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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1999
KARTS INTERNATIONAL INCORPORATED
(Exact name of registrant as specified in its charter)
Nevada
(State of incorporation)
000-23041 75-2639196
(Commission File Number) (I.R.S. Employer Identification Number)
62204 Commercial Street
P.O. Box 695
Roseland, Louisiana 70456
(Address of principal executive offices) (Zip Code)
(504) 747-1111
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
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INFORMATION INCLUDED IN REPORT ON FORM 8-K
Item 5. Other Events.
Offering of 9% Cumulative Convertible Preferred Stock
On June 30, 1999, Karts International Incorporated, a Nevada
corporation (the "Registrant"), consummated a private offering (the "Offering")
of its 9% Cumulative Convertible Preferred Stock (the "Preferred Stock").
Pursuant to the terms and conditions set forth in the Registrant's Private
Placement Memorandum dated March 31, 1999, the Registrant sold an aggregate of
1,550,000 shares of Preferred Stock for aggregate Offering proceeds of
$1,550,000 or a per share purchase price of $1.00. The proceeds from the sale of
the Preferred Stock are being used by the Registrant for working capital and
payment of trade debt.
The Preferred Stock was sold to investors, which included officers and
directors of the Registrant who purchased an aggregate of 520,000 shares of
Preferred Stock on the same terms as other investors.
Set forth below is a summary of the terms and provisions of the
Preferred Stock. This summary does not purport to be complete and is qualified
in its entirety by reference to the Certificate of Designation, Preferences and
Rights of 9% Cumulative Convertible Preferred Stock filed as an exhibit to this
Current Report.
Dividends. Holders of shares of the Preferred Stock are entitled to
receive, out of funds legally available therefor, a dividend at the rate of $.09
per share per annum, payable in semi-annual installments on June 30 and December
31, commencing December 31, 1999. Such dividends may be paid in cash or shares
of the Registrant's common stock, par value $.001 per share (the "Common
Stock"), at the Registrant's option. The number of shares of Common Stock to be
issued as a stock dividend shall be determined by the current market price of a
share of Common Stock on the record date for such stock dividend. The current
market price of a share of Common Stock on the record date shall be the closing
sale price on such day as reported by the Nasdaq SmallCap Market or on any other
exchange on which the shares of Common Stock may be traded. No fractional shares
will be issued for dividends. The amount of any dividends represented by such
fractional shares will be payable by rounding up to the next whole number for
such stock dividend. Dividends on the Preferred Stock will be cumulative from
the date of initial issuance of the Preferred Stock. Dividends will be payable
to holders of record as they appear on the stock books of the Registrant on such
record dates, not more than 60 days nor less than 10 days preceding the payment
dates, as shall be fixed by the Board.
If dividends are not paid in full upon the Preferred Stock and any
other preferred stock ranking on a parity as to dividends with the Preferred
Stock, all dividends declared upon shares of Preferred Stock and such other
preferred stock will be declared pro rata so that in all cases the amount of
dividends declared per share on the Preferred Stock and such other preferred
stock bear the same ratio to each other that accumulated dividends per share on
the shares of the Preferred Stock and such other preferred stock bear to each
other. Except as set forth above, unless full cumulative dividends on the
Preferred Stock have been paid, dividends (other than in Common Stock) may not
be paid or declared and set aside for payment and other distributions may not be
made upon the Common Stock or on any other stock of the Registrant ranking
junior to or on a parity with the Preferred Stock as to dividends, nor may any
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Common Stock or any other stock of the Registrant ranking junior to or on a
parity with the Preferred Stock as to dividends be redeemed, purchased or
otherwise acquired for any consideration (or any payment made to or available
for a sinking fund for the redemption of any shares of any shares of such stock)
by the Registrant (except by conversion into or exchange for stock of the
Registrant ranking junior to the Preferred Stock as to dividends). The
Registrant has agreed not to declare or pay any cash dividend on its Common
Stock during such period that the Preferred Stock remains outstanding.
Conversion Rights. The holder of any shares of the Preferred Stock will
have the right, at the holder's option, to convert any or all such shares into
Common Stock at any time during the period commencing on June 30, 1999 and
expiring on the fourth anniversary of such date (the "Conversion Period").
Subject to certain adjustments as described below, the Preferred Stock is
convertible at the rate of one share of Common Stock for each $.25 in Face
Amount of the Preferred Stock converted (initially four shares of Common Stock
for each share of Preferred Stock converted). If the Preferred Stock is not
voluntarily converted prior to the expiration of the Conversion Period, each
share of Preferred Stock then outstanding shall be automatically converted at
the rate of one share of Common Stock for each $.25 in Face Amount of the
Preferred Stock converted, subject to certain adjustments described below. The
Registrant shall also be required to pay all accrued but unpaid dividends due
and owing to the holders of the Preferred Stock as of expiration date of the
Conversion Period. The holders of the Preferred Stock have contractually agreed
to suspend their right to convert their shares of Preferred Stock into shares of
Common Stock until such time as the matters contemplated by this proposal and
Proposal 4 below have been ratified and/or approved by the stockholders.
In the event the Preferred Stock is called for redemption, the
conversion right will terminate at the close of business on the fifth business
day prior to the date fixed for redemption. Payment or adjustment shall be made
upon any conversion of any share of Preferred Stock on account of any unpaid and
accrued dividends on the shares surrendered for conversion. No fractional shares
of Common Stock will be issued upon conversion but, in lieu thereof, the
Registrant shall round up the fractional share.
The conversion rate will be subject to adjustment upon the occurrence
of the following events: (i) stock split, recapitalization, combination of
shares of the Registrant, or other similar event or (ii) the sale or other
issuance of shares of Common Stock at a price less than the then applicable
conversion rate. If during the Conversion Period the Registrant sells or issues
shares of Common Stock at less than the then applicable conversion rate, the
conversion rate shall then become the price at which such securities were sold
on a per share basis. The conversion rate will not be adjusted upon (i) the
issuance of Common Stock as dividends on either the outstanding Common Stock,
the Preferred Stock or other duly issued securities of the Registrant; (ii) the
issuance of shares of Common Stock upon the exercise of outstanding options or
warrants; (iii) the issuance of shares of Common Stock upon the exercise of
options granted under the Registrant's 1998 Stock Compensation Plan; (iv) any
issuance of shares of Common Stock to Charles Brister, Chief Executive Officer
and President of the Registrant, or any other executive officer of the
Registrant in lieu of compensation during calendar year 1999; and (v) an
issuance or distribution of Common Stock, rights or warrants to subscribe for
shares of Common Stock, or other securities or debt instruments convertible into
Common Stock, subject only to the requirement that such securities be sold at a
price per share or be convertible into Common Stock at a price in excess of the
then applicable conversion rate of the Preferred Stock.
In case of any reclassification of the Common Stock, any consolidation
of the Registrant with, or merger of the Registrant into, any other entity, any
merger of any entity into the Registrant (other than a merger which does not
result in any reclassification, conversion, exchange or cancellation of
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outstanding shares of Common Stock), any sale or transfer of all or
substantially all of the assets of the Registrant or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
other property, then provision shall be made such that the holder of each share
of Preferred Stock then outstanding shall have the right thereafter, during the
period such share of Preferred Stock shall be convertible, to convert such share
only into the kind and amount of securities, cash and other property receivable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock into which such
shares of Preferred Stock might have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange.
Holders of the Preferred Stock converted into Common Stock will be
entitled to the same rights applicable at the time of conversion to other
holders of Common Stock. The holders of the shares of the Preferred Stock have
no preemptive rights with respect to any securities of the Registrant.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Registrant, the holders of shares of the Preferred Stock are
entitled to receive out of assets of the Registrant available for distribution
to stockholders, before any distribution of assets is made to holders of Common
Stock or any other junior stock, liquidating distributions in the amount of
$1.00 per share plus accumulated and unpaid dividends. If upon any liquidation,
dissolution or winding up of the Registrant, the assets distributable to the
holders of the Preferred Stock and any other preferred stock ranking as to any
such distribution on a parity with the Preferred Stock are insufficient to fully
pay the preferential amount, the holders of the Preferred Stock and of such
other preferred stock will share ratably in such distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of the Preferred Stock will not
be entitled to any further participation in any distribution of assets by the
Registrant. Neither a consolidation or merger of the Registrant with another
corporation nor a sale or transfer of all or part of the Registrant's assets for
cash or securities will be considered a liquidation, dissolution or winding up
of the Registrant.
The right of the Registrant, and the rights of its creditors and
stockholders (including holders of the Preferred Stock), to participate in the
distribution of the assets of any subsidiary of the Registrant upon any
liquidation or reorganization of such subsidiary, or otherwise, will be subject
to the prior claims of creditors of such subsidiary (except to the extent the
Registrant may itself be a creditor with recognized claims against such
subsidiary).
Redemption at the Option of Registrant. The Preferred Stock may not be
redeemed prior to March 31, 2000. The Preferred Stock is redeemable thereafter
for cash, in whole or in part, at any time at the option of the Registrant at
$1.09 per share.
If less than all of the outstanding shares of the Preferred Stock are
to be redeemed, the Registrant will select those shares to be redeemed pro rata
or by lot or in such other manner as the Board may determine. There is no
mandatory redemption or sinking fund obligation with respect to the Preferred
Stock. In the event the Registrant has failed to pay accrued and unpaid
dividends on the Preferred Stock, it may not redeem any of the then outstanding
shares of Preferred Stock until all such accrued and unpaid dividends have been
paid in full.
In the event the Preferred Stock is called for redemption, the
conversion right will terminate at the close of business on the fifth business
day prior to the date fixed for redemption. After the redemption date, dividends
will cease to accrue on the shares of the Preferred Stock called for redemption
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and all rights of the holders of such shares will terminate except the right to
receive the redemption price without interest (unless the Registrant defaults in
the payment of the redemption price).
Voting Rights. Except as indicated below, the holders of shares of
Preferred Stock have no voting rights. If the equivalent of two consecutive
semi-annual (one year) dividends payable on the Preferred Stock or on any other
preferred stock is in arrears, the number of directors of the Registrant will be
increased by two and the holders of all outstanding shares of the Preferred
Stock and any other preferred stock ranking on a parity as to dividends or upon
liquidation with the Preferred Stock, voting as a single class without regard to
series, will be entitled to elect two additional directors until all cumulative
dividends in arrears have been paid in full and until any non-cumulative
dividends payable on all preferred stock have been paid regularly for at least
one year.
In addition, without the vote or consent of the holders of at least a
majority of the number of then outstanding shares of the Preferred Stock and any
other preferred stock ranking on a parity as to dividends or upon liquidation
with the Preferred Stock, the Registrant shall not (i) create, or increase the
authorized number of shares of, any series or class of stock ranking prior to
the Preferred Stock either as to dividends or upon liquidation, (ii) amend,
alter or repeal any of the rights and preferences of the Preferred Stock or
(iii) authorize any reclassification of the Preferred Stock. Accordingly, the
voting rights of the holders of the Preferred Stock could under certain
circumstances operate to restrict the flexibility the Registrant would otherwise
have in connection with future changes to its capital structure.
$1.5 Million Convertible Term Loan from The Schlinger Foundation
On June 3, 1999, the Registrant concluded a loan transaction (the
"Schlinger Loan") whereby the Registrant borrowed from The Schlinger Foundation
("The Foundation") the principal amount of $1,500,000 as evidenced by a $1.5
Million Convertible Term Note (the "Term Note") executed by the Registrant in
favor of The Foundation. The Term Note requires that interest on the principal
balance be paid monthly commencing June 30, 1999, with the principal of the loan
plus accrued but unpaid interest being due and payable in one installment on May
31, 2004. The principal balance of the Term Note bears interest at the rate of
twelve percent (12%) per annum. The principal balance of the Term Note is
convertible, in whole or in part (in integral multiples of $500,000), into
shares of Common Stock (the "Schlinger Conversion Shares"). The number of
Schlinger Conversion Shares to be issued upon conversion is equal to the amount
of unpaid principal converted divided by the conversion price of $.375. The
conversion price is subject to adjustment upon the occurrence of certain events,
including stock splits and combinations, dividends or distributions, and
reclassifications, exchanges and substitutions.
The Term Note is subject to the terms and conditions set forth in the
Loan Agreement dated June 3, 1999 (the "Loan Agreement") by and between the
Registrant and The Foundation. The Loan Agreement imposes upon the Registrant
affirmative, negative and financial covenants customary in this type of loan
transaction. Specifically, under the affirmative covenants, the Registrant must
maintain adequate books and records, remain in compliance with applicable laws,
satisfy all tax obligations, maintain proper insurance and advise The Foundation
of certain corporate changes or events. A further affirmative covenant requires
that the Registrant effect an amendment to its Articles of Incorporation to
increase its authorized shares of Common Stock within 120 days of the date of
the Loan Agreement. The negative covenants to which the Registrant is subject
prohibit the Registrant from changing the nature of its business, liquidating,
merging, consolidating or selling substantially all of its assets, or incurring
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any additional debt obligations without the prior written consent of The
Foundation. The financial covenants require that the Registrant (i) maintain a
monthly ratio of current assets to current liabilities of not less than 1.5 to
1.0, (ii) maintain a total liabilities to tangible net worth ratio of 2.5 to 1.0
and (iii) have a monthly tangible net worth of $2.5 million. Failure by the
Registrant to abide by or satisfy any of the foregoing covenants will result in
an event of default under the Term Note. Upon an event of default, The
Foundation may declare the unpaid principal balance plus accrued and unpaid
interest immediately due and payable or foreclose on all liens granted to The
Foundation.
The Term Note is secured by all of the accounts, inventory and
equipment of the Registrant and each of its wholly-owned subsidiaries.
Furthermore, the obligations of the Registrant under the Term Note are
guaranteed by each of the Registrant's wholly-owned subsidiaries.
On July 12, 1999, the Registrant and The Foundation executed the Waiver
and First Amendment to Loan Agreement (the "Amended Loan Agreement") whereby the
Registrant agreed to obtain stockholder ratification and approval of the
Schlinger Loan and the issuance of the Schlinger Conversion Shares on or before
September 30, 1999. The failure of the Registrant to obtain stockholder
ratification of the Schlinger Loan and approval of the issuance of the Schlinger
Conversion Shares will constitute an event of default under the Loan Agreement.
Item 7. Exhibits.
Exhibit No. Description
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4.9 Certificate of Designation, Preferences and Rights of 9% Cumulative
Convertible Preferred Stock, filed with the Secretary of State of
Nevada on May 3, 1999.
10.43 Loan Agreement dated June 3, 1999 by and between the Registrant and
The Schlinger Foundation.
10.44 Convertible Term Note dated June 3, 1999 in the principal amount of
$1,500,000 executed by the Registrant and payable to The Schlinger
Foundation.
10.45 Security Agreement dated June 3, 1999 by and between the Registrant
and The Schlinger Foundation.
10.46 Waiver and First Amendment to Loan Agreement dated July 12, 1999 by
and between the Registrant and The Schlinger Foundation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KARTS INTERNATIONAL INCORPORATED
By: /s/ Charles Brister
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Charles Brister, Chief Executive
Officer and President
Date: July 27, 1999