contract Rate for the Loan or any other indebtedness, liability or
obligation shall exceed the Maximum Rate, thereby causing the interest
accruing thereon to be limited to the Maximum Rate, then any subsequent
reduction in the Contract Rate therefor shall not reduce the rate of
interest therefor below the Maximum Rate until the aggregate amount of
interest accrued thereon equals the aggregate amount of interest which
would have accrued thereon if the Contract Rate had at all times been
in effect.
(b) Notwithstanding anything to the contrary contained in this
Note or the other Loan Documents, none of the terms and provisions of
this Note or the other Loan Documents shall ever be construed to create
a contract or obligation to pay interest at a rate in excess of the
Maximum Rate; and Schlinger shall never charge, receive, take, collect,
reserve or apply, as interest on the Loan or any other indebtedness,
liability or obligation, any amount in excess of the Maximum Rate. The
parties hereto agree that any interest, charge, fee, expense or other
10
<PAGE>
obligation provided for in this Note or in the other Loan Documents
which constitutes interest under applicable law shall be, ipso facto
and under any and all circumstances, limited or reduced to an amount
equal to the lesser of (i) the amount of such interest, charge, fee,
expense or other obligation that would be payable in the absence of
this Section 9 (b) or (ii) an amount, which when added to all other
interest payable under this Note and the other Loan Documents, equals
the Maximum Rate. If, notwithstanding the foregoing, Schlinger ever
contracts for, charges, receives, takes, collects, reserves or applies
as interest any amount in excess of the Maximum Rate, such amount which
would be deemed excessive interest shall be deemed a partial payment or
prepayment of principal of the Loan or any other indebtedness,
liability or obligation and treated hereunder as such; and if the Loan
or any other indebtedness, liability or obligation, or applicable
portions thereof, are paid in full, any remaining excess shall promptly
be paid to the Borrower or other applicable Obligor or Obligors (as
appropriate). In determining whether the interest paid or payable,
under any specific contingency, exceeds the Maximum Rate, the Borrower
and the other Obligors and Schlinger shall, to the maximum extent
permitted by applicable law, (a) characterize any nonprincipal payment
as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate and spread in equal or unequal parts the total amount
of interest throughout the entire contemplated term of the Loan or any
other indebtedness, liability or obligation, or applicable portions
thereof, so that the interest rate does not exceed the Maximum Rate at
any time during the term of the Loan or any other indebtedness,
liability or obligation; provided that, if the unpaid principal balance
is paid and performed in full prior to the end of the full contemplated
term thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Rate, Schlinger shall refund to
the Borrower or other applicable Obligor or Obligors (as appropriate)
the amount of such excess and, in such event, Schlinger shall not be
subject to any penalties provided by any laws for contracting for,
charging, receiving, taking, collecting, reserving or applying interest
in excess of the Maximum Rate. The terms of this Section shall be
deemed to be incorporated into every other Loan Document.
As used herein the term "Maximum Rate" means, with respect to
Schlinger, the maximum non-usurious interest rate, if any, that any
time or from time to time may be contracted for, taken, reserved,
charged or received with respect to the Loan or other amount as to
which such rate is to be determined, payable to Schlinger pursuant to
this Note or any other Loan Document, under laws applicable to
Schlinger which are presently in effect or, to the extent allowed by
law, under such applicable laws which may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than applicable
laws now allow. The Maximum Rate shall be calculated in a manner that
takes into account any and all fees, payments and other charges in
respect of the Loan Documents that constitute interest under applicable
law. Each change in any interest rate provided for herein based upon
the Maximum Rate resulting from a change in the Maximum Rate shall take
effect without notice to the Borrower at the time of such change in the
Maximum Rate. For purposes of determining the Maximum Rate under Texas
law, the applicable rate ceiling shall be the weekly rate ceiling
described in, and computed in accordance with the Texas Finance Code or
any successor or replacement statute; provided, however, that, to the
extent permitted by applicable law, Schlinger shall have the right to
change the applicable rate ceiling from time to time in accordance with
applicable law.
10. Costs of Collection; Waivers. If this Note is placed in the hands
of an attorney for collection, or is collected in whole or in part by suit or
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<PAGE>
through probate, bankruptcy or other legal proceedings of any kind, Borrower
agrees to pay, in addition to all other sums payable hereunder, all costs and
expenses of collection, including but not limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally waive
presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral indulgences or partial payments,
either before or after maturity.
11. Governing Law; Venue; Submission to Jurisdiction. THIS NOTE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS NOTE
IS PERFORMABLE IN DALLAS COUNTY, TEXAS. BORROWER AGREES THAT DALLAS COUNTY,
TEXAS SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM
ARISING UNDER OR RELATING TO THIS NOTE, AND THAT SUCH COUNTY IS A CONVENIENT
FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. BORROWER CONSENTS TO THE
PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY,
TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. BORROWER IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
12. Waiver of Jury Trial. BORROWER HEREBY IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY OR
ASSOCIATED HEREWITH.
13. Final Agreement. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN SCHLINGER AND BORROWER WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER:
KARTS INTERNATIONAL INCORPORATED
By: /s/ Charles Brister
-------------------------
Name: Charles Brister
Title: President & C.E.O.
12
EXHIBIT 10.45
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the 3rd day of
June, 1999, by KARTS INTERNATIONAL INCORPORATED (hereinafter called "Debtor",
whether one or more), in favor of THE SCHLINGER FOUNDATION, ("Secured Party").
Debtor hereby agrees with Secured Party as follows:
1. Definitions. As used in this Agreement, the following terms shall have the
meanings indicated below:
(a) "Code" shall mean the Uniform Commercial Code as in effect in the
State of Texas, as it may hereafter be amended from time to time.
(b) "Collateral" shall mean all of the property set forth below:
Accounts. All present and future accounts, contract rights, chattel
paper, documents, instruments, deposit accounts and general
intangibles now or hereafter owned by Debtor, all money and other
funds of Debtor which may now or hereafter come into the possession,
custody or control of Secured Party, all books of account and customer
lists, and in any case where an account arises from the sale of goods,
the interest of Debtor in such goods.
Inventory. All present and hereafter acquired inventory (including
without limitation, all raw materials, work in process and finished
goods) owned by Debtor wherever located.
Equipment. All equipment of whatsoever kind and character now or
hereafter owned by Debtor, together with all replacements,
accessories, additions, substitutions and accessions to all of the
foregoing.
The term Collateral, as used herein, shall also include (i) all
records relating in any way to the foregoing (including, without
limitation, any computer software, whether on tape, disk, card, strip,
cartridge or any other form), and (ii) all PRODUCTS and PROCEEDS of
all of the foregoing (including without limitation, insurance payable
by reason of loss or damage to the foregoing property). The
designation of proceeds does not authorize Debtor to sell, transfer or
otherwise convey any of the foregoing property except finished goods
intended for sale in the ordinary course of Debtor's business or as
otherwise provided herein.
(c) "Financing Documents" shall mean all instruments and documents
evidencing, securing, governing, guaranteeing and/or pertaining to the
Indebtedness.
(d) "Indebtedness" shall mean (i) indebtedness, obligations and
liabilities owing by Debtor to Secured Party under the Note and all
other indebtedness, obligations and liabilities of Debtor to Secured
Party of any kind or character, now existing or hereafter arising,
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whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several, and
regardless of whether such indebtedness, obligations and liabilities
may, prior to their acquisition by Secured Party, be or have been
payable to or in favor of a third party and subsequently acquired by
Secured Party (it being contemplated that Secured Party may make such
acquisitions from third parties), including without limitation all
indebtedness, obligations and liabilities of Debtor to Secured Party
now existing or hereafter arising by note, draft, acceptance,
guaranty, endorsement, letter of credit, assignment, purchase,
overdraft, discount, indemnity agreement or otherwise, (ii) all
obligations of Debtor to Secured Party under any documents evidencing,
securing, governing and/or pertaining to all or any part of the
indebtedness, obligations and liabilities described in (i) above,
(iii) all costs and expenses incurred by Secured Party in connection
with the collection and administration of all or any part of the
indebtedness, obligations and liabilities described in (i) and (ii)
above or the protection or preservation of, or realization upon, the
collateral securing all or any part of such indebtedness, obligations
and liabilities, including without limitation all reasonable
attorneys' fees, and (iv) all renewals, extensions, modifications and
rearrangements of the indebtedness, obligations and liabilities
described in (i), (ii) and (iii) above.
(e) "Loan Agreement" means that certain Loan Agreement of even date
herewith entered into between Debtor and Secured Party, as the same
may be renewed, extended, modified, supplement or restated from time
to time.
(f) "Note" means that certain Convertible Term Note of even date herewith
payable by Debtor to the order of Secured Party in the stated
principal amount of $1,500,000.00, as may be renewed, extended,
amended and modified.
All words and phrases used herein which are expressly defined in Section
1.201 or Chapter 9 of the Code shall have the meaning provided for therein.
Other words and phrases defined elsewhere in the Code shall have the
meaning specified therein except to the extent such meaning is inconsistent
with a definition in Section 1.201 or Chapter 9 of the Code. All other
words used herein which are not herein defined or defined in the Code shall
have the meaning ascribed to them in the Loan Agreement.
2. Security Interest. As security for the Indebtedness, Debtor, for value
received, hereby grants to Secured Party a continuing security interest in
the Collateral.
3. Representations and Warranties. Debtor hereby represents and warrants the
following to Secured Party:
(a) Due Authorization. The execution, delivery and performance of this
Agreement and all of the other Financing Documents executed by Debtor
have been duly authorized by all necessary corporate action of Debtor,
to the extent Debtor is a corporation, or by all necessary partnership
action, to the extent Debtor is a partnership.
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<PAGE>
(b) Enforceability. This Agreement and the other Financing Documents
executed by Debtor constitute legal, valid and binding obligations of
Debtor, enforceable in accordance with their respective terms, except
as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights and
except to the extent specific remedies may generally be limited by
equitable principles.
(c) Ownership and Liens. Debtor has good and marketable title to the
Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, (other than those in favor of Secured
Party or otherwise expressly permitted by Secured Party in the other
Financing Documents including those incurred in connection with the
KBK Debt). No dispute, right of setoff, counterclaim or defense exists
with respect to all or any part of the Collateral. Debtor has not
executed any other security agreement currently affecting the
Collateral and no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on
file in any recording office except as may have been executed or filed
in favor of Secured Party or expressly permitted by Secured Party in
the other Financing Documents including those executed in connection
with the KBK Debt.
(d) No Conflicts or Consents. Neither the ownership, the intended use of
the Collateral by Debtor, the grant of the security interest by Debtor
to Secured Party herein nor the exercise by Secured Party of its
rights or remedies hereunder, will (i) conflict with any provision of
(A) any domestic or foreign law, statute, rule or regulation, (B) the
articles or certificate of incorporation, charter, bylaws or
partnership agreement, as the case may be, of Debtor, or (C) any
agreement, judgment, license, order or permit applicable to or binding
upon Debtor, or (ii) result in or require the creation of any lien,
charge or encumbrance upon any assets or properties of Debtor or of
any person except as may be expressly contemplated in the Financing
Documents. Except as expressly contemplated in the Financing
Documents, no consent, approval, authorization or order of, and no
notice to or filing with, any court, governmental authority or third
party is required in connection with the grant by Debtor of the
security interest herein or the exercise by Secured Party of its
rights and remedies hereunder.
(e) Security Interest. Debtor has and will have at all times full right,
power and authority to grant security interest in the Collateral to
Secured Party in the manner provided herein, free and clear of any
lien, security interest or other charge or encumbrance (other than
those in favor of Secured Party or otherwise expressly permitted by
Secured Party in the other Financing Documents, including those
granted in connection with the KBK Debt). This Agreement creates a
legal, valid and binding security interest in favor of Secured Party
in the Collateral securing the Indebtedness. Possession by Secured
Party of all instruments, chattel paper and cash constituting
Collateral from time to time and/or the filing of the financing
statements delivered prior hereto and /or concurrently herewith by
Debtor to Secured Party will perfect Secured Party's security interest
hereunder in the Collateral.
(f) Location. Debtor's residence or chief executive office, as the case
may be, and the office where the records concerning the Collateral are
kept is located at its address set forth on the signature page hereof.
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Except as specified elsewhere herein, all Collateral shall be kept at
such address and such other addresses as may be listed in Schedule "A"
attached hereto and made a part hereof.
(g) Solvency of Debtor. As of the date hereof, and after giving effect to
this Agreement and the completion of all other transactions
contemplated by Debtor at the time of the execution of this Agreement,
(i) Debtor is and will be solvent, (ii) the fair saleable value of
Debtor's assets exceeds and will continue to exceed Debtor's
liabilities (both fixed and contingent), (iii) Debtor is paying and
will continue to be able to pay its debts as they mature, and (iv) if
Debtor is not an individual, Debtor has and will have sufficient
capital to carry on Debtor's businesses and all businesses in which
Debtor is about to engage.
(h) Employer Identification Number. Debtor's employer identification
number is set forth below Debtor's
signature on the signature page hereof.
(i) Compliance with Environmental Laws. Except as disclosed in writing to
Secured Party, Debtor is conducting Debtor's businesses in material
compliance with all applicable federal, state and local laws,
statutes, ordinances, rules, regulations, orders, determinations and
court decisions, including without limitation, those pertaining to
health or environmental matters.
(j) Inventory. The security interest in the inventory granted hereunder
shall continue through all stages of manufacture and shall, without
further action, attach to the accounts or other proceeds resulting
from the sales, lease or other disposition thereof and to all such
inventory as may be returned to Debtor by its account debtors.
(k) Accounts. Each account pledged hereunder represents the valid and
legally binding indebtedness of a bona fide account debtor arising
from the sale or lease by Debtor of goods or the rendition by Debtor
of services and is not subject to contra accounts, setoffs, defenses
or counterclaims by or available to account debtors obligated on the
accounts except as disclosed by Debtor to Secured Party from time to
time in writing. The amount shown as to each account on Debtor's books
is the true and undisputed amount owing and unpaid thereon, subject
only to discounts, allowances, rebates, credits and adjustments to
which the account debtor has a right and which have been disclosed to
Secured Party in writing.
(l) Chattel Paper, Documents and Instruments. The chattel paper, documents
and instruments of Debtor pledged hereunder have only one original
counterpart and no party other than Debtor or Secured Party is in
actual or constructive possession of any such chattel paper, documents
or instruments, except those which are in the possession of KBK in
connection with the KBK.
4. Affirmative Covenants. Debtor will comply with the covenants contained in
this Section at all times during the period of time this Agreement is
effective unless Secured Party shall otherwise consent in writing.
4
<PAGE>
(a) Ownership and Liens. Debtor will maintain good and marketable title to
all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except those in favor of Secured
Party, the security interests and other encumbrances expressly
permitted by the other Financing Documents and those granted in
connection with the KBK Debt. Debtor will not permit any dispute,
right of setoff, counterclaim or defense to exist with respect to all
or any part of the Collateral. Debtor will cause any financing
statement or other security instrument with respect to the Collateral
to be terminated, except those liens expressly permitted in the other
Financing Documents (including those securing the KBK Debt) or as may
have been filed in favor of Secured Party. Debtor will defend at its
expense Secured Party's right, title and security interest in and to
the Collateral against the claims of any third party.
(b) Further Assurances. Debtor will from time to time at its expense
promptly execute and deliver all further instruments and documents and
take all further action necessary or appropriate or that Secured Party
may request in order (i) to perfect and protect the security interest
created or purported to be created hereby and the priority of such
security interest, (ii) to enable Secured Party to exercise and
enforce its rights and remedies hereunder in respect of the
Collateral, and (iii) to otherwise effect the purposes of this
Agreement, including without limitation: (A) executing and filing such
financing or continuation statements, or amendments thereto; and (B)
furnishing to Secured Party from time to time statements and schedules
further identifying and describing the Collateral and such other
reports in connection with the Collateral, all in reasonable detail
satisfactory to Secured Party.
(c) Inspection of Collateral. Debtor will keep adequate records concerning
the Collateral and will permit Secured Party and all representatives
and agents appointed by Secured Party to inspect any of the Collateral
and the books and records of or relating to the Collateral at any time
during normal business hours, to make and take away photocopies,
photographs and printouts thereof and to write down and record any
such information.
(d) Payment of Taxes. Debtor (i) will timely pay all property and other
taxes, assessments and governmental charges or levies imposed upon the
Collateral or any part thereof, (ii) will timely pay all lawful claims
which, if unpaid, might become a lien or charge upon the Collateral or
any part thereof, and (iii) will maintain appropriate accruals and
reserves for all such liabilities in a timely fashion in accordance
with generally accepted accounting principles. Debtor may, however,
delay paying or discharging any such taxes, assessments, charges,
claims or liabilities so long as the validity thereof is contested in
good faith by proper proceedings and provided Debtor has set aside on
Debtor's books adequate reserves therefor; provided, however, Debtor
understands and agrees that in the event of any such delay in payment
or discharge and upon Secured Party's written request, Debtor will
establish with Secured Party an escrow acceptable to Secured Party
adequate to cover the payment of such taxes, assessments and
governmental charges with interest, costs and penalties and a
reasonable additional sum to cover possible costs, interest and
penalties (which escrow shall be returned to Debtor upon payment of
such taxes, assessments, governmental charges, interests, costs and
5
<PAGE>
penalties or disbursed in accordance with the resolution of the
contest to the claimant) or furnish Secured Party with an indemnity
bond secured by a deposit in cash or other security acceptable to
Secured Party. Notwithstanding any other provision contained in this
Subsection, Secured Party may at its discretion exercise its rights
under Subsection 6(c) at any time to pay such taxes, assessments,
governmental charges, interest, costs and penalties.
(e) Mortgagee's and Landlord's Waivers. Debtor shall cause each mortgagee
of real property owned by Debtor and each landlord of real property
leased by Debtor to execute and deliver agreements satisfactory in
form and substance to Secured Party by which such mortgagee or
landlord waives or subordinates any rights it may have in the
Collateral.
(f) Accounts and General Intangibles. Debtor will duly perform and cause
to be performed all of its obligations with respect to the goods or
services, the sale or lease or rendition of which gave rise or will
give rise to each account pledged hereunder and all of its obligations
to be performed under or with respect to the general intangibles
pledged hereunder. Debtor also covenants and agrees to take any action
and/or execute any documents that Secured Party may request in order
to comply with the Federal Assignment of Claims Act, as amended.
(g) Chattel Paper, Documents and Instruments. Debtor will take such action
as may be requested by Secured Party in order to cause any Collateral
which constitute chattel paper, documents or instruments to be valid
and enforceable and will cause all chattel paper to have only one
original counterpart. Upon request by Secured Party, Debtor will
deliver to Secured Party all originals of chattel paper, documents or
instruments or will mark all originals of chattel paper with a legend
indicating that such chattel paper is subject to the security interest
granted hereunder.
(h) Condition of Goods. Debtor will maintain, preserve, protect and keep
all Collateral which constitutes goods in good condition, repair and
working order and will cause such Collateral to be used and operated
in good and workmanlike manner, in accordance with applicable laws and
in a manner which will not make void or cancelable any insurance with
respect to such Collateral. Debtor will promptly make or cause to be
made all repairs, replacements and other improvements to or in
connection with the Collateral which Secured Party may request from
time to time.
(i) Insurance. Debtor will, at its own expense, maintain insurance with
respect to all Collateral which constitutes goods in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to Secured Party from time to time. If requested by
Secured Party, each policy for property damage insurance shall provide
for all to be paid directly to Secured Party. If requested by Secured
Party, each policy of insurance maintained by Debtor shall (i) name
Debtor and Secured Party as insured parties thereunder (without any
representation or warranty by or obligation upon Secured Party) as
their interests may appear, (ii) contain the agreement by the insurer
that any loss thereunder shall be payable to Secured Party
notwithstanding any action, inaction or breach of representation or
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warranty by Debtor, (iii) provide that there shall be no recourse
against Secured Party for payment of premiums or other amounts with
respect thereto, and (iv) provide that at least ten (10) days prior
written notice of cancellation or of lapse shall be given to Secured
Party by the insurer. Debtor will, if requested by Secured Party,
deliver to Secured Party original or duplicate policies of such
insurance and, as often as Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance.
Debtor will also, at the request of Secured Party, duly execute and
deliver instruments of assignment of such insurance policies and cause
the respective insurers to acknowledge notice of such assignment. All
insurance payments in respect of loss of or damage to any Collateral
shall be paid to Secured Party, as provided for in this paragraph, and
applied as Secured Party in its sole discretion deems appropriate.
5. Negative Covenants. Debtor will comply with the covenants contained in this
Section at all times during the period of time this Agreement is effective,
unless Secured Party shall otherwise consent in writing.
(a) Transfer or Encumbrance. Debtor will not (i) sell, assign (by
operation of law or otherwise), transfer, exchange, lease or otherwise
dispose of any of the Collateral, (ii) grant a lien or security
interest in or execute, file or record any financing statement or
other security instrument with respect to the Collateral to any party
other than Secured Party except as expressly permitted in the other
Financing Documents or as provided for in the KBK Loan Documents, or
(iii) deliver actual or constructive possession of any of the
Collateral to any party other than Secured Party or KBK in connection
with the KBK Debt, except for (A) sales and leases of inventory in the
ordinary course of business, and (B) the sale or other disposal of any
item of equipment which is worn out or obsolete and which has been
replaced by an item of equal suitability and value, owned by Debtor
and made subject to the security interest under this Agreement, but
which is otherwise free and clear of any lien, security interest,
encumbrance or adverse claim; provided, however, the exceptions
permitted in clauses (A) and (B) above shall automatically terminate
upon the occurrence of an Event of Default.
(b) Impairment of Security Interest. Debtor will not take or fail to take
any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
(c) Possession of Collateral. Debtor will not cause or permit the removal
of any Collateral from its possession, control and risk of loss, nor
will Debtor cause or permit the removal of any Collateral from the
address signature page hereof and the addresses specified on Schedule
"A" to this Agreement other than (i) as permitted by Subsection 5(a),
(ii) in connection with the possession of any Collateral by Secured
Party or by its bailee or (iii) in connection with the possession of
any Collateral by KBK pursuant to the KBK Loan Documents.
(d) Goods. Debtor will not permit any Collateral which constitutes goods
to at any time (i) be covered by any document except documents in the
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possession of the Secured Party or KBK pursuant to the KBK Loan
Documents, (ii) become so related to, attached to or used in
connection with any particular real property so as to become a fixture
upon such real property, or (iii) be installed in or affixed to other
goods so as to become an accession to such other goods unless such
other goods are subject to a perfected security interest under this
Agreement.
(e) Compromise of Collateral. Debtor will not adjust, settle, compromise,
amend or modify any Collateral, except an adjustment, settlement,
compromise, amendment or modification in good faith and in the
ordinary course of business; provided, however, this exception shall
automatically terminate upon the occurrence of an Event of Default or
upon Secured Party's written request. Debtor shall provide to Secured
Party such information concerning (i) any adjustment, settlement,
compromise, amendment or modification of any Collateral, and (ii) any
claim asserted by any account debtor for credit, allowance,
adjustment, dispute, setoff or counterclaim, as Secured Party may
request from time to time.
(f) Financing Statement Filings. Debtor recognizes that financing
statements pertaining to the Collateral have been or may be filed
where Debtor maintains any Collateral, has its records concerning any
Collateral or has its residence or chief executive office, as the case
may be. Without limitation of any other covenant herein, Debtor will
not cause or permit any change in the location of (i) any Collateral,
(ii) any records concerning any Collateral, or (iii) Debtor's
residence or chief executive office, as the case may be, to a
jurisdiction other than as represented in Subsection 3(f) unless
Debtor shall have notified Secured Party in writing of such change at
least thirty (30) days prior to the effective date of such change, and
shall have first taken all action required by Secured Party for the
purpose of further perfecting or protecting the security interest in
favor of Secured Party in the Collateral. In any written notice
furnished pursuant to this Subsection, Debtor will expressly state
that the notice is required by this Agreement and contains facts that
may require additional filings of financing statements or other
notices for the purpose of continuing perfection of Secured Party's
security interest in the Collateral.
(g) Liquidations, Mergers. Debtor shall not merge or consolidate with or
into any other entity or liquidate, dissolve or otherwise cease
conducting business.
6. Rights of Secured Party. Secured Party shall have the rights contained in
this Section at all times during the period of time this Agreement is
effective.
(a) Additional Financing Statements Filings. Debtor hereby authorizes
Secured Party to file, without the signature of Debtor, one or more
financing or continuation statements, and amendments thereto, relating
to the Collateral. Debtor further agrees that a carbon, photographic
or other reproduction of this Security Agreement or any financing
statement describing any Collateral is sufficient as a financing
statement and may be filed in any jurisdiction Secured Party may deem
appropriate.
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(b) Power of Attorney. Debtor hereby irrevocably appoints Secured Party as
Debtor's attorney-in-fact, such power of attorney being coupled with
an interest, with full authority in the place and stead of Debtor and
in the name of Debtor or otherwise, from time to time in Secured
Party's discretion, to take any action and to execute any instrument
which Secured Party may deem necessary or appropriate to accomplish
the purposes of this Agreement, including without limitation: (i) to
obtain and adjust any insurance required by Secured Party hereunder;
(ii) to demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in
respect of the Collateral; (iii) to receive, endorse and collect any
drafts or other instruments, documents and chattel paper in connection
with clause (i) or (ii) above; and (iv) to file any claims or take any
action or institute any proceedings which Secured Party may deem
necessary or appropriate for the collection and/or preservation of the
Collateral or otherwise to enforce the rights of Secured Party with
respect to the Collateral.
(c) Performance by Secured Party. If Debtor fails to perform any agreement
or obligation provided herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses
of Secured Party incurred in connection therewith shall be a part of
the Indebtedness, secured by the Collateral and payable by Debtor on
demand.
(d) Debtor's Receipt of Proceeds. All amounts and proceeds (including
instruments and writings) received by Debtor in respect of accounts,
general intangibles or chattel paper shall be received in trust for
the benefit of Secured Party hereunder and, upon request of Secured
Party, shall be segregated from other property of Debtor and shall be
forthwith delivered to Secured Party in the same form as so received
(with any necessary endorsement) and applied to the Indebtedness in
such manner as Secured Party deems appropriate in its sole discretion.
(e) Notification of Account Debtors. Secured Party may at its discretion
from time to time notify any or all obligors under any accounts,
general intangibles or chattel paper (i) of Secured Party's security
interest in such accounts or general intangibles and direct such
obligors to make payment of all amounts due or to become due to Debtor
thereunder directly to Secured Party, and (ii) to verify the accounts,
general intangibles or chattel paper with such obligors. Secured Party
shall have the right, at the expense of Debtor, to enforce collection
of any such accounts, general intangibles or chattel paper and to
adjust, settle or compromise the amount or payment thereof, in the
same manner and to the same extent as Debtor.
(f) License. Secured Party is hereby granted a license or other right to
use, without charge, Debtor's labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising
for sale and selling any Collateral and Debtor's rights under all
licenses and all franchise agreements shall inure to Secured Party's
benefit.
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7. Events of Default. Each of the following constitutes an "Event of Default"
under this Agreement:
(a) Failure to Pay Indebtedness. Debtor shall fail to pay as and when due
any Indebtedness.
(b) Non-Performance of Covenants. Debtor shall breach any covenant or
agreement made herein, in any of the Financing Documents or in any
other agreement now or hereafter entered into between Debtor and
Secured Party.
(c) False Representation. Any warranty or representation made herein or in
any of the Financing Documents shall be false or misleading in any
material respect when made.
(d) Default Under Other Financial Documents. The occurrence of an event of
default under any of the Financing Documents or any other agreement
now or hereafter entered into between Debtor and Secured Party.
(e) Default Under KBK Loan Documents. The occurrence of an event of
default under the KBK Loan Agreement or any of the other KBK Loan
Documents or any other agreement now or hereafter entered into between
Debtor and Secured Party.
(f) Untrue Financial Report. Any report, certificate, schedule, financial
statement, profit and loss statement or other statement furnished by
Debtor, or by any other person on behalf of Debtor, to Secured Party
is not true and correct in any material respect.
(g) Default to Third Party. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Debtor to
any third party under any agreement or undertaking, including, without
limitation, KBK.
(h) Bankruptcy. The filing of a voluntary or involuntary case by or
against Debtor under the United States Bankruptcy Code or other
present or future federal or state insolvency, bankruptcy or similar
laws, or the appointment of a receiver, trustee, conservator or
custodian for a substantial portion of Debtor's assets.
(i) Insolvency. Debtor shall become insolvent, make a transfer in fraud of
creditors or make an assignment for the benefit of creditors.
(j) Involuntary Lien. The filing or commencement of any involuntary lien,
garnishment, attachment or the like shall be issued against or with
respect to the Collateral.
(k) Material Adverse Change. A material adverse change shall have occurred
in the financial condition, business prospects or operations of Debtor
or any of its subsidiaries.
(l) Tax Lien. Debtor shall have a federal or state tax lien filed against
any of its properties.
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(m) Execution on Collateral. The Collateral or any portion thereof is
taken on execution or other process of law.
(n) Guarantor's Obligations. If any of the obligations of any guarantor
under the Financing Documents is limited or terminated by operation of
law or by the guarantor, or any such guarantor becomes the subject of
an insolvency proceeding.
(o) Judgment. The entry against Debtor of a final and nonappealable
judgment for the payment of money in excess of $25,000 (not covered by
insurance satisfactory to Secured Party in its sole discretion).
8. Remedies and Related Rights. If an Event of Default shall have occurred,
and without limiting any other rights and remedies provided herein, under
any of the other Financing Documents or otherwise available to Secured
Party, Secured Party may exercise one or more of the rights and remedies
provided in this Section.
(a) Remedies. Secured Party may from time to time at its discretion,
without limitation and without notice except as expressly provided in
any of the Financing Documents:
(i) exercise in respect of the Collateral all the rights and remedies
of a secured party under the Code (whether or not the Code
applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees that it will at its
expense and upon request of Secured Party, assemble the
Collateral as directed by Secured Party and make it available to
Secured Party at a place to be designated by Secured Party which
is reasonably convenient to both parties;
(iii)reduce its claim to judgment or foreclose or otherwise enforce,
in whole or in part, the security interest granted hereunder by
any available judicial procedure;
(iv) sell or otherwise dispose of, at its office, on the premises of
Debtor or elsewhere, the Collateral, as a unit or in parcels, by
public or private proceedings, and by way of one or more
contracts (it being agreed that the sale or other disposition of
any part of the Collateral shall not exhaust Secured Party's
power of sale, but sales or other dispositions may be made from
time to time until all of the Collateral has been sold or
disposed of or until the Indebtedness has been paid and performed
in full), and at any such sale or other disposition it shall not
be necessary to exhibit any of the Collateral;
(v) buy the Collateral, or any portion thereof, at any public sale;
(vi) buy the Collateral, or any portion thereof, at any private sale
if the Collateral is of a type customarily sold in a recognized
market or is of a type which is the subject of widely distributed
standard price quotations;
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(vii)apply for the appointment of a receiver for the Collateral, and
Debtor hereby consents to any such appointment; and
(viii) at its option, retain the Collateral in satisfaction of the
Indebtedness whenever the circumstances are such that Secured
Party is entitled to do so under the Code or otherwise.
Debtor agrees that in the event Debtor is entitled to receive any
notice under the Uniform Commercial Code, as it exists in the
state governing any such notice, of the sale or other disposition
of any Collateral, reasonable notice shall be deemed given when
such notice is deposited in a depository receptacle under the
care and custody of the United States Postal Service, postage
prepaid, at Debtor's address set forth on the signature page
hereof, five (5) days prior to the date of any public sale, or
after which a private sale, of any of such Collateral is to be
held. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given.
Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) Executory Process. Debtor hereby acknowledges the Indebtedness,
CONFESSES JUDGMENT thereon and consents that judgment be rendered and
signed, whether during the court's term or during vacation, in favor
of the Secured Party, for the full amount of the Indebtedness,
including without limitation the Note and the Loan Agreement, in
principal, interest, and attorney's fees, together with all reasonable
and necessary charges and expenses pursuant to this instrument, the
Note, the Loan Agreement or other evidence of Indebtedness. Upon the
occurrence of an Event of Default, and in addition to all of its
rights, powers and remedies under this instrument and applicable law,
Secured Party may, at its option, cause all or any part of the
Collateral to be seized and sold under executory process or under writ
of fieri fascias issued in execution of an ordinary judgment obtained
upon the Indebtedness, without appraisement to the highest bidder, for
cash or under such terms as Secured Party deems acceptable. Debtor
hereby waives all and every appraisement of the Collateral and waives
and renounces the benefit of appraisement and the benefit of all laws
relative to the appraisement of the Collateral seized and sold under
executory or other legal process.
(c) Application of Proceeds. If any Event of Default shall have occurred,
Secured Party may at its discretion and without notice to Debtor (any
requirement of notice being expressly waived) apply or use any cash
held by Secured Party as Collateral, and any cash proceeds received by
Secured Party in respect of any sale or other disposition of,
collection from, or other realization upon, all or any part of the
Collateral as follows in such order and manner as Secured Party may
elect:
(i) to the repayment or reimbursement of the reasonable costs and
expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by Secured Party in connection with
(A) the administration of the Financing Documents, (B) the
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custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, the Collateral, and
(C) the exercise or enforcement of any of the rights and remedies
of Secured Party hereunder;
(ii) to the payment or other satisfaction of any liens and other
encumbrances upon the Collateral;
(iii)to the satisfaction of the Indebtedness (without constituting a
retention of collateral in satisfaction of an obligation within
the meaning of Section 9.505 of the Code);
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by applicable law;
and
(vi) by delivery to Debtor or any other party lawfully entitled to
receive such cash or proceeds whether by direction of a court of
competent jurisdiction or otherwise.
(d) Deficiency. In the event that the proceeds of any sale of, collection
from, or other realization upon, all or any part of the Collateral by
Secured Party are insufficient to pay all amounts to which Secured
Party is legally entitled, Debtor and any party who guaranteed or is
otherwise obligated to pay all or any portion of the Indebtedness
shall be liable for the deficiency, together with interest thereon as
provided in the Financing Documents.
(e) Non-Judicial Remedies. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or
judicial hearing, Debtor expressly waives, renounces and knowingly
relinquishes any legal right which might otherwise require Secured
Party to enforce its rights by judicial process. Debtor recognizes and
concedes that non-judicial remedies are consistent with the usage of
trade, are responsive to commercial necessity and are the result of a
bargain at arm's length. Nothing herein is intended to prevent Secured
Party or Debtor from resorting to judicial process at either party's
option.
(f) Other Recourse. Debtor waives any right to require Secured Party to
proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Debtor in any suit arising out of the Indebtedness or any of the
Financing Documents, or pursue any other remedy available to Secured
Party. Debtor further waives any and all notice of acceptance of this
Agreement and of the creation, modification, rearrangement, renewal or
extension of the Indebtedness. Debtor further waives any defense
arising by reason of any disability or other defense of any third
party or by reason of the cessation from any cause whatsoever of the
liability of any third party. Until all of the Indebtedness shall have
been paid in full, Debtor shall have no right of subrogation and
Debtor waives the right to enforce any remedy which Secured Party has
or may hereafter have against any third party, and waives any benefit
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of and any right to participate in any other security whatsoever now
or hereafter held by Secured Party. Debtor authorizes Secured Party,
and without notice or demand and without any reservation of rights
against Debtor and without affecting Debtor's liability hereunder or
on the Indebtedness to (i) take or hold any other property of any type
from any third party as security for the Indebtedness, and exchange,
enforce, waive and release any or all of such other property, (ii)
apply such other property and direct the order or manner of sale
thereof as Secured Party may in its discretion determine, (iii) renew,
extend, accelerate, modify, compromise, settle or release any of the
Indebtedness or other security for the Indebtedness, (iv) waive,
enforce or modify any of the provisions of any of the Financing
Documents executed by any third party, and (v) release or substitute
any third party.
9. Indemnity. Debtor hereby indemnifies and agrees to hold harmless Secured
Party, and its officers, directors, shareholders, employees, attorneys,
representatives, agents and affiliates (each an "Indemnified Person") from
and against any and all liabilities, obligations, claims, demands, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature (collectively, the "Claims") which may
be imposed on, incurred by, or asserted against, any Indemnified Person
arising in connection with the Financing Documents, the Indebtedness or the
Collateral (including without limitation, the enforcement of the Financing
Documents and the defense of any Indemnified Person's actions and/or
inactions in connection with the Financing Documents). WITHOUT LIMITATION,
THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON WITH
RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
OF THE NEGLIGENCE OF SUCH AND/OR ANY OTHER INDEMNIFIED PERSON, except to
the limited extent the Claims against an Indemnified Person are proximately
caused by such Indemnified Person's gross negligence or willful misconduct.
If Debtor or any third party ever alleges such gross negligence or willful
misconduct by any Indemnified Person, the indemnification provided for in
this Section shall nonetheless be paid upon demand, subject to later
adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the
alleged gross negligence or willful misconduct. The indemnification
provided for in this Section shall survive the termination of this
Agreement and shall extend and continue to benefit each individual or
entity who is or has at any time been an Indemnified Person hereunder.
10. Miscellaneous.
(a) Entire Agreement. This Agreement contains the entire agreement of
Secured Party and Debtor with respect to the Collateral. If the
parties hereto are parties to any prior agreement, either written or
oral, relating to the Collateral, the terms of this Agreement shall
amend and supersede the terms of such prior agreements as to
transactions on or after the effective date of this Agreement, but all
security agreements, financing statements, guaranties, other contracts
and notices for the benefit of Secured Party shall continue in full
force and effect to secure the Indebtedness unless Secured Party
specifically releases its rights thereunder by separate release.
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(b) Amendment. No modification, consent or amendment of any provision of
this Agreement or any of the other Financing Documents shall be valid
or effective unless the same is in writing and signed by the party
against whom it is sought to be enforced.
(c) Actions by Secured Party. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by
(i) any renewal, extension, increase or modification with respect to
the Indebtedness, (ii) any surrender, compromise, release, renewal,
extension, exchange or substitution which Secured Party may grant with
respect to the Collateral, or (iii) any release or indulgence granted
to any endorser, guarantor or surety of the Indebtedness. The taking
of additional security by Secured Party shall not release or impair
the lien, security interest or other security rights of Secured Party
hereunder or affect the obligations of Debtor hereunder.
(d) Waiver by Secured Party. Secured Party may waive any Event of Default
without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of
Default remedied. Neither the failure by Secured Party to exercise,
nor the delay by Secured Party in exercising, any right or remedy upon
any Event of Default shall be construed as a waiver of such Event of
Default or as a waiver of the right to exercise any such right or
remedy at a later date. No single or partial exercise by Secured Party
of any right or remedy hereunder shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right
or remedy hereunder may be exercised at any time. No waiver of any
provision hereof or consent to any departure by Debtor therefrom shall
be effective unless the same shall be in writing and signed by Secured
Party and then such waiver or consent shall be effective only in the
specific instances, for the purpose for which given and to the extent
therein specified. No notice to or demand on Debtor in any case shall
of itself entitle Debtor to any other or further notice or demand in
similar or other circumstances.
(e) Costs and Expenses. Debtor will upon demand pay to Secured Party the
amount of any and all costs and expenses (including without
limitation, attorneys' fees and expenses), which Secured Party may
incur in connection with (i) the transactions which give rise to the
Financing Documents, (ii) the preparation of this Agreement and the
perfection and preservation of the security interests granted under
the Financing Documents, (iii) the administration of the Financing
Documents, (iv) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, the Collateral,
(v) the exercise or enforcement of any of the rights of Secured Party
under the Financing Documents, or (vi) the failure by Debtor to
perform or observe any of the provisions hereof.
(f) Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION
OR NONPERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A
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JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT IS
PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS. DEBTOR AND SECURED
PARTY (BY ITS ACCEPTANCE HEREOF) EACH AGREE THAT DALLAS COUNTY, TEXAS
SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM
ARISING UNDER OR RELATING TO THIS AGREEMENT, AND THAT SUCH COUNTY IS A
CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. DEBTOR
AND SECURED PARTY (BY ITS ACCEPTANCE HEREOF) EACH CONSENT TO THE
PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM.
DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER RAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
(g) Waiver of Jury Trial. DEBTOR AND SECURED PARTY (BY ITS ACCEPTANCE
HEREOF) EACH HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT
PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
(h) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be illegal, invalid or unenforceable under
present or future laws, such provision shall be fully severable, shall
not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(i) No Obligation. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to
extend credit to Debtor.
(j) Notices. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be
in writing and given by (i) personal delivery, (ii) expedited delivery
service with proof of delivery, (iii) United States mail, postage
prepaid, registered or certified mail, return receipt requested, or
(iv) telecopy (with receipt thereof confirmed by telecopier) sent to
the intended addressee at the address set forth on the signature page
hereof or to such different address as the addressee shall have
designated by written notice sent pursuant to the terms hereof and
shall be deemed to have been received either, in the case of personal
delivery, at the time of personal delivery, in the case of expedited
delivery service, as of the date of first attempted delivery at the
address and in the manner provided herein, in the case of mail, upon
deposit in a depository receptacle under the care and custody of the
United States Postal Service, or in the case of telecopy, upon
receipt. Either party shall have the right to change its address for
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notice hereunder to any other location within the continental United
States by notice to the other party of such new address at least
thirty (30) days prior to the effective date of such new address.
(k) Binding Effect and Assignment. This Agreement (i) creates a continuing
security interest in the Collateral, (ii) shall be binding on Debtor
and the heirs, executors, administrators, personal representatives,
successors and assigns of Debtor, and (iii) shall inure to the benefit
of Secured Party and its successors and assigns. Without limiting the
generality of the foregoing, Secured Party may pledge, assign or
otherwise transfer the Indebtedness and its rights under this
Agreement and any of the other Financing Documents to any other party.
Debtor's rights and obligations hereunder may not be assigned or
otherwise transferred without the prior written consent of Secured
Party.
(l) Termination. Upon (i) the satisfaction in full of the Indebtedness,
(ii) the termination or expiration of any commitment of Secured Party
to extend credit to Debtor, (iii) written request for the termination
hereof delivered by Debtor to Secured Party, and (iv) written release
or termination delivered by Secured Party to Debtor, this Agreement
and the security interests created hereby shall terminate. Upon
termination of this Agreement and Debtor's written request, Secured
Party will, at Debtor's sole cost and expense, return to Debtor such
of the Collateral as shall not have been sold or otherwise disposed of
or applied pursuant to the terms hereof and execute and deliver to
Debtor such documents as Debtor shall reasonably request to evidence
such termination.
(m) Cumulative Rights. All rights and remedies of Secured Party hereunder
are cumulative of each other and of every other right or remedy which
Secured Party may otherwise have at law or in equity or under any of
the other Financing Documents, and the exercise of one or more of such
rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of any other rights or remedies.
(n) Gender and Number. Within this Agreement, words of any gender shall be
held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and
words in the plural number shall be held and construed to include the
singular, unless in each instance the context requires otherwise.
(o) Descriptive Headings. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the
scope or meaning of the various and several provisions hereof.
11. Agreement Subject to Subordination Agreement. This Agreement and the terms
and provisions hereof are subject to the terms and provisions of that
certain Subordination Agreement of even date herewith between Schlinger and
KBK.
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EXECUTED as of the date first written above.
DEBTOR:
KARTS INTERNATIONAL INCORPORATED
By: /s/ Charles Brister
------------------------
Charles Brister
President & C.E.O.
Debtor's Address:
P.O. Box 695
62204 Commercial Street
Roseland, Louisiana
Telecopy No.: 504-747-2700
Debtor's Employer Identification Number:
75-2639196
Secured Party's Address:
The Schlinger Foundation
1944 Edison Street
Santa Ynez, California 93460
Telecopy No.: 805-686-1618
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SCHEDULE "A"
TO
SECURITY AGREEMENT
DATED June 3, 1999
EXECUTED BY KARTS INTERNATIONAL INCORPORATED
FOR THE BENEFIT OF
THE SCHLINGER FOUNDATION.
The addresses of any other locations of Collateral referenced in Subsection 3(f)
are as follows:
None.
EXHIBIT 10.46
<PAGE>
WAIVER AND FIRST AMENDMENT TO LOAN AGREEMENT
THIS WAIVER AND FIRST AMENDMENT TO LOAN AGREEMENT (the "Amendment"), dated as of
July 12, 1999, is between KARTS INTERNATIONAL INCORPORATED, a Nevada corporation
("Borrower") and THE SCHLINGER FOUNDATION ("Schlinger").
RECITALS:
WHEREAS, Borrower and Schlinger have entered into that certain Loan
Agreement dated as of June 3, 1999 (as the same may hereafter be amended or
otherwise modified, the "Agreement");
WHEREAS, Borrower has requested that Schlinger waive Borrower's
non-compliance with the covenant contained in Section 8 (l) of the Agreement;
and
WHEREAS, Borrower and Schlinger now desire to amend the Agreement as herein
set forth;
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows effective as of the date
hereof unless otherwise indicated:
ARTICLE 1
Definitions
Section 1.1 Definitions. Capitalized terms used in this Amendment, to the
extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 Amendment to Section 12; Events of Default. Section 12 of the
Agreement is hereby amended by adding a new Subsection 12 (q) which shall read
in its entirety to read as follows:
"(q) Shareholder Approval. Borrower shall fail to obtain approval
from its shareholders of all terms, conditions, covenants and
agreements contained in this Agreement, the Note and the other
Loan Documents on or before September 30, 1999."
<PAGE>
ARTICLE 3
Waiver
Section 3.1 Limited Waiver of Section 8 (l) of the Agreement.
(a) Schlinger hereby waives any Event of Default resulting from the
Borrower's failure to, on or before thirty (30) days from date of the
Agreement, (i) enter into an employment agreement with Charles Brister that
is for a term of at least three (3) years and is otherwise in form and
substance satisfactory to Schlinger and (ii) in connection with such
employment agreement, execute an agreement to and in favor of Schlinger
whereby Borrower agrees to provide adequate anti-dilution protection that
Schlinger deems necessary for the shares of Common Stock that may be issued
to Schlinger pursuant to the conversion of the Note as a result of any
Common Stock that may be issued to Charles Brister in connection with such
employment agreement.
(b) Schlinger hereby grants Borrower an additional thirty (30) days
from the date hereof to comply with the covenants set forth in Section 8
(l) of the Agreement.
(c) The waiver contained in this Section 3.1 shall be limited strictly
as written and shall not be deemed to constitute a waiver of, or any
consent to noncompliance with, any term or provision of the Agreement
except as expressly set forth herein. Further, the waiver contained in this
Section 3.1 shall not constitute a waiver of any future Event of Default
that may occur, including, without limitation, the Borrower's failure to
keep, perform or observe the covenants set forth in Section 8 (l) of the
Agreement (as amended by this Amendment) after thirty (30) days from the
date hereof.
ARTICLE 4
Ratifications, Representations and Warranties
Section 4.1 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Borrower and Schlinger agree that the Agreement as amended hereby and
the other Loan Documents shall continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
Section 4.2 Representations and Warranties. Borrower hereby represents and
warrants to Schlinger as follows: (a) after giving effect to this Amendment, no
Event of Default has occurred and is continuing; (b) after giving effect to this
Amendment, the representations and warranties set forth in the Loan Documents
are true and correct in all material respects on and as of the date hereof with
the same effect as though made on and as of such date except with respect to any
representations and warranties limited by their terms to a specific date; (c)
the execution, delivery and performance of this Amendment has been duly
authorized by all necessary action on the part of Borrower and each Obligor and
<PAGE>
does not and will not: (1) violate any provision of law applicable to Borrower
or any Obligor, the articles of incorporation, bylaws, partnership agreement,
membership agreement, or other applicable governing document of Borrower or any
Obligor or any order, judgment, or decree of any court or agency of government
binding upon Borrower or any Obligor; (2) conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
material contractual obligation of Borrower or any Obligor; (3) result in or
require the creation or imposition of any material lien upon any of the assets
of Borrower or any Obligor; or (4) require any approval or consent of any Person
under any material contractual obligation of Borrower or any Obligor; and (d)
the articles of incorporation, bylaws, partnership agreement, certificate of
limited partnership, membership agreement, articles of organization or other
applicable governing document of the Borrower and each Obligor have not been
modified or rescinded and remain in full force and effect.
IN ADDITION, TO INDUCE SCHLINGER TO AGREE TO THE TERMS OF THIS AMENDMENT,
BORROWER AND EACH OBLIGOR (BY IT EXECUTION BELOW) REPRESENTS AND WARRANTS THAT
AS OF THE DATE OF ITS EXECUTION OF THIS AMENDMENT THERE ARE NO CLAIMS OR OFFSETS
AGAINST OR DEFENSES OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS
AND IN ACCORDANCE THEREWITH IT:
(a) WAIVER. WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS, DEFENSES OR
COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE OF
ITS EXECUTION OF THIS AMENDMENT AND
(b) RELEASE. RELEASES AND DISCHARGES SCHLINGER, AND ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS, AFFILIATES AND ATTORNEYS
(COLLECTIVELY THE "RELEASED PARTIES") FROM ANY AND ALL OBLIGATIONS,
INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS, CAUSES OF ACTION OR DEMANDS
WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW
OR EQUITY, WHICH THE BORROWER OR ANY OBLIGOR EVER HAD, NOW HAS, CLAIMS
TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE
DATE HEREOF AND FROM OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY.
ARTICLE 5
Miscellaneous
Section 5.1 Survival of Representations and Warranties. All representations
and warranties made in this Amendment or any other Loan Document including any
<PAGE>
Loan Document furnished in connection with this Amendment shall survive the
execution and delivery of this Amendment and the other Loan Documents, and no
investigation by Schlinger or any closing shall affect the representations and
warranties or the right of Schlinger to rely upon them.
Section 5.2 Reference to Agreement. Each of the Loan Documents, including
the Agreement and any and all other agreements, documents, or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Agreement as amended hereby, are hereby amended so that any
reference in such Loan Documents to the Agreement shall mean a reference to the
Agreement as amended hereby.
Section 5.3 Expenses of Schlinger. As provided in the Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Schlinger in
connection with the preparation, negotiation, and execution of this Amendment
and the other Loan Documents executed pursuant hereto, including without
limitation, the costs and fees of Schlinger's legal counsel.
Section 5.4 Severability. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 5.5 Applicable Law. This Amendment and all other Loan Documents
executed pursuant hereto shall be governed by and construed in accordance with
the laws of the State of Texas and the applicable laws of the United States of
America.
Section 5.6 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Schlinger and Borrower and their respective
successors and assigns, except Borrower may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of Schlinger.
Section 5.7 Counterparts. This Amendment may be executed in one or more
counterparts and on telecopy counterparts, each of which when so executed shall
be deemed to be an original, but all of which when taken together shall
constitute one and the same agreement.
Section 5.8 Effect of Waiver. No consent or waiver, express or implied, by
Schlinger to or for any breach of or deviation from any covenant, condition or
duty by Borrower or any Obligor shall be deemed a consent or waiver to or of any
other breach of the same or any other covenant, condition or duty.
Section 5.9 Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
Section 5.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS
AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
<PAGE>
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT
BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
BORROWER:
KARTS INTERNATIONAL INCORPORATED
By: /s/ Charles Brister
-----------------------
Name:
Title:
SCHLINGER:
THE SCHLINGER FOUNDATION
By:
Name:
Title:
<PAGE>
Obligor Consent
Each of the undersigned Obligors: (i) consents and agrees to this
Amendment; (ii) agrees that the Loan Documents to which it is a party shall
remain in full force and effect and shall continue to be the legal, valid and
binding obligation of such Obligor enforceable against it in accordance with
their respective terms; and (iii) agree that the obligations, indebtedness and
liabilities of the Borrower arising under this Amendment are "Guaranteed
Indebtedness" as defined in the guaranty agreement to which it is a party in
connection with the Agreement.
OBLIGORS:
BRISTER'S THUNDER KARTS, INC.
By:
Name:
Title:
KINT, L.L.C.
By:
Name:
Title:
STRAIGHT LINE MANUFACTURING, INC.
By:
Name:
Title:
USA INDUSTRIES INCORPORATED
By:
Name:
Title:
