SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 17, 2000
KARTS INTERNATIONAL INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation)
000-23041 75-2639196
(Commission File Number) (I.R.S. Employer Identification Number)
62204 Commercial Street, 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)
<PAGE>
INFORMATION INCLUDED IN REPORT ON FORM 8-K
Item 1. Changes in Control of Registrant.
On May 17, 2000, Karts International Incorporated (the "Company") sold
4,000,000 shares of its Series A voting, convertible preferred stock ("Series A
shares") to the Schlinger Foundation ("Schlinger") for $3,000,000 or $0.75 per
share. The 4,000,000 shares of the Company's Series A shares purchased by
Schlinger are entitled to receive a cash dividend at the rate of 10% per annum,
payable quarterly. Each of the Series A shares is convertible at any time after
the date of issuance, into such number of fully paid and nonassessable shares of
the Company's common stock, $0.001 par value ("Common Stock"), as is determined
by dividing the conversion price of $0.375 per share into the sum of $0.75 plus
all accrued or unpaid dividends. At the date of the transaction, the Series A
shares are convertible into 8,000,000 shares of Common Stock.
Each of the Series A shares has the right to one vote for each share of
Common Stock into which such Series A share could be then converted. The voting
rights and powers of the Series A shares are equal in all respect to that of the
Common Stock. At the date of the transaction, the Company had 5,799,270 shares
of Common Stock outstanding. After giving effect for the Series A shares voting
rights, this transaction allows Schlinger the right to vote approximately 58.0%
of the total shares able to vote with respect to any matters on which the
holders of Common Stock have the right to vote.
The Series A shares have a liquidation preference of $0.75 per share,
plus declared or accrued but unpaid dividends on such shares and are redeemable
at the Company's option any time on or after May 31, 2003 by paying cash equal
to $1.50 per Series A share plus all declared or accrued but unpaid dividends,
in multiples of $1,000,000. Additionally, the transaction also granted two
demand and unlimited piggyback registration rights.
As part of the transaction, the Company agreed to take all appropriate
actions to provide for sufficient vacant seats on the Board of Directors so that
Schlinger's nominees can hold a majority of the seats on the Board.
As a result of this transaction, including a voting agreement entered
into by certain members of management, Schlinger now beneficially owns directly
and indirectly 592,580 shares or approximately 10.2% of the Company's issued and
outstanding shares of common stock, has convertible securities which would
result in an additional 10,000,000 shares of Common Stock, if converted, and has
the right to vote 9,174,510 or approximately 66.5% of the shares having the
right to vote on matters presented to holders of the Company's Common Stock.
In addition to the purchase of these shares, Schlinger amended its
existing $1,500,000 convertible, subordinated debenture with the Company to
remove the conversion feature, increase the principle amount to $2,500,000 and
modify other terms and conditions. The amended note bears a variable rate of
<PAGE>
interest based on the published prime rate, as reported by the Wall Street
Journal, plus 3%. Interest is payable monthly and the principle and any unpaid
interest is due in full on May 17, 2005. The note is secured by virtually all
the assets of the Company and its wholly-owned subsidiaries.
Item 6. Resignation of Registrant's Directors.
As stated in Item 1. above, Schlinger was given the right to have its
nominees appointed to a majority of seats on the Company's board of directors.
As a result, the Company accepted the resignation of three of its directors.
Timothy Halter resigned on May 16, 2000 and Joseph Mannes and Ronald Morgan
resigned on May 17, 2000. The resignation of Timothy Halter, Joseph Mannes and
Ronald Morgan was a negotiated condition for the transaction and was not the
result of a disagreement with the Company on any matter relating to the
Company's operations, policies or practices. As of the date of this filing,
Schlinger has not presented its nominees to the Company.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
Exhibit Number Description of Exhibit
-------------- ----------------------
3.4 Amended and Restated Bylaws of the Company
3.5 Certificate of Designation Establishing Series A
Preferred Stock of the Company
10.43 Stock Purchase Agreement, dated May 17, 2000, by
and among the Company and The Schlinger
Foundation (without exhibits or schedules).
10.44 Amended and Restated Loan Agreement dated May 17,
2000, by and among the Company and The Schlinger
Foundation
(without exhibits or schedules).
<PAGE>
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
--------------------------------------
Charles Brister, President and Chief
Executive Officer
Date: May 23, 2000
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS OF
KARTS INTERNATIONAL INCORPORATED
<PAGE>
TABLE OF CONTENTS
ARTICLE I -- OFFICES
Section 1. Registered Office..................................................1
Section 2. Other Offices......................................................1
ARTICLE II -- SHAREHOLDERS
Section 1. Place of Meetings.................................................1
Section 2. Annual Meeting.....................................................1
Section 3. List of Shareholders...............................................1
Section 4. Special Meetings...................................................2
Section 5. Notice.............................................................2
Section 6. Quorum.............................................................2
Section 7. Voting.............................................................2
Section 8. Method of Voting...................................................2
Section 9. Record Date........................................................3
Section 10. Action by Consent.................................................3
Section 11. Exclusion of NRS 78.378 to 78.3793................................3
ARTICLE III -- BOARD OF DIRECTORS
Section 1. Management.........................................................3
Section 2. Qualification; Election; Term......................................3
Section 3. Number.............................................................3
Section 4. Removal............................................................4
Section 5. Vacancies..........................................................4
Section 6. Place of Meetings..................................................4
Section 7. Annual Meeting.....................................................4
Section 8. Regular Meetings...................................................4
Section 9. Special Meetings...................................................4
Section 10. Quorum............................................................4
Section 11. Interested Directors..............................................4
Section 12. Committees........................................................5
Section 13. Action by Consent.................................................5
Section 14. Compensation of Directors.........................................5
ARTICLE IV -- NOTICE
Section 1. Form of Notice.....................................................5
Section 2. Waiver.............................................................5
ARTICLE V -- OFFICERS AND AGENTS
Section 1. In General.........................................................6
Section 2. Election...........................................................6
Section 3. Other Officers and Agents..........................................6
Section 4. Compensation.......................................................6
Section 5. Term of Office and Removal.........................................6
Section 6. Employment and Other Contracts.....................................6
<PAGE>
Section 7. Chairman of the Board of Directors.................................6
Section 8. Chief Executive Officer............................................6
Section 9. President..........................................................7
Section 10. Chief Financial Officer...........................................7
Section 11. Secretary.........................................................7
Section 12. Bonding...........................................................7
ARTICLE VI -- CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates...............................................7
Section 2. Lost Certificates..................................................8
Section 3. Transfer of Shares.................................................8
Section 4. Registered Shareholders............................................8
ARTICLE VII -- GENERAL PROVISIONS
Section 1. Dividends..........................................................8
Section 2. Reserves...........................................................8
Section 3. Telephone and Similar Meetings.....................................9
Section 4. Books and Records..................................................9
Section 5. Fiscal Year........................................................9
Section 6. Seal...............................................................9
Section 7. Advances of Expenses...............................................9
Section 8. Indemnification...................................................10
Section 9. Insurance.........................................................10
Section 10. Resignation......................................................10
Section 11. Amendment of Bylaws..............................................10
Section 12. Invalid Provisions...............................................10
Section 13. Relation to the Articles of Incorporation........................10
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
KARTS INTERNATIONAL INCORPORATED
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office and registered
agent of Karts International Incorporated (the "Corporation") will be as from
time to time set forth in the Corporation's Articles of Incorporation (as may be
amended from time to time) or in any certificate filed with the Secretary of
State of the State of Nevada, and the appropriate county Recorder or Recorders,
as the case may be, to amend such information.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Nevada as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders for the
election of Directors will be held at such place, within or without the State of
Nevada, as may be fixed from time to time by the Board of Directors. Meetings of
shareholders for any other purpose may be held at such time and place, within or
without the State of Nevada, as may be stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the shareholders will
be held at such time as may be determined by the Board of Directors, at which
meeting the shareholders will elect a Board of Directors, and transact such
other business as may properly be brought before the meeting.
Section 3. List of Shareholders. At least ten days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at said
meeting, arranged in alphabetical order, with the address of and the number of
voting shares registered in the name of each, will be prepared by the officer or
agent having charge of the stock transfer books. Such list will be open to the
examination of any shareholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
will be specified in the notice of the meeting, or if not so specified at the
place where the meeting is to be held. Such list will be produced and kept open
<PAGE>
at the time and place of the meeting during the whole time thereof, and will be
subject to the inspection of any shareholder who may be present.
Section 4. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by law, the Articles of
Incorporation or these Bylaws, may be called by the Chairman of the Board, the
Chief Executive Officer, the President or the Board of Directors.
Section 5. Notice. Written or printed notice stating the place, day and
hour of any meeting of the shareholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, will be delivered not less
than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board, the
Chief Executive Officer, the President, the Secretary, or the officer or person
calling the meeting, to each shareholder of record entitled to vote at the
meeting. If mailed, such notice will be deemed to be delivered when deposited in
the United States mail, addressed to the shareholder at his address as it
appears on the stock transfer books of the Corporation, with postage thereon
prepaid.
Section 6. Quorum. At all meetings of the shareholders, the presence in
person or by proxy of the holders of a majority of the shares issued and
outstanding and entitled to vote will be necessary and sufficient to constitute
a quorum for the transaction of business except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws. If, however, such quorum is
not present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, will have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting will
be given to each shareholder of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
notified.
Section 7. Voting. When a quorum is present at any meeting of the
Corporation's shareholders, the vote of the holders of a majority of the shares
entitled to vote on, and voted for or against, any matter will decide any
questions brought before such meeting, unless the question is one upon which, by
express provision of law, the Articles of Incorporation or these Bylaws, a
different vote is required, in which case such express provision will govern and
control the decision of such question. The shareholders present in person or by
proxy at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
Section 8. Method of Voting. Each outstanding share of the
Corporation's capital stock, regardless of class, will be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are limited
<PAGE>
or denied by the Articles of Incorporation, as amended from time to time. At any
meeting of the shareholders, every shareholder having the right to vote will be
entitled to vote in person, or by proxy appointed by an instrument in writing
subscribed by such shareholder and bearing a date not more than three years
prior to such meeting, unless such instrument provides for a longer period. Each
proxy will be revocable unless expressly provided therein to be irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock itself
or an interest in the Corporation generally. Such proxy will be filed with the
Secretary of the Corporation prior to or at the time of the meeting. Voting on
any question or in any election, other than for directors, may be by voice vote
or show of hands unless the presiding officer orders, or any shareholder
demands, that voting be by written ballot.
Section 9. Record Date. The Board of Directors may fix in advance a
record date for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, which record date will not precede the
date upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date will not be less than ten nor more than sixty
days prior to such meeting. In the absence of any action by the Board of
Directors, the close of business on the date next preceding the day on which the
notice is given will be the record date, or, if notice is waived, the close of
business on the day next preceding the day on which the meeting is held will be
the record date.
Section 10. Action by Consent. Any action required or permitted by law,
the Articles of Incorporation or these Bylaws to be taken at a meeting of the
shareholders of the Corporation may be taken without a meeting if a consent or
consents in writing, setting forth the action so taken, is signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and will be delivered to the
Corporation by delivery to its registered office in Nevada, its principal place
of business or an officer or agent of the Corporation having custody of the
minute book.
Section 11. Exclusion of NRS 78.378 to 78.3793. The Corporation
expressly elects not to be governed by the provisions of NRS 78.378 to 78.3793,
inclusive, of the Nevada General Corporation Law.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Management. The business and affairs of the Corporation will
be managed by or under the direction of its Board of Directors who may exercise
all such powers of the Corporation and do all such lawful acts and things as are
<PAGE>
not by law, by the Articles of Incorporation or by these Bylaws directed or
required to be exercised or done by the shareholders.
Section 2. Qualification; Election; Term. None of the Directors need be
a shareholder of the Corporation or a resident of the State of Nevada. Each
Director shall hold office until whichever of the following occurs first: his
successor is elected and qualified, his resignation, his removal from office by
the shareholders or his death. At each annual meeting of shareholders of the
Corporation, the successors to the directors whose term expires at the meeting
shall be elected to hold office for a term expiring at the annual meeting of
shareholders held in the following year of their election. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote on the election of Directors at any
annual or special meeting of shareholders. Such election shall be by written
ballot.
Section 3. Number. The number of Directors of the Corporation will be
at least one and not more than nine. The number of Directors authorized will be
fixed as the Board of Directors may from time to time designate, or if no such
designation has been made, the number of Directors will be the same as the
number of members of the initial Board of Directors as set forth in the Articles
of Incorporation.
Section 4. Removal. Any Director may be removed, only for cause, at any
special meeting of shareholders by the affirmative vote of the holders of a
majority of all outstanding voting stock entitled to vote; provided that notice
of the intention to act upon such matter has been given in the notice calling
such meeting.
Section 5. Vacancies. Newly created directorships resulting from any
increase in the authorized number of Directors and any vacancies occurring in
the Board of Directors caused by death, resignation, retirement,
disqualification or removal from office of any Directors or otherwise, may be
filled by the vote of a majority of the Directors then in office, though less
than a quorum, or a successor or successors may be chosen at a special meeting
of the shareholders called for that purpose, and each successor Director so
chosen will hold office until the next election of Directors or until whichever
of the following occurs first: his successor is elected and qualified, his
resignation, his removal from office by the shareholders or his death.
Section 6. Place of Meetings. Meetings of the Board of Directors,
regular or special, may be held at such place within or without the State of
Nevada as may be fixed from time to time by the Board of Directors.
Section 7. Annual Meeting. The first meeting of each newly elected
Board of Directors will be held without further notice immediately following the
annual meeting of shareholders and at the same place, unless by unanimous
consent, the Directors then elected and serving change such time or place.
<PAGE>
Section 8. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as is from time to time
determined by resolution of the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the Chief Executive Officer or the
President on oral or written notice to each Director, given either personally,
by telephone, by telegram or by mail; special meetings will be called by the
Chairman of the Board, Chief Executive Officer, President or Secretary in like
manner and on like notice on the written request of at least three Directors.
The purpose or purposes of any special meeting will be specified in the notice
relating thereto.
Section 10. Quorum. At all meetings of the Board of Directors the
presence of a majority of the number of Directors fixed by these Bylaws will be
necessary and sufficient to constitute a quorum for the transaction of business,
and the affirmative vote of at least a majority of the Directors present at any
meeting at which there is a quorum will be the act of the Board of Directors,
except as may be otherwise specifically provided by law, the Articles of
Incorporation or these Bylaws. If a quorum is not present at any meeting of the
Board of Directors, the Directors present thereat may adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum is present.
Section 11. Interested Directors. No contract or transaction between
the Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of the Corporation's Directors or officers are
directors or officers or have a financial interest, will be void or voidable
solely for this reason, solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (i) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested Directors, even though the disinterested Directors
be less than a quorum, (ii) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee that authorizes the contract or transaction.
Section 12. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board, designate committees, each committee
to consist of two or more Directors of the Corporation, which committees will
have such power and authority and will perform such functions as may be provided
<PAGE>
in such resolution. Such committee or committees will have such name or names as
may be designated by the Board and will keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 13. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee of the Board of
Directors may be taken without such a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be.
Section 14. Compensation of Directors. Directors will receive such
compensation for their services and reimbursement for their expenses as the
Board of Directors, by resolution, may establish; provided that nothing herein
contained will be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
NOTICE
Section 1. Form of Notice. Whenever by law, the Articles of
Incorporation or of these Bylaws, notice is to be given to any Director or
shareholder, and no provision is made as to how such notice will be given, such
notice may be given in writing, by mail, postage prepaid, addressed to such
Director or shareholder at such address as appears on the books of the
Corporation. Any notice required or permitted to be given by mail will be deemed
to be given at the time the same is deposited in the United States mails.
Section 2. Waiver. Whenever any notice is required to be given to any
shareholder or Director of the Corporation as required by law, the Articles of
Incorporation or these Bylaws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated in
such notice, will be equivalent to the giving of such notice. Attendance of a
shareholder or Director at a meeting will constitute a waiver of notice of such
meeting, except where such shareholder or Director attends for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened.
ARTICLE V
OFFICERS AND AGENTS
Section 1. In General. The officers of the Corporation will consist of
a Chief Executive Officer, President, Chief Financial Officer and Secretary and
such other officers as shall be elected by the Board of Directors or the Chief
Executive Officer. Any two or more offices may be held by the same person.
<PAGE>
Section 2. Election. The Board of Directors, at its first meeting after
each annual meeting of shareholders, will elect the officers, none of whom need
be a member of the Board of Directors.
Section 3. Other Officers and Agents. The Board of Directors and Chief
Executive Officer may also elect and appoint such other officers and agents as
it or he deems necessary, who will be elected and appointed for such terms and
will exercise such powers and perform such duties as may be determined from time
to time by the Board or the Chief Executive Officer.
Section 4. Compensation. The compensation of all officers and agents of
the Corporation will be fixed by the Board of Directors or any committee of the
Board, if so authorized by the Board.
Section 5. Term of Office and Removal. Each officer of the Corporation
will hold office until his death, his resignation or removal from office, or the
election and qualification of his successor, whichever occurs first. Any officer
or agent elected or appointed by the Board of Directors or the Chief Executive
Officer may be removed at any time, for or without cause, by the affirmative
vote of a majority of the entire Board of Directors or at the discretion of the
Chief Executive Officer (without regard to how the agent or officer was
elected), but such removal will not prejudice the contract rights, if any, of
the person so removed. If the office of any officer becomes vacant for any
reason, the vacancy may be filled by the Board of Directors or, in the case of a
vacancy in the office of officer other than Chief Executive Officer and
President, such vacancy may be filled by the Chief Executive Officer.
Section 6. Employment and Other Contracts. The Board of Directors may
authorize any officer or officers or agent or agents to enter into any contract
or execute and deliver any instrument in the name or on behalf of the
Corporation, and such authority may be general or confined to specific
instances. The Board of Directors may, when it believes the interest of the
Corporation will best be served thereby, authorize executive employment
contracts that will have terms no longer than ten years and contain such other
terms and conditions as the Board of Directors deems appropriate. Nothing herein
will limit the authority of the Board of Directors to authorize employment
contracts for shorter terms.
Section 7. Chairman of the Board of Directors. If the Board of
Directors has elected a Chairman of the Board, he will preside at all meetings
of the shareholders and the Board of Directors.
Section 8. Chief Executive Officer. The Chief Executive Officer will be
the chief executive officer of the Corporation and, subject to the control of
the Board of Directors, will supervise and control all of the business and
affairs of the Corporation. The Chief Executive Officer shall have the authority
to elect any officer of the Corporation other than the Chief Executive Officer
or President. He will, in the absence of the Chairman of the Board, preside at
all meetings of the shareholders and the Board of Directors. The Chief Executive
<PAGE>
Officer will have all powers and perform all duties incident to the office of
Chief Executive Officer and will have such other powers and perform such other
duties as the Board of Directors may from time to time prescribe. During the
absence or disability of the President, the Chief Executive Officer will
exercise the powers and perform the duties of President.
Section 9. President. The President will have responsibility for
oversight of the Corporation's operating and development activities. In the
absence or disability of the Chief Executive Officer and the Chairman of the
Board, the President will exercise the powers and perform the duties of the
Chief Executive Officer. The President will render to the Directors whenever
they may require it an account of the operating and development activities of
the Corporation and will have such other powers and perform such other duties as
the Board of Directors may from time to time prescribe or as the Chief Executive
Officer may from time to time delegate to him.
Section 10. Chief Financial Officer. The Chief Financial Officer will
have principal responsibility for the financial operations of the Corporation.
The Chief Financial Officer will render to the Directors whenever they may
require it an account of the operating results and financial condition of the
Corporation and will have such other powers and perform such other duties as the
Board of Directors may from time to time prescribe or as the Chief Executive
Officer may from time to time delegate to him.
Section 11. Secretary. The Secretary will attend all meetings of the
shareholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose. The Secretary will perform like duties for the
Board of Directors and committees thereof when required. The Secretary will
give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors. The Secretary will keep in safe
custody the seal of the Corporation. The Secretary will be under the supervision
of the Chief Executive Officer. The Secretary will have such other powers and
perform such other duties as the Board of Directors may from time to time
prescribe or as the Chief Executive Officer may from time to time delegate to
him.
Section 12. Bonding. The Corporation may secure a bond to protect the
Corporation from loss in the event of defalcation by any of the officers, which
bond may be in such form and amount and with such surety as the Board of
Directors may deem appropriate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. Certificates, in such form as may be
determined by the Board of Directors, representing shares to which shareholders
are entitled will be delivered to each shareholder. Such certificates will be
consecutively numbered and will be entered in the stock book of the Corporation
as they are issued. Each certificate will state on the face thereof the holder's
name, the number, class of shares, and the par value of such shares or a
statement that such shares are without par value. They will be signed by the
<PAGE>
Chief Executive Officer or President and the Secretary or an Assistant
Secretary, and may be sealed with the seal of the Corporation or a facsimile
thereof. If any certificate is countersigned by a transfer agent, or an
assistant transfer agent or registered by a registrar, either of which is other
than the Corporation or an employee of the Corporation, the signatures of the
Corporation's officers may be facsimiles. In case any officer or officers who
have signed, or whose facsimile signature or signatures have been used on such
certificate or certificates, ceases to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the Corporation or its
agents, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct that a
new certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it may require
and/or to give the Corporation a bond, in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed. When a certificate has been lost, apparently destroyed
or wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after such holder has notice of it, and the Corporation
registers a transfer of the shares represented by the certificate before
receiving such notification, the holder of record is precluded from making any
claim against the Corporation for the transfer of a new certificate.
Section 3. Transfer of Shares. Shares of stock will be transferable
only on the books of the Corporation by the holder thereof in person or by such
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it will be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 4. Registered Shareholders. The Corporation will be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, will not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it has express or other notice thereof, except as otherwise
provided by law.
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the outstanding shares of the
Corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting.
Dividends may be declared and paid in cash, in property, or in shares of the
Corporation, subject to the provisions of the General Corporation Law of the
State of Nevada and the Articles of Incorporation. The Board of Directors may
fix in advance a record date for the purpose of determining shareholders
entitled to receive payment of any dividend, such record date will not precede
the date upon which the resolution fixing the record date is adopted, and such
record date will not be more than sixty days prior to the payment date of such
dividend. In the absence of any action by the Board of Directors, the close of
business on the date upon which the Board of Directors adopts the resolution
declaring such dividend will be the record date.
Section 2. Reserves. There may be created by resolution of the Board of
Directors out of the surplus of the Corporation such reserve or reserves as the
Directors from time to time, in their discretion, deem proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the Directors may deem
beneficial to the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created. Surplus of the Corporation to the
extent so reserved will not be available for the payment of dividends or other
distributions by the Corporation.
Section 3. Telephone and Similar Meetings. Shareholders, directors and
committee members may participate in and hold meetings by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other. Participation in such a meeting will
constitute presence in person at the meeting, except where a person participates
in the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
Section 4. Books and Records. The Corporation will keep correct and
complete books and records of account and minutes of the proceedings of its
shareholders and Board of Directors, and will keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
Section 5. Fiscal Year. The fiscal year of the Corporation will be
December 31 unless otherwise fixed by resolution of the Board of Directors.
Section 6. Seal. The Corporation may have a seal, and the seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
<PAGE>
reproduced or otherwise. Any officer of the Corporation will have authority to
affix the seal to any document requiring it.
Section 7. Advances of Expenses. The Corporation will advance to its
directors and officers expenses incurred by them in connection with any
"Proceeding," which term includes any threatened, pending or completed action,
suit or proceeding, whether brought by or in the right of the Corporation or
otherwise and whether of a civil, criminal, administrative or investigative
nature (including all appeals therefrom), in which a director or officer may be
or may have been involved as a party or otherwise, by reason of the fact that he
is or was a director or officer of the Corporation, by reason of any action
taken by him or of any inaction on his part while acting as such, or by reason
of the fact that he is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
("Official," which term also includes directors and officers of the Corporation
in their capacities as directors and officers of the Corporation), whether or
not he is serving in such capacity at the time any liability or expense is
incurred; provided that the Official undertakes to repay all amounts advanced
unless:
(i) in the case of all Proceedings other than a Proceeding by or
in the right of the Corporation, the Official establishes to the satisfaction of
the disinterested members of the Board of Directors that he acted in good faith
or in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, that
he did not have reasonable cause to believe his conduct was unlawful; provided
that the termination of any such Proceeding by judgment, order of court,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not by itself create a presumption as to whether the Official acted in
good faith or in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and, with respect to any criminal proceeding,
as to whether he had reasonable cause to believe his conduct was unlawful; or
(ii) in the case of a Proceeding by or in the right of the
Corporation, the Official establishes to the satisfaction of the disinterested
members of the Board of Directors that he acted in good faith or in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; provided that if in such a Proceeding the Official is adjudged to
be liable to the Corporation, all amounts advanced to the Official for expenses
must be repaid except to the extent that the court in which such adjudication
was made shall determine upon application that despite such adjudication, in
view of all the circumstances, the Official is fairly and reasonably entitled to
indemnity for such expenses as the court may deem proper.
Section 8. Indemnification. The Corporation will indemnify its
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Nevada and may, if and to the extent authorized
by the Board of Directors, so indemnify such other persons whom it has the power
to indemnify against any liability, reasonable expense or other matter
whatsoever.
<PAGE>
Section 9. Insurance. The Corporation may at the discretion of the
Board of Directors purchase and maintain insurance on behalf of the Corporation
and any person whom it has the power to indemnify pursuant to law, the Articles
of Incorporation, these Bylaws or otherwise.
Section 10. Resignation. Any director, officer or agent may resign by
giving written notice to the President or the Secretary. Such resignation will
take effect at the time specified therein or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
will not be necessary to make it effective.
Section 11. Amendment of Bylaws. Other than as set forth herein, these
Bylaws may be altered, amended, or repealed at any meeting of the Board of
Directors at which a quorum is present, by the affirmative vote of a majority of
the Directors present at such meeting.
Section 12. Invalid Provisions. If any part of these Bylaws is held
invalid or inoperative for any reason, the remaining parts, so far as possible
and reasonable, will be valid and operative.
Section 13. Relation to the Articles of Incorporation. These Bylaws are
subject to, and governed by, the Articles of Incorporation of the Corporation as
amended from time to time.
Adopted by the Board of Directors
and Effective May 16, 2000
/s/ Richard N. Jones
-----------------------------
RICHARD N. JONES, Secretary
EXHIBIT 3.5
CERTIFICATE OF DESIGNATION
ESTABLISHING SERIES A PREFERRED STOCK
OF KARTS INTERNATIONAL INCORPORATED
<PAGE>
CERTIFICATE OF DESIGNATION
ESTABLISHING
SERIES A PREFERRED STOCK
OF
KARTS INTERNATIONAL INCORPORATED
1. The name of the Corporation is Karts International Incorporated, a
Nevada corporation (the "Corporation").
2. The Board of Directors of the Corporation duly adopted the following
resolutions by Unanimous Written Consent dated May 17, 2000:
WHEREAS, the Corporation's directors have reviewed and approved the
Designation of Preferences, Limitations and Rights of Series A Preferred Stock
of Karts International Incorporated ("Certificate"), attached hereto as Exhibit
A and incorporated herein by reference, delineating the number of shares, the
voting powers, designations, preferences and relative, participating, optional,
redemption, conversion, exchange, dividend or other special rights and
qualifications, limitations or restrictions of a series of Preferred Stock to be
issued by the Corporation and designated Series A Preferred Stock, par value
$0.001 per share (the "Series A Preferred Stock");
RESOLVED, that 4,000,000 shares of authorized but unissued Preferred
Stock of the Corporation be designated Series A Preferred Stock and authorized
for issuance and that the Series A Preferred Stock have the rights, preferences,
limitations and restrictions set forth herein.
FURTHER RESOLVED, that the Chief Executive Officer, President or any
Vice President of the Corporation, individually or collectively, and the
Secretary or Assistant Secretary of the Corporation, individually or
collectively, be, and such officers hereby are, authorized and directed to
execute, acknowledge, attest, record and file with the Secretary of State of the
State of Nevada a Certificate of Designation in accordance with Section 78.1955
of the Nevada General Corporation Law and to take all other actions that such
officers deem necessary to effectuate the Certificate of Designation and
establish the Series A Preferred Stock.
3. The authorized number of shares of Preferred Stock of the
Corporation is 10,000,000, of which 2,500,000 have previously been designated as
9% Convertible Preferred Stock (the "Existing Preferred"), and the number of
shares of the Series A Preferred Stock, none of which has been issued, is
4,000,000.
4. The resolutions set forth above have been duly adopted by all
necessary action on the part of the Corporation.
<PAGE>
IN WITNESS WHEREOF, Karts International Incorporated has caused this
Certificate to be executed by Charles Brister, its President and Chief Executive
Officer, this 17th day of May, 2000.
KARTS INTERNATIONAL INCORPORATED
By: /s/ Charles Brister
-------------------------------------
Name: Charles Brister
Title: President and Chief Executive Officer
ATTEST:
By: /s/ Richard N. Jones
---------------------------
Name: Richard N. Jones, Secretary
STATE OF )
)
COUNTY OF )
The foregoing instrument was acknowledged before me, on the _______ day
of ______________, 2000, by ____________________________________, President, and
___________________________, Secretary of Karts International Incorporated, a
Nevada corporation, on behalf of the corporation.
Given under my hand and official seal this ________ day of
______________, 2000.
Notary Public
My Commission Expires:
Print Name
Seal
<PAGE>
DESIGNATION OF PREFERENCES, LIMITATIONS AND RIGHTS OF
SERIES A PREFERRED STOCK
OF
KARTS INTERNATIONAL INCORPORATED
1. Dividend Provisions.
--------------------
(a) The holders of shares of Series A Preferred Stock shall be entitled
to receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of the Company) on the capital stock of the Company, at the rate of $0.075
per share per annum for the Series A Preferred Stock (as adjusted for any stock
splits, stock dividends, recapitalizations or the like), or, if greater (as
determined on a per annum basis and on an as converted basis for the Series A
Preferred Stock), an amount equal to that paid on any other outstanding shares
of the Company, payable when, as, and if declared by the Board of Directors. The
holders of the outstanding Series A Preferred Stock can waive any dividend
preference that such holders shall be entitled to receive under this Section 1
upon the affirmative vote or written consent of the holders of at least a
majority of the Series A Preferred Stock then outstanding.
(b) The dividend described in Section 1(a) shall be fully cumulative
and shall accrue from the date of issuance of each share of Series A Preferred
Stock and shall be payable in cash, to the extent permitted by applicable law
(and if not then permitted by applicable law, at such time as the Company is
permitted by applicable law to pay any such dividends) on each March 31, June
30, September 30 and December 31 beginning June 30, 2000 to the holders of
record of the Series A Preferred Stock on each corresponding March15, June 15,
September 15 and December 15. The amount of dividends which accrue shall be
computed on the basis of a 365-day year and the actual number of days elapsed
(including the first day, but not the last day) occurring in the period for
which such amount is payable.
2. Liquidation Preference.
-----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of the Company to the holders of capital stock by reason of
their ownership thereof, an amount per share equal to the sum of (i) $0.75 for
each outstanding share of Series A Preferred Stock plus (ii) declared or accrued
but unpaid dividends on such share (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like). If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the Company legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive under this subsection (a).
EXHIBIT A - Page 1
<PAGE>
(b) Upon the completion of the distribution required by subsection (a)
of this Section 2, the remaining assets of this corporation available for
distribution to stockholders shall be distributed among the holders of Series A
Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each (assuming full conversion of all such Series A
Preferred Stock).
(c) (i) For purposes of this Section 2, a liquidation, dissolution or
winding up of the Company shall be deemed to be occasioned by, or to include
(unless the holders of at least a majority of the Series A Preferred Stock then
outstanding shall determine otherwise), (A) the acquisition of the Company by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
that results in the transfer of fifty percent (50%) or more of the outstanding
voting power of the Company; or (B) a sale of all or substantially all of the
assets of the Company.
(ii) In any of such events, if the consideration received by the
Company is other than cash, its value will be deemed its fair market value. Any
securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange or system over the thirty (30) day
period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Company and the
holders of at least a majority of the Series A Preferred Stock then outstanding.
(B) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Company and the holders of
at least a majority of the Series A Preferred Stock then outstanding.
(iii) In the event the requirements of this subsection 2(b are
not complied with, the Company shall forthwith either:
(A) cause such closing to be postponed until such time as the
requirements of this Section 2 have been complied with; or
EXHIBIT A - Page 2
<PAGE>
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.
(iv) The Company shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the Company shall thereafter give such holders prompt notice
of any material changes. The transaction shall in no event take place sooner
than twenty (20) days after the Company has given the first notice provided for
herein or sooner than ten (10) days after the Company has given notice of any
material changes provided for herein; provided, however, that such periods may
be shortened upon the written consent of the holders of Series A Preferred that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the Series A Preferred Stock then outstanding.
3. Redemption.
(a) On or after May 31, 2003, the Company may redeem all or a portion
of the Series A Preferred (in multiples of $1,000,000), by paying in cash
therefor a sum equal to $1.50 per share of Series A Preferred Stock (as adjusted
for any stock splits, stock dividends, recapitalizations or the like) plus all
declared or accrued but unpaid dividends on such share (the "Redemption Price").
Any redemption of Series A Preferred Stock effected pursuant to this subsection
3(a) shall be made on a pro rata basis among the holders of the Series A
Preferred Stock in proportion to the number of shares of Series A Preferred
Stock proposed to be redeemed by the Company.
(b) At least thirty (30) but no more than forty-five (45) days prior to
each date on which the Series A Preferred Stock may be redeemed, written notice
shall be mailed, first class postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of the Series A Preferred Stock to be redeemed, at the address last shown
on the records of the Company for such holder, notifying such holder of the
same, specifying the number of shares that may be subject to any such
redemption, the date set for such redemption, the Redemption Price for any such
redemption, the place at which payment may be obtained and calling upon such
holder to surrender to the Company, in the manner and at the place designated,
his, her or its certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). For purposes hereof, the term "Redemption
Date" shall be deemed to refer to the date set by the Company for a redemption.
Except as provided in subsection (3), on or after each Redemption Date, each
holder of Series A Preferred Stock to be redeemed on such Redemption Date shall
surrender to the Company the certificate or certificates representing such
shares, in the manner and at the place designated in the Redemption Notice, and
thereupon the applicable Redemption Price of such shares shall be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be canceled. In the
event less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
EXHIBIT A - Page 3
<PAGE>
(c) From and after each Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of shares
of Series A Preferred Stock designated for redemption on such Redemption Date in
the Redemption Notice as holders of Series A Preferred Stock (except the right
to receive the applicable Redemption Price without interest upon surrender of
their certificate or certificates) shall cease with respect to such redeemed
shares, and such shares shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose whatsoever. If the funds
of the Company legally available for redemption of shares of Series A Preferred
on a Redemption Date are insufficient to redeem the total number of shares of
Series A Preferred Stock to be redeemed on such date, those funds that are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed such that each
holder of a share of Series A Preferred Stock receives the same percentage of
the applicable Series A Redemption Price, as the case may be. The shares of
Series A Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. At any time thereafter when
additional funds of the Company are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares that the Company has become obliged to redeem
on any Redemption Date but that it has not redeemed.
4. Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the Conversion Price per share of
such Series A Preferred in effect at the time of conversion into the sum of (i)
$0.75 plus (ii) all accrued or unpaid dividends (whether declared or undeclared)
on the Series A Preferred Stock so converted. The initial "Conversion Price" per
share for shares of Series A Preferred Stock shall be $0.375; provided, however,
that the Conversion Price for the Series A Preferred Stock shall be subject to
adjustment as set forth in subsection 4(d).
(b) Automatic Conversion. Each share of Series A Preferred shall
automatically be converted into shares of Common Stock at the Conversion Price
at that time in effect for such Series A Preferred Stock immediately, in the
manner specified in Section 4(a) above, upon (i) the Company's sale of its
Common Stock with an aggregate offering price of $10,000,000 and a per share
price of $5.00, and (ii) the written consent or agreement of the holders of a
majority of the then outstanding shares of the Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he or
she shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or of any transfer agent for the Series A Preferred
Stock, and shall give written notice to the Company at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. The Company shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
EXHIBIT A - Page 4
<PAGE>
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
(d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
A Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If the Company shall issue after the date upon which any
shares of Series A Preferred Stock are first issued pursuant to the Stock
Purchase Agreement, any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for the Series A Preferred Stock in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for the Series A Preferred Stock in
effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price equal to the price
paid per share for such Additional Stock.
(B) No adjustment of the Conversion Price for the Series A
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments that are not required to be made by reason of this
sentence shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of three (3) years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in subsections
(E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this
subsection 4(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Company for any underwriting or otherwise in connection with
the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors and a majority of the shares of Series A Preferred Stock, irrespective
of any accounting treatment.
(E) In the case of the issuance (whether before, on or after the
applicable Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (to the extent then exercisable) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
EXHIBIT A - Page 5
<PAGE>
equal to the consideration (determined in the manner provided in subsections
4(d)(i)(C) and (d)(i)(D)), if any, received by the Company upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of, or in exchange (to the extent then convertible
or exchangeable) for, any such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion or exchange thereof shall
be deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the Company for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Company upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Series A Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities or options or
rights related to such securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(1) and (2)
shall be appropriately adjusted to reflect any change, termination or expiration
of the type described in either subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by the
Company after May 17, 2000 (the "Initial Purchase Date"), other than:
EXHIBIT A - Page 6
<PAGE>
(A) Common Stock issued pursuant to a transaction described
in subsection 4(d)(iii) hereof; or
(B) up to an aggregate of 1,000,000 shares of Common Stock
issuable to employees, consultants, directors or vendors (if in transactions
with primarily non-financing purposes) of the Company directly or pursuant to
options currently outstanding as of the date of the filing of this Certificate
of Designation and issued pursuant to the 1998 Stock Compensation Plan of the
Company as it exists on the Initial Purchase Date;
(C) Common Stock issued or issuable upon conversion of the
Series A Preferred Stock;
(D) Common Stock issued upon the exercise of any warrant or
convertible security of the Company outstanding as of the date of the filing of
this Certificate of Designation;
(E) The issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise; and
(F) Common Stock issued as a dividend on the Existing
Preferred as it exists on the Initial Purchase Date.
(iii) In the event the Company should at any time or from time to
time after the Initial Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in subsection 4(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Initial Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares and those issuable with
respect to such Common Stock Equivalents with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in subsection 4(d)(i)(E).
EXHIBIT A - Page 7
<PAGE>
(e) Other Distributions. In the event the Company shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights not referred to in subsection 4(d)(iii), then, in each such
case for the purpose of this subsection 4(e), the holders of the Series A
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Company into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Company entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 4
or Section 2) provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(g) No Impairment. The Company will not, by amendment of its Articles
of Incorporation, this Certificate of Designation or through any reorganization,
recapitalization, 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 to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock pursuant to this Section 4, the
Company, at its expense, shall promptly compute such adjustment or readjustment
in accordance with the terms hereof and prepare and furnish to each holder of
EXHIBIT A - Page 8
<PAGE>
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Company shall, upon the written request at any time
of any holder of Series A Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property that at the time would be received upon the conversion of
a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Company shall mail to each holder of Series A
Preferred Stock, at least twenty (20) days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Company 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
shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, the Company will 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, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment to this
Certificate of Designation.
(k) Notices. Any notice required by the provisions of this Section 4 to
be given to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Company.
5. Voting Rights.
<PAGE>
(a) General Voting Rights. The holder of each share of Series A
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series A Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of the Company, and shall be entitled to
vote, together with holders of Common Stock, with respect to any question upon
which holders of Common Stock have the right to vote. Fractional votes shall
not, however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Series A
EXHIBIT A - Page 9
<PAGE>
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
(b) Voting for the Election of Directors. The holders of Series A
Preferred Stock and Common Stock (voting together as a single class and not as
separate series, and on an as-converted basis) shall be entitled to elect the
directors of the Company; provided, however, for so long as a majority of the
shares of Series A Preferred Stock originally issued remain outstanding, the
holders of such shares of Series A Preferred Stock shall be entitled to elect a
majority of the directors of the Company at each annual election of directors;
provided, further, however, for so long as a majority of the shares of Series A
Preferred Stock originally issued remain outstanding, if additional directors
are elected to the Board of Directors by the holders of the Existing Preferred
pursuant to Section 2(b) of that certain Certificate of Designation, Preferences
and Rights of 9% Cumulative Convertible Preferred Stock adopted by the Board of
Directors of the Company on March 25, 1999, the holders of such shares of Series
A Preferred Stock shall be entitled to elect such additional directors as shall
be necessary to maintain a majority of directors on the Board of Directors of
the Company.
In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section 5(b), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
6. Protective Provisions. So long as any shares of Series A Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock;
(b) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over the Series A Preferred Stock
with respect to dividends, liquidation, redemption or voting;
<PAGE>
(c) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of Series A
Preferred Stock or Common Stock; provided, however, that this restriction shall
EXHIBIT A - Page 10
<PAGE>
not apply to (A) the repurchase of shares of Common Stock from employees,
officers, directors, consultants or other persons performing services for the
Company or any subsidiary pursuant to agreements under which the Company has the
option to repurchase such shares at cost or at cost upon the occurrence of
certain events, such as the termination of employment or (B) the redemption of
any share or shares of Series A Preferred Stock in accordance with Section 3; or
(d) authorize any dividend or other distribution (other than a
stock dividend) with respect to any capital stock of the Company, other than the
dividends payable to the holders of the Series A Preferred Stock as provided
herein or to the holders of the Existing Preferred outstanding on the date of
this resolution.
(e) merge into or consolidate with any other corporation (other
than a wholly-owned subsidiary corporation) or effect any transaction or series
of related transactions in which more than fifty percent (50%) of the voting
power of this corporation is disposed of if the Company shall have caused the
Series A Preferred Stock to remain outstanding after the merger or consolidation
and be convertible into the same consideration received by the holders of the
Common Stock in the merger or consolidation;
(f) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Series A Preferred Stock (other than as
necessary to distribute the dividend to the holders of the Series A Preferred
Stock as described in Section (1)(b)); or
(g) amend the Company's Articles of Incorporation or bylaws.
7. Status of Redeemed or Converted Stock. All shares of Series A
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized, unissued shares of undesignated preferred stock available for
issuance by the Company.
EXHIBIT A - Page 11
<PAGE>
EXHIBIT 10.43
STOCK PURCHASE AGREEMENT
DATED MAY 17, 2000
BY AND AMONG KARTS INTERNATIONAL INCORPORATED
AND THE SCHLINGER FOUNDATION
<PAGE>
STOCK PURCHASE AGREEMENT
by and among
KARTS INTERNATIONAL INCORPORATED
and
THE SCHLINGER FOUNDATION
Dated as of May 17, 2000
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DESCRIPTION OF TRANSACTION...................................1
1.1 Description of Securities....................................1
1.2 Closing......................................................1
1.3 Conditions to Closing........................................1
1.4 Definitions..................................................3
SECTION 2. REPRESENTATIONS OF THE COMPANY...............................4
2.1 Loan Agreement...............................................4
2.2 Corporate Power4
2.3 Governmental Authorizations; Third Party Consents............5
2.4 Authorization................................................5
2.5 Capitalization...............................................5
2.6 Preemptive Rights; Registration Rights.......................6
2.7 Effect of Transactions.......................................6
2.8 Brokerage....................................................6
2.9 Disclosure...................................................6
SECTION 3. REPRESENTATIONS OF THE INVESTORS.............................7
3.1 Authorization................................................7
3.2 Investment Purpose...........................................7
3.3 Restrictions on Transferability..............................7
3.4 Status of Investor...........................................8
3.5 Brokerage....................................................8
3.6 Own Account..................................................8
3.7 Governmental Authorizations; Third Party Consents............8
3.8 Effect of Transactions.......................................8
SECTION 4. COVENANTS OF THE COMPANY8
4.1 Loan Agreement...............................................8
4.2 Use of Proceeds..............................................8
4.3 Restricted Corporate Actions.................................9
4.4 Board of Directors..........................................10
4.5 Preservation of Corporate Existence and Property............10
4.6 Shareholder and Director Information........................10
4.7 Liability Insurance.........................................10
4.8 No Impairment...............................................10
4.9 Reserve for Conversion Shares...............................10
4.10 Bylaws......................................................11
4.11 Compliance..................................................11
4.12 Rule 144A Information.......................................11
4.13 Brokerage...................................................11
4.14 Employment Agreements.......................................11
SECTION 5. GENERAL...........................................................11
i
<PAGE>
5.1 Amendments, Waivers and Consents............................11
5.2 Survival; Assignability of Rights...........................12
5.3 Rights of Investor Inter Se.................................12
5.4 Headings....................................................12
5.5 Governing Law...............................................12
5.6 Notices and Demands.........................................12
5.7 Severability................................................13
5.8 Expenses....................................................13
5.9 Entire Agreement............................................13
5.10 Counterparts................................................13
ii
<PAGE>
SCHEDULES AND EXHIBITS
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Voting Agreement
Exhibit C - Form of Legal Opinion
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Amended and Restated Bylaws
Schedule 2.4 - Authorization
Schedule 2.5 - Capitalization
Schedule 2.8 - Brokerage
Schedule 4.2 - Use of Proceeds
Schedule 4.3 - Restricted Corporate Actions
iii
<PAGE>
STOCK PURCHASE AGREEMENT
Karts International Incorporated, a Nevada corporation (the "Company")
and The Schlinger Foundation (the "Investor"), enter into this Stock Purchase
Agreement, dated May 17, 2000 (this "Agreement").
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 Description of Securities. The Company has furnished the Investor
with financial and nonfinancial information concerning the Company and its
assets, liabilities, condition (financial and otherwise), operations, business
and prospects. Based on such information, the representations and warranties set
forth herein and the other terms and provisions hereof, the Investor will
purchase 4,000,000 shares of Series A Preferred Stock, par value $0.001 per
share, of the Company (the "Series A Preferred"), for an aggregate purchase
price of $3,000,000, all on the terms and subject to the conditions set forth
herein.
1.2 Closing. The closing (the "Closing") of the sale of the Series A
Preferred will take place at the offices of Jenkens & Gilchrist, a Professional
Corporation, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202, at 10:00 a.m.,
on the date of this Agreement, or such other time and place as agreed to by the
parties hereto (the "Closing Date"). At the Closing, the Company will deliver to
the Investor certificates representing the shares of Series A Preferred being
acquired by the Investor on the Closing Date upon payment of the purchase price
by the Investor to the Company of immediately available funds by wire transfer,
or by other form of payment acceptable to the Company. In addition, at the
Closing the Company shall deliver to the Investors payment for the expenses of
the Investor and its counsel, to the extent such expenses are reimbursable by
the Company, as provided in Section 5.8 below.
1.3 Conditions to Closing. The obligation of the Investor to purchase
and pay for the Series A Preferred to be purchased by the Investor on the
Closing Date is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions:
(a) the Company shall have duly authorized and filed the Certificate of
Designation (the "Certificate") with the Secretary of State of the State of
Nevada, substantially in the form attached hereto as Exhibit A;
(b) each of Investor, Charles Brister and Richard N. Jones shall have
executed a Voting Agreement ("Voting Agreement"), substantially in the form
attached hereto as Exhibit B;
(c) counsel for the Company, shall have delivered to the Investor a
legal opinion, dated as of the Closing Date and substantially in the form
attached hereto as Exhibit C;
(d) the Company and the Investor shall have entered into a Registration
Rights Agreement (the "Registration Rights Agreement"), substantially in the
form attached hereto as Exhibit D;
<PAGE>
(e) the Company shall have adopted Amended and Restated Bylaws
substantially in the form attached hereto as Exhibit E;
(f) Timothy P. Halter, Joseph R. Manmes, and Ronald C. Morgan shall
have resigned as directors of the Company;
(g) all representations of the Company to the Investor shall be true,
correct and complete as of the Closing Date;
(h) there shall be no change in the business, assets, financial
condition, operation and results of operations of the Company since December 31,
1999, which, in the Investor's sole judgment, is materially adverse to the
Company;
(i) the Investor, through their personnel and representatives, shall
have completed and been satisfied with the results of their due diligence review
of the Company's business; and
(j) the Company shall have delivered to the Investor:
(i) the Articles of Incorporation of the Company and all
amendments thereto, certified by the Secretary of State of Nevada;
(ii) (A) copies of the resolutions of the Company's Board of
Directors authorizing and approving this Agreement and all of the transactions
and agreements contemplated hereby and thereby, (B) the Amended and restated
Bylaws of the Company and (C) the names of the officer or officers of the
Company authorized to execute this Agreement and any and all documents,
agreements and instruments contemplated herein, all certified by the Secretary
of the Company to be true, correct, complete and in full force and effect and
unmodified as of the Closing Date;
(iii) a certificate of existence for the Company from the
Secretary of State of Nevada;
(iv) a certificate of account status for the Company from the
Comptroller of the State of Nevada;
(v) certificates from each state where the Company is required to
be qualified as a foreign corporation showing such qualification, dated as of a
date within ten (10) days of the Closing Date; and
(vi) such other documents, instruments, and certificates as the
Investor may reasonably request.
(k) the Company and the Investor shall have executed that certain
Amended and Restated Loan Agreement (the "Loan Agreement");
(l) each of the conditions precedent set forth in Section 7 of the Loan
Agreement shall have been satisfied in the sole and absolute discretion of the
Investor.
2
<PAGE>
1.4 Definitions. As used in this Agreement, the following terms shall
have the meanings set forth below:
"Articles of Incorporation" shall mean the Articles of
Incorporation of the Company, as amended to date.
"Bylaws" shall mean the Bylaws of the Company, as amended to date.
"Certificate" shall have the meaning given in Section 1.3(a).
"Common Stock" shall mean the common stock, par value $0.001 per
share, of the Company.
"Compensation Committee" shall mean the Compensation Committee of
the Board of Directors of the Company.
"Conversion Shares" shall mean any securities of the Company
issued or issuable upon conversion of the Series A Preferred.
"Employee Benefit Plans" shall mean employee benefit plans within
Section 3(3) of ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Existing Preferred Shares" shall mean the Company's 9%
Convertible Preferred Stock outstanding on the date of this Agreement.
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"New Securities" shall mean any shares of capital stock of the
Company, including Common Stock and any series of Preferred Stock, whether now
authorized or not, and rights, options or warrants to purchase said shares of
Common Stock or Preferred Stock, and securities of any type whatsoever that are,
or may become, convertible into or exchangeable for said shares of Common Stock
or Preferred Stock. Notwithstanding the foregoing, "New Securities" does not
include (i) the Conversion Shares, (ii) Common Stock offered to the public
generally pursuant to a registration statement under the Securities Act in
connection with a Qualified Public Offering, (iii) securities issued or sold in
connection with stock options granted under the Stock Option Plan, including,
without limitation, upon exercise of presently outstanding stock options, net of
repurchases and cancellations and expirations (without exercise) of such
options, (iv) stock issued in connection with any stock split, stock dividend or
recapitalization by the Company, (v) stock issued in connection with any merger
or acquisition approved by the Investor, (vi) Common Stock issued as a dividend
or upon conversion of the Company's Existing Preferred Shares or (vii) Common
Stock issued upon the exercise of warrants of the Company outstanding at the
date of this Agreement.
3
<PAGE>
"Preferred Stock" shall mean the preferred stock, par value $0.001
per share, of the Company, which, after the filing of the Certificate, will
consist only of the Series A Preferred and the Existing Preferred Stock.
"Pro Rata Share" shall mean the ratio that (i) the sum of the
total number of shares of Common Stock which are then held by the Investor and
those which the Investor has the right to obtain pursuant to exercise or
conversion of any option, warrant, right or convertible security (including the
Series A Preferred) bears to (ii) the sum of the total number of shares of
Common Stock then outstanding and which are issuable pursuant to exercise or
conversion of any then outstanding options, warrants, rights or convertible
securities (including the Series A Preferred).
"Requisite Interest" shall mean the vote of the holders of at
least a majority of the then outstanding Series A Preferred (including, for such
purposes, any Conversion Shares into which any of the Series A Preferred have
been converted that have not been sold to the public).
"Securities" shall mean the equity securities of the Company,
including any class or series of Preferred Stock, Common Stock, instruments
convertible or exchangeable into such securities, or rights to acquire such
securities.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Series A Preferred" shall mean the Series A Preferred Stock,
$0.001 par value per share, of the Company.
"Stock Option Plan" shall mean the 1998 Stock Compensation Plan of
Karts International Incorporated as it exists on the date of this Agreement.
"Subsidiary" shall mean any corporation, partnership, joint
venture, limited liability company or other legal entity in which the Company
owns, directly or indirectly, an equity interest.
"To the best knowledge of the Company" shall mean those facts
after due inquiry that are actually known, or should have been known, by the
officers of the Company.
SECTION 2. REPRESENTATIONS OF THE COMPANY
As part of the basis of this Agreement, the Company hereby represents
and warrants to the Investor, at the Closing Date, that:
2.1 Loan Agreement. Each of the representations and warranties made by
the Borrower pursuant to Section 6 of the Loan Agreement are hereby made to the
Investor for purposes of this Agreement and are hereby incorporated by reference
herein.
2.2 Corporate Power. The Company and the Subsidiaries have all required
corporate power and authority to own their respective properties and to carry on
their respective businesses as presently conducted and as proposed to be
conducted. The Company has all required corporate power and authority to execute
4
<PAGE>
and deliver this Agreement and the other agreements contemplated herein, to
issue and sell the Series A Preferred hereunder, to issue shares of Common Stock
upon conversion of the Series A Preferred, and to carry out the transactions
contemplated by this Agreement and the other agreements contemplated herein.
Attached hereto are true, correct and complete copies of the Articles of
Incorporation and Bylaws of the Company.
2.3 Governmental Authorizations; Third Party Consents. No approval,
consent, exemption, authorization, or other action by, or notice to, or filing
with, any governmental authority or any other individual, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind is necessary or required in connection with the
execution, delivery or performance by the Company of this Agreement, or any
other documents executed pursuant to this Agreement, other than as specifically
required by this Agreement, the filing of a registration statement pursuant to
the Registration Rights Agreement, the filing of a Form D with the Securities
and Exchange Commission and filings required under applicable state securities
or "blue sky" laws.
2.4 Authorization. Except as indicated on Schedule 2.4 hereof, all
corporate action on the part of the Company, its directors and shareholders
necessary for (a) the authorization, execution, delivery and performance of this
Agreement and the other agreements contemplated herein by the Company, (b) the
authorization, sale, issuance and delivery of the Series A Preferred (including
the Conversion Shares) and (c) the performance of all of the Company's
obligations hereunder and under the other agreements contemplated herein has
been taken. This Agreement and all documents executed pursuant to this Agreement
are valid and binding obligations of the Company, enforceable according to their
terms, except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditor rights, (ii) laws and judicial decisions
regarding indemnification for violations of federal securities laws, (iii) the
availability of specific performance or other equitable remedies, and (iv) with
respect to any indemnification agreements set forth herein or therein,
principles of public policy.
5
<PAGE>
2.5 Capitalization. The authorized and issued capital stock of the
Company is as set forth in Schedule 2.5. All of the presently outstanding shares
of capital stock of the Company have been validly authorized and issued and are
fully paid and nonassessable. The Series A Preferred have been validly
authorized and, when delivered and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable and free of all encumbrances and
restrictions, except restrictions on transfer imposed by applicable federal and
state securities laws and the Certificate. The relative rights, preferences,
restrictions and other provisions relating to the Series A Preferred are as set
forth in Exhibit A. Except as indicated on Schedule 2.5, the Company has
authorized and reserved for issuance upon conversion of the Series A Preferred
not less than 8,000,000 shares of its Common Stock, and the Conversion Shares
will be, when and if issued, validly authorized and issued, fully paid and
nonassessable, and free of all encumbrances and restrictions, except
restrictions on transfer imposed by applicable federal and state securities laws
and the Articles of Incorporation. Except as provided in Schedule 2.5, the
Company has not issued any other shares of its capital stock and there are no
outstanding options, warrants, subscriptions or other rights or obligations to
purchase or acquire any of such shares, nor any outstanding securities
convertible into or exchangeable for such shares. Except as disclosed on
Schedule 2.5 or as contemplated under this Agreement (and the other agreements
6
<PAGE>
executed in connection herewith), there are no agreements to which the Company
is a party or has knowledge regarding the issuance, registration, voting or
transfer of or obligation (contingent or otherwise) of the Company or any
Subsidiary to repurchase or otherwise acquire or retire or redeem any of its
outstanding shares of capital stock. No dividends are accrued but unpaid on any
capital stock of the Company.
2.6 Preemptive Rights; Registration Rights. There are no preemptive
rights affecting the issuance or sale of the Company's capital stock. Except as
disclosed in Schedule 2.6, the Company is not under any contractual obligation
to register (in compliance with the filing requirements and being deemed
effective under the Securities Act) any of its presently outstanding Securities
or any of its Securities which may hereafter be issued, except as described in
the Registration Rights Agreement.
2.7 Effect of Transactions. The Company's execution and delivery of
this Agreement and the other agreements contemplated herein, its performance of
the transactions contemplated by this Agreement and the other agreements
contemplated herein, and the performance of the businesses of the Company and
each Subsidiary as now conducted, does not and will not violate any terms of the
Articles of Incorporation or Bylaws or violate any judgment, decree or order, or
any material contract or obligation of the Company or such Subsidiary, as the
case may be, or any statute, rule or regulation of any federal, state or local
government or agency applicable to the Company or any such Subsidiary, or any
material contract to which any employee of the Company or any Subsidiary is
bound. The offer and sale of the Series A Preferred will be in compliance with
all federal and state securities laws. No consent, approval or filing with any
regulatory agency is required to be taken by the Company or any Subsidiary in
connection with the transactions contemplated by this Agreement, except those
which the Company or such Subsidiary has obtained or made in a timely manner,
except for any filing of Form D or any applicable state blue sky filing that may
be made by the Company after the Closing.
2.8 Brokerage. Except as provided in Schedule 2.8, there are no claims
for brokerage commissions, finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement or
agreement made by the Company or any Subsidiary.
2.9 Disclosure. This Agreement and the exhibits and schedules hereto,
when taken as a whole with other documents and certificates furnished by the
Company and any Subsidiary to the Investors or their counsel, do not contain any
untrue statement of material fact or omit any material fact necessary in order
to make the statements therein not misleading; provided, however, certain
materials provided to the Investor contain projections and estimates of future
events, and such projections and estimates have been based upon certain
assumptions that management of the Company and the Subsidiaries made in good
faith and believed were reasonable at the time such materials were prepared.
There is no fact known to the Company, any Subsidiary that has not been
disclosed to the Investors prior to the date of this Agreement that materially
and adversely affects the business, assets, properties, prospects or condition
(financial or otherwise) of the Company or its Subsidiaries , taken as a whole,
or the ability of the Company or any Subsidiary to perform under this Agreement
or the other agreements contemplated hereby or to consummate the transactions
contemplated hereby or thereby.
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SECTION 3. REPRESENTATIONS OF THE INVESTORS
As part of the basis of this Agreement, the Investor hereby represents
to the Company, at the Closing Date, that:
3.1 Authorization. The execution of this Agreement and the documents
executed by the Investor pursuant to this Agreement have been authorized by all
necessary action on the part of the Investor, have been executed and delivered,
and constitute valid, legal, binding and enforceable agreements of the Investor,
except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditor rights, (b) laws and judicial decisions
regarding indemnification for violations of federal securities laws, (c) the
availability of specific performance or other equitable remedies, and (d) with
respect to any indemnification agreements set forth herein or therein,
principles of public policy.
3.2 Investment Purpose. The Investor is acquiring the Series A
Preferred for its own account, for investment, and not with a view to any
"distribution" within the meaning of the Securities Act. The Investor has no
present intention to make any transfer of the Series A Preferred.
3.3 Restrictions on Transferability. The Investor understands that
because the Series A Preferred have not been, and the Conversion Shares when
issued will not have been, registered under the Securities Act, it cannot
dispose of any or all of the Series A Preferred or Conversion Shares unless they
are subsequently registered under the Securities Act or exemptions from
registration are available. The Investor understands that no public market now
exists for any of the Securities issued by the Company and that there is no
assurance that a public market will ever exist for the Series A Preferred (or
the Conversion Shares). The Investor acknowledges and understands that, except
as provided in the Registration Rights Agreement, it has no registration rights.
Although it may be possible in the future to make limited public sales of the
Series A Preferred and/or Conversion Shares without registration under the
Securities Act, Rule 144 is not now available and there is no assurance that it
will become available for any purpose. By reason of these restrictions, the
Investor understands that it may be required to hold the Series A Preferred
and/or the Conversion Shares for an indefinite period of time. The Investor
agrees that in no event will it make a transfer or disposition of any of the
Series A Preferred (or the Conversion Shares) unless and until, if requested by
the Company, at the expense of the Investor or transferee, it shall have
furnished to the Company an opinion of counsel or other evidence, reasonably
satisfactory to the Company, to the effect that such transfer may be made
without registration under the Securities Act. The Investor understands that
each certificate representing the Series A Preferred and Conversion Shares will
bear appropriate state "blue sky" legends and a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT.
3.4 Status of Investor. The Investor is knowledgeable and experienced
in making venture capital investments, and able to bear the economic risk of
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loss of its investment in the Company. The Investor is an "accredited investor,"
as that term is defined in Rule 501(a) of Regulation D under the Securities Act.
3.5 Brokerage. There are no claims for brokerage commissions, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by the Investor.
3.6 Own Account. The Investor is acting on its own behalf in connection
with the investigation and examination of the Company and its decision to
execute these documents. Investor has received (i) the Company's annual report
filed with the SEC on Form 10-K for the year ended December 31, 1999, (ii) the
Company's quarterly report filed with the SEC on Form 10-Q for the quarter ended
March 31, 2000, and (iii) such other information regarding the Company as has
been requested by the Investor or its representatives.
3.7 Governmental Authorizations; Third Party Consents. Based upon the
information provided to the Investor by the Company, no approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
governmental authority or any other individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind is necessary or required by the Investor in connection with the
execution, delivery and performance by the Investor of this Agreement, or any
other documents executed pursuant to this Agreement; provided, however, that the
Investor makes no representations with respect to applicable federal or state
securities laws; and provided, further, however, that any liability of the
Investor resulting from a breach of this representation shall be limited to the
aggregate purchase price paid by the Investor for the Series A Preferred
purchased hereunder.
3.8 Effect of Transactions. The Investor's execution, delivery and
performance of this Agreement and the other agreements contemplated by this
Agreement will not violate any terms of its organizational documents or, to its
knowledge, violate any judgment, decree or order, or any material contract or
obligation of the Investor or any statute, rule or regulation of any federal,
state or local government or agency applicable to the Investor.
SECTION 4. COVENANTS OF THE COMPANY
The Company hereby covenants that, except as otherwise provided below,
for so long as the Investor holds any of the Series A Preferred that:
4.1 Loan Agreement. Each of the covenants made by the Company to
Investor pursuant to Sections 8, 9, 10 and 11 of the Loan Agreement are hereby
made for the benefit of Investor for purposes of this Agreement and are hereby
incorporated by reference herein.
4.2 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Series A Preferred for the purposes set forth on Schedule 4.2. It is
the intention of the Company and the Subsidiaries to conduct their businesses in
accordance with the current business plan of the Company, which has previously
been delivered to the Investor.
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4.3 Restricted Corporate Actions. The Company will not, without the
written approval of the holders of a Requisite Interest, take any of the
following actions:
(a) repurchase any Common Stock or Preferred Stock, other than (i) the
redemption of the Series A Preferred in accordance with the Certificate, (ii)
the purchase of Common Stock from employees pursuant to agreements with the
Company as of the Closing Date to repurchase such stock; provided that the
purchase price shall not exceed the price paid by such employee for such stock,
or (iii) as indicated on Schedule 4.3 hereof;
(b) declare or pay any dividend (other than a stock dividend) on the
Common Stock or Preferred Stock (other than dividends on the shares of Series A
Preferred in accordance with the Certificate and dividends on the Existing
Preferred Stock in accordance with the terms of such stock as they exist on the
date of this Agreement);
(c) except to the extent necessary to comply with foreign laws, create
any subsidiary in which the Company owns less than one hundred percent (100%) of
the equity securities, or permit any Subsidiary to issue any equity securities
to anyone other than the Company or a wholly-owned Subsidiary of the Company or
merge with or into any Subsidiary;
(d) create any new class or series of shares that has a preference over
or is on a parity with the Series A Preferred with respect to voting, dividends
or liquidation preferences (except that the Company may grant voting rights to
shares of a series of Preferred Stock which have the right to vote with holders
of Common Stock on an as-converted basis, but in any event not in preference
over the Series A Preferred);
(e) enter into any arrangement or agreement which (i) conflicts with
the rights of the holders of Series A Preferred (ii) restricts the Company's
performance under this Agreement or any other documents executed in connection
herewith or (iii) could result in the redemption of any shares of Common Stock;
(f) amend the Articles of Incorporation or Bylaws;
(g) adopt or amend an Employee Benefit Plan or amend the Stock Option
Plan;
(h) make any investments except (i) bank deposits in federally insured
financial institutions, (ii) investments in direct government obligations of the
United States of America (iii) commercial paper of a domestic issuer rated A-1
or better or P-1 or better by Standard & Poor's Corporation or Moody's Investor
Services, Inc., respectively, maturing not more than three months from the date
of acquisition and (iv) investments of the type set forth Schedule 4.3;
(i) acquire substantially all of the assets, properties or capital
stock of another person or entity in any single transaction or series of related
transactions;
(j) issue any stock, options, or securities convertible or exercisable
into the capital stock of the Company, including, without limitation, pursuant
to the Stock Option Plan, with exercise prices at less than fair market value,
as determined by the Compensation Committee; or
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(k) issue any stock, options or securities convertible or exercisable
into the capital stock of the Company, which are pari passu or senior to the
Series A Preferred in dividends, liquidation or otherwise.
4.4 Board of Directors. The Company agrees that the Company shall take
all appropriate actions to provide for sufficient vacant seats on the Board of
Directors so that Investor's nominees can hold a majority of the seats on the
Board. Unless otherwise agreed to by the directors nominated by the Investor,
the Board of Directors will meet at least quarterly. The Company will reimburse
the directors for all expenses incurred by such directors in connection with
attending any board meetings or other board functions. If the Investor decides
not to nominate one or more of its designees for election to the Board of
Directors, the Investor shall have the right to receive notice of and have one
(1) representative attend all meetings and other functions of the Board of
Directors and the Company will reimburse the Investor's representative for all
expenses incurred by such representative in connection with attending any such
board meetings or other board functions.
4.5 Preservation of Corporate Existence and Property. The Company
agrees to preserve, protect, and maintain, and cause each Subsidiary to
preserve, protect, and maintain, (a) its corporate existence, and (b) all
rights, franchises, accreditations, privileges, and properties the failure of
which to preserve, protect, and maintain might have a material and adverse
effect on the business, affairs, assets, prospects, operations, or condition,
financial or otherwise, of the Company and its Subsidiaries, taken as a whole.
4.6 Shareholder and Director Information. At the request of the
Investor, the Company shall promptly deliver to the Investor information
regarding the securityholders, officers and directors of the Company, including,
without limitation, names, addresses, types of securities held and terms of
securities held.
4.7 Liability Insurance. The Company will use its best efforts to
maintain comprehensive liability insurance (including automobile liability
coverage) at regular premium rates with insurer(s) of recognized responsibility
in an amount which is commercially reasonable for the benefit of itself and the
Subsidiaries.
4.8 No Impairment. The Company and the Subsidiaries will observe and
honor in good faith all rights of the Investors, under the terms of this
Agreement or any other documents executed in connection herewith, and will take
no action that would impair or otherwise prejudice such rights.
4.9 Reserve for Conversion Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of the Series A Preferred and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Series A Preferred from time to time outstanding or otherwise
to comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of the Series A Preferred or otherwise to comply with the terms
of this Agreement, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes. The Company will
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obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Series A Preferred.
4.10 Bylaws. The Company shall at all times cause its Bylaws to provide
that the number of directors fixed in accordance therewith shall in no event
conflict with any of the terms or provisions of this Agreement or the Articles
of Incorporation. The Company shall at all times maintain provisions in its
Bylaws and/or Articles of Incorporation indemnifying all directors against
liability and absolving all directors from liability to the Company and its
shareholders to the maximum extent permitted under the laws of the State of
Nevada.
4.11 Compliance. The Company shall comply, and cause each Subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could materially and adversely affect the business or condition,
financial or otherwise of the Company and the Subsidiaries, taken as a whole.
4.12 Rule 144A Information. The Company shall, at all times during
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide
in writing, upon the written request of the Investor or a prospective buyer of
the Series A Preferred or Conversion Shares from the Investor, all information
required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the
Commission under the Securities Act ("Rule 144A Information"). The Company's
obligations under this Section 4.12 shall at all times be contingent upon the
Investor obtaining from the prospective buyer of Series A Preferred or
Conversion Shares a written agreement to take all reasonable precautions to
safeguard the Rule 144A Information from disclosure to anyone other than a
person who will assist such buyer in evaluating the purchase of any Series A
Preferred or Conversion Shares.
4.13 Brokerage. The Company agrees to indemnify and hold harmless the
Investors for any brokerage commissions, finder's fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by the Company or any Subsidiary.
4.14 Employment Agreements. Within thirty (30) days after the Closing
Date, each of Charles Brister and Richard N. Jones shall have entered into an
employment agreement with the Company in form and substance acceptable to
Investor.
SECTION 5. GENERAL
5.1 Amendments, Waivers and Consents. Unless otherwise specified in
this Agreement, any consents required and any waiver, amendment or other action
of the Investor or holders of the Series A Preferred (or Conversion Shares) may
be made by consent(s) in writing signed by the holders of a Requisite Interest.
Any specific reference to approval or action by a Requisite Interest shall not
imply that other references to approval or action by the Investor or holders of
Series A Preferred (or Conversion Shares) requires each holder's approval or
action, unless a higher or lower approval is so specifically stated in such
specific reference. Any amendment or waiver made according to this Section 5.1
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will be binding upon each holder of any securities purchased under this
Agreement at the time outstanding (including securities into which such
securities have been converted) and each future holder. Any amendment or waiver
by the Company must be made in writing. This Agreement may not be amended,
except in a written document signed by the Company and holders of a Requisite
Interest.
5.2 Survival; Assignability of Rights. All representations of the
parties made in this Agreement and in the certificates, exhibits, schedules or
other written information delivered or furnished by one party to the other in
connection with this Agreement will survive the delivery of the Series A
Preferred for a period of two (2) years subsequent to the Closing. All covenants
and agreements made in this Agreement will survive the Closing, and will bind
and inure to the benefit of the parties' hereto and their respective successors
and assigns. Each Investor shall have the right to transfer any or all of its
rights hereunder to any purchaser of Series A Preferred or Conversion Shares;
provided such transferee executes a signature page to this Agreement thereby
agreeing to be bound by and entitled to the benefits of this Agreement. The
Company may not assign its rights or obligations hereunder without the consent
of the Investor, as provided in Section 5.1.
5.3 Rights of Investor Inter Se. The Investor shall have the absolute
right to exercise or refrain from exercising any right or rights which the
Investor may have by reason of this Agreement or any Series A Preferred or
Conversion Shares, including, without limitation, the right to consent to the
waiver of any obligation of the Company under this Agreement and to enter into
an agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and the Investor shall not incur any
liability to any other Investor with respect to exercising or refraining from
exercising any such right or rights.
5.4 Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
5.5 Governing Law. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PROVISIONS THEREOF.
5.6 Notices and Demands. Any notice or demand which is permitted or
required hereunder will be deemed to have been sufficiently received (except as
otherwise provided herein) (a) upon receipt when personally delivered, (b) or
one (1) day after sent by overnight delivery or telecopy providing confirmation
or receipt of delivery, or (c) three (3) days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested to the
following addresses: if to the Company at the address as shown on the signature
page of this Agreement (with a copy as shown), or at any other address
designated by the Company to the Investors in writing; if to an Investor, at its
mailing address as shown on the signature pages of this Agreement (with a copy
as shown), or at any other address designated by the Investor to the Company in
writing.
5.7 Severability. If any provision of this Agreement is held invalid
under applicable law, such provision will be ineffective to the extent of such
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invalidity, and such invalid provision will be modified to the extent necessary
to make it valid and enforceable. Any such invalidity will not invalidate the
remainder of this Agreement.
5.8 Expenses. The Company will pay (a) all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, and (b) the reasonable out-of-pocket expenses of the Investors
and the reasonable legal fees and disbursements incurred by one counsel for the
Investors with respect to this Agreement and the transactions contemplated
hereby. The Investors designate Jenkens & Gilchrist, a professional corporation,
as their counsel for this transaction. If any party is required to take any
action to enforce its rights under this Agreement, the prevailing party shall be
entitled to its reasonable expenses, including attorneys' fees, in connection
with any such action.
5.9 Entire Agreement. This Agreement and the exhibits to this Agreement
constitute the entire agreement of the parties, and supersede any prior
agreements.
5.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be taken to be an original; but such
counterparts will together constitute one document.
[Remainder of page left blank intentionally; signature page follows.]
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Dallas1 584327 v 8, 43553.00002
The undersigned have executed this Agreement as of the day and year first
written above.
KARTS INTERNATIONAL INCORPORATED
By: /s/ Charles Brister
---------------
Name: Charles Brister
Title: President and C.E.O.
Address: P.O. Box 695
62204 Commercial Street
Roseland, Louisiana 70456
Telephone: 504-747-1111
Telecopy: 504-747-2700
With a copy to: Rick Goodner, Esq.
Jackson Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Telephone: 214-953-6167
Telecopy: 214-953-5822
<PAGE>
THE SCHLINGER FOUNDATION
By: /s/ Evert I. Schlinger
------------------
Name: Evert I. Schlinger
Title: President
Address: 1944 Edison Street
Santa Ynez, California 93460
Telephone: 805-686-1618
Telecopy: 805-686-1618
With a copy to: Jenkens & Gilchrist, a Professional
Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer, Esq.
Telephone: 214-855-4500
Telecopy: 214-855-4300
EXHIBIT 10.44
AMENDED AND RESTATED LOAN AGREEMENT
DATED MAY 17, 2000,
BY AND AMONG KARTS INTERNATIONAL
INCORPORATED AND THE SCHLINGER FOUNDATION
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement") is made as of this
17th day of May, 2000 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.
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"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.
"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.
"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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"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 (a) the "weekly ceiling"
described in and computed in accordance with the provisions of Section
303.003 of the Texas Finance Code, as amended or (b) if the parties
subsequently contract as allowed by Texas law, the quarterly ceiling or
the annualized ceiling computed pursuant to Section 303.008 of the
Texas Finance Code, as amended; provided, however, that at any time the
"weekly ceiling", the quarterly ceiling or the annualized ceiling shall
be less than 18% per annum or more than 24% per annum, the provisions
of Section 303.009(a) and Section 303.009(b) of the Texas Finance Code,
as amended, shall control for purposes of such determination, as
applicable.
"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.
"Obligations" means any and all indebtedness, liabilities and
obligations of Borrower or any other Obligor to Schlinger, evidenced by
and/or arising pursuant to any of the Loan Documents (including,
without limitation, this Agreement and the Note), now existing or
hereafter arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several or joint and
several, including, without limitation, (a) the obligations of the
Borrower or any other Obligor to repay the Loan, to pay interest on the
Loan (including, without limitation, interest accruing after any, if
any, bankruptcy, insolvency, reorganization or other similar filing)
and to pay all fees, indemnities, costs and expenses (including
attorneys' fees) provided for in the Loan Documents and (b) the
indebtedness constituting the Loan and such interest, fees,
indemnities, costs and expenses.
"Obligors" means Borrower and Guarantors.
"Original Loan Agreement" means that certain Loan Agreement dated June
3, 1999 between Schlinger and Borrower, as amended.
"Original Loan" means the "Loan" as such term is defined in the
Original Loan Agreement.
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"Original Loan Documents" means the "Loan Documents" as such term is
defined in the Original Loan Agreement.
"Permitted Liens" means the Liens disclosed on Schedule 1 hereto.
"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 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.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding shares of
stock or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors (or Persons
performing similar functions) of such corporation or entity
(irrespective of whether or not at the time, in the case of a
corporation, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more of its Subsidiaries or by such Person and
one or more of its Subsidiaries.
"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.
2. Loan.
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(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 in
one or more advances to the Borrower (the "Loan"), to the extent
requested by the Borrower as of such date, in an original principal
amount not to exceed Two Million Five Hundred Thousand and No/100
Dollars ($2,500,000) in the aggregate. Notwithstanding anything to the
contrary contained in this Agreement, the Borrower and Schlinger agree
that, as of the date hereof, the aggregate outstanding principal amount
of the Original Loan is $1,500,000, which amount shall be deemed
outstanding as part of the Loan hereunder. (Such loans referred to in
this Section 2 (a) now or hereafter made or deemed made by Schlinger to
Borrower are hereinafter collectively called the "Loan".) Principal of
the Loan shall be due and payable in one installment of all unpaid
principal and accrued unpaid interest on May 17, 2005.
(b) Prepayment. Borrower may prepay the Loan in full or in part at any
time prior to May 17, 2005, provided, that the Borrower shall give
Schlinger ten (10) days' written notice of the Borrower's intention to
do so.
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.
4. Collateral. As security for the Obligations, 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.
(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.
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(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).
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)
all indebtedness, liabilities and obligations of each of the Obligors
to KBK Financial, Inc. shall be paid in full concurrently with the
making of the Loan, (vi) Schlinger shall have received all documents,
certificates, agreements and instruments relating to the issuance of
preferred shares of capital stock of Borrower to Schlinger, in form and
substance satisfactory to Schlinger, appropriately executed by Borrower
and all other proper parties, and (vii) Schlinger shall have received
all fees and expenses owing to Schlinger under this Agreement and the
other Loan Documents (including, without limitation, legal fees
incurred in connection with the Original Loan Agreement and the other
Original Loan Documents which are reimbursable by Borrower to
Schlinger).
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,
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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,
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.
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(j) Employment Agreement. On or before June 17, 2000, Charles
Brister and Richard N. Jones shall have each 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.
(k) 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.
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.
(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)
pledges or deposits to secure the payment of obligations under
any worker's compensation laws or similar laws, (iii) deposits
to secure the payment of public or statutory obligations, (iv)
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
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security interest in the Collateral is not impaired) and (v)
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 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).
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(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 Obligations now or hereafter owing to
Schlinger by Borrower.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) 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 under any
agreement or undertaking.
(g) 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.
(h) Insolvency. Any of the Obligors shall become insolvent, make a
transfer in fraud of creditors or make an assignment for the
benefit of creditors.
(i) 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.
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(j) Material Adverse Change. A material adverse change shall have
occurred in the financial condition, business prospects or
operations of any of the Obligors.
(k) Tax Lien. Any of the Obligors shall have a federal or state
tax Lien filed against any of its properties.
(l) Execution on Collateral. The Collateral or any portion thereof
is taken on execution or other process of law.
(m) 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.
(n) 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.
(o) 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 12 (g) or 12 (h) of this Agreement 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.
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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
(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.
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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
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
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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.
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. Amendment and Restatement of the Original Loan Agreement. Effective as
of the date hereof, this Agreement shall constitute an amendment and
restatement of all, but not an extinguishment, discharge, satisfaction
or novation of any, indebtedness liabilities and/or obligations of
Borrower under the Original Loan Agreement.
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
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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.
EXECUTED as of the date first above written.
BORROWER: SCHLINGER:
KARTS INTERNATIONAL INCORPORATED THE SCHLINGER FOUNDATION
By: /s/ Charles Brister By: /s/ Evert I. Schlinger
------------------------- -----------------------
Name: Charles Brister Name: Evert I. Schlinger
Title: President and Title: President
Chief Executive Officer
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
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