EXHIBIT 3.5
CERTIFICATE OF DESIGNATION
ESTABLISHING SERIES A PREFERRED STOCK
OF KARTS INTERNATIONAL INCORPORATED
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.
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
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
(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
(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
(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
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
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
(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
(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
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.
(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
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;
(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
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
EXHIBIT 10.43
STOCK PURCHASE AGREEMENT
DATED MAY 17, 2000
BY AND AMONG KARTS INTERNATIONAL INCORPORATED
AND THE SCHLINGER FOUNDATION
STOCK PURCHASE AGREEMENT
by and among
KARTS INTERNATIONAL INCORPORATED
and
THE SCHLINGER FOUNDATION
Dated as of May 17, 2000
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
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
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
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;
(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
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
"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
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
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
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.
7
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
8
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.
9
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
10
(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
11
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
13
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.]
14
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
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